<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                -------------
                                  FORM 10-K

(Mark One)

/x/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934.

For the fiscal year ended December 31, 1998

OR

/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934.

For the transition period from ___________ to ____________.

                         Commission file number 0-28068

                       COLORADO GAMING & ENTERTAINMENT CO.
             (Exact Name of Registrant as Specified in Its Charter)

DELAWARE                                                          84-1242693
(State or Other Jurisdiction of            (I.R.S. Employer Identification No.)
Incorporation or Organization)

12596 WEST BAYAUD AVE., SUITE 450, LAKEWOOD, COLORADO                  80228
(Address of Principal Executive Offices)                             (Zip Code)

                                 (303) 716-5600
              (Registrant's 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:
                  12% Senior Secured Pay-In-Kind Notes due 2003

         Indicate by check II 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 II No ___

         Indicate by check II if there are no delinquent filers to disclose 
herein pursuant to Item 405 of Regulation S-K, and there will not be any 
delinquent filers to disclose, to the best of the registrant's knowledge, in 
definitive proxy or information statements incorporated by reference in Part 
III of this Form 10-K or any amendment to this Form 10-K. [ ]

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check II whether the registrant has filed all documents 
and reports required to be filed by Section 12, 13 or 15(d) of the Securities 
Exchange Act of 1934 subsequent to the distribution of securities under a 
plan confirmed by a court. Yes II No ___

     Number of shares of common stock outstanding at March 30, 1999: 100


<PAGE>

                                    PART I

ITEM 1.  BUSINESS

GENERAL

         Colorado Gaming & Entertainment Co. ("CG&E" or the "Company"), 
formally known as Hemmeter Enterprises, Inc. (referred to as the "Predecessor 
Company" for the period prior to June 7, 1996), develops, owns and operates 
gaming and related entertainment facilities. The Company owns and operates, 
through wholly-owned subsidiaries, BWBH, Inc. ("BWBH" or "Bullwhackers Black 
Hawk") and Silver Hawk Casino, Inc. (the " Silver Hawk Casino") in the 
historic mining towns of Black Hawk, Colorado (Bullwhackers Black Hawk, 
Bullwhackers Central City and the Silver Hawk Casino are referred to together 
as the "Colorado Casinos"). Until March 1999, through another wholly-owned 
subsidiary BWCC, Inc. ("BWCC" or "Bullwhackers Central City"), the Company 
operated a casino in the adjacent historical mining town of Central City. In 
addition, through a wholly-owned subsidiary, Millsite 27 Inc. ("MS27"), the 
Company owns a parking lot with a capacity of approximately 500 cars, which 
is located directly between, and is used by, Bullwhackers Black Hawk and the 
Silver Hawk Casino. References in this Annual Report on Form 10-K to CG&E or 
the Company include its subsidiaries unless the context otherwise requires.

         Colorado law currently permits limited stakes gaming (with a maximum 
single bet of $5.00) in three historic mining towns: Black Hawk and Central 
City, adjacent towns located approximately 35 miles from Denver, and Cripple 
Creek, located approximately 45 miles from Colorado Springs and 110 miles 
from Denver. Gaming operations also exist on two Native American reservations 
in Southwest Colorado. Colorado law only permits casinos to offer slot 
machines and the table games of blackjack and poker.

         On August 21, 1998, Ladbroke Gaming Corporation ("Ladbroke Gaming") 
acquired beneficial ownership of 100% of the issued and outstanding shares of 
common stock, $0.01 par value, of the Company for $6.25 in cash per share 
pursuant to the terms of an Agreement and Plan of Merger, dated as of August 
22, 1997, by and among CG&E Acquisition Corp., a subsidiary of Ladbroke 
Racing Corporation ("Ladbroke Racing") and the Company, as amended by a first 
Amendment to Agreement and Plan of Merger dated as of October 21, 1997 and 
assigned to Ladbroke Gaming pursuant to an Assignment of Agreement and Plan 
dated as of March 18, 1998. In association with the merger, on August 21, 
1998 the Company's outstanding common stock was canceled and the Company 
issued one hundred common shares, with $0.01 par value, to Ladbroke Gaming. 
Ladbroke Gaming is a wholly-owned subsidiary of Ladbroke plc.

REORGANIZATION

         As a result of the financial difficulties of a riverboat gaming 
project undertaken in 1995 by Grand Palais Riverboat, Inc. ("GPRI"), a 
wholly-owned subsidiary of the Predecessor Company, the Predecessor Company, 
BWBH, BWCC and MS27 sought protection under Chapter 11 of the United States 
Bankruptcy Code on November 7, 1995 (the " Reorganization"). The First 
Amended Joint Plan of Reorganization of the Predecessor Company, BWBH, BWCC 
and MS27 was confirmed on April 8, 1996 and became effective on June 7, 1996 
(the "Effective Date"). As a result, among other things, the Company 
significantly reduced its consolidated debt, issued new shares of common 
stock and sold GPRI.

PRIVATE SECURITIES LITIGATION REFORM ACT

         Certain statements set forth above and elsewhere in this Annual 
Report on Form 10-K which are not historical facts are forward-looking 
statements within the meaning of the Private Securities Litigation Reform Act 
of 1995, such as statements relating to future competition, financing and 
refinancing sources and availability, plans for future development or 
expansion activities and capital expenditures. Such statements can be 
identified by the use of forward-looking terminology such as "might," "may," 
"will," "would," "could," "except," "anticipate," "estimate," "likely," 
"believe, "or "continue" or the negative thereof or other variations thereon 
or comparable terminology. Such forward looking statements involve a number 
of risks and uncertainties that may significantly affect the Company's 
liquidity and results of operations in the future and, accordingly, actual 
results may differ 

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materially from those expressed in any forward-looking statements. Such risks 
and uncertainties include, but are not limited to, those related to leverage 
and debt service and financing and refinancing efforts, competition, 
inclement weather, general economic conditions in the Denver metropolitan 
area, changes in gaming laws, regulations or tax rates and risks related to 
development and construction activities. See "Management's Discussion and 
Analysis of Financial Conditions and Results of Operations-Statement on 
Forward-Looking Information."

COLORADO CASINOS AND RELATED AMENITIES

         BULLWHACKERS BLACK HAWK. Bullwhackers Black Hawk opened on July 17, 
1992 and is located at the town's main intersection of Colorado State Highway 
119 (the primary access road to Interstate 70, which leads to Denver) and 
Gregory Street (which connects Black Hawk to Central City). Bullwhackers 
Black Hawk is a 36,000 square foot facility which contains approximately 
12,000 square feet of gaming space on four levels. The casino currently has 
approximately 740 slot machines and nineteen table games. The facility has 
one bar on each level, a 176-seat full service restaurant and office space. 
Bullwhackers Black Hawk utilizes a Victorian theme in its interior design, 
featuring a winding grand staircase and a glass-enclosed elevator connecting 
the various levels of the facility.

         On February 13, 1998, the Company purchased the assets comprising 
Bullwhackers' Bullpen Sports Casino (the "Bullpen") from Pioneer Associates 
Limited Liability Company for approximately $5.5 million. On May 1, 1998, the 
Company commenced operations at the Bullpen. This purchase expanded 
Bullwhackers Black Hawk's original capacity to approximately 840 slot 
machines at the end of 1998. The Bullpen is a 15,000 square foot facility 
which contains approximately 5,000 square feet of gaming space on three 
levels. As of December 31, 1998, the casino currently had approximately 240 
slot machines and three table games. The facility has two bars on two of the 
levels, a full service restaurant and office space. Bullpen is a sports theme 
with multiple televisions and team decor. In January 1999, the Company closed 
the second floor of the Bullpen, which eliminated a restaurant and 
approximately 113 slot machines from Bullwhackers Black Hawk operations.

         In June 1997, the Company completed construction of a day care 
facility adjacent to Bullwhackers Black Hawk, operated by New Horizons Kids 
Quest III, Inc.("Kids Quest"), at a cost of approximately $1.4 million. Kids 
Quest is solely responsible for the day-to-day operations of the day care 
facility.

         BULLWHACKERS CENTRAL CITY. Bullwhackers Central City opened on June 
15, 1992 and is located at one of the town's two main intersections. This 
31,000 square foot facility contained approximately 8,750 square feet of 
gaming space on two levels. Bullwhackers Central City had approximately 320 
slot machines and four table games at the facility as of year-end. The 
facility had two bars, a 126-seat full service restaurant and office space. 
In January 1999, Bullwhackers Central City closed its full service restaurant 
and removed an additional 50 slot machines.

         The Company believes that proximity to convenient parking is 
extremely important to the Central City casinos and the Colorado market in 
general. However, except for the largest casino in Central City which 
constructed an on-site parking garage in 1997, none of the casinos currently 
operating in Central City offer on-site parking for more than 50 cars. There 
are several public parking lots in Central City offering parking for a total 
of approximately 550 cars, including a 200-space lot across from Bullwhackers 
Central City. As a result of the lack of adequate convenient parking, many of 
the operators in Central City, including the Company, increasingly rely on 
costly busing programs, which offer cash back promotions and other incentives 
designed to enhance incremental patron visitation and play.

         For the last several years, Bullwhackers Central City has operated 
in an environment of declining revenue levels, and has generated limited 
operating profits. In an effort to address the situation over the last 
several years, management has cut costs and periodically reduced the number 
of slot machines from 534 in 1994 to approximately 320 by the end of 1998. 
Additionally, the revenue declines in the third and fourth quarters of 1998 
were progressively worse. Generally, management's efforts were successful in 
maintaining some profitability in the face of year over year revenue 
declines. Management believes that the significant expansion of new 
properties in the Black Hawk market, and other projects, which are expected 
to open in Black Hawk by the end of 1999, would put further pressure on the 
Central City market and specifically Bullwhackers Central City. Accordingly, 
management believes that generating operating profits at Bullwhackers Central 
City in 1999 and beyond would be unlikely. Additionally, efforts to manage, 
staff, market, and maintain the slot product necessary to offer a competitive 

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operation in Central City would continue to divert management's time, 
attention and Company resources from its core property, Bullwhackers Black 
Hawk. Given these factors, in February 1999, the Company announced that 
Bullwhackers Central City would cease operations on March 31, 1999. 
Subsequently, on March 10, 1999, the Company closed Bullwhackers Central City 
due to lack of business levels. The Company recorded a $4.3 million write 
down of this property as of December 31, 1998. All value related to Central 
City assets, other than the certain gaming and other equipment that has value 
in the Company's other operations, has been written-off on the Company's 
consolidated balance sheet.

         SILVER HAWK CASINO. The Silver Hawk Casino is an approximately 
12,000 square foot four-story building constructed in 1993. The Company 
purchased the Silver Hawk Casino on April 12, 1996. The Company completed 
minor interior remodeling and reopened the facility on June 26, 1996. 
Currently, the Silver Hawk Casino has approximately 250 slot machines. The 
facility has two bars, a full service restaurant and office space.

          PARKING LOT. The Company owns an approximately 3.25-acre surface 
parking lot located between Bullwhackers Black Hawk and the Silver Hawk 
Casino. The Company believes that proximity to convenient parking is 
extremely important in Black Hawk. In May, 1997 the Company completed the 
process of expanding its parking lot to accommodate a total of approximately 
500 cars.

         CANADA. In September 1997, the Ontario Gaming Control Commission 
announced that Diamond Gaming of Ontario Inc., a partnership between the 
Company, a subsidiary of Ogden Corporation and Diamond Gaming Services Inc., 
was the successful bidder to develop and operate charitable gaming clubs in 
the cities of Kingston and Belleville, Ontario. On June 26, 1998, the 
Government of the Province of Ontario advised the partnership that the 
Government canceled the charity casino initiative. Accordingly, the Company 
and its partners ceased all activity with respect to the development of 
charity casinos in Kingston and Belleville. The partnership is seeking, at a 
minimum, reimbursement from the Ontario Government of its expenses incurred 
in such development activities. The Ontario Government has expressed a desire 
to reimburse the successful bidders a reimbursement of costs incurred on the 
project. Over the last several months the partnership has submitted project 
costs detail to the governmental authorities and been negotiating a 
settlement agreement. While an executed agreement has not been finalized, the 
Company has every indication that the agreement will be finalized shortly. 
Accordingly, the Company anticipates a reimbursement of approximately 
$400,000 in 1999 for its share of the partnership costs.

COLORADO GAMING MARKET

         GENERAL. Black Hawk and Central City are historic mining towns made 
famous during the gold rush of 1859. Prior to the advent of casino gaming in 
October 1991, Black Hawk, and, to a greater extent, Central City, were 
popular tourist towns, especially in the summer. Casino gaming is currently 
the main draw to the towns and gaming establishments have displaced many of 
the former tourist-related businesses.

         Customers for casinos in Black Hawk and Central City are primarily 
"day trippers" from the Denver metropolitan area. Approximately 1.8 million 
people live in the Denver metropolitan area, approximately 2.4 million people 
live within a 50-mile radius of Denver, and approximately 3.0 million people 
live within a 100-mile radius of Denver, of Black Hawk and Central City. 
Black Hawk and Central City are located approximately 35 miles west of Denver 
and approximately ten miles from Interstate 70, the main east-west artery 
connecting Denver with many of Colorado's premier ski resorts.

         According to the Colorado Division of Gaming, there were 49 gaming 
facilities operating in Colorado at the end of 1998, with a total of 14,376 
slot machines and 227 table games. Of these, 19 facilities, 7,181 slot 
machines and 125 table games were located in Black Hawk; 12 facilities, 3,142 
slot machines and 46 table games were located in Central City; and 18 
facilities, 4,053 slot machines and 56 table games were located in Cripple 
Creek. Generally, Central City facilities have not been able to compete 
effectively with facilities in Black Hawk, primarily because Black Hawk 
casinos offer substantially more on-site parking and more convenient location 
and access, which is a significant competitive advantage in the Colorado 
market. For the year ended 1998, the average daily win per slot machine was 
$128.88 in Black Hawk, $64.41 in Central City and $54.52 in Cripple Creek. 
The cumulative gaming win in Black Hawk as a market was $257 million in 1998 
as compared to $220 million in 1997, a 17% increase. The total gaming win in 
the Central City market was $90 million in 1998 as compared to $82 million in 
1997. Although 

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these figures reveal an increase in the cumulative gaming win in Central City, 
the growth is a direct result of the largest competitor located off Main 
Street in Central City, continuing to grow due to the addition of their 
parking garage in mid 1997, while the results of the Main Street operators, 
including Bullwhackers Central City, have seen revenues decline over the past 
few years.

         MARKETING STRATEGY. The Company targets primarily customers in the 
Denver metropolitan area. The Company seeks to attract customers to the 
Colorado Casinos by: (i) offering first-class facilities with comfortable and 
efficient layouts; (ii) providing ample parking; (iii) promoting customer 
awareness through marketing of the Bullwhackers name and theme; (iv) 
providing excellent customer service with a motivated staff; (vi) utilizing 
strategic busing programs; (vii) offering customer promotions; (viii) 
providing desirable food products and refreshments; and (ix) providing 
incentives to higher-value repeat customers.

         In particular, the Company has used extensive marketing programs to 
build customer awareness, including radio, print and direct mail. The Company 
believes that Bullwhackers enjoys among the highest name recognition of all 
casinos located in Colorado, a fact which the Company attributes in part to 
the success of its marketing campaigns. The Company has also developed 
promotional offerings centered around the Bullwhackers theme of offering a 
fun, exciting gaming atmosphere, including providing gift items and a 
cash-back reward system based upon level of play through slot club membership 
in the "Bullwhackers Five Star Players Club." The Company also has instituted 
several new busing programs, transporting customers to and from Black Hawk 
and Central City.

COMPETITION

         Competition in the Black Hawk and Central City gaming market, which 
forms the primary gaming market in Colorado, is intense. Bullwhackers Central 
City is located approximately one and one-half miles from Bullwhackers Black 
Hawk and the Silver Hawk Casino is located across the Company's parking lot 
from Bullwhackers Black Hawk. The Company believes that its primary 
competition are other casinos operating in Black Hawk and Central City. More 
experienced, nationally recognized casino operators from other areas of the 
country have entered, or have recently announced plans to enter, the Colorado 
gaming market, including Harvey's, Isle of Capri, Riviera Holdings, Inc., 
Hyatt, Anchor Gaming and Fitzgerald's, many of which have substantially 
greater financial and marketing resources than the Company. Because Colorado 
does not limit the total number of gaming licenses available for issuance in 
Colorado and there are no minimum facility size requirements, the Company 
expects the number of gaming facilities and gaming devices to continue to 
increase in Black Hawk.

