**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý**                                                                                                                                                                                 | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|------------|
| **For  the quarterly period ended June 30, 2004**                                                                                                                                     |
| **OR**                                                                                                                                                                                     |
| **o**                                                                                                                                                                                      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** | ** ** |
| **For  the transition period from               to              ** |

 

**Commission file****number 333-114335**

 

| **POSTER FINANCIAL GROUP, INC.**                                                    |
|-------------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                             |
|                                                                                |
| **Nevada**                                                                          | ** ** | **56-2370836** |
| (State or other  jurisdiction of incorporation or organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                |
| **129  E. Fremont Street, Las Vegas, Nevada**                                       |
| (Address of  principal executive offices)                                           |
|                                                                                |   |   |
| **89101**                                                                           |
| (Zip Code)                                                                          |
|                                                                                |   |   |
| **(702)  385-7111**                                                                 |
| (Registrant’s  telephone number, including area code)                          |
|                                                                                |
| **N/A**                                                                             |
| (Former name,  former address and former fiscal year, if changed since last report) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes o    No ý

 

Indicate by check markwhether the registrant is an accelerated filer.  Yeso    No ý

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

Common Stock, nopar value, 100 outstanding shares as of August 16, 2004

 

 

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**Form 10-Q**

 

**TABLE OFCONTENTS**

 
| **Part I.**  | ** **                                                                                  | **Financial Information**                                                                                      |
|--------------|---------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|
|         |                                                                                        |                                                                                                           |
| Item 1.      |                                                                                        | Financial Statements                                                                                           |
| ** **   | ** **                                                                                  | **Poster  Financial Group, Inc.**                                                                         |
| ** **   | ** **                                                                                  | ** **                                                                                                     |
|         |                                                                                        | Consolidated Balance Sheets  as of December 31, 2003 and June 30, 2004 (unaudited)                   |
|         |                                                                                        | Consolidated  Statement of Operations for the Three and Six Months Ended June 30, 2004  (unaudited)       |
|         |                                                                                        | Consolidated  Statement of Cash Flows for the Six Months Ended June 30, 2004  (unaudited)                 |
|         |                                                                                        | Notes  to Consolidated Financial Statements (unaudited)                                                        |
|         |                                                                                        |                                                                                                           |
|         |                                                                                        | **Golden  Nugget Group (1)**                                                                                   |
|         |                                                                                        |                                                                                                           |
|         |                                                                                        | Combined  Statements of Operations for the Three and Six Months Ended June 30,  2004 and 2003 (unaudited) |
|         |                                                                                        | Combined Statements of  Cash Flows for the Six Months Ended June 30, 2004 and 2003 (unaudited)            |
|         |                                                                                        | Notes  to Combined Financial Statements (unaudited)                                                            |
|         |                                                                                        |                                                                                                           |
|              |
|         |                                                                                        | (1)                                                                                                            | Poster Financial Group,  Inc. completed the acquisition of the Golden Nugget Group on January 23,  2004. When a registrant acquires a business, it is required under Rule 3-05  of Regulation S-X under the Securities Act to assess the significance of the  acquired business to determine whether the acquired business’ historical  financial statements must be included with any subsequent financial  statements of the acquirer (this requirement relates to both audited annual  financial statements and unaudited interim financial statements). The  acquisition of the Golden Nugget Group was significant. Accordingly, the  financial statements of the Golden Nugget Group are included in this  Quarterly Report on Form 10-Q in order to comply with Rule 3-05 of Regulation  S-X. |
|         |                                                                                        |                                                                                                           |
| Item  2.     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Item  3.     | Quantitative  and Qualitative Disclosure About Market Risk                                  |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Item 4.      | Controls and  Procedures                                                                    |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| **Part II.** | **Other Information**                                                                       |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Item 1.      | Legal Proceedings                                                                           |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Item 2.      | Changes in Securities and Use of Proceeds                                                   |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Item 3.      | Defaults Upon Senior Securities                                                             |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Item 4.      | Submission of Matters to a Vote of Security  Holders                                        |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Item 5.      | Other Information                                                                           |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Item 6.      | Exhibits and  Reports on Form 8-K                                                           |                                                                                                           |
|         |                                                                                        |                                                                                                           |
| Signature    |                                                                                        |
|              |                                                                                             |                                                                                                                |  |  |  |

 

2

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**Part I****.****              FinancialInformation**

 

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

 

**Poster Financial Group, Inc.**

**(A Wholly Owned Subsidiary of PB Gaming, Inc.)**

 

**ConsolidatedBalance Sheets**

**(Thousandsof dollars)**

 
| ** **                                                                                 | ** ** | **December 31, 2003** | ** ** | **June 30, 2004** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | ** **                 | ** ** | **(unaudited)**        | ** ** |
|                                                                                       |       |                       |       |                   |       |
| **Assets**                                                                                 |       |                       |       |                   |       |
| Current  Assets                                                                            |       |                       |       |                   |       |
| Cash  and cash equivalents                                                                 |       | $                          | —     |                   | $          | 18,932 |   |
| Restricted  cash in escrow                                                                 |       | 159,548                    |       | —                 |       |
| Accounts  receivable, net                                                                  |       | —                     |       | 10,497                 |       |
| Inventories                                                                                |       | —                     |       | 4,108                  |       |
| Prepaid  expenses and other                                                                |       | 122                        |       | 7,088                  |       |
|                                                                                       |       |                       |       |                   |       |
| Total  current assets                                                                      |       | 159,670                    |       | 40,625                 |       |
|                                                                                       |       |                       |       |                   |       |
| Property  and equipment, net                                                               |       | —                     |       | 188,151                |       |
| Investment  in joint venture                                                               |       | —                     |       | 4,739                  |       |
| Deposits  and other assets, net                                                            |       | 13,884                     |       | 35,486                 |       |
|                                                                                       |       |                       |       |                   |       |
| Total  assets                                                                              |       | $                          | 173,554    |                   | $          | 269,001 |   |
|                                                                                       |       |                       |       |                   |       |
| Liabilities  and Stockholder’s Equity                                                 |       |                       |       |                   |       |
| Current  Liabilities                                                                       |       |                       |       |                   |       |
| Accounts  payable                                                                          |       | $                          | 7,696      |                   | $          | 11,237 |   |
| Current  portion of notes payable                                                          |       | —                     |       | 8,854                  |       |
| Other  accrued liabilities                                                                 |       | 1,078                      |       | 26,379                 |       |
| Amounts  due to affiliates                                                                 |       | 376                        |       | —                 |       |
|                                                                                       |       |                       |       |                   |       |
| Total  current liabilities                                                                 |       | 9,150                      |       | 46,470                 |       |
| Notes  payable, net of current portion                                                     |       | 155,000                    |       | 173,291                |       |
|                                                                                       |       |                       |       |                   |       |
| Total  liabilities                                                                         |       | 164,150                    |       | 219,761                |       |
|                                                                                       |       |                       |       |                   |       |
| Contingencies  and Commitments                                                             |       |                       |       |                   |       |
| Stockholder’s  equity                                                                 |       |                       |       |                   |       |
| Common  stock (no par value; 10,000 shares authorized; 100 shares issued and  outstanding) |       | —                     |       | —                 |       |
| Paid-in  capital in excess of par value                                                    |       | 10,883                     |       | 50,000                 |       |
| Retained  earnings (deficit)                                                               |       | (1,479                     | )          | (760                   | )          |
|                                                                                       |       |                       |       |                   |       |
| Total  stockholder’s equity                                                           |       | 9,404                      |       | 49,240                 |       |
| Total  liabilities and stockholder’s equity                                           |       | $                          | 173,554    |                   | $          | 269,001 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

3

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**PosterFinancial Group, Inc.(A Wholly Owned Subsidiary of PB Gaming, Inc.)**

 

**ConsolidatedStatements of Operations**

**(Thousandsof dollars)**

 
| ** **                       | ** ** | **Three Months Ended  June 30, 2004** | ** ** | **Six Months Ended  June 30, 2004** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **                       | ** ** | **(unaudited)**                            | ** ** | **(unaudited)**                          | ** ** |
| **Revenues**                     |       |                                       |       |                                     |       |
| Casino                           |       | $                                          | 45,009     |                                     | $          | 83,955 |   |
| Rooms                            |       | 12,439                                     |       | 22,497                                   |       |
| Food  and beverage               |       | 13,723                                     |       | 22,952                                   |       |
| Entertainment,  retail and other |       | 3,100                                      |       | 5,989                                    |       |
|                             |       |                                       |       |                                     |       |
| Gross  revenues                  |       | 74,271                                     |       | 135,393                                  |       |
| Promotional  allowances          |       | (8,610                                     | )          | (15,850                                  | )          |
|                             |       |                                       |       |                                     |       |
| Net  revenues                    |       | 65,661                                     |       | 119,543                                  |       |
| Cost  and expenses               |       |                                       |       |                                     |       |
| Casino                           |       | 26,347                                     |       | 46,722                                   |       |
| Rooms                            |       | 5,285                                      |       | 9,094                                    |       |
| Food  and beverage               |       | 9,101                                      |       | 15,368                                   |       |
| Entertainment,  retail and other |       | 2,463                                      |       | 4,815                                    |       |
| Provision  for doubtful accounts |       | 464                                        |       | 1,075                                    |       |
| General  and administrative      |       | 13,249                                     |       | 23,828                                   |       |
| Depreciation  and amortization   |       | 4,312                                      |       | 7,081                                    |       |
|                             |       |                                       |       |                                     |       |
| Total  cost and expenses         |       | 61,221                                     |       | 107,983                                  |       |
|                             |       |                                       |       |                                     |       |
| Operating  income                |       | 4,440                                      |       | 11,560                                   |       |
|                             |       |                                       |       |                                     |       |
| **Other income (expense)**       |       |                                       |       |                                     |       |
| Equity  in loss of joint venture |       | (173                                       | )          | (256                                     | )          |
| Interest  income                 |       | 13                                         |       | 89                                       |       |
| Interest  expense                |       | (4,206                                     | )          | (8,157                                   | )          |
|                             |       |                                       |       |                                     |       |
| Total  other income (expense)    |       | (4,366                                     | )          | (8,324                                   | )          |
|                             |       |                                       |       |                                     |       |
| Net  income                      |       | $                                          | 74         |                                     | $          | 3,236 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

 

4

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**PosterFinancial Group, Inc.**

**(A WhollyOwned Subsidiary of PB Gaming, Inc.)**

**Consolidated Statement of Cash Flows**

**(Thousandsof dollars)**

 
| ** **                                                                                                          | ** ** | **Six Months Ended  June 30, 2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
|                                                                                                                |       | **(unaudited)**                          |       |
| **Cash flows from operating activities:**                                                                           |       |                                     |       |
| Net  income                                                                                                         |       | $                                        | 3,236      |   |
|                                                                                                                |       |                                     |       |
| Adjustments  to reconcile net income to net cash provided by operating activities                                   |       |                                     |       |
| Depreciation  and amortization                                                                                      |       | 7,081                                    |       |
| Provision  for doubtful accounts                                                                                    |       | 1,075                                    |       |
| Equity  in loss of joint venture                                                                                    |       | 256                                      |       |
| Changes  in operating assets and liabilities, net of amounts resulting from  acquisition of the Golden Nugget Group |       |                                     |       |
| Decrease  (increase) in accounts receivable                                                                         |       | (7,353                                   | )          |
| Decrease  (increase) in inventories                                                                                 |       | (190                                     | )          |
| Decrease  (increase) in prepaid expenses and other assets                                                           |       | (2,320                                   | )          |
| (Decrease)  increase in deposits and other                                                                          |       | (36                                      | )          |
| (Decrease)  increase in accounts payable                                                                            |       | 2,399                                    |       |
| (Decrease)  increase in other accrued liabilities                                                                   |       | 5,106                                    |       |
|                                                                                                                |       |                                     |       |
| Net  cash provided by operating activities                                                                          |       | 9,254                                    |       |
|                                                                                                                |       |                                     |       |
| **Cash flows from investing activities:**                                                                           |       |                                     |       |
| Acquisition  of property, equipment and improvements                                                                |       | (9,767                                   | )          |
| Acquisition  of Golden Nugget Group, net of cash acquired of $11,943                                                |       | (201,781                                 | )          |
| Contributions  to joint venture                                                                                     |       | (235                                     | )          |
| Decrease  in restricted cash                                                                                        |       | 159,548                                  |       |
|                                                                                                                |       |                                     |       |
| Net  cash used in investing activities                                                                              |       | (52,235                                  | )          |
|                                                                                                                |       |                                     |       |
| **Cash flows from financing activities:**                                                                           |       |                                     |       |
| Proceeds  from the issuance of term loan                                                                            |       | 20,000                                   |       |
| Net  borrowings under revolving credit facility                                                                     |       | 6,645                                    |       |
| Change  in bank overdraft                                                                                           |       | (1,332                                   | )          |
| Distributions  of equity to parent                                                                                  |       | (2,517                                   | )          |
| Additional  contributions of equity from parent                                                                     |       | 39,117                                   |       |
|                                                                                                                |       |                                     |       |
| Net  cash provided by financing activities                                                                          |       | 61,913                                   |       |
|                                                                                                                |       |                                     |       |
| Net  increase (decrease) in cash and cash equivalents                                                               |       | 18,932                                   |       |
| Cash  and cash equivalents, beginning of period                                                                     |       | —                                   |       |
|                                                                                                                |       |                                     |       |
| Cash  and cash equivalents, end of period                                                                           |       | $                                        | 18,932     |   |

 

The accompanying notes are an integral part of thesefinancial statements.

