UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 FORM
10-K
 
 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the
fiscal year ended December 31, 2008
 
 Commission
file number: 333-06489
 
 Indiana
              THE
      MAJESTIC STAR CASINO, LLC
              43-1664986Indiana
              THE
      MAJESTIC STAR CASINO CAPITAL CORP.
              35-2100872Indiana
              MAJESTIC
      STAR CASINO CAPITAL CORP. II
              20-3879309(State
      or other jurisdiction of incorporation or organization)
              (Exact
      name of registrant
                as
      specified in its charter)
              (I.R.S.
      Employer Identification No.)
  301
Fremont Street
 Las
Vegas, NV 89101
 (702)
388-2400
 (Registrant’s
address and telephone number, including area code)
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 Securities
registered pursuant to Section 12(g) of the Act: None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 Yes
      [   ]
              No
      [X ]
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
 Yes
      [ X ]
              No
      [  ]
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes
      [   ]
              No
      [ X ]
 (Note: As
a voluntary filer, not subject to the filing requirements, the registrant filed
all reports under Section 13 or 15(d) of the Exchange Act during the preceding
12 months.)
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be contained, to
the best of 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.  [X]
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 Large
      accelerated filer [   ]
              Accelerated
      filer [   ]
              Non-accelerated
      filer [X]
              Smaller
      reporting  company [   ](Do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.)
 Yes
      [   ]
              No
      [X ]
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant: Not Applicable. The Company has no publicly
traded equity securities.
 The
number of shares of common stock outstanding: Not Applicable.
 DOCUMENTS
INCORPORATED BY REFERENCE: NONE
  
  
 THE MAJESTIC STAR CASINO, LLC AND
SUBSIDIARIES
 (A Wholly
Owned Subsidiary of Majestic Holdco, LLC)
 2008
ANNUAL REPORT ON FORM 10-K
 
 TABLE OF
CONTENTS
 
 
 PART
      IItem 1.
              Business
              1Item 1A.
              Risk Factors
              13Item 1B.
              Unresolved Staff
      Comments
              19Item 2.
              Properties
              19Item 3.
              Legal Proceedings
              19Item 4.
              Submission of Matters to a Vote of
      Security Holders
              23PART
      IIItem 5.
              Market for Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
              24Item 6.
              Selected Financial
    Data
              24Item 7.
              Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
              25Item 7A.
              Quantitative and Qualitative Disclosures About
      Market Risk
              38Item 8.
              Financial Statements and Supplementary
      Data
              39Item 9.
              Changes in and Disagreements with
      Accountants on Accounting and Financial Disclosure
              39Item 9A.(T)
              Controls and
      Procedures
              39Item 9B.
              Other Information
              40PART
      IIIItem 10.
              Directors, Executive Officers and
      Corporate Governance
              40Item 11.
              Executive Compensation
              42Item 12.
              Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder Matters
              49Item 13.
              Certain Relationships and Related
      Transactions, and Director Independence
              49Item 14.
              Principal Accountant Fees and
      Services
              52PART
      IVItem 15.
              Exhibits and Financial Statement
      Schedules
              52Signatures
              S-1
 
  i
 
 Table of Contents
  PART I
 
 ITEM
1.                      BUSINESS
 
 GENERAL
 
 The
Majestic Star Casino, LLC was formed in December 1993 as an Indiana limited
liability company. The Majestic Star Casino, LLC conducts its operations both
directly and through its subsidiaries. In this report, unless indicated
otherwise, “Majestic,” the “Company,” “we,” “us,” and “our” refer to The
Majestic Star Casino, LLC, The Majestic Star Casino Capital Corp., Majestic Star
Casino Capital Corp. II, and our subsidiaries. The Majestic Star Casino
Capital Corp. was formed in May 1999 as an Indiana corporation solely to
facilitate the offering of $300.0 million of 91⁄2% senior secured
notes (“Senior Secured Notes”) of The Majestic Star Casino, LLC, and has no
assets or operations.  Majestic Star Casino Capital Corp. II was
formed in November 2005 as an Indiana corporation solely to facilitate the
offering of $200.0 million of 93⁄4% senior notes
(“Senior Notes”) of The Majestic Star Casino, LLC, and has no assets or
operations.
 
 We own
and operate four casino properties, two located in Gary, Indiana, (“Majestic
Star” and “Majestic Star II”, collectively, the “Majestic Properties”), and
one each in Tunica County, Mississippi (“Fitzgeralds Tunica”) and Black Hawk,
Colorado (“Fitzgeralds Black Hawk”). As of December 31, 2008, our
properties collectively contain 4,604 slot machines, 109 table games, 21 poker
tables and 806 hotel rooms. Our properties are well established, each having
been in operation for at least ten years, and are well situated within
significant drive-in gaming markets. Within each market, we leverage our brand
names, experienced management, value-oriented amenities and emphasis on slot
play to target mid-level gaming customers. We are also strengthening our table
game presence, particularly at the Majestic Properties and Fitzgeralds Tunica,
by targeting high-worth players.
 
 We are
wholly owned by Majestic Holdco, LLC (“Majestic Holdco”), which is indirectly
wholly owned and controlled by Don H. Barden, our Chairman, President, Chief
Executive Officer and the sole shareholder of Barden Development, Inc. (“BDI”),
the parent of Majestic Holdco.
 
 The
Company faces substantial financial and operational uncertainties. There
are events of default under all of the Company’s debt obligations and the
Company has drawn substantially all of its availability under its credit
facilities. The Company has initiated discussions with its creditors to
restructure its debt. It is unlikely that any restructuring plan can be
consummated without the commencement of bankruptcy proceedings under Chapter 11
of the U.S. Bankruptcy Code.  In addition, our auditors have expressed
concern about our ability to continue as a going concern. Investment in the debt
of the Company carries a high degree of risk. See Item 1A. Risk
Factors.
 
 Our
executive offices are located at 301 Fremont Street, 12th Floor, Las Vegas,
Nevada 89101, and our telephone number is (702) 388-2400. Our website can be
accessed at www.majesticstar.com.
The information on our website is not part of this report.
 
  1
 Table of Contents
  GAMING
FACILITIES
 
 Our
operating strategy is to attract mid-level gaming customers, who we believe
constitute the largest segment of potential gaming customers, by focusing on the
personal relationships built by our casino hosts, while delivering
complimentaries, player rewards and cash back incentive programs. We also target
the high-worth players through outer market junket programs, focused high-end
database incentives, hosted activities and events and gaming credit issuance. We
believe the following enable us to compete and implement our operating
strategy:
 
 ·
              Good
      Locations in Strong Drive-in Markets.  Our properties are
      located in significant drive-in gaming markets, which allow our casino
      patrons to reach us in short travel times and to make repeated trips to
      our gaming facilities.
 
 ·
              Gaming
      Brands.  We believe our gaming brands, marketing and advertising
      campaigns, promotions and targeted direct mailings help attract and retain
      customers.
 
 ·
              Emphasis
      on Slot Play.  We emphasize slot machine wagering, which we
      believe is the most stable and most profitable segment of the casino
      entertainment business.
 
 ·
              Focus
      on Quality and Service at an Affordable Price. Our casinos provide a
      quality casino entertainment experience at an affordable price to attract
      middle market guests.
 
 ·
              Strong
      Ownership and Experienced Management.  Don H. Barden, our
      property management teams and corporate staff have extensive experience in
      the gaming industry, with in-depth knowledge and experience regarding the
      markets in which they conduct
business.
 
 The
spending and visitation habits of casino customers have been negatively impacted
by the weakening economy, rising unemployment and instability in the housing
market. In addition, higher costs have caused us to reduce spending on our outer
market transportation programs, including junkets. At this time, we can not
predict when spending/visitation of our customers will improve.
 
 For
financial information regarding the Company’s business segments, see
Note 15 - Segment Information in the Notes to Consolidated Financial
Statements.
 
 Majestic
Properties
 
 The
Majestic Properties, which opened in June 1996, is a gaming complex located at
Buffington Harbor in Gary, Indiana, approximately 23 miles southeast of downtown
Chicago, comprised of two casino riverboats, a hotel and an entertainment
pavilion. These properties primarily draw customers from northwest Indiana and
the Chicagoland area. The Chicagoland market is the third largest gaming market
in the United States, with only Las Vegas and Atlantic City being larger. The
Majestic Properties also attracts drive-in customers from other areas in
Illinois, Indiana and Michigan.
 
 One
of the riverboats, Majestic Star, is a four-story, 360-foot long vessel, which
accommodates approximately 3,000 customers and employees. The casino includes
approximately 40,800 square feet of gaming space across three expansive decks
with 1,173 slot machines and 55 table games. The vessel provides live
entertainment, a private high-limit table games area and a baccarat room. The
second riverboat, Majestic Star II, is a four-story, 280-foot long vessel, which
accommodates approximately 2,740 customers and employees. The casino includes
approximately 43,000 square feet of gaming space with 1,256 slot machines and 12
table games. The vessel provides live entertainment and a 21-table poker room. A
300-room hotel (including seven suites) is located adjacent to the riverboats.
The entertainment pavilion is a two-level, 85,410 square foot structure
containing a buffet, steak house, lounge, coffee bar, fast food restaurant,
deli, gift shop, banquet and entertainment facilities and two VIP lounges. The
complex also contains a 2,000-space covered parking structure and 2,600 surface
parking spaces with valet parking and convenient bus
facilities.
  2
 Table of Contents
  
 Fitzgeralds
Tunica
 
 Fitzgeralds
Tunica, which opened in June 1994, is located in north Tunica County,
Mississippi, approximately 30 miles from downtown Memphis, Tennessee. This
property draws its gaming patrons primarily from the Memphis area as well as
drive-in customers from northern Mississippi, Little Rock, Arkansas, southern
Missouri and Birmingham and Huntsville, Alabama and regional travelers flying
into Memphis.
 
 Fitzgeralds
Tunica includes 38,088 square feet of gaming space, with 1,269 slot machines and
36 table games, live entertainment, a 506-room hotel (including 68 suites) with
indoor swimming pool, spa and exercise facility, indoor special events center,
two bars, buffet, steak house, coffee shop and gift shop. Fitzgeralds Tunica
also has a 411-space covered parking structure and 1,264 surface parking spaces
with valet parking and convenient bus facilities.
 
 Fitzgeralds
Black Hawk
 
 Fitzgeralds
Black Hawk, which opened in May 1995, is located adjacent to the entrance to the
downtown gaming area of Black Hawk, Colorado. Fitzgeralds Black Hawk is
approximately 35 miles from Denver and attracts drive-in or “day trip” customers
from the population centers of Denver, Boulder, Colorado Springs and Fort
Collins, Colorado, as well as Cheyenne, Wyoming.
 
 Fitzgeralds
Black Hawk includes a 17,179 square foot casino, with 906 slot machines and six
table games, steak house, coffee shop, three bars and a 392-space all-valet
parking garage adjacent to the casino.
 
 In June
2008, we completed an expansion of our gaming, entertainment and administration
facilities at Fitzgeralds Black Hawk.  The newly expanded area allowed
us to add approximately 300 slot machines and provide a fine dining outlet,
additional administrative space and an events area. We believe having an events
area will allow us to improve the loyalty of our customers through player events
and parties. The total cost of the project was approximately $36.0
million.
 
 MARKETING
 
 Our
direct mail database programs and our player development initiatives are our
strongest marketing tools to retain and increase market share in all of our
highly competitive markets.  Since we operate regionally, database
marketing is a key element to encouraging casino customers to make frequent
visits to our properties. But equally as critical is attracting new customers to
our casinos so that we can grow our database. We do this through a combination
of promotions, special events, and product and entertainment marketing, direct
mail reactivation, direct mail prospecting, and player development recruitment
strategies. We also continue to utilize other forms of broad-based marketing to
attract customers to our facilities, including television, radio, newspaper and
outdoor media.
 
 Through
our investment in player tracking technology systems, the use of the Club
Majestic and Club Fitz player reward cards allows us to track individual or
combined play at slot machines, table games, as well as food and beverage and
hotel expenditures (available at Fitzgeralds Tunica and the Majestic
Properties). The systems allow us to identify players and their gaming
preferences and practices and to develop a comprehensive customer database for
marketing and guest services purposes. Our player tracking programs allow us to
target our marketing programs to categories of players, including advertising
programs, promotions, tournaments with substantial cash prizes, special group
and tour packages, direct mail, and other events and incentives designed to
promote customer loyalty and increase repeat business. Our tracking systems also
allow us to better tailor our pricing, promotions, gaming machine selection and
other guest services to customer preferences. The newest player tracking
customer experience, implemented at both the Majestic Properties and Fitzgeralds
Tunica, allows our customers to download the equivalent of their cash coupons
(“downloadable promotional credits”) at the slot machine by entering their
four-digit PIN. Our customers no longer have to wait in line at the rewards
booth to redeem their cash coupons. The implementation of our downloadable
promotional credit programs has coincided with a significant reduction in our
direct mail cash coupon programs, generally on a dollar for dollar basis. One
significant benefit of the program is that downloadable promotional credits are
not redeemable for cash. Therefore, customers must play the downloadable
promotional credits at the slot machine, whereas, with direct mail cash coupon
programs, customers could redeem their coupons without wagering the cash
redeemed. The result of this program has been an increase in play by those
customers that are tracked, as well as an increase in the number of players who
choose to have their play tracked.
  3
 Table of Contents
  
 Majestic Star.  We
utilize an integrated marketing campaign to brand Majestic Star in the
Chicagoland market to mid-level slot customers while striving for the high-worth
table games player. Our messages about Majestic Star have appeared in various
media, including radio, print and outdoor media, which we believe have improved
our market awareness among Chicagoland area gaming patrons. We intend to utilize
these and other similar brand marketing techniques to continue attracting
customers, whom we then identify, evaluate and target for direct marketing
activities.
 
 Fitzgeralds.  We
have developed the Fitzgeralds brand into a regionally recognized gaming brand
for casino and hotel (Tunica only) services. We believe the Fitzgeralds brand
has come to represent an exciting atmosphere coupled with warm, friendly
employees. The Fitzgeralds brand has also promoted itself as the “Fitz”. The
Fitz gives the Fitzgeralds brand a trendy, more youthful feel to help broaden
our market base and target a younger gamer in addition to our core market. Our
messages about Fitzgeralds Casino and Hotel (hotel in Tunica only) have appeared
in various media, including television, radio, print and outdoor advertising. By
communicating our promotions, events, entertainment and value-oriented amenities
using these forms of media, we have been able to attract customers whom we then
identify, evaluate and target for direct marketing activities.
 
 COMPETITION
 
 We face
intense competition in each of the markets in which our gaming facilities are
located. Many of our competitors have significantly greater name recognition and
financial, marketing and other resources than we do. Our competitors have
recently made significant improvements to their facilities. They offer a variety
of marketing, promotions and entertainment to customers within our markets. In
addition to regional competitors, we compete with gaming facilities nationwide,
including land-based casinos in Nevada and Atlantic City, not only for
customers, but also for employees. We also compete, to some extent, with other
forms of gaming on both a local and national level, including state-sponsored
lotteries, internet gaming, on- and off-track wagering, slot parlors, race
tracks with slot machines and card parlors. See Item 1A. Risk Factors for
further discussion on competition in the markets in which we currently
operate.
 
 The
recent and continued expansion of legalized casino gaming within existing
jurisdictions and into new jurisdictions throughout the United States has
increased competition faced by us. Such competition could increase further in
the future.
 
 SEASONALITY
 
 The
gaming operations of the Company’s properties are seasonal. At the Majestic
Properties, Fitzgeralds Tunica and Fitzgeralds Black Hawk, business levels are
typically weaker from Thanksgiving through the end of the winter. The
properties’ results are affected by inclement weather in relevant markets. For
example, because of the climate in the Chicago metropolitan area, the Majestic
Properties’ operating revenues are expected to be stronger during the period
from May through September. Fitzgeralds Black Hawk, located in the Rocky
Mountains of Colorado, is subject to snow and icy road conditions during the
winter months. Any such severe weather conditions may discourage potential
customers from visiting the Fitzgeralds Black Hawk
property.  Accordingly, the Company’s results of operations are
expected to fluctuate from quarter to quarter and the results for any fiscal
quarter may not be indicative of results for the fiscal year or future fiscal
quarters.
 
 CASINO
CREDIT
 
 We use
casino credit play to enhance table games volume at Fitzgeralds Tunica and the
Majestic Properties; however, credit play represents a small percentage of our
overall table game volumes. We maintain strict control over the issuance of
casino credit and pursue collection from those customers who fail to pay in a
timely manner. In Mississippi and Indiana, gaming receivables are enforceable by
state law.  All other states are required to enforce a judgment for
gaming receivables entered in Mississippi and Indiana.
 
 EMPLOYEES
 
 As of
December 31, 2008, we directly employed approximately 2,700 persons.
Approximately 14.8% of our workforce is unionized. Our unionized employees work
at our Majestic Properties.
  4
 Table of Contents
  
 In
recruiting personnel, the Majestic Properties is obligated, under the terms of a
Development Agreement with the City of Gary, Indiana (“City of Gary”), to use
its best efforts to have an employee base which is comprised of 70% from racial
minority groups, 52% females, 67% residents of the City of Gary and 90%
residents of Lake County, Indiana. We believe that our recruitment programs
strive to meet this obligation.
 
 TRADE
NAMES, TRADEMARKS AND SERVICE MARKS
 
 We own
certain registered trademarks that are integral to the business and operation of
the Majestic Properties, Fitzgeralds Tunica and Fitzgeralds Black Hawk. We
utilize a comprehensive integrated marketing campaign to brand the Majestic
Properties and Fitzgeralds casinos, in the regional markets in which we compete,
to attract casino customers from the middle-income segment.
 
 The
Fitzgeralds casinos have developed a regional gaming brand. We own proprietary
rights in registered and common law trade names, trademarks and service marks
used in connection with the business and created to enhance the gaming
activities, including the marks Majestic Star, Majestic Star II, Fitzgeralds and
Fitz.
 
 Following
the Fitzgeralds’ acquisition, and under a license from us, Fitzgeralds Reno,
Inc. (“Fitzgeralds Reno”), a subsidiary of Fitzgeralds Gaming Corporation which
is not an affiliate of ours, had the right to use the name Fitzgeralds and
certain other marks in connection with its operation of its existing casino
property in Reno, Nevada and in connection with any casino properties it may
operate in the future in northern California, northern Nevada, Oregon and
Washington. Fitzgeralds Reno assigned the license to DRW Fitzgeralds, LLC
(“DRW”), the purchaser of the casino in Reno; also not an affiliate of ours.
Under the terms of the license agreement, any further assignment will require
our prior written consent. We retained all other rights to the Fitzgeralds name
and all Fitzgeralds trademarks, service marks and trade dress for use in
connection with Fitzgeralds Tunica and Fitzgeralds Black Hawk. In connection
with any use of the Fitzgeralds name, the license with DRW obligates them to
comply with certain requirements, including operating any casino property using
the Fitzgeralds name in accordance with our current operating standards. In
connection with the spin-off of Barden Nevada Gaming, LLC (“Barden Nevada”) in
2003, we entered into a license with Barden Nevada to allow Barden Nevada to use
the name Fitzgeralds and other marks in connection with its operation of its Las
Vegas property.
 
 ENVIRONMENTAL
MATTERS
 
 We are
subject to various federal, state and local laws, ordinances and regulations
that govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, or may impose liability for the
costs of cleaning up and certain damages resulting from sites of past spills,
disposals or other releases of hazardous or toxic substances or wastes. We
endeavor to maintain compliance with environmental laws, but from time to time,
current or historical operations on, or adjacent to, our property may have
resulted or may result in noncompliance or liability for cleanup pursuant to
environmental laws. In that regard, we may incur costs for cleaning up
contamination relating to historical uses of certain of our
properties.  To date, we have made no significant expenditures for
environmental remediation.
 
 GOVERNMENT
REGULATION AND LICENSING
 
 General
 
 The
ownership and operation of our gaming facilities are subject to various state
and local laws and regulations in the jurisdictions where they are located. The
following is a summary of the provisions of the laws and regulations applicable
to the Company’s gaming operations and other laws and regulations applicable to
the Company. The summary does not purport to be a full description thereof and
is qualified in its entirety by reference to such laws and
regulations.
  5
 Table of Contents
  
 Indiana
Gaming Regulation
 
 The
ownership and operation of the Majestic Properties is subject to regulation by
the State of Indiana through the Indiana Gaming Commission (the “IGC”). The IGC
is given extensive powers and duties for the purposes of administering,
regulating and enforcing riverboat gaming in Indiana. The IGC is authorized to
award up to eleven gaming licenses to operate riverboat casinos in the State of
Indiana, including five to counties contiguous to Lake Michigan in northern
Indiana, five to counties contiguous to the Ohio River in southern Indiana and
one to a county contiguous to Patoka Lake in southern Indiana, which was
subsequently relocated to French Lick. Referenda required by the Riverboat
Gambling Act (“the Act”) to authorize the five licenses to be issued for
counties contiguous to Lake Michigan have been conducted and gaming has been
authorized for the cities of Hammond, East Chicago, Gary and Michigan City. In
the second quarter of 2008, pursuant to legislation enacted in 2007, the two
horse tracks located in Anderson and Shelbyville, Indiana each installed2,000 slot machines. The
IGC may authorize the installation of additional slot machines at either of
thetwo horse tracks.
 
 The IGC
has jurisdiction and supervision over all riverboat gaming operations in Indiana
and all persons on riverboats where gaming operations are conducted and is
authorized to adopt rules for administering the gaming statute and the
conditions under which riverboat gaming in Indiana may be conducted. The IGC may
suspend or revoke the license of a licensee or impose civil penalties, in some
cases without notice or hearing, for any act in violation of the Act or for any
other fraudulent act.
 
 The Act
requires extensive disclosure of records and other information concerning an
applicant, including disclosure of all directors, officers and persons holding a
five percent or more direct or indirect beneficial interest in an applicant.
 
 A
Riverboat Owner’s License and Operating Contract entitles the licensee or the
Operating Agent to operate one riverboat. In May 2003, the Act was amended to
allow a person to hold up to one hundred percent of up to two individual
Riverboat Owner’s Licenses. An owner’s initial license may be renewed for
one-year periods by the IGC upon satisfaction of certain statutory and
regulatory requirements. While the IGC reserves the right to investigate
Riverboat Licensees (a “Riverboat Licensee”) at any time it deems necessary,
each Riverboat Licensee must undergo a complete reinvestigation every three
years. The Majestic Properties underwent a complete reinvestigation in 2007.
Applications for the required annual license renewals for 2008 were submitted
and approved.
 
 The Act
places special emphasis on minority and women business enterprise participation
in the riverboat industry. Effective January 1, 2008, based on the results of a
Statistical Analysis of the Utilization of Minority and Women Business
Enterprises by Riverboat Licensees and Operating Agents (“Statistical
Analysis”), Riverboat Licensees and Operating Agents must establish goals of
expending 10.9 percent of the total dollars spent on construction expenditures
with women’s business enterprises. The IGC may suspend, limit or revoke an
owner’s gaming license or impose a fine for failure to comply with the goal
established as a result of the Statistical Analysis.For the calendar year
ended December 31, 2008, the Company has submitted unaudited reports to the IGC
that the Company believes met the goals established following the Statistical
Analysis.Additionally, the IGC
encourages the purchase of goods and services in the following categories from
minority and women business enterprises based on the capacity measurement
determined by the Statistical Analysis: (i) 23.2 percent with minority-owned
construction firms; (ii) 4.2 percent with minority-owned procurement firms;
(iii) 2.5 percent with women-owned procurement firms; (iv) 11.2 percent with
minority-owned professional services firms; (v) 7.8 percent with women-owned
professional services firms; (vi) 2.9 percent for other expenditures with
minority-owned firms; and (vii) 1.8 percent for other expenditures with
women-owned firms.
 
 Indiana
state law stipulates a graduated wagering tax with a starting tax rate of 15%
and a top rate of 40% for adjusted gross receipts in excess of $600 million. In
addition to the wagering tax, an admissions tax of $3 per turnstile count is
assessed.
 
 The IGC
has also promulgated a rule mandating Riverboat Licensees to maintain a cash
reserve to protect patrons against defaults in gaming debts. The cash reserve is
to be equal to a Riverboat Licensee’s average payout for a three-day period
based on the riverboat’s performance the prior calendar quarter. The cash
reserve can consist of cash on hand, cash maintained in Indiana bank accounts
and cash equivalents not otherwise committed or obligated.
  6
 Table of Contents
  
 The
Company and its affiliates are subject to restrictions on the incurrence of
debt. A Riverboat Licensee and its affiliates may enter into debt transactions
that total $1.0 million or more only with the prior approval of the IGC. Such
approval is subject to compliance with requisite procedures and a showing that
each person with whom the Riverboat Licensee and its affiliates enters into a
debt transaction would be suitable for licensure under the Act. Unless waived,
approval of debt transactions requires consideration by the IGC at two business
meetings. The IGC, by resolution, has authorized the Executive Director, subject
to subsequent ratification by the IGC, to approve debt transactions after a
review of the documents and consultation with the Chair and the IGC’s outside
financial analyst.
 
 The
regulations are subject to amendment and interpretation by the IGC. We believe
that our compliance with the licensing procedures and regulatory requirements of
the IGC will not affect the marketability of our securities.
 
 Mississippi
Gaming Regulation
 
 The
ownership and operation of casino gaming facilities in Mississippi are subject
to extensive state and local regulations, but primarily the licensing and/or
regulatory control of the Mississippi Gaming Commission (the “Mississippi
Commission”).
 
 The laws,
regulations and supervisory procedures of the Mississippi Commission are based
upon declarations of public policy that are concerned with, among other
things:
 
 ·
              the
      prevention of unsavory or unsuitable persons from having a direct or
      indirect involvement with gaming at any time or in any
      capacity;
 
 ·
              the
      establishment and maintenance of responsible accounting practices and
      procedures;
 
 ·
              the
      maintenance of effective controls over the financial practices of
      licensees, including the establishment of minimum procedures for internal
      fiscal affairs and the safeguarding of assets and revenues, providing for
      reliable record keeping and requiring the filing of periodic reports with
      the Mississippi Commission;
 
 ·
              the
      prevention of cheating and fraudulent
practices;
 
 ·
              providing
      a source of state and local revenues through taxation and licensing fees;
      and
 
 ·
              ensuring
      that gaming licensees, to the extent practicable, employ Mississippi
      residents.
 
 The
Mississippi Gaming Control Act (“Mississippi Act”) provides for legalized gaming
in each of the fourteen Mississippi counties that border the Gulf Coast or the
Mississippi River, but only if the voters in the county have not voted to
prohibit gaming in that county. Currently, gaming is permissible in nine of the
fourteen eligible counties in the State of Mississippi and gaming operations
have commenced in seven counties. Traditionally, Mississippi law required gaming
vessels to be located on the Mississippi River or on navigable waters in
eligible counties along the Mississippi River, or in the waters lying south of
the counties along the Mississippi Gulf Coast. In 2005, however, the Mississippi
Legislature amended the Mississippi Act to permit licensees in the three
counties along the Gulf Coast to establish land-based casino operations provided
the gaming areas do not extend more than 800 feet beyond the nineteen-year mean
high water line, except in Harrison County where the 800-foot line can be
extended as far as the southern boundary of Highway 90.
 
 The
Mississippi Act permits unlimited stakes gaming on a 24-hour basis and does not
restrict the percentage of space which may be utilized for gaming. The
Mississippi Act permits substantially all traditional casino games and gaming
devices.
 
 We and
any subsidiary of ours that operates a casino in Mississippi (a “Gaming
Subsidiary”) are subject to the licensing and regulatory control of the
Mississippi Commission. Each of the Company, Majestic Holdco, and BDI, has
registered under the Mississippi Act as either a publicly traded corporation (a
“Registered Corporation”) or a holding company corporation (a “Registered
Holding Company”) of Barden Mississippi Gaming, LLC (“BMG”), the owner and
operator of Fitzgeralds Tunica and a licensee of the Mississippi Commission. We,
BDI, and Majestic Holdco, as Registered Holding Companies or Registered
Corporations
  7
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  within
the meaning of the Mississippi Act, and BMG, as a gaming licensee, are required
periodically to submit detailed financial, operating and other reports to the
Mississippi Commission and furnish any other information which the Mississippi
Commission may require. No person may become a stockholder of nor receive any
percentage of profits from a licensed subsidiary of a Registered Holding Company
or Registered Corporation without first obtaining licenses and approvals from
the Mississippi Commission. We have obtained such approvals in connection with
the licensing of Fitzgeralds Tunica.
 
 BMG must
maintain its gaming license from the Mississippi Commission in order to continue
to operate a casino in Mississippi. Such licenses are issued by the Mississippi
Commission subject to certain conditions, including continued compliance with
all applicable state laws and regulations. There are no limitations on the
number of gaming licenses which may be issued in Mississippi. Gaming licenses
require the payment of periodic fees and taxes, are not transferable, are issued
for a three-year period, may be continued for two additional three-year periods,
and must be renewed periodically thereafter. BMG’s current gaming license was
renewed in 2007 and expires December 6, 2010.
 
 Certain
management personnel of ours, our manager, our parent, and certain management
personnel and key employees of BMG must be found suitable or be approved by the
Mississippi Commission. We believe that we have obtained, applied for or are in
the process of applying for all necessary findings of suitability with respect
to the Company, Majestic Holdco, BDI and BMG, although the Mississippi
Commission, in its discretion, may require additional persons to file
applications for findings of suitability. In addition, any person having a
material relationship or involvement with us may be required to be found
suitable, in which case those persons must pay the costs and fees associated
with such investigation. The Mississippi Commission may deny an application for
a finding of suitability for any cause that it deems reasonable. Changes in
certain licensed positions must be reported to the Mississippi Commission. In
addition to its authority to deny an application for a finding of suitability,
the Mississippi Commission has jurisdiction to disapprove a change in any
corporate position or title and such changes must be reported to the Mississippi
Commission. The Mississippi Commission has the power to require us and our
Gaming Subsidiary to suspend or dismiss officers, directors and other key
employees or sever relationships with other persons who refuse to file
appropriate applications or whom the authorities find unsuitable to act in such
capacities. Determination of suitability or questions pertaining to licensing
are not subject to judicial review in Mississippi.
 
 We may be
required to disclose to the Mississippi Commission, upon request, the identities
of the holders of any of our debt or other securities. In addition, under the
Mississippi Act, the Mississippi Commission, in its discretion, may require the
holder of any debt security of a Registered Corporation or a Registered Holding
Company to file an application, be investigated and be found suitable to own the
debt security if the Mississippi Commission has reason to believe that the
ownership of the debt security by the holder would be inconsistent with the
declared policies of the State.
 
 Although
the Mississippi Commission generally does not require the individual holders of
obligations, such as notes, to be investigated and found suitable, the
Mississippi Commission retains the discretion to do so for any reason, including
but not limited to, a default or where the holder of the debt instruments
exercises a material influence over the gaming operations of the entity in
question. Any holder of debt securities required to apply for a finding of
suitability must pay all investigative fees and costs of the Mississippi
Commission in connection with such an investigation.
 
 If the
Mississippi Commission determines that a person is unsuitable to own a debt
security, then the Registered Corporation may be sanctioned, including the loss
of its approvals, if without the prior approval of the Mississippi Commission,
it:
 
 ·
              pays
      to the unsuitable person any dividend, interest, or any distribution
      whatsoever;
 
 ·
              recognizes
      any voting right by the unsuitable person in connection with those
      securities;
 
 ·
              pays
      the unsuitable person remuneration in any form;
  or
 
 ·
              makes
      any payment to the unsuitable person by way of principal, redemption,
      conversion, exchange, liquidation, or similar
  transaction.
  8
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 Substantially
all material loans, leases, sales of securities and similar financing
transactions by a Registered Corporation or a Gaming Subsidiary must be reported
to or approved by the Mississippi Commission. A Gaming Subsidiary may not make a
public offering of its securities but may pledge or mortgage casino facilities.
A Registered Corporation may not make a public offering of its securities
without the prior approval of the Mississippi Commission if any part of the
proceeds of the offering is to be used to finance the construction, acquisition
or operation of gaming facilities in Mississippi or to retire or extend
obligations incurred for those purposes. Such approval, if given, does not
constitute a recommendation or approval of the investment merits of the
securities subject to the offering and remains subject to the ability of the
Mississippi Commission to issue a stop order with respect to any such securities
offering if the Mississippi Commission determines it would be necessary to do
so.
 
 Under the
regulations of the Mississippi Commission, BMG may not guarantee a security
issued by us or any other affiliated company pursuant to a public offering or
pledge the assets of BMG to secure payment or performance of the obligations
evidenced by the security issued by us or the affiliated company, without the
prior approval of the Mississippi Commission. A pledge of the equity securities
of a Gaming Subsidiary and the foreclosure of such a pledge are ineffective
without the prior approval of the Mississippi Commission. Moreover, restrictions
on the transfer of an equity security issued by a Gaming Subsidiary or its
Registered Holding Company and agreements not to encumber such securities are
ineffective without the prior approval of the Mississippi
Commission.  We have obtained approvals from the Mississippi
Commission for such guarantees, pledges and restrictions in connection with
prior offerings of securities, subject to certain restrictions, but we must
obtain separate prior approvals from the Mississippi Commission for pledges and
stock restrictions in connection with certain financing transactions. Moreover,
the regulations of the Mississippi Commission require us to file a loan to
licensees report with the Mississippi Commission within thirty (30) days
following certain financing transactions and the offering of certain debt
securities. If the Mississippi Commission were to deem it appropriate, the
Mississippi Commission could order such transactions rescinded.
 
 None of
us, BDI, Majestic Holdco, or BMG may engage in gaming activities in Mississippi
while also conducting gaming operations outside of Mississippi without approval
from or notification to the Mississippi Commission. The Mississippi Commission
may require determinations that, among other things, there are means for the
Mississippi Commission to have access to information concerning the out-of-state
gaming operations of us and our affiliates. We previously have obtained a waiver
of foreign gaming approval from the Mississippi Commission for our gaming
operations in Indiana and Colorado and of our affiliate in Nevada. We will be
required to notify the Mississippi Commission in writing within 30 days after
commencing any additional future gaming operations outside of Mississippi,but within the
United States, and we must obtain approval or a waiver from the Mississippi
Commission before beginning certain gaming operations outside of the United
States.
 
 If the
Mississippi Commission were to determine that we, BDI, Majestic Holdco, or BMG
violated a gaming law or regulation, the Mississippi Commission could limit,
condition, suspend or revoke the approvals of any such company and the license
of BMG, subject to compliance with certain statutory and regulatory procedures.
In addition, we, BDI, Majestic Holdco, BMG and the persons involved could be
subject to substantial fines for each separate violation. Because of such a
violation, the Mississippi Commission could attempt to appoint a supervisor to
operate the casino facilities. Limitation, conditioning or suspension of any
gaming license or approval or the appointment of a supervisor could (and
revocation of any gaming license or approval would) materially adversely affect
us and our business, financial condition and results of operations.
 
 License
fees and taxes, computed in various ways depending on the type of gaming or
activity involved, are payable to the State of Mississippi and to the counties
and cities in which a Gaming Subsidiary’s operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are payable either
weekly, monthly, quarterly or annually. Gaming taxes are based upon the
following:
 
 ·
              a
      percentage of the gross gaming revenues received by the casino
      operation;
 
 ·
              the
      number of gaming devices operated by the casino;
  or
 
 ·
              the
      number of table games operated by the
casino.
  9
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 The
license fee payable to the State of Mississippi is based upon “gaming receipts”
(generally defined as gross receipts less payouts to customers as winnings), and
the current maximum rate imposed is eight percent of all gaming receipts in
excess of $134,000 per month. The foregoing license fees paid by BMG are allowed
as a credit against BMG’s state income tax liability for the year paid. The
gross revenue fee imposed by Tunica County, in which Fitzgeralds Tunica is
located, equals approximately four percent of the gaming receipts.
 
 The
Mississippi Commission’s regulations require as a condition of licensure or
license renewal that an existing licensed gaming establishment’s plan include
adequate parking facilities in close proximity to the casino complex and
infrastructure facilities, such as hotels, which amount to at least 100% of the
casino cost. The Mississippi Commission’s current infrastructure requirement
applies to new casinos or acquisitions of closed casinos. Fitzgeralds Tunica was
grandfathered under a prior version of that regulation that required the
infrastructure investment to equal only 25% of the casino’s cost.
 
 The
regulations are subject to amendment and interpretation by the Mississippi
Commission. We believe that our compliance with the licensing procedures and
regulatory requirements of the Mississippi Commission will not affect the
marketability of our securities. Changes in Mississippi laws or regulations may
limit or otherwise materially affect the types of gaming that may be conducted
and such changes, if enacted or adopted, could have an adverse effect on us and
our business, financial condition and results of operations.
 
 The sale
of alcoholic beverages, including beer and wine, at Fitzgeralds Tunica is
subject to licensing, control and regulation by both the local jurisdiction and
the Alcoholic Beverage Control Division (the “ABC”) of the Mississippi State Tax
Commission. Fitzgeralds Tunica is in an area designated as a special resort
area, which allows Fitzgeralds Tunica to serve alcoholic beverages on a 24-hour
basis. All such licenses are revocable and are non-transferable. If the ABC laws
are violated, the ABC has the full power to limit, condition, suspend or revoke
any license for the serving of alcoholic beverages or to place such a licensee
on probation with or without conditions. Any such disciplinary action could (and
revocation would) have a material adverse effect on us and BMG’s operations at
Fitzgeralds Tunica.  Certain of our officers and managers at
Fitzgeralds Tunica must be investigated by the ABC in connection with our liquor
permits and changes in certain key positions must be approved by the
ABC.
 
 Colorado
Gaming Regulation
 
 The
Colorado Limited Gaming Act of 1991 (the “Colorado Act”) authorizes limited
gaming only in certain designated commercial districts of Central City, Black
Hawk and Cripple Creek, Colorado. Limited gaming consists of poker, blackjack
and slot machines, all with maximum single bets of five dollars. Only persons
aged 21 or older may participate in limited gaming, and limited gaming is
prohibited between the hours of 2:00 a.m. and 8:00 a.m. Limited gaming is only
allowed on premises licensed for that purpose, and the gaming-licensed premises
of any building may not exceed 35% of the square footage of the building and no
more than 50% of any floor of such building. There is no limitation on the size
of any structure or total square footage devoted to limited
gaming.  Additionally, the gaming-licensed premises of any casino must
be physically located within the designated commercial district of one of the
three above-referenced cities.
 
 On
November 4, 2008, Colorado voters passed Amendment 50 which allows the residents
of the three gaming towns in Colorado to vote to extend casino hours of
operation, approve the addition of roulette and/or craps and increase the
maximum bet limit from five dollars up to one hundred dollars. The voters of
Black Hawk approved the changes on January 13, 2009. Voters in Cripple Creek and
Central City have also approved these changes. Implementation of the new
provisions will occur subsequent to the issuance of appropriate changes in
gaming regulations which we anticipate will be in effect July 2,
2009.
 
 Pursuant
to the Colorado Act, and the rules and regulations promulgated there under
(collectively, the “Colorado Gaming Regulations”), the ownership and operation
of limited gaming facilities in Colorado, however acquired, are subject to
extensive regulation by the Division of Gaming (the “Colorado Division”) and the
Colorado Limited Gaming Control Commission (the “Colorado Gaming
Commission”).
 
 The
Colorado Gaming Commission may issue the following gaming licenses: (1) slot
machine manufacturer or distributor; (2) operator; (3) retail gaming; (4)
support; and (5) key employee. These licenses require renewal every two years by
the Colorado Gaming Commission.  Support and key employee licenses
only may also be issued and renewed by the Division Director. The retail gaming
(casino) license renewal process includes a determination by the Colorado Gaming
Commission that the licensee will operate in compliance with
the
  10
 Table of Contents
  statutes,
rules and regulations governing the conduct of casino gaming in Colorado and
that the licensee continues to be of good moral character and fitness. The
Colorado Gaming Commission has broad discretion to condition, suspend for up to
six months, revoke, limit or restrict a license at any time and also has the
authority to impose fines.
 
 A retail
gaming license is required for all persons conducting limited stakes gaming on
their premises. In addition, an operator license is required for all persons who
engage in the business of placing and operating slot machines on the premises of
a retailer, or who provide goods or services in return for fees calculated upon
a percentage of limited gaming revenue. However, a retailer is not required to
hold an operator license. No person may have an ownership interest in more than
three retail licenses.  On September 18, 2008, the Colorado Gaming
Commission renewed Barden Colorado Gaming, LLC’s (“BCG”) operator and retail
gaming licenses through October 19, 2009.
 
 The
Colorado Act requires that every officer, director, and stockholder of private
corporations or equivalent office or ownership holders for non-corporate
applicants, and every officer, director or stockholder holding either a 5% or
greater interest or controlling interest of a publicly traded corporation or
owners of an applicant or licensee, shall be a person of good moral
character.  These persons ordinarily must submit to a full background
investigation conducted by the Colorado Division and the Colorado Gaming
Commission. The Colorado Gaming Commission may require any person having an
interest, however limited or indirect, in a license or a licensee to undergo a
full background investigation and pay the cost of investigation in the same
manner as an applicant. Limited disclosure forms are customarily required of
those persons holding any equity interest under 5% in a non-publicly traded
applicant.
 
 In
addition, all persons loaning monies, goods, or real or personal property
directly or indirectly to a licensee or applicant, or having any interest in a
licensee or applicant, or entering into any agreement with a licensee or
applicant, must provide any information requested by the Colorado Division or
Colorado Gaming Commission, and in the discretion of the Colorado Division or
the Colorado Gaming Commission, these persons must supply all information
relevant to a determination of any such person’s suitability for licensure, and
must submit to a full background investigation if ordered by the Colorado Gaming
Commission. Failure to promptly provide all information requested, or to submit
to a suitability or background investigation, may result in a finding of
unsuitability, the denial of a license application, suspension or revocation of
an existing license, termination of any lease, note arrangement, or agreement
between the applicant or licensee and the person requested to provide the
information, and other sanctions. Investigations for suitability, background, or
any other reason may delay a license application or the operation under any
agreement with a licensee. All agreements, contracts, leases or arrangements in
violation of the Colorado Act or the Colorado Gaming Regulations are void and
unenforceable.  Additionally, violations of the Colorado Gaming
Regulations are criminal acts, and violators are subject to arrest, prosecution,
and possible incarceration, as well as the payment of fines and
costs.
 
 Persons
found unsuitable by the Colorado Gaming Commission may be required immediately
to terminate any interest in, association or agreement with, or relationship to
a licensee—regardless of any negative financial consequences to such persons. A
finding of unsuitability with respect to any officer, director, employee,
associate, lender or beneficial owner of a licensee or applicant may also
jeopardize the licensee’s license or applicant’s license application. Licenses
may be conditioned upon termination of any relationship with unsuitable
persons.
 
 With
limited exceptions applicable to licensees that are publicly traded entities, no
person, including persons who may acquire an interest in a licensee pursuant to
a foreclosure, may sell, lease, purchase, convey or acquire any interest in a
retail gaming or operator license or business without the prior approval of the
Colorado Gaming Commission.
 