         In June 1998, a joint venture between Black Hawk Gaming & 
Development Co., the owner and operator of the Gilpin Hotel Casino, and 
Jacobs Entertainment commenced casino operations of a property named "The 
Lodge", which is a 35,000 square foot casino, 500 covered parking spaces and 
approximately 800 slot machines. In December 1998, the Isle of Capri Black 
Hawk, which is owned by subsidiaries of Isle of Capri, Inc. and Nevada Gold & 
Casinos, Inc., commenced operations. The Isle of Capri Black Hawk is a 55,000 
square foot casino with 1,100 slot machines, 14 table games, three restaurant 
offerings and 1,000 on-site covered parking spaces. The new gaming capacity 
(a 34% increase over prior year) that entered the Black Hawk market in the 
second half of 1998 may dilute existing operators' win per unit and revenue, 
including the Company's. Accordingly, such increase in capacity may have a 
material adverse affect on the Company's results of operations. Management 
believes the new properties adversely affected the Company's revenues and 
operating results in 1998, and will continue to affect the Company's 
performance in 1999.

         In addition, a number of other casino projects have begun 
construction in Black Hawk. Riviera Holdings, Inc. commenced construction of 
a casino scheduled to open in late 1999, which is expected to include 1,000 
slot machines and 500 space covered parking garage. Additionally, Bullseye 
Gaming has commenced construction of the Black Hawk Brewery Casino and is 
scheduled to open in late 1999, which will offer 600 slot machines and 500 
parking spaces. Fitzgeralds has also announced an expected expansion of 
approximately 50% of their current gaming area as well as 70-80 hotel rooms. 
Various other projects have been announced, proposed, discussed or rumored 
for the Black Hawk market, including large projects known as "Country World" 
and the "St. Moritz - Hyatt". The new capacity, actual and proposed, have all 
been announced for the town of Black Hawk. The majority of these projects are 
along the southern end of Black Hawk at the first two major intersections of 
State Highway 119, providing these projects with the initial opportunity to 
capture visitors to Black Hawk from the Denver metropolitan area. In 
contrast, Bullwhackers Black Hawk and the Silver Hawk Casino are located at 
the northern end of Black Hawk at the third major intersection off 

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State Highway 119. The projects currently under construction and, or the 
projects may have a material adverse impact of the Company's results from 
operations.

         The Company believes that the primary competitive factors in the 
Black Hawk-Central City market are location, availability and convenience of 
parking, number of slot machines and gaming tables, types and pricing of 
amenities, name recognition and overall atmosphere. The Company believes it 
generally competes favorably on these factors. The Silver Hawk Casino is 
smaller, has a less advantageous location and currently has less name 
recognition than some of its direct competitors.

         Since limited stakes gaming was instituted in Colorado in 1991, a 
number of casinos have ceased operations. In addition, several operators, 
including the Company, have reduced staffing and have closed temporarily or 
reduced their square footage and/or hours of operations. The Company believes 
that the casinos that failed in Central City did so primarily due to Central 
City's Main Street disadvantages of location and parking as compared to Black 
Hawk. In Black Hawk, the Company believes the properties that have failed 
have done so for a variety of reasons, including inferior design, 
inconvenient parking, inadequate size, inexperienced management and 
undercapitalization.

         Several lobbying groups placed initiatives for additional Colorado 
limited stakes gaming venues, including Denver, on the November 1996 
statewide ballots. Although each of these initiatives were defeated by a wide 
margin, similar initiatives, legislation or regulations could be introduced 
in the future. The enactment of any initiatives, legislation, or regulations 
legalizing gaming elsewhere in Colorado could, and if gaming closer to Denver 
was legalized, would, have a material adverse effect on the Company's 
consolidated results of operations and financial position.

         During the 1996-1997 legislative session, the Colorado Legislature 
passed a bill that would have authorized the installation of a minimum of 500 
video lottery terminals ("VLT's") at six horse and dog tracks located 
throughout Colorado. VLT's are games of chance, similar to slot machines. The 
Governor of Colorado vetoed such bill. A similar bill is pending in the 
current Legislative Session. If the bill passes and the Governor of Colorado 
does not veto such bill, or if any such veto is overridden, the bill would 
become law and would add a significant amount of gaming device capacity in 
the Denver metropolitan area. Any such additional capacity may have a 
material adverse impact on the Company's results of operations.

         In addition to competing with other gaming facilities in Colorado, 
the Company competes to a lesser degree, both for customers and in potential 
future gaming sites, with gaming facilities nationwide, including casinos in 
Nevada and Atlantic City, many of which have substantially greater financial 
resources and experience in the gaming business. The Company also competes 
with other forms of gaming on both a local and national level, including 
state-sponsored lotteries, bingo parlor operations, charitable gaming and 
pari-mutual wagering, among others, and competes for entertainment dollars 
generally with other forms of entertainment.

         A decline in the Denver economy, a decline in the Black Hawk-Central 
City gaming market, or increased competition for Denver metropolitan area 
residents from other gaming jurisdictions both inside and outside Colorado, 
could have a material adverse effect on the Company's consolidated results of 
operations, financial position and cash flows.

COLORADO GAMING REGULATIONS

         The State of Colorado created the Colorado Division of Gaming ( the 
"Division") within the Department of Revenue to license, implement, regulate 
and supervise the conduct of limited stakes gaming. The Director of the 
Division, under the supervision of the Gaming Commission, has been granted 
broad power to ensure compliance with Colorado law and regulations adopted 
thereunder (collectively, the "Colorado Regulations").

         The Director of the Division (i) may inspect, without notice, 
premises where gaming is being conducted; (ii) may seize, impound or remove 
any gaming device; (iii) may examine and copy all of a licensee's records; 
(iv) may investigate the background and conduct of licensees and their 
employees; and (v) may bring disciplinary actions against licensees and their 
employees. It may also conduct detailed background checks of persons who loan 
money to or invest money in a licensee.

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         It is illegal to operate a gaming facility without a license issued 
by the Gaming Commission. The Gaming Commission is empowered to issue five 
types of gaming and gaming-related-licenses. The licenses are revocable and 
non-transferable. Bullwhackers Black Hawk, Bullwhackers Central City and the 
Silver Hawk Casino were granted retailer/operator licenses concurrently with 
their respective openings. These licenses are subject to continued 
satisfaction of suitability requirements. The current licenses for 
Bullwhackers Black Hawk expires on December 2, 1999 and the license for the 
Silver Hawk Casino expires on June 24, 1999 and currently is in the process 
of being renewed. The Bullwhackers Central City license was surrendered in 
March 1999. There can be no assurance that the Company will successfully 
renew its licenses in a timely manner or at all. The failure or inability of 
the Company, BWBH, Silver Hawk Casino, or associated persons to maintain 
necessary gaming licenses will have a material adverse effect on the 
operations of the Company. As a general rule under the Colorado Regulations, 
it is a criminal violation for any person to have a legal, beneficial, voting 
or equitable interest, or right to receive profits, in more than three gaming 
licenses in Colorado. The Company currently has two such licenses, one each 
for Bullwhackers Black Hawk and the Silver Hawk Casino. The Company has 
applied for a separate license to operate the Bullpen. Should such license be 
approved, the Company estimates it will reduce its gaming tax expense by 
approximately $700,000 annually.

         The Gaming Commission closely regulates the suitability of persons 
owning or seeking to renew an interest in a gaming license, and the 
suitability of a licensee can be adversely affected by persons associated 
with the licensee. Additionally, any person or entity having any direct 
interest in the Company or any casino directly or indirectly owned by the 
Company may be subject to administrative action, including personal history 
and background investigations. The actions of persons associated with the 
Company and its management employees, over whom the Company may have no 
control, could jeopardize any licenses held by the Company in Colorado.

         All persons employed by the Company who are involved, directly or 
indirectly, in gaming operations in Colorado also are required to obtain a 
support gaming license prior to commencing employment. In addition, "Key" 
licenses are issued to "key employees," which include any executive, employee 
or agent of a licensee having the power to exercise a significant influence 
over decisions concerning any part of the operations of a licensee. At least 
one key license holder must be on the premises of each Colorado Casino at all 
times. All licenses are revocable, non-transferable and valid only for the 
particular location initially authorized, except that support and key 
employee licenses move with the approved individual and are not location 
specific. Messrs. Szapor, Mayer, Rabin, Stephens and all officers of the 
Company, among others, all hold key licenses in Colorado. Subsequent to 
year-end, Mr. Szapor and Mr. Mayer resigned from their positions with the 
Company.

         Under the Colorado Regulations, any person or entity having any 
direct or indirect interest in a gaming licensee or an applicant for a gaming 
license, including but not limited to the Company, may be required to supply 
the Gaming Commission with substantial information, including but not limited 
to, personal background and financial information, source of funding 
information, a sworn statement that such person or entity is not holding his 
interest for any other party, and fingerprints.

         If the Gaming Commission determines that a person or entity is not 
suitable to own a direct or indirect voting interest in the Company, the 
Company may be sanctioned unless the person or entity disposes of its voting 
interest. Sanctions may include the loss by any of the Colorado Casinos of 
their licenses. In addition, the Colorado Regulations prohibit a licensee or 
any affiliate of a licensee from paying dividends, interest or other 
remuneration to any person found to be unsuitable, or recognizing the 
exercise of any voting rights by any person found to be unsuitable. The 
Colorado Regulations require an operating casino licensee to include in its 
corporate charter provisions which permit the repurchase of the voting 
interests of any person found to be unsuitable. The Company's Certificate of 
Incorporation includes the required provisions.

         A person or entity may not sell, lease, purchase, convey, acquire or 
pledge any interest in an entity licensed to conduct limited stakes gaming in 
Colorado without the prior approval of the Gaming Commission, except for a 
less than 5% interest in a publicly traded corporation. The Gaming Commission 
also has the right to request information from any person directly or 
indirectly interested in, or employed by, a licensee, and to investigate the 
moral character, honesty, integrity, prior activities, criminal record, 
reputation, habits and associations of (i) all persons licensed pursuant to 
the Colorado Limited Gaming Act, (ii) all officers, directors and 
stockholders of a licensed privately held corporation, (iii) all officers, 
directors and stockholders holding either a 5% or greater interest or a 
controlling interests in a licensed publicly traded corporation, (iv) all 
general partners and all limited partners of a 

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licensed partnership, (v) all persons which have a relationship similar to 
that of an officer, director or stockholder of a corporation (such as members 
and managers of a limited liability company), (vi) all persons supplying, 
financing, or loaning money to any licensee connected with the establishment 
or operation of limited gaming, and (vii) all persons having a contract, 
lease or ongoing financial or business arrangement with any licensee, where 
such contract, lease or arrangement relates to limited gaming operations, 
equipment, devices or premises.

         In addition, under the Colorado Regulations, every person who is a 
party to a "gaming contract" with an applicant for a license, or with a 
licensee, upon the request of the Gaming Commission or the Director, promptly 
must provide to the Gaming Commission or Director all information which may 
be requested concerning financial history, financial holdings, real and 
personal property ownership, interests in other companies, criminal history, 
personal history and associations, character, reputation in the community, 
and all other information which might be relevant to a determination whether 
a person would be suitable to be licensed by the Gaming Commission. Failure 
to provide all information requested constitutes sufficient grounds for the 
Director or the Gaming Commission to require a licensee or applicant to 
terminate its "gaming contract" with any person who failed to provide the 
information requested. In addition, the Director or the Gaming Commission may 
require changes in "gaming contracts" before an application is approved or 
participation in the contract is allowed. A "gaming contract" is defined as 
an agreement in which a person does business with or on the premises of a 
licensed entity.

         The Colorado Casinos may operate only between 8:00 a.m. and 2:00 
a.m., and may permit only individuals 21 years or older to gamble in the 
casino. Slot machines, blackjack and poker are the only permitted games, with 
a maximum single bet of $5.00. The Colorado Casinos may not provide credit to 
gaming patrons. The Colorado Regulations restrict the percentage of space a 
casino may use for gaming to 50% of any floor and 35% of the overall square 
footage of the building in which the casino is located. Effective July 1 of 
each year, the Gaming Commission establishes the gross gaming revenue tax 
rate for the ensuing twelve months. Under the Colorado Constitution, the rate 
can be increased to as much as 40%. Colorado has both raised and lowered 
gaming tax rates since they were initially set in 1991. Currently, the 
maximum gaming tax rate is 20%. These regulations and taxes adversely affect 
the Colorado Casinos' ability to generate operating profits. See "- 
Non-Gaming Regulation - Taxation."

         The Company believes that it is presently in material compliance 
with all applicable gaming rules and regulations.

         NATIONAL GAMBLING IMPACT AND POLICY COMMISSION. Federal legislation 
was recently enacted that established a National Gambling Impact and Policy 
Commission to study the economic impact of gambling on the United States, the 
individual states and Native American tribes. Additional federal regulation 
may occur due to the initiation hearings by the Commission. Any new federal 
legislation could have a material adverse effect on the Company.

NON-GAMING REGULATION

         LIQUOR REGULATION. The sale of alcoholic beverages is subject to 
licensing, control and regulation by the Liquor Agencies. The current liquor 
licenses for Bullwhackers Black Hawk and Bullwhackers Central City, which 
were recently renewed, expire in January and February of 2000, respectively. 
The Silver Hawk liquor license expires in June 1999 and is in the process of 
being renewed. There can be no assurance that such renewals of the Liquor 
Agencies will be obtained. As of March 10, 1999, the Bullwhackers Central 
City has ceased operations and will surrender its liquor license in 1999.

         All liquor licenses are renewable, revocable and not transferable. 
The Liquor Agencies have full powers to limit, condition, suspend or revoke 
any liquor license. Any such disciplinary action could, and any failure to 
renew or other revocation of any of its liquor licenses would, have a 
material adverse effect upon the operations of the Company.

         Under Colorado law, it is a criminal violation for any person or 
entity to own a direct or indirect interest in more than one type of 
alcoholic beverage license or more than three gaming tavern liquor licenses. 
Each Colorado Casino has a gaming tavern liquor license. Accordingly, the 
Company's expansion opportunities in Colorado are limited by such licensing 
restriction. Furthermore, no person that holds an interest in the Company may 
hold any direct or indirect legal, equitable or voting interest in any other 
Colorado alcoholic beverage licensee, and vice versa.

                                       7

<PAGE>

         TAXATION. Gaming operators in Colorado are subject to state and 
local taxes and fees in addition to ordinary federal and state income taxes. 
Black Hawk and Central City have imposed annual license fees, currently $750 
and $1,265, respectively, for each gaming device installed in a casino. 
Colorado currently imposes an annual device fee of $75 for each gaming device 
installed in a casino. The Colorado Casinos operate as licensed gaming 
establishments pursuant to the Colorado Limited Gaming Act and, accordingly, 
are required to make monthly gaming tax payments to the State of Colorado. 
These rates are subject to annual revision with a maximum rate of 40%. The 
latest annual revision in the gaming tax rates, which became effective 
October 1, 1996, is calculated as a percentage of adjusted gross proceeds 
(casino net win). The gaming tax rates for the previous three gaming years 
are set forth in the following table:

<TABLE>
<CAPTION>
                                          Annual Tax Rate from         Annual Tax Rate from     Annual Tax Rate from
         Annual Gross Proceeds               10/94 thru 9/96             10/96 thru 6/98          7/98 thru 6/99
         --------------------             --------------------         --------------------     --------------------
<S>                                       <C>                          <C>                      <C>
First $2 million....................                2%                          2%                       2%
Next $2 million.....................                8%                          4%                       4%
Next $1 million.....................               15%                         14%                      14%
Next $5 million.....................               18%                         18%                      18%
Proceeds over $10 million...........               18%                         20%                      20%

</TABLE>

         In 1997, the Gaming Commission changed the gaming tax year from 
October 1 through September 30 to July 1 through June 30. Accordingly, the 
new tax rate for the gaming tax year 1999-2000 will be set by the Gaming 
Commission in June, effective as of July 1. While it is difficult to 
speculate on how the Gaming Commission may adjust the tax rates, if at all, 
any material increase in the tax rates could have a material adverse effect 
on the Company's consolidated results of operations and financial position.

EMPLOYEES

         The Company employs approximately 503 persons, including cashiers, 
dealers, food and beverage servers, facilities maintenance, accounting, 
marketing and human resources personnel. No labor unions currently represent 
any employees of the Company. A package of employee benefits is provided to 
full-time employees. The Company believes that its employee relations are 
satisfactory.

SEASONALITY AND INCLEMENT WEATHER

         Because the Colorado Casinos are located in the Rocky Mountains, 
they are subject to sudden and severe winter storms. Access to Central City 
and Black Hawk, which are both located ten miles from Interstate 70, is made 
via a two-lane secondary road. In bad weather, and in the winter months, this 
access road may be difficult to traverse, which reduces the number of patrons 
traveling to Black Hawk and Central City, and, accordingly, negatively 
affects the Company's operating results during these periods. As a result, 
the Colorado Casinos' business tends to be seasonal, with the highest level 
of activity occurring during the summer months.