 

5

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**Poster Financial Group, Inc.**

**(A Wholly Owned Subsidiary of PB Gaming, Inc.)**

 

**CondensedNotes to Consolidated Financial Statements (Unaudited)**

 

**1.  Organization**

 

Poster FinancialGroup, Inc. (“Poster Financial” or the “Company”) is a Nevada corporation,formed on June 2, 2003 as a holding corporation for the purpose ofcompleting the acquisition (the “Acquisition”) of the Golden Nugget Group (asdefined below), as more fully described in Note 4. The Company is a whollyowned subsidiary of PB Gaming, Inc. (“PB Gaming” or the “Parent”).

 

After completion of theAcquisition, the Company owns and operates the following properties, which arecollectively referred to as the “Golden Nugget Group”:

 

•                                          GoldenNugget—Las Vegas, a hotel-casino and entertainment resort located in downtownLas Vegas, Nevada and operated by GNLV, CORP., a Nevada corporation whollyowned by the Company (“GNLV”); and

 

•                                          GoldenNugget—Laughlin, a hotel-casino resort located in Laughlin, Nevada and operatedby GNL, CORP., a Nevada corporation wholly owned by the Company (“GNL”).

 

GNLV also has a whollyowned subsidiary, Golden Nugget Experience, LLC (“GNE”), a Nevada limitedliability company. GNE is a holding company that has an investment in TheFremont Street Experience Limited Liability Company, a Nevada limited liabilitycompany (the “Fremont Street Experience”), organized to enhance tourism indowntown Las Vegas, Nevada. The Fremont Street Experience is owned by a groupof unrelated casino operators in downtown Las Vegas, and operates retail malls,parking garages, entertainment venues and a pedestrian mall that encloses acity street (Fremont Street), located adjacent to the Golden Nugget—Las Vegas.GNE holds 17.65% of the voting units and 50.0% of the non-voting units of theFremont Street Experience, and accounts for its investment utilizing the equitymethod of accounting.

 

**2.  Significant Accounting Policies and Basis ofPresentation**

 

The consolidatedfinancial statements of the Company as of June 30, 2004 and for the sixmonth period then ended have been prepared by the Company, without audit,pursuant to the rules and regulations of the Securities and Exchange Commission(the “SEC”). Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations. The preparation of the consolidated financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent liabilities at the dateof the financial statements and the reported amounts of revenue and expensesduring the reporting period. Actual results could differ from those estimates.In the opinion of management, all adjustments, consisting of normal recurringitems and estimates necessary for a fair presentation of the results for interimperiods, have been made. These consolidated financial statements should be readin conjunction with the financial statements and notes thereto for the Companyas of December 31, 2003 and for the period from June 2, 2003(inception) through December 31, 2003.

 

**Principlesof Consolidation**

 

All inter-companyaccounts and transactions between the Company and GNLV and GNL are eliminatedin consolidation. All inter-company accounts and transactions between GNLV andGNE are eliminated in consolidation.

 

6

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**Concentrationof Credit Risk**

 

Financial instrumentsthat potentially subject the Company to concentrations of credit risk consistprincipally of casino accounts receivable. The Company extends credit toapproved casino customers following background checks and investigations ofcreditworthiness.

 

Trade receivables,including casino and hotel receivables, are typically noninterest bearing andare initially recorded at cost. Accounts are written off when management deemsthe account to be uncollectible. Recoveries of accounts previously written offare recorded when received. An estimated allowance for doubtful accounts ismaintained to reduce the Company’s receivables to their carrying amount, whichapproximates fair value. The allowance is estimated based on specific review ofcustomer accounts as well as historical collection experience and currenteconomic and business conditions. Management believes that as of June 30,2004, no significant concentrations of credit risk existed for which anallowance had not already been recorded.

 

**Inventories**

 

Inventories consistingprincipally of food and beverage and operating supplies are stated at the lowerof cost or market value. Cost is determined by the first-in, first-out method.

 

**Propertyand Equipment**

 

Property and equipmentare stated at cost. Depreciation expense is computed utilizing thestraight-line method over the estimated useful lives of the depreciable assets,as follows:

 
| Buildings  and improvements                                |   | 15-40 years |   |
|------------------------------------------------------------|--------|------------------|--------|
| Land  improvements                                         |   | 15-40 years |   |
| Equipment,  furniture, fixtures and leasehold improvements |   | 3-20 years  |   |

 

Certain equipment heldunder capital leases are classified as property and equipment and amortizedusing the straight-line method over the lease term and the related obligationsare recorded as liabilities. Costs of major improvements are capitalized; costsof normal repairs and maintenance are charged to expense as incurred. Gains orlosses on dispositions of property and equipment are recognized in theconsolidated statements of operations when incurred.

 

**RevenueRecognition and Promotional Allowances**

 

Casino revenue is theaggregate net difference between gaming wins and losses, with liabilitiesrecognized for funds deposited by customers before gaming play occurs (“casinofront money”) and for chips in the customer’s possession (“outstanding chipliability”). Casino revenues are recognized net of certain sales incentives inaccordance with the Emerging Issues Task Force (“EITF”) consensus on Issue01-9, “*Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of theVendor’s Products)*.” Under the guidance of the EITF, the Companyrecognizes sales incentives as a reduction of revenue. In addition, accrualsfor the cost of cash-back points in point-loyalty programs, such as pointsearned in slot players clubs, are recorded as a reduction of revenue.

 

Hotel, food and beverage,entertainment and other operating revenues are recognized as services areperformed. Advance deposits on rooms and advance ticket sales are recorded asaccrued liabilities until services are provided to the customer. The retailvalue of accommodations, food and beverage, and other services furnished tohotel-casino guests without charge is included in gross revenue and thendeducted as promotional allowances.

 

**3.  Supplemental Cash Flows Information**

 

The following informationpresents supplemental cash flow information of assets acquired and liabilitiesassumed in connection with the Acquisition (amounts in thousands) (see Note 4):

 

7

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| ** **                                  | ** ** | **Six Months  Ended  June 30, 2004** | ** ** |
|---------------------------------------------|------------|------------------------------------------------|------------|
| Accounts  receivable                        |       | $                                              | 4,219      |   |
| Inventories                                 |       | 3,918                                          |       |
| Prepaid  expenses and other                 |       | 4,646                                          |       |
| Property  and equipment                     |       | 185,198                                        |       |
| Tradename  and other intangibles            |       | 17,043                                         |       |
| Investment  in joint venture                |       | 4,760                                          |       |
| Deposits  and other assets                  |       | 4,790                                          |       |
| Accounts  payable                           |       | (2,098                                         | )          |
| Other  accrued liabilities                  |       | (20,195                                        | )          |
| Notes  payable                              |       | (500                                           | )          |
|                                        |       | $                                              | 201,781    |   |
| Plus,  cash acquired                        |       | 11,943                                         |       |
| Total  purchase price and acquisition costs |       | $                                              | 213,724    |   |

 

**4.  Golden Nugget Acquisition**

 

On January 23, 2004,the Company completed the Acquisition of the Golden Nugget Group from MGMMIRAGE. The purchase price for the Acquisition was approximately$213.7 million, reflecting a base purchase price of $215.0 millionless an adjustment for working capital at the date of the closing ofapproximately $4.8 million plus acquisition related expenses ofapproximately $3.5 million. There are no contingent payments.

 

The transaction has beenaccounted for as a purchase and, accordingly, the purchase price has beenallocated to the underlying assets acquired and liabilities assumed based upontheir estimated fair values at the date of the Acquisition. Results ofoperations for the acquired companies have been reflected in the Company’sfinancial statements from the day the Acquisition closed.

 

The following tablesummarizes the estimated fair values of the assets acquired and liabilitiesassumed at the date of the Acquisition. The allocation of the purchase price tothe fair value of net assets acquired has been based on appraisals of theassets acquired (amounts in thousands):

 
| ** **                                | ** ** | **At  January 23, 2004** | ** ** |
|-------------------------------------------|------------|-------------------------------|------------|
| ** **                                | ** ** | ** **                    | ** ** |
| **Working Capital Items**                 |       |                          |       |
| Cash  and cash equivalents                |       | $                             | 11,943     |   |
| Accounts  receivable, net                 |       | 4,219                         |       |
| Inventories                               |       | 3,918                         |       |
| Prepaid  expenses and other               |       | 4,646                         |       |
| Deposits  and other assets                |       | 2,357                         |       |
| Accounts  payable and accrued liabilities |       | (22,292                       | )          |
| Notes  payable                            |       | (500                          | )          |
| Subtotal—Working  Capital Items      |       | 4,291                         |       |
|                                      |       |                          |       |
| **Long-lived Assets:**                    |       |                          |       |
| Property  & Equipment                 |       |                          |       |
| Land                                      |       | 19,992                        |       |
| Buildings                                 |       | 132,620                       |       |
| Construction  in Progress                 |       | 2,686                         |       |
| FFE  and Equipment                        |       | 29,900                        |       |
| Intangibles                               |       |                          |       |
| Tradename                                 |       | 12,458                        |       |
| Player  Club                              |       | 4,585                         |       |
| Artwork  and Display Nugget               |       | 2,432                         |       |
| Investment  in Joint Venture              |       | 4,760                         |       |
| Subtotal—long-lived  assets          |       | 209,433                       |       |
| Total  purchase price allocated           |       | $                             | 213,724    |   |

 

8

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Approximately$12.5 million was assigned to the trademarks used by GNLV and GNL, andapproximately $2.4 million was assigned to unique artwork and a goldnugget on display in the hotel lobby of the Golden Nugget—Las Vegas. Suchassets are considered to have an indefinite life, and are not subject toamortization. In accordance with accounting principals generally accepted inthe United States of America, they will be subject to analysis for impairmentfrom time to time, at least on an annual basis. Approximately $4.6 millionwas assigned to the Golden Nugget Group’s slot player club, which has beendetermined to have a useful life of seven years, based on the Golden NuggetGroup’s historical experience and the composition of players in the Club.

 

Had the Acquisition takenplace on January 1, 2003, results of operations would have reflected thefollowing pro forma amounts for the six months ended June 30, 2004 and thecomparable period in 2003 (amounts in thousands):

 
| ** **        | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------|------------|-------------------------------------|------------|
| ** **        | ** ** | **2003**                            | ** ** | **2004** | ** ** |
| Net  revenues     |       | $                                   | 116,850    |   | $ | 134,348 |   |
| Operating  income |       | $                                   | 13,265     |   | $ | 15,368 |   |
| Net  income       |       | $                                   | 4,833      |   | $ | 6,901 |   |

 

The principal differencesbetween reported amounts and the pro forma amounts result from elimination ofthe MGM MIRAGE management fee, changes in depreciation and amortizationresulting from the new basis in assets acquired, and elimination of the provisionfor income taxes due to the election of PB Gaming to have each of itssubsidiaries treated as a qualified Subchapter S corporation subsidiary forincome tax purposes. In addition, signing bonuses paid to key executives uponcompletion of the Acquisition of approximately $1.6 million are includedin the actual results for the six months ended June 30, 2004 but has beenexcluded from the pro forma results presented above because such bonuses arenon-recurring in nature, are directly related to the Acquisition, and are notreflective of the results of operations on a pro forma basis.

 

**5.  Fremont Street Experience**

 

In connection with theAcquisition, the Company now also indirectly owns 17.65% of the voting unitsand 50.0% of the non-voting units of the Fremont Street Experience. Thisinvestment is accounted for under the equity method of accounting. Under theequity method, the carrying value of the investment is adjusted by theCompany’s share of earnings, losses, capital contributions and distributions.Activity relating to the Company’s investment in the Fremont Street Experiencefor the period January 23, 2004 to June 30, 2004 is as follows(amounts in thousands):

 
| Acquisition  of investment        |   | $    | 4,760  |   |
|-----------------------------------|--------|------|--------|--------|
| Contributions  to joint venture   |   | 235  |   |
| Equity  in loss of joint venture  |   | (256 | )      |
| Investment  Balance-end of period |   | $    | 4,739  |   |

 

The investment balancereflects the Company’s member’s equity in Fremont Street Experience, comprisedof cumulative contributions, adjusted for the Golden Nugget Group’s proportionalinterest in profits or losses ($2.9 million at June 30, 2004), aswell as an additional $1.8 million contribution made by the Golden NuggetGroup in 1995 on a voluntary basis, and used by the Fremont Street Experienceto acquire additional fixed assets used in its operations.

 

The $4.7 millionmember’s equity carried by the Company is approximately $0.4 million lessthan the proportional amount of members’ capital reported by the Fremont StreetExperience due to values assigned in the allocation of purchase price resultingfrom the Acquisition.

 

9

----

 

The additionalcontribution of $1.8 million represents a non-voting interest which hasbeen treated as a redeemable preferred member contribution of the FremontStreet Experience. The redeemable preferred member contribution does not haveany profit distribution and must be repaid before any distributions are made onvoting interests.