 The State
of Colorado has enacted an annual tax on the adjusted gross proceeds (“AGP”)
from limited gaming. AGP is generally defined as the amounts wagered minus
payments to players. For poker, AGP means those sums wagered on a hand retained
by the licensee as compensation. The gaming tax is paid monthly, with licensees
required to file returns by the 15th of the following month. Effective July 1 of
each year, the Colorado Gaming Commission establishes the gaming tax rates for
the following 12 months. The Colorado Gaming Commission may increase the gaming
tax rate to as much as 40% of AGP. Currently, the gaming tax rates, which were
amended on May 22, 2008, are 0.25% on AGP of up to and including $2 million, 2%
over $2 million up to and including $5 million, 9% over $5 million up to and
including $8 million, 11% over $8 million up to and including $10 million, 16%
over $10 million up to and including $13 million, and 20% over $13 million.
Amendment 50 limits future maximum gaming taxes to their current levels, unless
any such tax increase is approved by voters at a statewide
election.
  11
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 The
regulations are subject to amendment and interpretation by the Colorado Gaming
Commission.
 
 The City
of Black Hawk, Colorado imposes an annual device fee on each slot machine,
blackjack and poker table in the current amount of $750 per device. Black Hawk
also imposes taxes and fees on other aspects of the businesses of gaming
licensees, such as parking, liquor licenses and other municipal taxes and
fees.
 
 The sale
of alcoholic beverages in gaming establishments is subject to strict licensing,
control and regulation by state and local authorities. BCG currently holds valid
state and local alcoholic beverage licenses for Fitzgeralds Black
Hawk.  Legal hours for service and sale of alcoholic beverages are
from 8:00 a.m. through 2:00 a.m. daily, and no one under age 21 may be served
alcohol. Alcoholic beverage licenses are renewable annually, revocable and
non-transferable. State and local licensing authorities have full power to
limit, condition, suspend or revoke any such licenses. Violation of these state
alcoholic beverage laws is a criminal offense, and violators are subject to
criminal prosecution, incarceration and fines.
 
 Potential
Gaming Regulatory Approvals Would Be Necessary For the Restructured
Company
 
 In the
event that we are successful in obtaining the requisite support to move forward
with a particular plan of recapitalization, refinancing, restructuring or
reorganization of our Company (the “Restructured Company”), state gaming laws
will require the approval of gaming regulators prior to implementation of any
such plan. Such necessary prior approvals could include approvals for issuances
of equity in the Restructured Company to new investors in the Restructured
Company, and related mandatory findings of suitability for certain equity
holders as well as approval of the credit facilities and certain security for
such credit facilities of the Restructured Company.
 
 Treasury
Department Regulations
 
 The
Internal Revenue Code and Treasury Regulations require operators of casinos
located in the United States to file information returns for U.S. citizens,
including names and addresses of winners for keno and slot machine winnings in
excess of prescribed amounts and table game winnings in which the payout is a
certain amount greater than the wager. The Internal Revenue Code and Treasury
Regulations also require operators to withhold taxes on some keno, bingo, and
slot machine winnings of nonresident aliens.
 
 Regulations
adopted by the Financial Crimes Enforcement Network of the Treasury Department
and the gaming regulatory authorities in some of the domestic jurisdictions in
which we operate casinos require the reporting of currency transactions in
excess of $10,000 occurring within a gaming day, including identification of the
patron by name and social security number. Casinos are required to report
suspicious monetary transactions when the casino knows, suspects, or has reason
to suspect that the transaction involves funds derived from illegal activity or
is otherwise intended to facilitate illegal activity.
 
 Compliance
with Other Laws and Regulations
 
 Currently,
our Majestic Properties’ vessels must comply with U.S. Coast Guard requirements
as to boat design, on-board facilities, equipment, personnel and safety. The
Majestic Properties’ vessels must each hold a certificate of inspection and must
be approved by the American Bureau of Shipping for stabilization and flotation,
and may also be subject to local zoning and building codes. The U.S. Coast Guard
requirements establish design standards and require individual licensing of all
personnel involved with the operation of the vessels. Loss of a vessel’s
certificate of inspection or American Bureau of Shipping approval would preclude
its use as a casino.
 
 The U.S.
Coast Guard regulations require a hull inspection for all riverboats at
five-year intervals. Under certain circumstances, extensions may be approved.
The U.S. Coast Guard may require that such hull inspection be conducted at a
U.S. Coast Guard-approved dry-docking facility, and if so required, the travel
to and from such docking facility, as well as the time required for inspections
of our Majestic Properties’ vessels, could be significant. To date, the U.S.
Coast Guard has allowed in-place underwater hull inspections of the Majestic
Properties’ vessels. The U.S. Coast Guard may not allow these types of
inspections in the future. The loss of either Majestic Star or Majestic
Star II from service for any period of time could adversely affect our
business, financial condition and results of operations.
  12
 Table of Contents
  
 Pursuant
to legislation enacted in 2005, the IGC is able to adopt alternative marine
structural and life safety standards for riverboats ("Alternate
Certification").  The Alternate Certification standards require
riverboat gaming vessels to be capable of getting under way, but do not allow us
to carry patrons while under way unless permitted by the U.S. Coast Guard on a
case-by-case basis.  The IGC adopted its Alternate Certification
standards in the second quarter of 2007.
 
 Our
operations are also subject to extensive state and local regulations in addition
to the regulations described above, and, on a periodic basis, we must obtain
various other licenses and permits.
 
 
 ITEM
1A.                      RISK
FACTORS
 
 You should be aware that the occurrence of any of the
events described in this section and elsewhere in this report or in any other of
our filings with the Securities and Exchange Commission (“SEC”) could have a
material adverse effect on our business, financial position, results of
operations and cash flows. In evaluating us, you should consider carefully,
among other things, the risks described below.
 
 An
event of default exists under our debt agreements and we have initiated
discussions with our creditors to restructure our debt. It is unlikely that any
restructuring plan can be consummated outside a bankruptcy proceeding.  As
such, the opinion of our independent registered public accounting firm with
respect to our financial statements for the year ended December 31, 2008
contains a “going concern” modification.
 
 Due to
declining operating results and lower cash flows, we elected not to make the
October 15, 2008 interest payments on our Senior Secured Notes and Senior Notes,
which totaled $24.0 million in aggregate.  We will not make the
April 15, 2009 semi-annual interest payments on the Senior
Secured Notes and Senior Notes due to liquidity constraints. We have
substantial debt, totaling $579.9 million at December 31, 2008, before the
October 15, 2008 unpaid interest payments. We have been in discussions with ad
hoc committees of our creditors regarding a restructuring of our debt given the
event of default that now exists under our debt obligations. Current valuations
for regional gaming companies, such as ours, the weak economic environment, our
diminishing cash flows, and the reduced availability of debt and equity capital
in the U.S. markets create a significant risk that we will be unable to
implement such a restructuring outside of protection under Chapter 11 of the
U.S. Bankruptcy Code. In addition, our creditors may involuntarily file a
bankruptcy petition for us. As a result of the adverse change in our results of
operations and our significant outstanding indebtedness, and the event of
default that exists under our debt obligations, the opinion of our independent
registered public accounting firm contains a going concern modification stating
that there is substantial doubt about our ability to continue as a going concern
for the next twelve months As a result of the event of default under the
indentures governing the Senior Notes and Senior Secured Notes, the trustee of a
specified percentage of holders of these notes has the right to accelerate the
maturity date of the respective notes. Further, the lenders under the Senior
Secured Credit Facility have the right to accelerate the maturity of our credit
facility and foreclose on substantially all of our assets (other than certain
excluded assets). Under the terms of an intercreditor agreement between the
trustee for the Senior Secured Notes, on behalf of the note holders, and the
agent under the Senior Secured Credit Facility, the agent has the right to
control any such actions against our assets for a 180-day period following
receipt of notice by the trustee ("Standstill Period").  The agent
provided the trustee with notice on December 11, 2008. The conditions described
above raise a substantial doubt about our ability to continue as a going
concern. See Note 3 - Going Concern in the notes to Consolidated Financial
Statements.
 
 We
have drawn substantially all of the availability under our $80.0 million Senior
Secured Credit Facility and our access to cash from other sources is now
limited.
 
 We drew
substantially all of the remaining availability on our $80.0 million Senior
Secured Credit Facility on October 7, 2008 and, given the current event of
default, are precluded from drawing on the Senior Secured Credit Facility. As
such, the cash necessary to fund our operations and other commitments is now
limited to cash flow from our casino operations. We have significant future uses
for cash, including:
  13
 Table of Contents
  
 ·
              funding
      of our working capital deficiency;
 ·
              payment
      of fees and expenses of our financial advisors and legal
      counsel;
 ·
              payment
      of the agreed upon fees and expenses of the financial advisors and legal
      counsels for our note holders and lenders;
 ·
              payment
      of income taxes for our member;
 ·
              servicing
      the interest and fees on the Senior Secured Credit Facility;
      and
 ·
              a
      potential pay down on the Senior Secured Credit Facility as the borrowing
      base has dropped below the balance outstanding on the Senior Secured
      Credit Facility.
 
 Given the
current credit environment, we could find it difficult to obtain
debtor-in-possession financing if we commence bankruptcy proceedings under
Chapter 11 of the U.S. Bankruptcy Code and additional financing is required
during the pendency of the Chapter 11 bankruptcy proceedings. We believe that
debtor in possession lending is more difficult in the current poor credit
environment and any debtor in possession credit facility will have terms that
are constraining. As such, we will continue to evaluate our cash uses in order
to try to minimize or eliminate the need for debtor-in-possession financing.
However, this may necessitate reduced spending on operating activities and
capital expenditures.
 
 Given
the current weak economic environment, highly competitive markets in which we
operate and the lack of capital to reinvest in our properties, there is a
significant risk that our cash position could further deteriorate and cause
future liquidity problems, which could be magnified if certain contingent
liabilities are determined adversely against us.
 
 The
recent global economic and financial market crisis has caused, among other
things, a general tightening in the credit markets, lower levels of liquidity,
increases in the rates of default and bankruptcy, lower consumer and business
spending, and lower consumer net worth, all of which have had and will continue
to have a negative effect on our business, results of operations, financial
condition and liquidity. Many of our customers have been severely affected by
the current economic turmoil. Gaming and other leisure activities comprise
discretionary spending and participation in such activities tend to decline in
economic downturns or expectation of a continuing recession. We are limited in
our ability to reduce costs to offset the results of a prolonged or severe
economic downturn given certain fixed costs associated with our operations,
difficulties if we overstrained our resources, and our long-term business
approach that necessitates we remain in position to respond when market
conditions improve.
 
 Competition
requires us to make substantial capital expenditures to maintain and enhance the
competitive positions of our properties, including updating slot machines to
reflect changing technology and consumer tastes, refurbishing rooms and public
service areas periodically, replacing obsolete equipment on an ongoing basis and
making other expenditures to improve the attractiveness and add to the appeal of
our properties.  We have a limited $12.3 million capital improvements
plan for 2009. This is less than what we spent in 2008, 2007 and 2006, which
were $18.1 million, $32.1 million and $25.4 million, respectively. This plan
will be funded solely from our existing cash and future cash flows. We will not
spend any other significant amounts in 2009 on capital expenditures until we can
determine the trend in our cash flows. As a result, our revenues are likely to
be adversely impacted due to our inability to significantly re-invest in our
properties. See our below Risk Factor entitled “We face significant competition
in each market where we operate and other markets”.
 
 We have
on-going litigation that if resolved unfavorably could have a material negative
impact on our liquidity. We are currently arbitrating and litigating a matter
involving the City of Gary’s obligations to complete certain road and
development projects at Buffington Harbor, the site of our Majestic Properties.
In this arbitration and litigation matter, the City of Gary is contending that
the current development agreement with the Majestic Properties is not
enforceable. If the City of Gary prevails on this point, then we could be
obligated to pay the City of Gary $4.5 million that would be due pursuant to the
requirements of previous development agreements that would then be effective
(see Item 3. Legal Proceedings, City of Gary, Indiana Development Obligations).
We are also a party to significant tax disputes, including a tax dispute
regarding the add back of gaming taxes when computing Indiana state income tax
(see Item 3. Legal Proceedings, Majestic Star Income Tax Protest) and tax
disputes over the assessment of real property at our Majestic Properties (see
Item 3. Legal Proceedings, Majestic Star Property Assessment Appeals). If we
were to not prevail on these tax matters, then we could be required to pay up to
$4.1 million, plus interest, on the add back of gaming taxes when computing
Indiana state income tax matter, and $13.9 million plus interest related to the
assessments of real property matter.
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 The
value of the collateral securing our Senior Secured Notes may not be sufficient
to pay the amounts owed under our Senior Secured Notes.  As a result,
holders of our Senior Secured Notes may not receive full payment.
 
 Our
Senior Secured Notes and the guarantees thereof are secured by a security
interest in substantially all of our existing and future assets (other than
certain excluded assets) and a pledge of the equity interest held by our parent,
Majestic Holdco.  However, the security interests in our assets and
the pledge of the equity interest held by our parent, Majestic Holdco, are
contractually subordinated to the security interest and equity pledge held by or
given to the lenders under our Senior Secured Credit Facility.
 
 The value
of the collateral in the event of liquidation will depend upon market and
economic conditions, the availability of buyers and other
factors.  The collateral does not include contracts, agreements,
licenses (including gaming and liquor licenses) and other rights that by their
express terms prohibit the assignment thereof and the grant of a security
interest therein.  Some of these may be material to us and such
exclusion could have a material adverse effect on the value of the
collateral.  Some or all of the collateral may not have a readily
ascertainable market value or may not be saleable or, if saleable, there may be
substantial delays in liquidation.  To the extent that liens, security
interests and other rights granted to other parties (including the lenders under
our Senior Secured Credit Facility) encumber assets owned by us, those parties
have or may exercise rights and remedies with respect to the property subject to
their liens that could adversely affect the value of that collateral and the
ability of the trustee under the indenture governing the Senior Secured Notes
and the holders of the Senior Secured Notes to realize or foreclose on that
collateral.  Consequently, we cannot assure Senior Secured Note
holders that liquidating the collateral securing the Senior Secured Notes would
produce proceeds in an amount sufficient to pay any amounts due under the Senior
Secured Notes after also satisfying the obligations to pay any creditors with
prior claims on the collateral.
 
 The
actions of the Senior Secured Note holders and the trustee to the Senior Secured
Notes are limited pursuant to an intercreditor agreement as described in the
prior Risk Factor entitled “An event of default exists under our debt agreements
and we have initiated discussions with our creditors to restructure our debt. It
is unlikely that any restructuring can be consummated outside a Chapter 11 of
the U.S. Bankruptcy Code proceedings.  Actions, or inactions, of the
lenders to our Senior Secured Credit Facility to exercise remedies with respect
to the collateral could delay liquidation of the collateral.  The
gaming license process in the jurisdictions in which we operate casinos, along
with bankruptcy laws and other laws relating to foreclosure and sale also could
substantially delay or prevent the ability of the trustee or any holder of our
Senior Secured Notes to obtain the benefit of the collateral securing the Senior
Secured Notes. Such delays could have a material adverse effect on the value of
the collateral.
 
 In
addition, lenders of furniture, fixtures and equipment financing and other
purchase money debt have a security interest in the assets securing that debt,
although those assets, so long as they secure only such debt, do not secure the
Senior Secured Notes.  As a result, upon any distributions to our
creditors, whether in bankruptcy, liquidation, reorganization or similar
proceedings, or following acceleration of our debt, lenders under our Senior
Secured Credit Facility and the lenders of furniture, fixture and equipment
financing and other purchase money debt will be entitled to be repaid in full
from the proceeds of the assets securing such debt before any payment is made to
the holders of the Senior Secured Notes from such proceeds.
 
 Consequently,
there is a significant risk that the liquidation of the collateral securing the
Senior Secured Notes would not produce proceeds in an amount sufficient to pay
the amounts due under the Senior Secured Notes after also satisfying the
obligations to pay our Senior Secured Credit Facility lenders and purchase money
lenders, even if the fair market value of the collateral securing the Senior
Secured Notes would be sufficient, absent our Senior Secured Credit Facility and
purchase money debt, to pay all amounts due under the Senior Secured Notes. If
the proceeds of any sale of collateral are not sufficient to repay all amounts
due under the Senior Secured Notes, the holders of the Senior Secured Notes (to
the extent not repaid from the proceeds of the sale of the collateral), would
have only an unsecured claim against our remaining assets.
 
 The
lenders under our Senior Secured Credit Facility and the trustee of our Senior
Secured Notes could foreclose on, and acquire control of, substantially all of
our assets thus limiting the recovery to our Senior Note holders.
 
 The
Senior Notes and the guarantees thereon are unsecured.  The Senior
Secured Notes and our Senior Secured Credit Facility are secured by a security
interest in substantially all of our existing and future assets (other than
certain excluded assets) and a pledge of the equity interests held by our
parent, Majestic Holdco,
  15
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  subject
to certain limitations.  As a result of these security interests, the
trustee of the Senior Secured Notes and the lenders under our Senior Secured
Credit Facility are entitled to foreclose on all of our assets (subject to
certain exceptions) and liquidate those assets in accordance with the
intercreditor agreement.  Similarly, in a bankruptcy or liquidation,
Senior Notes holders may not receive any payment on the Senior Notes except to
the extent that the value of the assets subject to the security interests of our
secured creditors exceeds our secured debt or the value of assets not subject to
security interests.  Accordingly, we will likely not have sufficient
funds to pay amounts due under the Senior Notes.  As a result, Senior
Notes holders may lose a portion of or the entire value of an investment in the
Senior Notes. Further, to the extent the proceeds of the collateral securing the
Senior Secured Notes is insufficient to pay the claims of such note holders in
full, the holders of the Senior Secured Notes will also hold an unsecured
claim.
 
 We
may incur impairments to goodwill, indefinite-lived intangible assets, or
long-lived assets.
 
 In
accordance with the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 142, Goodwill and
Other Intangible Assets, we test our goodwill and indefinite-lived
intangible assets for impairment annually or if a triggering event occurs. We
perform the annual impairment testing for goodwill and indefinite-lived
intangible assets at the end of each fiscal year. In addition, in accordance
with the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, we test long-lived assets for impairment
if a triggering event occurs.
 
 Due to
continued weakness in our operating results and the expectation that we would
not be able to make the scheduled interest payment on our Senior Secured Notes
and Senior Notes when due on October 15, 2008, we determined that a triggering
event (“Triggering Event”) occurred and we conducted the step one analysis under
SFAS No. 142. Based on that step one analysis, an indication of impairment
existed at our Majestic Properties. We did not have sufficient time to complete
the second step evaluation of goodwill and other indefinite-lived intangible
assets as required by SFAS No. 142 prior to filing our Form 10-Q for the quarter
ended September 30, 2008. However, given the significance of the indication of
impairment from the step one analysis, we made the decision to take an estimated
non-cash impairment charge of $41.5 million of goodwill at Majestic Star II,
which was originally recorded from the acquisition of Trump Indiana, Inc.
(“Trump Indiana”) which was acquired in December 2005 (the “Trump Acquisition”),
in our interim financial statements for the quarter ended September 30,
2008.
 
 Since the
Triggering Event, we have continued to see significant negative industry and
economic trends and increased competition, which have caused our cash flows to
continue to deteriorate. We believe that, until economic conditions improve, our
future cash flow could be further reduced and, based on our projections, further
significant write downs and impairment charges could be required. If we are
required to record additional impairment charges, this could have a material
adverse affect on our consolidated financial statements.
 
 As a
result of our projections reflecting diminishing cash flows, in conjunction with
the preparation of our financial statements for the year ended December 31,
2008, we recorded a $64.3 million non-cash impairment charge to write-down
certain portions of our intangible assets at Majestic Star II. This non-cash
impairment charge is in addition to the non-cash impairment charge for goodwill
recognized at Majestic Star II in our interim financial statements for the
quarter ended September 30, 2008.
 
 We
will be unable to fund the interest expense due on the notes issued by our
parent, Majestic Holdco.
 
 Beginning
October 15, 2008, the interest on the 12 1⁄2% Senior Discount Notes due 2011 (“the
Discount Notes”), issued by our parent, Majestic Holdco, will need to be
serviced with cash, with the first payment due on April 15, 2009. Previously,
the Discount Notes paid interest in kind. Majestic Holdco has no assets or
operations. Thus, Majestic Holdco has no ability to directly pay the interest on
the Discount Notes. In addition, the indentures and loan and security agreement,
which govern our various debt obligations, preclude us from making distributions
to Majestic Holdco when an event of default exists under our debt obligations.
Neither we nor any of our direct or indirect subsidiaries are a guarantor of the
Discount Notes. Neither our equity nor our assets or any of our direct or
indirect subsidiaries secure the Discount Notes.  As a result of
Majestic Holdco having no assets or operations, and no security interest in us,
Majestic Holdco will not have funds to pay amounts due under the Discount Notes
and currently does not expect to make the interest payment due on April 15,
2009.  As a result, Discount Note holders may lose a portion of or the
entire value of an investment in the Discount Notes.
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 Our
financial condition creates greater concern and uncertainty for gaming
regulators, vendors and employees.
 
 Gaming
regulators in Indiana, Mississippi and Colorado may more closely scrutinize our
operations, require us to maintain greater cash balances than normal at our
casino operations and evaluate us more closely when re-licensing our casino
properties. Critical vendors may elect not to do business with us and our casino
properties or require us to pay for products and services upon delivery. Key
employees may elect to leave during this period and we believe it could be very
difficult finding suitable replacements for departed employees.  Our
customers may decide to reduce or stop visiting our casino properties due to our
current financial situation, which could have a material impact on our financial
performance.
 
 We
face significant competition in each market where we operate and other
markets.
 
 We face
significant competition in each of the markets in which our gaming facilities
are located as well as from new potential gaming markets. Many of our
competitors have significantly greater name recognition, national presence and
financial, marketing and other resources than we do. Our properties currently
compete principally with other gaming properties in or near Illinois, Indiana,
Mississippi and Colorado. Our competitors continue to make capital improvements
to their properties. These new capital improvements will likely increase
competition significantly and could negatively impact our
operations.
 
 Our
Majestic Properties has yet to experience a full year impact to operating
results from the projects in the northwest Indiana market described
below.  To date, these projects have had or are expected to have a
significant impact on the operations and cash flows of our Majestic Properties,
particularly since we have very limited access to capital to improve our casino
facilities and provide other amenities in order to remain competitive in the
northwest Indiana market. In 2008, the Majestic Properties provided 66% of the
operating cash flows from our casino properties.
 
 ·
              In
      July 2008, Harrah’s Entertainment completed a $500 million renovation and
      expansion of its Horseshoe Casino in Hammond. The facility more than
      doubled the size of their existing facility, making it the largest gaming
      establishment in the greater Chicago
  area.
 
 ·
              In
      January 2009, Boyd Gaming completed construction of a $130 million
      expansion to their Blue Chip Casino facility in Michigan City, Indiana.
      The expansion includes a second hotel tower and other
      amenities.
 
 ·
              In
      September 2007, Ameristar Casinos acquired Resorts East Chicago in
      Indiana. In June of 2008, Ameristar completed a remodeling of the
      facility, including significant new slot product, and rebranded it as
      Ameristar Casino Hotel.
  The
Illinois state government continues to consider options that would expand
gaming, possibly allowing new casinos in the Chicago area or more gaming devices
at existing casinos. An expansion of gaming in the Chicago area could have an
adverse effect on our operations and cash flows at our Majestic
Properties.
 
 In
Tunica, Mississippi, a competitor completed an extensive remodeling and
re-branding of its property in June 2008. Fitzgeralds Tunica property management
believes that the remodeled and rebranded property has increased competition for
Fitzgeralds Tunica as both properties market and promote to a similar
customer.
 
 Ameristar
Black Hawk is adding a 536-room, 33-story hotel to its facility in Black Hawk,
which is expected to be completed in the second half of 2009. At this time, we
cannot determine what effect this will have on the Black Hawk market as Black
Hawk has previously been a day-trip market with a limited number of hotel
rooms.
 
 In
addition, we compete with gaming facilities nationwide, including casinos
located on Native American reservations and other land-based casinos in Nevada
and Atlantic City, and to some extent, with other forms of gaming, including
state-sponsored lotteries, Internet gaming, on- and off-track wagering, slot
parlors, race tracks with slot machines, and card parlors. The expansion of
legalized gaming to new jurisdictions throughout the United States also has
increased competition faced by us and will continue to do so in the
future.
 
 New
casino facilities and the expansion of existing facilities will impact our
ability to remain competitive in our markets in the event we are unable to
improve our facilities.
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 Our
business may be adversely affected by legislation prohibiting
smoking.
 
 Legislation
in various forms to ban indoor smoking has recently been enacted or introduced
in many state and local jurisdictions. On January 1, 2008, a statewide smoking
ban that includes casino floors went into effect in Colorado. The smoking ban
has impacted the financial results of our Fitzgeralds Black Hawk property
throughout 2008. We cannot quantify the impact to our operations, as there have
been a number of other factors impacting the property.
 
 We also
believe that there will be future legislative initiatives to ban smoking on
casino floors in jurisdictions where bans currently do not exist. Indiana and
Mississippi currently do not have bans in place that preclude smoking on the
casino floor. However, in the current Indiana legislative session, legislation
was drafted that would prohibit smoking in all public places, including casino
floors.  This legislation was amended to exempt casino floors from the
smoking prohibition. If legislation is enacted in which bans were put in place
in Indiana and/or Mississippi, then the Majestic Properties and/or Fitzgeralds
Tunica could experience weaker casino volumes and financial
results.
 
 Our
operations are highly taxed and may be subject to higher taxes in the future,
and we have ongoing tax disputes.
 
 In
virtually all gaming jurisdictions, state and local governments raise
considerable revenues from taxes based on casino revenues and operations. We
also pay property, payroll, franchise and income taxes. From time to time, state
and local governments have increased gaming and property taxes (including on a
retroactive basis), such as in Indiana with our Majestic Properties, and such
increases can significantly impact the profitability of gaming operations. Any
material increase in or the adoption of additional taxes or fees would have a
material adverse effect on our future financial results. In addition, we and
certain of our subsidiaries are a party to certain ongoing tax protests and
audits which, if adversely determined, could have a material adverse effect on
our future financial results and cash flows. See Item 3. Legal Proceedings for a
discussion of our tax matters.
 
 Extensive
government regulation continuously impacts our operations.
 
 The
ownership, management and operation of gaming facilities are subject to
extensive laws, regulations and ordinances, which are administered by various
federal, state and local governmental entities and agencies. To enforce
applicable gaming regulations, gaming authorities may, among other things,
limit, suspend or revoke the licenses of any gaming entity or individual, and
may levy fines or forfeiture of assets against us or individuals for violations
of gaming laws or regulations. Any of these actions could have a material
adverse effect on us. See Item 1. Business, Government Regulation and Licensing
for further information.
 
 We
may be unable to retain management personnel at our properties.
 
 We retain
management personnel and key executives through a combination of programs and
policies, including employment agreements, performance-based compensation, and
other types of incentives and benefit packages. A number of current members of
management and key executives are under employment contracts that expire from
time to time. While we will make every reasonable effort to maintain those
management personnel and key executives that are viewed as valuable to the
operations of our casinos, there can be no assurance as to our success. Though
we will attempt to fill vacated management and key executive positions
determined to be necessary to our operations, there can be no estimate as to the
time frame in filling these positions. Any delays in filling these positions
could have a materially negative impact on our operations and financial
results.
 
 Employee
relations and union related issues could result in work stoppages at our casino
properties, which could seriously impact the profitability of our
business.
 
 As of
December 31, 2008, we employed approximately 2,700 persons of whom
approximately 14.8% are represented by unions and subject to collective
bargaining agreements. A strike, work stoppage or other slowdown could
significantly disrupt our operations, which could have a material adverse effect
on our operations and financial results.
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 Our
various collective bargaining agreements are in effect for various periods
ending between April 2009 and July 2011. We have begun negotiating an agreement
with the Steelworkers Union which represents the slot technicians at Majestic
Star. The existing contract, involving 7 employees, expires April 1, 2009. At
this time we cannot determine the outcome of the negotiations or if we will
arrive at acceptable terms. Of our work force, 11.7% are covered by union
contracts that expire in 2009. Certain of our non-unionized workforce have been
the subject of union organizing efforts and other segments of our workforce
could become subject to such efforts, which could cause additional labor costs
and increase the union related risks we now face.
 
 Loss
of our casino properties from service would adversely affect our
operations.
 
 Our
gaming facilities may be damaged or interrupted by fire, flood, wind, power
loss, technology or mechanical failure, extended or extraordinary maintenance,
earthquakes, terrorist attacks, war or similar events. Furthermore, the Majestic
Properties riverboats and Fitzgeralds Tunica vessel and its dockside facilities
are subject to risks in addition to those associated with land-based casinos,
including loss of service due to casualty, mechanical failure, extended or
extraordinary maintenance or inspection (including routine inspections required
by the U.S. Coast Guard). In addition, the Fitzgeralds Tunica vessel is subject
to access restrictions which may be imposed by the Mississippi authorities
controlling the mainline Mississippi River levee in Tunica. Loss of our casino
properties from service for any period of time would adversely affect our
business, financial condition and results of operations.
 
 
 ITEM
1B.                      UNRESOLVED
STAFF COMMENTS
 
 None.
 
 
 ITEM
2.                        
PROPERTIES
 
 The
Majestic Properties is two riverboat casinos docked at Buffington Harbor in
Gary, Indiana. The site has convenient access via either the Chicago Skyway or
Interstate 80/94. We also own approximately 339 acres of property in and around
Buffington Harbor.
 
 Fitzgeralds
Tunica is located on a 53-acre site in north Tunica County, Mississippi. The
site is accessible via Interstate 55 and then Highway 61.
 
 Fitzgeralds
Black Hawk is located adjacent to the entrance to the downtown gaming area of
Black Hawk, Colorado. Fitzgeralds Black Hawk is accessible via Interstate 70 and
then Highway 119. The Company also owns 2.45 acres directly behind Fitzgeralds
Black Hawk.
 
 See Item
1. Business, Gaming Facilities for additional information about our casino
properties.
 
 Our
Senior Secured Credit Facility and Senior Secured Notes are secured by a lien on
substantially all of our assets and the assets of our subsidiary guarantors,
including the real property.
 
 
 ITEM
3.                         
LEGAL PROCEEDINGS
 
 Various
legal proceedings are pending against the Company. Management considers all such
pending proceedings, comprised primarily of personal injury and equal employment
opportunity claims, to be routine litigation incidental to the Company’s
business. Except as described below, management believes that the resolution of
these proceedings will not individually, or in the aggregate, have a material
effect on the Company’s financial condition, results of operations or cash
flows.
 
 Anti-trust
Litigation. In June 2003, a complaint was filed in the U.S. District
Court for the Northern District of Mississippi (“District Court”) against Tunica
County casino owners and operators, including BMG, the Tunica Casino Operators
Association and the Tunica County Tourism Commission alleging violation of
federal and state anti-trust claims, as well as various other tort and contract
claims. The plaintiffs sought treble, compensatory and punitive damages plus
interest and attorney's fees. Each of the casino defendants, excluding BMG,
settled with the plaintiffs in May 2008, leaving BMG as the sole remaining
defendant in the matter. On August
22, 2008, the Company settled with plaintiffs for $35,000, which the Company has
paid. The Company previously had reserved $0.1 million for this
matter.
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 Insurance Litigation.
In February 2006, the Company’s previous stop-loss health insurance provider
(“Insurance Provider”), through its third party auditor, contacted the Company
and requested that the Company provide information to facilitate an audit of
employee health insurance stop-loss coverage for the years of 2004 and 2005.
Although the Company provided the requested information, as a result of this
audit process, the Insurance Provider has withheld payment on certain claims
that are payable under its stop-loss insurance policy with an aggregate
outstanding value of approximately $0.7 million. After numerous attempts by the
Company to request and facilitate the completion of the audit, the Company filed
suit on May 3, 2007 in the United States District Court for the Northern
District of Illinois (“Court”) against the Insurance Provider alleging: (i)
breach of contract, (ii) unfair claims settlement practices, (iii) bad faith,
and (iv) breach of fiduciary duty. The Company is seeking declaratory relief and
damages for unpaid claims totaling approximately $0.7 million, punitive damages
and attorneys’ fees. In May 2008, the Company amended its Complaint to include
claims against the Insurance Provider’s managing general underwriter for breach
of contract, bad faith and breach of fiduciary duty. In its Answer, the
Insurance Provider denied that payment on the claims is owing and filed a
counter-claim for rescission of the stop-loss contracts, declaratory relief,
breach of contract and negligent misrepresentation relating to the number of
enrolled, eligible participants in the health plans. The Insurance Provider
seeks damages totaling $0.1 million plus prejudgment interest or, in the
alternative, unspecified damages believed to total $0.3 million for its alleged
losses under the contracts.  The Company believes it is entitled to a
substantial recovery on its claims which include both contract and tort claims
and believes the Insurance Provider’s counter-claim is without merit. The
parties were unsuccessful in their attempt to resolve their claims through a
mediation held on November 19, 2008; however, they continue to engage in
informal settlement discussions.  Should the negotiations not be
successful, the Company intends to vigorously prosecute its claims and defend
the counter-claims at trial which is currently expected to begin in late 2009.
The parties are in the discovery stage of litigation and at this time the
Company cannot determine with certainty the outcome of the litigation or the
likelihood or the amount of any recovery.
 
 Construction
Litigation. On January 15, 2007, BCG entered into a Joint Prosecution
"Agreement (“JPA”) with its insurance carrier, Continental Casualty Company
(“Insurer”), whereby the parties would share counsel in pursuing recovery
against various construction companies potentially liable for the collapse of
the Rohling Inn building in Black Hawk, Colorado (“Building Collapse”). The
Building Collapse occurred during the City of Black Hawk’s installation of a
storm sewer drain on or about January 20, 2005. As per the terms of the JPA, the
Insurer will direct litigation and be liable initially to pay all legal costs,
with such legal costs ultimately to be prorated between the parties based on the
actual recovery, if any. On January 16, 2007, Fitzgeralds Black Hawk filed a
complaint in the 1st Judicial District Court, County of Gilpin, State of
Colorado against three contractors involved in the storm sewer drain project
(“Contractors”). It is the Insurer’s and Fitzgeralds Black Hawk’s contention
that the Building Collapse occurred as a direct result of negligence on the part
of the Contractors involved in the storm sewer drain project. The Company
estimates its total claim for the loss to be approximately $4.3 million. As of
December 2008, the Company had received $2.9 million in settlement payments from
the insurance carrier. On July 24, 2008, the Company reached an agreement with
the Insurer whereby the Company would receive 12.5% of any recovery from the
Contractors after expenses. In August 2008, the Company and the Insurer agreed
to release their claims against the Contractors in exchange for the payment of
$0.8 million, with one of the Contractors, Lyman Henn, Inc. agreeing to pay $0.5
million of that amount.  Lyman Henn, Inc. is now disputing the
enforceability of its agreement to pay that amount.  The Company and
the Insurer have moved to enforce the agreement. A hearing on that motion was
held on March 16, 2009 and the court granted the Company’s motion to enforce the
agreement. The other two Contractors did not dispute their agreement to pay $0.3
million and paid that sum in January 2009. The Company has received its agreed
upon share of the $0.3 million recovery after expenses. At this point in time,
the Company is unable to assess with certainty the amount or likelihood of
recovery from Lyman Henn, Inc.
 
 Majestic Star Income Tax
Protest. The Company has been assessed $2.6 million, plus interest, for
the fiscal year 1996 and the period January 1, 1998 through June 18,
2001, by the Indiana Department of Revenue (“Department”). On September 7,
2004, the Department assessed BDI, the Company’s ultimate parent and member,
$1.3 million, plus penalties and interest for the remainder of 2001 and all of
fiscal year 2002. The Department held a hearing on the 1996 through 2002 tax
years on April 7, 2006 to consider the Company’s and BDI’s protests over
the tax assessments and negligence penalties. The Department issued rulings on
January 17, 2007. In those rulings, the Department sustained BDI’s protest of
the imposition of a negligence penalty, holding that BDI’s failure to pay the
assessed tax amount was due to reasonable cause and not due to negligence. The
Department also concurred with the position taken by the Company and BDI that to
the extent it is ultimately determined they had net operating losses for a
taxable year, those net operating losses are to be applied
to offset any add-back of riverboat wagering tax for income tax purposes. The
Department denied the Company’s protest that nonresident withholding taxes did
not apply for the fiscal year 1996 and the period January 1, 1998 through 2002.
The Company and BDI filed petitions with the Indiana Tax Court on March 19, 2007
appealing the Department’s rulings for the 1996-2002 tax
years.
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 BDI's
nonresident shareholder has been assessed $0.2 million, plus penalties and
interest, for 2003. That assessment was protested by BDI’s nonresident
shareholder to the legal division of the Department of Revenue. The Department
held a hearing on the 2003 protest on December 5, 2006, and issued its
ruling on March 14, 2007.  In that ruling, the Department sustained
the shareholder’s protest of the imposition of a negligence penalty. The
Department denied the protest of the amount of tax assessed.  An
appeal of that ruling was filed with the Indiana Tax Court on May 14,
2007.
 
 The
assessments relate to deductions for gaming taxes paid by the Company, which
deductions were taken for Indiana income tax purposes. The Department has taken
the position that the Company had an obligation to add back state gaming taxes
in determining the Company’s taxable income, and to withhold and remit tax for
the nonresident shareholder of BDI. On April 19, 2004, the Indiana Tax Court
ruled in a similar case involving another Indiana casino, Aztar Indiana Gaming
Corporation (“Aztar”), that the gross wagering tax is a tax based on or measured
by income and that it must be added back to the taxable income base for the
purpose of determining adjusted gross income for Indiana tax purposes. On
September 28, 2004, the Indiana Supreme Court denied Aztar’s request to review
the Indiana Tax Court’s decision, and thus, the Indiana Tax Court’s opinion in
the Aztar case is controlling precedent on the wagering tax add-back issue. The
Company and BDI continue to pursue its protest with the Department on the
grounds that the assessments contain calculation errors and that its protest
sets forth issues not decided in the Aztar case. No liability has been accrued
in the Company’s financial statements relating to this matter.
 
 Should
the Company or the Company’s member ultimately be found liable for additional
income taxes to the State of Indiana, the Company may make distributions
sufficient to pay the additional tax. Any payments would be recorded as
distributions in Member’s Deficit. For the years subsequent to 2003, BDI’s
nonresident shareholder has paid Indiana state income tax taking into account
the add-back of gross wagering tax.
 
 Majestic Star Property
Assessment Appeals.  Under Indiana law, licensed gaming vessels
are assessed as real property. The Company received notices of assessment from
the Calumet Township (County of Lake, Indiana) Assessor (a) dated July 20, 2007
updating the assessed valuation of the Company's riverboats effective March 1,
2006 retroactive for the period January 1, 2006 through December 31, 2006, and
(b) dated January 21, 2009 updating the assessed valuation of the Company's
riverboats effective March 1, 2007 retroactive for the period January 1, 2007
through December 31, 2007. These included notices that the property tax
assessments of the Majestic Star and Majestic Star II vessels were to be
increased from the March 1, 2005 assessment by 176.4% and 184.1%, respectively,
for 2006 and 172.3% and 184.1%, respectively, for 2007. With these new
assessments, the combined real property tax expense for the Majestic Star and
Majestic Star II vessels would have increased by $4.4 million for the period
January 1, 2006 through December 31, 2006 and by $4.3 million over 2005 for the
period January 1, 2007 through December 31, 2007. There is currently significant
uncertainty regarding property tax rates for the period January 1, 2008 through
December 31, 2008, as further described below. As such, the Company estimates
that the increased property taxes for 2008 over 2006 could range between $2.7
million, assuming a 3.9% effective tax rate, and $5.2 million, assuming an
effective tax rate of 7.5%, which is consistent with prior year property
tax rates levied against the Majestic Properties’ real property. The Company
believes the new assessed valuations for the Majestic Star and Majestic Star II
vessels exceed their market values, which are the applicable standard for
assessing real property in Indiana, and are thus excessive and unsupportable.
The Company has initiated administrative appeals of the vessels' assessments for
both the March 1, 2006 and 2007 assessment dates. While the appeals are pending,
the Company will accrue and pay property taxes for the vessels based on the 2005
year's assessed values, as the Company believes the 2006 and 2007 assessed
values should not exceed the 2005 year’s assessed values. As of December 31,
2008, the Majestic Properties has established reserves of $3.4 million. If the
increased assessments are ultimately upheld, the Company will be required to
take an additional charge to earnings of between $8.0 million and $10.5 million,
in addition to interest. With the exception of payment of taxes based on the
greater assessed valuations on the Majestic Star and Majestic Star II vessels,
all 2006 tax bills were received in December 2007 and paid in full in January
2008 and all 2007 tax bills were received in January 2009 and paid in February
2009. No property tax bills have been received for 2008.
 
  21
 Table of Contents
  On
February 6, 2009, the Company initiated an administrative appeal to challenge
notices of assessment it received from the Calumet Township Assessor increasing
the assessed valuation of eight other parcels of real
 
 Real and
personal property taxes for calendar year 2008, payable in 2009, will be
eligible for “circuit breaker” credits under current law. These credits will
reduce the effective tax rate applicable to the assessed valuation of the
Company’s property. The extent of the reduction depends in part on the outcome
of an appeal filed December 5, 2008 with the Distressed Unit Appeals Board
(“DUAB”) by the City of Gary and other taxing units. If the DUAB and related
appeals are granted in full, the effective tax rate for calendar year 2008
property tax payable in 2009 would be approximately 5% according to the City’s
projections, determined in accordance with current circuit breaker legislation.
If those appeals are denied in full, the effective tax rate for calendar year
2008 property taxes payable in 2009 would be approximately 3.9%. Given the
significant uncertainty regarding property tax rates for calendar year 2008,
payable in 2009, and the previously discussed disputes over assessed valuations,
the Company has elected to use a property tax rate of 7.5% for determining its
2008 property tax accrual. The property tax rate being used by the Company is
consistent with previous tax rates levied on the Majestic Properties’ real
property.
 
 It is too
early to predict the outcome of the Majestic Properties real property tax
matters. The range of likely outcomes is between $0 and $14.0 million, exclusive
of interest. There is no way to tell if any amount in this range is more likely
than any other.
 
 City of Gary, Indiana
Development Obligation. On March 26, 1996, the City of Gary (“City”) and
Majestic Star entered into a development agreement (“Majestic Development
Agreement”). Trump Indiana, Inc. also entered into a development agreement
with the City (as amended, the “Trump Development Agreement”). In conjunction
with the Company’s closing of the Trump Acquisition, the Company, Trump Indiana
and the City entered into the Amended Majestic Development Agreement dated
October 19, 2005. See Note 6 – City of Gary, Indiana Development
Obligation.
 