         The site of Bullwhackers Black Hawk is located in a 100-year flood 
plain. To date, the Company has not experienced any flooding resulting in 
damage to the casino. The Company believes it carries adequate flood 
insurance on Bullwhackers Black Hawk. There can be no assurance that 
Bullwhackers Black Hawk will not suffer flood damage in the future or that 
any damage will be adequately covered by insurance.

ITEM 2.  PROPERTIES

         The Company owns, through wholly-owned subsidiaries, the Colorado 
Casinos and the parking lot including, with the exception of Bullwhackers 
Black Hawk, free title to the real property underlying the buildings. The 
Company leases the real property underlying Bullwhackers Black Hawk pursuant 
to a 23-year land lease expiring in 2014. The terms of the ground lease 
require base minimum payments for the calendar year through 1999 of $150,000 
per quarter. The base minimum quarterly payments increase thereafter for each 
five-year period for the 

                                       8

<PAGE>

balance of the lease term, up to a maximum of $195,000 per quarter. 
Additional rent in the amount of 1.9% of Bullwhackers Black Hawk's adjusted 
gross revenue is payable monthly in arrears throughout the term of the lease. 
In February 1998, the Company entered into an amendment to this lease, 
commencing upon the opening of the Bullpen, requiring the Company to pay 80% 
of the above additional rent (1.9% of adjusted gross revenues) on the joint 
premises of Bullwhackers Black Hawk and the Bullpen. The lease contains a 
buy-out provision which allows the Company to buy the land subject to the 
lease on or after November 1, 2001 at a price equal to nine times the annual 
base minimum rent payments in effect when the buy-out is exercised.

         On February 11, 1998, the Company entered into three ground lease 
agreements for the real property underlying the facility of the Bullpen. The 
terms of the first lease requires a monthly $35,000 base rent and additional 
rent equal to 40% of Net Win (as defined therein) of the gaming operations 
conducted on the premises through September 2022, with an option to extend 
the lease term to July 2024. The terms of the second lease requires a $22,500 
monthly lease payment through July 2024. This lease contains a purchase 
option for $1.2 million expiring in March 2001. The terms of the third lease 
requires a monthly rent between $12,500 to $16,500 per month, based on a 
range of Average Daily Proceeds from all gaming devices on the premises, 
which monthly rent escalates throughout the term of the lease, through July 
2024.

     In March 1997, the Company relocated its corporate offices from Denver 
to Lakewood, Colorado pursuant to a $10,000 a month lease, which expires 
April 2002.

ITEM 3.  LEGAL PROCEEDINGS

         GENERAL. The Company is or may become a defendant in pending or 
threatened legal proceedings in the ordinary course of business. The 
Company's management believes that the ultimate resolution of all such 
currently pending legal proceedings will not have a material adverse impact 
on the Company's financial position or results of operations.

         LADY LUCK. In October 1996, BWCC, Inc. signed a non-binding 
memorandum of understanding ("MOU") with Gold Coin, Inc., a wholly-owned 
subsidiary of Lady Luck Gaming Corporation, to explore the possibility of 
physically combining Bullwhackers Central City with the adjacent casino 
operated as Lady Luck Gold Coin Gambling Hall & Saloon and owned by Gold 
Coin, Inc. The prospective transaction was subject to a number of 
contingencies, including the execution and delivery of definitive agreements 
setting forth the final agreed upon terms and conditions of the transaction. 
While the parties continued to negotiate over unresolved issues contained in 
the drafts of the definitive agreements, market conditions and other events 
affecting the Central City market continued to change and decline 
significantly. Despite continued efforts to satisfactorily resolve the open 
issues in light of the foregoing, no final, definitive agreements were 
executed and delivered, and the prospective transaction was never consummated.

         In March 1998, Lady Luck Central City, Inc., formerly known as Gold 
Coin, Inc., filed a complaint in the District Court for the County of 
Jefferson, State of Colorado, Case No. 98 CV 672, captioned as LADY LUCK 
CENTRAL CITY, INC. V. BWCC, INC., D/B/A BULLWHACKERS CENTRAL CITY, COLORADO 
GAMING & ENTERTAINMENT, CO., AND LADBROKE GROUP PLC. In 1999, the Company 
negotiated a Settlement Agreement in order to avoid further expenses, 
inconvenience, and other distraction of litigation. Both parties agreed to 
fully dismiss and release each other from all claims. The settlement is for 
$300,000, which is accrued for in the Company's consolidated balance sheet.

         ENVIRONMENTAL MATTERS. The Black Hawk and Central City gaming 
districts, including the Colorado Casino sites, are located generally within 
the Central City/Clear Creek Superfund site (the "Site") as designated by the 
Environmental Protection Agency (the "EPA"), pursuant to the Comprehensive 
Environmental Response, Compensation and Liability Act of 1980, as amended 
("CERCLA"). The Site includes numerous specifically identified areas of mine 
tailings and other waste piles from former gold mine operations that are the 
subject of ongoing investigation and clean-up by the EPA and the Colorado 
Department of Public Health and Environment (the "CDPHE"). CERCLA requires 
remediation of sites from which there has been a release or threatened 
release of hazardous substances and authorizes the EPA to take any necessary 
response actions at Superfund sites, including authorizing potentially 
responsible parties ("PRPs") to clean up or contribute to the clean-up of a 
Superfund site. PRPs are broadly defined under CERCLA, and include past and 
present owners and operators of a site. CERCLA imposes strict liability on 
PRPs, and courts have commonly held PRPs to be jointly and severally liable 
for all response costs.

                                       9

<PAGE>

         The Company, through independent environmental consultants, 
conducted both Phase I and Phase II environmental examinations of the real 
property underlying the Bullwhackers Casinos and obtained subsequent 
follow-up reports, including a Phase I on the Bullpen Sports Casino. Based on 
these examinations, the Company is not aware of any environmental problems 
affecting the Colorado Casinos which would likely result in material costs to 
the Company. Although the Company has not conducted environmental evaluations 
of the real property underlying the Silver Hawk Casino, it does not believe 
that there are any environmental problems affecting the Silver Hawk Casino 
site which are likely to result in material costs to the Company. No 
assurance can be given, however, that the Company will not subsequently 
discover significant environmental problems at any of its Colorado 
properties. Furthermore, the EPA or other governmental authorities could 
broaden their investigations and identify additional areas within the Site, 
including the Colorado Casino sites, for remediation. If any of the Colorado 
Casinos were included in additional areas of concern within the Site, the 
Company could be identified as a PRP and any liability related thereto could 
have a material adverse effect on the Company. Furthermore, environmental 
conditions at any of the Company's properties could have, or could in the 
future have, a detrimental impact on adjacent or nearby properties or 
persons. No assurance can be given that no such impact on a third party will 
arise in the future, nor that such an impact, if it arises, will not have a 
material adverse impact on the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
             None.

ITEM 4A. EXECUTIVE  OFFICERS OF THE REGISTRANT

         Set forth below is certain information with respect to each 
individual who is an executive officer of the Company:

<TABLE>
<CAPTION>
Name                           Age               Position(s)
---                            ---               -----------
<S>                            <C>               <C>

John Long                      51                Chief Executive Officer and Director

Richard S. Rabin               52                President and Chief Operating Officer and Director

Robert J. Stephens             31                Senior Vice President of Finance and Treasurer

Jack Breslin                   44                Vice President of Marketing

</TABLE>

         JOHN R. LONG has served as Chairman of the Board of Directors of the 
Company since August 1998 and as Chief Executive Officer beginning in January 
1999. Mr. Long has served as President and Chief Executive Officer of 
Ladbroke Racing Corporation since December 1992.

         RICHARD S. RABIN has served as President and Chief Operating Officer 
of the Company since January 1999. Mr. Rabin served as Senior Vice President 
of Operations of the Company since March 1996 through December 1998 and 
served as an interim director from the Effective Date through October 1996. 
Mr. Rabin served as Vice President, Finance & Administration of the Company 
from August 1995 until March 1996. From 1994 until joining the Company, he 
served as Chief Financial Officer of a riverboat gaming facility operated by 
Sahara Gaming Corporation in Missouri and then as General Manager of a gaming 
facility operated by Sahara Gaming Corporation in Nevada. From 1991 to 1994, 
Mr. Rabin was Chief Financial Officer and Vice President and, beginning in 
1993, also General Manager, of the Glory Hole Saloon and Gambling Hall in 
Central City, Colorado. From 1985 until 1991, Mr. Rabin served in various 
positions in the gaming industry in Reno, Nevada. Mr. Rabin holds a key 
license from the Gaming Commission and is a Certified Public Accountant.

         ROBERT J. STEPHENS has served as Vice President of Finance since 
September 1996. He served as Controller, Chief Accounting Officer and 
Treasurer of the Company from August 1995 until September 1996. Previously, 
Mr. Stephens served in various finance and accounting positions since joining 
the Company in May 1994. From 1990 to 1994 Mr. Stephens was associated with 
Arthur Andersen LLP. Mr. Stephens holds a key license from the Gaming 
Commission and is a Certified Public Accountant.

                                       10
<PAGE>

      JACK BRESLIN has served as Vice President of Marketing since February 
1997. Mr. Breslin served as President and Partner of CCI Advertising, Inc. in 
New Jersey, which produced campaigns for Horseshoe Casinos and Sands Hotel 
and Casino in Atlantic City, the Santa Fe Casino in Las Vegas, and Gold River 
in Laughlin, Nevada and several other casinos and riverboats throughout the 
country from 1991 to February 1997. Prior to that, Mr. Breslin served as 
in-house Creative Director for Trump's Castle Casino Resort in New Jersey.

                                   PART II.

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS 
MATTER

         Not Applicable.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The selected consolidated financial data set forth below is derived 
from the Company's Consolidated Financial Statements. Due to the 
Reorganization, comparisons of periods prior to and after June 6, 1997 may be 
of limited use in determining operating or other financial trends in the 
Company's business. This data should be read in conjunction with the 
Consolidated Financial Statements of the Company and the Notes thereto and 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations" contained in this Form 10-K.

<TABLE>
<CAPTION>
                                           IN THOUSANDS, EXCEPT SHARE DATA

                                                Years Ended December 31,
                                                ------------------------
                                                                            Jan. 1,1996
                                                                               through
                                                  1994          1995        June 6, 1996
                                                --------    ------------    ------------
<S>                                             <C>         <C><C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................        $ 45,474       $47,428        $19,982
Operating Expenses:
   Impairment of assets and
   predevelopment expense...............          10,804        11,347             --
   Reorganization items.................               -        17,910          2,290
   Other operating expenses.............          47,631        44,807         17,130
Income (loss) from operations...........         (12,961)      (26,636)           562
Interest expense........................          18,822        18,664            579
Extraordinary gain from reorganization..              --            --        164,358
Equity loss in unconsolidated
   subsidiary...........................          (2,324)      (70,277)             --
                                                --------     ---------       ---------
Net income (loss).......................        $(32,331)    $(115,216)      $164,407
                                                --------     ---------       ---------
                                                --------     ---------       ---------

</TABLE>

                                       11

<PAGE>

<TABLE>
<CAPTION>
                                           June 7, 1996        Year Ended      Year Ended
                                             through           December 31,    December 31,
                                         December 31, 1996        1997            1998
                                         -----------------     ------------    ------------
<S>                                      <C>                   <C>             <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...........................       $30,680            $52,132          $53,693
Operating Expenses:
   Impairment of Central City assets...            --                 --            4,316
   Reorganization items................           308                 75               --
   Other operating expenses............        26,402             44,421           47,382
Income from operations.................         3,970              7,636            1,995
Interest expense.......................         3,867              6,780            7,341
                                              -------            -------          -------
Net income (loss)......................       $   192            $   212          $(5,258)
                                              -------            -------          -------
                                              -------            -------          -------

</TABLE>

<TABLE>
<CAPTION>
                                                                    AS OF DECEMBER 31,
                                                                    ------------------
                                              1994          1995         1996         1997        1998
                                              ----          ----         ----         ----        ----
<S>                                         <C>          <C>           <C>          <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents .............     $  7,977     $   3,623     $  5,758     $ 4,228     $ 4,022
Total assets ..........................      141,093        37,680       67,048      64,679      64,872
Long-term debt (excluding current
portion)...............................      155,675            --       55,391      53,553      57,880
Liabilities subject to compromise......           --       186,460           --          --          --
Total stockholders' equity (deficit)...      (36,824)     (153,137)       4,869       5,248         729

</TABLE>

                                       12

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATION

STATEMENT ON FORWARD-LOOKING INFORMATION

         Certain information included in this Annual Report on Form 10-K 
constitute forward-looking statements within the meaning of Section 21E of 
the Securities Exchange Act of 1934, as amended, enacted pursuant to the 
Private Securities Litigation Reform Act of 1995. Such Section 21E provides 
certain "safe harbor" protections for forward-looking statements in order to 
encourage companies to provide prospective information about their 
businesses. Forward-looking statements include statements concerning plans, 
objectives, goals, strategies, future events or performance, competition, 
growth opportunities, source and uses of capital, future development or 
expansion activities, underlying assumptions and other statements which are 
other than statements of historical facts. Such statements may be identified 
by the use of forward-looking terminology such as "might," "may," "would," 
"could," "expect," "anticipate," "estimate," "likely," "believe," or 
"continue" or the negative thereof or other variations thereon or comparable 
terminology. Such forward-looking statements involve a number of risks, 
uncertainties and other factors that may significantly affect the Company`s 
liquidity and results of operations in the future and, accordingly, actual 
results may differ materially from those expressed in any forward-looking 
statements.

         The forward-looking statements set forth in this Report on Form 10-K 
are based upon various assumptions, many of which are based, in turn, upon 
further assumptions, including, without limitation, management's examination 
of historical operating trends, data contained in the Company's records and 
other data available from third parties. Although the Company believes that 
such assumptions were reasonable when made, because such assumptions are 
inherently subject to significant uncertainties and contingencies which are 
difficult or impossible to predict and are beyond the Company's control, 
there can be no assurance, and no representation or warranty is made, that 
management's expectations, beliefs or projections will result, be achieved or 
accomplished. In addition to the other factors and matters discussed 
elsewhere herein, factors that, in the view of the Company, could cause 
actual results to differ materially from those discussed in the 
forward-looking statements include: (i) leverage and debt service, (ii) 
financing and refinancing efforts, (iii) significant changes in competitive 
factors affecting the Company, (iv) inclement weather, (v) changes in general 
economic conditions in the Denver metropolitan area, (vi) changes in state 
and local gaming laws, regulations or tax rates, (vii) risks related to 
development and construction activities, (viii) changes in management or 
control of the Company, (ix) significant changes from expectations in actual 
capital expenditures and operating expenses and (x) occurrences affecting the 
Company's ability to obtain funds from operations, to finance needed capital 
expenditures and other investments.

OVERVIEW

         Colorado Gaming & Entertainment Co. ("CG&E" or the "Company"), 
formally known as Hemmeter Enterprises, Inc. (referred to as the "Predecessor 
Company" for the period prior to June 7, 1996), develops, owns and operates 
gaming and related entertainment facilities. The Company owns and operates, 
through wholly-owned subsidiaries, BWBH, Inc. ("BWBH" or "Bullwhackers Black 
Hawk") and Silver Hawk Casino, Inc. (the " Silver Hawk Casino") in the 
historic mining towns of Black Hawk, Colorado. In addition, until March 1999, 
through another wholly-owned subsidiary BWCC, Inc. ("BWCC" or "Bullwhackers 
Central City"), the Company operated a casino in the adjacent historical 
mining town of Central City. In addition, through a wholly-owned subsidiary, 
Millsite 27 Inc. ("MS27"), the Company owns a parking lot with a capacity of 
approximately 500 cars, which is located directly between, and is used by, 
Bullwhackers Black Hawk and the Silver Hawk Casino. On February 13, 1998, the 
Company purchased the assets comprising Bullwhackers' Bullpen Sports Casino 
(the "Bullpen"), a 260 slot machine expansion to Bullwhackers Black Hawk, 
from Pioneer Associates Limited Liability Company for approximately $5.5 
million. Additionally, the Company incurred approximately $2.0 million to 
equip and renovate the Bullpen. The Company removed the common wall 
separating Bullwhackers Black Hawk from the Bullpen and the combined casino 
operates as a single casino under one gaming license and one liquor license. 
On May 1, 1998, the Company commenced operations at the Bullpen.

         On August 21, 1998, Ladbroke Gaming Corporation ("Ladbroke Gaming"), 
a subsidiary of Ladbroke Group plc., acquired beneficial ownership of 100% of 
the issued and outstanding shares of common stock, $0.01 par value, of the 
Company for $6.25 per share in cash pursuant to the terms of an Agreement and 
Plan of Merger, dated as of August 22, 1997, by and among CG&E Acquisition 
Corp., a subsidiary of Ladbroke Racing Corporation and the 

                                       13

<PAGE>

Company, as amended and assigned to Ladbroke Gaming. In association with the 
acquisition, on August 21, 1998 the Company's outstanding common stock was 
canceled and the Company issued one common share, with no par value, to 
Ladbroke Gaming. Due to the existence of outstanding public debt, the Company 
did not perform push-down accounting based on the acquisition value.