 

Summarized financialinformation of the Fremont Street Experience is as follows (amounts inthousands):

 
| ** **                                   | ** ** | **As of  June 30, 2004** | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|
|                                         |       |                          |       |
| Current assets                               |       | $                             | 2,385      |   |
| Non-current assets                           |       | 37,592                        |       |
| Total assets                                 |       | $                             | 39,977     |   |
|                                         |       |                          |       |
| Current liabilities                          |       | $                             | 220        |   |
| Non-current liabilities                      |       | 13,769                        |       |
| Preferred  member contribution               |       | 3,040                         |       |
| Members’  capital                       |       | 22,948                        |       |
| Total  liabilities and members’ capital |       | $                             | 39,977     |   |

 
| ** **          | ** ** | **Three Months Ended  June 30, 2004** | ** ** | **January 23, 2004 to  June 30, 2004** | ** ** |
|---------------------|------------|--------------------------------------------|------------|--------------------------------------------------|------------|
|                |       |                                       |       |                                             |       |
| Total  revenues     |       | $                                          | 1,287      |                                             | $          | 2,144 |   |
| Costs  and expenses |       | 2,268                                      |       | 3,594                                            |       |
| Net  loss           |       | $                                          | (981       | )                                                | $          | (1,450 | ) |

 

**6.  Segment Information**

 

The Company owns andoperates two properties as follows: a casino-hotel resort located in downtownLas Vegas, Nevada; and a casino and nearby hotel located in Laughlin, Nevada.The properties market in each of their segments primarily to middle-incomeguests. The major products offered in each segment are as follows: casinoentertainment, hotel rooms, and food and beverage. The accounting policies ofeach business segment are the same as those described in the summary of significantaccounting policies. There are minimal inter-segment sales.

 

A summary of operationsby business segment for the period from the date of the Acquisition(January 23, 2004) through June 30, 2004, and a summary of thesegment assets as of June 30, 2004 is presented below (amounts inthousands):

 
| ** **                                                                     | ** ** | **Three Months  Ended June 30,  2004** | ** ** | **For the Period  Jan 23, 2004  (Acquisition)  Through  June 30,  2004** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
|                                                                           |       |                                        |       |                                                                          |       |
| Net revenues                                                                   |       |                                        |       |                                                                          |       |
| GNLV, CORP.                                                                    |       | $                                           | 53,915     |                                                                          | $          | 97,899 |   |
| GNL,  CORP.                                                                    |       | 11,746                                      |       | 21,644                                                                        |       |
| Total                                                                          |       | $                                           | 65,661     |                                                                          | $          | 119,543 |   |
| Income  (loss) from operations                                                 |       |                                        |       |                                                                          |       |
| GNLV,  CORP.                                                                   |       | $                                           | 4,063      |                                                                          | $          | 9,924 |   |
| GNL,  CORP.                                                                    |       | 708                                         |       | 2,119                                                                         |       |
| Poster  Financial (corporate)                                                  |       | (331                                        | )          | (483                                                                          | )          |
| Total                                                                          |       | $                                           | 4,440      |                                                                          | $          | 11,560 |   |
| Segment  depreciation and amortization                                         |       |                                        |       |                                                                          |       |
| GNLV,  CORP.                                                                   |       | $                                           | 3,968      |                                                                          | $          | 6,488 |   |
| GNL,  CORP.                                                                    |       | 344                                         |       | 593                                                                           |       |
| Total                                                                          |       | $                                           | 4,312      |                                                                          | $          | 7,081 |   |
| Expenditures  for additions to long-lived assets, exclusive of the Acquisition |       |                                        |       |                                                                          |       |
| GNLV,  CORP.                                                                   |       | $                                           | 7,485      |                                                                          | $          | 8,865 |   |
| GNL,  CORP.                                                                    |       | 427                                         |       | 902                                                                           |       |
| Total                                                                          |       | $                                           | 7,912      |                                                                          | $          | 9,767 |   |

 

10

----

 
| ** **                    | ** ** | **As of  June 30, 2004** | ** ** |
|-------------------------------|------------|-------------------------------|------------|
|                          |       |                          |       |
| Segment  assets               |       |                          |       |
| GNLV,  CORP.                  |       | $                             | 215,334    |   |
| GNL,  CORP.                   |       | 43,140                        |       |
| Poster  Financial (Corporate) |       | 10,527                        |       |
| Total                         |       | $                             | 269,001    |   |

 

**7.  Licensing Contingency**

 

The Company conductslicensed gaming operations in Nevada. The Nevada gaming authorities controlapproval of ownership interests in gaming operations.

 

On January 22, 2004,the Nevada Gaming Commission found the principal shareholders (the“Shareholders”) of PB Gaming (who are also the Chief Executive Officer andChief Operating Officer of Poster Financial) suitable as officers, directorsand shareholders of PB Gaming and as officers and directors of PosterFinancial, and issued licenses to them as officers and directors of GNLV and GNL.The findings of suitability and licenses issued to the Shareholders expire inJanuary 2008. Following the one-year anniversary of such issuances, theShareholders may apply for new unlimited findings of suitability and licenses.No assurance can be given that such applications would be granted withoutfurther limitation or at all. If the Shareholders were found unsuitable, theywould be required to be removed from their positions as officers and directorsof the Company, PB Gaming, GNLV and GNL and PB Gaming could be required toredeem the stock in PB Gaming held by them at a price equal to fair marketvalue. Such an event could have a material adverse effect on the Company’sbusiness, financial condition and results of operations.

 

**8.  Transactions with Affiliates**

 

On June 29, 2004,GNLV made a non-interest bearing loan to Lopo, LLC, aNevada limited liability company (“*Lopo*”), themember’s interests of which are held by the sole stockholders of the Company’sparent corporation, in the aggregate principal amount of $1.6 Million (the “*Loan*”), the funds of such Loan to be used by Lopo for theexpress and sole purpose of facilitating the acquisition of certain realproperty located near the Golden Nugget - Las Vegas by Lopo, upon Lopo’sagreement to convey the property to GNLV as repayment for the Loan within 90days of the effective date of the Loan. The carrying balance of the loan isrecorded in other assets at June 30, 2004.

 

**9.  Summarized Financial Information**

 

On December 3, 2003,the Company issued $155 million aggregate principal amount of 8 3/4%Senior Secured Notes due 2011 (the “Notes”) to finance a portion of thepurchase price of the Acquisition.  Allpayments with respect to the Notes are fully, unconditionally and irrevocablyguaranteed, jointly and severally, by all the Company’s subsidiaries. The Notesare also collateralized by a pledge of capital stock of the Company’ssubsidiaries and a security interest in substantially all of the Company’s andthe guarantors’ current and future assets. Such security interest is junior tothe security interest granted to the lenders under the Company’s senior creditfacility.

 

Separate financialstatements and other disclosures concerning each of the subsidiary guarantorsare not presented below because management believes they are not material toinvestors. The following information represents the summarized financialinformation of the Company and the subsidiary guarantors on a consolidatingbasis as of June 30, 2004 and for the six month period ended June 30,2004, reflecting the Acquisition completed in January 2004.

 

11

----

 

**CONDENSEDBALANCE SHEETS**

**June 30,2004**

**(amounts in thousands)**

 
| ** **                                               | ** ** | **Poster  Financial** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Consolidating/  Eliminating  Entries** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|-----------------------------|------------|------------------------------------------|------------|-----------|------------|
| **Assets**                                               |       |                  |       |                        |       |                                     |       |      |       |
| Current  Assets                                          |       |                  |       |                        |       |                                     |       |      |       |
| Cash  and cash equivalents                               |       | $                     | —     |                        | $          | 18,932                                   |       | $         | —     |   | $ | 18,932 |   |
| Accounts  receivable, net                                |       | —                |       | 10,497                      |       | —                                   |       | 10,497    |       |
| Inventories                                              |       | —                |       | 4,108                       |       | —                                   |       | 4,108     |       |
| Prepaid  expenses and other                              |       | —                |       | 7,088                       |       | —                                   |       | 7,088     |       |
| Intercompany  receivables                                |       | —                |       | 3,655                       |       | (3,655                                   | )(a)       | —    |       |
|                                                     |       |                  |       |                        |       |                                     |       |      |       |
| Total current assets                                     |       | —                |       | 44,280                      |       | (3,655                                   | )          | 40,625    |       |
|                                                     |       |                  |       |                        |       |                                     |       |      |       |
| Property  and equipment, net                             |       | —                |       | 188,151                     |       | —                                   |       | 188,151   |       |
| Investment  in subsidiaries                              |       | 225,532               |       | —                      |       | (225,532                                 | )(b)       | —    |       |
| Investment  in joint venture                             |       | —                |       | 4,739                       |       | —                                   |       | 4,739     |       |
| Deposits  and other assets, net                          |       | 10,527                |       | 34,908                      |       | (9,949                                   | )(c)       | 35,486    |       |
|                                                     |       |                  |       |                        |       |                                     |       |      |       |
| Total  assets                                            |       | $                     | 236,059    |                        | $          | 272,078                                  |       | $         | (239,136   | ) | $ | 269,001 |   |
|                                                     |       |                  |       |                        |       |                                     |       |      |       |
| **Liabilities and Stockholder’s Equity**            |       |                  |       |                        |       |                                     |       |      |       |
| Current  Liabilities                                     |       |                  |       |                        |       |                                     |       |      |       |
| Accounts  payable                                        |       | $                     | 158        |                        | $          | 11,079                                   |       | $         | —     |   | $ | 11,237 |   |
| Current  portion of notes payable to nonaffiliates       |       | 8,744                 |       | 8,854                       |       | (8,744                                   | )(c)  | 8,854     |       |
| Other  accrued liabilities                               |       | 1,362                 |       | 25,017                      |       | —                                   |       | 26,379    |       |
| Amounts  due to affiliates                               |       | 3,655                 |       | —                      |       | (3,655                                   | )(a)       | —    |       |
|                                                     |       |                  |       |                        |       |                                     |       |      |       |
| Total  current liabilities                               |       | 13,919                |       | 44,950                      |       | (12,399                                  | )          | 46,470    |       |
| Notes  payable to non-affiliates, net of current portion |       | 172,900               |       | 173,291                     |       | (172,900                                 | )(c)       | 173,291   |       |
|                                                     |       |                  |       |                        |       |                                     |       |      |       |
| Total  liabilities                                       |       | 186,819               |       | 218,241                     |       | (185,299                                 | )          | 219,761   |       |
|                                                     |       |                  |       |                        |       |                                     |       |      |       |
| Contingencies  and Commitments                           |       |                  |       |                        |       |                                     |       |      |       |
| Stockholder’s  equity                               |       | 49,240                |       | 53,837                      |       | (53,837                                  | )          | 49,240    |       |
| Total  liabilities and stockholder’s equity         |       | $                     | 236,059    |                        | $          | 272,078                                  |       | $         | (239,136   | ) | $ | 269,001 |   |

 

----

(a)                                  Toeliminate intercompany receivables and payables in consolidation.

 

(b)                                 Toeliminate investment in subsidiaries in consolidation.

 

(c)                                  Toeliminate notes payable and related debt issuance costs pushed down to the guarantor subsidiaries to reflect theimpact of the Acquisition, in accordance with the requirements of StaffAccounting Bulletin Topic 5(J) of the SEC.

 

12

----

 

**CONDENSEDSTATEMENT OF OPERATIONS**

**Forthe six months ended June 30, 2004**

**(amounts in thousands)**

 
| ** **                        | ** ** | **Poster  Financial** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Consolidating/  Eliminating  Entries** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-----------------------------|------------|------------------------------------------|------------|-----------|------------|
|                              |       |                  |       |                        |       |                                     |       |      |       |
| **Net revenues**                  |       | $                     | —     |                        | $          | 119,543                                  |       | $         | —     |   | $ | 119,543 |   |
|                              |       |                  |       |                        |       |                                     |       |      |       |
| **Cost and expenses**             |       |                  |       |                        |       |                                     |       |      |       |
| Casino-hotel  operations          |       | —                |       | 77,074                      |       | —                                   |       | 77,074    |       |
| General  and administrative       |       | 483                   |       | 23,345                      |       | —                                   |       | 23,828    |       |
| Depreciation  and amortization    |       | —                |       | 7,081                       |       | —                                   |       | 7,081     |       |
|                              |       |                  |       |                        |       |                                     |       |      |       |
| Total  costs and expenses         |       | 483                   |       | 107,500                     |       | —                                   |       | 107,983   |       |
|                              |       |                  |       |                        |       |                                     |       |      |       |
| **Operating income**              |       | (483                  | )          | 12,043                      |       | —                                   |       | 11,560    |       |
| ** **                        |       |                  |       |                        |       |                                     |       |      |       |
| **Other income (expense)**        |       |                  |       |                        |       |                                     |       |      |       |
| Equity  in loss of joint venture  |       | —                |       | (256                        | )          | —                                   |       | (256      | )          |
| Equity  in income of subsidiaries |       | 3,668                 |       | —                      |       | (3,668                                   | )(a)       | —    |       |
| Interest  income                  |       | 51                    |       | 38                          |       | —                                   |       | 89        |       |
| Interest  expense                 |       | (8,138                | )          | (8,157                      | )          | 8,138                                    | (b)        | (8,157    | )          |
|                              |       |                  |       |                        |       |                                     |       |      |       |
| Total  Other income (expense)     |       | (4,419                | )     | (8,375                      | )          | 4,470                                    |       | (8,324    | )          |
|                              |       |                  |       |                        |       |                                     |       |      |       |
| **Net income (loss)**             |       | $                     | (4,902     | )                           | $          | 3,668                                    |       | $         | 4,470      |   | $ | 3,236 |   |

 

----

(a)                                  Toeliminate equity in income of subsidiaries in consolidation.