 The
current mayor of the City, who took office on April 7, 2006, claims that the
Amended Majestic Development Agreement, signed by the prior mayor on behalf of
the City, is not enforceable against it because the prior mayor lacked the
authority to bind the City. The Company’s position is that the Amended Majestic
Development Agreement is valid and binding. Given that both the Majestic
Development Agreement and the Trump Development Agreement contain mandatory
arbitration provisions, the Company on February 11, 2008, commenced an
arbitration proceeding against the City before the American Arbitration
Association entitled The Majestic Star Casino, LLC, The Majestic Star Casino II,
Inc., and Gary New Century (“GNC”), LLC (an affiliate of the Company) vs. City
of Gary, Case No. 52 489 Y 00091 08.  In this arbitration proceeding,
the Company requests that the Amended Majestic Development Agreement be declared
to be in full force and effect, and that the City be found to be in material
breach of it and that the Company be awarded damages.  In the event
that the Amended Majestic Development Agreement is deemed not enforceable, the
Company alternatively requests that the City be found in breach of the Majestic
Development Agreement, the GNC Agreement and the Trump Development Agreement,
and that the Company be awarded damages.  Simultaneously with the
arbitration, the Company also filed an action in Marion County Superior Court
entitled The Majestic Star Casino, LLC, et al v. City of Gary, et al, State of
Indiana, Marion County Superior Court No. 49D13 08 02 PL 006612.  In
this action, the Company seeks to bind the Indiana Gaming Commission to the
results of the arbitration and to litigate any matters that are not covered by
the parties’ arbitration agreement.
 
 The
Company filed the arbitration and court action because the City has failed,
pursuant to its obligations under either the Amended Majestic Development
Agreement or, in the alternative, the earlier agreements, to remediate property
owned by the Company, and construct the required access roads and freeway
interchange to the Majestic Properties. If the Amended Majestic Development
Agreement is found not to be enforceable, then the Company could be required to
pay the City an additional 1% of adjusted gross gaming receipts, retroactive to
December 21, 2005, which would now be due under the previously terminated Trump
Development Agreement. The additional 1% due to the City attributed to Majestic
Star II would equal $4.5 million.
  22
 Table of Contents
  
 Effective
for the tax period January 2008, the Company began depositing the economic
incentive funds payable to the City for 2008 under the Amended Majestic
Development Agreement in a segregated bank account. On May 2, 2008, the Marion
County Superior Court denied the City's motion for a preliminary injunction to
require the Company to resume payment to the City of the economic incentive
funds pending resolution of the case.
 
 The City
appealed the denial of its injunction motion to the Indiana Court of Appeals
(No. 49A02-0807-CV-00625), filing its appellate brief on July 30, 2008. After a
stay to permit the parties to explore settlement, which expired November 30,
2008, the Company timely filed its appellate brief with the Indiana Court of
Appeals on January 20, 2009, as did the Indiana Gaming Commission (which
supports the Company’s position on the proper trial court venue for the action,
and has remained neutral on the City’s attempt to require the Company to resume
payments of the economic incentive funds). Though the City’s appellate reply
brief was due on or about February 9, 2009, the City has filed no reply brief
and the Company’s counsel believe it is likely that the Court of Appeals now
views the appeal as fully briefed. The Company does not anticipate oral argument
will be held before the Court of Appeals but expects a ruling on the
briefs.
 
 On August
22, 2008, the Company and City entered into an interim settlement agreement
whereby (i) the withheld economic incentive funds, deposited at the time in the
segregated bank account, which totaled $4.4 million, were paid to the City for
the City’s unrestricted use, (ii) the monies in the Lakefront Capital
Improvement Fund, which totaled $3.2 million, were paid to the Company and (iii)
the parties requested a stay of proceedings until November 30, 2008. Beginning
in September 2008, the Company resumed depositing the economic incentive funds
into the segregated bank account, which action the City acknowledges but
disputes the Company’s right to do so. As of December 31, 2008, the balances in
the segregated economic incentive fund and the Lakefront Capital Improvement
Fund bank accounts were $1.6 million and $0.5 million, respectively.  It is
too early to determine with certainty, the outcome of the arbitration or
litigation or the amount or likelihood of any recovery from the
City.
 
 The Majestic Star Casino,
LLC Group Health Benefit Plan Litigation. In August 2006, a healthcare
provider (“Hospital”), filed suit in federal court against the Company’s Group
Health Benefit Plan (the “Plan”). The Hospital sought to recover for services
provided by the Hospital to an employee of BMG, an individual covered under the
Plan (“Employee”). The action is governed by the Employee Retirement Income
Security Act of 1974, which means that there would not be a trial in the
traditional sense, but instead the proceeding is administrative in nature, and
the District Court Judge would ultimately rule on the merits based on the
parties’ briefs.
 
 On March
20, 2008, the Court issued an Order Granting the Plaintiff’s Motion for Judgment
on the Record, Denying the Defendant’s Motion for Judgment on the Record, and
Reversing the Denial of Benefits (“Order”). The Company filed a motion for the
Court to reconsider (“Motion to Reconsider”) which was denied by the Court on
July 31, 2008. On August 28, 2008, the Company filed a Notice of Appeal to
appeal to the United States Court of Appeals for the 6th Circuit
(“Court of Appeals”), the Order issued on March 20, 2008 and the order of July
31, 2008 denying the Motion to Reconsider. In the event the Plan is ultimately
found liable on appeal, the Company believes that the claim may not be covered
by the Company’s Insurance Provider.
 
 On April
21, 2008, the Company filed a Motion to Stay Judgment Pending Post Trial Motions
(“Motion to Stay”), and on May 1, 2008 the Plaintiff filed a Plaintiff’s
Response to Defendant’s Motion to Stay Judgment Pending Post Trial Motions
(“Motion to Stay Response”). The Motion to Stay Response requested the Court to
require the Company to either pay an amount equal to the judgment as security,
or post a bond that secures payment once the judgment becomes final. On May 13,
2008, the Court granted the Motion to Stay and on June 16, 2008 granted the
Company’s request to deposit funds in the amount of the judgment with the Clerk
of the Court, in lieu of posting a bond. Accordingly, the Company deposited $0.4
million with the Clerk of the Court, which is the amount of the
judgment.
 
 On August
8, 2008, the Plaintiff filed a motion for attorney fees, prejudgment interest
and costs. On November 4, 2008, the Court granted Plaintiff’s motion and awarded
prejudgment interest in the amount of $40,000. The amount of the attorney fees
awarded has not yet been determined by the Court. On November 24, 2008, the
Company filed a Notice of Appeal to appeal to the Court of Appeals the Court’s
award of attorney fees and prejudgment interest. On November 26, 2008, the Court
of Appeals consolidated the two appeals filed by the Company into a single
proceeding before the Court of Appeals. The Company’s appellant brief was filed
on January 20, 2009 and the Appellee Brief was filed February 19, 2009. The
Company filed its Reply Brief on March 5, 2009. In anticipation of any payments
for which the Company may ultimately be liable, the Company has accrued $0.1
million for pre-judgment interest and plaintiff’s estimated attorney fees. At
this point in time, the
Company is unable to assess with certainty the ultimate resolution of the
litigation, or if the Plan is ultimately liable, the amount or likelihood of
recovery from the Insurance Provider.
   ITEM
4.                      SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 Not
applicable.
  23
 Table of Contents
  PART
II
 
 
 ITEM
5.                      MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
 
 The
Company is a limited liability company and Mr. Barden indirectly holds 100% of
our membership interests. There is no established public trading market for the
membership interests.
 
 We did
not pay any cash dividends during the past three years, and have no current plan
to pay any cash dividends in the near term. We are restricted in our ability to
pay dividends under various covenants of our debt agreements and are prohibited
from doing so when in default under such agreements.
 
 
 ITEM
6.                      SELECTED
FINANCIAL DATA
 
 FIVE
YEAR SUMMARY OF SELECTED FINANCIAL DATA
 
 The
accompanying financial data includes operating results for the Majestic
Properties, Fitzgeralds Tunica and Fitzgeralds Black Hawk for the full
year.
 
 For
      The Years Ended December 31,2008
      (1)
              
              
              2007
              
              
              2006
              
              
              2005
      (2)
              
              
              2004(in
      thousands)STATEMENT
      OF OPERATIONS DATA:Net
      revenues
              
              $
              330,973
              
              
              $
              358,098
              
              
              $
              354,233
              
              
              $
              261,972
              
              
              $
              260,511Cost
      and expenses
              
              
              418,383
              
              
              
              323,108
              
              
              
              308,573
              
              
              
              233,241
              
              
              
              226,761Operating
      (loss) income
              
              
              (87,410
              )
              
              
              34,990
              
              
              
              45,660
              
              
              
              28,731
              
              
              
              33,750Interest
      expense, net (3)
              
              
              (62,942
              )
              
              
              (60,956
              )
              
              
              (59,852
              )
              
              
              (30,217
              )
              
              
              (28,530
              )Loss
      on extinguishment ofdebt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,688
              )
              
              
              -Net
      (loss) income
              
              
              (150,383
              )
              
              
              (26,051
              )
              
              
              (14,307
              )
              
              
              (5,302
              )
              
              
              5,019
  
 As
      of December 31,2008
      (1)
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004(in
      thousands)BALANCE
      SHEET DATA:Cash
      and cash equivalents
              
              $
              57,750
              
              
              $
              29,216
              
              
              $
              25,532
              
              
              $
              32,368
              
              
              $
              16,722Restricted
      cash
              
              
              5,404
              
              
              
              3,401
              
              
              
              3,327
              
              
              
              3,190
              
              
              
              2,540Investment
      in BHR, net
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              27,432Total
      assets (3)
              
              
              403,510
              
              
              
              505,690
              
              
              
              506,359
              
              
              
              517,959
              
              
              
              246,376Current
      liabilities (4)
              
              
              723,085
              
              
              
              59,236
              
              
              
              49,022
              
              
              
              46,074
              
              
              
              31,918Long-term
      debt (3)
              
              
              -
              
              
              
              614,246
              
              
              
              596,928
              
              
              
              592,699
              
              
              
              316,858Total
      liabilities
              
              
              723,085
              
              
              
              673,482
              
              
              
              645,950
              
              
              
              638,773
              
              
              
              348,776Member’s
      deficit
              
              
              (319,575
              )
              
              
              (167,792
              )
              
              
              (139,591
              )
              
              
              (120,814
              )
              
              
              (102,400
              )
 
 Notes:
 
 (1)
              The
      2008 financial data includes a $105.8 million non-cash impairment loss on
      assets.
 
 (2)
              The
      2005 financial data includes 11 days of operating results related to the
      Trump Acquisition and Buffington Harbor Riverboats, L.L.C. (“BHR”),
      (including 100% of BHR’s operations rather than 50%, as BHR had formerly
      been a 50% joint venture of the Company and accounted for under the equity
      method of accounting). The 2005 financial data also includes 11 days of
      operations for Buffington Harbor Parking Associates (“BHPA”), which also
      became a wholly owned subsidiary as a result of the Trump Acquisition and
      a contribution of our affiliate’s 50% interest in BHPA to the
      Company.
  24
 Table of Contents
  
 (3)
              Pursuant
      to SEC Staff Accounting Bulletin 73 Topic 5(J) related to “pushdown” basis
      of accounting, the Company’s financial statements include $63.5 million
      principal amount of Majestic Holdco’s Discount Notes, and related
      financing costs, including amortization and interest on such debt. Neither
      the Company nor any of its direct or indirect subsidiaries is a guarantor
      of the Discount Notes. Neither the equity nor assets of the Company or any
      of its direct or indirect subsidiaries secure the Discount Notes. The
      Company is restricted in the amount of cash that can be distributed to
      Majestic Holdco. The Discount Notes, net of discount, in the amount of
      $45.3 million were pushed down to the Company at December 31, 2005. In
      addition, financing costs of $2.8 million were pushed down. As of
      December 31, 2006, $51.1 million of Discount Notes, net of discount,
      and financing costs of $2.4 million were pushed down. As of
      December 31, 2007, $57.7 million of Discount Notes, net of discount,
      and financing costs of $1.9 million were pushed down. As of
      December 31, 2008, $63.5 million of Discount Notes, face amount at
      maturity, and financing costs of $1.4 million were pushed down. The 2008,
      2007, 2006 and 2005 statements of operations include $5.8 million, $6.6
      million, $5.8 million and $0.2 million, respectively, of interest expense
      related to the amortization of the discount and $0.5 million of
      amortization of deferred financing costs for 2008, 2007 and 2006 and
      $20,000 for 2005. For 2008, $1.7 million of interest expense that is now
      accruing and will be payable on April 15, 2009 has also been pushed
      down.
 
 (4)
              Due
      to the event of default, all debt, including the Discount Notes, totaling
      $643.4 million, has been classified within current liabilities at December
      31, 2008.
 
 
 ITEM
7.                      MANAGEMENT’S
DISCUSSION AND ANALYSIS
 
 STATEMENT
ON FORWARD-LOOKING INFORMATION
 
 This
Annual Report on Form 10-K contains “forward-looking statements” intended to
qualify for the safe harbor from liability established by the Private Securities
Litigation Reform Act of 1995.  You can identify these statements by the
fact that they do not relate strictly to historical or current
facts.  They contain words such as “anticipate,” “estimate,”
“expect,” “project,” “intend,” “plan,” “believe,” “may,” “could,” “might,” and
other words or phrases of similar meaning and include, without limitation,
discussions of future actions or objectives, development and
acquisition plans, strategies, future performance, the outcome of
contingencies such as legal proceedings, and future financial results. 
Although these forward-looking statements reflect our good-faith belief and
reasonable judgment based on current information, these statements involve
a number of risks and uncertainties, many of which are beyond our control,
which could cause our actual results to differ materially from those suggested
by the forward-looking statements.  In particular, you should consider
these forward-looking statements in light of the risk factors set forth in
Item 1A. Risk Factors of this Annual Report on Form 10-K and other
factors described elsewhere in this report, as well as other factors that will
be discussed in future reports filed or furnished with the SEC.  Given
these risks and uncertainties, you should not place undue reliance on any such
forward-looking statements in this Annual Report on Form 10-K,
which speak only as of the date hereof.  Except as required by
law, we assume no obligation to update these forward-looking statements, even
though our situation may change in the future.  All future written and
verbal forward-looking statements attributable to us or any person acting on our
behalf are expressly qualified in their entirety by the cautionary statements
contained or referred to and in our reports filed with or furnished to the
SEC.
 
 EXECUTIVE
OVERVIEW
 
 The
Company
 
 The
Majestic Star Casino, LLC and its separate and distinct subsidiary limited
liability companies and one corporation own and operate two riverboat gaming
facilities and a dockside pavilion known as the Buffington Harbor complex
located in Gary, Indiana, a Fitzgeralds brand casino-hotel located in Tunica
County, Mississippi and a Fitzgeralds brand casino located in Black Hawk,
Colorado. See Note 15 – Segment Information to our Notes to the Consolidated
Financial Statements.
  25
 Table of Contents
   Key
Performance Indicators
 
 At our
casino properties, casino revenues, which contribute approximately 88% of our
consolidated gross revenues, are the combination of our win at slots, table
games and poker and are typically called slot revenues (for slot machine win),
table games revenues (for table games win) and poker revenues (for poker win).
We normally analyze slot revenues and table games revenues utilizing two
principal components of each: (1) slot machine handle or coin-in, which
comprises the total dollar volume wagered at the slot machines, and slot machine
win percentage, which is the amount the casino won from customers divided by the
amounts wagered by customers at slot machines (handle or coin-in), and (2) table
games drop, which represents the sum of markers issued (credit instruments) less
markers paid at the tables, plus cash, foreign chips and other cash equivalents,
and free bet coupons deposited in the table drop box, and table games hold
percentage, which is the amount of table games drop, plus the closing table
games inventory (i.e., the amount of chips, tokens and coin used to operate the
table games) and transfer of chips, tokens and coins to the casino cashier area
(credits), less the beginning table games inventory and transfers of chips,
tokens and coins to the table games (fills), divided by table games drop. Slot
machine win and table games hold percentages are not fully controllable by us.
Slot machines win and table games hold percentages are variable and will
fluctuate, particularly when measured over short periods of time. Higher-worth
casino customers can significantly affect our win and hold percentages for a
particular period. Poker revenue is generated by taking a percentage of the
amounts wagered by poker players during a poker game.
 
 Key
Developments in 2008 and 2009
 
 Developments
that affected our results during 2008 and/or may affect future results
include:
  ·
              We
      did not make the October 15, 2008 interest payments of $24.0 million, in
      aggregate, with respect to the Senior Secured Notes and Senior Notes prior
      to the expiration of the grace period on November 14, 2008 which caused an
      event of default under the indentures governing the Senior Secured Notes
      and the Senior Notes as well as our Senior Secured Credit Facility (“Event
      of Default”).  As a result, the trustee or a specified
      percentage of holders of these notes have the right to accelerate the
      maturity date of the respective notes, which would cause the
      respective notes to be immediately due and payable and could result
      in all of our indebtedness becoming immediately due and payable. The
      lenders also have the right to accelerate the maturity of amounts
      outstanding under our Senior Secured Credit Facility. The lenders under
      the Senior Secured Credit Facility have the right to foreclose on
      substantially all of our equity and the equity of our subsidiaries as well
      as on our assets which secure such indebtedness. In addition, there is an
      Event of Default under the indenture governing the Discount Notes issued
      by our parent. Consequently, we have classified all debt within current
      liabilities in the Consolidated Balance Sheet as of December 31,
      2008.
 
 ·
              We
      have engaged financial advisors to assist in the evaluation of a broad
      range of financial and strategic alternatives aimed at addressing trends
      in our operating results and financial position. We continue our
      evaluation of financial and strategic alternatives, which may include a
      recapitalization, refinancing, restructuring or reorganization of our
      obligations or a sale of some or all of our businesses. We are actively
      working with our advisors toward such a transaction that would address the
      decline in our operating results and modify our capital structure,
      including our outstanding indebtedness. Given the current valuations for
      regional gaming companies, such as ours, the weak economic environment,
      our diminishing cash flows, and the reduced availability of debt and
      equity capital in the U.S. markets, it is unlikely that any restructuring
      plan can be consummated outside a bankruptcy
    proceeding.
 
 ·
              On
      October 7, 2008, we drew substantially all the funds remaining on the
      Senior Secured Credit Facility. Whereas we have been funding our negative
      working capital with advances under our revolver, we will be solely
      dependent upon cash generated from our operations to fund our debt service
      on our Senior Secured Credit Facility, maintenance capital expenditures
      and operating costs. In addition, as part of the restructuring process, we
      expect to incur significant restructuring costs which will further
      adversely impact our
liquidity.
  26
 Table of Contents
  
 ·
              The
      spending and visitation habits of our casino customers have been
      negatively impacted by the weakening economy, rising unemployment and
      instability in the housing market.  In addition, higher costs
      have caused us to reduce spending on our outer market transportation
      programs, including junkets, and this has caused, in particular, a
      reduction of customers to our Fitzgeralds Tunica property. At this time we
      cannot predict when the spending/visitation habits of our customers will
      improve.
 
 ·
              During
      2008, we have seen competitors open new facilities, remodel and rebrand
      existing facilities and spend millions of dollars on new amenities. Our
      competitors continue to spend heavily to upgrade their casino facilities
      and amenities. See Item 1A. Risk
Factors.
 
 ·
              We
      substantially completed the expansion of Fitzgeralds Black Hawk in June
      2008, incurring $36.0 million on this project. This expansion has added
      more amenities for our guests and increased the number of slot machines
      from approximately 600 to approximately 906 and included rebuilding the
      Masonic Building and Rohling Inn properties. We had a soft opening on June
      25, 2008, and the grand opening on July 24, 2008; however, the opening
      occurred during weak market conditions and following a smoking ban
      instituted in Colorado on January 1, 2008. For the twelve months ended
      December 31, 2008, Black Hawk market revenues were down 12.5%. As a
      result, Fitzgeralds Black Hawk has not experienced the significant
      increases in operating cash flows that had been anticipated when the
      expansion was undertaken.
 
 ·
              Given
      our commitments to complete the Fitzgeralds Black Hawk expansion, the
      lower cash flows from operating activities at our facilities and the
      limited availability under our Senior Secured Credit Facility, we did not
      make significant improvements to amenities and gaming operations at our
      Majestic Properties and Fitzgeralds Tunica during 2008. As a result, our
      revenues were adversely impacted and will likely be adversely impacted in
      the future due to our inability to significantly re-invest in the Majestic
      Properties and Fitzgeralds
Tunica.
 
 ·
              We
      continue to strive to control costs without hurting our competitiveness.
      However, given our inability to incur additional debt, the demands on our
      liquidity and our declining cash flows, it will be very difficult for us
      to compete without providing new or enhanced amenities to our customers.
      In the three- and twelve-month periods ended December 31, 2008, our
      promotional allowances decreased significantly and advertising and
      promotional expenses were relatively unchanged compared to the same
      periods in 2007 mainly due to the implementation of downloadable
      promotional credits at the Majestic Properties and a reduction in junket
      programs at Fitzgeralds Tunica. However, we may need to increase
      promotional and marketing expense to drive visitation to our casinos. We
      have a limited $12.3 million capital expenditure budget for 2009 for the
      purchase of new slot machines and conversions of existing slot machines
      and the remodeling the casino areas of the Majestic Properties and
      Fitzgeralds Tunica and the Fitzgeralds Tunica buffet. This is considerably
      less than what we spent for capital improvements in the prior three
      years.
 
 ·
              We
      have seen casinos in northwest Indiana increase the number of lower
      denomination slot machines on their casino floors, particularly penny slot
      machines.  Penny slot machines have been one of the best
      performing slot denominations in the market and the Majestic Properties
      has seen good revenue performance within this segment; however, our future
      performance in the lower denomination slot machine segment is at risk as
      our competitors add more lower denomination slot machines, and in
      particular penny slot machines, to their casino
    floors.
 
 ·
              On
      November 4, 2008, Colorado voters passed Amendment 50 which allowed the
      residents of the three gaming towns in Colorado to vote to extend casino
      hours of operation, approve the addition of roulette and/or craps and
      increase the maximum bet limit from five dollars to one hundred dollars.
      The voters of Black Hawk approved the changes to expand gaming on January
      13, 2009. Implementation of the new provisions will occur subsequent to
      the issuance of appropriate changes in gaming regulations which we
      anticipate will be in effect by July 2, 2009. We believe the expansion of
      gaming as provided by Amendment 50 will positively impact revenue in Black
      Hawk in general and Fitzgeralds Black Hawk
      specifically.
  27
 Table of Contents
  The
following tables set forth information derived from the Company's statements of
operations (in thousands):
 
 Year
      Ended
              
              
              Year
      Ended
              
              
              
              
              
              Year
      EndedDecember
      31,
              
              
              December
      31,
              
              
              Percent
              
              
              December
      31,
              
              
              Percent2008
              
              
              2007
              
              
              Change
              
              
              2006
              
              
              ChangeNet
      revenues:Majestic
      Properties
              
              $
              220,907
              
              
              $
              240,573
              
              
              
              -8.2
              %
              
              $
              236,826
              
              
              
              1.6
              %Fitzgeralds
      Tunica
              
              
              80,396
              
              
              
              86,813
              
              
              
              -7.4
              %
              
              
              83,979
              
              
              
              3.4
              %Fitzgeralds
      Black Hawk
              
              
              29,670
              
              
              
              30,712
              
              
              
              -3.4
              %
              
              
              33,429
              
              
              
              -8.1
              %Total
              
              $
              330,973
              
              
              $
              358,098
              
              
              
              -7.6
              %
              
              $
              354,234
              
              
              
              1.1
              %Casino
      revenues:Majestic
      Properties
              
              $
              221,280
              
              
              $
              247,500
              
              
              
              -10.6
              %
              
              $
              250,707
              
              
              
              -1.3
              %Fitzgeralds
      Tunica
              
              
              78,002
              
              
              
              84,975
              
              
              
              -8.2
              %
              
              
              88,349
              
              
              
              -3.8
              %Fitzgeralds
      Black Hawk
              
              
              33,671
              
              
              
              33,424
              
              
              
              0.7
              %
              
              
              36,058
              
              
              
              -7.3
              %Total
              
              $
              332,953
              
              
              $
              365,899
              
              
              
              -9.0
              %
              
              $
              375,114
              
              
              
              -2.5
              %Operating
      (loss) income :Majestic
      Properties (1)
              
              $
              (84,595
              )
              
              $
              30,339
              
              
              
              -378.8
              %
              
              $
              35,183
              
              
              
              -13.8
              %Fitzgeralds
      Tunica
              
              
              2,409
              
              
              
              5,092
              
              
              
              -52.7
              %
              
              
              8,836
              
              
              
              -42.4
              %Fitzgeralds
      Black Hawk
              
              
              2,282
              
              
              
              5,962
              
              
              
              -61.7
              %
              
              
              8,060
              
              
              
              -26.0
              %Corporate
      (2)
              
              
              (7,506
              )
              
              
              (6,403
              )
              
              
              -17.2
              %
              
              
              (6,419
              )
              
              
              -0.3
              %Total
              
              $
              (87,410
              )
              
              $
              34,990
              
              
              
              -349.8
              %
              
              $
              45,660
              
              
              
              -23.4
              %Operating
      margin (3):Majestic
      Properties
              
              
              -38.3
              %
              
              
              12.6
              %
              
              
              
              
              
              
              14.9
              %Fitzgeralds
      Tunica
              
              
              3.0
              %
              
              
              5.9
              %
              
              
              
              
              
              
              10.5
              %Fitzgeralds
      Black Hawk
              
              
              7.7
              %
              
              
              19.4
              %
              
              
              
              
              
              
              24.1
              %Total
              
              
              -26.4
              %
              
              
              9.8
              %
              
              
              
              
              
              
              12.9
              %(1)Operating
      loss for the year ended December 2008 includes a $105.8 million non-cash
      impairment loss on assets.(2)Corporate
      expenses reflect payroll, benefits, travel and other costs associated with
      our corporate staff and are not allocated to the
    properties.(3)Operating
      margin is calculated by dividing operating (loss) income by net
      revenues.
  
 Overall
Operating Results – December 31, 2008 compared to December 31, 2007
 
 The
discussion of our consolidated financial results for the year ended December 31,
2008 compared to 2007 is inclusive of interest expense from the amortization of
original issue discount and financing costs related to the pushdown of the
Discount Notes of Majestic Holdco and the accrued interest thereon.
 
 For 2008,
consolidated net operating revenues were $331.0 million compared to $358.1
million for 2007, a decrease of $27.1 million, or 7.6%. Net revenues decreased
$19.7 million at the Majestic Properties, $6.4 million at Fitzgeralds Tunica and
$1.0 million at Fitzgeralds Black Hawk. Our consolidated net revenues were
negatively impacted by the economic recession, high gasoline prices during the
summer, increased competition in our markets, periods of poor weather and a
smoking ban in Colorado, all of which reduced the gambling activity of our
customers.
 
 For 2008,
compared to 2007, consolidated casino revenues, which comprised 88.5% of
consolidated gross revenues in 2008, decreased $32.9 million, or 9.0%, to $333.0
million. Casino revenue decreased $26.2 million at the Majestic Properties and
$7.0 million at Fitzgeralds Tunica and increased approximately $0.3 million at
Fitzgeralds Black Hawk. Casino revenues were reduced at the Majestic Properties
by $7.1 million due to the increased utilization of downloadable promotional
credits. See Note 2 – Summary of Significant Accounting Policies to our Notes to
the Consolidated Financial Statements. Food and beverage revenues decreased $2.2
million, or 8.5%, to $23.4 million from $25.6 million, primarily due to a
decrease in casino customer volume. Promotional allowances were $45.1 million
compared to $53.4 million, a decrease of $8.3 million, or 15.5%. Promotional
allowances have decreased primarily as a result of the implementation of
downloadable promotional credits at the Majestic Properties and a decrease in
complimentaries at the Majestic Properties and Fitzgeralds
Tunica.
  28
 Table of Contents
  
 Operating
expenses increased $95.3 million, or 29.5%, to $418.4 million, which includes an
impairment loss on assets of $105.8 million. Without the impairment loss on
assets, operating expenses decreased $10.5 million, or 3.2%, to $312.6 million.
Economic incentive tax City of Gary, net of refund, decreased by $1.9 million.
We entered into an interim settlement agreement with the City of Gary in August
2008 whereby it was agreed that we would receive the full amount in the
Lakefront Capital Improvement Fund.   We received $3.2 million
per the settlement agreement, half of which, $1.6 million, we had previously
expensed. See Item 3- Legal Proceedings.   Gaming taxes decreased
$6.7 million, or 7.8%, due to a corresponding decrease in casino revenues. Food
and beverage expenses decreased $2.5 million, or 23.8%, due to a corresponding
decrease in food and beverage revenues and also due to improved operational
efficiencies of the Majestic Properties’ food and beverage operations. Loss on
disposal and write down of assets was lower by $0.8 million at $0.1 million
compared to $0.9 million. In the prior year we incurred a $0.8 million charge
for loss on disposal and write-down of obsolete slot machines. Casino expenses
increased $1.0 million primarily due to increased payroll expense and also
increased operating expenses at Fitzgeralds Black Hawk which resulted from their
casino expansion. Corporate expenses increased $1.0 million, due to
restructuring fees incurred. Depreciation and amortization expenses increased
$1.0 million due to the Fitzgeralds Black Hawk expansion assets being placed
into service during 2008 and the completion of the Fitzgeralds Tunica hotel
project in 2007.
 
 We
recorded an operating loss of $87.4 million, which includes an impairment
loss on assets of $105.8 million. Without the impairment loss on assets,
operating income was $18.3 million, a decrease of approximately $16.7 million,
or 47.6%, compared to $35.0 million for the prior year. Interest expense, net of
interest income, was $62.9 million, an increase of $2.0 million, primarily due
to increased debt outstanding on our Senior Secured Credit Facility and interest
expense on the Discount Notes. Consolidated net loss was $150.4 million for
2008, an increase in net loss of $124.3 million compared to $26.1 million for
the same period in 2007.
 
 Segment
Operating Results – December 31, 2008 compared to December 31, 2007
 
 Majestic
Properties
 
 For 2008,
net revenues at the Majestic Properties were $220.9 million compared to $240.6
million for 2007, a decrease of $19.7 million, or 8.2%.  Management
believes this decrease was due to the economic recession and high gasoline
prices during the summer as well as intensified competition in the northwest
Indiana and neighboring markets. Casino revenues, which make up 91.8% of gross
revenues, were $221.3 million, a decrease of $26.2 million, compared to $247.5
million for the prior year. Slot revenues decreased $26.3 million, or 13.1%, to
$174.2 million from $200.5 million. Slot revenues were impacted by the
utilization of downloadable promotional credits, which reduced slot revenues by
$7.1 million, a decline in slot coin-in of 8.9% and a slightly lower slot hold
percentage. Table games and poker revenues increased by $0.1 million, or 0.3%,
to $47.1 million from $47.0 million, primarily due to a 5.3% increase in table
games drop and a small increase in the table games hold percentage, offset by a
25.8% decrease in poker revenue. Table games drop increased primarily in
baccarat as a result of our opening a new baccarat room in May 2007. Also
contributing to increased table games volumes was play from higher worth
customers. Food and beverage revenues were $10.5 million, a decrease of
approximately $1.8 million, or 14.1%, from $12.3 million as a result of a
decrease in casino customer volume and a reduction of operating hours in the
buffet. Rooms revenue was $3.2 million, a decrease of $0.4 million, or 10.3%,
from $3.6 million, due to a decrease in hotel occupancy of 8.4%. Promotional
allowances decreased $8.6 million, or 29.9%, due to the utilization of
downloadable promotional credits which significantly reduced the amount of
promotional cash coupons mailed to and redeemed by our customers and a decrease
in complimentary food provided to our casino customers.
 
 Operating
expenses increased $95.3 million, or 45.3%, to $305.5 million, which includes an
impairment loss on assets of $105.8 million. Without the impairment loss on
assets, operating expenses were $199.7 million for 2008 compared to $210.2
million, a decrease of approximately $10.5 million, or 5.0%. Economic incentive
tax - City of Gary, net of refund, decreased by $1.9 million due to the interim
settlement agreement with the City of Gary as discussed above. Gaming taxes
decreased $5.8 million resulting from a corresponding decrease in gaming
revenues. Food and beverage expenses decreased $2.3 million as a result of the
decrease in food and beverage revenues, improved operational efficiencies of the
food and beverage operations and a reduction in the buffet’s operating hours. In
the 2007 period, the Majestic Properties recorded a loss on disposal and write
down of obsolete slot machines of $0.8 million. A similar loss was not
recognized in 2008. Casino expenses increased $1.2 million, primarily due to
increased payroll expense and increases in slot lease
expense.
  29
 Table of Contents
  
 For 2008,
we recorded an operating loss of $84.6 million, which includes an impairment
loss on assets of $105.8 million. Without the impairment loss on assets,
operating income for the Majestic Properties was $21.2 million compared to $30.3
million for 2007, a decrease of approximately $9.1 million, or
30.2%.
 
 Fitzgeralds
Tunica
 
 For 2008,
net revenues at Fitzgeralds Tunica were $80.4 million compared to $86.8 million
for 2007, a decrease of $6.4 million, or 7.4%. Increased revenues in the first
quarter of 2008 were reversed in the subsequent quarters as a result of the
economic recession, enhanced promotions from our competitors, improvements to
competitors’ facilities, which provided new and improved amenities and reduction
in our outer market and junket programs due to higher costs associated with
these programs. Casino revenues, which comprised 79.5% of gross revenues in
2008, were $78.0 million, a decrease of $7.0 million, or 8.2%, compared to $85.0
million for the prior year. Slot revenues decreased $5.8 million, or 7.9%, to
$68.5 million from $74.3 million due to a decrease in slot coin-in of 11.0%
partially offset by a slight increase in slot hold. Table games revenues
decreased approximately $1.2 million, or 10.6%, to $9.5 million from $10.7
million, due to a 14.2% decrease in table games drop partially offset by an
increase in the table games hold of 0.7 percentage points. Rooms revenue
increased $0.2 million, or 3.0%, due to an increase in complimentary rooms
offered to our casino customers and an increase in rooms available for sale
resulting from a room remodel project that took rooms out of service during the
2007 period. Food and beverage revenues decreased $1.0 million, or 8.9%, due to
a decrease in complimentary food and beverage offered to our casino
customers.  Promotional allowances decreased $1.6 million as a result
of this decrease in complimentary food and beverage sales as well as decreases
in other promotional items.
 
 Operating
expenses were $78.0 million for 2008 compared to $81.7 million, a decrease of
$3.7 million, or 4.6%. Advertising and marketing expenses were reduced by $1.2
million to compensate for the reduction in revenues. Casino expenses decreased
$1.1 million, primarily due to a decrease in the cost of complimentaries
provided to casino customers. Gaming taxes decreased $0.9 million due to a
corresponding decrease in gaming revenues. General and administrative expenses
decreased $0.5 million, due to a reduction in legal fees. In 2007, we accrued
for the settlement of a lawsuit.
 
 For 2008,
operating income for Fitzgeralds Tunica was $2.4 million compared to $5.1
million in 2007, a decrease of $2.7 million, or 52.7%.
 
 Fitzgeralds
Black Hawk
 
 For 2008,
net revenues at Fitzgeralds Black Hawk were $29.7 million compared to $30.7
million in 2007, a decrease of $1.0 million, or 3.4%. The decrease in net
operating revenues is due to intensified competition in the Black Hawk market,
periods of poor weather, a smoking ban in Colorado that went into effect for
casinos on January 1, 2008, as well as the economic recession and higher gas
prices in the summer. However, due to the opening of our casino expansion in
June 2008, revenues increased in the third and fourth quarters. Casino revenues,
which comprised 91.3% of gross revenues in 2008, were $33.7 million, an increase
of approximately $0.3 million, or 0.7%, compared to $33.4 million for the prior
year. Slot revenues increased approximately $0.5 million, or 1.4%, to $33.1
million from $32.6 million, due to a 0.4 percentage point increase in slot hold
percentage partially offset by a 5.7% decrease in slot coin-in. Table games
revenues decreased by $0.2 million, or 24.8%, to $0.6 million from $0.8 million
due to a decline in table games drop of 13.0% and a decline in the table games
hold of 2.9 percentage points. Food and beverage revenues increased
approximately $0.5 million, or 27.0%, to $2.6 million from $2.1 million due to
an increase in complimentaries provided to our casino customers and the opening
of a new restaurant as part of our expanded property. Promotional allowances
increased $1.9 million as we increased direct mail cash coupons, complimentary
promotional items and complimentary food and beverage sales in an effort to
drive guest volume and to celebrate the opening of our casino
expansion.
 
 Operating
expenses were $27.4 million for 2008 compared to $24.7 million, an increase of
approximately $2.7 million, or 10.7%. Casino expenses increased $0.8 million, or
9.0%, due to our expanded casino operation. Advertising and promotional expenses
increased $0.3 million, or 14.0%, to create awareness of our new and expanded
casino. General and administrative expenses increased $0.5 million, or 10.7%,
primarily due to increased property taxes and sewer fees associated with the
expansion of the facility. Depreciation and amortization expense increased $1.1
million, or 44.9%, due to the completion of our expansion project.
    30
 Table of Contents
   Corporate
 
 Corporate
operating expenses were $7.5 million for 2008, compared to $6.4 million for
2007. The increase was primarily due to $1.5 million of restructuring charges in
2008. No restructuring charges were incurred in 2007.
 
 Other
Expense
 
 Other
expense increased $1.9 million to $63.0 million for 2008 compared to $61.1
million for 2007. The majority of the increase is interest expense associated
with our and Majestic Holdco’s debt.
 
 Overall
Operating Results – December 31, 2007 compared to December 31, 2006
 
 The
discussion of our consolidated financial results for the year ended December 31,
2007 compared to 2006 is inclusive of interest expense from the amortization of
original issue discount and financing costs related to the pushdown of the
Discount Notes of Majestic Holdco.
 
 For the
year ended December 31, 2007, consolidated net operating revenues were $358.1
million compared to $354.2 million for 2006, an increase of $3.9 million, or
1.1%. The increase in net revenues of $3.7 million at the Majestic Properties
and $2.8 million at Fitzgeralds Tunica was partly offset by a decrease of $2.7
million at Fitzgeralds Black Hawk.
 
 For the
year ended December 31, 2007, compared to the same prior year period,
consolidated casino revenues, which comprised 88.9% of consolidated gross
revenues during 2007, decreased $9.2 million, or 2.5%, to $365.9 million, due to
decreases at all our properties. Casino revenue decreased $3.2 million at the
Majestic Properties, $3.4 million at Fitzgeralds Tunica and $2.6 million at
Fitzgeralds Black Hawk. Casino revenues were reduced at the Majestic Properties
and Fitzgeralds Tunica for the year ended December 31, 2007, by $5.6
million and $6.0 million, respectively, compared to the year ended December 31,
2006, due to the implementation of downloadable promotional
credits.
 
 Promotional
allowances for the year ended December 31, 2007 were $53.4 million compared to
$55.1 million for the year ended December 31, 2006. Promotions have decreased as
a result of the implementation of downloadable promotional credits, partially
offset by increased complimentary services as a result of efforts at the
Majestic Properties and Fitzgeralds Tunica toward increasing casino volume and
attracting and retaining a higher level casino customer.
 
 For the
year ended December 31, 2007, compared to the same period last year, operating
expenses increased $14.5 million to $323.1 million from $308.6 million in 2006,
with $8.7 million of this increase attributable to the Majestic Properties and
$6.6 million to Fitzgeralds Tunica. Operating expenses at Fitzgeralds Black Hawk
decreased by $0.6 million.
 
 Operating
income for the year ended December 31, 2007 was $35.0 million, a decrease of
$10.7 million, or 23.4%, compared to operating income of $45.7 million for the
year ended December 31, 2006. Interest expense, net of interest income,
increased $1.1 million to $61.0 million from $59.9 million in 2006. The majority
of this increase is interest expense associated with the accretion of the
Discount Notes. Consolidated net loss was $26.1 million for the year ended
December 31, 2007, an increase in net loss of $11.8 million when compared
to a net loss of $14.3 million for the same period in 2006.
 
 Segment
Operating Results – December 31, 2007 compared to December 31, 2006
 
 Majestic
Properties
 
 Net
revenues for the year ended December 31, 2007 were $240.6 million at the
Majestic Properties compared to $236.8 million for the same period in 2006, an
increase of $3.8 million, or 1.6%.  Casino revenues, which make up
91.9% of gross revenues, were $247.5 million, a decrease of $3.2 million,
compared to $250.7 million for the prior year. Slot revenues, which decreased
$10.4 million, or 4.9%, to $200.5 million from $210.9
  31
 Table of Contents
  million,
were reduced by $5.6 million due to the utilization of downloadable promotional
credits and by a 5.2% decrease in slot coin-in. Table games and poker revenues
increased by $7.2 million, or 18%, to $47.0 million from $39.8 million,
primarily due to a 19.0% increase in table games drop.  Food and
beverage revenues were $12.3 million, an increase of $8.1 million, from $4.2
million, resulting from our taking control of, and improving, the food and
beverage outlets in the Buffington Harbor pavilion, along with the opening of a
new restaurant outlet. Other revenues increased $0.8 million, or 14.8%, and
hotel revenues increased $0.5 million, or 14.7%. Promotional allowances
increased $2.3 million, or 8.7%, due to greater emphasis earlier in the year
toward providing cash promotions and complimentary food to attract patrons and
build customer loyalty.
 
 Operating
expenses were $210.7 million for the year ended December 31, 2007 compared to
$202.0 million for the year ended December 31, 2006, an increase of $8.7
million, or 4.3%. Casino expenses increased $6.3 million, primarily due to
increases in the cost of complimentary meals provided to casino customers,
payroll and slot equipment lease expense. Food and beverage expenses increased
$3.4 million due to the increase in food and beverage volumes. General and
administrative expenses decreased $1.5 million due to increased efficiencies
achieved from the consolidation of the Buffington Harbor complex with Majestic
Star. Depreciation and amortization expenses decreased $1.1 million due to
assets becoming fully depreciated. In 2007, the Majestic Properties recorded a
$0.9 million charge for the disposal and write down of obsolete slot equipment
compared to a gain on the disposal of assets of $0.1 million in the prior
year.
 
 For the
year ended December 31, 2007, operating income for the Majestic Properties was
$30.3 million compared to $35.2 million in the prior year, a decrease of $4.9
million, or 13.8%.
 
 Fitzgeralds
Tunica
 
 Net
revenues for the year ended December 31, 2007 were $86.8 million at Fitzgeralds
Tunica compared to $84.0 million for the same period in 2006, an increase of
$2.8 million, or 3.4%. Casino revenues, which make up 80.0% of gross revenues,
decreased 3.8%, or $3.3 million, to $85.0 million in 2007 compared to $88.3
million in 2006. Slot revenues decreased $3.9 million, or 5.0%, to $74.3 million
from $78.2 million due to the utilization of downloadable promotional credits.
Table games revenues increased by $0.6 million, or 5.5%, to $10.7 million from
$10.1 million, primarily due to a 14.0% increase in table games drop. Food and
beverage revenues were $11.3 million, an increase of $1.2 million, or 12.2%,
from $10.1 million, resulting from an increase in complimentary meals provided
to our customers in order to increase casino volumes. Hotel revenues increased
$0.5 million, or 6.4%, and other revenues increased $0.3 million, or 26.1%.
Promotional allowances decreased $4.1 million, or 17.6%, due to the utilization
of downloadable promotional credits which significantly reduces the amount of
promotional cash coupons mailed and redeemed by our customers.
 
 Operating
expenses were $81.7 million for the year ended December 31, 2007 compared to
$75.1 million for the year ended December 31, 2006, an increase of $6.6 million,
or 8.8%. Casino expenses increased $1.8 million, or 5.6%, primarily due to
increases in the cost of complimentary rooms and meals provided to casino
customers, slot equipment lease expense and bad debt expense. Advertising and
promotional expenses increased $3.4 million due to increased junket, guest
transportation and player development costs.  In addition,
depreciation expense increased $1.8 million as a result of the purchase of slot
machines and equipment, and completion of a hotel remodeling project in
2007.
 