RESULTS OF OPERATIONS

         FOR THE YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED 
DECEMBER 31, 1997.

         The Company's net revenue increased 3%, to $53.7 million in 1998, 
from $52.1 million in 1997. The increase in net revenue is attributable to a 
12%, or a $4.3 million, increase at Bullwhackers Black Hawk. The increase in 
net revenue is due to the strong results achieved in the first half of 1998 
at Bullwhackers Black Hawk, as a result of the strong overall growth in the 
Black Hawk market and Bullwhackers Black Hawk's ability to increase its 
market share. Additionally, the opening of the Bullpen expansion in May 1998 
contributed to the increase in 1998. The majority of the year over year 
increases in revenue were generated in the first six months of 1998. Given 
that the Bullpen provided an additional 40% increase in gaming device 
capacity at Bullwhackers Black Hawk and resulted in little increases in 
revenue over the prior year period for the second half of the year, 
management is disappointed with the results at the Bullpen expansion. 
Management believes the opening of a large competitor in June of 1998 
contributed to the disappointing performance of the Bullpen in the second 
half of 1998. Additionally, another large competitor opened at the end of 
December 1998. The two competitors provide an additional 35% in gaming device 
capacity in the Black Hawk market. Accordingly, Bullwhackers Black Hawk's 
lower revenue results in the second half of 1998 will, in management's 
belief, likely continue or deteriorate further in 1999. For further 
discussion of competition in the Black Hawk and Central City market and 
management's plans to address the situation, see the COMPETITIVE OUTLOOK 
discussion elsewhere in Management's Discussion and Analysis.

         The increase in revenues at Bullwhackers Black Hawk was somewhat 
offset by a 13%, or $800,000, decrease in net revenues at the Silver Hawk 
Casino in 1998. The majority of the decrease at the Silver Hawk Casino 
occurred in the last six months of 1998, subsequent to the opening of two 
major competitors in the Black Hawk market. In addition, Bullwhackers Central 
City revenue decreased 19%, or $1.9 million, in 1998 as compared to 1997, as 
a result of the overall decline of the casinos located on Main Street in 
Central City, suffering further competitive pressures as a result of the new 
properties which commenced operations in Black Hawk.

         For the last several years, Bullwhackers Central City operated in an 
environment of declining revenue levels, and has generated limited operating 
profits. In an effort to address the situation over the last several years' 
management has cut operating expenses and periodically reduced the number of 
slot machines from 534 in 1994 to approximately 320 by the end of 1998. 
Additionally, the revenue declines in the third and fourth quarters of 1998 
were progressively worse. Generally, management's efforts were successful in 
maintaining some profitability in the face of year over year revenue 
declines. Given the significant expansion of new properties in the Black Hawk 
market, and other projects, which are expected to open in Black Hawk at the 
end of 1999, management believes these expansions will put further pressure 
on the Central City market and, specifically, Bullwhackers Central City. 
Accordingly, management determined that generating operating profits at 
Bullwhackers Central City in 1999 and beyond was unlikely. Additionally, 
efforts to manage, staff, market, and maintain the slot product necessary to 
offer a competitive operation in Central City would divert management's time, 
attention and resources from its core and more successful property, 
Bullwhackers Black Hawk. Given these factors, in February 1999, the Company 
announced that Bullwhackers Central City would cease operations on March 31, 
1999. Subsequently, on March 10, 1999, the Company closed Bullwhackers 
Central City due to lack of business. The Company recorded a $4.3 million 
write down of this property as of December 31, 1998. All value related to 
Central City assets other than the certain gaming and other equipment that 
has value in the Company's other operations has been written-off from the 
Company's consolidated balance sheets.

         Expenses directly related to casino operations, including casino 
labor expense and gaming taxes, increased 4% to $24.1 million in 1998, as 
compared to $23.2 million in 1997. The increase in casino expenses is due to 
increased staffing and other costs associated with the addition of the 
Bullpen expansion in the 1998 period and from the overall competitive 
environment in the Black Hawk and Central City market which has led to 
increasing labor costs. Increased casino expense at Bullwhackers Black Hawk 
was somewhat offset by a decrease in casino expenses at both Bullwhackers 
Central City and Silver Hawk Casino, as a result of reduced staffing and 
other costs in relation 

                                       14

<PAGE>

to the decrease in business volumes.

         Marketing expense increased 12% to $7.7 million in 1998, as compared 
to $6.9 million in 1997. Marketing expense reflects a 43% increase in 
marketing expense at Bullwhackers Black Hawk due to increased efforts to 
generate revenues in an increasingly competitive market and due to costs 
associated with a new busing program that began in August 1998. This increase 
is somewhat offset by a 19% decrease in marketing expense at Bullwhackers 
Central City, as a result of lower business volumes at the property 
(primarily certain cash-back promotions and busing program costs).

         Food and beverage expense increased 42% to $4.8 million in 1998 as 
compared to $3.4 million in 1997. This increase in expense is a result of 
higher food costs and additional staffing for certain discounted food 
promotions, which were offered in the 1998 period. Additionally, expenses 
increased as a result of operating an additional food outlet as part of the 
Bullpen expansion, beginning in May of 1998.

         Casino general and administrative expenses decreased 3% to $2.8 
million in 1998, as compared to $2.9 million in 1999. The decrease is 
primarily due to decreases in casino general and administrative expenses at 
both Bullwhackers Central City and Silver Hawk Casino, as a result of reduced 
staffing and other costs in relation to the decrease in business volumes.

         Corporate expense increased 8% to $3.3 million in 1998, as compared 
to $3.0 million in 1997. Included in corporate expense is incentive 
compensation expense for senior management based upon the Company's Cash 
Bonus Plan and stock awards under the Management Incentive and Non-Employee 
Director Stock Plan. The incentive compensation expenses totaled $910,000 
(including $739,000 of non-cash expense related to stock grants) compared to 
$336,000 (including $166,000 of non-cash expense related to stock grants) for 
the years ended 1998 and 1997, respectively. The Company also incurred 
approximately $300,000 and $750,000 of other corporate expense relating to 
the Ladbroke merger for the years ended 1998 and 1997, respectively.

         Depreciation and amortization expense decreased 14% to $4.3 million 
in 1998 as compared to $5.0 million in 1997. The decreased depreciation and 
amortization charges are a direct result of a large amount of equipment at 
Bullwhackers Black Hawk and Bullwhackers Central City becoming fully 
depreciated in mid 1997.

         The Company incurred $299,000 in pre-opening expense in 1998 related 
to the opening of the Bullpen, which commenced operation May 1, 1998.

         Interest expense increased 8% to $7.3 million in 1998, as compared 
to $6.8 million in 1997. The increase in interest expense is due to the 
increased debt balance outstanding during 1998 as a result of borrowing to 
fund the Bullpen purchase and renovation.

         FOR THE YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED 
DECEMBER 31, 1996.

         The Company's net revenue increased 3%, to $52.1 million in 1997, 
from $50.7 million in 1996. The increase in revenue is primarily attributable 
to a full year of operations of the Silver Hawk Casino in 1997, which did not 
commence operations until June 26, 1996, and generated an incremental $2.4 
million in net revenue in 1997. Bullwhackers Black Hawk produced a 1% 
increase in revenues in 1997. However, Bullwhackers Black Hawk's operating 
results were negatively affected in 1997 by severe weather in the fourth 
quarter and an abnormally low hold percentage on the Company's slot machines 
during November and December 1997. In addition, construction activities 
related to the Company's parking expansion and Kids Quest during the first 
five months of 1997 negatively effected revenues during that period. 
Additionally, the revenue growth at the Silver Hawk Casino and Bullwhackers 
Black Hawk was partially offset by a 13% revenue decrease at Bullwhackers 
Central City due to the overall decline of the Main Street casinos in the 
Central City market. The Central City market, which was down approximately 2% 
for the year, continues to struggle to compete with Black Hawk, which offers 
better access, parking convenience and superior properties. Additionally 
Bullwhackers Central City has not been able to compete effectively with 
Central City's largest casino, which offers substantially more amenities such 
as on-site parking and hotel rooms, including the opening of a major parking 
expansion in June 1997. Bullwhackers Central City revenue declines 
accelerated in the second half of 1997, subsequent to the opening of a 
competitor's expanded parking facilities.

                                       15

<PAGE>

         Expenses directly related to casino operations, including casino 
labor expense, gaming taxes and food and beverage expense increased 5% to 
$26.6 million in 1997, as compared to $25.3 million in 1996. The increase is 
due to a full year of operations of the Silver Hawk Casino in 1997 and an 
increase in the gaming taxes on revenues over $10 million from 18% to 20%.

         Marketing expense increased 8% to $6.9 million in 1997, as compared 
to $6.4 million in 1996. This increase is primarily due to certain cash-back 
promotions and busing programs in an effort to sustain business levels at 
Bullwhackers Central City. Additionally, a full year of marketing and 
promotions expenses for the Silver Hawk Casino accounted for an incremental 
$200,000 of marketing expense in 1997.

         Casino general and administrative expenses increased 2% to $2.9 
million in 1997, as compared to $2.8 million in 1996. The slight increase 
primarily relates to a full year of additional administrative expenses for 
the Silver Hawk Casino.

         Corporate expense increased 7% to $3.0 million in 1997, as compared 
to $2.8 million in 1996. The increase primarily relates to $750,000 of legal, 
financial advisory and other fees incurred relating to the Merger. Absent 
these one-time transaction costs, corporate expense would have decreased 19.7% 
from the prior period.

         Depreciation and amortization decreased 15% to $5.0 million in 1997 
as compared to $5.9 million in 1996. The decreased depreciation and 
amortization charges are a direct result of a substantial amount of equipment 
at Bullwhackers Black Hawk and Bullwhackers Central City becoming fully 
depreciated in 1997, which accounted for $1.4 million of lower depreciation 
charges in 1997. This decrease is somewhat offset by increased depreciation 
and amortization charges of $500,000 due to the increased basis of the 
Company's assets, from the adoption of "fresh-start" accounting on June 7, 
1996 and depreciation and amortization charges related to a full year of 
operations of the Silver Hawk Casino.

         The Company incurred no pre-opening expense in 1997 as compared to 
$362,000 in pre-opening expense in 1996 related to the opening of the Silver 
Hawk Casino.

         Reorganization and other impairment charges totaled $75,000 in 1997, 
as compared to $2.6 million in 1996. Reorganization expenses are costs 
directly related to the Reorganization and consisted primarily of 
professional fees in the 1997 and 1996 periods.

         Interest expense increased 55% to $6.8 million in 1997, as compared 
to $4.4 million in 1996. The increase in interest expense is primarily due to 
the Company not recording any interest expense during the Reorganization 
period (January 1 through June 6, 1996) on its debt obligations in default.

         LIQUIDITY AND CAPITAL RESOURCES

         On June 7, 1996, the Company entered into a $12.5 million revolving 
credit facility (the "Credit Facility") with Foothill Capital Corporation. 
The Credit Facility is segregated into several different sub-facilities, 
including a $3.5 million revolving line of credit and a $5.0 million 
equipment facility. Under terms of the Credit Facility, borrowings accrue 
interest at prime plus 2.375% (10.125% as of December 31, 1998). The 
different sub-facilities have varying terms ranging from three to five years 
from the time funds are borrowed, but the entire facility matures on June 7, 
2001, with two one-year extension options. On February 13, 1998, the Company 
entered into an amendment to the Credit Facility converting the expired $5.0 
million construction line into a new line which provided up to $5.0 million 
(the "Bullpen Acquisition Line") to purchase and perform tenant improvements 
on the Bullpen. The Bullpen Acquisition Line amortizes over 60 months, 
commencing on June 1, 1998 and is payable in full on June 6, 2001. As of 
December 31, 1998, the Company had an outstanding balance of approximately 
$4.4 million on the Bullpen Acquisition Line and $5.5 million on the Credit 
Facility in its entirety. On January 23, 1998 the Company received bondholder 
consent to allow Ladbroke, or its assignee, to act as the senior bank lender 
pursuant to the bond indenture. Subsequent to year-end, Ladstock Holding 
Company ("Ladstock"), an affiliate of the Company's parent, paid the 
outstanding balances on the Credit Facility and was assigned the Credit 
Facility. Accordingly, Ladstock is now the Company's senior lender on terms 
identical to the Credit Facility.

                                       16

<PAGE>

         The Company's outstanding 12% Senior Secured Pay-In-Kind Notes (the 
"Notes") have an outstanding principal amount of $52.7 million as of December 
31, 1998. The Company retired $145,000 of Notes in the fourth quarter of 1998 
pursuant to a mandatory repurchase offer upon a change of control, relating 
to the Ladbroke acquisition of all common shares of the Company. Interest on 
the Notes accrues at a rate of 12% per annum and is payable semi-annually in 
June and December. The Notes mature in June 2003. The Notes are redeemable 
prior to maturity, in whole or part, at the election of the Company on or 
after June 1, 2000, at the redemption prices (expressed as percentages of 
principal amount) set forth below plus accrued and unpaid interest to the 
redemption date, if redeemed during the 12-month period beginning on the June 
1st in the years indicated below:

<TABLE>
<CAPTION>
Year     Redemption Price
----     ----------------
<S>      <C>
2000          104%
2001          103%
2002          102%
2003          100%

</TABLE>

         In September 1997, the Ontario Gaming Control Commission announced 
that Diamond Gaming of Ontario Inc., a partnership between the Company, a 
subsidiary of Ogden Corporation and Diamond Gaming Services Inc., was the 
successful bidder to develop and operate charitable gaming clubs in the 
cities of Kingston and Belleville, Ontario. On June 26, 1998, the Government 
of the Province of Ontario advised the partnership that the Government 
canceled the charity casino initiative. Accordingly, the Company and its 
partners ceased all activity with respect to the development of charity 
casinos in Kingston and Belleville. The partnership is seeking at a minimum, 
reimbursement from the Government of its expenses incurred in such 
development activities. The Ontario Government has expressed a desire to 
reimburse the successful bidders a reimbursement of cost incurred on the 
project. Over the last several months the partnership has submitted project 
costs detail to the governmental authorities and been negotiating a 
settlement agreement. While an executed agreement has not been finalized, the 
Company has every indication that the agreement will be finalized shortly. 
Accordingly, the Company anticipates a reimbursement of approximately 
$400,000 in 1999, for its share of the partnership costs. Such reimbursement 
is roughly equivalent to the direct costs incurred by the Company relating to 
this project in 1997 and 1998 and is reflected as a receivable in the 
Company's consolidated balance sheet.

Y2K ISSUES

         Until recently, most computer programs were written to store only 
two digits of date-related information in order to more efficiently handle 
and store data. Computer programs which are date-sensitive may recognize a 
date using "00" as the year 1900 rather than the year 2000, which could 
result in major computer system or program failures or miscalculations or 
equipment malfunctions. This is referred to as the "Year 2000" issue ("Y2K"). 
The Company recognizes that the impact of the Y2K issue extends beyond 
traditional computer hardware and software to equipment used in operations, 
such as the Company's slot tracking system, as well as to third parties. The 
Y2K issue is being addressed within the Company by its informational 
technology department and progress is reported periodically to management. 
Since 1997, the Company has been reviewing all internal, external and third 
party informational technology ("IT") systems related to its business. The 
Company has completed an internal IT evaluation with satisfactory results and 
is currently reviewing external and third party IT systems for Y2K 
compliance. External and third party evaluations include requiring compliance 
certificates from vendors, suppliers and significant businesses related to 
the Company. The Company estimates it will complete external and third party 
evaluations by the second quarter of 1999. To date, all evaluations have 
uncovered minimal exposure to Y2K problems. However, there can be no 
guarantee that the systems of other companies on which the Company's systems 
and business rely will be timely converted, or that a failure to convert by 
another company, or a conversion that is incompatible with the Company's 
system, would not have a material adverse effect on the Company. Many of the 
external parties that the Company relies on provide commodity goods or 
services that are widely available from a range of vendors; therefore, third 
party impact on the Company is expected to be minimal. The Company currently 
estimates that the cost to rectify any internal Y2K issues will be 
approximately $90,000, which would include replacing hardware systems and 
upgrading software. Current estimates of the Company's expenses for 
addressing external or third party Y2K issues are not expected to be 
material; however, the Company continues to review and monitor compliance. 
The total cost of the Company's Y2K efforts are not expected to be material 
with respect to the 

                                       17

<PAGE>

Company's operations, liquidity or capital resources. Management does not 
believe the Company will have to modify or replace any significant portions 
of its computer applications in order for the computer systems to function 
properly with respect to the dates in the year 2000 and thereafter. However, 
a "worst case" scenario may include the temporary disruption of operations, 
including the inability to access the Company's slot tracking system. A 
significant disruption may have a material adverse impact upon the Company's 
operating results. The Company's contingency plan includes the following:

         -  Regular back up of all scientific and business related
            electronic data;

         -  Archival of critical business paperwork; and,

         -  Upgrading security systems to be Y2K compliant (included in
            above dollar amount).