 

(b)                                 Toeliminate interest expense on the Notes and term loan pushed down to the guarantor subsidiaries to reflect theimpact of the Acquisition, in accordance with Staff Accounting BulletinTopic 5(J) of the SEC.

 

13

----

 

**CONDENSEDSTATEMENT OF CASH FLOWS**

**Forthe six months ended June 30, 2004**

**(amounts in thousands)**

 
| ** **                                                      | ** ** | **Poster  Financial** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Consolidating/  Eliminating  Entries** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------|------------|-----------------------------|------------|------------------------------------------|------------|-----------|------------|
|                                                            |       |                  |       |                        |       |                                     |       |      |       |
| **Cash flows from operating activities**                        |       | $                     | (1,012     | )                           | $          | 10,266                                   |       | —    |       | $ | 9,254 |   |
|                                                            |       |                  |       |                        |       |                                     |       |      |       |
| **Cash flows from investing activities**                        |       |                  |       |                        |       |                                     |       |      |       |
| Acquisition  of property and equipment                          |       | —                |       | (9,767                      | )          |                                     |       | (9,767    | )          |
| Acquisition  of the Golden Nugget Group, net of cash acquired   |       | (201,781              | )          | —                      |       |                                     |       | (201,781  | )          |
| Contributions  to joint venture                                 |       | —                |       | (235                        | )          |                                     |       | (235      | )          |
| Decrease  in restricted cash                                    |       | 159,548               |       | —                      |       |                                     |       | 159,548   |       |
| Net  cash used in investing activities                          |       | (42,233               | )          | (10,002                     | )          | —                                   |       | (52,235   | )          |
|                                                            |       |                  |       |                        |       |                                     |       |      |       |
| **Cash flows from financing activities**                        |       |                  |       |                        |       |                                     |       |      |       |
| Proceeds  from issuance of term loan                            |       | 20,000                |       |                        |       |                                     |       | 20,000    |       |
| Net  borrowings under revolving credit facility                 |       | 6,645                 |       |                        |       |                                     |       | 6,645     |       |
| Change  in bank overdraft                                       |       |                  |       | (1,332                      | )          |                                     |       | (1,332    | )          |
| Contribution  to subsidiaries using funds drawn under term loan |       | (20,000               | )          | 20,000                      |       |                                     |       | —    |       |
| Distributions  of equity to parent                              |       | (2,517                | )          | —                      |       |                                     |       | (2,517    | )          |
| Additional  contributions of equity from parent                 |       | 39,117                |       |                        |       |                                     |       | 39,117    |       |
| Net  cash provided by financing activities                      |       | 43,245                |       | 18,668                      |       | —                                   |       | 61,913    |       |
|                                                            |       |                  |       |                        |       |                                     |       |      |       |
| Net  increase in cash and cash equivalents                      |       | —                |       | 18,932                      |       | —                                   |       | 18,932    |       |
| Cash  and cash equivalents, beginning of period                 |       | —                |       | —                      |       |                                     |       | —    |       |
| Cash  and cash equivalents, end of period                       |       | $                     | —     |                        | $          | 18,932                                   |       | $         | —     |   | $ | 18,932 |   |
|                                                                 |            |                       |            |                             |            |                                          |            |           |            |  |  |  |  |

 

14

----

 

**Golden Nugget Group**

**(Previously****adivision of MGM MIRAGE)**

 

**Combined Statements ofOperations and Changes in Division Equity**

**(Thousands of dollars)**

 
| ** **                              | ** ** | **Three Months  Ended June 30,  2003** | ** ** | **Six Months Eded  June 30, 2003** | ** ** | **Period from January  1, 2004 to January  22, 2004 (Date  Immediately Prior to  Acquisition by  Poster Financial)** | ** ** |
|-----------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                              | ** ** | **(unaudited)**                             | ** ** | **(unaudited)**                         | ** ** | **(unaudited)**                                                                                                      | ** ** |
| **Revenues:**                           |       |                                        |       |                                    |       |                                                                                                                 |       |
| Casino                                  |       | $                                           | 36,002     |                                    | $          | 77,896                                                                                                               |       | $ | 10,121 |   |
| Rooms                                   |       | 11,162                                      |       | 23,067                                  |       | 2,795                                                                                                                |       |
| Food and beverage                       |       | 11,969                                      |       | 24,589                                  |       | 3,034                                                                                                                |       |
| Entertainment retail and other          |       | 3,468                                       |       | 6,915                                   |       | 817                                                                                                                  |       |
| Gross revenues                          |       | 62,601                                      |       | 132,467                                 |       | 16,767                                                                                                               |       |
| Promotional allowances                  |       | (7,425                                      | )          | (15,617                                 | )          | (1,962                                                                                                               | )          |
| Net revenues                            |       | 55,176                                      |       | 116,850                                 |       | 14,805                                                                                                               |       |
|                                    |       |                                        |       |                                    |       |                                                                                                                 |       |
| **Cost and expenses:**                  |       |                                        |       |                                    |       |                                                                                                                 |       |
| Casino                                  |       | 20,464                                      |       | 42,889                                  |       | 5,441                                                                                                                |       |
| Roons                                   |       | 5,235                                       |       | 10,239                                  |       | 1,304                                                                                                                |       |
| Food and beverage                       |       | 7,913                                       |       | 15,842                                  |       | 2,003                                                                                                                |       |
| Entertainment retail and other          |       | 2,656                                       |       | 5,415                                   |       | 568                                                                                                                  |       |
| Provision for doubtful accounts         |       | 160                                         |       | 490                                     |       | 107                                                                                                                  |       |
| General and administrative              |       | 10,554                                      |       | 21,361                                  |       | 2,524                                                                                                                |       |
| (Gain)/loss on disposal of fixed assets |       | (8                                          | )          | (40                                     | )          | —                                                                                                               |       |
| MGM/MIRAGE management fee               |       | 3,130                                       |       | 6,620                                   |       | 844                                                                                                                  |       |
| Depreciation and amortization           |       | 3,485                                       |       | 6,919                                   |       | 806                                                                                                                  |       |
| Total cost and expenses                 |       | 53,589                                      |       | 109,735                                 |       | 13,597                                                                                                               |       |
|                                    |       |                                        |       |                                    |       |                                                                                                                 |       |
| Operating income                        |       | 1,587                                       |       | 7,115                                   |       | 1,208                                                                                                                |       |
|                                    |       |                                        |       |                                    |       |                                                                                                                 |       |
| Equity in loss of joint venture         |       | (201                                        | )          | (386                                    | )          | (26                                                                                                                  | )          |
| Interest income                         |       | 9                                           |       | 19                                      |       | 2                                                                                                                    |       |
| Interest expense                        |       | (870                                        | )          | (1,754                                  | )          | (3                                                                                                                   | )          |
| Intercompany interest expense           |       | (14                                         | )          | (27                                     | )          | (206                                                                                                                 | )          |
| Total other income (expense)            |       | (1,076                                      | )          | (2,148                                  | )          | (233                                                                                                                 | )          |
|                                    |       |                                        |       |                                    |       |                                                                                                                 |       |
| Income before income taxes              |       | 511                                         |       | 4,967                                   |       | 975                                                                                                                  |       |
| Income tax provision                    |       | (209                                        | )          | (1,560                                  | )     | (307                                                                                                                 | )          |
| Net income                              |       | $                                           | 302        |                                    | $          | 3,407                                                                                                                |       | $ | 668 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

15

----

 

**Golden Nugget Group**

**(****Previously****a****division of MGM MIRAGE)**

 

**Combined Statement of Cash Flows**

**(Thousands of dollars)**

 
| ** **                                                                               | ** ** | **Six Months Ended  June 30, 2003** | ** ** | **Period from January 1,  2004 to January 22, 2004  (Date Immediately Prior  to Acquisition by Poster  Financial)** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                     |       | **(unaudited)**                          |       | **(unaudited)**                                                                                                               |       |
|                                                                                     |       | ** **                               |       |                                                                                                                          |       |
| **Cash flows from operating activities:**                                                |       |                                     |       |                                                                                                                          |       |
| Net  income (loss)                                                                       |       | $                                        | 3,407      |                                                                                                                          | $          | 668 |   |
|                                                                                     |       |                                     |       |                                                                                                                          |       |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities |       |                                     |       |                                                                                                                          |       |
| Depreciation                                                                             |       | 6,919                                    |       | 806                                                                                                                           |       |
| Provision  for doubtful accounts                                                         |       | 490                                      |       | 107                                                                                                                           |       |
| Equity  in loss of joint venture                                                         |       | 386                                      |       | 26                                                                                                                            |       |
| Changes  in operating assets and liabilities                                             |       |                                     |       |                                                                                                                          |       |
| Decrease  (increase) in accounts receivable                                              |       | 707                                      |       | 923                                                                                                                           |       |
| Decrease  (increase) in due from Poster Financial                                        |       | —                                   |       | 376                                                                                                                           |       |
| Decrease  (increase) in inventories                                                      |       | 1,748                                    |       | 95                                                                                                                            |       |
| Decrease  (increase) in prepaid expenses and other assets                                |       | 41                                       |       | 633                                                                                                                           |       |
| (Decrease)  increase in deposits and other                                               |       | (1,479                                   | )     | 22                                                                                                                            |       |
| (Decrease)  increase in accounts payable                                                 |       | 7,107                                    |       | (380                                                                                                                          | )          |
| (Decrease)  increase in other accrued payables                                           |       | (730                                     | )     | 1,736                                                                                                                         |       |
|                                                                                     |       |                                     |       |                                                                                                                          |       |
| Net  cash provided by operating activities                                               |       | 18,596                                   |       | 5,012                                                                                                                         |       |
|                                                                                     |       |                                     |       |                                                                                                                          |       |
| **Cash flows from investing activities:**                                                |       |                                     |       |                                                                                                                          |       |
| Acquisition  of property, equipment and improvements                                     |       | (4,470                                   | )          | (4,436                                                                                                                        | )          |
| Contributions  to joint venture                                                          |       | (753                                     | )          | (235                                                                                                                          | )          |
|                                                                                     |       |                                     |       |                                                                                                                          |       |
| Net  cash used in investing activities                                                   |       | (5,223                                   | )          | (4,671                                                                                                                        | )          |
|                                                                                     |       |                                     |       |                                                                                                                          |       |
| **Cash flows from financing activities:**                                                |       |                                     |       |                                                                                                                          |       |
| Change  in bank overdraft                                                                |       | (3,256                                   | )          | (4,996                                                                                                                        | )          |
| Change  in amounts payable to MGM MIRAGE an affiliates, net                              |       | (9,633                                   | )          | (3,456                                                                                                                        | )          |
|                                                                                     |       |                                     |       |                                                                                                                          |       |
| Net  cash used in financing activities                                                   |       | (12,889                                  | )          | (8,452                                                                                                                        | )          |
|                                                                                     |       |                                     |       |                                                                                                                          |       |
| Net  increase (decrease) in cash and cash equivalents                                    |       | 484                                      |       | (8,111                                                                                                                        | )          |
| Cash  and cash equivalents, beginning of period                                          |       | 17,340                                   |       | 23,904                                                                                                                        |       |
|                                                                                     |       |                                     |       |                                                                                                                          |       |
| Cash  and cash equivalents, end of period                                                |       | $                                        | 17,824     |                                                                                                                          | $          | 15,793 |   |

 

The accompanying notesare an integral part of these financial statements.

 

16

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**GoldenNugget Group**

**(****Previously****adivision of MGM MIRAGE)**

 

**CondensedNotes to Combined Financial Statements (Unaudited)**

 

**1.  Organization**

 

Prior to January 23,2004, the Golden Nugget Group (the “Group”) was an operating division of MGMMIRAGE (“MGM MIRAGE” or “Parent”), a publicly held Delaware corporation. TheGroup is comprised of the following entities:

 

•                                          GNLV,CORP., a Nevada corporation formerly wholly owned by MGM MIRAGE (“GNLV”), whichowns and operated the Golden Nugget—Las Vegas, a hotel-casino entertainmentresort located in downtown Las Vegas, Nevada; and

 

•                                          GNL,CORP., a Nevada corporation formerly wholly owned by MGM MIRAGE (“GNLV”), whichowns and operated the Golden Nugget—Laughlin Las Vegas, a hotel-casino resortin Laughlin, Nevada.

 

GNLV also has a whollyowned subsidiary, Golden Nugget Experience, LLC (“GNE”), a Nevada limitedliability company. GNE is a holding company that has an investment in TheFremont Street Experience Limited Liability Company, a Nevada limited liabilitycompany (the “Fremont Street Experience”), organized to enhance tourism indowntown Las Vegas, Nevada. The Fremont Street Experience is owned by a groupof unrelated casino operators in downtown Las Vegas, and operates retail malls,parking garages, entertainment venues and a pedestrian mall that encloses acity street (Fremont Street), located adjacent to the Golden Nugget—Las Vegas.GNE holds 17.65% of the voting units and 50.0% of the non-voting units of theFremont Street Experience, and accounts for its investment utilizing the equitymethod of accounting.

 

The management of MGMMIRAGE has made all significant operational and financial decisions of theGroup during the periods presented.

 

On January 23, 2004,Poster Financial Group, Inc. (“Poster Financial”), a party unrelated toMGM MIRAGE, completed the acquisition of the Group from MGM MIRAGE (the“Acquisition”). The purchase price for the Acquisition was approximately$213.7 million, reflecting a base purchase price of $215.0 millionless an adjustment for working capital at the date of the closing ofapproximately $4.8 million plus acquisition related expenses of approximately$3.5 million.