 For the
year ended December 31, 2007, operating income for Fitzgeralds Tunica was $5.1
million compared to $8.8 million in the prior year, a decrease of $3.7 million,
or 42.4%.
 
 Fitzgeralds
Black Hawk
 
 Net
revenues for the year ended December 31, 2007 were $30.7 million at Fitzgeralds
Black Hawk compared to $33.4 million in the same period in 2006, a decrease of
$2.7 million, or 8.1%. Casino revenues, which make up 92.8% of gross revenues,
decreased 7.3%, or $2.7 million, to $33.4 million in 2007 compared to $36.1
million in 2006. Slot revenues decreased $2.7 million, or 7.6%, to $32.6 million
from $35.3 million, due to an 11.3% decline in slot coin-in. Revenues were
reduced by improved facilities and greater levels of marketing from our
competitors and guest inconveniences resulting from our casino expansion
project.
 
 Operating
expenses were $24.7 million for the year ended December 31, 2007 compared to
$25.4 million for the year ended December 31, 2006, a decrease of $0.7 million,
or 2.4%. Casino expenses decreased $0.9 million, or 9.5%, primarily due to the
decrease in visitor volume.  Depreciation expense increased $0.4
million as a result of the purchase of slot machines and equipment primarily
during the 2006 year.
  For the
year ended December 31, 2007, operating income for Fitzgeralds Black Hawk was
$6.0 million compared to $8.1 million in the prior year, a decrease of $2.1
million, or 26.0%.
  32
 Table of Contents
  
 
 Corporate
 
 Corporate
operating expense was $6.4 million for both years ended December 31, 2007 and
2006.
 
 Other
expense
 
 Other
expense has increased to $61.0 million in net expenses for the year ended
December 31, 2007 compared to $60.0 million of expense in 2006. The majority of
this increase is interest expense associated with the accretion of the Discount
Notes.
 
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Contractual
Obligations and Commitments
 
 The
following table summarizes our contractual obligations and commitments at
December 31, 2008 (amounts in thousands):
 
 Payments
      Due by Year Ended (1)2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              TotalLong-term
      debt (2)
              
              $
              500,000
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              500,000Credit
      facility (2)
              
              
              79,336
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              79,336Capital
      leases
              
              
              592
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              592Development
      agreement (3)
              
              
              6,000
              
              
              
              6,000
              
              
              
              6,000
              
              
              
              6,000
              
              
              
              6,000
              
              
              
              -
              
              
              
              30,000Operating
      leases
              
              
              454
              
              
              
              150
              
              
              
              78
              
              
              
              29
              
              
              
              -
              
              
              
              -
              
              
              
              711Interest
      onLong-term
      debt (4)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Credit
      facility (5)
              
              
              5,054
              
              
              
              1,312
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,366Total
              
              $
              591,436
              
              
              $
              7,462
              
              
              $
              6,078
              
              
              $
              6,029
              
              
              $
              6,000
              
              
              $
              -
              
              
              $
              617,005(1)Excludes
      any amounts related to the debt of Majestic Holdco. Such debt of our
      parent company has been pushed down to us. See Note 10 – Long Term Debt in
      the Notes to Consolidated Financial Statements.(2)Due
      to the Event of Default that exists with our long term debt and credit
      facility, the amounts outstanding are reflected within current liabilities
      on our Consolidated Balance Sheet as of December 31, 2008 and are
      reflected in the 2009 column in this table.(3)On
      December 21, 2005, Majestic Star and Trump Indiana entered into an
      amended development agreement with the City, which, among other things,
      requires us to pay to the City an economic incentive payment equal to 3%
      of the adjusted gross receipts of the Majestic Properties, but in no event
      less than $6.0 million per year. Because this is a continuing obligation
      for the Company, we cannot estimate an amount to include in the Thereafter
      column. See Note 13 – Commitments and Contingencies in the Notes to
      Consolidated Financial Statements.(4)At
      December 31, 2008 we had $34.8 million of accrued interest. This includes
      $24.0 million in aggregate interest on the Senior Secured Notes and Senior
      Notes which was due on October 15, 2008 and has not been paid. Interest is
      being computed on this unpaid interest at the default rate which is 1%
      greater than the interest rate for the Senior Secured Notes (10.5%
      including default interest) and Senior Notes (10.75% including default
      interest).(5)Variable
      rate of 5.75% is calculated as bank base rate (which is the agent bank’s
      prime rate, 3.25% at December 31, 2008) plus 0.5% margin, plus default
      interest of 2.0%. We have included and intend to pay interest on the
      credit facility through maturity date even though we have included the
      principal on the credit facility in the 2009 column.
 
 
 33
 Table of Contents
 
  At
December 31, 2008, our debt level, not including the Discount Notes and the
unpaid October 15, 2008 interest payments, increased to $579.9 million from
$556.7 million at December 31, 2007. The primary reasons for the increase in our
debt were lower cash flow from operating activities and the funding of the
Fitzgeralds Black Hawk expansion, which affected our ability to pay down the
balance on our Senior Secured Credit Facility, and the drawing of $8.2 million
on the Senior Secured Credit Facility. For the year ended December 31, 2008,
cash provided by operations was $25.7 million as compared to $29.1 million for
the year ended December 31, 2007. Cash flow from operating activities was
impacted by the significant competition we have experienced in all of our
markets, generally weak economic conditions, including high gasoline prices
during the summer, which have reduced visitations and amounts wagered by our
customers, and the smoking ban in Colorado that went into effect on January 1,
2008, which prohibits gamblers at our Fitzgeralds Black Hawk property from
smoking within the casino. A discussion of the competitive environment in which
our casinos compete is presented above under Item 1A. Risk Factors, “We face
significant competition in each market in which we operate and other
markets.”
 
 We had
unrestricted cash and cash equivalents of $57.7 million at December 31, 2008
compared to $29.2 million at December 31, 2007. Our failure to make interest
payments in October 2008 increased cash provided by operations by $24.0 million.
We have historically used cash provided by operating activities to fund our
working capital requirements, including daily casino operations, capital
expenditures, distributions to our indirect member for income taxes and payments
on our Senior Secured Credit Facility. We have had a net working capital
deficit and have utilized the availability on our Senior Secured Credit Facility
to fund our working capital requirements as well as the semi-annual interest
payment on our Senior Secured Notes and Senior Notes. In the past, we have not
maintained excess cash but rather have utilized excess cash to pay down amounts
drawn on the Senior Secured Credit Facility. During the last six months of 2008
we have been accumulating cash rather than paying down on the Senior Secured
Credit Facility. On October 7, 2008, we drew $8.2 million, substantially all the
funds remaining under the Senior Secured Credit Facility. At December 31, 2008,
we had $0.7 million available on the Senior Secured Credit Facility. This
compares to $23.6 million available at December 31, 2007. At December 31, 2008,
we had a negative working capital of $652.5 million compared to a negative
working capital of $17.1 million at December 31, 2007 due to us classifying our
debt as current liabilities in the Consolidated Balance Sheet as of December 31,
2008.
 
 In
addition to the $79.3 million outstanding on the Senior Secured Credit Facility,
we have $300.0 million of Senior Secured Notes, $200.0 million of Senior Notes
and $0.6 million of capital leases and other debt. Every six months on October
15th
and April 15th, we are
required to pay $24.0 million to service the interest due on the Senior Secured
Notes and Senior Notes. The interest payments due October 15, 2008 were not made
prior to the expiration of the grace period on November 14, 2008 under the
indentures, thereby resulting in an Event of Default under the indentures
governing the Senior Notes and Senior Secured Notes and a default under Senior
Secured Credit Facility. Accordingly, the trustee or a specified percentage of
holders of these notes have the right to accelerate the maturity date of the
respective notes, which would cause the respective notes to be immediately
due and payable and could result in all of our indebtedness becoming immediately
due and payable. The lenders under our Senior Secured Credit Facility also have
the right to accelerate the maturity of our revolver. Further, the lenders under
the Senior Secured Credit Facility have the right to foreclose on substantially
all of our assets, which secure such indebtedness. Under the terms of an
intercreditor agreement between the trustee for the Senior Secured Notes, on
behalf of the note holders, and the agent under the Senior Secured Credit
Facility, the agent has the right to control any such actions during the
Standstill Period.  In addition, until such time as no interest
payment default exists, we are (i) required to pay an additional 1% per annum in
excess of the applicable interest rates on the notes on the overdue installments
of interest and an additional 2% on amounts outstanding under our Senior Secured
Credit Facility and (ii) restricted from taking certain actions including making
certain payments and investments and incurring certain
indebtedness.
 
 Consequently,
we have classified all of our debt within current liabilities in the Condensed
Balance Sheet as of December 31, 2008. We also will not make the interest
payments that are due on the notes on April 15, 2009. On April 15, 2009, we
will have accrued and unpaid interest on the Senior Secured Notes and Senior
Notes of $49.3 million.
  34
 Table of Contents
  
 These
factors raise substantial doubt about our ability to continue as a going
concern. See Note 3 – Going Concern to our Notes to the Consolidated Financial
Statements.
 
 We will
be required to pay any amounts outstanding on the Senior Secured Credit
Facility, plus accrued interest thereon, in April 2010. The Senior Secured Notes
mature in October 2010 and the Senior Notes mature in January 2011. We will not
be able to pay the amounts outstanding on the Senior Secured Credit Facility,
Senior Secured Notes or Senior Notes when they mature.
 
 In 2008,
we spent $18.1 million on capital expenditures, primarily on completing the
Fitzgeralds Black Hawk expansion. We have completed the expansion of Fitzgeralds
Black Hawk’s facility at a cost of $36.0 million. As a result of the economic
recession and the Colorado smoking ban, Fitzgeralds Black Hawk has not yet
experienced the significant increases in operating cash flows which had been
anticipated when the expansion was undertaken.
 
 Given our
commitments to complete the Fitzgeralds Black Hawk expansion, the lower cash
flows from operating activities at our facilities and the limited availability
under our Senior Secured Credit Facility, we were not able to make significant
improvements to amenities and gaming operations at our Majestic Properties and
Fitzgeralds Tunica during the current year. Through December 31, 2008, the
Majestic Properties and Fitzgeralds Tunica spent $0.8 million and $1.2 million,
respectively, on capital expenditures. The majority of the spending was on
maintenance capital expenditures, with minimal amounts spent on new gaming
product, including slot machines.  During 2007, the Majestic
Properties and Fitzgeralds Tunica each spent $7.4 million on capital
expenditures for the purchase of slot machines, upgrading the Fitzgeralds Tunica
hotel, remodeling the restaurants at the Majestic Properties and other
remodeling projects. We have a limited $12.3 million capital improvements plan
for 2009 for the purchase of new slot machines and conversions of existing slot
machines and the remodeling the casino areas of the Majestic Properties and
Fitzgeralds Tunica and the Fitzgeralds Tunica buffet. This plan will be funded
solely from our existing cash and future cash flows from operations. Given the
Event of Default that exists under our existing debt obligations, we will not be
able to seek debt financing in order to undertake capital projects necessary to
keep our casino properties competitive. We will not spend any other significant
amounts in 2009 on capital expenditures until we can determine the trend in our
cash flows. Our primary focus is to ensure satisfactory cash on hand to fund
costs associated with our debt restructuring endeavors. However, failure to make
capital expenditures could lessen our competitive position and lead to a more
rapid decline in cash flows.
 
 As part
of the restructuring process, we incurred $1.5 million in restructuring costs in
2008. We expect to incur significant additional restructuring costs which will
further adversely impact our liquidity.
 
 In 2008,
we made a distribution of $1.4 million to BDI for payment of Indiana state
income taxes.
 
 The
ultimate resolution of the Majestic Star Income Tax Protest, in which the
Indiana Department of Revenue has assessed us and BDI $4.1 million, plus
penalties and interest, and the Majestic Star Real Property Assessment Appeals
could have a material impact on our liquidity in the period that the taxes are
paid, if any. We are
party to various litigation matters and tax disputes, including the actions
commenced against the City of Gary, Indiana relating to the Amended Majestic
Development Agreement. An adverse judgment in any one or more of these cases or
tax disputes, or a determination that the Amended Majestic Development Agreement
is not enforceable, could have an adverse effect on our liquidity and financial
position.  See Item 3. Legal Proceedings.
 
 Majestic
Holdco’s Discount Notes and Event of Default
 
 Majestic
Holdco issued $63.5 million aggregate principal amount at maturity of Discount
Notes, due October 15, 2011. The Discount Notes pay interest, semiannually, on
April 15 and October 15 at a rate of 12 1⁄2%, which was paid in kind to
October 15, 2008. Commencing October 15, 2008, cash interest on the Discount
Notes began to accrue which will first become payable on April 15, 2009.
Majestic Holdco has no operations or the ability to generate cash flow
internally. We are precluded from making distributions to Majestic Holdco as
long as an Event of Default exists with our Senior Notes, Senior Secured Notes
and Senior Secured Credit Facility. In addition, there is an Event of Default
under the indenture governing the Discount Notes issued by our parent. Majestic
Holdco will not make the interest payments required on the Discount Notes on
April 15, 2009. Neither we nor any of our subsidiaries is a guarantor of the
Discount Notes. Neither our
  35
 Table of Contents
  equity in
nor our assets of any of our subsidiaries secures the Discount Notes. See Note
10 – Long-Term Debt to our Notes to the Consolidated Financial
Statements.
 
 Credit
Facility Amendments and Event of Default
 
 We have
entered into eight amendments to the loan and security agreement governing the
Senior Secured Credit Facility, many of which were necessary so that we would be
in compliance with either current or future financial covenants.
 
 On March
31, 2008, we entered into Amendment Number Eight (“Amendment Eight”) to the
Senior Secured Credit Facility. Amendment Eight was necessary as we were out of
compliance with the minimum EBITDA (as defined in the loan and security
agreement to the Senior Secured Credit Facility) covenant of $70.0 million for
the twelve-month period ended December 31, 2007. Amendment Eight waives the
Event of Default that occurred as a result of being out of compliance with the
minimum EBITDA covenant. Amendment Eight lowers the last twelve-month minimum
EBITDA and interest coverage ratio financial covenants (together, the “Amended
Financial Covenants”) for the applicable fiscal quarterly period end dates
starting with the last twelve-month period ended March 31, 2008. Minimum EBITDA
is now set at $58.5 million and the interest coverage ratio is set at 1.0 to1.0
for each twelve-month period as of the end of each calendar quarter. We were not
in compliance with the Amended Financial Covenants contained in the Senior
Secured Credit Facility at December 31, 2008.
 
 
 NEW
ACCOUNTING PRINCIPLES
 
 Recently
issued accounting standards which may affect the financial results are noted in
Note – 4 Recently Issued Accounting Pronouncements in the Notes to Consolidated
Financial Statements.
 
 
 CRITICAL
ACCOUNTING POLICIES
 
 Our
consolidated financial statements are prepared in accordance with U.S. Generally
Accepted Accounting Principles (“GAAP”), which requires our management to make
estimates and assumptions about the effects of matters that are inherently
uncertain. We have summarized our significant accounting policies in Note 2 –
Basis of Presentation and Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements. Of our accounting policies, we
believe the following may involve a higher degree of judgment and
complexity.
 
 Revenue Recognition — Casino
revenue is the net win from gaming activities, which is the difference between
the amount wagered by our gaming patrons and the amount paid out to our patrons
as a result of those wagers. Hotel, food and beverage and other revenues are
recognized at the time the related service is performed. We deduct from our
gross revenues the retail value of hotel rooms, food, beverage and merchandise
provided to our casino customers on a complimentary basis. We also deduct from
our gross revenues the value of certain cash-based promotional activities,
including cash earned by customers as part of our slot club programs and cash
coupons redeemed by our casino customers.
 
 Downloadable Promotional Credits— The Company’s Majestic Properties and Fitzgeralds Tunica provide
promotional programs that allow customers to download credits directly to the
slot machine being played (“downloadable promotional credits”).  The
amount of downloadable promotional credits given to a customer is determined at
the discretion of management.  Downloadable promotional credits are
not earned by a customer; however, management generally makes its decision
regarding the amount of downloadable promotional credits provided to a customer
based on the customer’s tracked play or as an award or prize.  The
Majestic Properties and Fitzgeralds Tunica do not record the wagering of
downloadable promotional credits as slot revenues and corresponding casino and
gross revenues as no consideration is provided by the customer to make the
wager. Downloadable promotional credits are not redeemable for cash; however,
any jackpots won as a result of the wagering of downloadable promotional credits
are deducted from slot revenues and corresponding casino and gross revenues. The
net impact of the implementation of downloadable promotional credits is lower
slot coin-in and slot revenues (casino revenues and gross
revenues).
  36
 Table of Contents
  
 The
implementation of the Company’s downloadable promotional credit programs
coincided with a significant reduction in the Company’s direct mail cash coupon
programs, generally on a dollar for dollar basis. With the Company’s direct mail
cash coupon programs, customers received cash coupons from the Company which
could be redeemed for cash with the hope that the cash would be wagered at the
casinos’ slot machines and table games. Cash coupons were mailed directly to the
Company’s customers, generally based upon their historical gaming play and other
criteria, solely at the discretion of management. Cash coupons, when redeemed,
were recorded as promotional allowances, which were deducted from gross revenues
when computing net revenues. When the cash was wagered in slot machines, it was
recorded as slot coin-in and slot revenues (casino revenues and gross
revenues).
  Goodwill and Other Intangible
Assets — We record goodwill and intangible assets in accordance with SFAS
142. Goodwill and intangible assets deemed to have indefinite lives are not
amortized, but are subject to at least annual impairment tests.
 
 At
December 31, 2008, we had $5.9 million of goodwill and $41.5 million of
intangible assets deemed to have an indefinite life. SFAS 142 requires that
goodwill and certain intangible assets be assessed for impairment using fair
value measurement techniques. Pursuant to SFAS 142, we are required to perform a
formal impairment review of our goodwill and indefinite lived intangible on at
least an annual basis and between annual tests if events occur or circumstances
change that would, more likely than not, reduce the fair values of these items
below the amount reflected on the balance sheet. We perform this review on
December 31 of each year.
 
 The
impairment test for goodwill is performed in two steps. The first step, used to
identify potential impairment, compares the fair value of a reporting unit with
its carrying amount, including goodwill and indefinite lived intangibles. If the
carrying amount of a reporting unit exceeds its fair value, then the second step
of the goodwill impairment test is performed to measure the amount of impairment
loss, if any. The second step, used to measure the amount of impairment loss,
compares the implied fair value of reporting unit goodwill with the carrying
amount of that goodwill. The implied fair value of goodwill is determined in the
same manner as in a business combination.  Indefinite-lived intangible assets represent license rights at
Majestic Star II and are tested for impairment using a discounted cash flow
approach.
 
 Determining
the fair value of indefinite-lived intangibles and the fair value and implied
value of goodwill is judgmental in nature and often involves the use of
significant estimates and assumptions. Estimates of fair value are primarily
determined using discounted cash flows and market comparisons. These approaches
use significant estimates and assumptions, including projection and timing of
future cash flows, discount rates reflecting the risk inherent in future cash
flows, perpetual growth rates, determination of appropriate market comparables,
and determination of whether a premium or discount should be applied to
comparables. It is reasonably possible that the plans and estimates used to
value these assets may be incorrect. These estimates and assumptions could have
a significant impact on whether or not an impairment charge is recognized and
also the magnitude of any such charge. If our actual results, or the plans and
estimates used in future impairment analyses, are lower than the original
estimates used to assess the recoverability of these assets, we could incur
future impairment charges.
 
 In
accordance with the provisions of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets"(“SFAS 144”), finite-lived intangible
assets held and used by the Company are reviewed for impairment when events or
changes in circumstances warrant such a review. The carrying value of a
finite-lived intangible asset is considered impaired when the anticipated
undiscounted cash flow from such asset is less than its carrying value. In that
event, an impairment loss is recognized. An impairment loss is recognized for
the difference between the fair value and the carrying amounts.
 Property and Equipment — At
December 31, 2008, we had approximately $263.6 million of net property and
equipment recorded on our consolidated balance sheet. We depreciate our assets
on a straight-line basis over their estimated useful lives. The estimate of the
useful lives is based on the nature of the asset as well as our current
operating strategy. Future events, such as property expansions, new competitors
and new regulations, could result in a change in the manner in which we are
using certain assets which, in turn, could require a change in the estimated
useful lives of such assets. In assessing the recoverability of the carrying
value of property and equipment, we must make assumptions regarding estimated
future cash flows and other factors. If these estimates or the related
assumptions change in the future, we may be required to record impairment
charges for these assets.
 
 Casino Club Liability — All
of our casinos offer programs whereby participants can accumulate points for
casino wagering that can currently be redeemed for cash, lodging, food and
beverages and merchandise. A liability is recorded for the estimate of
unredeemed points based upon each property’s redemption history. Changes in the
program, increases in membership and changes in the redemption patterns of the
participants can impact this liability.
 
 Self-Insurance Liability —
The Company maintains accruals for self-insured health and workers’ compensation
programs, which are classified in payroll and related liabilities in the
consolidated balance sheets. Management and consultants determine the estimates
of these accruals by periodically evaluating the historical expenses and
projected trends related to these accruals. Actual results may differ from those
estimates.
  37
 Table of Contents
  
 Litigation, Claims and Assessments —We also utilize estimates for litigation, claims and assessments. These
estimates are based upon our knowledge and experience about past and current
events and also upon reasonable future events. Actual results may differ from
those estimates.
 
 
 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. Our primary exposure to market risk is interest rate risk associated
with our long-term debt. The Company does not have any financial instruments
held for trading or other speculative purposes and does not invest in derivative
financial instruments, interest rate swaps or other investments that alter
interest rate exposure.
 
 The table
below provides information about our financial instruments that are sensitive to
changes in interest rates. For debt obligations, the table presents notional
amounts and weighted average interest rates by contractual maturity dates for
the years ended December 31:
 
 2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              Thereafter
              
              
              Total
              
              
              Fair
      Value (1)(in
      thousands)Long-Term
      DebtFixed
      Rate (2)
              
              $
              563,596.0
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              563,596.0
              
              
              $
              175,428.3Average
      interest rate
              
              
              9.92
              %
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              9.92
              %Variable
      Rate (3)
              
              $
              79,336.0
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              79,336.0
              
              
              $
              79,336.0Average
      interest rate
              
              
              5.75
              %
              
              
              5.75
              %
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              n/a
              
              
              
              5.75
              %
              
              
              5.75
              %(1)The
      fair values for debt with no public market are based on the borrowing
      rates currently available for debt instruments with similar terms and
      maturities, and for publicly traded debts, the fair values are based on
      market quotes.(2)Our
      fixed-rate debt maturities include the Discount Notes issued by Majestic
      Holdco. The Discount Notes are solely the obligation of Majestic Holdco
      and are unsecured. There is an Event of Default under our Senior Secured
      Notes, Senior Notes and Majestic Holdco’s Discount Notes. Therefore, we
      have classified all debt as current. The average interest rate computation
      is based on the average interest rate of our long-term fixed rate debt.
      Not included in the average interest rate computation is the default
      interest on the $24.0 million in aggregate interest payments not made on
      October 15, 2008. The default interest is 1% higher than stated interest
      rate on the Senior Secured Notes and Senior
  Notes.(3)Based
      on contractual interest rate for variable rate of 5.75% calculated as bank
      base rate (which approximates the prime rate, 3.25% at December 31, 2008)
      plus 0.5% margin plus default interest of 2.0%. There is an Event of
      Default under our Senior Secured Credit Facility. Therefore, we have
      classified our Senior Secured Credit Facility as
      current.
 
  The
Senior Secured Credit Facility has a maximum credit line of $80.0 million.
Assuming we have borrowed against the maximum available under the Senior Secured
Credit Facility, a one-half percentage point change in the underlying variable
rate would result in a change in related interest expense of $0.4 million on an
annual basis. Additionally, should we assume variable-rate debt in the future,
we will be subject to market risk, which is the risk of loss from changes in
market prices and interest rates.
 
 At
December 31, 2008, we had outstanding borrowings of $79.3 million under our
Senior Secured Credit Facility. Due to the Event of Default, we cannot draw
additional funds.
  38
 Table of Contents
  
 The
$300.0 million principal amount of Senior Secured Notes outstanding and $200.0
million principal amount of Senior Notes outstanding issued by us and the $63.5
million of Discount Notes issued by our parent are all fixed-rate debt
instruments. Interest expense on our fixed-rate debt instruments is not affected
by a change in the market rates of interest, and therefore, such changes
generally do not have an impact on future earnings.
 
 
 ITEM
8.                      FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
 
 See Item
15(a) of this Annual Report on Form 10-K.
 
 
 ITEM
9.                      CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 Not
applicable.
 
 
 ITEM
9A.(T)              CONTROLS
AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer (together, the "Certifying Officers"), as appropriate, to allow for
timely decisions regarding required disclosure.
 
 As of
December 31, 2008, the end of the period covered by this report, we carried out
an evaluation, under the supervision and with the participation of management,
including the Certifying Officers, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based upon that evaluation,
the Certifying Officers concluded that our disclosure controls and procedures
were effective as of December 31, 2008.
 
 This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting in
accordance with the rules and regulations of the SEC.
 
 Management
Report on Internal Control over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with GAAP. Internal control over
financial reporting includes those policies and procedures that: (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that our receipts and
expenditures are being made only in accordance with authorizations of our
management and Board; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial
statements.
 
 Our
management, including our Certifying Officers, recognizes that our internal
control over financial reporting cannot prevent or detect all errors and all
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives
will be met. The design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, have been detected. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions.
  39
 Table of Contents
  
 Management,
with the participation of the Certifying Officers, assessed our internal control
over financial reporting as of December 31, 2008, the end of our fiscal year.
Management based its assessment on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management has concluded that our
internal control over financial reporting was effective as of December 31,
2008.
 
 
 Changes
in Internal Control over Financial Reporting
 
 There was
no change in our internal controls over financial reporting that occurred during
our most recently completed fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
 
 
 ITEM
9B.                      OTHER
INFORMATION
 
 Not
applicable.
 
 
 PART III
 
 
 ITEM
10.                      DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 The
following table sets forth certain information with respect to the directors and
executive officers of the Company as of March 31, 2009. Elected directors
serve for a term expiring at the annual member meeting following their
election or until they resign, are removed or their successor is duly
elected and qualified.
 
 Name
              
              Age
              
              Position(s)Don
      H. Barden
              
              65
              
              Chairman,
      President and Chief Executive OfficerCara
      Brown
              
              46
              
              Director,
      Senior Vice President and General CounselPatrick
      R. Cruzen
              
              62
              
              DirectorJohn
      A. O’Brien
              
              52
              
              DirectorMichelle
      R. Sherman
              
              43
              
              DirectorJon
      S. Bennett
              
              48
              
              Senior
      Vice President, Chief Financial Officer and TreasurerMichael
      Darley
              
              58
              
              Interim
      Executive Vice President and Chief Operating
  Officer
 
 Don H.
Barden is Chairman, President and Chief Executive Officer of the Company and,
since November 1993, Chairman and President of BDI, the manager of the Company,
with responsibility for key policy-making functions. Since their formations, Mr.
Barden is also President and Chief Executive Officer of BCG and BMG; and
Chairman, President and Chief Executive Officer of The Majestic Star Casino
Capital Corp., and Majestic Star Casino Capital Corp. II. Additionally, he is
the President and Chief Executive Officer of a group of other companies he owns
and/or operates. Over the last 40 years, Mr. Barden also successfully built,
owned and operated numerous business enterprises in various industries including
cable television, international trade, radio broadcasting and real estate
development.
 
 Cara
Brown has been a Director of the Company since November 2006. Ms. Brown joined
the Company in December 2001 as its Vice President and General Counsel and
served in that capacity until her resignation effective May 31, 2006. After her
resignation, Ms. Brown and the Company entered into a consulting agreement with
a six-month term commencing June 1, 2006 and ending November 30, 2006.
Ms. Brown returned as an employee of the Company on June 1, 2008, and from that
date through February 8, 2009, Ms. Brown served as Acting Senior Vice President
and General Counsel. On February 9, 2009, she accepted the position of Senior
Vice President and General Counsel and currently serves in that
capacity.
 
 Patrick
R. Cruzen has been a Director of the Company since June 2005. He is the Chairman
of the Audit Committee and a member of the Compensation Committee. Mr. Cruzen is
the Chief Executive Officer and a principal of Cruzen & Associates, an
executive search and consulting firm formed in 1997 and specializing in the
gaming, gaming supply, hospitality and lottery industries. Mr. Cruzen also
serves as a Director for Canterbury Park Holding Corp.
  40
 Table of Contents
  
 John A.
O’Brien has been a Director of the Company since March 2009. He is the Chairman
of the Compensation Committee and a member of the Audit Committee. Mr. O’Brien,
a former CPA, has worked in the gaming industry for nearly twenty-nine years,
having served in various executive level positions in the areas of operations,
finance, strategic planning and administration. Mr. O’Brien is currently a
self-employed consultant in the gaming and hospitality industry. From June 2006
to January 2008, Mr. O’Brien served as the President of Foxwoods Resort Casino,
and from June 1997 to June 2006, he served as Foxwoods’ Executive Vice President
and Chief Financial Officer. He also served as a director of Foxwoods
Development Company from September 2003 to January 2008.
 
 Michelle
R. Sherman has been a Director of the Company since July 2004 and is a member of
the Compensation Committee. Ms. Sherman also serves as Vice President, Chief
Financial Officer and Treasurer of Barden Companies, Inc. (“Barden”). Ms.
Sherman has been with Barden for over 15 years, serving Barden in various
capacities including accounting, finance, administration, and business
development. Ms. Sherman is an officer of many Barden’s affiliate entities,
including BDI for which she serves as Vice President, Treasurer and
Secretary.
 
 Jon S.
Bennett has been the Senior Vice President, Chief Financial Officer and
Treasurer of the Company since October 2002 with overall responsibility for all
aspects of the Company’s financial management, accounting and reporting
processes. Mr. Bennett is also the Senior Vice President, Chief Financial
Officer and Treasurer for The Majestic Star Casino Capital Corp., Majestic Star
Casino Capital Corp. II, Majestic Star Casino II, Inc., BMG and BCG. Prior to
Mr. Bennett’s appointment as Senior Vice President, Chief Financial Officer and
Treasurer, Mr. Bennett was Vice President of Finance and Administration for BMG
from its acquisition in December 2001 to his promotion in October
2002.
 
 Michael
Darley became the Interim Executive Vice President and Chief Operating Officer
of the Company and its subsidiaries effective as of September 13, 2008, with
responsibility for all aspects of the Company’s operating activities. Mr. Darley
is also Senior Vice President and General Manager of Barden Nevada since May
2002. Mr. Darley has 27 years of gaming experience, including executive level
operating positions in the Trump and Harrah’s organizations.
 
 Former Directors and Executive
Officer in 2008.  Kirk C. Saylor ceased to be employed as the
Executive Vice President and Chief Operating Officer of the Company, and
resigned from his position as director, effective August 29, 2008. Andrew J.
Warhola, a director (including Chairman of the Compensation Committee and member
of the Audit Committee), died in January 2009.
 
 Audit
Committee Financial Expert
 
 The Audit
Committee assists the Board of Directors (“Board”) in its general oversight of
the Company’s accounting and financial reporting processes and the audit of the
Company’s financial statements.  The members of the Audit Committee in
2008 were Mr. Cruzen, the Chairman, and Mr. Warhola. Mr. Cruzen, the Chairman,
and Mr. O’Brien currently serve on the Audit Committee. The Board has determined
that Mr. Cruzen and Mr. O’Brien each qualify as an “audit committee financial
expert” in accordance with SEC rules.  The designation of an audit
committee financial expert does not impose upon such person any duties,
obligations or liabilities that are greater than are generally imposed on
members of the Audit Committee and the Board, and such designation does not
affect the duties, obligations or liabilities of any other member of the Audit
Committee or the Board.
 
 Code of Business Conduct and
Ethics
 
 We have
adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to
our officers, including our Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer, directors and employees. The failure of any of these
persons to comply with the Code of Ethics may result in disciplinary action, up
to and including termination of employment for our personnel. The Code of Ethics
is available in the “Corporate - Corporate Governance” section of our website at
www.majesticstar.com.
Waivers of the Code of Ethics, if any, will be made by the Board of Directors
and will be publicly disclosed in the “Corporate - Corporate Governance” section
of our website.
 
  41
 Table of Contents
  
 ITEM
11.                      EXECUTIVE
COMPENSATION
 
 Compensation
Discussion and Analysis
 
 Mr.
Barden, as the Company’s Chairman, President and Chief Executive Officer, and
the sole shareholder of BDI, has absolute discretion in reviewing and approving
annually all compensation decisions relating to the Company’s executive
officers.  This section explains how the Company’s compensation
programs are designed and operate in practice with respect to Mr. Barden, Mr.
Bennett (Senior Vice President, Chief Financial Officer and Treasurer) and the
other executive officers named in the Summary Compensation Table (the “named
executive officers”).
 
 Mr.
Saylor ceased to be employed as the Executive Vice President and Chief Operating
Officer of the Company, and resigned from his position as director, effective
August 29, 2008. Mr. Darley became the Interim Executive Vice President and
Chief Operating Officer of the Company effective as of September 13, 2008. Prior
to such date and continuing as of the date hereof, he serves as the Senior Vice
President and General Manager of Barden Nevada.
 
 Messrs.
Barden and Bennett perform certain services for Barden Nevada, and, therefore,
25% of their compensation is allocated to Barden Nevada. Similarly, Mr. Saylor
performed certain services for Barden Nevada and, therefore, 25% of his
compensation, including his severance payment, was allocated to Barden Nevada.
Since Mr. Darley continues to hold the position of Senior Vice President and
General Manager of Barden Nevada, the Company allocates to Barden Nevada 100% of
the compensation due Mr. Darley as if his employment agreement with Barden
Nevada was still in effect, including bonus payments made by the Company. The
Company pays all such compensation and is reimbursed by Barden Nevada pursuant
to an expense sharing agreement. The amounts disclosed in this Item 11.
Executive Compensation, reflect 100% of the compensation costs paid by the
Company, including the portion reimbursed by Barden Nevada. However, all
compensation paid to Mr. Darley by Barden Nevada prior to his employment with
the Company in September 2008 has been excluded.
 
 Compensation
Objectives and Philosophy
 
 As the
100% beneficial owner of the Company, Mr. Barden has the opportunity to benefit
from the enhanced value of the Company resulting from Company performance.
Therefore, Mr. Barden has requested only a base salary and other limited
benefits.
 
 The
Company’s compensation program for the other named executive officers is
designed to provide total compensation that is both fair and competitive,
attract and retain key executives and reward the achievement of individual and
Company goals through financial incentives. Mr. Barden and those to whom he
delegates authority seek to ensure the foregoing objectives by considering the
following in finalizing compensation determinations: individual performance
reviews and experience; Company performance on a short-term and long-term basis;
internal pay equity; hiring and retention needs; market data of gaming companies
of similar size and structure; and other external market pressures.
 
 Determining
Compensation for Named Executive Officers
 
 As noted
above, Mr. Barden has absolute discretion in reviewing and approving annually
all compensation decisions relating to the Company’s executive
officers.  In general, members of the Compensation Committee and Board
serve in an advisory role on compensation determinations for named executive
officers.  At his discretion, Mr. Barden delegates certain
compensation determinations regarding the named executive officers to the Board,
Compensation Committee and other executive officers, subject to his final
agreement. In 2008, Mr. Barden delegated the following compensation
determinations: (a) Mr. Barden’s 2008 base salary was established by the
Compensation Committee; (b) Mr. Bennett’s base salary was determined by Mr.
Saylor, the former Executive Vice President and Chief Operating Officer; and (c)
the Board approved a Management Incentive Plan (“MIP”) applicable to the named
executive officers, except Mr. Barden, and other key employees.
 
 The
Compensation Committee does not utilize a compensation consultant to establish
or administer its executive compensation program.
  42
 Table of Contents
  
 Elements
of Compensation in 2008 for Named Executive Officers
 
 The
Company’s compensation program generally consists of a base salary, cash bonus
and other fringe benefits. Mr. Barden has elected to retain 100% indirect
ownership of the Company, and therefore the Company does not provide equity
compensation. Further, the Company does not currently maintain for the benefit
of its named executive officers any long-term incentive program, non-qualified
deferred compensation arrangement or defined benefit plan.
 
 Mr.
Barden has determined to employ the other named executive officers pursuant to
employment agreements when these agreements can be reasonably negotiated and are
acceptable to Mr. Barden and the named executive officers. Mr. Barden negotiated
Mr. Darley’s employment agreement, effective September 2008, and negotiated Mr.
Saylor’s employment agreement, which term ended May 2008 (subject to
non-competition, non-solicitation and confidentiality provisions that remain in
effect). Mr. Saylor negotiated Mr. Bennett’s employment agreement, which term
ended July 2008 (subject to non-competition, non-solicitation and
confidentiality provisions, and limited severance provisions, that remain in
effect). The employment agreements establish minimum base salaries, a target
cash bonus and specified severance benefits. Mr. Barden also has an employment
agreement, but it does not contain any severance benefits or contemplate his
participation in the MIP. See “Potential Payments Upon Termination of
Change-in-Control” for a detailed description of the employment
agreements.
 
 Mr. Barden.In
accordance with his employment agreement, Mr. Barden’s compensation consists
solely of a base salary, an auto allowance and the payment of group term life
insurance premiums. The base salary for Mr. Barden is established by the
Compensation Committee, based upon what it believes to be fair and reasonable.
Mr. Barden determined that he will not participate in the Company’s MIP, as
historically his 100% beneficial ownership provides sufficient incentive for his
job performance.
 
 Mr.
Barden’s base salary was reviewed by the Compensation Committee in 2004 and set
at $600,000 beginning in January 2005 based on an informal review of
compensation packages for CEO’s of other mid-level gaming companies at that
time. Mr. Barden requested that the Compensation Committee not increase his
salary for 2006 or 2007. Effective January 1, 2008, Mr. Barden’s base salary was
adjusted to $750,000 per year. The increase was approved by the Board of
Directors after a review of compensation packages for CEO’s of other mid-level
gaming companies.
 
 Other
Named Executive Officers
 
 Base
Salary. Mr. Barden believes that base salary is a primary factor in
retaining and attracting key employees in a competitive marketplace especially
in a recessionary economy. The minimum base salaries of the other named
executive officers are established pursuant to their employment agreements, or
in the event no employment agreement exists, based on previously negotiated base
salaries, with any increases at the sole discretion of the Company.
 
 Effective
January 1, 2008, Mr. Barden increased Mr. Saylor’s base salary by $38,000 above
his employment agreement minimum to $538,000, and Mr. Saylor increased Mr.
Bennett’s base salary by $20,000 above his employment agreement minimum to
$320,000. Mr. Darley’s base salary was $375,000, as set forth in his employment
agreement with the Company.
 
 Cash
Bonus. The other named executive officers participate in the MIP, which
contemplates the payment of cash bonuses to participants based upon the
achievement of Company and individual performance goals. The MIP is designed to
provide participants with a competitive annual incentive that is tied to their
position and base salary, reward participants for the overall financial success
of the Company and its affiliate, and provide incentives to participants to
perform individually in critical business areas which are not necessarily
measured by financial performance. The MIP also is intended to assist the
Company in retaining and attracting employees in the near term. The Board
retains the discretion to pay bonuses above those determined in accordance with
the MIP.
 
  43
 Table of Contents
  The MIP
sets forth specific target bonus awards (specified as a percentage of base
salary actually earned during the year) and the weighting of Company and
individual performance goals, based upon job position. The employment agreements
of Mr. Darley, Mr. Saylor and Mr. Bennett specified target bonuses that
corresponded to the amounts set forth in the MIP. The following table sets forth
such information for the other named executive officers in 2008:
 
 Target
      Bonus
              
              
              
              Company
      Financial
              
              Individual(%
      of Base
              
              Target
      Bonus (1)
              
              Performance
              
              PerformanceName
              
              Salary
      Earned)
              
              ($)
              
              Component
              
              ComponentMichael
      Darley
              
              40%
              
              40,440
              
              70%
              
              30%Kirk
      Saylor
              
              50%
              
              269,000
              
              70%
              
              30%Jon
      Bennett
              
              30%
              
              96,000
              
              60%
              
              40%
  
 (1)
              This
      column is based on the actual base salary earned in 2008 as follow: for
      Messrs. Saylor and Bennett, the Target Bonus (% of Base Salary Earned) is
      multiplied by the base salary effective January 1, 2008, and for Mr.
      Darley, the Target Bonus (% of Base Salary Earned) is multiplied by a
      pro-rata portion (September 31 to December 31) of his base salary
      effective September 13, 2008.
  Achievement
of the financial performance component for the named executive officers is based
upon the actual Earnings Before Interest, Taxes, Depreciation and Amortization
(“EBITDA”) of the Company compared to the budgeted EBITDA of the Company. For
purposes of the MIP, EBITDA of the “Company” includes The Majestic Star Casino,
LLC and its subsidiaries and the Company’s affiliate, Barden Nevada (which
operates the Fitzgeralds Las Vegas). EBITDA is defined as earnings before
interest, taxes, depreciation and amortization. EBITDA is utilized because Mr.
Barden believes it is an important measure of operating performance, focusing on
the Company’s core operating results by removing the impact of the Company’s
capital structure (interest expense from outstanding debt), asset base
(depreciation and amortization) and tax consequences. In addition, management
uses EBITDA for business planning purposes and the evaluation of current
operating performance. Budgeted EBITDA is developed by management to be an
aggressive but attainable financial target.
 The
following table sets forth the correlation between performance and bonus payout
with respect to the financial performance component:
 
 Actual
      EBITDA as a %of
      budgeted EBITDA
              100
              99
              98
              97
              96
              95
              94
              93
              92
              91
              90
              89
              88
              87
              86
              85Bonus
      payout as a %of
      bonus target
              100
              98
              96
              94
              92
              90
              87
              84
              81
              78
              75
              70
              65
              60
              55
              50
 
 If the
actual EBITDA of the Company is 84% or less than budgeted EBITDA, no bonus will
be paid with respect to the financial performance component. If the actual
EBITDA of the Company exceeds budgeted EBITDA, then 25% of such excess will be
applied to the bonus pool for those participants subject to the Company EBITDA
performance measure and will be distributed on a weighted average
basis.
 
 The
individual goals for the named executive officers are approved by Mr. Barden in
the case of Messrs. Darley and Saylor and by Mr. Saylor in the case of Mr.
Bennett. The named executive officers are eligible to receive a bonus with
respect to their individual performance component, even if the actual EBITDA of
the Company is less than 85% of the budgeted EBITDA.
 