         The Company's Y2K-related costs are not expected to be material to 
the Company's consolidated results of operations. The Company will continue 
to evaluate all IT systems for Y2K compliance throughout 1999.

         There is still uncertainty around the scope of the Y2K issue. At 
this time the Company cannot quantify the potential impact of potential Y2K 
failures. The Company's Y2K program and contingency plans are being developed 
to address issues within the Company's control and to reduce the level of the 
Company's uncertainty about its Year 2000 issues. The program and 
contingency/plans minimizes, but does not eliminate, the issues of external 
parties.

         The costs of the project, estimated completion dates worst case 
scenario and other forward looking statements above are based on management's 
best estimates, which were derived utilizing numerous assumptions of future 
events, including the continued availability of certain resources, third 
party modification plans and other factors. However, there can be no 
guarantees that these estimates will be achieved or that event will occur as 
projected and actual results and events could differ materially from those 
anticipated. Specific factors that might cause such material differences 
include, but are not limited to, the availability and cost of personnel 
trained in this area the ability to locate and correct all relevant computer 
codes, the success of the Company's suppliers and other external parties with 
which the Company interacts in addressing their Year 2000 issues, and similar 
uncertainties.

COMPETITIVE OUTLOOK

         Through the first six months of 1998, the Company experienced 
revenue growth and substantial growth in operating income and net income at 
Bullwhackers Black Hawk, which generated the majority of the Company's 
operating profits. However, the opening of two major new competitors in the 
Black Hawk market in June and December 1998 has significantly impacted the 
Company's operating results for the last six months of 1998 and will likely 
continue to negatively impact the operating results in 1999. Accordingly, the 
Company does not anticipate to be able to replicate the growth in revenues 
and operating profits achieved in 1997 and the first half of 1998. Rather, in 
the second half of 1998, the Company experienced a substantial decrease in 
operating income compared to the 1997 period. The Company's operating margins 
have deteriorated due to declining revenue levels and increasing operating 
and marketing costs. Additionally, in late 1999 two additional large 
competitors are scheduled to open casinos in Black Hawk. It is likely that 
this additional capacity will continue to dilute the Company's market share 
of revenues and, accordingly, may adversely impact the Company's operating 
profits in 1999 and beyond. Furthermore, should the operating trends and 
results experienced in the third and fourth quarters of 1998 continue or 
worsen, the Company will not be able to generate cash flow from operations to 
meet minimum debt service requirements in 1999. Accordingly, the Company 
would be reliant on its Credit Facility to meet such debt service 
requirements.

         Given the deteriorating financial results in the second half of 
1998, management has devised various plans and operating strategies to 
improve the Company's performance. The operating plan includes a) closing 
Bullwhackers Central City and focusing all of its efforts and managerial 
resources on its Black Hawk properties, b) reconfiguring the Bullpen 
expansion to improve the overall layout and efficiency of Bullwhackers Black 
Hawk, c) eliminating discounted food offerings as an enticement for gaming 
patrons, d) renovating and upgrading the interior finish at Bullwhackers 
Black Hawk, e) implementing training programs to position the property on the 
basis of service excellence, f) reconfiguring or eliminating inefficient bus 
programs, and g) substantially reducing the 

                                       18

<PAGE>

Company's corporate expense. While management believes this is a viable 
operating plan, there is no assurance that such initiatives will be effective 
in improving the Company's financial performance. Additionally, the 
competitive environment in Black Hawk may become increasingly severe, 
particularly if two new projects currently under construction commence 
operations in late 1999, as scheduled.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         In 1997, the SEC issued new rules (Item 305 of Regulation S-K) which 
requires disclosure of material risks as defined by Item 305, related to 
market risk sensitive financial instruments. As defined, the Company 
currently has market risk sensitive instruments related to interest rates. As 
disclosed in Note 4 of the consolidated financial statements, the Company has 
outstanding long-term debt of $57.8 million at December 31, 1998. The Company 
currently has an average maturity of three years for long-term debt, $52.7 
million of which is at a fixed rate of 12%, $670,000 of which is at a fixed 
rate of 9% and $4.5 million of which is at a rate averaging 10.125% for the 
year ended December 31, 1998.

         The Company does not have significant exposure to changing interest 
rates on long-term debt because interest rates for the majority of the debt is 
fixed. The Company has not undertaken any additional actions to cover interest 
rate market risk and is not a party to any other interest rate market risk 
management activities.

         A hypothetical 10% change in market interest rates over the next 
year would not impact the Company's earnings or cash flows as the interest 
rate on the majority of the long-term debt is fixed. A 10% change in market 
interest rates would have a material effect (likely increasing or decreasing 
the fair value by approximately 50%) on the fair value of the Company's 
publicly traded long-term debt due to the volume outstanding at December 31, 
1998.

         The Company does not purchase or hold any derivative financial 
instruments for trading purposes.

ITEM 8.  FINANCIAL STATEMENTS

         The Consolidated Financial Statements and Notes required by Item 8 
are attached at the end of this Annual Report on Form 10-K and are included 
herein by this reference. An index to these Consolidated Financial Statements 
and Notes is also included in Item 14(a) of this Report on Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURES

         On December 18, 1998, the Board of Directors of the Company accepted 
and approved the replacement of Arthur Andersen LLP with Ernst & Young LLP as 
the Company's independent certified public accountants for the fiscal year 
ended December 31, 1998.

         In connection with its audits for the two most recent fiscal year 
and through December 18, 1998, there were no disagreements with Arthur 
Andersen LLP on any matter of accounting principle or practice, financial 
statement disclosure, or auditing scope or procedure, which disagreements, if 
not resolved to the satisfaction of Arthur Andersen LLP, would have caused it 
to make reference to the subject matter of the disagreement in connection 
with its report on the financial statements of the Company for such period.

         The reports of Arthur Andersen LLP on the consolidated financial 
statements of the Company for the years ended December 31, 1996 and 1997 
contained no adverse opinion or disclaimer of opinion and were not qualified 
or modified as to uncertainty, audit scope, or accounting principles.

         During the two most recent fiscal years and through December 18, 
1998, the Company has not consulted with Ernst & Young LLP regarding (i) the 
application of accounting principles to the specified transaction, either 
completed or proposed, or the type of audit opinion that might be rendered in 
the Company's consolidated financial statements or (ii) any matter that was 
either the subject matter of a disagreement or a reportable event (as 
described in Item 304(a)(1) of Regulation S-K).

         The Company has requested that Arthur Andersen LLP furnish it with a 
letter addressed to the Securities and Exchange Commissions stating whether 
it agrees with the statements made in Item 4(a) above and, if not, stating 
the respects in which it does not agree. A copy of such letter is filed as 
exhibit 16.1 to Form 8-K as filed on December 18, 1998.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Board of Directors is composed of five members prior to the 
Merger and three members subsequent to the Merger. The following sets forth 
certain information with respect to the directors and executive officers of 
the Company, including with respect to each individual, his age, position 
with the Company and his term as a director with the Company:

         JOHN R. LONG has served as Chairman of the Board of Directors of the 
Company since August 1998 and Chief Executive Officer beginning in January 
1999. Mr. Long has served as President and Chief Operating Officer of 
Ladbroke Racing Corporation since December 1992. Ladbroke Racing Corporation 
is an affiliate of the Company's parent and sole stockholder.

                                       19

<PAGE>

         RICHARD S. RABIN has served as President and Chief Operating Officer 
of the Company since January 1999. Mr. Rabin served as Senior Vice President 
of Operations of the Company since March 1996 through December 1998 and 
served as an interim director from the Effective Date through October 1996. 
Mr. Rabin served as Vice President, Finance & Administration of the Company 
from August 1995 until March 1996. From 1994 until joining the Company, he 
served as Chief Financial Officer of a riverboat gaming facility operated by 
Sahara Gaming Corporation in Missouri and then as General Manager of a gaming 
facility operated by Sahara Gaming Corporation in Nevada. From 1991 to 1994, 
Mr. Rabin was Chief Financial Officer and Vice President and, beginning in 
1993, also General Manager, of the Glory Hole Saloon and Gambling Hall in 
Central City, Colorado. From 1985 until 1991, Mr. Rabin served in various 
positions in the gaming industry in Reno, Nevada. Mr. Rabin holds a key 
license from the Gaming Commission and is a Certified Public Accountant.

         ROBERT J. STEPHENS has served as Vice President of Finance since 
September 1996. He served as Controller, Chief Accounting Officer and 
Treasurer of the Company from August 1995 until September 1996. Previously, 
Mr. Stephens served in various finance and accounting positions since joining 
the Company in May 1994. From 1990 to 1994 Mr. Stephens was associated with 
Arthur Andersen LLP. Mr. Stephens holds a key license from the Gaming 
Commission and is a Certified Public Accountant.

         GEORGE P. HARBISON has served on the Board of Directors of the 
Company since August 1998. Mr. Harbison has served as Vice President and 
Chief Financial Officer of Ladbroke Racing Corporation since November 1994, 
and has held several other positions within Ladbroke since March 1991. 
Ladbroke Racing Corporation is an affiliate of the Company's parent and sole 
stockholder.

         The business and affairs of the Company are managed under the 
direction of the Board of Directors. The Board has responsibility for 
establishing broad corporate policies and for the overall performance of the 
Company rather than day-to-day operating details. Members of the Board of 
Directors are kept informed of the Company's business by various reports and 
documents sent to them periodically, as well as by reports presented at 
meetings of the Board and its committees by officers and employees of the 
Company.

                                       20

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

         The following table provides information concerning compensation 
paid to the Company's Chief Executive Officer and the three other executive 
officers serving as such at year-end 1998 whose total annual compensation 
exceeded $100,000 for services rendered by such persons in all positions with 
the Company.

<TABLE>
<CAPTION>
                          ANNUAL COMPENSATION               LONG TERM COMPENSATION
                          -------------------               ----------------------
                                                                     AWARDS
                                                                     ------
                                                                         Restricted
Name and Principal                                                       Stock          All Other
Position                              Year      Salary       Bonus(1)    Awards         Compensation(2)
------------------                    ----      ------       --------    ----------     ---------------
<S>                                   <C>       <C>          <C>         <C>            <C>
Stephen J. Szapor, Jr. (3)            1998      $315,360     $ 49,231    $ 750,000           $5,000
President and
Chief Executive Officer               1997       306,456       47,201       68,233            4,750

                                      1996       300,000      236,386      243,054            4,327


Alan L. Mayer (3)                     1998       136,654       32,987      289,350            3,490
Senior Vice President, Chief
Legal Officer and Secretary           1997       132,800       31,465       83,622            4,750

                                      1996       127,696      125,354            0            3,192


Richard Rabin                         1998       137,747       32,987      289,350            3,417
Senior Vice President
of Operations                         1997       132,800       31,465       83,622            4,750

                                      1996       115,231      117,354            0              577


Robert J. Stephens                    1998        85,655       16,770      115,742            2,529
Vice President
of Finance                            1997        81,723       17,307       33,449            3,637

                                      1996        70,769       68,816            0            1,192

</TABLE>

(1)      Amounts for 1997 reflect bonuses awarded in 1997 for services rendered
         in 1997. Amounts for 1996 reflect bonuses awarded for services rendered
         in 1995 and 1996 during the Company's reorganization which resulted in
         the Company's emergence from bankruptcy on June 7, 1996 (the
         "Reorganization") plus bonuses earned in 1996 and paid in 1997 pursuant
         to the Company's Management Cash Bonus Plan.

(2)      Amounts reported reflect Company contributions for the benefit of the
         named executives to the Company's 401(k) defined contribution plan.

(3)      Mr. Szapor resigned from the Company in January 1999, and Mr. Mayer
         resigned from the Company in February 1999. Mr. Rabin was then named
         President of the Company, following Mr. Szapor's resignation.

         The Company has no outstanding stock options, stock appreciation 
rights or similar underlying securities nor any option or long-term 
performance incentive plan.

         EMPLOYMENT AGREEMENTS

         The Company is a party to the following employment agreements with 
Mr. Rabin and Mr. Stephens.

         The Company's employment agreement with Richard Rabin provides that 
he will serve as the Company's Senior Vice President of Operations. Upon the 
resignation of Mr. Szapor, Mr. Rabin was named the President of the Company. 
Mr. Rabin's employment agreement is for an initial term of three years, and 
renews thereafter for successive one-year terms unless terminated by each of 
the respective parties. This employment agreement also provides that in the 
event of termination by the Company without cause or by Mr. Rabin for good 
reason (as defined in his employment agreement), he will receive a payment 
equal to his base salary then in effect for the then remaining period of his 
employment agreement. The initial term of Mr. Rabin's employment agreement 
expires on June 7, 1999. Effective as of March 24, 1997, the Company entered 
into an employment agreement with Robert J. Stephens, the Company's Vice 

                                       21

<PAGE>

President of Finance. Such agreement is substantially similar to that of Mr. 
Rabin except that Mr. Stephen's initial term of the agreement expires on 
June 7, 1999, and renews thereafter for successive one-year terms unless 
terminated by Mr. Stephens or the Company.

         In general, base salaries for executive officers are determined by a 
subjective assessment of the executive officer's responsibilities and 
position with the Company and the performance of the executive officer. Base 
salaries are reviewed annually and from time to time and are adjusted 
appropriately. Minimum base salaries and other terms of employment for Mr. 
Rabin and Mr. Stephens are governed by their respective employment agreements.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         None.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In 1997, the Company paid $250,000 to Unirock Management Company, a 
merchant banking firm controlled by the Chairman of the Board of Directors 
for the Company prior to the Merger. Unirock Management Company provided 
financial advisory services to the Company related to the Merger. The Company 
believes that this transaction is on terms at least as favorable as would 
have been obtained from non-related parties.

         Subsequent to year-end, Ladstock Holding Company ("Ladstock"), an 
affiliate of the Company's parent, paid the outstanding balances of the 
Credit Facility and the senior lender assigned the Credit Facility to 
Ladstock. Accordingly, Ladstock is now the Company's senior lender which 
terms are identical to the Credit Facility.

         In February 1999, Ladstock purchased the outstanding note from CAI, 
accordingly, this note is currently an obligation to an affiliate Company, 
Ladstock.

                                       22
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a) (1) and (a)(2) Financial Statements and Financial Statement 
Schedules

                             INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Public Accountants .................................24
Consolidated Balance Sheets ...............................................26
Consolidated Statements of Operations .....................................27
Consolidated Statements of Stockholders' Equity ...........................28
Consolidated Statements of Cash Flows .....................................29
Notes to Consolidated Financial Statements ................................31

</TABLE>

   All other schedules are omitted because the required information is not 
present in amounts sufficient to require submission of the schedule or 
because the information required is included in the Consolidated Financial 
Statements and Notes thereto.

         (a)(3)   Exhibits

                  See Index to Exhibits on page 42, which is incorporated herein
                  by reference.

         (b)      Reports on Form 8-K

         1.       On December 17, 1998, the Company filed a Current Report on
                  Form 8-K. The date of report (date of the earliest event
                  reported) was December 17, 1998. The Company reported under
                  Item 5 that Mr. Szapor Jr., President and Chief Executive
                  Officer and a member of the Board of Directors, submitted his
                  resignation from all such positions to be effective as of
                  January 8, 1999.

         2.       On December 18, 1998, the Company filed a Current Report on
                  Form 8-K. The date of report (date of the earliest event
                  reported) was December 18, 1998. The Company reported under
                  Item 4 that Arthur Andersen LLP was dismissed as the
                  independent accountant effective as of December 18, 1998 and
                  replaced by Ernst & Young LLP.

                                       23

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Board of Directors
Colorado Gaming & Entertainment Co.

We have audited the accompanying consolidated balance sheet of Colorado 
Gaming & Entertainment Co. (formerly Hemmeter Enterprises, Inc.) and 
subsidiaries (the "Company") as of December 31, 1998, and the related 
consolidated statements of operations, stockholders' equity and cash flows 
for the year then ended. These consolidated financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audit provides 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 Colorado Gaming 
& Entertainment Co. and subsidiaries as of December 31, 1998, and the results 
of their operations and their cash flows for the year then ended in 
conformity with generally accepted accounting principles.

Denver, Colorado
February 11, 1999.                        Ernst & Young LLP

                                       24

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Colorado Gaming & Entertainment Co.