 

**2.  Significant Accounting Policies and Basis ofPresentation**

 

The combined financialstatements of the Group for the period January 1, 2004 throughJanuary 22, 2004 and for the three and six months ended June 30,2003, have been prepared by the Group, without audit, pursuant to the rules andregulations of the Securities and Exchange Commission (the “SEC”). Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted pursuant to such rules and regulations. The preparation ofthe consolidated financial statements requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent liabilities at the date of the financial statementsand the reported amounts of revenue and expenses during the reporting period.Actual results could differ from those estimates. In the opinion of management,all adjustments, consisting of normal recurring items and estimates necessaryfor a fair presentation of the results for interim periods, have been made.These combined financial statements should be read in conjunction with thefinancial statements and notes thereto for the Group as of December 31,2003 and for the year then ended.

 

17

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**Principlesof Presentation**

 

All inter-companyaccounts and transactions between GNLV and GNE are eliminated in consolidation.All inter-company accounts and transactions between GNLV and GNL are eliminatedin combination to arrive at the financial statements of the Group. The Group isnot a separate reporting entity and has not previously presented financialstatements on a stand-alone basis. Certain estimates, including allocationsfrom the Parent, have been made to provide financial information forstand-alone reporting purposes. Management of the Group believes that thepresentations and disclosures herein are adequate to make the information notmisleading. In the opinion of management, all adjustments necessary to fairlystate the financial statements have been reflected.

 

**StockBased Compensation**

 

Prior to the Acquisition,certain employees were eligible to participate in the stock option plans of MGMMIRAGE. The Group does not have a stock option plan. The Group accounts forstock-based compensation, including employee stock option plans, in accordancewith Accounting Principles Board Opinion No. 25, “Accounting for StockIssued to Employees” and the Financial Accounting Standards Board’sInterpretation No. 44, “Accounting for Certain Transactions involvingStock Compensation, an interpretation of APB Opinion No. 25”, anddiscloses supplemental information in accordance with Statement of FinancialAccounting Standards No. 123, “Accounting for Stock-Based Compensation”(“SFAS 123”), as amended by Statement of Financial Accounting StandardsNo. 148, “Accounting for Stock-Based Compensation-Transition andDisclosure” (“SFAS 148”). The Group does not incur compensation expensefor employee stock options when the exercise price is at least 100% of themarket value of the Group’s common stock on the date of grant. For disclosurepurposes, employee stock options are measured at fair value, compensation isassumed to be amortized over the vesting periods of the options, and pro formaresults are disclosed as if the Group had applied SFAS 123.

 

Had the Group accountedfor these plans under the fair value method allowed by SFAS 123, theGroup’s net income would have been reduced to recognize the fair value ofemployee stock options. The following are required disclosures underSFAS 123 and SFAS 148 (amounts in thousands):

 
| ** **                               | ** ** | **Three Months  Ended  June 30, 2003** | ** ** | **Six Months  Ended  June 30, 2003** | ** ** | **Period from  Jan 1, 2004  through  Jan 22, 2004** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------|------------|
| Net  income as reported                  |       | $                                           | 302        |                                      | $          | 3,407                                               |       | $ | 668 |   |
| Stock  based compensation under SFAS 123 |       | (334                                        | )          | (668                                      | )          | (56                                                 | )          |
| Pro  Forma                               |       | $                                           | (32        | )                                         | $          | 2,739                                               |       | $ | 612 |   |

 

The stock-basedcompensation included in the table above represents the after-tax amount of proforma compensation related to stock option plans.

 

**3.  Golden Nugget Acquisition**

 

On January 23, 2004,Poster Financial, a party unrelated to MGM MIRAGE, completed the Acquisition ofthe Group from MGM MIRAGE. The purchase price for the acquisition wasapproximately $213.7 million, reflecting a base purchase price of$215.0 million less an adjustment for estimated working capital at

 

18

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thedate of closing of approximately $4.8 million plus acquisition relatedexpenses of approximately $3.5 million.

 

The transaction wasaccounted for as a purchase and, accordingly, the purchase price was allocatedto the underlying assets acquired and liabilities assumed based upon theirestimated fair values at the date of the Acquisition. Results of operations ofthe acquired companies were reflected in the acquirer’s financial statementsfrom the day of the Acquisition.

 

**4.  Fremont Street Experience**

 

Through its wholly-ownedsubsidiary, GNE, the Group indirectly owns 17.65% of the voting units and 50.0%of the non-voting units of the Fremont Street Experience. This investment isaccounted for under the equity method of accounting.

 

Summarized financialinformation of the Fremont Street Experience for the three and six months endedJune 30, 2003 and for the period from January 1, 2004 is as follows(amounts in thousands):

 
| ** **                | ** ** | **Three Months  Ended  June 30, 2003** | ** ** | **Six Months  Ended  June 30, 2003** | ** ** | **Period from  Jan 1, 2004  through  Jan 22, 2004** | ** ** |
|---------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------|------------|
| Total  revenues           |       | $                                           | 1,707      |                                      | $          | 2,705                                               |       | $ | 274 |   |
| Total  costs and expenses |       | 2,846                                       |       | 4,892                                     |       | 423                                                 |       |
| Net  loss                 |       | $                                           | 1,139      |                                      | $          | 2,187                                               |       | $ | 149 |   |

 

**5.  Segment Information**

 

The Group owns andoperates two properties as follows: a casino-hotel resort located in downtownLas Vegas, Nevada; and a casino and nearby hotel located in Laughlin, Nevada.The properties market in each of their segments primarily to middle-incomeguests. The major products offered in each segment are as follows: casinoentertainment, hotel rooms, and food and beverage. The accounting policies ofeach business segment are the same as those described in the summary ofsignificant accounting policies. There are minimal inter-segment sales.

 

19

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A summary of operationsby business segment for the three and six months ended June 30, 2003 andfor the period from January 1, 2004 through January 22, 2004 (thedate immediately prior to Acquisition) is presented below (amounts inthousands):

 
| ** **                                       | ** ** | **For the  Three Months  Ended  June 30, 2003** | ** ** | **For the  Six Months  Ended  June 30, 2003** | ** ** | **For the Period  Jan 1, 2004  Through  Jan 22, 2004** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------|------------|
| Net revenues                                     |       |                                                 |       |                                               |       |                                                   |       |
| GNLV, CORP.                                      |       | $                                                    | 45,248     |                                               | $          | 95,490                                                 |       | $ | 12,167 |   |
| GNL,  CORP.                                      |       | 9,928                                                |       | 21,360                                             |       | 2,638                                                  |       |
| Total                                            |       | $                                                    | 55,176     |                                               | $          | 116,850                                                |       | $ | 14,805 |   |
| Income  (loss) from operations                   |       |                                                 |       |                                               |       |                                                   |       |
| GNLV,  CORP.                                     |       | $                                                    | 1,960      |                                               | $          | 7,087                                                  |       | $ | 1,052 |   |
| GNL,  CORP.                                      |       | (373                                                 | )          | 28                                                 |       | 156                                                    |       |
| Total                                            |       | $                                                    | 1,587      |                                               | $          | 7,115                                                  |       | $ | 1,208 |   |
| Segment  depreciation and amortization           |       |                                                 |       |                                               |       |                                                   |       |
| GNLV,  CORP.                                     |       | $                                                    | 3,254      |                                               | $          | 6,456                                                  |       | $ | 782 |   |
| GNL,  CORP.                                      |       | 231                                                  |       | 463                                                |       | 24                                                     |       |
| Total                                            |       | $                                                    | 3,485      |                                               | $          | 6,919                                                  |       | $ | 806 |   |
| Expenditures  for additions to long-lived assets |       |                                                 |       |                                               |       |                                                   |       |
| GNLV,  CORP.                                     |       | $                                                    | 1,582      |                                               | $          | 3,640                                                  |       | $ | 3,772 |   |
| GNL,  CORP.                                      |       | 443                                                  |       | 815                                                |       | 664                                                    |       |
| Total                                            |       | $                                                    | 2,025      |                                               | $          | 4,470                                                  |       | $ | 4,436 |   |

 

20

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**Item 2.****  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

In this report, unlessthe context requires otherwise, the terms the “Company,” “we,” “us,” and “our”refer to Poster Financial Group, Inc. and its subsidiaries and the term“Poster Financial” refers only to Poster Financial Group, Inc. and not itssubsidiaries. In this report, our parent company, PB Gaming, Inc., is referredto as “PB Gaming.”

 

This report on Form 10-Qcontains certain forward-looking statements regarding our future results ofoperations and performance. Important factors that could cause differences inresults of operations include, but are not limited to, general economicconditions in the markets in which the Company operates, competition from othergaming operations, leverage, the inherent uncertainty and costs associated withlitigation and governmental and regulatory investigations, and licensing andother regulatory risks.  See “—CautionaryStatement Regarding Forward-Looking Statements.”

 

**OVERVIEW**

 

**TheCompany**

 

We own and operate theGolden Nugget hotel-casinos in Las Vegas and Laughlin, Nevada, which arereferred to in this report as the “Golden Nugget-Las Vegas” and the“Golden Nugget-Laughlin,” respectively. The following table sets forthinformation about each of the Golden Nugget properties as of June 30,2004: 

 
| **Property**                  | ** ** | **Slot  Machines** | ** ** | **Table  Games** | ** ** | **Casino  Space  (square feet)** | ** ** | **Hotel Rooms** | ** ** |
|-------------------------------|------------|--------------------|------------|------------------|------------|----------------------------------|------------|-----------------|------------|
| Golden  Nugget-Las Vegas |       | 1,260              |       | 58               |       | 35,000                           |       | 1,907           |       |
| Golden  Nugget-Laughlin       |       | 1,042              |       | 12               |       | 32,000                           |       | 300             |       |
| **Total**                     |       | 2,302              |       | 70               |       | 67,000                           |       | 2,207           |       |

 

We believe that theGolden Nugget brand name is one of the most recognized in the gaming industryand we expect to continue to capitalize on the strong name recognition and highlevel of quality and value associated with it. We target out-of-town customersat both of our properties while also catering to the local customer base. Webelieve that the Golden Nugget-Las Vegas is the leading downtowndestination for out-of-town customers. The property offers the same complementof services as our Las Vegas Strip competitors, but we believe that ourcustomers prefer the boutique experience we offer and the downtown environment.We emphasize the property’s wide selection of amenities and provide a luxuryroom product and personalized services at an attractive value. At the GoldenNugget-Laughlin, we focus on providing a high level of customer service, aquality dining experience at an appealing value, a slot product with highlycompetitive pay tables and a superior player rewards program. We also have aninvestment in The Fremont Street Experience Limited Liability Company (“TheFremont Street Experience LLC”), the entity which owns and operates The FremontStreet Experience. The Fremont Street Experience is a unique entertainmentattraction located in the center of downtown Las Vegas on Fremont Street,where the Golden Nugget-Las Vegas is located. 

 

**TheAcquisition and Poster Financial**

 

Poster Financial is aholding company that was incorporated in June 2003 for the purpose ofacquiring the entities that own and operate the Golden Nugget hotel-casinos inLas Vegas and Laughlin, Nevada. On June 24, 2003, Poster Financialentered into a stock purchase agreement with MGM MIRAGE, as parent, MirageResorts, Incorporated, as seller, GNLV, CORP. (“GNLV”), GNL, CORP. (“GNL”), andGolden Nugget Experience, LLC (“Golden Nugget Experience”), a wholly ownedsubsidiary of GNLV, in which Poster Financial agreed to purchase all the issuedand outstanding shares of capital stock of GNLV and GNL from Mirage Resorts,Incorporated (the “Acquisition”). GNLV and GNL, respectively, own and operatethe Golden Nugget-Las Vegas and the Golden Nugget-Laughlin. GNLV and itssubsidiaries and GNL are collectively referred to in this report as the “GoldenNugget Group.” On January 23, 2004, Poster Financial completed theAcquisition and acquired all the issued and outstanding shares of capital stockof GNLV and GNL and, as a result, indirect ownership of the Golden Nugget-Las Vegasand the Golden Nugget-Laughlin.

 

Certain financialstatements for Poster Financial are included in this report, but suchhistorical operating results will not be indicative of future operatingresults. Our future operating results are subject to significant business,economic, regulatory and competitive uncertainties and contingencies, many ofwhich are beyond our control.

 

PB Gaming has elected tobe taxed as a Subchapter S corporation and has elected to have each of PosterFinancial, GNLV and GNL treated as a qualified Subchapter S corporationsubsidiary for U.S. federal income tax purposes.

 

**TheGolden Nugget Group**

 

The operations of theGolden Nugget Group consist of two hotel-casinos located in Las Vegas andLaughlin, Nevada, referred to in this report as the Golden Nugget-Las Vegas andthe Golden Nugget-Laughlin, respectively. Our business strategy is to createthe best possible gaming and entertainment experience for our customers byproviding a combination of comfortable and attractive surroundings with attentiveservice from friendly and experienced employees. In addition, the Golden Nuggetproperties offer a wide selection of high-quality amenities to complement theirguests’ gaming experience.