 In 2008,
actual EBITDA of the Company was 80.4 % of budgeted EBITDA, which resulted in no
bonus with respect to the financial performance component. Although Messrs.
Darley and Bennett remained eligible to receive a bonus for their individual
performance component, the Board determined it was more practical to consider
discretionary bonuses in light of the ongoing recession and related factors. The
Board determined to pay discretionary bonuses of $26,659 and $45,167 to Messrs.
Darley and Bennett, respectively, which is reported in the “Bonus” column of the
Summary Compensation Table. Mr. Saylor was not paid a bonus in accordance with
the severance arrangement as of the termination of his
employment.
  44
 Table of Contents
  
 Other
Fringe Benefits.The Company
provides perquisites and other benefits to its named executive officers to
attract and maintain such employees in a competitive marketplace.  In
accordance with their respective employment agreements, or if none, pursuant to
Company policy, each of the named executive officers is entitled to participate
in all of the Company’s executive benefit plans as are generally made available
from time to time to senior executives, subject to the terms and conditions of
the plans, and subject to the Company’s right to amend, terminate or take other
similar actions with respect to such plans. These fringe benefits include
participation in the Company’s 401(k) and a Company match, group-term life
insurance, auto allowance, group health and executive medical expense
reimbursement plans (up to $5,000 for certain medical expenses not covered by
insurance). The auto allowance was terminated for Mr. Saylor and Mr. Bennett in
January 2008.
 
 Severance
Benefits.Mr. Darley’s
employment agreement with the Company provides limited severance benefits. Mr.
Bennett’s employment agreement, which term ended July 2008, has limited
severance provisions that continue following the end of such term. See
“Potential Payments Upon Termination or Change-in-Control” for further
information. Mr. Saylor was party to an employment agreement with specified
severance benefits. However, Mr. Saylor and the Company negotiated a separate
severance arrangement as of the termination of his employment. The Company paid
Mr. Saylor $134,500, equal to ninety days of base salary, on such
date.
 
 EXECUTIVE
COMPENSATION TABLES
 
 Summary
Compensation Table
 
 The
following table sets forth the total compensation paid or earned by the named
executive officers during the years shown below. Messrs. Barden, Bennett and
Saylor, prior to his leaving the Company, performed certain services for Barden
Nevada, and therefore 25% of their compensation was allocated to Barden Nevada.
Since Mr. Darley continued to hold the position of Senior Vice President and
General Manager of Barden Nevada, the Company allocated to Barden Nevada 100% of
the compensation paid to Mr. Darley as if Mr. Darley’s employment agreement was
still in effect with Barden Nevada. The Company paid all such compensation and
was reimbursed by Barden Nevada pursuant to an expense sharing agreement. The
amounts disclosed in this Summary Compensation Table reflect 100% of the
compensation costs paid by the Company, including the portion reimbursed by
Barden Nevada. However, all compensation paid to Mr. Darley by Barden Nevada
prior to his employment with the Company in September 2008 has been
excluded.
 
 Non-
      EquityIncentive
      Plan
              
              All
      OtherName
      and Principal Position
              
              Year
              
              Salary
      ($)
              
              Bonus
      ($)
              
              Compensation
      ($)
              
              Compensation
      ($)
              
              Total
      ($)Don
      H. Barden
              
              
              2008
              
              747,116
              
              -
              
              
              -
              
              
              71,116
              (1)
              
              818,232Chairman,
      President and
              
              2007
              
              600,000
              
              -
              
              
              -
              
              
              57,052
              
              
              657,052Chief
      Executive Officer
              
              2006
              
              600,228
              
              -
              
              
              -
              
              
              57,069
              
              
              657,297Michael
      Darley
              
              
              2008
              
              101,099
              
              26,659
              
              
              -
              
              
              2,224
              (2)
              
              129,982Interim
      Executive Vice Presidentand
      Chief Operating OfficerKirk
      C. Saylor
              
              
              2008
              
              371,731
              
              -
              
              
              -
              
              
              148,932
              (3)
              
              520,663Former
      Executive Vice President
              
              2007
              
              461,154
              
              69,600
              
              
              -
              
              
              70,936
              
              
              601,690and
      Chief Operating Officer
              
              2006
              
              246,178
              
              50,000
              
              
              -
              
              
              1,628
              
              
              297,806Jon
      S. Bennett
              
              
              2008
              
              319,616
              
              45,167
              
              
              -
              
              
              7,344
              (4)
              
              372,127Senior
      Vice President,
              
              2007
              
              304,500
              
              70,000
              
              
              -
              
              
              6,570
              
              
              381,070Chief
      Financial Officer
              
              2006
              
              287,307
              
              50,000
              
              
              -
              
              
              22,215
              
              
              359,522and
      Treasurer
 
  (1)
              Includes
      an auto allowance of $41,398 and group term life insurance premiums of
      $29,718.(2)
              Includes
      group term life insurance premiums of $2,224.(3)
              Includes
      severance pay of $134,500, a golf club membership and related dues of
      $8,834, group term life insurance premiums of $2,668, and an auto
      allowance of $1,805. Upon termination, Mr. Saylor was vested 25% in the
      401(k) plan and, therefore, 25% of the Company match in 2008, $1,125, is
      included herein. Upon termination, 75% of Company match from 2007 and
      2008, which had a market value of $3,728 at such time, was
      forfeited.(4)
              Includes
      a 401(k) match of $4,500, group term life insurance premiums of $2,214 and
      an auto allowance of $630.  Mr. Bennett is fully vested in the 401(k)
      match.
  45
 Table of Contents
   Grants
of Plan-Based Awards in 2008
 
 Estimated
      Possible Payouts Under Non-Equity Incentive Plan AwardsThreshold
              
              Target
      (1)
              
              MaximumName
              
              ($)
              
              ($)
              
              ($)Michael
      Darley
              
              N/A
              
              40,440
              
              (1)Kirk
      Saylor
              
              N/A
              
              269,000
              
              (1)Jon
      Bennett
              
              N/A
              
              96,000
              
              (1)
 
 (1)
              The
      maximum amount is equal to (A) the target and (B) if the actual EBITDA of
      the Company exceeds budgeted EBITDA, then 25% of such excess will be
      applied to the bonus pool for those participants subject to the Company
      EBITDA performance measure and will be distributed on a weighted average
      basis. Therefore, we cannot specify a maximum
  amount.
   The MIP
sets forth specific target bonus awards as a percentage of base salary earned
during the year as follows: for Mr. Saylor and Mr. Bennett the Target Bonus (%
of Base Salary Earned) is multiplied by the base salary effective January 1,
2008 and for Mr. Darley, the Target Bonus (% of Base Salary Earned) is
multiplied by a pro-rata portion (September 13 to December 31) of his base
salary effective September 13, 2008.
 
 Amounts
in the table relate to the cash bonus under the MIP. See “Compensation
Discussion and Analysis—Elements of Compensation in 2008 for Named Executive
Officers—Other Named Executive Officers—Cash Bonus” for a description of the MIP
and potential payments there under.
 
 Potential
Payments Upon Termination or Change-in-Control
 
 The
following section describes potential payments and benefits to the named
executive officers under the Company’s compensation and benefit plans and
arrangements upon termination of employment or a change in control of the
Company.  The MIP provides for payments upon specified
terminations.  Further, all of the named executive officers have (or
had) employment agreements with the Company.  The severance terms of
Mr. Saylor’s employment agreement are described only to the extent applicable to
his resignation in August 2008.
 
 Management Incentive
Plan
 
 If the
Company terminates a named executive officer other than for “cause,” the
participant will receive a pro rata bonus (only with respect to the financial
performance component) within 30 days following the last day of
employment.  For the named executive officers, “cause” is defined in
the same manner as in their respective current or expired employment
agreements.
 
 Employment
Agreements
 
 Mr. Barden.  Mr.
Barden serves as our Chairman, President and Chief Executive Officer pursuant to
an employment agreement dated January 5, 2005.  The agreement provides
that Mr. Barden’s base salary is $600,000, and he is also entitled to an auto
allowance and payment of certain life insurance premiums.  Effective
January 1, 2008, Mr. Barden’s base compensation was increased to $750,000 per
year.  The agreement does not provide for any severance
benefits.
 
 Mr. Saylor.  Mr.
Saylor’s employment agreement, effective May 2006 to May 2008, provided for a
base salary of $400,000 for the first 12 months of employment and $500,000 for
the second 12 months, subject to increases at the discretion of the Company. Mr.
Saylor was entitled to participate in the Company’s bonus
  46
 Table of Contents
  programs
and had a target bonus of 50% of base salary. Mr. Saylor was also entitled to
participate in the Company’s employee benefit plans as were generally made
available to the Company’s senior executives. He also participated in the
executive medical reimbursement plan and received a car allowance. In January
2008, the car allowance was eliminated and his salary was increased by a
corresponding amount. Mr. Saylor’s employment agreement included specified
severance benefits. However, Mr. Saylor and the Company negotiated a separate
severance arrangement as of the termination of his employment in August 2008.
The Company paid Mr. Saylor $134,500, equal to ninety days of base salary, on
such date. Mr. Saylor remains subject to non-competition and non-solicitation
provision until August 2009 as well as confidentiality provisions.
 
 Mr. Bennett.  Mr.
Bennett serves as our Senior Vice President, Chief Financial Officer and
Treasurer as an at-will employee of the Company. He was party to an employment
agreement with the Company effective July 2006 to July 2008. The agreement
provided for a base salary of $300,000, subject to increases at the discretion
of the Company. Mr. Bennett was entitled to participate in the Company’s bonus
programs and had a target bonus of 30% of base salary. Mr. Bennett was also
entitled to participate in the Company’s employee benefit plans as were
generally made available to the Company’s senior executives. He also
participated in the executive medical reimbursement plan and received a car
allowance. In January 2008, the car allowance was eliminated and his salary was
increased by a corresponding amount. Mr. Bennett continues to participate in the
Company’s various benefit plans and MIP, as made available to the Company’s
senior executives, as an at-will employee.
 
 Under the
continuing provisions of his employment agreement, the Company must provide Mr.
Bennett 30 days written notice prior to termination of employment (or
alternatively, can pay him 30 days base salary and terminate him immediately).
Mr. Bennett must provide 30 days written notice of any resignation from
employment. Mr. Bennett also remains subject to non-competition,
non-solicitation and confidentiality provisions.
 
 Mr. Darley.  Mr.
Darley serves as our Interim Executive Vice President and Chief Operating
Officer pursuant to an employment agreement with the Company, effective
September 13, 2008 through the date the Company has employed a new Chief
Operating Officer or a date otherwise determined by the Company in its sole
discretion. The Company will provide 30 days advance written notice of such
termination as may be reasonably practicable under the circumstances. The
agreement provides for a base salary of $375,000. Mr. Darley is entitled to
participate in the Company’s bonus programs and has a target bonus of 40% of
base salary. Mr. Darley is also entitled to participate in the Company’s
employee benefits plans as are generally made available to the Company’s senior
executives. Mr. Darley also participates in the executive medical reimbursement
plan.
 
 The
Company will pay Mr. Darley unpaid base salary through the date of
termination.  Upon such termination, his prior employment agreement
with Barden Nevada will become effective in accordance with its terms. The
employment agreement also contains non-competition, non-solicitation and
confidentiality provisions.
 
 Change
in Control/Severance Payments as of December 31, 2008
 
 As noted
above, Mr. Saylor and the Company agreed to a severance arrangement as of the
termination of his employment in August 2008. The Company paid Mr. Saylor
$134,500, equal to ninety days of base salary, on such date.
 
 Assuming
Mr. Darley or Mr. Bennett was terminated as of, or a change in control occurred
as of, December 31, 2008, the following benefits would accrue to
them:
 
 ·
              accrued
      and unpaid salary;
 ·
              use
      of COBRA or any other mandated governmental assistance
      program;
 ·
              welfare
      benefits provided to all salaried employees;
and
 ·
              amounts
      outstanding under the Company’s 401(k) plan (except unvested Company
      matching contributions).
 
 In
addition, Mr. Bennett would be entitled to $26,667, representing 30 days base
salary, upon the termination of his employment (assuming no prior notice was
provided).
  47
 Table of Contents
  
 No cash
bonus was earned in 2008 under the MIP with respect to the financial performance
component, and therefore the MIP severance provisions have no
effect.
 
 Upon the
death or disability of Mr. Barden, Mr. Darley or Mr. Bennett, they or their
beneficiaries would receive disability insurance proceeds or term life insurance
proceeds in the following amounts (excluding any supplemental benefits paid for
by such employee):
 
 Term
      Life Insurance
              
              Accidental
      Death
              
              Long
      -TermProceeds
              
              and
      Dismemberment
              
              DisabilityName
              
              ($)
              
              ($)
              
              ($)Don
      H. Barden
              
              2,000,000
              
              2,000,000
              
              n/aMichael
      Darley
              
              (1)
              
              (1)
              
              (2)Jon
      Bennett
              
              (1)
              
              (1)
              
              (2)(1)Term
      Life Insurance Proceeds and Accidental Death and Dismemberment benefits
      are equivalent to four times the named executive's annual salary to a
      maximum benefit of $1.5 million.(2)Long-Term
      Disability benefits are equivalent to 60% of the named executive's monthly
      salary, not to exceed $12,500 per month, after six months of disability,
      up to the age of retirement under the U.S. Social Security Act, but not
      less than sixty months.
 
 COMPENSATION
COMMITTEE REPORT
 
 The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis with management and based on that discussion and review has
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included as part of this Annual Report on Form 10-K for the year
ended December 31, 2008.
 
 Compensation
      Committee:Patrick
      R. Cruzen
                John
      A. O’BrienMichelle
      R. Sherman
 
 COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
 During
2008, the Compensation Committee consisted of Andrew J. Warhola (Chairman),
Patrick Cruzen and Michelle R. Sherman.  Don H. Barden is an executive
officer and Chairman, as well as the 100% equity owner, of the Company, BDI and
other entities.  Mr. Barden has discretion to set Ms. Sherman’s
compensation in her position as officer of BDI and other entities owned or
affiliated with Mr. Barden.
 
 DIRECTOR
COMPENSATION
 
 The
compensation program for non-employee directors is designed to encourage
directors to continue Board service and to attract new directors with
outstanding qualifications. Directors who are employees or officers of the
Company or BDI (Mr. Barden, Ms. Sherman and, for a portion of 2008, Ms. Brown)
do not receive any additional compensation for Board service. All directors are
reimbursed for expenses reasonably incurred in connection with Board service.
The following table sets forth the 2008 compensation program for non-employee
directors:
  48
 Table of Contents
  
 Monthly
      retainer:All
              $3,750 per
  monthAudit
      Committee chair
              $   833 per
      month (additional)Compensation
      Committee chair
              $   417 per
      month (additional)Meeting
      fees:Board
              $1,000 per
    meetingCommittee
              $   500 per
      meeting
 
 The
following table sets forth the compensation of each non-employee director in
2008:
 
 Fees
      Earned or
              
              All
      otherPaid
      in Cash
              
              Compensation
              
              TotalName
              
              ($)
              
              ($)
              
              ($)Patrick
      R. Cruzen
              
              72,500
              
              -
              
              72,500Andrew
      J. Warhola
              
              67,500
              
              -
              
              67,500Cara
      L. Brown (1)
              
              177,693
              
              3,749
              
              181,442
 
 
 (1)Ms.
      Brown was a non-employee director through June 1, 2008 when she returned
      to the Company's employment. Fees Earned or Paid in Cash include
      director’s fees of $28,000 earned prior to June 1, 2008 and salary of
      $125,494 and bonus of $24,199 earned after June 1, 2008. All other
      compensation includes a 401(k) match of $2,856 and group term life
      insurance premiums of $893, both relating to her employment period. Ms.
      Brown is fully vested in the 401(k)
match.
 
 
 ITEM
12.                      SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 
 We are
indirectly wholly owned by Don H. Barden, our Chairman, President and Chief
Executive Officer. Mr. Barden is the sole shareholder of BDI, which, in turn,
owns 100% of the membership interest of Majestic Holdco, LLC, the direct parent
of The Majestic Star Casino, LLC. The Majestic Star Casino, LLC, in turn,
directly or indirectly owns 100% of the equity interest of the following
entities: The Majestic Star Casino Capital Corp., The Majestic Star Casino II,
Inc., Majestic Star Casino Capital Corp. II, BMG, and BCG. The address for Mr.
Barden and Barden Development, Inc. is 163 Madison Avenue, Suite 2000, Detroit,
MI 48226.
 
 
 ITEM
13.                      CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
 
 Review
of Related Person Transactions
 
 Since the
formation of a formal Board of Directors, the Company has not had any material
transactions with related persons other than Don H. Barden, its Chairman,
President and Chief Executive Officer and sole indirect beneficial owner, or
entities controlled directly or indirectly by Mr. Barden. Accordingly, the
Company does not have a formal written policy directly related to the review,
approval or ratification of related person transactions required to be reported
pursuant to Item 404 of Regulation S-K. The Company has adopted a Code of Ethics
applicable to all employees, officers and directors, which includes a conflict
of interest provision that requires disclosure of all actual or apparent
conflicts of interest. In addition, on an annual basis, executive officers and
directors are required to complete questionnaires disclosing any related person
transactions with the Company
  49
 Table of Contents
  by the
individual or by any immediate family member. The Company's legal and financial
staff reviews all such disclosures to determine whether any transaction is
required to be disclosed under the SEC's rules. In addition, on an informal
case-by-case basis, the Board of Directors may approve or ratify a related
person transaction based on the facts and circumstances of such transaction,
including the nature of the related person's interest in the transaction, the
terms of the transaction, the importance of the transaction to the Company,
whether the transaction would impair the judgment of a director or executive
officer to act in the best interest of the Company, and such other matters that
the Board of Directors may deem appropriate.
 
 Related
Person Transactions Since January 1, 2008
 
 Pushdown of Majestic Holdco Discount
Notes.The Company’s financial statements for 2008 include the
$63.5 million of Discount Notes issued by Majestic Holdco in connection with the
acquisition of Trump Indiana and other refinancing transactions. The Discount
Notes are senior unsecured obligations of Majestic Holdco, ranking equally with
all of its existing and future senior obligations and senior to all its future
subordinated indebtedness. The Discount Notes are structurally subordinated to
all of the Company’s indebtedness (including the Senior Notes, the Senior
Secured Notes and the Company’s Senior Secured Credit Facility) and are
effectively subordinated in respect of the membership interests of the Company
pledged to secure the Company’s Senior Secured Credit Facility and the Senior
Secured Notes. Neither the Company nor any of its subsidiaries is a guarantor of
the Discount Notes. Neither the equity nor assets of the Company or any of its
subsidiaries secure the Discount Notes. The Discount Notes pay interest,
semiannually, on April 15 and October 15 at a rate of 12 1⁄2%.  The
Discount Notes paid interest in kind until October 15, 2008. Commencing October
15, 2008, cash interest on the Discount Notes began to accrue which will first
become payable on April 15, 2009. Majestic Holdco has no operations or the
ability to generate cash flow internally. The Company is precluded from making
distributions to Majestic Holdco as long as an Event of Default exists with
respect to the Senior Notes, the Senior Secured Notes and the Senior Secured
Credit Facility. The Company did not make the October 15, 2008 interest payments
of $24.0 million in aggregate with respect to the Senior Secured Notes and
Senior Notes prior to the expiration of the grace period on November 14,
2008.  The Company is therefore in default of the Senior Notes and
Senior Secured Notes and the Senior Secured Credit Facility which in turn causes
an Event of Default under the indenture governing the Discount Notes. Majestic
Holdco will not have sufficient funds available to make the interest payments on
the Discount Notes on April 15, 2009. The Discount Notes mature on
October 15, 2011.
 
 Manager
Agreement.Distributions to BDI under the Manager Agreement,
dated October 7, 2003, are governed and limited by the terms of the
indentures governing the Discount Notes, the Senior Secured Notes and the Senior
Notes (collectively, the “Notes”) and by the terms of the Senior Secured Credit
Facility. The distributions for each fiscal quarter may not exceed 1% of the
Company’s consolidated net operating revenue and 5% of the Company’s
consolidated cash flow (as defined in the indentures governing the Notes and the
terms of the Senior Secured Credit Facility) for the immediately preceding
fiscal quarter. During 2008 and as of December 31, 2008, the Company was and is
precluded from making distributions to BDI due to its failure to achieve certain
financial ratios necessary to make the distributions and the prohibition of
making distributions to its manager if there is an Event of Default under the
Company’s governing debt documents.
 
 Tax
Distributions.  The Company made a distribution of $1.4 million
in April 2008 for its member’s Indiana state income tax
liabilities.
 
 PITG Gaming, LLC Expense Sharing
Agreement.The Company entered into an expense sharing
agreement with PITG Gaming, LLC (“PITG”), an indirectly owned subsidiary of BDI,
in November 2007. The expense sharing agreement provided for reimbursement from
PITG to the Company for expenses paid by the Company on behalf of PITG. These
expenses were primarily for payroll and travel costs related to the development
of a casino in Pittsburgh, Pennsylvania. The Company charged PITG $1.3 million
and $0.6 million for each of the twelve-month periods ended December 31, 2008
and 2007, respectively, pursuant to the expense sharing agreement. Amounts under
the expense sharing agreement were repaid in August 2008 and the agreement was
terminated.
 
 PITG Revolving Promissory
Note.PITG entered into a revolving promissory note with the
Company in November 2007, whereby PITG could request advances from time to time
from the Company up to $5.0 million. The note evidenced amounts outstanding
under the expense sharing agreement. The amount of $0.2 million outstanding on
the note was repaid on August 19, 2008 and the note was
cancelled.
  50
 Table of Contents
  
 Barden Nevada Expense Sharing
Agreement.The Company has entered into an expense sharing
agreement dated October 7, 2003 with Barden Nevada Gaming, LLC (“Barden
Nevada”). The expense sharing agreement provides for a fee from Barden Nevada to
the Company in the amount of the greater of (i) $0.5 million per year or (ii)
the actual amount of certain specified expenses incurred by the Company in
connection with providing services to Barden Nevada. The Company charged Barden
Nevada $1.5 million for each of the twelve-month periods ended December 31, 2008
and 2007 pursuant to the expense sharing agreement. As of December 31, 2008,
$0.5 million was owed under the expense sharing agreement.
 
 Barden Nevada Revolving Promissory
Note.On October 7, 2007, Barden Nevada entered into a
revolving promissory note with the Company, whereby Barden Nevada may request
advances from time to time from the Company not to exceed $5.0 million. The note
evidences amounts outstanding under the expense sharing agreement. Interest is
calculated based on the prime rate (as published in the Money Section of the
Wall Street Journal), plus the margin spread, including 2% default interest,
paid by the Company under prime rate borrowings with Wells Fargo Foothill, the
agent bank under the Company’s Senior Secured Credit Facility. Interest is paid
quarterly, in arrears.  Any costs that are funded by the Company and
not repaid by Barden Nevada within 30 days will be added to the principal amount
outstanding. All amounts outstanding under the promissory note are due and
payable on April 15, 2010 along with the accrued and unpaid interest. As of
December 31, 2008, nothing was owed the Company under this promissory note. The
highest amount owed under the note during 2008 was $0.1 million.
 
 302 Carson Street Office
Building.On March 31, 2008, the Company entered into a lease
with Carson Properties Nevada LLC (“Landlord”), a subsidiary of BDI, for office
space (“Lease”). The Lease has an initial term of five years and six months
(“Initial Term”) and allows for one five-year extension under substantially
similar terms as the Initial Term. The Lease will commence upon receipt of a
temporary certificate of occupancy and abatement of asbestos to the area being
occupied by the Company (“Premises”).  Base rent will be $1.80 per
square foot, for a total of 11,549 square feet, for the first 18 months and
$2.50 per square foot beginning in month 19, and will increase by 3% on the
second anniversary date of commencement of the Lease and every anniversary date
thereafter. The Company will perform asbestos abatement to the Premises and be
reimbursed by the landlord for all direct and indirect costs, not to exceed $0.4
million, through rent offset.  The Company has spent $0.3 million on
asbestos abatement. In October 2008, the Landlord sold the building and assigned
the Lease to the buyer. The Landlord reimbursed the Company for $0.6 million of
general improvements previously made to the Premises by the Company. The $0.3
million spent on asbestos treatment will be reimbursed through rent offset from
the new landlord.
 
 Other Related
Parties.The Company has receivables on its balance sheet with
Majestic Holdco and BDI in the amount of $0.1 million each. The receivables
relate to the payment of professional services on behalf of these entities and
unreimbursed expenses related to benefit and insurance plans in which these
entities participate.
 
 Director
Independence
 
 The Board
utilizes the applicable rules of NASDAQ to determine the independence of its
directors.  The independence rules include a series of objective
tests, including that the director is not employed by us and has not engaged in
various types of business dealings with us. In addition, the Board is required
to make a subjective determination as to each independent director that no
relationships exist which, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. As of December 31, 2008, the Company had three non-employee directors,
Mr. Cruzen, Mr. Warhola and Ms. Sherman. The Board affirmatively determined,
after considering all of the relevant facts and circumstances, that Mr. Cruzen
and Mr. Warhola were independent directors. Ms. Sherman, as an employee of BDI,
is not considered independent. In March 2009, Mr. O’Brien, a non-employee
director, was affirmatively determined, after considering all of the relevant
facts and circumstances, to be an independent director.
 
  51
 Table of Contents
  
 ITEM
14.                      PRINCIPAL
ACCOUNTANT FEES AND SERVICES
 
 The
following table sets forth the fees we were billed for audit and other services
provided by Ernst & Young LLP in 2008 and 2007.
 
 2008
              
              
              2007Audit
      Fees
              
              $
              1,137,258
              
              
              $
              990,154Audit
      Related Fees
              
              
              -
              
              
              
              67,649Tax
      Fees
              
              
              32,951
              
              
              
              97,059Total
      Fees
              
              $
              1,170,209
              
              
              $
              1,154,862
 
 Audit
Fees.  Audit fees in
2008 and 2007 relate to the audit of the Company’s annual financial statements,
including the audits of various subsidiaries conducting gaming operations as
required by the regulations of the respective jurisdictions.
 
 Audit-Related
Fees.  Audit-related
fees in 2007 relate to a planning review of Section 404 of the Sarbanes-Oxley
Act of 2002.
 
 Tax
Fees.  Tax fees in 2008
and 2007 relate to the preparation of the information to assist with the filing
of tax returns for the sole shareholder of BDI and various state tax return
filings of our subsidiaries.
 
 
 PART IV
 
 
 ITEM
15.                      EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
 
 (a)
              (1)
              Financial
      Statements as listed in the index on Page F-1.(2)
              Exhibits:
      The exhibits included as part of this report are listed in the attached
      Exhibit Index on Page E-1, which is incorporated herein by
      reference.(b)
              The
      exhibits included as part of this report are listed in the attached
      Exhibit Index on Page E-1, which is incorporated herein by
      reference.(c)
              The
      response to this portion of Item 15 is submitted as a separate section of
      this report.
 
 
 
 
  Table of Contents
  
 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, on March 31, 2009.
 
 THE MAJESTIC STAR CASINO,
      LLCBy:
              /s/ Don H. BardenDon
      H. BardenChairman,
      President and Chief Executive OfficerTHE MAJESTIC STAR CASINO
      CAPITAL CORP.By:
              /s/ Don H. BardenDon
      H. BardenPresident
      and Chief Executive OfficerMAJESTIC STAR CASINO CAPITAL
      CORP. IIBy:
              /s/ Don H. BardenDon
      H. BardenPresident
      and Chief Executive Officer
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on March 31, 2009 on behalf of the
Registrant and in the capacities indicated.
  THE MAJESTIC STAR CASINO,
      LLCBy:
              /s/ Don H. BardenDon
      H. BardenChairman,
      President and Chief Executive Officer(Principal
      Executive Officer)By:
              /s/ Jon S. BennettJon
      S. BennettSenior
      Vice President, Chief Financial Officer and Treasurer(Principal
      Financial and Accounting Officer)By:
              /s/ Michelle R. ShermanMichelle
      R. ShermanDirectorBy:
              /s/ Patrick R. CruzenPatrick
      CruzenDirectorBy:
              /s/ John A. O’BrienJohn
      A. O’BrienDirectorBy:
              /s/ Cara L. BrownCara
      L. BrownDirector
 
  S-1
 
 Table of Contents
  
 
 THE
      MAJESTIC STAR CASINO CAPITAL CORP.By:
              /s/ Don H. BardenDon
      H. BardenPresident
      and Chief Executive Officer(Principal
      Executive Officer)By:
              /s/ Jon S. BennettJon
      S. BennettSenior
      Vice President, Chief Financial Officer and Treasurer(Principal
      Financial and Accounting Officer)
  MAJESTIC
      STAR CASINO CAPITAL CORP. IIBy:
              /s/ Don H. BardenDon
      H. BardenPresident
      and Chief Executive Officer(Principal
      Executive Officer)By:
              /s/ Jon S. BennettJon
      S. BennettSenior
      Vice President, Chief Financial Officer and Treasurer(Principal
      Financial and Accounting Officer)
 
  S-2
 
 Table of Contents
  EXHIBIT
INDEX
 
 Certain
of the following exhibits have been previously filed with the Securities and
Exchange Commission by the Company pursuant to the requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Such exhibits
are identified by the parenthetical references following the listing of each
such exhibit and are incorporated herein by reference.
 
 EXHIBIT
      NO.
              DESCRIPTION
      OF EXHIBITS2.1
              Stock
      Purchase Agreement, dated as of November 3, 2005 by and between The
      Majestic Star Casino, LLC and Trump Entertainment Resorts Holdings, L.P.
      (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated
      November 3, 2005)3.1
              Amended
      and Restated Articles of Organization of The Majestic Star Casino, LLC
      (filed as Exhibit 3.1 to the Company’s Registration Statement, No.
      333-06489)3.2*
              Amended
      and Restated Operating Agreement of The Majestic Star Casino, LLC,
      effective as of March 23, 20093.3
              Articles
      of Incorporation of The Majestic Star Casino Capital Corp. (filed as
      Exhibit 3.4 to the Company’s Registration Statement, No.
      333-85089)3.4
              Bylaws
      of The Majestic Star Casino Capital Corp. (filed as Exhibit 3.5 to the
      Company’s Registration Statement, No. 333-85089)3.5
              Articles
      of Incorporation of Majestic Star Casino Capital Corp. II (filed as
      Exhibit 3.6 to the Company’s Registration Statement, No.
      333-134325)3.6
              Bylaws
      of Majestic Star Casino Capital Corp. II (filed as Exhibit 3.7 to the
      Company’s Registration Statement, No. 333-134325)3.7
              Amendment
      to Bylaws of Majestic Star Casino Capital Corp. II (filed as Exhibit 3.8
      to the Company’s Registration Statement, No. 333-134325)4.1
              Indenture,
      dated as of October 7, 2003, among The Majestic Star Casino, LLC and
      Majestic Star Casino Capital Corp., as issuers, and the subsidiary
      guarantors, as subsidiary guarantors and The Bank of New York, as trustee
      (filed as Exhibit 4.1 to the Company’s Registration Statement, No.
      333-110993)4.2
              Intercreditor
      Agreement, dated as of October 7, 2003, between The Bank of New York and
      Wells Fargo Foothill, Inc. (filed as Exhibit 4.6 to the Company’s
      Registration Statement, No. 333-110993)4.3
              Supplemental
      Indenture, dated as of December 21, 2005, among The Majestic Star Casino,
      LLC, The Majestic Star Casino Capital Corp., the Subsidiary Guarantors (as
      defined therein), and The Bank of New York Trust Company, N.A., as
      successor to The Bank of New York, as trustee for the purpose of making
      changes to the Indenture required for the issuance of additional
      notes  (filed as Exhibit 10.3 to the Company’s Current Report on
      Form 8-K dated December 21, 2005)4.4
              Supplemental
      Indenture, dated as of December 21, 2005, among The Majestic Star Casino,
      LLC, The Majestic Star Casino Capital Corp., the Subsidiary Guarantors (as
      defined therein), and The Bank of New York Trust Company, N.A., as
      successor to The Bank of New York, as trustee for the purpose of adding
      new subsidiary guarantors (filed as Exhibit 10.4 to the Company’s Current
      Report on Form 8-K dated December 21, 2005)4.5
              Indenture,
      dated as of December 21, 2005, among The Majestic Star Casino, LLC, The
      Majestic Star Casino Capital Corp. II, the Subsidiary Guarantors (as
      defined therein), and The Bank of New York Trust Company N.A., as trustee
      regarding the Senior Notes (filed as Exhibit 10.5 to the Company’s Current
      Report on Form 8-K dated December 21, 2005)4.6
              First
      Amendment to Intercreditor and Lien Subordination Agreement, dated as of
      December 21, 2005, by and among The Majestic Star Casino, LLC, the Bank of
      New York Trust Company N.A., Inc. and Wells Fargo Foothill,
      Inc.10.1
              Loan
      and Security Agreement, dated as of October 7, 2003, by and among The
      Majestic Star Casino, LLC, certain subsidiaries signatory thereto, the
      lenders signatories thereto and Wells Fargo Foothill, Inc., as Agent
      (filed as Exhibit 10.1 to the Company’s Registration Statement, No.
      333-110993)10.1.1
              Amendment
      Number One to Loan and Security Agreement, dated as of May 4, 2004, by and
      among The Majestic Star Casino, LLC, certain subsidiaries signatory
      thereto, the lender signatories thereto and Wells Fargo Foothill, Inc., as
      Agent (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form
      10-Q for the period ended March 31,
2004)
  Table of Contents
 10.1.2
              Amendment
      Number Two to Loan and Security Agreement, dated as of March 1, 2005, by
      and among The Majestic Star Casino, LLC, certain subsidiaries signatory
      thereto, the lender signatories thereto and Wells Fargo Foothill, Inc., as
      Agent (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K
      dated March 17, 2005)10.1.3
              Amendment
      Number Three to Loan and Security Agreement, dated as of June 15, 2005, by
      and among The Majestic Star Casino, LLC, certain subsidiary signatories
      thereto, the lender signatories thereto and Wells Fargo Foothill, Inc., as
      Agent (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K
      dated August 10, 2005)10.1.4
              Amendment
      Number Four to Loan and Security Agreement, dated as of December 21, 2005,
      by and among The Majestic Star Casino, LLC, certain subsidiary signatories
      thereto, the lender signatories and Wells Fargo Foothill, Inc., as Agent
      (filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K dated
      December 21, 2005)10.1.5
              Amendment
      Number Five to Loan and Security Agreement, dated as of April 13, 2006, by
      and among The Majestic Star Casino, LLC, certain subsidiary signatories
      thereto, the lender signatories and Wells Fargo Foothill, Inc., as Agent
      (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
      April 13, 2006)10.1.6
              Amendment
      Number Six to Loan and Security Agreement, dated as of July 31, 2006, by
      and among The Majestic Star Casino, LLC, certain subsidiary signatories
      thereto, the lender signatories and Wells Fargo Foothill, Inc., as Agent
      (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
      July 31, 2006)10.1.7
              Amendment
      Number Seven, dated as of March 15, 2007, among The Majestic Star Casino,
      LLC, certain subsidiary signatories thereto, the lender signatories and
      Wells Fargo Foothill, Inc. as Agent (filed as Exhibit 10.1 to the
      Company’s Current Report on Form 8-K dated March 15, 2007)10.1.8
              Amendment
      Number Eight, dated as of March 31, 2008, among The Majestic Star Casino,
      LLC, certain subsidiary signatories thereto, the lender signatories and
      Wells Fargo Foothill, Inc. as Agent(filed
      as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 4,
      2008)10.2**
              Amendment
      to Letter Agreement, dated as of January 1, 2005, between Don H. Barden
      and The Majestic Star Casino, LLC (filed as Exhibit 10.2 to the Company’s
      Annual Report on Form 10-K for the year ended December 31,
      2004)10.3
              Management
      Agreement, dated as of October 7, 2003, between The Majestic Star Casino,
      LLC and Barden Development, Inc. (filed as Exhibit 10.8 to the Company’s
      Registration Statement, No. 333-110993)10.4
              Expense
      Reimbursement Agreement, dated as of October 7, 2003, between Barden
      Nevada Gaming, LLC and The Majestic Star Casino, LLC (filed as Exhibit
      10.9 to the Company’s Registration Statement, No.
    333-110993)
 
 10.5
              Development
      Agreement, dated March 26, 1996, by and between the Company and the City
      of Gary, Indiana (filed as Exhibit 10.8 to the Company’s Registration
      Statement, No. 333-06489)10.6
              Amendment
      Number One to Development Agreement, dated October 19, 2005, by and among
      the Company, Trump Indiana, Inc. and the City of Gary, Indiana, filed
      herewith10.7**
              The
      Majestic Star Casino, LLC Management Incentive Plan (filed as Exhibit 10.1
      to the Company’s Current Report on Form 8-K dated February 7,
      2007)10.7.1*/**
              The
      Majestic Star Casino, LLC Amended and Restated Management Incentive Plan,
      effective on January 1, 200910.8
              Expense
      Reimbursement/Sharing Agreement, dated as of  November 6, 2007,
      between the Company and PITG Gaming, LLC (filed as Exhibit 10.1 to the
      Company’s Quarterly Report on Form 10-Q for the period ended September 30,
      2007)10.9**
              Assignment,
      Assumption and First Amendment to Employment Agreement, dated December 5,
      2008, by and among Barden Nevada Gaming, LLC, The Majestic Star Casino,
      LLC, and Michael Darley (filed as Exhibit 10.1 to the Company’s Current
      Report on Form 8-K\A dated September 13, 2008)10.10**
              Employment
      Agreement, dated June 11, 2007, by and between Barden Nevada Gaming, LLC
      and Michael Darley (filed as Exhibit 10.2 to the Company’s Current Report
      on Form 8-K\A dated September 13, 2008)21*
              List
      of Subsidiaries of The Majestic Star Casino, LLC31.1*
              Certification
      pursuant to Section 15d-14 of the Securities Exchange Act of 1934, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2*
              Certification
      pursuant to Section 15d-14 of the Securities Exchange Act of 1934, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232*
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
 
 *            
Filed herewith
 **           Identifies
current management contracts or compensatory plans or arrangements.
  Table of Contents




THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES


(A Wholly
Owned Subsidiary of Majestic Holdco, LLC)





INDEX OF
CONSOLIDATED FINANCIAL STATEMENTS





PageTHE
      MAJESTIC STAR CASINO, LLC AND SUBSIDIARIESReport of Independent Registered Public
      Accounting Firm
            F-2Consolidated Balance Sheets as of December 31,
      2008 and 2007
            F-3Consolidated Statements of Operations for
      the years ended December 31, 2008, 2007 and 2006
            F-4Consolidated Statements of Changes in Member’s
      Deficit for the years ended December 31, 2008, 2007 and
      2006
            F-5Consolidated Statements of Cash Flows for the years
      ended December 31, 2008, 2007 and 2006
            F-6Notes to Consolidated Financial
    Statements
            F-8





F-1
 
 Table of Contents











REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM








To the
Member of


The
Majestic Star Casino, LLC and Subsidiaries:




We have
audited the accompanying consolidated balance sheets of The Majestic Star
Casino, LLC and subsidiaries (the “Company”) as of December 31, 2008 and 2007,
and the related consolidated statements of operations, changes in member’s
deficit, and cash flows for each of the three years in the period ended December
31, 2008.  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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting.  Accordingly, we
express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of The Majestic Star
Casino, LLC and subsidiaries at December 31, 2008 and 2007, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles.
 
 The
accompanying consolidated financial statements have been prepared assuming that
The Majestic Star Casino, LLC and subsidiaries will continue as a going concern.
As more fully described in Note 3, the Company has incurred recurring net losses
and has a working capital deficiency and accumulated deficit. In addition, the
Company is in default with certain covenants of the senior secured notes,
secured notes, senior secured credit facility, and Holdco discount
notes.  As a result, substantially all of the Company’s debt is
currently due and payable. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters also are described in Note 3.  The 2008 consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
 
 Las
Vegas, Nevada
 March 31,
2009








F-2
 
 Table of Contents








THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES


(A Wholly
Owned Subsidiary of Majestic Holdco, LLC)


CONSOLIDATED BALANCE SHEETS




December
      31,
            
            
            December
      31,2008
            
            
            2007ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            57,749,752
            
            
            $
            29,216,263Restricted
      cash
            
            
            5,404,310
            
            
            
            3,401,359Accounts
      receivable, less allowance for doubtful accounts of $1,432,009
      and$1,371,930
      as of December 31, 2008 and 2007, respectively
            
            
            2,995,805
            
            
            
            5,779,838Inventories
            
            
            984,034
            
            
            
            1,088,508Prepaid
      expenses and deposits
            
            
            2,673,864
            
            
            
            2,013,891Receivable
      from affiliates
            
            
            796,792
            
            
            
            616,889Total
      current assets
            
            
            70,604,557
            
            
            
            42,116,748Property,
      equipment and improvements, net
            
            
            263,563,631
            
            
            
            279,629,166Intangible
      assets, net
            
            
            54,227,169
            
            
            
            121,936,336Goodwill
            
            
            5,922,398
            
            
            
            47,431,442Other
      assets:Deferred
      financing costs, net of accumulated amortizationof
      $12,452,427 and $9,107,124 as of December 31, 2008and
      2007, respectively
            
            
            6,392,493
            
            
            
            9,737,796Deferred
      financing costs, pushed down from Majestic Holdco, net ofaccumulated
      amortization of $1,539,725 and $1,031,422 as ofDecember
      31, 2008 and 2007, respectively
            
            
            1,419,014
            
            
            
            1,927,317Other
      assets
            
            
            1,381,103
            
            
            
            2,911,140Total
      other assets
            
            
            9,192,610
            
            
            
            14,576,253Total
      assets
            
            $
            403,510,365
            
            
            $
            505,689,945LIABILITIES
      AND MEMBER'S DEFICITCurrent
      liabilities:Accounts
      payable
            
            $
            1,797,083
            
            
            $
            4,259,475Current
      portion of long-term debt
            
            
            579,928,327
            
            
            
            202,780Current
      portion of long-term debt of Majestic Holdco
            
            
            63,500,000
            
            
            
            -Payable
      to affiliate
            
            
            -
            
            
            
            214,288Accrued
      liabilities:Payroll
      and related
            
            
            9,182,236
            
            
            
            9,206,725Interest
            
            
            35,305,979
            
            
            
            10,980,075Interest
      of Majestic Holdco
            
            
            1,697,743
            
            
            
            -Property
      and franchise taxes
            
            
            16,378,070
            
            
            
            17,897,923Other
      accrued liabilities
            
            
            15,295,736
            
            
            
            16,475,209Total
      current liabilities
            
            
            723,085,174
            
            
            
            59,236,475Long-term
      debt, net of current maturities
            
            
            -
            
            
            
            556,535,441Long-term
      debt of Majestic Holdco, net of discount of $5,789,771
            
            
            -
            
            
            
            57,710,229Total
      liabilities
            
            
            723,085,174
            
            
            
            673,482,145Commitments
      and contingencies (Note 13)Member's
      deficit
            
            
            (319,574,809
            )
            
            
            (167,792,200
            )Total
      liabilities and member's deficit
            
            $
            403,510,365
            
            
            $
            505,689,945








The
      accompanying notes are an integral part of these consolidated financial
      statements.