We have audited the accompanying consolidated balance sheet of Colorado 
Gaming & Entertainment Co. (formerly Hemmeter Enterprises, Inc.) and 
subsidiaries (the "Company") as of December 31, 1997, and the related 
consolidated statements of operations, stockholders' equity and cash flows 
for the years ended December 31, 1997, the period from June 7, 1996 through 
December 31, 1996 and the period from January 1, 1996 through June 6, 1996. 
These consolidated financial statements are the responsibility of the 
Company's management. Our responsibility is to express an opinion on these 
consolidated financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of Colorado Gaming 
& Entertainment Co. and subsidiaries as of December 31, 1997, and the results 
of their operations and their cash flows for the years ended December 31, 
1997, the period from June 7, 1996 through December 31, 1996 and the period 
from January 1, 1996 through June 6, 1996, in conformity with generally 
accepted accounting principles.


Denver, Colorado
  March 13, 1998.                           Arthur Andersen LLP

                                       25

<PAGE>

                       COLORADO GAMING & ENTERTAINMENT CO.
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                     December 31, 1998            December 31, 1997
                                                                     -----------------            -----------------
<S>                                                                  <C>                          <C>
                             ASSETS
CURRENT ASSETS:
     Cash and cash equivalents................................            $ 4,022                   $ 4,228
     Accounts receivable, net.................................                607                       467
     Inventories..............................................                188                       114
     Prepaid expenses.........................................                765                       619
                                                                          -------                   -------
           Total current assets...............................              5,582                     5,428
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net...........             38,950                    41,798
EXCESS REORGANIZATION VALUE AND GOODWILL, net (Note 2)........             19,699                    16,491
OTHER ASSETS, net of accumulated amortization of $306 and                     641                       962
             $501, respectively...............................            -------                   -------
                                                                          $64,872                   $64,679
                                                                          -------                   -------
                                                                          -------                   -------
  LIABILITIES AND STOCKHOLDERS' EQUITY 
  CURRENT LIABILITIES:
     Accounts payable.........................................            $   718                   $ 1,118
     Accrued expenses (Note 2)................................              4,545                     3,951
     Current portion of credit facility.......................              1,000                       108
     Current portion of other notes payable and capital leases                 --                       701
                                                                          -------                   -------
           Total current liabilities..........................              6,263                     5,878
                                                                          -------                   -------
NOTES PAYABLE, net of current portion:
     Senior secured notes payable.............................             52,738                    52,883
     Credit facility..........................................              4,472                        --
     Other notes payable and capital leases...................                670                       670
                                                                          -------                   -------
                                                                           57,880                    53,553
                                                                          -------                   -------
           Total liabilities..................................             64,143                    59,431
                                                                          -------                   -------
COMMITMENTS AND CONTINGENCIES (NOTE 10)

STOCKHOLDERS' EQUITY:
     Common stock, $.01 par value, 20,000,000 shares       
        authorized, 100 shares issued and 
          outstanding at December 31, 1998....................                 --                        --
     Common stock, $.01 par value, 20,000,000 shares       
        authorized, 5,236,091 shares issued and 
          outstanding at December 31, 1997 ...................                 --                        52
     Additional paid-in capital...............................              5,583                     4,792
     Retained earnings (deficit)..............................             (4,854)                      404
                                                                          -------                   -------
           Total stockholders' equity.........................                729                     5,248
                                                                          -------                   -------
                                                                         $ 64,872                   $64,679
                                                                          -------                   -------
                                                                          -------                   -------

</TABLE>

        The accompanying notes are an integral part of these consolidated
                                balance sheets.

                                       26

<PAGE>

                       COLORADO GAMING & ENTERTAINMENT CO.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                   January 1,
                                                Year Ended     Year Ended      June 7, 1996          1996
                                                December 31,   December 31,   through December    through June
                                                   1998           1997           31, 1996(a)        6, 1996
                                                -----------    -----------    ----------------    -------------
<S>                                             <C>            <C>            <C>                 <C>
REVENUES:
     Casino .................................   $  51,244      $  50,049         $  29,398          $  19,126
     Food and beverage ......................       3,718          3,270             1,998              1,288
     Other ..................................         241            274               117                 32
                                                ---------      ---------         ---------          ---------
     Gross revenues .........................      55,203         53,593            31,513             20,446
       Less: promotional allowances .........      (1,510)        (1,461)             (833)              (464)
                                                ---------      ---------         ---------          ---------
     Net revenues ...........................      53,693         52,132            30,680             19,982

OPERATING EXPENSES:                                                                                
     Casino .................................      15,034         14,060             7,884              5,788
     Gaming taxes and device fees ...........       9,061          9,146             4,564              3,614
     Food and beverage ......................       4,831          3,409             2,111              1,299
     General and administrative:                                                                   
        Casino ..............................       2,842          2,869             1,557              1,249
        Corporate ...........................       3,268          3,021             1,926                902
     Marketing ..............................       7,732          6,891             4,001              2,349
     Depreciation and amortization ..........       4,315          5,025             4,044              1,882
     Pre-opening (Note 2) ...................         299             --               315                 47
     Impairment of Central City assets ......       4,316                                          
     Reorganization items (Note 1) ..........          --             75               308              2,290
                                                ---------      ---------         ---------          ---------
     Total operating expenses ...............      51,698         44,496            26,710             19,420

INCOME FROM OPERATIONS                              1,995          7,636             3,970                562
     Interest expense .......................      (7,341)        (6,780)           (3,867)              (579)
     Interest income ........................          88             98                89                 66
                                                ---------      ---------         ---------          ---------
INCOME (LOSS) BEFORE INCOME                                                                        
   TAX PROVISION ............................      (5,258)           954               192                 49
     Provision for income taxes .............          --           (742)               --                 --
                                                ---------      ---------         ---------          ---------
     Net income (loss) before extraordinary                                                        
          gain ..............................      (5,258)           212               192                 49
     Extraordinary gain from reorganization                                                        
          items .............................          --             --                --            164,358
                                                ---------      ---------         ---------          ---------
NET INCOME (LOSS) ...........................   $  (5,258)     $     212         $     192          $ 164,407
                                                ---------      ---------         ---------          ---------
                                                ---------      ---------         ---------          ---------

</TABLE>

(a)  Due to the Reorganization and implementation of fresh-start reporting, 
     financial statements for the Reorganized Company (period starting 
     June 7, 1996) are not comparable to those of the Predecessor Company. 
     See Notes to the Financial Statements for additional information.

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

                                       27

<PAGE>

                       COLORADO GAMING & ENTERTAINMENT CO.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     (in thousands, except number of shares)

<TABLE>
<CAPTION>
                                                              Common Stock
                                                                                           Additional   Retained
                                                                                Warrants    Paid-in     Earnings
                                                            Shares     Amount    Issued     Capital     (Deficit)      Totals
                                                         -----------   ------   --------   ----------   ---------    ----------
<S>                                                      <C>           <C>      <C>        <C>          <C>          <C>
                                                                                                                     
BALANCES, December 31, 1995 ...........................   11,786,235     118      7,000       2,162      (162,417)    (153,137)
                                                                                           
Cancellation of Predecessor Company common stock                                           
  and warrants and elimination of deficit .............  (11,786,235)   (118)    (7,000)      1,951       162,417      157,250
                                                         -----------   -----    -------   ---------     ---------    ---------
                                                                                           
BALANCES, June 6, 1996 ................................           --      --         --       4,113            --        4,113
                                                                                           
Issuance of new common stock ..........................    5,000,000      50         --          --            --           50
Restricted stock grants to  officers and directors ....      138,888       1         --         513            --          514
Net income June 7 through December 31, 1996 ...........           --      --         --          --           192          192
                                                         -----------   -----    -------   ---------     ---------    ---------
                                                                                           
BALANCES, December 31, 1996 ...........................    5,138,888      51         --       4,626           192        4,869

Restricted stock grants to  officers and directors ....       97,203       1         --         166            --          167
Net Income ............................................           --      --         --          --           212          212
                                                         -----------   -----    -------   ---------     ---------    ---------
                                                                                           
BALANCES, December 31, 1997 ...........................    5,236,091      52         --       4,792           404        5,248

Restricted stock grants to  officers and directors ....      276,631      --         --         739            --          739
Cancellation of common stock ..........................   (5,512,622)    (52)        --          52            --           --
Net Loss ..............................................           --      --         --          --        (5,258)      (5,258)
                                                         -----------   -----    -------   ---------     ---------    ---------
BALANCES, December 31, 1998 ...........................          100   $  --    $    --      $5,583     $  (4,854)   $     729
                                                         -----------   -----    -------   ---------     ---------    ---------

</TABLE>

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

                                       28

<PAGE>

                       COLORADO GAMING & ENTERTAINMENT CO.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                           Year Ended     Year Ended       June 7, 1996       January1, 1996
                                                           December 31,   December 31,   through December     through June 6,
                                                              1998           1997           31, 1996(a)            1996
                                                           -----------    -----------    ---------------      ---------------
<S>                                                        <C>            <C>            <C>                  <C>
   CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $  (5,258)     $     212         $     192            $ 164,407
Adjustments to reconcile net income (loss) to net cash                                                         
   provided by operating activities:                                                                           
Depreciation and amortization ............................     4,315          5,025             4,044                1,882
Loss (gain) on retirements of property and equipment .....       (49)            82               150                  244
Noncash compensation .....................................       739            167               514                   --
Deferred income taxes ....................................        --            742                --                   --
Noncash interest expense .................................       160            101             3,443                  495
Write-down of Central City assets ........................     4,316             --                --                   --
Extraordinary gain from reorganization ...................        --             --                --             (164,358)
Change in working capital and other ......................        50           (334)           (3,111)                 822
Noncash reorganization items .............................        --             --                --                1,825
                                                           ---------      ---------         ----------           ---------
Net cash provided by operating activities ................     4,273          5,995             5,232                5,317
                                                           ---------      ---------         ----------           ---------

   CASH FLOWS FROM INVESTING ACTIVITIES:                                                                       
Expenditures for property, equipment and leasehold                                                             
   improvements ..........................................    (9,097)        (4,608)           (3,224)              (3,885)
Net restricted funds (placed in) disbursed from ..........       100            162               244                 (507)
   escrow                                                                                                      
Investment in unconsolidated subsidiaries ................        --            (92)               --                   --
                                                           ---------      ---------         ----------           ---------
Net cash used in investing activities ....................    (8,997)        (4,538)           (2,980)              (4,392)
                                                           ---------      ---------         ----------           ---------

   CASH FLOWS FROM FINANCING ACTIVITIES:                                                                       
Proceeds from debt financing .............................     6,767          1,000             2,392                5,824
Payment of debt placement costs, net of accrued                                                                
   Liabilities ...........................................        --             --              (445)                  --
Repayments of debt financing .............................    (2,249)        (3,987)           (5,509)              (3,304)
                                                           ---------      ---------         ----------           ---------
Net cash provided by (used in) financing activities ......     4,518         (2,987)           (3,562)               2,520
                                                           ---------      ---------         ----------           ---------
   NET INCREASE (DECREASE) IN CASH AND CASH                                                                    
        EQUIVALENTS ......................................      (206)        (1,530)           (1,310)               3,445
   CASH AND CASH EQUIVALENTS, at beginning of period .....     4,228          5,758             7,068                3,623
                                                           ---------      ---------         ----------           ---------
   CASH AND CASH EQUIVALENTS, at end of period............ $   4,022      $   4,228         $   5,758            $   7,068
                                                           ---------      ---------         ----------           ---------
                                                           ---------      ---------         ----------           ---------

</TABLE>

(a)  Due to the Reorganization and implementation of fresh-start reporting, 
financial statements for the new Reorganized Company (period starting June 7, 
1996) are not comparable to those of the Predecessor Company. See Notes to 
the Financial Statements for additional information.

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

                                       29

<PAGE>

                       COLORADO GAMING & ENTERTAINMENT CO.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                           Year Ended     Year Ended       June 7, 1996       January1, 1996
                                                           December 31,   December 31,   through December     through June 6,
                                                              1998           1997           31, 1996(a)            1996
                                                           -----------    -----------    ---------------      ---------------
<S>                                                        <C>            <C>            <C>                  <C>
   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ................................... $   7,177      $   6,721         $   1,020            $      19
                                                           ---------      ---------         ----------           ---------
                                                                                                                 ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of senior secured notes payable and other
   notes payable pursuant to the Reorganization .......... $      --      $      --         $  52,300            $      --
                                                           ---------      ---------         ----------           ---------
                                                                                                                 ---------
Issuance of notes payable for accrued interest 
   obligations ........................................... $      --      $      --         $   2,883            $      --
                                                           ---------      ---------         ----------           ---------
                                                                                            ----------           ---------

</TABLE>


(a) Due to the Reorganization and implementation of fresh-start reporting,
financial statements for the new Reorganized Company (period starting June 7,
1996) are not comparable to those of the Predecessor Company. See Notes to the
Financial Statements for additional information.

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

                                       30

<PAGE>

                       COLORADO GAMING & ENTERTAINMENT CO.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

(1)  ORGANIZATION

ORGANIZATION

         Colorado Gaming & Entertainment Co. ("CG&E") and its subsidiaries 
(collectively referred to as the "Company"), formerly known as Hemmeter 
Enterprises, Inc. (referred to as the "Predecessor Company" or "HEI" for 
periods prior to June 7, 1996), was incorporated in August 1993 to develop, 
own and operate gaming and related entertainment facilities. Three 
wholly-owned subsidiaries, BWBH, Inc., BWCC, Inc., and Silver Hawk Casino, 
Inc., own and operate limited stakes gaming facilities in Colorado 
(collectively, the "Colorado Casinos"). The Company purchased the Silver Hawk 
Casino in April 1996 for $2.7 million and commenced operations on June 26, 
1996. Millsite 27, Inc., also a wholly-owned subsidiary, owns a parking lot, 
with a capacity of approximately 500 cars, which is directly between, and is 
used by BWBH, Inc. and Silver Hawk Casino, Inc.

         On February 13, 1998, the Company purchased the assets comprising 
Bullwhackers' Bullpen Sports Casino (the "Bullpen"), a 260 slot machine 
expansion to Bullwhackers Black Hawk, from Pioneer Associates Limited 
Liability Company for approximately $5.5 million. The Company recorded 
approximately $4.2 million of excess acquisition cost over the fair value of 
the assets acquired to goodwill, which will be amortized over approximately 
23 years. Additionally, the Company incurred approximately $2.0 million to 
equip and renovate the Bullpen. The Company removed the common wall 
separating Bullwhackers Black Hawk from the Bullpen and the combined casino 
operates as a single casino under one gaming license and one liquor license. 
On May 1, 1998, the Company commenced operations at the Bullpen.

         On August 21, 1998, Ladbroke Gaming Corporation ("Ladbroke Gaming") 
acquired beneficial ownership of 100% of the issued and outstanding shares of 
common stock, $0.01 par value of the Company for $6.25 per share in cash 
pursuant to the terms of an Agreement and Plan of Merger, dated as of August 
22, 1997, by and among CG&E Acquisition Corp., Ladbroke Racing Corporation 
("Ladbroke Racing") and the Company, as amended by a first Amendment to 
Agreement and Plan of Merger dated as of October 21, 1997 and assigned to 
Ladbroke Gaming pursuant to an Assignment of Agreement and Plan dated as of 
March 18, 1998. In association with the merger, on August 21, 1998 the 
Company's outstanding common stock was canceled and the Company issued one 
hundred common shares, with $0.01 par value, to Ladbroke Gaming. Due to the 
existence of outstanding public debt and existing covenants, this debt 
continues to exert influences on the Company, therefore the Company did not 
perform push-down accounting based on the acquisition value.

REORGANIZATION

         As a result of the financial difficulties of a riverboat gaming 
project undertaken in 1995 by Grand Palais Riverboat, Inc. ("GPRI"), a 
wholly-owned subsidiary of the Predecessor Company, the Predecessor Company, 
BWBH, BWCC and MS27 sought protection under Chapter 11 of the United States 
Bankruptcy Code on November 7, 1995 (the " Reorganization"). The First 
Amended Joint Plan of Reorganization of the Predecessor Company, BWBH, BWCC 
and MS27 was confirmed on April 8, 1996 and became effective on June 7, 1996 
(the "Effective Date"). As a result, among other things, the Company 
significantly reduced its consolidated debt, issued new shares of common 
stock and sold GPRI.

FRESH START REPORTING

         In accordance with AICPA Statement of Position 90-7, "Financial 
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 
90-7"), the Company was required to adopt "fresh-start" accounting on the 
Effective Date. The adjustments to reflect the consummation of the 
Reorganization (including the gain on 

                                       31

<PAGE>

extinguishment of debt and other pre-petition liabilities) and the adjustment 
to record assets and liabilities at their fair values have been reflected in 
the consolidated financial statements. Accordingly, a vertical black line is 
shown in the consolidated financial statements to separate 
post-Reorganization operations from those prior to June 7, 1996. As a result 
of adopting fresh-start reporting, the Reorganized Company's consolidated 
financial statements are not comparable with those prepared before the 
Effective Date, including the historical consolidated financial statements 
included herein.