 

Key gaming volumeindicators are table game “drop” and slot machine “handle”. Table game drop andslot machine handle are casino industry specific terms that are used toidentify the amount wagered by patrons at a casino table game or slot machine,respectively. The revenues of the Golden Nugget properties can also be affectedby the percentage of gaming volume retained by them, indicated by “win” or“hold” percentages, which we cannot fully control. Hold is calculated bydividing the amount won by the casino by the amount wagered by patrons. Holdpercentages vary based on the mix of games on the floor. In addition, whilehold percentage is reasonably predictable over periods greater than twelvemonths, it can fluctuate significantly over shorter periods of time, such as afiscal quarter, which can affect comparability between periods.

 

In the hotel operationsof the Golden Nugget properties, key measures are occupancy rates (a volumeindicator) and average daily room rate (“ADR,” a price indicator). Revenues ofthe Golden Nugget Group can also be affected by economic and other factors.Domestic leisure travel is dependent on the national economy and the level ofconsumers’ disposable income.

 

21

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### **RESULTSOF OPERATIONS**

 

***Three Months EndedJune 30, 2004 Compared to Three Months Ended June 30, 2003***

 

Combined net revenues for the three months endedJune 30, 2004 amounted to $65.7 million, an increase of$10.5 million, or 19.0%, over the three months ended June 30, 2003.Net revenues at the Golden Nugget–Las Vegas for the three months endedJune 30, 2004 accounted for $53.9 million, or 82.1% of combined netrevenues, an increase of $8.7 million compared to the three months endedJune 30, 2003. The significant increase of 19.2% in net revenues at theGolden Nugget–Las Vegas was attributable to an increase in table game drop andhold percentage, slot machine handle, and room occupancy and ADR for the threemonths ended June 30, 2004 compared to the three months endedJune 30, 2003. Net revenues at the Golden Nugget–Laughlin for the threemonths ended June 30, 2004 accounted for $11.7 million, or 17.9% ofcombined net revenues, an increase of $1.8 million as compared to thethree months ended June 30, 2003. The significant increase of 18.3% in netrevenues at the Golden Nugget–Laughlin was primarily attributable to anincrease in table game drop and hold percentage and slot machine holdpercentage for the three months ended June 30, 2004 compared to the threemonths ended June 30, 2003.

The following tablepresents detail of our net revenues:

 
| ** **                       | ** ** | **Golden Nugget-Las Vegas  Three Months Ended June 30,** | ** ** | **Golden Nugget-Laughlin  Three Months Ended June 30,** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                       | ** ** | **2003**                                                      | ** ** | **2004**                                                     | ** ** | **Percentage  Change** | ** ** | **2003** | ** ** | **2004** | ** ** | **Percentage  Change** | ** ** |
| ** **                       | ** ** | **(In thousands)**                                            | ** ** | **(In thousands)**                                           | ** ** |
| Casino  revenue, net:            |       |                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
| Table  games                     |       | $                                                             | 9,244      |                                                         | $          | 14,901 |   | 61.2 | % | $ | 549 |   | $ | 746 |   | 35.9 | % |
| Slots                            |       | 18,427                                                        |       | 19,997                                                       |       | 8.5 | % | 7,089 |   | 8,316 |   | 17.3 | % |
| Other                            |       | 596                                                           |       | 759                                                          |       | 27.3 | % | 98 |   | 289 |   | 194.9 | % |
|                             |       |                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
| Casino  revenue, net             |       | 28,267                                                        |       | 35,657                                                       |       | 26.1 | % | 7,736 |   | 9,351 |   | 20.9 | % |
|                             |       |                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
| Non-casino  revenue:             |       |                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
| Rooms                            |       | 10,125                                                        |       | 11,362                                                       |       | 12.2 | % | 1,037 |   | 1,077 |   | 3.9 | % |
| Food  and beverage               |       | 9,425                                                         |       | 10,994                                                       |       | 16.6 | % | 2,542 |   | 2,730 |   | 7.4 | % |
| Entertainment,  retail and other |       | 3,022                                                         |       | 2,715                                                        |       | (10.2 | )% | 446 |   | 385 |   | (13.7 | )% |
|                             |       |                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
| Non-casino  revenue              |       | 22,572                                                        |       | 25,071                                                       |       | 11.1 | % | 4,025 |   | 4,192 |   | 4.1 | % |
|                             |       |                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
|                             |       | 50,839                                                        |       | 60,728                                                       |       | 19.5 | % | 11,761 |   | 13,543 |   | 15.2 | % |
| Less:  Promotional allowances    |       | (5,591                                                        | )          | (6,812                                                       | )          | 21.8 | % | (1,834 | ) | (1,797 | ) | (2.0 | )% |
|                             |       |                                                          |       |                                                         |       |   |   |   |   |   |   |   |   |
| Net  revenues                    |       | $                                                             | 45,248     |                                                         | $          | 53,916 |   | 19.2 | % | $ | 9,927 |   | $ | 11,746 |   | 18.3 | % |

 

*CasinoRevenues*

 

Combined casino revenuesduring the three months ended June 30, 2004 totaled $45.0 million, anincrease of $9.0 million over the three months ended June 30, 2003.Slot machine revenues accounted for $28.3 million, or 62.9% of combinedcasino revenues, and table games revenues accounted for $15.6 million, or34.8% of the combined casino revenues for the three months ended June 30,2004.

 

Average win per slot machine per day at the GoldenNugget–Las Vegas for the three months ended June 30, 2004 increased by9.5%, as compared to the three months ended June 30, 2003. Slot machinehandle increased 7.5%, and table game drop increased 57.5%, as compared to thethree months ended June 30, 2003. Win per table game increased 66.7% overthe prior period. These increases reflect the success of the casino’spromotional events, additional casino marketing staff and changes to tablelimits and odds.  Increases can also beattributed to the opening of the High Limit Pit with six table games added tothe casino floor in early June.

 

22

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At the Golden Nugget-Laughlin table game dropincreased 17.0% for the three months ended June 30, 2004 over the sameperiod in 2003. This increase is due to changes in table game limits and oddsand additional games. There were eight table games added to the casino floor inthe three month period ended June 30, 2004 bringing the total table gamesto 21, as compared to 13 for the same period in 2003. Slot machine holdpercentage increased 11.9% for the three month period ended June 30, 2004over the three month period ended June 30, 2003.  This increase was attainable with our newslot system implemented at the beginning of 2004, allowing us to havemulti-denominational games, penny games, and the ability to systematicallychange our rewards programs.

 

*Non-CasinoRevenues*

 

Combined room revenuestotaled $12.4 million, or 18.9% of combined net revenues, for the three monthsended June 30, 2004 compared to $11.2 million, or 20.2% of combinednet revenues, for the three months ended June 30, 2003. Golden Nugget–LasVegas hotel occupancy during the period was 97.2%, compared to 94.9% for thethree months ended June 30, 2003. Overall ADR increased 10.5% for thethree months ended June 30, 2004, as compared to the three months endedJune 30, 2003. Hotel occupancy at the Golden Nugget-Laughlin for the threemonths ended June 30, 2004 was 92.9% compared to 84.8% for the three monthsended June 30, 2003. Overall ADR increased 0.6% for the three months endedJune 30, 2004 over the three months ended June 30, 2003.

 

Combined food andbeverage revenues for the three months ended June 30, 2004 totaled$13.7 million, or 20.9% of combined net revenues, compared to$12.0 million, or 21.7% of combined net revenues, for the three monthsended June 30, 2003. At the Golden Nugget –Las Vegas food covers increased7.7% during the period and the average revenue per cover increased 9.2%compared to the three months ended June 30, 2003. At the Laughlinproperty, food covers increase 5.8%, and the average revenue per coverincreased 5.2% compared to the three months ended June 30, 2003.

 

Combined entertainment, retail and other revenues decreased$0.4 million to $3.1 million for the three months ended June 30,2004. Retail revenues at the Golden Nugget–Las Vegas decreased$0.4 million to $0.6 million for the three months ended June 30,2004. This decrease is attributable to the closure of our Gift Boutique inearly April to renovate the space and convert it to casino floor. Combinedentertainment, retail and other revenues at the Golden Nugget–Laughlin remainedflat at $0.4 million for the three month periods ended June 30, 2004 and2003.

 

*PromotionalAllowances*

 

Promotional allowancesprovided to gaming patrons on a combined basis for the three months endedJune 30, 2004 and 2003, totaled $8.6 million and $7.4 million,respectively, and are characterized in the financial statements of the Golden NuggetGroup as a reduction of combined gross revenues.

 

Promotional allowances at the Golden Nugget–Las Vegas were$6.8 million, or 11.2% of its gross revenues, for the three months endedJune 30, 2004, an increase of 21.8% from $5.6 million, or 11.0% ofits gross revenues, for the three months ended June 30, 2003. Thisincrease is consistent with the increase in table game drop and slot handle ascompared to the three months ended June 30, 2003. Promotional allowancesat the Golden Nugget–Laughlin totaled $1.8 million, or 13.3% of its grossrevenues, for the three months ended June 30, 2004, and $1.8 million,or 15.6% of its gross revenues, for the three months ended June 30, 2003.

 

*OperatingExpenses*

 

Combined casino operatingexpenses for the three months ended June 30, 2004 totaled$26.3 million, or 58.4% of combined casino revenues, compared to$20.5 million, or 56.9% of combined casino revenues, for the three monthsended June 30, 2003. Combined casino operating expenses were primarilycomprised of salaries, benefits, gaming taxes, and other operating expenses ofthe casinos.

 

Casino operating expensesat the Golden Nugget–Las Vegas were $20.5 million, or 57.9% of its casino

 

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revenues,for the three months ended June 30, 2004 compared to $15.5 million,or 54.8% of its casino revenues, for the three months ended June 30, 2003.The increase of $5.0 million, or 32.3%, in casino operating expenses atthe Golden Nugget–Las Vegas is due primarily to increases in payroll associatedwith additional marketing staff and promotional expenses related to increased marketing events. Casino operating expenses at theGolden Nugget–Laughlin were $5.8 million, or 61.7% of its casino revenues,for the three months ended June 30, 2004 compared to $5.0 million, or64.9% of its casino revenues, for the three months ended June 30, 2003.

 

Combined general andadministrative expenses for the three months ended June 30, 2004 were$12.9 million, or 19.7% of combined net revenues, compared to$10.2 million, or 18.5% of combined net revenues, for the three monthsended June 30, 2003. General and administrative expenses at the GoldenNugget–Las Vegas accounted for $10.1 million, or 18.8% of its netrevenues, for the three months ended June 30, 2004 and $7.7 million,or 17.1% of its net revenues, for the three months ended June 30, 2003.The increase of 31.2% in expenses is primarily related to transitional costs ofthe Information Technology department, and advertising costs. General and administrativeexpenses at the Golden Nugget–Laughlin accounted for $2.8 million, or23.6% of its net revenues, for the three months ended June 30, 2004 and$2.4 million, or 24.5% of its net revenues, for the three months endedJune 30, 2003.

 

*Incomefrom Operations*

 

Combined operating incomefor the three months ended June 30, 2004 was $4.9 million, or 7.5% ofcombined net revenues, compared to $1.6 million, or 2.9% of net revenues,for the three months ended June 30, 2003. Operating income at the GoldenNugget–Las Vegas for the three months ended June 30, 2004 was$4.2 million, or 7.8% of its net revenues, compared to $2.0 million, or4.3% of its net revenues, for the three months ended June 30, 2003. Theincrease in operating income is primarily due to the increase in casino volumeand hold percentage for the three months ended June 30, 2004. The GoldenNugget–Laughlin recorded operating income of $0.7 million, or 6.2% of itsnet revenues, for the three months ended June 30, 2004, compared to anoperating loss of $0.4 million, or (3.8%) of its net revenues, for thethree months ended June 30, 2003.

 

*OtherIncome and Expense*

 

The Golden Nugget Group accounts for itsinvestment in The Fremont Street Experience LLC as a joint venture, using theequity method of accounting. The Golden Nugget Group added to its investmentthrough contributions of approximately $0.2 million for the three monthsended June 30, 2004 and June 30, 2003, and its equity in the loss ofThe Fremont Street Experience LLC was approximately $0.1 million for thethree months ended June 30, 2004 and approximately $0.4 million for thethree months ended June 30, 2003, which losses were consistent with ourexpectations. The joint venture is primarily designed to increase visitation todowntown Las Vegas and it is expected to continue to incur losses each year.GNLV has a 17.65% interest in the loss of The Fremont Street Experience LLC,which ownership and participation rate was consistent throughout 2003 and 2004.

 

To finance a portion ofthe purchase price of the Acquisition, on December 3, 2003, PosterFinancial issued in a private offering $155,000,000 aggregate principal amountof 8 3⁄4% Senior Secured Notes due 2011 (the “Notes”).  The Company also entered into a $35 millionsenior credit facility, consisting of a $20 million term loan and a $15 millionrevolving loan, and made a drawing for the full amount of the term loan tofinance a portion of the purchase price of the Acquisition.  Interest expense for the three months endedJune 30, 2004 amounted to $4.2 million for Poster Financial for the Notesand the draw of the term loan under the senior credit facility, includingamortization of deferred financing costs. For the three months ended June 30, 2003 interest expense for theGolden Nugget Group was $0.9 million on a note payable to MGM Mirage.  In connection with the closing of theAcquisition the Golden Nugget Group was relieved of its obligation to repay the$80.0 million note payable to the MGM Mirage.