F-3
 
 Table of Contents








THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES


(A Wholly
Owned Subsidiary of Majestic Holdco, LLC)


CONSOLIDATED STATEMENTS OF
OPERATIONS




For
      The Years EndedDecember
      31,2008
            
            
            2007
            
            
            2006OPERATING
      REVENUES:Casino
            
            $
            332,953,188
            
            
            $
            365,899,220
            
            
            $
            375,113,896Rooms
            
            
            11,722,758
            
            
            
            11,851,142
            
            
            
            10,890,724Food
      and beverage
            
            
            23,427,806
            
            
            
            25,605,009
            
            
            
            16,347,550Other
            
            
            7,985,022
            
            
            
            8,141,969
            
            
            
            6,942,171Gross
      revenues
            
            
            376,088,774
            
            
            
            411,497,340
            
            
            
            409,294,341Less:
      promotional allowances
            
            
            45,115,594
            
            
            
            53,399,221
            
            
            
            55,060,746Net
      operating revenues
            
            
            330,973,180
            
            
            
            358,098,119
            
            
            
            354,233,595OPERATING
      COSTS AND EXPENSES:Casino
            
            
            95,812,899
            
            
            
            94,859,609
            
            
            
            87,708,577Rooms
            
            
            2,412,684
            
            
            
            3,066,404
            
            
            
            3,329,367Food
      and beverage
            
            
            8,165,819
            
            
            
            10,711,815
            
            
            
            8,436,922Other
            
            
            1,529,191
            
            
            
            2,020,352
            
            
            
            1,734,230Gaming
      taxes
            
            
            79,232,074
            
            
            
            85,943,370
            
            
            
            87,096,884Advertising
      and promotion
            
            
            22,937,414
            
            
            
            23,177,423
            
            
            
            18,641,992General
      and administrative
            
            
            56,447,441
            
            
            
            56,541,080
            
            
            
            56,970,437Corporate
      expense
            
            
            7,284,083
            
            
            
            6,253,724
            
            
            
            6,306,222Economic
      incentive tax - City of Gary (net of refund 2008)
            
            
            4,890,868
            
            
            
            6,794,396
            
            
            
            6,758,373Depreciation
      and amortization
            
            
            33,841,063
            
            
            
            32,833,812
            
            
            
            31,722,888Impairment
      loss on assets
            
            
            105,759,044
            
            
            
            -
            
            
            
            -Loss
      (gain) on disposal of assets
            
            
            70,289
            
            
            
            905,726
            
            
            
            (132,723
            )Total
      operating costs and expenses
            
            
            418,382,869
            
            
            
            323,107,711
            
            
            
            308,573,169Operating
      (loss) income
            
            
            (87,409,689
            )
            
            
            34,990,408
            
            
            
            45,660,426OTHER
      INCOME (EXPENSE):Interest
      income
            
            
            279,672
            
            
            
            668,071
            
            
            
            447,625Interest
      expense
            
            
            (55,226,069
            )
            
            
            (54,529,563
            )
            
            
            (53,968,445
            )Interest
      expense - Majestic Holdco
            
            
            (7,995,818
            )
            
            
            (7,094,840
            )
            
            
            (6,330,956
            )Other
      non-operating expense
            
            
            (30,705
            )
            
            
            (85,470
            )
            
            
            (115,375
            )Total
      other expense
            
            
            (62,972,920
            )
            
            
            (61,041,802
            )
            
            
            (59,967,151
            )Net
      loss
            
            $
            (150,382,609
            )
            
            $
            (26,051,394
            )
            
            $
            (14,306,725
            )








The
accompanying notes are an integral part of these consolidated financial
statements.





F-4
 
 Table of Contents





THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES


(A Wholly
Owned Subsidiary of Majestic Holdco, LLC)


CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S
DEFICIT


For the
Years Ended December 31, 2008, 2007 and 2006




Member's
      DeficitBalance,
      December 31, 2005
            
            $
            (120,814,171
            )Net
      loss
            
            
            (14,306,725
            )Distribution
      to Barden Development, Inc.
            
            
            (4,469,665
            )Balance,
      December 31, 2006
            
            
            (139,590,561
            )Net
      loss
            
            
            (26,051,394
            )Distribution
      to Barden Development, Inc.
            
            
            (2,150,245
            )Balance,
      December 31, 2007
            
            
            (167,792,200
            )Net
      loss
            
            
            (150,382,609
            )Distribution
      to Barden Development, Inc.
            
            
            (1,400,000
            )Balance,
      December 31, 2008
            
            $
            (319,574,809
            )








The
accompanying notes are an integral part of these consolidated financial
statements.








F-5
 
 Table of Contents





THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES


(A Wholly
Owned Subsidiary of Majestic Holdco, LLC)


CONSOLIDATED STATEMENTS OF CASH FLOWS





For
      The Years EndedDecember
      31,2008
            
            
            2007
            
            
            2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (150,382,609
            )
            
            $
            (26,051,394
            )
            
            $
            (14,306,725
            )Adjustments
      to reconcile net loss to net cashprovided
      by operating activities:Impairment
      loss on assets
            
            
            105,759,044
            
            
            
            -
            
            
            
            -Depreciation
            
            
            30,381,896
            
            
            
            29,374,646
            
            
            
            28,263,722Amortization
            
            
            3,459,167
            
            
            
            3,459,166
            
            
            
            3,459,166Amortization
      of deferred financing costs
            
            
            3,345,303
            
            
            
            3,345,304
            
            
            
            3,251,970Amortization
      of bond discount on 12 1⁄2% senior discount notespushed
      down from Majestic Holdco
            
            
            5,789,771
            
            
            
            6,586,537
            
            
            
            5,827,356Amortization
      of deferred financing costs on 12 1⁄2% seniordiscount
      notes pushed down from Majestic Holdco
            
            
            508,303
            
            
            
            508,303
            
            
            
            503,600Loss
      on disposal of assets
            
            
            70,289
            
            
            
            905,726
            
            
            
            (132,723
            )Loss
      on write-off of construction in progress
            
            
            414,278
            
            
            
            -
            
            
            
            -Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            2,784,033
            
            
            
            1,802,638
            
            
            
            (2,983,062
            )Receivable
      from affiliates
            
            
            (394,191
            )
            
            
            52,669
            
            
            
            (286,259
            )Inventories
            
            
            104,474
            
            
            
            (200,216
            )
            
            
            (100,411
            )Prepaid
      expenses and deposits
            
            
            (82,523
            )
            
            
            292,420
            
            
            
            127,291Other
      assets
            
            
            (557,968
            )
            
            
            996,289
            
            
            
            814,535Accounts
      payable
            
            
            122,007
            
            
            
            (595,988
            )
            
            
            331,229Accrued
      payroll and other expenses
            
            
            (24,489
            )
            
            
            89,999
            
            
            
            (149,522
            )Accrued
      interest
            
            
            24,325,904
            
            
            
            229,445
            
            
            
            3,534,250Accrued
      interest of Majestic Holdco
            
            
            1,697,743
            
            
            
            -
            
            
            
            -Other
      accrued liabilities
            
            
            (1,663,181
            )
            
            
            8,302,308
            
            
            
            (440,295
            )Net
      cash provided by operating activities
            
            
            25,657,251
            
            
            
            29,097,852
            
            
            
            27,714,122CASH
      FLOWS FROM INVESTING ACTIVITIES:Increase
      in restricted cash
            
            
            (2,002,951
            )
            
            
            (74,478
            )
            
            
            (136,881
            )Adjustment
      of costs related to Trump Indiana acquisition
            
            
            -
            
            
            
            -
            
            
            
            (180,648
            )Additions
      to property and equipment
            
            
            (18,092,311
            )
            
            
            (32,133,243
            )
            
            
            (25,409,147
            )Decrease
      (increase) in Lakefront Capital Improvement Fund
            
            
            2,088,005
            
            
            
            (1,720,409
            )
            
            
            (896,948
            )Proceeds
      from disposal of equipment
            
            
            67,673
            
            
            
            182,742
            
            
            
            893,001Net
      cash used in investing activities
            
            
            (17,939,584
            )
            
            
            (33,745,388
            )
            
            
            (25,730,623
            )





The accompanying
notes are an integral part of these consolidated financial
statements.











F-6
 
 Table of Contents





THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES


(A Wholly
Owned Subsidiary of Majestic Holdco, LLC)


CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)





For
      The Years EndedDecember
      31,2008
            
            
            2007
            
            
            2006CASH
      FLOWS FROM FINANCING ACTIVITIES:Issuance
      costs for the 9 1⁄2% senior secured notes
            
            
            -
            
            
            
            -
            
            
            
            (245,107
            )Issuance
      costs for the 9 3⁄4% senior notes
            
            
            -
            
            
            
            -
            
            
            
            (1,195,533
            )Issuance
      costs for the 12 1⁄2% senior discount notespushed
      down from Majestic Holdco
            
            
            -
            
            
            
            -
            
            
            
            (206,290
            )Proceeds
      from line of credit
            
            
            45,061,179
            
            
            
            53,787,903
            
            
            
            60,168,339Repayment
      of line of credit
            
            
            (22,150,000
            )
            
            
            (43,100,000
            )
            
            
            (61,643,760
            )Repayment
      of debt
            
            
            (695,357
            )
            
            
            (205,783
            )
            
            
            (1,227,808
            )Distributions
      to Barden Development, Inc.
            
            
            (1,400,000
            )
            
            
            (2,150,245
            )
            
            
            (4,469,665
            )Net
      cash provided by (used in) financing activities
            
            
            20,815,822
            
            
            
            8,331,875
            
            
            
            (8,819,824
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            28,533,489
            
            
            
            3,684,339
            
            
            
            (6,836,325
            )Cash
      and cash equivalents, beginning of period
            
            
            29,216,263
            
            
            
            25,531,924
            
            
            
            32,368,249Cash
      and cash equivalents, end of period
            
            $
            57,749,752
            
            
            $
            29,216,263
            
            
            $
            25,531,924For
      The Years EndedDecember
      31,2008
            
            
            2007
            
            
            2006Supplemental
      disclosure of cash flow information and non-cash investingand
      financing activities:INTEREST
      PAID, NET OF CAPITALIZED INTEREST:
            
            $
            27,554,861
            
            
            $
            50,954,258
            
            
            $
            47,512,348NON-CASH
      INVESTING ACTIVITIES:Capital
      assets acquired from incurring accounts payableand
      accrued liabilities, net
            
            $
            185,341
            
            
            $
            3,805,887
            
            
            $
            1,107,582Capital
      assets transferred to prepaid rent
            
            $
            577,450
            
            
            $
            -
            
            
            $
            -Capital
      assets acquired from incurring debt
            
            $
            974,284
            
            
            $
            286,690
            
            
            $
            110,370





The
accompanying notes are an integral part of these consolidated financial
statements.








F-7
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE
1.                      ORGANIZATION





The
Majestic Star Casino, LLC (the “Company”) is a wholly owned subsidiary of
Majestic Holdco, LLC (“Majestic Holdco”) which is a wholly owned subsidiary of
Barden Development, Inc. (“BDI”). The Company was formed on December 8,
1993 as an Indiana limited liability company to provide gaming and related
entertainment to the public. The Company commenced gaming operations in the City
of Gary at Buffington Harbor, located in Lake County, Indiana on June 7,
1996.





The
Company is a multi-jurisdictional gaming company with operations in three states
– Indiana, Mississippi and Colorado. The Company and its separate and distinct
subsidiary limited liability companies and corporations own and operate the
following gaming facilities:





·
            A
      dockside casino and land based pavilion located on Lake Michigan in Gary,
      Indiana (“Majestic Star”);


·
            A
      dockside casino and hotel located on Lake Michigan in Gary, Indiana
      (“Majestic Star II” and with Majestic Star, the “Majestic
      Properties”);


·
            A
      casino-hotel located in Tunica County, Mississippi ( “Fitzgeralds
      Tunica”); and


·
            A
      casino located in Black Hawk, Colorado (“Fitzgeralds Black
      Hawk”).





The
Company also has the following subsidiaries, which were formed for the purpose
of facilitating financing transactions:





·
            The
      Majestic Star Casino Capital Corp. (“MSCC”) is a co-obligor with the
      Company for the $300.0 million 9 1⁄2% Senior Secured Notes due 2010
      (the “Senior Secured Notes”). MSCC has no assets or operations;
      and


·
            Majestic
      Star Casino Capital Corp. II (“MSCC II”) is a co-obligor with
      the Company for the $200.0 million 9 3⁄4% Senior Notes due 2011 (the
      “Senior Notes”). MSCC II has no assets or operations. See Note 10 –
      Long-Term Debt.





Except
where otherwise noted, the words “we,” “us,” “our,” and similar terms, as well
as the “Company,” refer to The Majestic Star Casino, LLC and all of its direct
and indirect subsidiaries.








NOTE
2.                      BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





The
accompanying consolidated financial statements include the accounts of The
Majestic Star Casino, LLC and its separate and distinct subsidiary limited
liability companies and corporations. All inter-company transactions and
balances have been eliminated. These financial statements have been prepared in
accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and with
the instructions to Form 10-K. The preparation of financial statements in
conformity with GAAP 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 reporting period.
Significant estimates incorporated into our consolidated financial statements
include the estimated useful lives of depreciable and amortizable assets, the
estimated allowance for doubtful accounts receivable, estimated cash flow in
assessing the recoverability of long-lived assets, and estimated liabilities for
our self-insured medical and workers’ compensation plans, property taxes, slot
club point programs and litigation, claims and assessments. Actual results could
differ from those estimates.





As more
fully discussed in Notes 3 – Going Concern and 10 – Long-Term Debt, the Company
has experienced significant declines in operations at all of its casino
properties and is in default under the documents which govern its indebtedness
due to failure to make its October 15, 2008 interest payments on its Senior
Secured Notes and Senior Notes and with its debt covenants associated with its
debt instruments. As a result, the Company has classified all of its debt,
including the debt of its parent, which has been pushed down to the Company,
within current liabilities in the Condensed Consolidated Balance Sheet as
of





F-8
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)





December
31, 2008.   Due to the depressed economy and financial markets,
there is substantial doubt about the Company’s ability to continue as a going
concern. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification (except as previously discussed) of
liabilities that may result from the outcome of these
uncertainties.





PUSH DOWN
OF DISCOUNT NOTES FROM MAJESTIC HOLDCO - The Company’s Condensed
Consolidated Balance Sheets as of December 31, 2008 and 2007 include Majestic
Holdco’s 12 1⁄2% Senior Discount Notes, $63.5 million in principal due 2011 (the
“Discount Notes”), net of discount of $0.0 million and $5.8 million,
respectively. The Discount Notes are solely the obligation of Majestic Holdco
and Majestic Holdco, Inc. (the co-issuer with Majestic Holdco) and are
unsecured. Neither the Company nor any of its subsidiaries guarantees the
Discount Notes nor are the equity or assets of the Company or its subsidiaries
security for the Discount Notes. The Discount Notes are being pushed down to the
Company pursuant to the guidance in Securities and Exchange Commission Staff
Accounting Bulletin 73, Topic 5(J). In addition to the pushdown of the Discount
Notes, the Company is also reflecting $1.4 million and $1.9 million of deferred
financing costs, net of amortization, related to the issuance of the Discount
Notes, on its Condensed Consolidated Balance Sheets as of December 31, 2008 and
2007, respectively. Amortization of deferred financing costs was $0.5 million
for both years ended December 31, 2008 and 2007. Amortization of bond discount
was $5.8 million and $6.6 million for the years ended December 31, 2008 and
2007, respectively, and the Company is recognizing accrued interest of $1.7
million for the year ended December 31, 2008. Amortization of deferred financing
costs and bond discount are reflected as interest expense on the Company’s
Consolidated Statements of Operations. See Note 10 – Long-Term
Debt.





CASH AND
CASH EQUIVALENTS - The Company considers cash equivalents to include short-term
investments with original maturities, or remaining maturities at time of
purchase, of ninety days or less. Cash equivalents are carried at cost plus
accrued interest, which approximates fair value. The Company places its cash
primarily in checking and money market accounts, which, at times, have exceeded
federally insured limits.





RESTRICTED
CASH – At December 31, 2008 and December 31, 2007, restricted cash
consists of $5.4 million and $3.4 million, respectively, which is held as
certificates of deposits and in an interest-bearing bank account, serves as
security for letters of credit supporting the Company’s self-insured workers’
compensation programs, security for the maintenance of public improvements
related to the Fitzgeralds Black Hawk expansion, security for various surety
bonds and a depository escrow account for economic incentive funds related to
the Company’s dispute with the City of Gary, Indiana (“City of Gary”). See Note
13 – Commitments and Contingencies.





CONCENTRATION
OF CREDIT RISK - Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of casino accounts receivable.
The Company extends unsecured credit to approved casino customers following
background checks and investigations of creditworthiness. An estimated allowance
for doubtful accounts is maintained to reduce the Company’s receivables to their
carrying amount, which approximates fair value. Management believes that as of
December 31, 2008, no significant concentrations of credit risk existed for
which an allowance had not already been determined and recorded.





ACCOUNTS
RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS –







2008
            
            
            2007
            
            
            2006Balance,
      beginning of year
            
            $
            1,371,930
            
            
            $
            871,449
            
            
            $
            668,576Provision
            
            
            893,071
            
            
            
            917,291
            
            
            
            559,805Accounts
      written-off
            
            
            (832,992
            )
            
            
            (416,810
            )
            
            
            (356,932
            )Balance,
      end of year
            
            $
            1,432,009
            
            
            $
            1,371,930
            
            
            $
            871,449





INVENTORIES
- Inventories consisting principally of food, beverage, operating supplies and
gift shop items are stated at the lower of cost or market value. Cost is
determined by the first-in, first-out method.





F-9
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








RECEIVABLE
FROM AFFILIATE - At December 31, 2008, amounts reflected in receivable from
affiliates represent non-interest bearing advances made by the Company to Barden
Nevada Gaming, LLC (“Barden Nevada”), a wholly owned subsidiary of BDI, of $0.5
million, to BDI of $0.1 million and to Majestic Holdco of $0.1 million. At
December 31, 2007, amounts reflected in receivable from affiliates represent
non-interest bearing advances made by the Company to PITG Gaming, LLC (“PITG”),
an indirectly owned subsidiary of BDI, of $0.4 million, to BDI of $0.1 million
and to Majestic Holdco of $0.1 million.





PROPERTY
AND EQUIPMENT - Property and equipment are stated at cost. Depreciation expense
is computed utilizing the straight-line method over the estimated useful lives
of the depreciable assets. Costs of major improvements are capitalized; costs of
normal repairs and maintenance are charged to expense as incurred. Gains or
losses on dispositions of property and equipment are recognized in the
consolidated statements of operations when incurred. The following lists the
estimated useful lives of the Company’s property, plant and equipment by asset
category:





Estimated useful lifeVessels,
      buildings & improvements
            25-39
      yearsSite
      improvements
            9-15
      yearsBarge
      and improvements
            13-15
      yearsLeasehold
      improvements
            5-15
      yearsFurniture,
      fixtures and equipment
            3-10
      years





DEFERRED
FINANCING COSTS - Deferred financing costs represent underwriters’ and agents’
commissions and fees, closing costs and professional fees incurred in connection
with the issuance of the debt offerings. Deferred financing costs are amortized
over the terms of the related notes and lines of credit using the straight-line
method, which approximates the effective interest method.




GOODWILL
AND INDEFINITE-LIVED INTANGIBLE ASSETS - Goodwill represents the excess purchase
price over the net assets acquired for the Fitzgeralds properties, which were
acquired in December 2001. Goodwill for acquisitions after June 30, 2001 is not
subject to amortization but is subject to impairment testing at least annually.
Indefinite-lived intangible assets represent license rights at Majestic Star II,
which are tested for impairment using a discounted cash flow
approach.
 
 In
accordance with the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), we test
our goodwill and indefinite-lived intangible assets for impairment annually or
if a triggering event occurs. We perform the annual impairment testing for
goodwill and indefinite-lived intangible assets at the end of each fiscal year.
See Note 8 – Goodwill and Intangible Assets.





F-10
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)





FINITE-LIVED
INTANGIBLE ASSETS - Intangible assets represent separately identifiable assets
acquired in the Fitzgeralds Acquisition and in the acquisition of Trump Indiana,
Inc. (“Trump Indiana”) which was acquired in December 2005 (the “Trump
Acquisition”), and are amortized over their estimated useful lives, generally
eight to fifteen years. In addition, in accordance with the provisions of SFAS
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
144”), we test
long-lived assets for impairment if a triggering event occurs. See Note 8 –
Goodwill and Intangible Assets.
  REVENUE
RECOGNITION - Casino revenue is the net win from gaming activities, which is the
difference between the amount wagered by our gaming patrons and the amount paid
out to our patrons as a result of those wagers. Hotel, food and beverage and
other revenues are recognized at the time the related service is performed. We
deduct from our gross revenues the retail value of hotel rooms, food, beverage
and merchandise provided to our casino customers on a complimentary basis. We
also deduct from our gross revenues the value of certain cash-based promotional
activities, including cash earned by customers as part of our slot club programs
and cash coupons redeemed by our casino customers.





PROMOTIONAL
ALLOWANCES - Cash incentives related to gaming play are recorded as a reduction
of gross revenues. In addition, the retail value of accommodations, food and
beverage, and other services furnished to hotel/casino guests without charge is
included in gross revenue and then deducted as promotional allowances. The
estimated departmental cost of providing such promotional allowances is included
primarily in casino expenses as follows:





For
      The Years Ended December 31,2008
            
            
            2007
            
            
            2006Rooms
            
            $
            4,276,737
            
            
            $
            4,117,444
            
            
            $
            3,290,923Food
      and Beverage
            
            
            17,836,631
            
            
            
            18,130,704
            
            
            
            10,898,012Other
            
            
            942,479
            
            
            
            976,454
            
            
            
            551,844Total
            
            $
            23,055,847
            
            
            $
            23,224,602
            
            
            $
            14,740,779








The
following schedule lists total cash incentives and the retail cost of hotel,
food, beverage, and other, which comprise total promotional
allowances.





For
      The Years Ended December 31,2008
            
            
            2007
            
            
            2006Cash
      based promotional activities
            
            $
            7,719,872
            
            
            $
            14,727,082
            
            
            $
            27,447,352Slot
      club
            
            
            6,884,037
            
            
            
            7,947,295
            
            
            
            7,928,867Retail
      cost of rooms, food, beverage and other
            
            
            30,511,685
            
            
            
            30,724,844
            
            
            
            19,684,527Total
            
            $
            45,115,594
            
            
            $
            53,399,221
            
            
            $
            55,060,746





DOWNLOADABLE
PROMOTIONAL CREDITS - The Company’s Majestic Properties and Fitzgeralds Tunica
provide promotional programs that allow customers to download credits directly
to the slot machine being played (“downloadable promotional
credits”).  The amount of downloadable promotional credits given to a
customer is determined at the discretion of management.  Downloadable
promotional credits are not earned by a customer; however, management generally
makes its decision regarding the amount of downloadable promotional credits
provided to a customer based on the customer’s tracked play or as an award or
prize.  The Majestic Properties and Fitzgeralds Tunica do not record
the wagering of downloadable promotional credits as slot revenues and
corresponding casino and gross revenues as no consideration is provided by the
customer to make the wager. Downloadable promotional credits are not redeemable
for cash; however, any jackpots won as a result of the wagering of downloadable
promotional credits are deducted from slot revenues and corresponding casino and
gross revenues. The net impact of the implementation of downloadable promotional
credits is lower slot coin-in and slot revenues (casino revenues and gross
revenues).





F-11
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)





The
implementation of the Company’s downloadable promotional credit programs
coincided with a significant reduction in the Company’s direct mail cash coupon
programs, generally on a dollar for dollar basis. With the Company’s direct mail
cash coupon programs, customers received cash coupons from the Company which
could be redeemed for cash with the hope that the cash would be wagered at the
casinos’ slot machines and table games. Cash coupons were mailed directly to the
Company’s customers, generally based upon their historical gaming play and other
criteria, solely at the discretion of management. Cash coupons, when redeemed,
were recorded as promotional allowances, which were deducted from gross revenues
when computing net revenues. When the cash was wagered in slot machines, it was
recorded as slot coin-in and slot revenues (casino revenues and gross
revenues).





FEDERAL
AND STATE INCOME TAXES - The Company is organized as a limited liability company
and is an entity disregarded for U.S. federal and state income tax purposes. For
the years ended December 31, 2008, 2007 and 2006, income of the Company was
taxed directly to its member, and, accordingly, no provision for federal and
state income taxes is reflected in the consolidated financial
statements.





ADVERTISING
COSTS - Costs for advertising are expensed as incurred. Advertising costs
included in advertising and promotion expenses, were $5.4 million, $5.1 million
and $5.1 million for the years ended December 31, 2008, 2007 and 2006,
respectively.





LONG-LIVED
AND INTANGIBLE ASSETS - Long-lived assets and certain identifiable intangible
assets held and used by the Company are reviewed for impairment when events or
changes in circumstances warrant such a review. The carrying value of a
long-lived or intangible asset is considered impaired when the anticipated
undiscounted cash flow from such asset is less than its carrying value. In that
event, an impairment loss is recognized. An impairment loss is recognized for
the difference between fair value and the carrying amounts. Losses on long-lived
assets to be disposed of are determined in a similar manner, except that fair
values are reduced for the cost of disposition. Impairment review procedures
mandated under GAAP require an annual review of all intangible assets with
indefinite lives. See Note 8 – Goodwill and Intangible Assets.





CAPITALIZED
INTEREST – The Company capitalizes interest costs associated with debt incurred
in connection with its construction projects.  Interest capitalization
will cease once the projects are substantially complete or no longer undergoing
construction activities.  The Company capitalized interest on amounts
expended on the projects at the Company’s weighted average cost of borrowing on
its senior secured credit facility (“Senior Secured Credit Facility”). Interest
of $0.9 million, $1.2 million and $0.3 million, respectively, was capitalized
for the years ended December 31, 2008, 2007 and 2006.





CASINO
CLUB LIABILITY - The Company has accrued for the liability of points earned but
not redeemed by its casino club members, less the points of inactive players and
points that have expired. The liability is calculated based on an average
historical redemption rate on a property by property basis. The increase in the
liability is recorded as a reduction of gross revenue in accordance with GAAP
for customer loyalty programs.





PROGRESSIVE
LIABILITY - The Company maintains a number of “progressive” slot machines and
table games. As wagers are made by customers on the respective progressive
games, there is a corresponding increase in the amount available to win (to be
paid out when the appropriate jackpots are hit). The Company has recorded its
liability for the progressive jackpots as a component of other accrued
liabilities.





SELF-INSURANCE
LIABILITY - The Company maintains accruals for self-insured health and workers’
compensation costs, which are classified in payroll and related accrued
liabilities in the accompanying consolidated balance sheets. Management
determines the estimate of these accruals by periodically evaluating the
historical experience and projecting trends related to these accruals, including
an accrual for incurred but not reported claims. Actual results could differ
from these estimates.





PAYABLE
TO AFFILIATE – At December 31, 2007, the amount reflected in payable to
affiliate represents non-interest bearing advances made by Barden Nevada to the
Company in the amount of $0.2 million. At December 31, 2008, the Company had no
amounts payable to affiliates.





F-12
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








FAIR
VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based upon current
information, that the carrying value of the Company’s cash and cash equivalents,
restricted cash, accounts receivable and accounts payable approximates fair
value due to the short term nature of these assets and liabilities. The fair
value of the Company’s long-term debt is determined based on quoted market
prices for the same or similar issues. See Note 11 – Fair Value of Financial
Instruments.





RECLASSIFICATIONS
– Certain amounts in the December 31, 2007 consolidated financial
statements, having no effect on net loss, have been reclassified to conform to
the December 31, 2008 presentation.








NOTE
3.                      GOING
CONCERN





The
Company has experienced declining operating results and a weakening in its
financial position due to significant competition and deteriorating economic
conditions in each of the markets in which the Company owns and operates casino
facilities. As shown in the consolidated financial statements, the Company has
generated net losses of $150.4 million, $26.1 million and $14.3 million for the
years ended December 31, 2008, 2007 and 2006, respectively. At December 31,
2008, the Company had cash and cash equivalents of $57.7 million, a net working
capital deficit of $652.3 million and member’s deficit of $319.6
million.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. In addition, due to liquidity
concerns, the Company decided not to make the October 15, 2008 interest payments
of $24.0 million in aggregate with respect to the Senior Secured Notes and
Senior Notes prior to the expiration of the grace period on November 14,
2008.  The Company is, therefore, in default of the Senior Notes, the
Senior Secured Notes and the Senior Secured Credit Facility (“Event of
Default”).  In addition, there is an Event of Default under the
indenture governing the Discount Notes issued by its parent. The trustee or a
specified percentage of holders of the notes have the right to accelerate the
maturity date of the respective notes, which could result in all of the
Company’s indebtedness becoming immediately due and payable. In addition, the
lenders under the Senior Secured Credit Facility have the right to accelerate
the maturity date under the loan and security agreement. As of December 31,
2008, the Company had $579.9 million of indebtedness outstanding, before the
unpaid October 15, 2008 interest payments, under its Senior Secured Notes,
Senior Notes, Senior Secured Credit Facility and capitalized leases.
Consequently, the Company has classified all of its debt, including the $63.5
million debt of its parent which has been pushed down to the Company, the
Discount Notes, within current liabilities in the Consolidated Balance Sheet as
of December 31, 2008.




The
Company has engaged financial advisors to assist in the evaluation of a broad
range of financial and strategic alternatives aimed at addressing trends in the
Company’s operating results and financial position. These alternatives may
include a recapitalization, refinancing, restructuring or reorganization of the
Company’s obligations or a sale of some or all of its assets. The Company and
its advisors have entered into discussions with its secured lenders and note
holders regarding the consequences of the Events of Default under the respective
debt documents and the financial and strategic alternatives available to the
Company. It is unlikely that any restructuring plan can be consummated outside
of Chapter 11 of the U.S. Bankruptcy Code. The conditions and events described
above raise a substantial doubt about the Company’s ability to continue as a
going concern. The accompanying consolidated financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result should the Company be unable to continue as a going
concern.








F-13
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








NOTE
4.                      RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





The
Company has or will be required to adopt the following accounting policies
resulting from the following newly issued standards.




·
            In
      October 2008, the Financial Accounting Standards Board (“FASB”) issued
      FASB Staff Position No. 157-3, “Determining the Fair Value of a Financial
      Asset When the Market for That Asset is Not Active”, which clarifies the
      application of FASB Statement No.157, “Fair Value Measurements” (“SFAS
      157”), in cases where a market is not active. The Company has not yet
      determined the impact on its consolidated financial statements upon
      adoption.





·
            In
      May 2008, FASB issued FASB Statement No.162, "The Hierarchy of Generally
      Accepted Accounting Principles" (“SFAS 162”), which identifies the sources
      of accounting principles and the framework for selecting the principles
      used in the preparation of financial statements of nongovernmental
      entities that are presented in conformity with generally accepted
      accounting principles. SFAS 162 will become effective sixty days
      following the Securities and Exchange Commission's approval of the Public
      Company Accounting Oversight Board amendments to AU Section 411, "The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles". The adoption of the provisions of SFAS 162 is not anticipated
      to materially impact our consolidated financial
  statements.





·
            In
      April 2008, FASB issued FASB Staff Position No. 142-3, “Determination of
      the Useful Life of Intangible Assets”, (“FSP 142-3”), which amends the
      factors that should be considered in developing renewal or extension
      assumptions used to determine the useful life of a recognized intangible
      asset under SFAS 142. FSP 142-3 is effective for fiscal years beginning
      after December 15, 2008 and only applies prospectively to intangible
      assets acquired after the effective date. Early adoption is not permitted.
      The Company anticipates that adoption will have no material impact on its
      consolidated financial statements.





·
            In
      March 2008, FASB issued FASB Statement No. 161, “Disclosures about
      Derivative Instruments and Hedging Activities” (“SFAS 161”), to improve
      financial reporting about derivative instruments and hedging activities by
      requiring enhanced disclosures to enable investors to better understand
      their effects on an entity’s financial position, financial performance,
      and cash flows. SFAS 161 is effective for financial statements for fiscal
      years beginning after November 15, 2008. The Company anticipates that
      adoption will have no impact on its consolidated financial statements as
      it has no derivative instruments or hedging
  activities.





·
            Effective
      January 1, 2008, the Company adopted FASB Statement No.159, “The Fair
      Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”)
      and has not made any fair value elections with respect to any eligible
      assets or liabilities as permitted under the provisions of SFAS 159
      to date. The Company also adopted FASB Statement No.157, “Fair Value
      Measurements” (“SFAS 157”) effective January 1, 2008, for financial and
      non-financial assets and liabilities measured on a recurring basis. There
      was no impact to the consolidated financial statements upon adoption. SFAS
      157 defines fair value, establishes a framework for measuring fair value
      and expands disclosure about fair value measurements. SFAS 157 does not
      require any new fair value measurements, but rather applies to other
      accounting pronouncements that require or permit fair value
      measurements.





·
            In
      February 2008, FASB issued FASB Staff Position No. 157-2, “Effective Date
      of SFAS 157” (“FSP 157-2”) which defers the effective date of SFAS 157 to
      fiscal years beginning after November 15, 2008 for non-financial assets
      and non-financial liabilities that are recognized or disclosed at fair
      value in an entity’s financial statements on a recurring basis. The
      Company anticipates that adoption will have no material impact on its
      consolidated financial statements.





F-14
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








·
            In
      December 2007, the FASB issued FASB Statement No. 141(R), “Business
      Combinations” (“SFAS 141(R)”). SFAS 141(R) requires the acquiring entity
      in a business combination to recognize all (and only) the assets acquired
      and liabilities assumed in the transaction; establishes the
      acquisition-date fair value as the measurement objective for all assets
      acquired and liabilities assumed; and requires the acquirer to disclose to
      investors and other users all of the information they need to evaluate and
      understand the nature and financial effect of the business combination.
      SFAS 141(R) is effective as of the beginning of a company’s first fiscal
      year that begins after December 15, 2008. The Company anticipates that
      adoption will have no impact on its consolidated financial
      statements.





·
            In
      December 2007, the FASB issued FASB Statement No.160, “Noncontrolling
      Interests in Consolidating Financial Statements” (“SFAS 160”). SFAS 160
      requires all entities to report noncontrolling (minority) interests in
      subsidiaries in the same way—as equity in the consolidated financial
      statements. Moreover, SFAS 160 eliminates the diversity that currently
      exists in accounting for transactions between an entity and noncontrolling
      interests by requiring they be treated as equity transactions. SFAS 160 is
      effective as of the beginning of a company’s first fiscal year that begins
      after December 15, 2008. The Company anticipates that adoption will have
      no impact on its consolidated financial statements as it has no
      noncontrolling interests.








NOTE
5.                      CERTIFICATE
OF SUITABILITY AND LICENSES





On
December 9, 1994, the Indiana Gaming Commission (the “IGC”) awarded the
Company a certificate for a riverboat owner’s license for a riverboat casino to
be docked in the City of Gary. In December 2005, after the Company completed its
acquisition of Trump Indiana, the IGC granted to the Company’s subsidiary, The
Majestic Star Casino II, Inc, a license. Currently, each license must be
renewed annually with a complete reinvestigation every three years. In June
2007, both licensees underwent their requisite three-year reinvestigations with
satisfactory results. The Majestic Properties’ current licenses expire in June
2009. There can be no assurance that any subsequent application for a license
will be approved.





The
subsidiary that owns Fitzgeralds Mississippi and the Company must maintain
gaming licenses from the Mississippi Gaming Commission in order to continue to
operate a casino in Mississippi. Such licenses are issued by the Mississippi
Gaming Commission subject to certain conditions, including continued compliance
with all applicable state laws and regulations. Gaming licenses require the
payment of periodic fees and taxes, are not transferable, are issued for a
three-year period (and may be continued for two additional three-year periods)
and must be renewed periodically thereafter. The current gaming license expires
in December of 2010. There can be no assurance that any subsequent application
for a license will be approved.





On
October 18, 2001, the Colorado Gaming Commission issued operator and retail
licenses to the Company’s subsidiary that is the owner and operator of
Fitzgeralds Black Hawk. The operator and retail gaming licenses were renewed by
the Colorado Gaming Commission for a one-year period in September 2008. There
can be no assurance that any subsequent application for a license will be
approved.








NOTE
6.                      CITY
OF GARY, INDIANA DEVELOPMENT OBLIGATION





On
October 19, 2005, the City of Gary (“City”) and the Company entered into a
development agreement (“Amended Majestic Development Agreement”) which provides
that the Company’s obligation to the City for economic incentive payments is
equal to 3% of the adjusted gross receipts (as defined by the Riverboat Gaming
Act) of Majestic Star and Majestic Star II, but in no event less than $6.0
million per year, with any amount in excess of $6.0 million being placed in a
non-reverting improvement fund, of which 50% of the fund’s assets are to be used
solely to pay for or reimburse certain development and environmental remediation
obligations of the City, and 50% of the fund’s assets are to be used by the
Company for improvements on or for the benefit of the Buffington Harbor area,
including our casino operations. The Amended Majestic Development Agreement also
requires the Company or its affiliates to (i) increase its minimum investment
commitment from $50.0 million to $70.0 million (the





F-15
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)





Company
has made in excess of $50.0 million of investments towards this commitment) and
(ii) to establish a private charitable education foundation (“Barden
Foundation”) and to fund the Barden Foundation with an annual contribution of
$0.1 million (the Company has established and funded the Barden Foundation as
required to date by the Amended Majestic Development Agreement). The Company
expenses the cost of funding the Barden Foundation. The Company’s obligation to
make its increased investment is contingent on the City’s compliance with its
development obligations to the Company in connection with Buffington Harbor
which it has not completed, including obligations with respect to environmental
remediation, and the completion of the access roads and freeway interchange. As
a result of the City not fulfilling its development obligations, the Company has
brought legal action against the City for breach of the Amended Majestic
Development Agreement. See Note 13 – Commitments and Contingencies.








NOTE
7.                   
PROPERTY AND EQUIPMENT





Property
and equipment as of December 31, 2008 and 2007 consist of the following (in
thousands):





December
      31,
            
            
            December
      31,2008
            
            
            2007Land
            
            $
            24,480
            
            
            $
            23,661Land
      held for future development
            
            
            22,009
            
            
            
            22,009Vessels,
      buildings & improvements
            
            
            194,253
            
            
            
            166,880Site
      improvements
            
            
            29,058
            
            
            
            28,826Barge
      and improvements
            
            
            20,700
            
            
            
            20,679Leasehold
      improvements
            
            
            587
            
            
            
            802Furniture,
      fixtures and equipment
            
            
            133,956
            
            
            
            124,656Construction
      in progress
            
            
            751
            
            
            
            24,253425,794
            
            
            
            411,766Less
      accumulated depreciation and amortization
            
            
            (162,230
            )
            
            
            (132,137
            )Total
      Property and equipment, net
            
            $
            263,564
            
            
            $
            279,629





Substantially
all property and equipment are pledged as collateral. See Note 10 - Long Term
Debt.






NOTE
8.                     
GOODWILL AND INTANGIBLE ASSETS


At
December 31, 2008, the Company had $5.9 million of goodwill and $41.5 million of
intangible assets deemed to have an indefinite life. SFAS 142 requires that
goodwill and certain intangible assets be assessed for impairment using fair
value measurement techniques. Pursuant to SFAS 142, the Company is required to
perform a formal impairment review of the Company’s goodwill and
indefinite-lived intangible balances on at least an annual basis and between
annual tests if events occur or circumstances change that would, more likely
than not, reduce the fair value below the amount reflected on the balance sheet.
The Company performs this review on December 31 of each year.
 
 The
impairment test for goodwill is performed in two steps. The first step, used to
identify potential impairment, compares the fair value of a reporting unit with
its carrying amount, including goodwill and indefinite-lived intangibles. If the
carrying amount of a reporting unit exceeds its fair value, then the second step
of the goodwill impairment test is performed to measure the amount of impairment
loss, if any. The second step, used to measure the amount of impairment loss,
compares the implied fair value of reporting unit goodwill with the carrying
amount of that goodwill. The implied fair value of goodwill is determined in the
same manner as in a business combination. Indefinite-lived intangible assets
represent license rights at Majestic Star II and are tested for impairment using
a discounted cash flow approach.




F-16
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




Estimates
of fair value are primarily determined using discounted cash flows and market
comparisons. These approaches use significant estimates and assumptions,
including projection and timing of future cash flows, discount rates reflecting
the risk inherent in future cash flows, perpetual growth rates, determination of
appropriate market comparables, and determination of whether a premium or
discount should be applied to comparables. It is reasonably possible that the
plans and estimates used to value these assets may be incorrect. These estimates
and assumptions could have a significant impact on whether or not an impairment
charge is recognized and also the magnitude of any such charge. If the Company’s
actual results, or the plans and estimates used in future impairment analyses,
are lower than the original estimates used to assess the recoverability of these
assets, the Company could incur future impairment charges.
 
 Due to
continued weakness in our operating results and the expectation that we would
not be able to make the scheduled interest payment on our Senior Secured Notes
and Senior Notes when due on October 15, 2008, we determined that a triggering
event occurred and we conducted the step one analysis under SFAS No. 142. Based
on that step one analysis, an indication of impairment existed at our Majestic
Properties. We did not have sufficient time to complete the second step
evaluation of goodwill and other indefinite-lived intangible assets as required
by SFAS No. 142 prior to filing our Form 10-Q for the quarter ended September
30, 2008. However, given the significance of the indication of impairment from
the step one analysis, we made the decision to take an estimated non-cash
impairment charge for $41.5 million of goodwill at Majestic Star II, which was
originally recorded from the Trump Acquisition, in our interim financial
statements for the quarter ended September 30, 2008. During the fourth quarter
of 2008, we completed our step two analysis, the results of which confirmed the
necessity to have fully written-off the goodwill at Majestic Star
II.
 
 As a
result of our projections reflecting diminishing cash flows, in conjunction with
the preparation of our financial statements for the year ended December 31,
2008, we recorded a $64.3 million in aggregate non-cash impairment charge to
write-down certain portions of our intangible assets at Majestic Star II. This
non-cash impairment charge is in addition to the non-cash impairment charge for
goodwill recognized at Majestic Star II in our quarterly interim financial
statements for September 30, 2008.