(2)  SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

         The accompanying consolidated financial statements of the 
Reorganized Company (period beginning June 7, 1996) and the Predecessor 
Company (periods prior to June 7, 1996) include the accounts of CG&E and its 
wholly owned subsidiaries. Intercompany balances and transactions have been 
eliminated.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally 
accepted accounting principles 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. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

         Cash and cash equivalents includes cash in banks, currency located 
in the casinos' vaults, coins located in the gaming device hoppers and other 
cash used in daily operations. Included in cash and cash equivalents at 
December 31, 1998 and 1997 is restricted cash totaling $507,000 and $525,000, 
respectively, which represents the portion of cash that is required to be 
maintained by the Colorado Casinos based on regulations promulgated by the 
Colorado Limited Gaming Control Commission.

         The Company considers all highly-liquid investments purchased with 
an original maturity of three months or less to be cash equivalents. The 
carrying amount of cash equivalents approximates fair value due to the 
short-term maturity of those investments.

CAPITALIZED INTEREST

         Interest cost associated with major construction projects is 
capitalized. When no debt is incurred specifically for a project, interest is 
capitalized on amounts expended on the project using the weighted-average 
cost of the Company's outstanding borrowings. Interest capitalized during the 
year ended December 31, 1997 totaled $62,000.

INVENTORIES

         Inventories consist of food and beverage, retail and casino 
supplies. Inventories are stated at the lower of cost (first-in, first-out 
basis) or market.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

         Property, equipment and leasehold improvements are stated at cost. 
Depreciation and amortization are computed using the straight-line method 
over the estimated useful lives of the assets. Costs of major improvements 
are capitalized, while costs of normal repairs and maintenance are charged to 
expense as incurred.

                                       32

<PAGE>

EXCESS REORGANIZATION VALUE

         The excess of the reorganization value over the fair market value of 
the net assets as of the Effective Date is reported as excess reorganization 
value in the accompanying consolidated balance sheet. Excess reorganization 
value is amortized on a straight-line basis over 18.5 years. Accumulated 
amortization of excess reorganization value was $2.5 million and $1.6 million 
at December 31, 1998 and 1997, respectively. The Company continually 
evaluates current events and circumstances in order to determine whether the 
recorded value has been impaired.

ACCRUED EXPENSES

         Accrued expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                         December 31,
                                                       1998         1997
                                                       ----         ----
<S>                                                   <C>          <C>
      Gaming taxes payable..........                  $ 494        $ 456
      Accrued payroll and
         related expenses...........                    985        1,065
      Accrued interest..............                    662          601
      Accrued gaming liabilities....                    798          672
      Other accruals................                  1,606        1,157
                                                     ------       ------
                                                     $4,545       $3,951
                                                     ------       ------
                                                     ------       ------

</TABLE>

CASINO REVENUES AND PROMOTIONAL ALLOWANCES

         In accordance with industry practice, the Company recognizes as 
casino revenues the net win from gaming activities, which is the difference 
between amounts wagered by customers, less awards or winnings paid out to 
customers. The retail value of food and beverage furnished to customers on a 
complimentary basis is included in gross revenues and then deducted as 
promotional allowances. The estimated cost of providing such promotional 
allowances is included in casino operating expenses in the accompanying 
consolidated statements of operations.

PRE-OPENING EXPENSES

         The Company expenses pre-opening costs as incurred. Pre-opening 
costs consist of expenditures incurred prior to the opening of the casino to 
prepare the casino for business and include labor costs, certain consulting, 
marketing and other direct costs. The Company incurred $299,000 in 
pre-opening expense for the year-ended December 31, 1998 related to the 
Bullpen, which commenced operations May 1, 1998. The $362,000 reflected in 
the 1996 period relates to pre-opening costs for the Silver Hawk Casino, 
which opened on June 26, 1996.

REORGANIZATION ITEMS

         Reorganization items consist of expenses and other costs directly 
related to the Reorganization of the Company and are included in the 
consolidated statements of operations. The Company incurred $75,000, $308,000 
and $2.3 million relating to professional fees for the Reorganization of the 
Company for the year ended December 31, 1997, the period June 7, 1996 through 
December 31, 1996 and the period January 1, 1996 through June 6, 1996, 
respectively.

                                       33

<PAGE>

INCOME TAXES

         The Company accounts for taxes pursuant to Statement of Financial 
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 
109 requires the measurement of deferred tax assets for deductible temporary 
differences and operating loss carryforwards and of deferred tax liabilities 
for taxable differences. Measurement of current and deferred tax liabilities 
and assets is based on provisions of enacted tax law; the effects of future 
changes in tax laws or rates are not anticipated. Deferred tax assets 
primarily result from net operating loss carryforwards and impairment of 
assets recognized in different periods for financial reporting and tax 
purposes.

RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1998 the Financial Accounting Standards Board ("FASB") 
issued Statement of Financial Accounting Standards ("SFAS") No. 133 " 
Accounting for Derivative Instruments and Hedging Activities" effective for 
fiscal years beginning after June 15, 1999. SFAS No. 133 establishes 
accounting and reporting standards requiring that every derivative instrument 
(including certain derivative instruments embedded in other contracts) be 
recorded in the balance sheet as either an asset or liability measured at its 
fair value. It also requires that changes in the derivative's fair value be 
recognized currently in earnings unless specific hedge accounting criteria 
are met. Management believes that the impact of SFAS No. 133 will not have a 
material impact on the financial statements.

         In April 1998, the AICPA issued Statement of Position ("SOP") 98-5, 
"Reporting on the Costs of Start-Up Activities". This statement is effective 
for financial statements for the fiscal years beginning after December 31, 
1998. In general, SOP 98-5 requires costs of start-up activities and 
organization costs to be expensed as incurred. Initial application of SOP 
98-5 should be reported as the cumulative effect of a change in accounting 
principle. Management believes that the adoption of SOP 98-5 will not have a 
material impact on the financial statements.

RECLASSIFICATIONS

         Certain prior period amounts have been reclassified to conform to 
the current year presentation. These reclassifications had no effect on the 
Company's net income.

(3)  PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

         Property, equipment and leasehold improvements consisted of the 
following (in thousands).

<TABLE>
<CAPTION>
                                                   December 31,
                                                1998            1997
                                               ------          ------
<S>                                            <C>             <C>
Land and improvements...........               $11,849         $13,997
Building and improvements.......                 3,995           7,010
Leasehold improvements..........                22,584          20,778
Gaming equipment, furniture
   and fixtures.................                15,380          20,611
                                               -------         -------
                                                53,808          62,396
Less: accumulated
depreciation....................               (14,858)        (20,598)
                                               -------         -------
                                               $38,950         $41,798
                                               -------         -------

</TABLE>

                                       34

<PAGE>

Depreciation and amortization are computed using the straight-line method 
over the following useful lives:

<TABLE>
<CAPTION>
                                                    Useful Lives
                                                    ------------
<S>                                               <C>
Land improvements............                           15 years
Building and improvements....                     5 - 31.5 years
Leasehold improvements.......                       5 - 23 years
Gaming equipment,
  furniture and fixtures.....                     5 - 31.5 years

</TABLE>

         On March 10, 1999, the Company closed Bullwhackers central City due 
to declining business volumes and a lack of profitability. The Company 
wrote-off primarily all of its book value of fixed assets at Bullwhackers 
Central City as of year-end December 31, 1998, resulting in a $4.3 million 
loss. Management believes that these assets after closing of Bullwhackers 
Central City will have no value to the Company and will not have any material 
salvage value.

(4) NEW VENUE PROJECTS

         In September 1997, the Ontario Gaming Control Commission announced 
that Diamond Gaming of Ontario Inc., a partnership between the Company, a 
subsidiary of Ogden Corporation and Diamond Gaming Services Inc., was the 
successful bidder to develop and operate charitable gaming clubs in the 
cities of Kingston and Belleville, Ontario. On June 26, 1998, the Government 
of the Province of Ontario advised the partnership that the Government 
canceled the charity casino initiative. Accordingly, the Company and its 
partners ceased all activity with respect to the development of charity 
casinos in Kingston and Belleville. The partnership is seeking at a minimum, 
reimbursement from the Ontario Government of its expenses incurred in such 
development activities. The Ontario Government has expressed a desire to 
reimburse the successful bidders for their costs incurred on the project. 
Over the last several months the partnership has submitted project costs 
detail to the governmental authorities and been negotiating a settlement 
agreement. While an executed agreement has not been finalized, the Company 
has every indication that the agreement will be finalized shortly. 
Accordingly, the Company anticipates a reimbursement of approximately 
$400,000 in 1999, for its share of the partnership costs. This amount is 
reflected as a receivable in the Company's consolidated balance sheet.

(5)  NOTES PAYABLE

         Notes payable consisted of the following (in thousands).

<TABLE>
<CAPTION>
                                                    December 31,
                                                1998             1997
                                               ------          ------
<S>                                            <C>             <C>
Senior Secured Pay-In-Kind Notes ...           $ 52,738        $ 52,883
Credit facility......................             5,472             108
Other................................               670           1,371
                                               --------        --------
                                                 58,880          54,362
Less:  current portion...............             1,000             809
                                               --------        --------
                                               $ 57,880        $ 53,553
                                               --------        --------

</TABLE>

         CREDIT FACILITY

         On June 7, 1996, the Company entered into a $12.5 million revolving 
credit facility (the "Credit Facility") with Foothill Capital Corporation. 
The Credit Facility is segregated into several different sub-facilities, 
including a $3.5 million revolving line of credit and a $5.0 million 
equipment facility. Under terms of the Credit Facility, borrowings accrue 
interest at prime plus 2.375% (10.125% as of December 31, 1998). The 
different sub-facilities have varying 

                                       35

<PAGE>

terms ranging from three to five years from the time funds are borrowed, but 
the entire facility matures on June 7, 2001 with two one-year extension 
options. On February 13, 1998, the Company entered into an amendment to the 
Credit Facility converting the expired $5.0 million construction line into a 
new line which provided up to $5.0 million (the "Bullpen Acquisition Line") 
to purchase and perform tenant improvements on the Bullpen. The Bullpen 
Acquisition Line amortizes over 60 months, commencing on June 1, 1998, and is 
payable in full on June 6, 2001. As of December 31, 1998, the Company had an 
outstanding balance of approximately $4.4 million on the Bullpen Acquisition 
Line and $5.5 million on the entire Credit Facility. Borrowings are secured 
by a first priority lien and security interest in substantially all of the 
real and personal property owned or leased by the Company. The carrying 
amount of the Credit Facility is a reasonable estimate of fair value, as 
terms of the line reflect current rates. On January 23, 1998 the Company 
received bondholder consent to allow Ladbroke, or its assignee, to act as the 
senior bank lender pursuant to the bond indenture. Subsequent to year-end, 
Ladstock Holding Company ("Ladstock"), an affiliate of the Company's parent, 
paid the outstanding balances of the Credit Facility and the senior lender 
assigned the Credit Facility to Ladstock. Accordingly, Ladstock is now the 
Company's senior lender which terms are identical to the Credit Facility.

SENIOR SECURED PAY-IN-KIND NOTES

         Pursuant to the Reorganization on June 6, 1996, senior creditors 
received a new issue of Senior Secured Pay-In-Kind Notes ( the "Notes") 
having an aggregate principal amount of $50 million, due 2003. The Company's 
Notes have an outstanding principal amount of $52.7 million as of December 
31, 1998. The Company retired $145,000 of Notes in the fourth quarter of 1998 
pursuant to a mandatory repurchase offer upon a change of control, relating 
to the Ladbroke acquisition of all common shares of the Company. Interest on 
the Notes accrues at a rate of 12% per annum, and is payable semi-annually. 
The Notes are secured by substantially all the assets of the Company. In 
addition, the Notes Indenture includes certain restrictive covenants. As of 
December 31, 1998, the fair value of the Notes is approximately $56.4 
million, which are based on quoted market prices (107%). The Notes are 
redeemable prior to maturity, in whole or part, at the election of the 
Company on or after June 1, 2000, at the redemption prices (expressed as 
percentages of principal amount) set forth below plus accrued and unpaid 
interest to the redemption date, if redeemed during the 12-month period 
beginning on the June 1st in the years indicated below:

<TABLE>
<CAPTION>
                  Year                 Redemption Price
                  ----                 ----------------
<S>                                    <C>
                  2000                      104%
                  2001                      103%
                  2002                      102%
                  2003                      100%

</TABLE>

OTHER NOTES

         Pursuant to the Reorganization, the Company issued two unsecured 
promissory notes to Capital Associates International, Inc. ("CAI") in the 
respective principal amounts of $1.6 million and $3 million, both accruing 
interest at the rate of 9% per annum. The $1.6 million note was paid in full 
with its final quarterly payment paid in December 1998. The second note in 
the amount of $3 million is payable in 20 quarterly installments of principal 
and interest (at 9% per annum). The $3 million note was reduced by $2.3 
million in funds received by CAI in respect of its claims filed in the 
Reorganization. Accordingly, the outstanding balance on the $3 million note 
is approximately $670,000, plus accrued interest, as of December 31, 1998. In 
February 1999, Ladstock purchased the outstanding note from CAI, accordingly, 
this note is currently an obligation to an affiliate Company, Ladstock. The 
Company considers the estimated fair value of such notes to be the same as 
its carrying value.

                                       36

<PAGE>

         Aggregate annual maturities of long-term debt, are as follows:

<TABLE>
<S>                                    <C>
         1999                             1,000
         2000                             1,376
         2001                             3,766
         2002                                --
         2003                            52,738
         Thereafter                          --
                                       --------
         Total                         $ 58,880
                                       --------
                                       --------

</TABLE>

(6)  STOCKHOLDER'S EQUITY

         The Company had 5 million shares of common stock of CG&E which were 
issued and outstanding as of December 31, 1997. In 1998, 1997 and 1996, 
276,631, 97,203 and 138,888 shares were issued to executive management and 
directors pursuant to the Management Stock Incentive Plan (the "Stock Plan"). 
The Company recognized compensation expense totaling $739,000, $167,000 and 
$514,000 related to these stock grants in 1998, 1997 and 1996, respectively. 
The Stock Plan provided for shares to be granted to certain management 
individuals upon the change of control, as defined by the Stock Plan. In 
association with the merger with Ladbroke, on August 21, 1998 the Company's 
outstanding common stock was canceled and the Company issued one hundred 
common shares, with $0.01 par value, to Ladbroke Gaming.

(7)  INCOME TAXES

         For the years ended December 31, 1998 and 1997 the Company recorded 
no tax provision and a $342,000 deferred tax provision, respectively. A 
reconciliation of income tax expense to the statutory federal tax rate of 34% 
is as follows:

<TABLE>
<CAPTION>
                                        1998            1997
                                        ----            ----
<S>                                    <C>           <C>
Statutory Rate......................    (34.0%)         34.0%

Effects of:
State Taxes.........................     (3.3%)          3.3%
Amortization of Excess 
  Reorganization Value..............      6.7%          40.5%
Change in Valuation Allowance.......     30.6%            --
                                        -----           ----
Effective Tax Rate..................     0.00%          77.8%
                                        -----           ----

</TABLE>

         The components of the deferred tax asset as of December 31, 1998 and 
1997 are as follows.

<TABLE>
<CAPTION>
                                          1998           1997
                                          ----           ----
<S>                                    <C>             <C>
CURRENT:
Accrued vacation, gaming liabilities 
  and incentive compensation........   $    230        $   261

NON-CURRENT:
Difference in asset basis...........        626            456
Recognition of legal settlement             246            503
  Impairment of assets..............      2,827          1,208

</TABLE>

                                       37

<PAGE>
<TABLE>
<S>                                    <C>             <C>
Net operating loss carryforwards....      4,813          4,689
                                       --------        -------
Gross deferred tax asset............      8,742          7,117
Valuation allowance.................     (8,742)        (7,117)
                                       --------        -------
                                       $    --         $    --
                                       --------        -------
                                       --------        -------

</TABLE>

         The net deferred tax asset valuation allowance is equal to the full 
amount of the gross deferred tax asset because the realization of such asset 
is dependent upon future taxable income, which is uncertain. The Company 
currently has NOL's totaling approximately $12.8 million, which expire 
beginning in 2008. Pursuant to the Reorganization, the old shares of common 
stock were canceled and newly authorized common stock was issued to the 
Company's senior secured creditors, effecting an ownership change as defined 
in section 382 of the Internal Revenue Code. The effect of this ownership 
change limits the utilization of NOL's generated prior to the Effective Date 
to approximately $520,000 annually. NOL's generated subsequently to the 
Effective Date, totaling approximately $6.6 million. However, all NOL's are 
subject to additional limitations by the change in ownership resulting from 
the Ladbroke acquisition, effective August 21, 1998.