 

***Six Months EndedJune 30, 2004 Compared to Six Months Ended June 30, 2003***

 

Combined net revenues forthe six months ended June 30, 2004 amounted to $134.3 million, anincrease of $17.5 million, or 15.0%, over the six months endedJune 30, 2003. Net revenues at the Golden Nugget–Las Vegas for the sixmonths ended June 30, 2004 accounted for $110.1 million, or 81.9% ofcombined net revenues, an increase of $14.6 million compared to the sixmonths ended June 30, 2003. The significant increase of 15.3% in netrevenues at the Golden Nugget–Las Vegas was attributable to an increase intable game drop and hold percentage, slot machine handle, and room occupancyand ADR for the six months ended June 30, 2004 compared to the six monthsended June 30, 2003. Net revenues at the Golden Nugget–Laughlin for thesix months ended June 30, 2004 accounted for $24.3 million, or 18.1%of combined net revenues, an increase of $2.9 million as compared to thesix months ended June 30, 2003. The increase of 13.7% in net revenues atthe Golden Nugget–Laughlin was primarily

 

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attributableto increases in volume for both table games and slots, as well as, increases inhold percentages for both gaming areas – the hold percentages for both periodswere within a normal range.

 

The following tablepresents detail of our net revenues:

 
| ** **                       | ** ** | **Golden Nugget-Las Vegas  Six Months Ended June 30,** | ** ** | **Golden Nugget-Laughlin  Six Months Ended June 30,** | ** ** |
|----------------------------------|------------|-------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                       | ** ** | **2003**                                                    | ** ** | **2004**                                                   | ** ** | **Percentage  Change** | ** ** | **2003** | ** ** | **2004** | ** ** | **Percentage  Change** | ** ** |
| ** **                       | ** ** | **(In thousands)**                                          | ** ** | **(In thousands)**                                         | ** ** |
| Casino  revenue, net:            |       |                                                        |       |                                                       |       |   |   |   |   |   |   |   |   |
| Table  games                     |       | $                                                           | 20,165     |                                                       | $          | 28,035 |   | 39.0 | % | $ | 1,074 |   | $ | 1,427 |   | 32.9 | % |
| Slots                            |       | 38,945                                                      |       | 42,373                                                     |       | 8.8 | % | 15,850 |   | 17,975 |   | 13.4 | % |
| Other                            |       | 1,514                                                       |       | 1,816                                                      |       | 19.9 | % | 349 |   | 541 |   | 55.0 | % |
|                             |       |                                                        |       |                                                       |       |   |   |   |   |   |   |   |   |
| Casino  revenue, net             |       | 60,624                                                      |       | 72,224                                                     |       | 19.1 | % | 17,273 |   | 19,943 |   | 15.5 | % |
|                             |       |                                                        |       |                                                       |       |   |   |   |   |   |   |   |   |
| Non-casino  revenue:             |       |                                                        |       |                                                       |       |   |   |   |   |   |   |   |   |
| Rooms                            |       | 21,127                                                      |       | 23,533                                                     |       | 11.4 | % | 1,940 |   | 2,000 |   | 3.1 | % |
| Food  and beverage               |       | 19,356                                                      |       | 22,177                                                     |       | 14.6 | % | 5,232 |   | 5,408 |   | 3.4 | % |
| Entertainment,  retail and other |       | 6,032                                                       |       | 6,072                                                      |       | 0.7 | % | 883 |   | 802 |   | (9.2 | )% |
|                             |       |                                                        |       |                                                       |       |   |   |   |   |   |   |   |   |
| Non-casino  revenue              |       | 46,515                                                      |       | 51,782                                                     |       | 11.3 | % | 8,055 |   | 8,210 |   | 1.9 | % |
|                             |       |                                                        |       |                                                       |       |   |   |   |   |   |   |   |   |
|                             |       | 107,139                                                     |       | 124,006                                                    |       | 15.7 | % | 25,328 |   | 28,153 |   | 11.2 | % |
| Less:  Promotional allowances    |       | (11,648                                                     | )          | (13,940                                                    | )          | 19.7 | % | (3,968 | ) | (3,871 | ) | (2.4 | )% |
|                             |       |                                                        |       |                                                       |       |   |   |   |   |   |   |   |   |
| Net  revenues                    |       | $                                                           | 95,491     |                                                       | $          | 110,066 |   | 15.3 | % | $ | 21,360 |   | $ | 24,282 |   | 13.7 | % |

 

*CasinoRevenues*

 

Combined casino revenuesduring the six months ended June 30, 2004 totaled $92.2 million, anincrease of $14.3 million over the six months ended June 30, 2003.Slot machine revenues accounted for $60.3 million, or 65.5% of combinedcasino revenues, and table games revenues accounted for $29.5 million, or32.0% of the combined casino revenues for the six months ended June 30,2004.

 

Average win per slotmachine per day at the Golden Nugget–Las Vegas for the six months endedJune 30, 2004 increased by 9.0%, as compared to the six months endedJune 30, 2003. Slot machine handle increased 9.5%, and table game dropincreased 40.6%, as compared to the six months ended June 30, 2003. Winper table game increased 45.9% over the prior period. These increases reflectthe success of the casino’s promotional events, additional casino marketingstaff and changes to table limits and odds.

 

*Non-Casino Revenues*

 

Combined room revenuestotaled $25.5 million, or 19.0% of combined net revenues, for the sixmonths ended June 30, 2004 compared to $23.1 million, or 19.7% ofcombined net revenues, for the six months ended June 30, 2003. Golden Nugget–LasVegas hotel occupancy during the period was 96.8%, compared to 94.7% for thesix months ended June 30, 2003. Overall ADR increased 9.0% for the sixmonths ended June 30, 2004, as compared to the six months endedJune 30, 2003. Hotel occupancy at the Golden Nugget-Laughlin for the sixmonths ended June 30, 2004 was 92.5% compared to 88.8% for the six monthsended June 30, 2003. Overall ADR decreased 2.5% for the six months endedJune 30, 2004 over the six months ended June 30, 2003.

 

Combined food andbeverage revenues for the six months ended June 30, 2004 totaled$27.6 million, or 20.5% of combined net revenues, compared to$24.6 million, or 21.0% of combined net revenues, for the six months endedJune 30, 2003. At the Golden Nugget-Las Vegas food covers increased 6.8%during the period and the

 

25

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averagerevenue per cover increased 8.0% compared to the six months ended June 30,2003. At our Laughlin property, food covers increased 1.7%, and the averagerevenue per cover increased 1.7% compared to the six months ended June 30,2003.

 

Combined entertainment,retail and other revenues remained flat at $6.9 million for the six monthperiods ended June 30, 2004 and 2003**.**

 

*PromotionalAllowances*

 

Promotional allowancesprovided to gaming patrons on a combined basis for the six months endedJune 30, 2004 and 2003, totaled $17.8 million and $15.6 million,respectively, and are characterized in the financial statements of the GoldenNugget Group as a reduction of combined gross revenues.

 

Promotional allowances at the Golden Nugget–Las Vegas were$13.9 million, or 11.2% of its gross revenues, for the six months endedJune 30, 2004, an increase of 19.7% from $11.6 million, or 10.9% ofits gross revenues, for the six months ended June 30, 2003. This increaseis consistent with the increase in gaming volumes and customer base as comparedto the six months ended June 30, 2003. Promotional allowances at theGolden Nugget–Laughlin totaled $3.9 million, or 13.7% of its grossrevenues, for the six months ended June 30, 2004, a decrease of 2.4% from$4.0 million, or 15.7% of its gross revenues, for the six months endedJune 30, 2003.

 

*OperatingExpenses*

 

Combined casino operatingexpenses for the six months ended June 30, 2004 totaled$52.2 million, or 56.6% of combined casino revenues, compared to$42.9 million, or 55.1% of combined casino revenues, for the six monthsended June 30, 2003. Combined casino operating expenses were primarilycomprised of salaries, benefits, gaming taxes, and other operating expenses ofthe casinos.

 

Casino operating expenses at the Golden Nugget–Las Vegas were$40.3 million, or 55.8% of its casino revenues, for the six months endedJune 30, 2004 compared to $32.3 million, or 53.3% of its casinorevenues, for the six months ended June 30, 2003. The increase of$8.0 million, or 24.8%, in casino operating expenses at the GoldenNugget–Las Vegas is due primarily to increases in marketing, payroll and eventexpenses, and gaming taxes associated with the increase in casino revenues.Casino operating expenses at the Golden Nugget–Laughlin were$11.9 million, or 59.5% of its casino revenues, for the six months endedJune 30, 2004 compared to $11.9 million, or 60.0% of its casino revenues,for the six months ended June 30, 2003.

 

Combined general andadministrative expenses for the six months ended June 30, 2004 were$25.9 million, or 19.3% of combined net revenues, compared to$20.6 million, or 17.7% of combined net revenues, for the six months endedJune 30, 2003. General and administrative expenses at the GoldenNugget–Las Vegas accounted for $20.2 million, or 18.3% of its netrevenues, for the six months ended June 30, 2004 and $15.6 million,or 16.4% of its net revenues, for the six months ended June 30, 2003.General and administrative expenses at the Golden Nugget–Laughlin accounted for$5.7 million, or 23.5% of its net revenues, for the six months endedJune 30, 2004 and $5.0 million, or 23.4% of its net revenues, for thesix months ended June 30, 2003. The increases in general andadministrative expenses are attributed to costs for additional payroll andservices as we transition from the MGM Mirage corporate services, as well asfor signing bonuses paid upon Acquisition of the properties by Poster FinancialGroup, Inc.

 

*Incomefrom Operations*

 

Combined operating incomefor the six months ended June 30, 2004 was $13.4 million, or 10.0% ofcombined net revenues, compared to $7.1 million, or 6.1% of net revenues,for the six months ended June 30, 2003. Operating income at the GoldenNugget–Las Vegas for the six months ended June 30, 2004 was$11.1 million, or 10.1% of its net revenues, compared to $7.1 million, or7.4% of its net revenues, for the six months ended June 30, 2003. The increasein operating income is primarily due to increases in casino, hotel and food andbeverage revenues for the six months ended June 30, 2004. Operating incomeat the Golden Nugget–Laughlin was

 

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$2.3 million, or 9.5% of its net revenues, for the six monthsended June 30, 2004, compared to operating income of $28 thousand, or 0.1%of its net revenues, for the six months ended June 30, 2003. Improvedperformance is due to a strengthening of the Laughlin market and improvedcasino revenues due in part to upgrades to player tracking software andincreased limits in table games.

 

*OtherIncome and Expense*

 

Other income and expense consists principallyof interest expense on the note payable to MGM MIRAGE and of equity in the lossof The Fremont Street Experience LLC. Interest expense for the six months endedJune 30, 2004 was calculated for the period January 1, 2004 throughJanuary 22, 2004 and amounted to $0.2 million compared to$1.8 million for the full six months ended June 30, 2003. Theprincipal balance of the note was $80.0 million in both 2003 and 2004. Inconnection with the closing of the Acquisition, the Golden Nugget Group wasrelieved of its obligations to repay the note payable to the MGM MIRAGE.

 

The Golden Nugget Group accounts for itsinvestment in The Fremont Street Experience LLC as a joint venture, using theequity method of accounting. The Golden Nugget Group added to its investmentthrough contributions of approximately $0.5 million for the six months endedJune 30, 2004 and $0.8 million for the six months ended June 30,2003, and its equity in the loss of The Fremont Street Experience LLC wasapproximately $0.3 million for the six months ended June 30, 2004 andapproximately $0.4 million for the six months ended June 30, 2003, whichlosses were consistent with our expectations. The joint venture is primarilydesigned to increase visitation to downtown Las Vegas and it is expected tocontinue to incur losses each year. GNLV has a 17.65% interest in the loss ofThe Fremont Street Experience LLC, which ownership and participation rate wasconsistent throughout 2003 and 2004.

 

**Liquidityand Capital Resources**

 

At June 30, 2004,Poster Financial had cash and cash equivalents of $18.9 million. We expectto fund our operating and capital needs, as currently contemplated, withoperating cash flows and, if necessary, additional borrowings under the seniorcredit facility. We currently anticipate capital expenditures for 2004 to beapproximately $15.0 million and 2005 to be approximately $10.5 million.The majority of the budgeted expenditures for 2004 and 2005 are expected to bespent on purchasing new gaming equipment and information services equipment. Wespent approximately $9.8 million on capital expenditures in the first sixmonths of 2004 since the closing of the Acquisition.

 

For the six months endedJune 30, 2004 (which includes the Golden Nugget Group for 160 days ofoperation), net cash provided by operating activities totaled approximately$9.3 million and cash used for investing activities totaled$52.2 million primarily related to the Acquisition of the Golden NuggetGroup.

 

Cash flows provided byfinancing activities were $61.9 million in the first six months of 2004.  As of June 30, 2004, we had a total of$6.6 million outstanding under the revolving loan portion of our senior creditfacility (the “Revolving Facility”).  Wehave met our capital requirements to date through net cash from operatingactivities and borrowings under our senior credit facility.

 

**OffBalance Sheet Arrangements**

 

Our off balance sheetarrangements consist solely of our investment in an unconsolidated affiliate,which currently consists of our investment in Fremont Street Experience. Wehave not entered into any transactions with special purpose entities, nor havewe engaged in any derivative transactions or joint ventures.

 

At June 30, 2004, wehad outstanding letters of credit totaling $3.7 million.