The gross
carrying amount and accumulated amortization of the Company’s intangible assets,
other than goodwill, as of December 31, 2008 and 2007 are as follows (in
thousands):





As
      of December 31, 2008
            
            Gross
      Carrying
            
            
            Accumulated
            
            
            Net
      Amount
            
            ExpectedAmount
            
            
            Amortization
            
            
            December
      31, 2008
            
            LifeIntangible
      assets:Customer
      relationship
            
            $
            24,540
            
            
            $
            (13,253
            )
            
            $
            11,287
            
            8
      yrsTrade
      name
            
            
            3,450
            
            
            
            (2,439
            )
            
            
            1,011
            
            10
      yrsGaming
      license
            
            
            41,450
            
            
            
            -
            
            
            
            41,450
            
            indefiniteRiverboat
      excursion license
            
            
            700
            
            
            
            (221
            )
            
            
            479
            
            15
      yrsTotal
      intangible assets
            
            $
            70,140
            
            
            $
            (15,913
            )
            
            $
            54,227As
      of December 31, 2007
            
            Gross
      Carrying
            
            
            Accumulated
            
            
            Net
      Amount
            
            ExpectedAmount
            
            
            Amortization
            
            
            December
      31, 2007
            
            LifeIntangible
      assets:Customer
      relationship
            
            $
            24,540
            
            
            $
            (10,185
            )
            
            $
            14,355
            
            8
      yrsTrade
      name
            
            
            3,450
            
            
            
            (2,094
            )
            
            
            1,356
            
            10
      yrsGaming
      license
            
            
            105,700
            
            
            
            -
            
            
            
            105,700
            
            indefiniteRiverboat
      excursion license
            
            
            700
            
            
            
            (175
            )
            
            
            525
            
            15
      yrsTotal
      intangible assets
            
            $
            134,390
            
            
            $
            (12,454
            )
            
            $
            121,936







The
amortization expense recorded on the intangible assets subject to amortization
for the years ended December 31, 2008, 2007 and 2006 was $3.5 million for
each year. The estimated amortization expense for all amortized intangible
assets for each of the five succeeding fiscal years is as follows (in
thousands):





F-17
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








For
      the years ended December 31,2009
            
            $
            3,3922010
            
            
            2,4792011
            
            
            2,4562012
            
            
            2,1342013
            
            
            2,071Thereafter
            
            
            245Total
      amortization expense
            
            $
            12,777








NOTE
9.                      OTHER
ACCRUED LIABILITIES





Other
accrued liabilities as of December 31, 2008 and 2007 consist of the following
(in thousands):





December
      31,
            
            
            December
      31,2008
            
            
            2007Gaming
      and other taxes
            
            $
            1,772
            
            
            $
            2,159Progressive
      jackpots
            
            
            3,786
            
            
            
            4,165Slot
      club liability
            
            
            1,634
            
            
            
            1,818Chip
      & token liability
            
            
            494
            
            
            
            763Accrued
      trade payables
            
            
            5,036
            
            
            
            5,001Professional
      fees
            
            
            1,578
            
            
            
            1,304Other
            
            
            996
            
            
            
            1,265$
            15,296
            
            
            $
            16,475








NOTE
10.                      LONG-TERM
DEBT





Long-term
debt outstanding as of December 31, 2008 and 2007 consist of the following (in
thousands):





December
      31,
            
            
            December
      31,2008
            
            
            20079
      1⁄2% senior secured notes due 2010
            
            $
            300,000
            
            
            $
            300,0009
      3⁄4% senior notes due 2011
            
            
            200,000
            
            
            
            200,000Senior
      secured credit facility due 2010
            
            
            79,336
            
            
            
            56,425Capitalized
      leases and other debt
            
            
            592
            
            
            
            313Long-term
      debt
            
            
            579,928
            
            
            
            556,738Less
      current maturities
            
            
            (579,928
            )
            
            
            (203
            )Total
      long-term debt
            
            $
            -
            
            
            $
            556,535











F-18
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








SENIOR
SECURED NOTES





The
Company has issued $300.0 million of Senior Secured Notes. The Senior Secured
Notes bear interest at a fixed annual rate of 9 1⁄2% payable on April 15 and
October 15 of each year and have a maturity date of October 15, 2010. The
Senior Secured Notes are guaranteed by all of our subsidiaries (other than
Majestic Star Casino Capital Corp.). The Senior Secured Notes are secured by a
pledge of substantially all of the Company’s and its subsidiaries’ current and
future assets, other than certain excluded assets. The Senior Secured Notes are
also collateralized by our equity interests held by Majestic Holdco and our
equity interests in the subsidiary guarantors.





The
indenture governing the Senior Secured Notes (the “Senior Secured Notes
Indenture”) contains covenants which, among other things, restrict the Company’s
ability to (i) make asset sales; (ii) make certain payments to, or investments
in, third parties; (iii) incur additional indebtedness or liens on any assets;
(iv) enter into transactions with affiliates; and (v) sell any restricted
subsidiaries’ assets. In addition, upon a Change of Control as defined in the
indenture governing the Senior Secured Notes, the Company will be required to
offer to repurchase all of the outstanding Senior Secured Notes at a cash price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
to the date of repurchase.





SENIOR
NOTES





The
Company has issued $200.0 million of Senior Notes. The Senior Notes bear
interest at a fixed annual rate of 9 3⁄4% payable on April 15 and October 15
of each year and have a maturity date of January 15, 2011. The Senior Notes
are guaranteed by all of our subsidiaries (other than Majestic Star Casino
Capital Corp and Majestic Star Casino Capital Corp II which is a co-issuer). The
Senior Notes are senior unsecured obligations of the Company, ranking equally
with all of the Company’s and its subsidiaries’ existing and future subordinated
indebtedness.  The Senior Notes are effectively subordinated to the
Senior Secured Notes and the Company’s $80.0 million Senior Secured Credit
Facility.





The
indenture governing the Senior Notes (the “Senior Notes Indenture”) contains
covenants which, among other things, restrict the Company’s ability to (i) make
asset sales; (ii) make certain payments to, or investments in, third parties;
(iii) incur additional indebtedness or liens on any assets; (iv) enter into
transactions with affiliates; and (v) sell any restricted subsidiaries’ assets.
In addition, upon a Change of Control as defined in the Senior Notes Indenture,
the Company will be required to offer to repurchase all of the outstanding
Senior Notes at a cash price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of repurchase.





SENIOR
SECURED CREDIT FACILITY





The
Company has an $80.0 million Senior Secured Credit Facility, which is secured by
all of the equity of the Company and its restricted subsidiaries and by its and
its restricted subsidiaries’ current and future assets, other than certain
excluded assets. The lien on the collateral securing the Senior Secured Credit
Facility is senior to the lien on the collateral securing the Senior Secured
Notes and the guarantees of the Senior Secured Notes. Borrowings under the
Senior Secured Credit Facility bear interest at the Company’s choice of LIBOR
plus a range of 2.50% to 3.00% or the agent bank’s base rate (which approximates
the prime rate) plus a range of 0.00% to 0.50%. The range is determined based on
the Company’s EBITDA (as defined in the loan and security agreement governing
the Senior Secured Credit Facility and amendments thereto). Full payment of any
outstanding balance under the Senior Secured Credit Facility is due upon
maturity of the agreement in April 2010. The Company’s Senior Secured Credit
Facility contains customary conditions to borrowing and representations and
warranties customary in other gaming-related financings. The loan and security
agreement governing the Senior Secured Credit Facility contains certain
financial covenants and restrictions, which among other things, restricts
indebtedness, investments, distributions and mergers and requires the Company to
maintain, as defined in the covenants (as amended), minimum EBITDA and interest
coverage ratios and an annual limit on capital expenditures.





On
October 7, 2008, the Company drew substantially all the funds remaining on the
Senior Secured Credit Facility.





F-19
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








EVENT
OF DEFAULT





The
Company did not make the October 15, 2008 interest payments of $24.0 million in
aggregate with respect to the Senior Secured Notes and Senior Notes prior to
expiration of the grace period to cure such payment defaults on November 14,
2008.  As a result there is an Event of Default under the indentures
governing the Senior Notes and the Senior Secured Notes and the loan and
security agreement for the Senior Secured Credit Facility. Following the Event
of Default, lenders under the Senior Secured Credit Facility, the trustee or a
specified percentage of holders of the Senior Secured Notes, as well as the
trustee or a specified percentage of holders of the Senior Notes have the right
to accelerate the maturity date of the respective indebtedness, which would
cause the respective indebtedness to be immediately due and payable and could
result in all of the Company’s indebtedness becoming immediately due and
payable. Consequently, the Company has classified all debt as current on the
Consolidated Balance Sheet as of December 31, 2008. Further, the lenders under
the Senior Secured Credit Facility have the right to foreclose on substantially
all of the Company’s and its subsidiaries’ equity and on the Company’s and its
subsidiaries’ assets which secure such indebtedness. The Company and its
advisors have entered into discussions with its lenders and note holders
regarding the restructuring of the Company’s debt.





In
addition, the Company is (i) required to pay an additional 1% per annum in
excess of the applicable interest rates on the Senior Secured Notes and Senior
Notes on the overdue installments of interest and an additional 2% in excess of
the rates otherwise applicable under the Senior Secured Credit Facility and (ii)
restricted from taking certain actions as specified in the covenants in the
indentures governing the respective notes and the Senior Secured Credit
Facility, including making certain payments and investments and incurring
certain indebtedness.





The
Company has engaged counsel and financial advisors to assist the Company with
evaluating strategic alternatives aimed at addressing the Company’s operating
results and financial position. In addition, the lenders and note holders have
also engaged counsel and financial advisors and, with certain limitations, the
Company has agreed to reimburse the lenders and note holders’ counsel and
financial advisors. In 2008, the Company incurred $1.5 million in restructuring
related costs.





OTHER
DEBT





The
Company has various other capital leases of approximately $0.6 million and other
debt for equipment. The debt obligations are of a short duration.





DISCOUNT
NOTES





The
Discount Notes, with a face value at maturity of $63.5 million, were issued on
December 21, 2005, with Majestic Holdco receiving net proceeds of
approximately $45.1 million. The net proceeds from the Discount Notes were
contributed to the Company to assist in funding the Trump Acquisition and
refinancing other debt. The Discount Notes are senior unsecured obligations of
Majestic Holdco, ranking equally with all of its existing and future senior
obligations and senior to all its future subordinated indebtedness. The Discount
Notes are structurally subordinated to all of the Company’s indebtedness
(including the Senior Notes, the Senior Secured Notes and the Company’s Senior
Secured Credit Facility) and are effectively subordinated in respect of the
membership interests of the Company pledged to secure the Company’s Senior
Secured Credit Facility and the Senior Secured Notes. Neither the Company nor
any of its subsidiaries is a guarantor of the Discount Notes. Neither the equity
nor assets of the Company or any of its subsidiaries secure the Discount Notes.
The Discount Notes pay interest, semiannually, on April 15 and October 15 at a
rate of 12 1⁄2%.  The Discount Notes paid interest in kind until
October 15, 2008. Commencing October 15, 2008, cash interest on the Discount
Notes began to accrue which will first become payable on April 15, 2009.
Majestic Holdco has no operations or the ability to generate cash flow
internally. Due to the Event of Default, as described above, which exists, there
is in turn an Event of Default under the indenture governing the Discount Notes.
Consequently, the Company has classified the Discount Notes as current. It is
anticipated that Majestic Holdco will not have funds available to make the
interest payments on the Discount Notes on April 15, 2009. The Discount Notes
mature on October 15, 2011.





F-20
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








INTERCREDITOR
AGREEMENT





The
trustee under the Senior Secured Notes Indenture (as collateral agent) and Wells
Fargo Foothill, Inc., the agent under the Senior Secured Credit Facility, are
party to the intercreditor agreement which provides for the contractual
subordination of the liens on the collateral securing the Senior Secured Notes
(and the related guarantees) to the liens on the collateral securing the
indebtedness under the Senior Secured Credit Facility.





The
intercreditor agreement, among other things, limits the trustee’s rights in an
event of default under the Senior Secured Notes. Under the intercreditor
agreement, if the Senior Secured Notes become due and payable prior to the
stated maturity or are not paid in full at the stated maturity at a time during
which there is indebtedness outstanding under the Senior Secured Credit
Facility, the trustee will not have the right to foreclose upon the collateral
unless and until the lenders under the Senior Secured Credit Facility fail to
take steps to exercise remedies with respect to or in connection with the
collateral within 180 days following notice to the trustee. In addition, the
intercreditor agreement prevents the trustee and the holders of the Senior
Secured Notes from pursuing certain remedies with respect to the collateral in
an insolvency proceeding. The intercreditor agreement also provides that the net
proceeds from the sale of the collateral will first be applied to repay
indebtedness outstanding under the Senior Secured Credit Facility and thereafter
to the holders of the Senior Secured Notes.





As a
result of the Event of Default that exists under the Senior Secured Credit
Facility and Senior Secured Notes, the trustee sent to the agent a default
notice dated as of December 3, 2008. On December 11, 2008, the agent sent the
trustee a “Standstill Notice” pursuant to the terms of the intercreditor
agreement. As such, the trustee and the holders of the Senior Secured Notes are
prohibited from taking action against the collateral during the 180-day
standstill period.








NOTE
11.                      FAIR
VALUE OF FINANCIAL INSTRUMENTS





The
following table presents the carrying value and estimated fair value as of
December 31, 2008 and December 31, 2007 of the Company’s financial
instruments.





December
      31, 2008
            
            
            December
      31, 2007Carrying
            
            
            Estimated
            
            
            Carrying
            
            
            EstimatedValue
            
            
            Fair
      Value
            
            
            Value
            
            
            Fair
      ValueAssets:
            
            (in
      thousands)Cash
      and equivalents
            
            $
            57,750
            
            
            $
            57,750
            
            
            $
            29,216
            
            
            $
            29,216Restricted
      Cash
            
            $
            5,404
            
            
            $
            5,404
            
            
            $
            3,401
            
            
            $
            3,401Liabilities:Long-term
      debt9
      1⁄2% Senior Secured Notes
            
            $
            300,000
            
            
            $
            85,500
            
            
            $
            300,000
            
            
            $
            281,2509
      3⁄4% Senior Notes
            
            
            200,000
            
            
            
            10,000
            
            
            
            200,000
            
            
            
            138,000Senior
      Secured Credit Facility
            
            
            79,336
            
            
            
            79,336
            
            
            
            56,425
            
            
            
            56,425Capitalized
      leases and other debt
            
            
            592
            
            
            
            592
            
            
            
            313
            
            
            
            313$
            579,928
            
            
            $
            175,428
            
            
            $
            556,738
            
            
            $
            475,98812
      1⁄2% Discount Notes, pusheddown
      from Majestic Holdco
            
            $
            63,500
            
            
            $
            635
            
            
            $
            57,710
            
            
            $
            45,085











F-21
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








While our
$300.0 million of Senior Secured Notes are not actively traded, we believe,
based upon information received from investment institutions, that our $300.0
million of Senior Secured Notes were priced at 28.5% of face value for a value
of $85.5 million at December 31, 2008. Our $200.0 million of Senior Notes are
not actively traded, but we believe, based upon information received from
investment institutions, that our $200.0 million of Senior Notes were priced at
5.0% of face value for a value of $10.0 million at December 31, 2008. The
Discount Notes of our parent, Majestic Holdco, are not actively traded, but we
believe, based upon information received from investment institutions, that
Majestic Holdco’s $63.5 million of Discount Notes were priced at 1.0% of face
value for a value of $0.6 million at December 31, 2008.








NOTE
12.                      SAVINGS
PLAN





The
Company contributes to defined contribution plans, which provide for
contributions in accordance with the plan documents. The plans are available to
full time employees upon joining the Company. The Company makes a matching
contribution up to a maximum of 3% of an employee’s salary limited to a
specified dollar amount as stated in the plan documents. The Company’s
contributions to the plans amounted to $1.2 million, $1.0 million and $1.0
million during 2008, 2007 and 2006, respectively.








NOTE
13.                      COMMITMENTS
AND CONTINGENCIES





LEASES





The
Company has operating leases for various office and gaming equipment. The
following is a schedule by years of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year as of December 31, 2008 (in thousands):





For
      the years ended December 31,2009
            
            $
            4542010
            
            
            1502011
            
            
            782012
            
            
            292013
            
            
            -Thereafter
            
            
            -$
            711





Rent
expense for the years ended December 31, 2008, 2007 and 2006 was $10.5 million,
$10.1 million and $8.8 million, respectively.





LEGAL
PROCEEDINGS





Various
legal proceedings are pending against the Company. Management considers all such
pending proceedings, comprised primarily of personal injury and equal employment
opportunity claims, to be routine litigation incidental to the Company’s
business. Except as described below, management believes that the resolution of
these proceedings will not individually, or in the aggregate, have a material
effect on the Company’s financial condition, results of operations or cash
flows.





F-22
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








Anti-trust
Litigation. In June 2003, a complaint was filed in the U.S. District
Court for the Northern District of Mississippi (“District Court”) against Tunica
County casino owners and operators, including Barden Mississippi Gaming, LLC
(“BMG”), the Tunica Casino Operators Association and the Tunica County Tourism
Commission alleging violation of federal and state anti-trust claims, as well as
various other tort and contract claims. The plaintiffs sought treble,
compensatory and punitive damages plus interest and attorney's fees. Each of the
casino defendants, excluding BMG, settled with the plaintiffs in May 2008,
leaving BMG as the sole remaining defendant in the matter. On August 22, 2008,
the Company settled with plaintiffs for $35,000, which the Company has paid. The
Company previously had reserved $0.1 million for this matter.





Insurance Litigation.
In February 2006, the Company’s previous stop-loss health insurance provider
(“Insurance Provider”), through its third party auditor, contacted the Company
and requested that the Company provide information to facilitate an audit of
employee health insurance stop-loss coverage for the years of 2004 and 2005.
Although the Company provided the requested information, as a result of this
audit process, the Insurance Provider has withheld payment on certain claims
that are payable under its stop-loss insurance policy with an aggregate
outstanding value of approximately $0.7 million. After numerous attempts by the
Company to request and facilitate the completion of the audit, the Company filed
suit on May 3, 2007 in the United States District Court for the Northern
District of Illinois (“Court”) against the Insurance Provider alleging: (i)
breach of contract, (ii) unfair claims settlement practices, (iii) bad faith,
and (iv) breach of fiduciary duty. The Company is seeking declaratory relief and
damages for unpaid claims totaling approximately $0.7 million, punitive damages
and attorneys’ fees. In May 2008, the Company amended its Complaint to include
claims against the Insurance Provider’s managing general underwriter for breach
of contract, bad faith and breach of fiduciary duty. In its Answer, the
Insurance Provider denied that payment on the claims is owing and filed a
counter-claim for rescission of the stop-loss contracts, declaratory relief,
breach of contract and negligent misrepresentation relating to the number of
enrolled, eligible participants in the health plans. The Insurance Provider
seeks damages totaling $0.1 million plus prejudgment interest or, in the
alternative, unspecified damages believed to total $0.3 million for its alleged
losses under the contracts.  The Company believes it is entitled to a
substantial recovery on its claims which include both contract and tort claims
and believes the Insurance Provider’s counter-claim is without merit. The
parties were unsuccessful in their attempt to resolve their claims through a
mediation held on November 19, 2008; however, they continue to engage in
informal settlement discussions.  Should the negotiations not be
successful, the Company intends to vigorously prosecute its claims and defend
the counter-claims at trial which is currently expected to begin in late 2009.
The parties are in the discovery stage of litigation and at this time the
Company cannot determine with certainty the outcome of the litigation or the
likelihood or the amount of any recovery.





Construction
Litigation. On January 15, 2007, Barden Colorado Gaming, LLC (“BCG”)
entered into a Joint Prosecution "Agreement (“JPA”) with its insurance carrier,
Continental Casualty Company (“Insurer”), whereby the parties would share
counsel in pursuing recovery against various construction companies potentially
liable for the collapse of the Rohling Inn building in Black Hawk, Colorado
(“Building Collapse”). The Building Collapse occurred during the City of Black
Hawk’s installation of a storm sewer drain on or about January 20, 2005. As per
the terms of the JPA, the Insurer will direct litigation and be liable initially
to pay all legal costs, with such legal costs ultimately to be prorated between
the parties based on the actual recovery, if any. On January 16, 2007,
Fitzgeralds Black Hawk filed a complaint in the 1st Judicial District Court,
County of Gilpin, State of Colorado against three contractors involved in the
storm sewer drain project (“Contractors”). It is the Insurer’s and Fitzgeralds
Black Hawk’s contention that the Building Collapse occurred as a direct result
of negligence on the part of the Contractors involved in the storm sewer drain
project. The Company estimates its total claim for the loss to be approximately
$4.3 million. As of December 2008, the Company had received $2.9 million in
settlement payments from the insurance carrier. On July 24, 2008, the Company
reached an agreement with the Insurer whereby the Company would receive 12.5% of
any recovery from the Contractors after expenses. In August 2008, the Company
and the Insurer agreed to release their claims against the Contractors in
exchange for the payment of $0.8 million, with one of the Contractors, Lyman
Henn, Inc. agreeing to pay $0.5 million of that amount.  Lyman Henn,
Inc. is now disputing the enforceability of its agreement to pay that
amount.  The Company and the Insurer have moved to enforce the
agreement. A hearing on that motion was held on March 16, 2009 and the court
granted the Company’s motion to enforce the agreement. The other two Contractors
did not dispute their agreement to pay $0.3 million and paid that sum in January
2009. The Company has received its agreed upon share of the $0.3 million
recovery after





F-23
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)





expenses.
At this point in time, the Company is unable to assess with certainty the amount
or likelihood of recovery from Lyman Henn, Inc.





Majestic Star Income Tax
Protest. The Company has been assessed $2.6 million, plus interest, for
the fiscal year 1996 and the period January 1, 1998 through June 18,
2001, by the Indiana Department of Revenue (“Department”). On September 7,
2004, the Department assessed BDI, the Company’s ultimate parent and member,
$1.3 million, plus penalties and interest for the remainder of 2001 and all of
fiscal year 2002. The Department held a hearing on the 1996 through 2002 tax
years on April 7, 2006 to consider the Company’s and BDI’s protests over
the tax assessments and negligence penalties. The Department issued rulings on
January 17, 2007. In those rulings, the Department sustained BDI’s protest of
the imposition of a negligence penalty, holding that BDI’s failure to pay the
assessed tax amount was due to reasonable cause and not due to negligence. The
Department also concurred with the position taken by the Company and BDI that to
the extent it is ultimately determined they had net operating losses for a
taxable year, those net operating losses are to be applied to offset any
add-back of riverboat wagering tax for income tax purposes. The Department
denied the Company’s protest that nonresident withholding taxes did not apply
for the fiscal year 1996 and the period January 1, 1998 through 2002. The
Company and BDI filed petitions with the Indiana Tax Court on March 19, 2007
appealing the Department’s rulings for the 1996-2002 tax years.





BDI's
nonresident shareholder has been assessed $0.2 million, plus penalties and
interest, for 2003. That assessment was protested by BDI’s nonresident
shareholder to the legal division of the Department of Revenue. The Department
held a hearing on the 2003 protest on December 5, 2006, and issued its
ruling on March 14, 2007.  In that ruling, the Department sustained
the shareholder’s protest of the imposition of a negligence penalty. The
Department denied the protest of the amount of tax assessed.  An
appeal of that ruling was filed with the Indiana Tax Court on May 14,
2007.





The
assessments relate to deductions for gaming taxes paid by the Company, which
deductions were taken for Indiana income tax purposes. The Department has taken
the position that the Company had an obligation to add back state gaming taxes
in determining the Company’s taxable income, and to withhold and remit tax for
the nonresident shareholder of BDI. On April 19, 2004, the Indiana Tax Court
ruled in a similar case involving another Indiana casino, Aztar Indiana Gaming
Corporation (“Aztar”), that the gross wagering tax is a tax based on or measured
by income and that it must be added back to the taxable income base for the
purpose of determining adjusted gross income for Indiana tax purposes. On
September 28, 2004, the Indiana Supreme Court denied Aztar’s request to review
the Indiana Tax Court’s decision, and thus, the Indiana Tax Court’s opinion in
the Aztar case is controlling precedent on the wagering tax add-back issue. The
Company and BDI continue to pursue its protest with the Department on the
grounds that the assessments contain calculation errors and that its protest
sets forth issues not decided in the Aztar case. No liability has been accrued
in the Company’s financial statements relating to this matter.





Should
the Company or the Company’s member ultimately be found liable for additional
income taxes to the State of Indiana, the Company may make distributions
sufficient to pay the additional tax. Any payments would be recorded as
distributions in Member’s Deficit. For the years subsequent to 2003, BDI’s
nonresident shareholder has paid Indiana state income tax taking into account
the add-back of gross wagering tax.





Majestic Star Property
Assessment Appeals.  Under Indiana law, licensed gaming vessels
are assessed as real property. The Company received notices of assessment from
the Calumet Township (County of Lake, Indiana) Assessor (a) dated July 20, 2007
updating the assessed valuation of the Company's riverboats effective March 1,
2006 retroactive for the period January 1, 2006 through December 31, 2006, and
(b) dated January 21, 2009 updating the assessed valuation of the Company's
riverboats effective March 1, 2007 retroactive for the period January 1, 2007
through December 31, 2007. These included notices that the property tax
assessments of the Majestic Star and Majestic Star II vessels were to be
increased from the March 1, 2005 assessment by 176.4% and 184.1%, respectively,
for 2006 and 172.3% and 184.1%, respectively, for 2007. With these new
assessments, the combined real property tax expense for the Majestic Star and
Majestic Star II vessels would have increased by $4.4 million for the period
January 1, 2006 through December 31, 2006 and by $4.3 million over 2005 for the
period January 1, 2007 through December 31, 2007. There is currently significant
uncertainty regarding property tax rates for the period January 1, 2008 through
December 31, 2008, as further described below. As such, the Company estimates
that the increased property taxes for 2008 over 2006 could range between $2.7
million, assuming a 3.9%





F-24
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)





effective
tax rate, and $5.2 million, assuming an effective tax rate of 7.5%, which
is  consistent with prior year property tax rates levied against the
Majestic Properties’ real property. The Company believes the new assessed
valuations for the Majestic Star and Majestic Star II vessels exceed their
market values, which are the applicable standard for assessing real property in
Indiana, and are thus excessive and unsupportable. The Company has initiated
administrative appeals of the vessels' assessments for both the March 1, 2006
and 2007 assessment dates. While the appeals are pending, the Company will
accrue and pay property taxes for the vessels based on the 2005 year's assessed
values, as the Company believes the 2006 and 2007 assessed values should not
exceed the 2005 year’s assessed values. As of December 31, 2008, the Majestic
Properties has established reserves of $3.4 million. If the increased
assessments are ultimately upheld, the Company will be required to take an
additional charge to earnings of between $8.0 million and $10.5 million, in
addition to interest. With the exception of payment of taxes based on the
greater assessed valuations on the Majestic Star and Majestic Star II vessels,
all 2006 tax bills were received in December 2007 and paid in full in January
2008 and all 2007 tax bills were received in January 2009 and paid in February
2009. No property tax bills have been received for 2008.





On
February 6, 2009, the Company initiated an administrative appeal to challenge
notices of assessment it received from the Calumet Township Assessor increasing
the assessed valuation of eight other parcels of real estate owned by the
Company in Lake County, Indiana effective March 1, 2007 retroactive for the
period January 1, 2007 through December 31, 2007. These included notices that
the property tax assessments of the eight parcels, combined, were to be
increased from the March 1, 2006 assessment by 37.4%. With these new
assessments, the combined real property tax expense for the eight parcels
exclusive of interest would have increased by $0.8 million for the period
January 1, 2007 through December 31, 2007 and between $0.5 million and $1.0
million for the period January 1, 2008 through December 31, 2008 based on the
assumptions noted below for 2008. The Company initiated the appeals as a
protective measure while it further investigates the methodology used by the
Calumet Township Assessor to assess the eight parcels and evaluates whether such
assessments are excessive. While the appeals are pending, the Company has
accrued and paid property taxes for the parcels based on the 2006 year's
assessed values.





Real and
personal property taxes for calendar year 2008, payable in 2009, will be
eligible for “circuit breaker” credits under current law. These credits will
reduce the effective tax rate applicable to the assessed valuation of the
Company’s property. The extent of the reduction depends in part on the outcome
of an appeal filed December 5, 2008 with the Distressed Unit Appeals Board
(“DUAB”) by the City of Gary and other taxing units. If the DUAB and related
appeals are granted in full, the effective tax rate for calendar year 2008
property tax payable in 2009 would be approximately 5% according to the City’s
projections, determined in accordance with current circuit breaker legislation.
If those appeals are denied in full, the effective tax rate for calendar year
2008 property taxes payable in 2009 would be approximately 3.9%. Given the
significant uncertainty regarding property tax rates for calendar year 2008,
payable in 2009, and the previously discussed disputes over assessed valuations,
the Company has elected to use a property tax rate of 7.5% for determining its
2008 property tax accrual. The property tax rate being used by the Company is
consistent with previous tax rates levied on the Majestic Properties’ real
property.





It is too
early to predict the outcome of the Majestic Properties real property tax
matters. The range of likely outcomes is between $0 and $14.0 million, exclusive
of interest. There is no way to tell if any amount in this range is more likely
than any other.





City of Gary, Indiana
Development Obligation. On March 26, 1996, the City and Majestic Star
entered into a development agreement (“Majestic Development Agreement”). Trump
Indiana, Inc. (“Trump Indiana”) also entered into a development agreement with
the City (as amended, the “Trump Development Agreement”). In conjunction with
the Company’s closing of the Trump Acquisition, the Company, Trump Indiana and
the City entered into the Amended Majestic Development Agreement dated October
19, 2005. See Note 6 – City of Gary, Indiana Development
Obligation.





The
current mayor of the City, who took office on April 7, 2006, claims that the
Amended Majestic Development Agreement, signed by the prior mayor on behalf of
the City, is not enforceable against it because the prior mayor lacked the
authority to bind the City. The Company’s position is that the Amended Majestic
Development Agreement is valid and binding. Given that both the Majestic
Development Agreement and the Trump Development Agreement contain mandatory
arbitration provisions, the Company on February 11, 2008, commenced an
arbitration proceeding against the City before the American Arbitration
Association entitled The Majestic Star





F-25
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)





Casino,
LLC, The Majestic Star Casino II, Inc., and Gary New Century (“GNC”), LLC (an
affiliate of the Company) vs. City of Gary, Case No. 52 489 Y 00091
08.  In this arbitration proceeding, the Company requests that the
Amended Majestic Development Agreement be declared to be in full force and
effect, and that the City be found to be in material breach of it and that the
Company be awarded damages.  In the event that the Amended Majestic
Development Agreement is deemed not enforceable, the Company alternatively
requests that the City be found in breach of the Majestic Development Agreement,
the GNC Agreement and the Trump Development Agreement, and that the Company be
awarded damages.  Simultaneously with the arbitration, the Company
also filed an action in Marion County Superior Court entitled The Majestic Star
Casino, LLC, et al v. City of Gary, et al, State of Indiana, Marion County
Superior Court No. 49D13 08 02 PL 006612.  In this action, the Company
seeks to bind the Indiana Gaming Commission to the results of the arbitration
and to litigate any matters that are not covered by the parties’ arbitration
agreement.





The
Company filed the arbitration and court action because the City has failed,
pursuant to its obligations under either the Amended Majestic Development
Agreement or, in the alternative, the earlier agreements, to remediate property
owned by the Company, and construct the required access roads and freeway
interchange to the Majestic Properties. If the Amended Majestic Development
Agreement is found not to be enforceable, then the Company could be required to
pay the City an additional 1% of adjusted gross gaming receipts, retroactive to
December 21, 2005, which would now be due under the previously terminated Trump
Development Agreement. The additional 1% due to the City attributed to Majestic
Star II would equal $4.5 million.





Effective
for the tax period January 2008, the Company began depositing the economic
incentive funds payable to the City for 2008 under the Amended Majestic
Development Agreement in a segregated bank account. On May 2, 2008, the Marion
County Superior Court denied the City's motion for a preliminary injunction to
require the Company to resume payment to the City of the economic incentive
funds pending resolution of the case.





The City
appealed the denial of its injunction motion to the Indiana Court of Appeals
(No. 49A02-0807-CV-00625), filing its appellate brief on July 30, 2008. After a
stay to permit the parties to explore settlement, which expired November 30,
2008, the Company timely filed its appellate brief with the Indiana Court of
Appeals on January 20, 2009, as did the Indiana Gaming Commission (which
supports the Company’s position on the proper trial court venue for the action,
and has remained neutral on the City’s attempt to require the Company to resume
payments of the economic incentive funds). Though the City’s appellate reply
brief was due on or about February 9, 2009, the City has filed no reply brief
and the Company’s counsel believe it is likely that the Court of Appeals now
views the appeal as fully briefed. The Company does not anticipate oral argument
will be held before the Court of Appeals but expects a ruling on the
briefs.





On August
22, 2008, the Company and City entered into an interim settlement agreement
whereby (i) the withheld economic incentive funds, deposited at the time in the
segregated bank account, which totaled $4.4 million, were paid to the City for
the City’s unrestricted use, (ii) the monies in the Lakefront Capital
Improvement Fund, which totaled $3.2 million, were paid to the Company and (iii)
the parties requested a stay of proceedings until November 30, 2008. Beginning
in September 2008, the Company resumed depositing the economic incentive funds
into the segregated bank account, which action the City acknowledges but
disputes the Company’s right to do so. As of December 31, 2008, the balances in
the segregated economic incentive fund and the Lakefront Capital Improvement
Fund bank accounts were $1.6 million and $0.5 million, respectively.  It is
too early to determine with certainty the outcome of the arbitration or
litigation or the amount or likelihood of any recovery from the
City.





The Majestic Star Casino,
LLC Group Health Benefit Plan Litigation. In August 2006, a healthcare
provider (“Hospital”), filed suit in federal court against the Company’s Group
Health Benefit Plan (the “Plan”). The Hospital sought to recover for services
provided by the Hospital to an employee of BMG, an individual covered under the
Plan (“Employee”). The action is governed by the Employee Retirement Income
Security Act of 1974, which means that there would not be a trial in the
traditional sense, but instead the proceeding is administrative in nature, and
the District Court Judge would ultimately rule on the merits based on the
parties’ briefs.





On March
20, 2008, the Court issued an Order Granting the Plaintiff’s Motion for Judgment
on the Record, Denying the Defendant’s Motion for Judgment on the Record, and
Reversing the Denial of Benefits (“Order”). The Company filed a motion for the
Court to reconsider (“Motion to Reconsider”) which was denied by the Court on
July 31, 2008. On August 28, 2008, the Company filed a Notice of Appeal to
appeal to the United States Court of





F-26
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)





Appeals
for the 6th Circuit
(“Court of Appeals”), the Order issued on March 20, 2008 and the order of July
31, 2008 denying the Motion to Reconsider. In the event the Plan is ultimately
found liable on appeal, the Company believes that the claim may not be covered
by the Company’s Insurance Provider.





On April
21, 2008, the Company filed a Motion to Stay Judgment Pending Post Trial Motions
(“Motion to Stay”), and on May 1, 2008 the Plaintiff filed a Plaintiff’s
Response to Defendant’s Motion to Stay Judgment Pending Post Trial Motions
(“Motion to Stay Response”). The Motion to Stay Response requested the Court to
require the Company to either pay an amount equal to the judgment as security,
or post a bond that secures payment once the judgment becomes final. On May 13,
2008, the Court granted the Motion to Stay and on June 16, 2008 granted the
Company’s request to deposit funds in the amount of the judgment with the Clerk
of the Court, in lieu of posting a bond. Accordingly, the Company deposited $0.4
million with the Clerk of the Court, which is the amount of the
judgment.





On August
8, 2008, the Plaintiff filed a motion for attorney fees, prejudgment interest
and costs. On November 4, 2008, the Court granted Plaintiff’s motion and awarded
prejudgment interest in the amount of $40,000. The amount of the attorney fees
awarded has not yet been determined by the Court. On November 24, 2008, the
Company filed a Notice of Appeal to appeal to the Court of Appeals the Court’s
award of attorney fees and prejudgment interest. On November 26, 2008, the Court
of Appeals consolidated the two appeals filed by the Company into a single
proceeding before the Court of Appeals. The Company’s appellant brief was filed
on January 20, 2009 and the Appellee Brief was filed February 19, 2009. The
Company filed its Reply Brief on March 5, 2009. In anticipation of any payments
for which the Company may ultimately be liable, the Company has accrued $0.1
million for pre-judgment interest and plaintiff’s estimated attorney fees. At
this point in time, the Company is unable to assess with certainty the ultimate
resolution of the litigation, or if the Plan is ultimately liable, the amount or
likelihood of recovery from the Insurance Provider.





GAMING
REGULATIONS





The
ownership and operation of riverboat gaming operations in Indiana are subject to
strict state regulation under the Riverboat Gambling Act (the “Act”) and the
administrative rules promulgated there under. The Indiana Gaming Commission
(“IGC”) is empowered to administer, regulate and enforce the system of riverboat
gaming established under the Act and has jurisdiction and supervision over all
riverboat gaming operations in Indiana, as well as over all persons on
riverboats where gaming operations are conducted. The IGC is empowered to
regulate a wide variety of gaming and non-gaming related activities, including
the licensing of suppliers to, and employees at, riverboat gaming operations and
to approve the form of entity qualifiers and intermediary and holding companies.
The IGC has broad rulemaking power, and it is impossible to predict what effect,
if any, the amendment of existing rules or the finalization of proposed rules
might have on the Company’s operations.





The
Indiana state law governing gaming imposes a graduated wagering tax based upon
adjusted gross receipts. The graduated wagering tax has a starting rate of 15%
with a top rate of 40% for adjusted gross receipts in excess of $600 million. In
addition to the wagering tax, an admissions tax of $3 per turnstile count is
assessed.





The
ownership and operation of our casino gaming facilities in Mississippi and
Colorado are also subject to various state and local regulations in the
jurisdictions where they are located. In Mississippi, our gaming operations are
subject to the Mississippi Gaming Control Act, and to the licensing and/or
regulatory control of the Mississippi Gaming Commission, the Mississippi State
Tax Commission and various state and local regulatory agencies, including liquor
licensing authorities. In Colorado, our gaming operations are subject to the
Limited Gaming Act of 1991, which created the Division of Gaming within the
Colorado Department of Revenue and the Colorado Limited Gaming Control
Commission which is empowered to license, implement, regulate and supervise the
conduct of limited gaming. Our Colorado operations are also subject to the
Colorado Liquor Code and the state and local liquor licensing
authorities.








F-27
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








EMPLOYMENT
AGREEMENTS





Mr.
Barden serves as our Chairman, President and Chief Executive Officer and in 2008
received an annual base compensation of $750,000 as an employee, pursuant to an
employment agreement with the Company dated January 1, 2005. The Company
provides Mr. Barden with an auto allowance. Mr. Barden is entitled to
participate in the Company’s employee benefit plans as are generally made
available to the Company’s senior executives and other customary employee
benefits, including participation in the Company’s 401(k) plan.





LETTER OF
CREDIT/SURETY BOND





As part
of a self-insured worker’s compensation program, the Company was required to
post a letter of credit in the amount of $2.9 million to secure payment of
claims. To collateralize the letter of credit, the bank required that the
Company purchase a $2.9 million certificate of deposit. The certificate of
deposit securing the letter of credit for the Company’s workers’ compensation
program is recorded in restricted cash on the Company’s consolidated balance
sheet.





The State
of Mississippi has required Fitzgeralds Tunica to post surety bonds as security
for current and future sales and gaming revenue tax obligations. Fitzgeralds
Tunica has four surety bonds: a $0.6 million bond in place with the Mississippi
State Tax Commission and three $5,000 bonds with the Mississippi Alcoholic
Beverage Control. These surety bonds are secured by certificates of deposit and
are recorded in restricted cash on the Company’s consolidated balance
sheet.





The
Company was required to post as security for public improvements related to the
Fitzgeralds Black Hawk expansion project a $0.3 million letter of credit which
is secured by a certificate of deposit.








NOTE
14.                    
RELATED PERSONS TRANSACTIONS





TRANSACTIONS
BY OR WITH AFFILIATES





Pushdown of Majestic Holdco Discount
Notes.The Company’s consolidated financial statements as of
December 31, 2008 and 2007 include the $63.5 million of Discount Notes, net of
discount of $0.0 million and $5.8 million, respectively, issued by Majestic
Holdco in connection with the Trump Acquisition and other refinancing
transactions. The Discount Notes are solely the obligation of Majestic Holdco.
See Note 2 – Summary of Significant Accounting Policies and Note 10 – Long-Term
Debt.





Manager
Agreement.Distributions to BDI under the Manager Agreement,
dated October 7, 2003, are governed and limited by the terms of the
indentures governing the Discount Notes, the Senior Secured Notes and the Senior
Notes (collectively, the “Notes”) and by the terms of the Senior Secured Credit
Facility. The distributions for each fiscal quarter may not exceed 1% of the
Company’s consolidated net operating revenue and 5% of the Company’s
consolidated cash flow (as defined in the indentures governing the Notes and the
terms of the Senior Secured Credit Facility) for the immediately preceding
fiscal quarter. During 2008 and as of December 31, 2008, the Company was and is
precluded from making distributions to BDI due to its failure to achieve certain
financial ratios necessary to make the distributions and the prohibition of
making distributions to its manager if there is an Event of Default under the
Company’s governing debt documents.





Tax
Distributions.The Company made a distribution of $1.4 million
in April 2008 for its member’s Indiana state income tax
liabilities.





F-28
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








PITG Gaming, LLC Expense Sharing
Agreement.The Company entered into an expense sharing
agreement with PITG in November 2007. The expense sharing agreement provided for
reimbursement from PITG to the Company for expenses paid by the Company on
behalf of PITG. These expenses were primarily for payroll and travel costs
related to the development of a casino in Pittsburgh, Pennsylvania. The Company
charged PITG $1.3 million and $0.6 million for each of the twelve-month periods
ended December 31, 2008 and 2007, respectively, pursuant to the expense sharing
agreement. Amounts under the expense sharing agreement were repaid in August
2008 and the agreement was terminated.





PITG Revolving Promissory
Note.PITG entered into a revolving promissory note with the
Company in November 2007, whereby PITG could request advances from time to time
from the Company up to $5.0 million. The note evidenced amounts outstanding
under the expense sharing agreement. The amount of $0.2 million outstanding on
the note was repaid in August, 2008 and the note was cancelled.





Barden Nevada Expense Sharing
Agreement.The Company has entered into an expense sharing
agreement dated October 7, 2003 with Barden Nevada. The expense sharing
agreement provides for a fee from Barden Nevada to the Company in the amount of
the greater of (i) $0.5 million per year or (ii) the actual amount of certain
specified expenses incurred by the Company in connection with providing services
to Barden Nevada. The Company charged Barden Nevada $1.5 million for each of the
twelve-month periods ended December 31, 2008 and 2007 pursuant to the expense
sharing agreement. As of December 31, 2008, $0.5 million was owed under the
expense sharing agreement.





Barden Nevada Revolving Promissory
Note.On October 7, 2007, Barden Nevada entered into a
revolving promissory note with the Company, whereby Barden Nevada may request
advances from time to time from the Company not to exceed $5.0 million. The note
evidences amounts outstanding under the expense sharing agreement. Interest is
calculated based on the prime rate (as published in the Money Section of the
Wall Street Journal), plus the margin spread, including 2% default interest,
paid by the Company under prime rate borrowings with Wells Fargo Foothill, the
agent bank under the Company’s Senior Secured Credit Facility. Interest is paid
quarterly, in arrears.  Any costs that are funded by the Company and
not repaid by Barden Nevada within 30 days will be added to the principal amount
outstanding. All amounts outstanding under the promissory note are due and
payable on April 15, 2010 along with the accrued and unpaid interest. As of
December 31, 2008, nothing was owed the Company under this promissory note. The
highest amount owed under the note during 2008 was $0.1 million.





302 Carson Street Office
Building.On March 31, 2008, the Company entered into a lease
with Carson Properties Nevada LLC (“Landlord”), a subsidiary of BDI, for office
space (“Lease”). The Lease has an initial term of five years and six months
(“Initial Term”) and allows for one five-year extension under substantially
similar terms as the Initial Term. The Lease will commence upon receipt of a
temporary certificate of occupancy and abatement of asbestos to the area being
occupied by the Company (“Premises”).  Base rent will be $1.80 per
square foot, for a total of 11,549 square feet, for the first 18 months and
$2.50 per square foot beginning in month 19, and will increase by 3% on the
second anniversary date of commencement of the Lease and every anniversary date
thereafter. The Company will perform asbestos abatement to the Premises and be
reimbursed by the landlord for all direct and indirect costs, not to exceed $0.4
million, through rent offset.  The Company has spent $0.3 million on
asbestos abatement. In October 2008, the Landlord sold the building and assigned
the Lease to the buyer. The Landlord reimbursed the Company for $0.6 million of
general improvements previously made to the Premises by the Company. The $0.3
million spent on asbestos treatment will be reimbursed through rent offset from
the new landlord.