(8) LEASES

OPERATING LEASES

         The Company leases real property, on which Bullwhackers Black Hawk 
and the Bullpen was constructed. The Bullwhackers Black Hawk land lease is 
for a period through 2014 and requires an annual base rent of $150,000 
payable quarterly through 1999 and the quarterly amount increases $15,000 
every four years. The land lease also requires monthly payments of additional 
rent equal to 1.52% of net revenues, as defined. In addition to the specified 
rental payments, the Company is also responsible for any and all costs 
associated with the leased property, including but not limited to taxes and 
assessments, utilities, insurance, maintenance and repairs. The Company has 
an option to purchase the leased land, beginning November 1, 2001, for an 
amount equal to nine times the annual base minimum rent payment then in 
effect, which totals $5.9 million on that date.

         On February 11, 1998, the Company entered into three ground lease 
agreements for the real property underlying the Bullpen. The terms of the 
first lease requires a monthly $35,000 base rent payment and additional rent 
equal to 40% of Net Win (as defined) of the gaming operations conducted on 
the premises through September 2022, with an option to extend the lease term 
to July 2024. The terms of the second lease requires a $22,500 monthly lease 
payment through July 2024. This lease contains a purchase option for $1.2 
million expiring in March 2001. The terms of the third lease requires monthly 
rent between $12,500 to $16,500 per month, based on a range of Average Daily 
Proceeds (as defined) from all gaming devices conducted on the premises, 
which monthly rent escalates throughout the term of the lease, through July 
2024.

         Total base rent plus additional rent pursuant to the land lease 
agreements for the three years ended December 31, 1998,1997 and 1996 was $1.8 
million, $1.1 million and $1.1 million, respectively. Future annual base 
rental payments for the land leases as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
Year ending December 31 (in thousands):
<S>                              <C>
1999........................     $ 1,560
2000........................       1,620
2001........................       1,620
2002........................       1,550
2003........................       1,500
Thereafter..................      24,645
                                 -------
 Total......................     $32,495
                                 -------
                                 -------

</TABLE>

         In March 1997, the Company relocated its corporate offices to 
Lakewood, Colorado pursuant to a new 

                                       38
<PAGE>

$10,000 a month lease, which expires April 2002.

(9) RELATED PARTY TRANSACTIONS

DUE FROM AFFILIATES

         In 1997, the Company paid $250,000 to Unirock Management Company, a 
merchant banking firm controlled by the Chairman of the Board of Directors 
for the Company prior to the Merger. Unirock Management Company provided 
financial advisory services to the Company related to the Merger. The Company 
believes that this transaction is on terms at least as favorable as would 
have been obtained from non-related parties.

(10) COMMITMENTS AND CONTINGENCIES

GAMING LICENSES

         The Colorado Casinos are required to comply with laws and 
regulations promulgated by the Colorado Gaming Commission in order to 
maintain continued operations. Bullwhackers Black Hawk and Bullwhackers 
Central City operate under separate current annual gaming licenses which 
expire in December 1999, whereas the Silver Hawk Casino license expires in 
June 1999. Management anticipates that such gaming licenses will be renewed.

GAMING TAXES AND FEES

         The Colorado Casinos operate as licensed gaming establishments 
pursuant to the Colorado Limited Gaming Act and, accordingly, are required to 
make monthly gaming tax payments to the State of Colorado which are subject 
to annual revisions with a maximum rate of 40%. The latest annual gaming tax 
rate revision, which became effective July 1, 1998, is calculated as a 
percentage of adjusted gross proceeds (casino net win). The gaming tax rates 
for the previous three gaming years are set forth in the following table:

<TABLE>
<CAPTION>
                                  Annual Tax Rate from     Annual Tax Rate from     Annual Tax Rate from
    Annual Gross Proceeds           10/94 thru 9/96          10/96 thru 6/98          7/98 thru 6/99
    ---------------------         --------------------     --------------------     --------------------
<S>                               <C>                      <C>                      <C>
First $2 million ................           2%                       2%                       2%
Next $2 million .................           8%                       4%                       4%
Next $1 million .................          15%                      14%                      14%
Next $5 million .................          18%                      18%                      18%
Proceeds over $10 million .......          18%                      20%                      20%

</TABLE>

         Additionally, the city and state levy device fees ranging from $75 
to $1,265 per device per annum. For the years ended December 31, 1998, 1997 
and 1996 the Company recorded $9.1 million, $9.1 million and $8.2 million, 
respectively, in total gaming taxes and device fees. Effective in 1998, the 
Gaming Commission changed the gaming tax year from October 1 through 
September 30 to July 1 through June 30. Accordingly, the new tax rate for the 
gaming tax year 1999-2000 will be set by the Gaming Commission in June, 
effective as of July 1, 1999. While it is difficult to speculate on how the 
Gaming Commission may adjust the tax rates, if at all, any material increase 
in the tax rates could have a material adverse effect on the Company's 
consolidated results of operations and financial position.

EMPLOYMENT AGREEMENTS

         The Company entered into employment agreements with five executives 
of the Company. These employment agreements are each for initial term of 
three years, and renew thereafter for successive one year terms unless 
terminated by each of the respective parties. Subsequent to year-end, Mr. 
Szapor, the Company's President and CEO and Mr. Mayer, the Company's Senior 
Vice President, Chief Legal Officer and Secretary, have resigned 

                                       39

<PAGE>

from the Company, therefore terminating their contracts.

LEGAL PROCEEDINGS

         In October 1996, BWCC, Inc. signed a non-binding memorandum of 
understanding ("MOU") with Gold Coin, Inc., a wholly-owned subsidiary of Lady 
Luck Gaming Corporation, to explore the possibility of physically combining 
Bullwhackers Central City with the adjacent casino operated as Lady Luck Gold 
Coin Gambling Hall & Saloon and owned by Gold Coin, Inc. The prospective 
transaction was subject to a number of contingencies, including the execution 
and delivery of definitive agreements setting forth the final agreed upon 
terms and conditions of the transaction. While the parties continued to 
negotiate over unresolved issues contained in the drafts of the definitive 
agreements, market conditions and other events affecting the Central City 
market continued to change and decline significantly. Despite continued 
efforts to satisfactorily resolve the open issues in light of the foregoing, 
no final, definitive agreements were executed and delivered, and the 
prospective transaction was never consummated.

         In March 1998, Lady Luck Central City, Inc., formerly known as Gold 
Coin, Inc., filed a complaint in the District Court for the County of 
Jefferson, State of Colorado, Case No. 98 CV 672, captioned as LADY LUCK 
CENTRAL CITY, INC. V. BWCC, INC., D/B/A BULLWHACKERS CENTRAL CITY, COLORADO 
GAMING & ENTERTAINMENT, CO., AND LADBROKE GROUP PLC. In 1999, the Company 
negotiated a Settlement Agreement in order to avoid further expenses, 
inconvenience, and other distraction of litigation. Both parties agreed to 
fully dismiss and release each other from all claims. The settlement is for 
$300,000, which is accrued for in the Company's consolidated balance sheet.

         The Company is or may become a defendant in a number of pending or 
threatened legal proceedings in the ordinary course of business. The 
Company's management believes that the ultimate resolution of currently 
pending legal proceedings will not have a material adverse impact on the 
Company's financial position or results of operations.

(11)  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

         The following is a summary of unaudited quarterly information: 

<TABLE>
<CAPTION>
          1998            1st Quarter        2nd Quarter       3rd Quarter       4th Quarter
          ----            -----------        -----------       -----------       -----------
<S>                       <C>                <C>               <C>               <C>
Net Revenues              $ 13,978           $ 14,974          $ 13,525          $ 11,216
Operating Income (Loss)      3,037              2,493             1,005            (4,540)
Net Income (Loss)              766                381              (725)           (5,680)

<CAPTION>
          1997            1st Quarter        2nd Quarter       3rd Quarter       4th Quarter
          ----            -----------        -----------       -----------       -----------
Net Revenues              $ 12,973           $ 13,392          $ 14,090          $ 11,677
Operating Income             1,368              1,849             2,424             1,995
Net Income (Loss)             (346)                74               366               118

</TABLE>

The Company reflected the loss from the closure of Bullwhackers Central City 
of $4.3 million in operating expenses during the fourth quarter of 1998.

                                       40

<PAGE>

                                   SIGNATURES

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

                                       COLORADO GAMING & ENTERTAINMENT CO.

                                       By: /s/ John Long
                                          -----------------------
                                          John Long
                                          Chief Executive Officer

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

         Signature             Title                                   Date
         ---------             -----                                   ----


/s/  John Long                 Chief Executive Officer,           March 30, 1999
------------------------       Director, Chairman of Board
John Long                      (Principal Executive Officer)


/s/  Richard Rabin             President and Chief                March 30, 1999
------------------------       Operating Officer
Richard Rabin                  


/s/  Robert J. Stephens        Senior Vice President of Finance   March 30, 1999
------------------------       (Principal Financial and
Robert J. Stephens             Accounting Officer)


/s/ George Harbison            Director                           March 30, 1999
------------------------
George Harbison

                                       41

<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.       Description
-----------       -----------
<S>               <C>
  2.1             Agreement and Plan of Merger dated as of August 22, 1997 by and among
                  the Company, Ladbroke Racing Corporation ("Ladbroke") and CG&E
                  Acquisition Corp. (incorporated by reference to Exhibit 2.1 to the
                  Company's Current Report on Form 8-K filed August 27, 1997).

  2.2             Stock Option Agreement dated as of August 22, 1997 by and between the
                  Company and Ladbroke (incorporated by reference to Exhibit 2.3 to the
                  Company's Current Report on Form 8-K filed August 27, 1997).

  2.3             First Amendment to Agreement and Plan of Merger dated as of October 21,
                  1997, among the Company, Ladbroke and CG&E Acquisition Corp. (incorporated 
                  by reference to Exhibit 2.5 to the Company's 10-K filed March 25, 1998).

  2.4             Asset Purchase Agreement, dated December 10, 1997, by and between CG&E
                  and Pioneer Associates Limited Liability Company ("Pioneer") (incorporated 
                  by reference to Exhibit 2.6 to the Company's 10-K filed March 25, 1998).

  3.1             Amended and Restated Articles of Incorporation of the Company.*

  3.2             Amended and Restated By laws of the Company.*

  4.1             Indenture between the Company and Fleet National Bank, as Trustee.*

  4.2             Specimen Certificate of Common Stock.*

  4.3             Form of Note.*

  4.4             First Supplemental Indenture date as of January 23, 1998 by and between
                  the Company and State Street Bank and Trust Company, as successor in
                  interest to Fleet National Bank, as Trustee (incorporated by reference 
                  to Exhibit 4.5 to the Company's 10-K filed March 25, 1998).

 10.1             Loan and Security Agreement, dated as of November 1, 1995 by and
                  between BWBH, Inc., BWCC, Inc. and Millsite 27, Inc. and Foothill
                  Capital Corporation.*

 10.2             Amendment Number One to Loan and Security Agreement, dated as of
                  December 4, 1995.*

 10.3             Amendment Number Two to Loan and Security Agreement, dated as of
                  January 24, 1996.*

 10.4             Letter Agreement, dated as of December 18, 1995, from BWBH, Inc., BWCC,
                  Inc. and Millsite 27, Inc. to Foothill Credit Corporation.*

 10.5             Security Agreement, dated as of November 1, 1995, between the Company
                  and Foothill Credit Corporation.*

 10.6             Trademark Security Agreement, dated as of November 1, 1995, between the
                  Company and Foothill Credit Corporation.*

 10.7             Continuing Guaranty, dated as of November 1, 1995 by the Company and
                  Foothill Credit Corporation.*

 10.8             Amended and Restated Loan and Security Agreement, dated as of June 4,
                  1996 between Foothill Capital Corporation, BWBH, Inc., BWCC, Inc.,
                  Millsite 27, Inc. and Silver Hawk Casino, Inc.*

</TABLE>

                                       42

<PAGE>

<TABLE>
<S>               <C>

 10.9             Lease Agreement, dated October 25, 1991 by and among Jerry L. Brown and
                  Harold Gene Reagin and HP Black Hawk, L.P.*

 10.10            Option to Purchase dated October 28, 1991 by and among Jerry L. Brown
                  and Harold Gene Reagin and HP Black Hawk, L.P.*

 10.11            Sublease Agreement by and between Marsh & McLennan, Incorporated and
                  the Company.*

 10.12            Amendment to Sublease Agreement, dated as of January 18, 1996 by and
                  between Marsh & McLennan, Incorporated and the Company.*

 10.13            Guaranty, dated as of January 18, 1996, by BWBH, Inc., BWCC, Inc. and
                  Millsite 27, Inc.*

 10.14            Agreement for Sale of Real Estate, dated October 20, 1995, by and
                  between Millsite 20 Limited Liability Company, Iron City Limited
                  Liability Company and the Company.*

 10.15            First Amendment to Agreement for Sale of Real Estate, dated 
                  December 21, 1995 by and between Millsite 20 Limited Liability Company, Iron
                  City Limited Liability Company and the Company.*

 10.16            Letter dated February 28, 1996 from the United States Environmental
                  Protection Agency.*

 10.17            Subdivision Agreement dated February 28, 1996 by and among the City of
                  Black Hawk, the Black Hawk/Central City Sanitation District, 
                  Millsite 27, Inc. and Millsite 20 Limited Liability Company.*

 10.18            State of Colorado, Department of Revenue, Limited Gaming License issued
                  to Bullwhackers Black Hawk Casino.*

 10.19            State of Colorado, Department of Revenue, Alcoholic Beverage License
                  issued to BWBH, Inc.*

 10.20            City of Black Hawk, Retail Liquor License with Extended Hours issued to
                  BWBH, Inc.*

 10.21            State of Colorado, Department of Revenue, Limited Gaming License issued
                  to Bullwhackers Central City Casino.*

 10.22            State of Colorado, Department of Revenue, Alcoholic Beverage License
                  issued to BWCC, Inc.*

 10.23            City of Central City, Retail Liquor License issued to BWCC, Inc.*

 10.24            City of Central City, Extended Hours License issued to BWCC, Inc.*

 10.25            Colorado Gaming & Entertainment Co. Management Stock Incentive Plan.*+

 10.26            Colorado Gaming & Entertainment Co. Management Cash Bonus Plan.*+

 10.27            Employment Agreement between the Company and Stephen J. Szapor, Jr.*+

 10.28            Employment Agreement between the Company and Alan L. Mayer.*+

 10.29            Employment Agreement between the Company and Richard Rabin.*+

 10.30            Employment Agreement between the Company and Robert Stephens .+

</TABLE>

                                       43

<PAGE>

<TABLE>
<S>               <C>
 10.31            Employment Agreement between the Company and Jack Breslin.+

 10.32            Second Amendment to Loan and Security Agreement by and among the BWBH,
                  Inc., BWCC, Inc. and Silver Hawk Casino, Inc., and Foothill Capital
                  Corporation dated February 9, 1998 (incorporated by reference to 
                  Exhibit 10.34 to the Company's 10-K filed March 25, 1998).

 10.33            Amendment to Lease Agreement, dated February 27, 1998 by and among
                  Jerry L. Brown and Harold Gene Reagin and HP Black Hawk, L.P. 
                  (incorporated by reference to Exhibit 10.35 to the Company's 10-K 
                  filed March 25, 1998).

 10.34            Lease Acknowledgment, Assumption and Modification Agreement, dated
                  February 11, 1998 by and among Pioneer, BWBH, Inc. and Edward E. Smith
                  and Shirley J. Smith (incorporated by reference to Exhibit 10.36 to 
                  the Company's 10-K filed March 25, 1998).

 10.35            Lease Acknowledgment, Assumption and Modification Agreement, dated
                  February 11, 1998 by and among Pioneer, BWBH, Inc. and KDL, Inc.
                  ("KDL") (incorporated by reference to Exhibit 10.37 to the 
                  Company's 10-K filed March 25, 1998).

 10.36            Lease Acknowledgment, Assumption and Modification Agreement, dated
                  February 11, 1998 by and among Pioneer, BWBH, Inc., KDL and Elizabeth
                  Branecki (incorporated by reference to Exhibit 10.38 to the 
                  Company's 10-K filed March 25, 1998).

 10.37            Loan Purchase Agreement, dated February1, 1999 by and among Foothill
                  Capital Corporation and Ladstock Holding Corporation.

 10.29            First Amendment to Employment Agreement between the Company and 
                  Stephen J. Szapor, Jr.*+

 21.1             List of Subsidiaries.*

 25.1             Statement of Eligibility under the Trust Indenture Act of 1939, as
                  amended of Fleet National Bank, as Trustee under the Indenture.*

 27.1             Financial Data Schedule.

</TABLE>

*        Incorporated by reference to the same exhibit number in the Company's
         Registration Statement on Form 10, with the exception of exhibit 25.1
         was previously referenced as 99.1 (File No. 0 - 28068).

+        Indicates management contract or compensatory plan, contract or
         arrangement.

                                       44