Other Related
Parties.  The Company has receivables on its balance sheet with
Majestic Holdco and BDI in the amount of $0.1 million each. The receivables
relate to the payment of professional services on behalf of these entities and
unreimbursed expenses related to benefit and insurance plans in which these
entities participate.








F-29
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








NOTE
15.                      SEGMENT
INFORMATION





The
Majestic Star Casino, LLC, either directly or indirectly through wholly owned
subsidiaries, owns and operates four casino properties as follows: two riverboat
casinos and a hotel located in Gary, Indiana; a casino and hotel located in
Tunica, Mississippi; and a casino located in Black Hawk, Colorado (collectively,
the “Properties”). The Majestic Properties includes Majestic Star and Majestic
Star II. Buffington Harbor Parking Associates was merged into Majestic Star
as of August 4, 2006 and is shown as if the merger had been completed as of
January 1, 2006. Buffington Harbor Riverboats, L.L.C. was dissolved as of
December 31, 2006.





The
Company identifies its business in three segments based on geographic location.
The Properties, in each of their segments, market primarily to mid-level
players. The major products offered in each segment are as follows: casino,
hotel rooms (at the Majestic Properties and Fitzgeralds Tunica), and food and
beverage.





The
accounting policies of each business segment are the same as those described in
the summary of significant accounting policies previously described in
Note 2 – Basis of Presentation and Summary of Significant Accounting
Policies. There are minimal inter-segment sales.





A summary
of the Properties’ operations by business segment for the years ended
December 31, 2008, 2007 and 2006 and a summary of the Properties’ assets
and goodwill as of December 31, 2008 and December 31, 2007 are
presented below:





F-30
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








For
      The Years EndedDecember
      31,2008
            
            
            2007
            
            
            2006(in
      thousands)Net
      revenues:Majestic
      Properties
            
            $
            220,907
            
            
            $
            240,573
            
            
            $
            236,826Fitzgeralds
      Tunica
            
            
            80,396
            
            
            
            86,813
            
            
            
            83,979Fitzgeralds
      Black Hawk
            
            
            29,670
            
            
            
            30,712
            
            
            
            33,429Total
            
            $
            330,973
            
            
            $
            358,098
            
            
            $
            354,234Operating
      (loss) income :Majestic
      Properties (1)
            
            $
            (84,595
            )
            
            $
            30,339
            
            
            $
            35,183Fitzgeralds
      Tunica
            
            
            2,409
            
            
            
            5,092
            
            
            
            8,836Fitzgeralds
      Black Hawk
            
            
            2,282
            
            
            
            5,962
            
            
            
            8,060Corporate
      (2)
            
            
            (7,506
            )
            
            
            (6,403
            )
            
            
            (6,419
            )Total
            
            $
            (87,410
            )
            
            $
            34,990
            
            
            $
            45,660Segment
      depreciation and amortization:Majestic
      Properties
            
            $
            18,675
            
            
            $
            19,197
            
            
            $
            20,291Fitzgeralds
      Tunica
            
            
            11,299
            
            
            
            10,975
            
            
            
            9,157Fitzgeralds
      Black Hawk
            
            
            3,645
            
            
            
            2,515
            
            
            
            2,163Corporate
            
            
            222
            
            
            
            147
            
            
            
            112Total
            
            $
            33,841
            
            
            $
            32,834
            
            
            $
            31,723Expenditure
      for additions to long-lived assets:Majestic
      Properties
            
            $
            806
            
            
            $
            7,403
            
            
            $
            9,130Fitzgeralds
      Tunica
            
            
            1,237
            
            
            
            7,367
            
            
            
            10,577Fitzgeralds
      Black Hawk
            
            
            16,001
            
            
            
            16,411
            
            
            
            5,541Corporate
            
            
            48
            
            
            
            952
            
            
            
            161Total
            
            $
            18,092
            
            
            $
            32,133
            
            
            $
            25,409December
      31,
            
            
            December
      31,2008
            
            
            2007(in
      thousands)Segment
      assets:Majestic
      Properties
            
            $
            325,431
            
            
            $
            465,357Fitzgeralds
      Tunica
            
            
            108,471
            
            
            
            76,159Fitzgeralds
      Black Hawk
            
            
            62,414
            
            
            
            52,829Corporate
            
            
            456,891
            
            
            
            464,340Total
            
            
            953,207
            
            
            
            1,058,685Less:
      Intercompany
            
            
            (549,697
            )
            
            
            (552,995
            )Total
            
            $
            403,510
            
            
            $
            505,690Goodwill:Majestic
      Properties
            
            $
            -
            
            
            $
            41,509Fitzgeralds
      Tunica
            
            
            3,998
            
            
            
            3,998Fitzgeralds
      Black Hawk
            
            
            1,924
            
            
            
            1,924Total
            
            $
            5,922
            
            
            $
            47,431(1)
      Operating loss for the year ended December 31, 2008 includes a $105.8
      million charge for impairment loss on assets.(2)
      Corporate expenses reflect payroll, benefits, travel and other costs
      associated with our corporate staff and are not allocated to the
      properties.











F-31
 
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)








NOTE
      16.
              SUPPLEMENTAL
      GUARANTOR FINANCIAL INFORMATION
 
 The
Majestic Star Casino, LLC is the co-issuer of $300.0 million of Senior Secured
Notes and $200.0 million of Senior Notes. Under the indentures governing the
Senior Secured Notes, the Senior Notes and the loan and security agreement for
the Senior Secured Credit Facility, Majestic Star II, Fitzgeralds Tunica
and Fitzgeralds Black Hawk are guarantor subsidiaries of the $300.0 million of
Senior Secured Notes.  The guarantor subsidiaries are 100% owned by
The Majestic Star Casino, LLC, and the guarantees of the Senior Secured Notes
are full and unconditional, and joint and several.
 
 Our
supplemental guarantor financial information contains financial information for
The Majestic Star Casino, LLC, The Majestic Star Casino Capital Corp (co-issuer
of the Senior Secured Notes but an entity with no operations) and the guarantor
subsidiaries and the eliminating entries necessary to consolidate such
entities.
  
 
  F-32
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  CONSOLIDATING
BALANCE SHEET
 As of
December 31, 2008
 
 The
      Majestic
              
              
              The
      MajesticStar
      Casino,
              
              
              Star
      Casino
              
              
              Guarantor
              
              
              Eliminating
              
              
              
              TotalLLC
              
              
              Capital
      Corp.
              
              
              Subsidiaries
              
              
              Entries
              
              
              
              ConsolidatedASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              8,044,826
              
              
              $
              -
              
              
              $
              49,704,926
              
              
              $
              -
              
              
              
              $
              57,749,752Restricted
      cash
              
              
              4,779,310
              
              
              
              -
              
              
              
              625,000
              
              
              
              -
              
              
              
              
              5,404,310Accounts
      receivable, net
              
              
              1,341,328
              
              
              
              -
              
              
              
              1,654,477
              
              
              
              -
              
              
              
              
              2,995,805Inventories
              
              
              328,701
              
              
              
              -
              
              
              
              655,333
              
              
              
              -
              
              
              
              
              984,034Prepaid
      expenses and deposits
              
              
              1,389,030
              
              
              
              -
              
              
              
              1,284,834
              
              
              
              -
              
              
              
              
              2,673,864Receivable
      from affiliate
              
              
              40,247,247
              
              
              
              -
              
              
              
              1,399
              
              
              
              (39,451,854
              )
              (a)
              
              
              796,792Investment
      in subsidiaries
              
              
              70,144,117
              
              
              
              -
              
              
              
              -
              
              
              
              (70,144,117
              )
              (b)
              
              
              -Total
      current assets
              
              
              126,274,559
              
              
              
              -
              
              
              
              53,925,969
              
              
              
              (109,595,971
              )
              
              
              
              70,604,557Property,
      equipment and  improvements, net
              
              
              129,412,625
              
              
              
              -
              
              
              
              134,151,006
              
              
              
              -
              
              
              
              
              263,563,631Intangible
      assets, net
              
              
              -
              
              
              
              -
              
              
              
              54,227,169
              
              
              
              -
              
              
              
              
              54,227,169Goodwill
              
              
              -
              
              
              
              -
              
              
              
              5,922,398
              
              
              
              -
              
              
              
              
              5,922,398Other
      assets:Deferred
      financing costs, net
              
              
              6,392,493
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              6,392,493Deferred
      financing costs ofMajestic
      Holdco, net (c)
              
              
              1,419,014
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              1,419,014Long-term
      receivable from affiliates
              
              
              131,676,892
              
              
              
              -
              
              
              
              15,649,594
              
              
              
              (147,326,486
              )
              (a)
              
              
              -Other
      assets
              
              
              789,462
              
              
              
              -
              
              
              
              591,641
              
              
              
              -
              
              
              
              
              1,381,103Total
      other assets
              
              
              140,277,861
              
              
              
              -
              
              
              
              16,241,235
              
              
              
              (147,326,486
              )
              
              
              
              9,192,610Total
      assets
              
              $
              395,965,045
              
              
              $
              -
              
              
              $
              264,467,777
              
              
              $
              (256,922,457
              )
              
              
              $
              403,510,365LIABILITIES
      AND MEMBER'S (DEFICIT) EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              942,718
              
              
              $
              -
              
              
              $
              854,365
              
              
              $
              -
              
              
              
              $
              1,797,083Current
      portion of long-term debt
              
              
              579,429,270
              
              
              
              300,000,000
              
              
              
              499,057
              
              
              
              (300,000,000
              )
              (d)
              
              
              579,928,327Current
      portion of long-term debt ofMajestic
      Holdco, net of discount (e)
              
              
              63,500,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              63,500,000Payable
      to affiliates
              
              
              -
              
              
              
              -
              
              
              
              39,451,854
              
              
              
              (39,451,854
              )
              (a)
              
              
              -Accrued
      liabilities:Payroll
      and related
              
              
              3,589,107
              
              
              
              -
              
              
              
              5,593,129
              
              
              
              -
              
              
              
              
              9,182,236Interest
              
              
              35,303,479
              
              
              
              -
              
              
              
              2,500
              
              
              
              -
              
              
              
              
              35,305,979Interest
      of Majestic Holdco (e)
              
              
              1,697,743
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              1,697,743Property
      and franchise taxes
              
              
              8,945,347
              
              
              
              -
              
              
              
              7,432,723
              
              
              
              -
              
              
              
              
              16,378,070Other
      accrued liabilities
              
              
              6,482,596
              
              
              
              -
              
              
              
              8,813,140
              
              
              
              -
              
              
              
              
              15,295,736Total
      current liabilities
              
              
              699,890,260
              
              
              
              300,000,000
              
              
              
              62,646,768
              
              
              
              (339,451,854
              )
              
              
              
              723,085,174Due
      to affiliates
              
              
              15,649,594
              
              
              
              -
              
              
              
              131,676,892
              
              
              
              (147,326,486
              )
              (a)
              
              
              -Total
      liabilities
              
              
              715,539,854
              
              
              
              300,000,000
              
              
              
              194,323,660
              
              
              
              (486,778,340
              )
              
              
              
              723,085,174Member's
      (deficit) equity
              
              
              (319,574,809
              )
              
              
              (300,000,000
              )
              
              
              70,144,117
              
              
              
              229,855,883
              
              (b)(d)
              
              
              (319,574,809
              )Total
      liabilities and member's (deficit) equity
              
              $
              395,965,045
              
              
              $
              -
              
              
              $
              264,467,777
              
              
              $
              (256,922,457
              )
              
              
              $
              403,510,365(a)
              To
      eliminate intercompany receivable and payables.(b)
              To
      eliminate intercompany accounts and investment in
      subsidiaries.(c)
              Reflects
      the pushdown of deferred financing costs related to the issuance of the
      Discount Notes of Majestic Holdco, net of amortization, pursuant to SEC
      Staff Accounting Bulletin 73 Topic 5(J).(d)
              The
      Majestic Star Casino Capital Corp. is a co-obligor of the Senior Secured
      Notes issued by the Company. Accordingly, such indebtedness has been
      presented as an obligation of both the issuer and the co-obligor in the
      above balance sheet.(e)
              Reflects
      the pushdown of Majestic Holdco’s Discount Notes and interest pursuant to
      SEC Staff Accounting Bulletin 73 Topic
5(J).
 
 
 
  F-33
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  CONSOLIDATING
BALANCE SHEET
 As of
December 31, 2007
 
 The
      Majestic
              
              
              The
      MajesticStar
      Casino,
              
              
              Star
      Casino
              
              
              Guarantor
              
              
              Eliminating
              
              
              
              TotalLLC
              
              
              Capital
      Corp.
              
              
              Subsidiaries
              
              
              Entries
              
              
              
              ConsolidatedASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              8,055,172
              
              
              $
              -
              
              
              $
              21,161,091
              
              
              $
              -
              
              
              
              $
              29,216,263Restricted
      cash
              
              
              3,401,359
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              3,401,359Accounts
      receivable, net
              
              
              2,579,315
              
              
              
              -
              
              
              
              3,200,523
              
              
              
              -
              
              
              
              
              5,779,838Inventories
              
              
              421,082
              
              
              
              -
              
              
              
              667,426
              
              
              
              -
              
              
              
              
              1,088,508Prepaid
      expenses and deposits
              
              
              1,026,745
              
              
              
              -
              
              
              
              987,146
              
              
              
              -
              
              
              
              
              2,013,891Receivable
      from affiliate
              
              
              4,694,778
              
              
              
              -
              
              
              
              1,399
              
              
              
              (4,079,288
              )
              (a)
              
              
              616,889Investment
      in subsidiaries
              
              
              152,619,718
              
              
              
              -
              
              
              
              -
              
              
              
              (152,619,718
              )
              (b)
              
              
              -Total
      current assets
              
              
              172,798,169
              
              
              
              -
              
              
              
              26,017,585
              
              
              
              (156,699,006
              )
              
              
              
              42,116,748Property,
      equipment and  improvements, net
              
              
              141,886,772
              
              
              
              -
              
              
              
              137,742,394
              
              
              
              -
              
              
              
              
              279,629,166Intangible
      assets, net
              
              
              -
              
              
              
              -
              
              
              
              121,936,336
              
              
              
              -
              
              
              
              
              121,936,336Goodwill
              
              
              -
              
              
              
              -
              
              
              
              47,431,442
              
              
              
              -
              
              
              
              
              47,431,442Other
      assets:Deferred
      financing costs, net
              
              
              9,737,796
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              9,737,796Deferred
      financing costs ofMajestic
      Holdco, net (c)
              
              
              1,927,317
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              1,927,317Long-term
      receivable from affiliates
              
              
              171,709,437
              
              
              
              -
              
              
              
              21,321,739
              
              
              
              (193,031,176
              )
              (a)
              
              
              -Other
      assets
              
              
              1,271,483
              
              
              
              -
              
              
              
              1,639,657
              
              
              
              -
              
              
              
              
              2,911,140Total
      other assets
              
              
              184,646,033
              
              
              
              -
              
              
              
              22,961,396
              
              
              
              (193,031,176
              )
              
              
              
              14,576,253Total
      assets
              
              $
              499,330,974
              
              
              $
              -
              
              
              $
              356,089,153
              
              
              $
              (349,730,182
              )
              
              
              $
              505,689,945LIABILITIES
      AND MEMBER'S (DEFICIT) EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              1,255,451
              
              
              $
              -
              
              
              $
              3,004,024
              
              
              $
              -
              
              
              
              $
              4,259,475Current
      portion of long-term debt
              
              
              156,340
              
              
              
              -
              
              
              
              46,440
              
              
              
              -
              
              
              
              
              202,780Payable
      to affiliates
              
              
              311,321
              
              
              
              -
              
              
              
              3,982,255
              
              
              
              (4,079,288
              )
              (a)
              
              
              214,288Accrued
      liabilities:Payroll
      and related
              
              
              3,558,272
              
              
              
              -
              
              
              
              5,648,453
              
              
              
              -
              
              
              
              
              9,206,725Interest
              
              
              10,980,075
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              10,980,075Property
      and franchise taxes
              
              
              10,875,649
              
              
              
              -
              
              
              
              7,022,274
              
              
              
              -
              
              
              
              
              17,897,923Other
      accrued liabilities
              
              
              4,423,253
              
              
              
              -
              
              
              
              12,051,956
              
              
              
              -
              
              
              
              
              16,475,209Total
      current liabilities
              
              
              31,560,361
              
              
              
              -
              
              
              
              31,755,402
              
              
              
              (4,079,288
              )
              
              
              
              59,236,475Due
      to affiliates
              
              
              21,321,739
              
              
              
              -
              
              
              
              171,709,437
              
              
              
              (193,031,176
              )
              (a)
              
              
              -Long-term
      debt, net of current maturities
              
              
              556,530,845
              
              
              
              300,000,000
              
              
              
              4,596
              
              
              
              (300,000,000
              )
              (d)
              
              
              556,535,441Long-term
      debt ofMajestic
      Holdco, net (e)
              
              
              57,710,229
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              57,710,229Total
      liabilities
              
              
              667,123,174
              
              
              
              300,000,000
              
              
              
              203,469,435
              
              
              
              (497,110,464
              )
              
              
              
              673,482,145Member's
      (deficit) equity
              
              
              (167,792,200
              )
              
              
              (300,000,000
              )
              
              
              152,619,718
              
              
              
              147,380,282
              
              (b)(d)
              
              
              (167,792,200
              )Total
      liabilities and member's (deficit) equity
              
              $
              499,330,974
              
              
              $
              -
              
              
              $
              356,089,153
              
              
              $
              (349,730,182
              )
              
              
              $
              505,689,945(a)
              To
      eliminate intercompany receivable and payables.(b)
              To
      eliminate intercompany accounts and investment in
      subsidiaries.(c)
              Reflects
      the pushdown of deferred financing costs related to the issuance of the
      Discount Notes of Majestic Holdco, net of amortization, pursuant to SEC
      Staff Accounting Bulletin 73 Topic 5(J).(d)
              The
      Majestic Star Casino Capital Corp. is a co-obligor of the Senior Secured
      Notes issued by the Company. Accordingly, such indebtedness has been
      presented as an obligation of both the issuer and the co-obligor in the
      above balance sheet.(e)
              Reflects
      the pushdown of Majestic Holdco’s Discount Notes pursuant to SEC Staff
      Accounting Bulletin 73 Topic 5(J).
 
 
 
  F-34
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  CONSOLIDATING
STATEMENT OF OPERATIONS
 For the
Year Ended December 31, 2008
 
 The
      Majestic
              
              
              The
      MajesticStar
      Casino,
              
              
              Star
      Casino
              
              
              Guarantor
              
              
              Eliminating
              
              
              
              TotalLLC
              
              
              Capital
      Corp.
              
              
              Subsidiaries
              
              
              Entries
              
              
              
              ConsolidatedOPERATING
      REVENUES:Casino
              
              $
              121,162,566
              
              
              $
              -
              
              
              $
              211,790,622
              
              
              $
              -
              
              
              
              $
              332,953,188Rooms
              
              
              -
              
              
              
              -
              
              
              
              11,722,758
              
              
              
              -
              
              
              
              
              11,722,758Food
      and beverage
              
              
              8,122,735
              
              
              
              -
              
              
              
              15,305,071
              
              
              
              -
              
              
              
              
              23,427,806Other
              
              
              3,588,088
              
              
              
              -
              
              
              
              4,396,934
              
              
              
              -
              
              
              
              
              7,985,022Gross
      revenues
              
              
              132,873,389
              
              
              
              -
              
              
              
              243,215,385
              
              
              
              -
              
              
              
              
              376,088,774Less
      promotional allowances
              
              
              12,950,338
              
              
              
              -
              
              
              
              31,576,548
              
              
              
              588,708
              
              (a)
              
              
              45,115,594Net
      operating revenues
              
              
              119,923,051
              
              
              
              -
              
              
              
              211,638,837
              
              
              
              (588,708
              )
              
              
              
              330,973,180OPERATING
      COSTS AND EXPENSES:Casino
              
              
              33,809,301
              
              
              
              -
              
              
              
              62,003,598
              
              
              
              -
              
              
              
              
              95,812,899Rooms
              
              
              -
              
              
              
              -
              
              
              
              2,412,684
              
              
              
              -
              
              
              
              
              2,412,684Food
      and beverage
              
              
              3,174,489
              
              
              
              -
              
              
              
              4,991,330
              
              
              
              -
              
              
              
              
              8,165,819Other
              
              
              725,073
              
              
              
              -
              
              
              
              804,118
              
              
              
              -
              
              
              
              
              1,529,191Gaming
      taxes
              
              
              35,683,810
              
              
              
              -
              
              
              
              43,548,264
              
              
              
              -
              
              
              
              
              79,232,074Advertising
      and promotion
              
              
              6,743,645
              
              
              
              -
              
              
              
              16,782,477
              
              
              
              (588,708
              )
              (a)
              
              
              22,937,414General
      and administrative
              
              
              22,507,917
              
              
              
              -
              
              
              
              33,939,524
              
              
              
              -
              
              
              
              
              56,447,441Corporate
      expense
              
              
              7,284,083
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              7,284,083Economic
      incentive tax - City of Gary, net of refund
              
              
              2,687,365
              
              
              
              -
              
              
              
              2,203,503
              
              
              
              -
              
              
              
              
              4,890,868Depreciation
      and amortization
              
              
              12,206,257
              
              
              
              -
              
              
              
              21,634,806
              
              
              
              -
              
              
              
              
              33,841,063Impairment
      loss on assets
              
              
              -
              
              
              
              -
              
              
              
              105,759,044
              
              
              
              -
              
              
              
              
              105,759,044(Gain)
      loss on disposal of assets
              
              
              (13,278
              )
              
              
              -
              
              
              
              83,567
              
              
              
              -
              
              
              
              
              70,289Total
      operating costs and expenses
              
              
              124,808,662
              
              
              
              -
              
              
              
              294,162,915
              
              
              
              (588,708
              )
              
              
              
              418,382,869Operating
      loss
              
              
              (4,885,611
              )
              
              
              -
              
              
              
              (82,524,078
              )
              
              
              -
              
              
              
              
              (87,409,689
              )OTHER
      (EXPENSE) INCOME :Interest
      income
              
              
              197,734
              
              
              
              -
              
              
              
              81,938
              
              
              
              -
              
              
              
              
              279,672Interest
      expense
              
              
              (55,192,608
              )
              
              
              -
              
              
              
              (33,461
              )
              
              
              -
              
              
              
              
              (55,226,069
              )Interest
      expense of Majestic Holdco (b)
              
              
              (7,995,818
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              (7,995,818
              )Other
      non-operating expense
              
              
              (30,705
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              (30,705
              )Equity
      in net income of subsidiaries
              
              
              (82,475,601
              )
              
              
              -
              
              
              
              -
              
              
              
              82,475,601
              
              (c)
              
              
              -Total
      other (expense) income
              
              
              (145,496,998
              )
              
              
              -
              
              
              
              48,477
              
              
              
              82,475,601
              
              
              
              
              (62,972,920
              )Net
      loss
              
              $
              (150,382,609
              )
              
              $
              -
              
              
              $
              (82,475,601
              )
              
              $
              82,475,601
              
              
              
              $
              (150,382,609
              )(a)
              To
      eliminate intercompany transactions.(b)
              Includes
      amortization of deferred financing costs and interest expense related to
      the issuance of Majestic Holdco’s Discount Notes pushed down pursuant to
      SEC Staff Accounting Bulletin 73 Topic 5(J).(c)
              To
      eliminate equity of net income of
subsidiaries.
 
 
  F-35
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  CONSOLIDATING
STATEMENT OF OPERATIONS
 For the
Year Ended December 31, 2007
 
 The
      Majestic
                
                
                The
      MajesticStar
      Casino,
                
                
                Star
      Casino
                
                
                Guarantor
                
                
                Eliminating
                
                
                
                TotalLLC
                
                
                Capital
      Corp.
                
                
                Subsidiaries
                
                
                Entries
                
                
                
                ConsolidatedOPERATING
      REVENUES:Casino
                
                $
                132,550,323
                
                
                $
                -
                
                
                $
                233,348,897
                
                
                $
                -
                
                
                
                $
                365,899,220Rooms
                
                
                -
                
                
                
                -
                
                
                
                11,851,142
                
                
                
                -
                
                
                
                
                11,851,142Food
      and beverage
                
                
                9,297,118
                
                
                
                -
                
                
                
                16,307,891
                
                
                
                -
                
                
                
                
                25,605,009Other
                
                
                3,676,440
                
                
                
                -
                
                
                
                4,465,529
                
                
                
                -
                
                
                
                
                8,141,969Gross
      revenues
                
                
                145,523,881
                
                
                
                -
                
                
                
                265,973,459
                
                
                
                -
                
                
                
                
                411,497,340Less
      promotional allowances
                
                
                16,825,543
                
                
                
                -
                
                
                
                36,127,511
                
                
                
                446,167
                
                (a)
                
                
                53,399,221Net
      operating revenues
                
                
                128,698,338
                
                
                
                -
                
                
                
                229,845,948
                
                
                
                (446,167
                )
                
                
                
                358,098,119OPERATING
      COSTS AND EXPENSES:Casino
                
                
                30,602,068
                
                
                
                -
                
                
                
                64,257,541
                
                
                
                -
                
                
                
                
                94,859,609Rooms
                
                
                -
                
                
                
                -
                
                
                
                3,066,404
                
                
                
                -
                
                
                
                
                3,066,404Food
      and beverage
                
                
                4,930,703
                
                
                
                -
                
                
                
                5,781,112
                
                
                
                -
                
                
                
                
                10,711,815Other
                
                
                1,062,004
                
                
                
                -
                
                
                
                958,348
                
                
                
                -
                
                
                
                
                2,020,352Gaming
      taxes
                
                
                38,319,279
                
                
                
                -
                
                
                
                47,624,091
                
                
                
                -
                
                
                
                
                85,943,370Advertising
      and promotion
                
                
                6,287,054
                
                
                
                -
                
                
                
                17,336,536
                
                
                
                (446,167
                )
                (a)
                
                
                23,177,423General
      and administrative
                
                
                22,532,603
                
                
                
                -
                
                
                
                34,008,477
                
                
                
                -
                
                
                
                
                56,541,080Corporate
      expense
                
                
                6,253,724
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                6,253,724Economic
      incentive tax - City of Gary
                
                
                3,635,188
                
                
                
                -
                
                
                
                3,159,208
                
                
                
                -
                
                
                
                
                6,794,396Depreciation
      and amortization
                
                
                12,272,858
                
                
                
                -
                
                
                
                20,560,954
                
                
                
                -
                
                
                
                
                32,833,812Loss
      on disposal of assets
                
                
                190,710
                
                
                
                -
                
                
                
                715,016
                
                
                
                -
                
                
                
                
                905,726Total
      operating costs and expenses
                
                
                126,086,191
                
                
                
                -
                
                
                
                197,467,687
                
                
                
                (446,167
                )
                
                
                
                323,107,711Operating
      income
                
                
                2,612,147
                
                
                
                -
                
                
                
                32,378,261
                
                
                
                -
                
                
                
                
                34,990,408OTHER
      (EXPENSE) INCOME :Interest
      income
                
                
                282,474
                
                
                
                -
                
                
                
                385,597
                
                
                
                -
                
                
                
                
                668,071Interest
      expense
                
                
                (54,524,354
                )
                
                
                -
                
                
                
                (5,209
                )
                
                
                -
                
                
                
                
                (54,529,563
                )Interest
      expense of Majestic Holdco (b)
                
                
                (7,094,840
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                (7,094,840
                )Other
      non-operating expense
                
                
                (85,470
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                
                (85,470
                )Equity
      in net income of subsidiaries
                
                
                32,758,649
                
                
                
                -
                
                
                
                -
                
                
                
                (32,758,649
                )
                (c)
                
                
                -Total
      other (expense) income
                
                
                (28,663,541
                )
                
                
                -
                
                
                
                380,388
                
                
                
                (32,758,649
                )
                
                
                
                (61,041,802
                )Net
      (loss) income
                
                $
                (26,051,394
                )
                
                $
                -
                
                
                $
                32,758,649
                
                
                $
                (32,758,649
                )
                
                
                $
                (26,051,394
                )(a)
                To
      eliminate intercompany transactions.(b)
                Includes
      amortization of deferred financing costs and interest expense related to
      the issuance of Majestic Holdco’s Discount Notes pushed down pursuant to
      SEC Staff Accounting Bulletin 73 Topic 5(J).(c)
                To
      eliminate equity of net income of
subsidiaries.
 
  F-36
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  CONSOLIDATING
STATEMENT OF OPERATIONS
 For the
Year Ended December 31, 2006
 
 The
      Majestic
              
              
              The
      MajesticStar
      Casino,
              
              
              Star
      Casino
              
              
              Guarantor
              
              
              Eliminating
              
              
              
              TotalLLC
              
              
              Capital
      Corp.
              
              
              Subsidiaries
              
              
              Entries
              
              
              
              ConsolidatedOPERATING
      REVENUES:Casino
              
              $
              134,809,379
              
              
              $
              -
              
              
              $
              240,304,517
              
              
              $
              -
              
              
              
              $
              375,113,896Rooms
              
              
              -
              
              
              
              -
              
              
              
              10,890,724
              
              
              
              -
              
              
              
              
              10,890,724Food
      and beverage
              
              
              1,868,380
              
              
              
              -
              
              
              
              14,479,170
              
              
              
              -
              
              
              
              
              16,347,550Other
              
              
              3,311,326
              
              
              
              -
              
              
              
              3,630,845
              
              
              
              -
              
              
              
              
              6,942,171Gross
      revenues
              
              
              139,989,085
              
              
              
              -
              
              
              
              269,305,256
              
              
              
              -
              
              
              
              
              409,294,341Less
      promotional allowances
              
              
              13,360,845
              
              
              
              -
              
              
              
              41,390,389
              
              
              
              309,512
              
              (a)
              
              
              55,060,746Net
      operating revenues
              
              
              126,628,240
              
              
              
              -
              
              
              
              227,914,867
              
              
              
              (309,512
              )
              
              
              
              354,233,595OPERATING
      COSTS AND EXPENSES:Casino
              
              
              25,296,664
              
              
              
              -
              
              
              
              62,411,913
              
              
              
              -
              
              
              
              
              87,708,577Rooms
              
              
              -
              
              
              
              -
              
              
              
              3,329,367
              
              
              
              -
              
              
              
              
              3,329,367Food
      and beverage
              
              
              2,075,472
              
              
              
              -
              
              
              
              6,361,450
              
              
              
              -
              
              
              
              
              8,436,922Other
              
              
              813,413
              
              
              
              -
              
              
              
              920,817
              
              
              
              -
              
              
              
              
              1,734,230Gaming
      taxes
              
              
              38,450,258
              
              
              
              -
              
              
              
              48,646,626
              
              
              
              -
              
              
              
              
              87,096,884Advertising
      and promotion
              
              
              5,662,612
              
              
              
              -
              
              
              
              13,288,892
              
              
              
              (309,512
              )
              (a)
              
              
              18,641,992General
      and administrative
              
              
              25,035,679
              
              
              
              -
              
              
              
              31,934,758
              
              
              
              -
              
              
              
              
              56,970,437Corporate
      expense
              
              
              6,306,222
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              6,306,222Economic
      incentive tax - City of Gary
              
              
              3,637,683
              
              
              
              -
              
              
              
              3,120,690
              
              
              
              -
              
              
              
              
              6,758,373Depreciation
      and amortization
              
              
              12,149,478
              
              
              
              -
              
              
              
              19,573,410
              
              
              
              -
              
              
              
              
              31,722,888Gain
      on disposal of assets
              
              
              (96,851
              )
              
              
              -
              
              
              
              (35,872
              )
              
              
              -
              
              
              
              
              (132,723
              )Total
      operating costs and expenses
              
              
              119,330,630
              
              
              
              -
              
              
              
              189,552,051
              
              
              
              (309,512
              )
              
              
              
              308,573,169Operating
      income
              
              
              7,297,610
              
              
              
              -
              
              
              
              38,362,816
              
              
              
              -
              
              
              
              
              45,660,426OTHER
      INCOME (EXPENSE):Interest
      income
              
              
              216,534
              
              
              
              -
              
              
              
              231,091
              
              
              
              -
              
              
              
              
              447,625Interest
      expense
              
              
              (53,934,687
              )
              
              
              -
              
              
              
              (33,758
              )
              
              
              -
              
              
              
              
              (53,968,445
              )Interest
      expense of Majestic Holdco (b)
              
              
              (6,330,956
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              (6,330,956
              )Other
      non-operating expense
              
              
              (115,375
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              (115,375
              )Equity
      in net income of subsidiaries
              
              
              38,560,149
              
              
              
              -
              
              
              
              -
              
              
              
              (38,560,149
              )
              (c)
              
              
              -Total
      other expense
              
              
              (21,604,335
              )
              
              
              -
              
              
              
              197,333
              
              
              
              (38,560,149
              )
              
              
              
              (59,967,151
              )Net
      (loss) income
              
              $
              (14,306,725
              )
              
              $
              -
              
              
              $
              38,560,149
              
              
              $
              (38,560,149
              )
              
              
              $
              (14,306,725
              )(a)
              To
      eliminate intercompany transactions.(b)
              Includes
      amortization of deferred financing costs and interest expense related to
      the issuance of Majestic Holdco’s Discount Notes pushed down pursuant to
      SEC Staff Accounting Bulletin 73 Topic 5(J).(c)
              To
      eliminate equity of net income of subsidiaries.
 
 
 
 
  F-37
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  CONSOLIDATING
STATEMENT OF CASH FLOWS
 For the
Year Ended December 31, 2008
 
 The
      Majestic
                Star
      Casino,
                LLC
              
              
              The
      Majestic Star Casino Capital Corp.
              
              
              Guarantor
      Subsidiaries
              
              
              Eliminating
      Entries
              
              
              Total
      ConsolidatedNET
      CASH (USED IN) PROVIDED BYOPERATING
      ACTIVITIES: (a)
              
              $
              (38,101,007
              )
              
              $
              -
              
              
              $
              63,758,258
              
              
              $
              -
              
              
              $
              25,657,251CASH
      FLOWS FROM INVESTING ACTIVITIES:Increase
      in restricted cash
              
              
              (1,377,951
              )
              
              
              -
              
              
              
              (625,000
              )
              
              
              -
              
              
              
              (2,002,951
              )Additions
      to property and equipment
              
              
              (761,764
              )
              
              
              -
              
              
              
              (17,330,547
              )
              
              
              -
              
              
              
              (18,092,311
              )Decrease
      in Lakefront Capital Improvement Fund
              
              
              2,088,005
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,088,005Proceeds
      from disposal of equipment
              
              
              25,286
              
              
              
              -
              
              
              
              42,387
              
              
              
              -
              
              
              
              67,673Net
      cash used in investing activities
              
              
              (26,424
              )
              
              
              -
              
              
              
              (17,913,160
              )
              
              
              -
              
              
              
              (17,939,584
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from line of credit
              
              
              45,061,179
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              45,061,179Repayment
      of line of credit
              
              
              (22,150,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (22,150,000
              )Advances
      from (to) affiliates
              
              
              16,775,000
              
              
              
              -
              
              
              
              (16,775,000
              )
              
              
              -
              
              
              
              -Repayment
      of debt
              
              
              (169,094
              )
              
              
              -
              
              
              
              (526,263
              )
              
              
              -
              
              
              
              (695,357
              )Tax
      Distribution to Barden Development, Inc.
              
              
              (1,400,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,400,000
              )Net
      cash provided by (used in) financing activities
              
              
              38,117,085
              
              
              
              -
              
              
              
              (17,301,263
              )
              
              
              -
              
              
              
              20,815,822Net
      (decrease) increase  in cash and cash
equivalents
              
              
              (10,346
              )
              
              
              -
              
              
              
              28,543,835
              
              
              
              -
              
              
              
              28,533,489Cash
      and cash equivalents, beginning of period
              
              
              8,055,172
              
              
              
              -
              
              
              
              21,161,091
              
              
              
              -
              
              
              
              29,216,263Cash
      and cash equivalents, end of period
              
              $
              8,044,826
              
              
              $
              -
              
              
              $
              49,704,926
              
              
              $
              -
              
              
              $
              57,749,752(a)
              Includes
      interest expense of $5.8 million and amortization of deferred financing
      costs and $0.5 million related to the amortization of bond discount and
      deferred financing costs of Majestic Holdco's Discount
    Notes.
 
 
 
  F-38
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  CONSOLIDATING
STATEMENT OF CASH FLOWS
 For the
Year Ended December 31, 2007
 
 The
      Majestic Star Casino, LLC
              
              
              The
      Majestic Star Casino Capital Corp.
              
              
              Guarantor
      Subsidiaries
              
              
              Eliminating
      Entries
              
              
              Total
      ConsolidatedNET
      CASH (USED IN) PROVIDED BYOPERATING
      ACTIVITIES: (a)
              
              $
              (42,217,316
              )
              
              $
              -
              
              
              $
              71,315,168
              
              
              $
              -
              
              
              $
              29,097,852CASH
      FLOWS FROM INVESTING ACTIVITIES:(Increase)
      decrease in restricted cash
              
              
              (1,114,478
              )
              
              
              -
              
              
              
              1,040,000
              
              
              
              -
              
              
              
              (74,478
              )Additions
      to property and equipment
              
              
              (8,160,239
              )
              
              
              -
              
              
              
              (23,973,004
              )
              
              
              -
              
              
              
              (32,133,243
              )Increase
      in Lakefront Capital Improvement Fund
              
              
              (1,720,409
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,720,409
              )Proceeds
      from disposal of equipment
              
              
              78,568
              
              
              
              -
              
              
              
              104,174
              
              
              
              -
              
              
              
              182,742Net
      cash used in investing activities
              
              
              (10,916,558
              )
              
              
              -
              
              
              
              (22,828,830
              )
              
              
              -
              
              
              
              (33,745,388
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from line of credit
              
              
              53,787,903
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              53,787,903Repayment
      of line of credit
              
              
              (43,100,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (43,100,000
              )Advances
      from (to) affiliates
              
              
              43,650,000
              
              
              
              -
              
              
              
              (43,650,000
              )
              
              
              -
              
              
              
              -Repayment
      of debt
              
              
              (100,453
              )
              
              
              -
              
              
              
              (105,330
              )
              
              
              -
              
              
              
              (205,783
              )Distributions
      to Barden Development, Inc.
              
              
              (2,150,245
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,150,245
              )Net
      cash provided by (used in) financing activities
              
              
              52,087,205
              
              
              
              -
              
              
              
              (43,755,330
              )
              
              
              -
              
              
              
              8,331,875Net
      (decrease) increase  in cash and cash
equivalents
              
              
              (1,046,669
              )
              
              
              -
              
              
              
              4,731,008
              
              
              
              -
              
              
              
              3,684,339Cash
      and cash equivalents, beginning of period
              
              
              9,101,841
              
              
              
              -
              
              
              
              16,430,083
              
              
              
              -
              
              
              
              25,531,924Cash
      and cash equivalents, end of period
              
              $
              8,055,172
              
              
              $
              -
              
              
              $
              21,161,091
              
              
              $
              -
              
              
              $
              29,216,263(a)
              Includes
      interest expense of $6.6 million and amortization of deferred financing
      costs of $0.5 million related to the amortization of bond discount and
      deferred financing costs of Majestic Holdco's Discount
    Notes.
 
 
  F-39
 Table of Contents
 THE
MAJESTIC STAR CASINO, LLC AND SUBSIDIARIES
 (A
Wholly Owned Subsidiary of Majestic Holdco, LLC)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
  CONSOLIDATING
STATEMENT OF CASH FLOWS
 For the
Year Ended December 31, 2006
  TheMajestic
                        Star
      Casino,
                        LLC
                    
                    
                    The
      Majestic
                      Star
      Casino
                      Capital
      Corp.
                    
                    
                    Guarantor
      Subsidiaries
                    
                    
                    Eliminating
      Entries
                    
                    
                    Total
      ConsolidatedNET
      CASH (USED IN) PROVIDED BYOPERATING
      ACTIVITIES: (a)
                    
                    $
                    (19,458,131
                    )
                    
                    $
                    -
                    
                    
                    $
                    47,172,253
                    
                    
                    $
                    -
                    
                    
                    $
                    27,714,122CASH
      FLOWS FROM INVESTING ACTIVITIES:Increase
      in restricted cash
                    
                    
                    (136,881
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (136,881
                    )Adjustments
      of costs related to Trump Indiana acquisition
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (180,648
                    )
                    
                    
                    -
                    
                    
                    
                    (180,648
                    )Additions
      to property and equipment
                    
                    
                    (8,705,542
                    )
                    
                    
                    -
                    
                    
                    
                    (16,703,605
                    )
                    
                    
                    -
                    
                    
                    
                    (25,409,147
                    )Increase
      in Lakefront Capital Improvement Fund
                    
                    
                    (896,948
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (896,948
                    )Proceeds
      from disposal of equipment
                    
                    
                    240,751
                    
                    
                    
                    -
                    
                    
                    
                    652,250
                    
                    
                    
                    -
                    
                    
                    
                    893,001Net
      cash used in investing activities
                    
                    
                    (9,498,620
                    )
                    
                    
                    -
                    
                    
                    
                    (16,232,003
                    )
                    
                    
                    -
                    
                    
                    
                    (25,730,623
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payment
      of debt issuance costs (b)
                    
                    
                    (1,646,930
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,646,930
                    )Proceeds
      from line of credit
                    
                    
                    60,168,339
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    60,168,339Repayment
      of line of credit
                    
                    
                    (61,643,760
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (61,643,760
                    )Repayment
      of debt
                    
                    
                    (34,300
                    )
                    
                    
                    -
                    
                    
                    
                    (1,193,508
                    )
                    
                    
                    -
                    
                    
                    
                    (1,227,808
                    )Advances
      from (to) affiliates
                    
                    
                    37,600,000
                    
                    
                    
                    -
                    
                    
                    
                    (37,600,000
                    )
                    
                    
                    -
                    
                    
                    
                    -Distributions
      to Barden Development, Inc.
                    
                    
                    (4,469,665
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (4,469,665
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    29,973,684
                    
                    
                    
                    -
                    
                    
                    
                    (38,793,508
                    )
                    
                    
                    -
                    
                    
                    
                    (8,819,824
                    )Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    1,016,933
                    
                    
                    
                    -
                    
                    
                    
                    (7,853,258
                    )
                    
                    
                    -
                    
                    
                    
                    (6,836,325
                    )Cash
      and cash equivalents, beginning of period
                    
                    
                    8,084,908
                    
                    
                    
                    -
                    
                    
                    
                    24,283,341
                    
                    
                    
                    -
                    
                    
                    
                    32,368,249Cash
      and cash equivalents, end of period
                    
                    $
                    9,101,841
                    
                    
                    $
                    -
                    
                    
                    $
                    16,430,083
                    
                    
                    $
                    -
                    
                    
                    $
                    25,531,924(a)
                    Includes
      interest expense of $5.8 million and amortization of deferred financing
      costs of $0.5 million related to the amortization of bond
      discount and deferred financing costs of Majestic Holdco's Discount
      Notes.(b)
                    Includes
      issuance costs of $0.2 million related to the Discount Notes of Majestic
      Holdco.
     F-40