 

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**ContractualObligations**

 

The following tablesummarizes the contractual obligations and commitments of Poster Financial (orthe Golden Nugget Group prior to the Acquisition) to make future payments undercertain contracts, including long-term debt obligations, and operating leasesat June 30, 2004. We have significant obligations under the notes and oursenior credit facility.

 
| ** **                                    | ** ** | **Payments Due By Period** | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|
| **Contractual  Obligations and  Commitments** | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After  5 years** | ** ** | **Total** | ** ** |
| ** **                                    | ** ** | **(dollars in thousands)** | ** ** |
| 83/4%  Senior Secured Notes due 2011          |       | $                          | —     |   | $ | — |   | $ | — |   | $ | 155,000 |   | $ | 155,000 |   |
| Senior  credit facility                       |       | 2,800                      |       | 5,600 |   | 3,500 |   | 8,100 |   | 20,000 |   |
| Other  long-term debt                         |       | 154                        |       | 154 |   | 154 |   | 38 |   | 500 |   |
| Operating  leases                             |       | 761                        |       | 771 |   | 817 |   | 845 |   | 3,194 |   |
| Total  cash obligations                       |       | $                          | 3,715      |   | $ | 6,525 |   | $ | 4,471 |   | $ | 163,983 |   | $ | 178,694 |   |

 

**Critical Accounting Policies**

 

The consolidatedfinancial statements of the Company are prepared in accordance with accountingprinciples generally accepted in the United States, which requires managementto make estimates and assumptions about the effects of matters that areinherently uncertain. We have summarized the significant accounting policies ofthe Golden Nugget Group in Note 2 to the combined financial statements ofthe Golden Nugget Group. Of the accounting policies, we believe the followingmay involve a higher degree of judgment and complexity.

 

*Revenue Recognition.*  Casino revenues represent the net win fromgaming activities, which is the difference between gaming wins and losses.Hotel and other revenues are recognized at the time the related service isperformed.

 

*Property and Equipment.*  At June 30, 2004, the Company hadapproximately $188.1 million of net property and equipment recorded on itsbalance sheet. The Company depreciates its assets on a straight-line basis overtheir estimated useful lives. The estimate of the useful lives is based on thenature of the asset as well as our current operating strategy. Future events,such as property expansions, new competition and new regulations, could resultin a change in the manner in which we use certain assets, which could require achange in the estimated useful lives of such assets. In assessing therecoverability of the carrying value of property and equipment, we must makeassumptions regarding estimated future cash flows and other factors. If theseestimates or the related assumptions change in the future, we may be requiredto record impairment charges for these assets.

 

*SlotClub Liability.*  TheGolden Nugget casinos offer a program whereby participants can accumulatepoints for casino wagering that can currently be redeemed for cash, lodging,food and beverages and merchandise. A liability is recorded for the estimate ofunredeemed points based upon redemption history at the Golden Nugget casinos.Changes in the program, increases in membership and changes in the redemptionpatterns of the participants can impact this liability.

 

*Self-Insurance.*  The Company maintains accruals for itsself-insured health program, which are classified in other accrued liabilitiesin the combined balance sheet. Management determines the estimates of theseaccruals by periodically evaluating the historical expenses and projectedtrends related to these accruals. Actual results may differ from thoseestimates.

 

*Litigation, Claims and Assessments.*  The Company also utilizes estimates forlitigation, claims and assessments. These estimates are based upon management’sknowledge and experience about past and current events and also upon reasonablefuture events. Actual results may differ from those estimates.

 

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**RecentlyIssued Accounting Pronouncements**

 

In August 2001, theFinancial Accounting Standards Board issued Statement 143 (“SFAS 143”), *Accounting for Obligations Associated with theRetirement of Long-Lived Assets*. Under SFAS 143, the fair valueof a liability for an asset retirement obligation is required to be recognizedin the period in which it is incurred if a reasonable estimate of fair valuecan be made. The associated asset retirement costs are capitalized as part ofthe carrying amount of the long-lived asset. The Golden Nugget Group adoptedSFAS 143 on January 1, 2003 and Poster Financial adopted it uponinception. Adoption of SFAS No. 143 did not have a material impact onPoster Financial’s or the Golden Nugget Group’s financial condition, results ofoperations or cash flows.

 

In April 2002, theFinancial Accounting Standards Board issued SFAS 145. Among other matters,SFAS 145 addresses the presentation for gains and losses on earlyretirements of debt in the statement of operations. SFAS 145 is effectivefor fiscal years beginning after May 15, 2002. Adoption of SFAS 145did not have a material impact on Poster Financial’s or the Golden NuggetGroup’s financial condition, results of operations or cash flows.

 

In June 2002, theFinancial Accounting Standard Board issued Statement No. 146(“SFAS 146”) *Accounting for CostsAssociated with Exit or Disposal Activities*. The provisions of SFAS 146became effective for exit or disposal activities commenced subsequent toDecember 31, 2002. The adoption of SFAS 146 did not have any impacton Poster Finanical’s or the Golden Nugget Group’s financial condition, resultsof operations or cash flows.

 

In May 2003, theFASB issued SFAS No. 150, *Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity.* SFAS No. 150 establishes standards for how an issuerclarifies and measures certain financial instruments with characteristics ofboth liabilities and equity. The statement requires an issuer to classifyfinancial instruments issued in the form of shares that are mandatorilyredeemable—that embodies an unconditional obligation requiring the issuer toredeem it by transferring its assets as a specified or determinable date (ordates) or upon an event that is certain to occur—as liabilities. Nonpublicentities are subject to the provisions of SFAS No. 150 for the firstfiscal period beginning after December 15, 2003. We adopted the statementon January 1, 2004, and it did not have any material effect on PosterFinancial’s or the Golden Nugget Group’s financial position, results ofoperations or cash flows.

 

In November 2002,the Financial Accounting Standards Board issued FASB Interpretation No. 45(“FIN 45”), *Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others*. This interpretation elaborates on thedisclosures to be made by a guarantor in its interim and an annual financialstatement about its obligations under certain guarantees that it has issued. Italso clarifies (for guarantees issued after January 1, 2003) that aguarantor is required to recognize, at the inception of a guarantee, a liabilityfor the fair value of the obligations undertaken in issuing the guarantee. AtJune 30, 2004 Poster Financial was not a guarantor of any third partyindebtedness and the Golden Nugget Group was only a guarantor of indebtednesswithin the Poster Financial consolidated group. Prior to the Acquisition, theGolden Nugget Group was a guarantor of certain indebtedness of MGM MIRAGE andaffiliates. A subsidiary’s guarantee of debt owed to a third party by eitherits parent or another subsidiary of its parent is specifically excluded fromthe provisions of FIN 45 that require financial statement recognition andmeasurement. Accordingly, the adoption of FIN 45 did not have an impact on theCompany’s financial position, results of operations or cash flows.

 

In January 2003, theFinancial Accounting Standards Board issued FASB Interpretation No. 46(“FIN 46”), *Consolidation of VariableInterest Entities* (“VIEs”). The interpretation was also revised toDecember, 2003 (“FIN 46R”). This interpretation outlines requirements forbusiness enterprises to combined related entities in which they are determinedto be the primary economic beneficiary as a result of their variable economicinterests. The interpretation is intended to provide guidance in judgingmultiple economic interests in an entity and in determining the primarybeneficiary. The interpretation outlines disclosure requirements for VIEs inexistence prior to January 31, 2003, and outlines combined requirementsfor VIEs created after January 31, 2003. The Golden Nugget Group hasreviewed its major relationships and its overall economic interests with othercompanies consisting of related parties, companies in which it has an equityposition and other suppliers to determine the extent of its variable economicinterest in these parties. The adoption of FIN 46 did not have a materialimpact on Poster Financial’s or the Golden Nugget Group’s financial condition,results of operations or cash flows. The Company believes it has appropriatelyreported the economic impact and its share of risks of its commercialrelationships through its equity accounting along with appropriate disclosureof its other commitments.

 

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In November 2003,the FASB Emerging Issues Task Force issued EITF Issue 03-16 (“Issue 03-16”).Issue 03-16 addresses whether a limited liability corporation (“LLC”) should beviewed as a corporation or partnership for purposes of determining whether anon-controlling investment in an LLC should be accounted for using the costmethod or the equity method of accounting. Issue 03-16 is effective forreporting periods beginning after June 15, 2004. Our non-controllinginvestment in The Fremont Street Experience LLC and subsidiaries is subject tothe provisions of this Issue. The Company currently accounts for its investmentin the Fremont Street Experience on the equity method of accounting andbelieves that such accounting will continue to be appropriate following theadoption of Issue 03-16 because the Company’s influence on The Fremont StreetExperience LLC is more than minor (as a result of its 17.65% voting interest),as that term is used in the related accounting literature. Accordingly, theCompany does not expect that the adoption of Issue 03-16 will have a material impacton its financial position, results of operations or cash flows.

 

**Cautionary Statement RegardingForward-Looking Statements**

 

This report on Form 10-Qcontains “forward-looking statements,” within the meaning of the PrivateSecurities Litigation Reform Act of 1995, which involve known and unknownrisks. Such forward-looking statements include statements as to the Company’santicipated financial performance; the impact of competition and currenteconomic uncertainty; the sufficiency of funds to satisfy our cash requirementsthrough the remainder of fiscal 2004; and other statements containing wordssuch as “believes,” “anticipates,” “estimates,” “expects,” “may,” “intends” andwords of similar import or statements of management’s opinion. These forward-lookingstatements and assumptions involve known and unknown risks, uncertainties andother factors that may cause our actual results, market performance orachievements to differ materially from any future results, performance orachievements expressed or implied by such forward-looking statements. Importantfactors that could cause differences in our results of operations include, butare not limited to, general economic conditions in the markets in which weoperate, competition from other gaming operations, leverage, the inherentuncertainty and costs associated with litigation and governmental andregulatory investigations, licensing and other regulatory risks and other risksdisclosed in our filings with the Securities and Exchange Commission.  All forward-looking statements attributablethe Company or persons acting on behalf of the Company apply only as of thedate of this report and are expressly qualified in their entirety by thecautionary statements included in this report. We undertake no obligation toupdate or revise forward-looking statements to reflect events or circumstancesthat may arise after the date of this report.

 

###### **Item3.**           Quantitative andQualitative Disclosure about Market Risk

 

Market risk is the riskof loss arising from adverse changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices. Ourprimary exposure to market risk is interest rate risk associated with ourlong-term debt. We do not invest in derivative financial instruments, interestrate swaps or other investments that alter interest rate exposure.

 

The table below providesinformation about our financial instruments that are sensitive to changes ininterest rates. For debt obligations, the table presents notional amounts andweighted average interest rates by contractual maturity dates for the remainderof 2004 and, for later years, for the twelve-month periods endedDecember 31:

 

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| ** **                                                                                                                                                                                           | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair  Value(1)** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|--------------------|------------|
| **Variable Rate Debt**                                                                                                                                                                               |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |               |       |
| Poster Financial—Amounts outstanding under the  senior credit facility, payable at one-month LIBOR plus a margin of 4.0%                                                                        |       | $        | 1,400      |     | $          | 2,800    |       | $        | 2,800      |     | $          | 2,800          |       | $         | 10,200     |               | $          | 6,645 |   | $ | 26,645 |   | $ | 26,645 |   |
| Average interest rate (2)                                                                                                                                                                            |       | —   |       | —   |       | —   |       | —   |       | —   |       | 5.09           | %          | 5.09      | %          |               |       |
|                                                                                                                                                                                                 |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |               |       |
| **Fixed Rate Debt**                                                                                                                                                                                  |       |     |       |     |       |     |       |     |       |     |       |           |       |      |       |               |       |
| Poster Financial—$155.0 principal amount of 8 3/4 % Senior  Secured Notes due 2011                                                                                                              |       | —   |       | —   |       | —   |       | —   |       | —   |       | 155,000        |       | 155,000   |       | 155,000            |       |
| Average interest rate (2)                                                                                                                                                                            |       | —   |       | —   |       | —   |       | —   |       | —   |       | 8.75           | %          | 8.75      | %          |               |       |
| Golden Nugget Group-Non-interest bearing slot  jackpot payable over time and carried as a note payable (unamortized discount  of $116 at December 31, 2003 not reflected in scheduled payments) |       | 154      |       | 154      |       | 154      |       | 154      |       |     |       | —         |       | 616       |       | 400                |       |
|                                                                                                                                                                                                 |       | $        | 1,554      |     | $          | 2,954    |       | $        | 2,954      |     | $          | 2,954          |       | $         | 10,200     |               | $          | 161,645 |   | $ | 182,261 |   | $ | 182,045 |   |

 

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(1)                                  Thefair values for debt with no public market are based on the borrowing ratescurrently available for debt instruments with similar terms and maturities, andfor publicly traded debts are based on market quotes.

 

(2)                                  Basedon contractual interest rates for fixed rate indebtedness or current LIBORrates for variable rate indebtedness.

 

(3)                                  Market risk is the risk of loss arising fromadverse changes in market rates and prices, such as interest rates, foreigncurrency exchange rates and commodity prices. Our primary exposure to marketrisk is interest rate risk associated with our long-term debt. We attempt tolimit our exposure to interest rate risk by managing the mix of our long-termfixed-rate borrowings and short-term borrowings under the Revolving Facility.Borrowings under the Revolving Facility bear interest at a margin above theAlternate Base Rate or the Eurodollar Rate (each, as defined in the agreementgoverning the Revolving Facility) as selected by us. However, the amount ofoutstanding borrowings is expected to fluctuate and may be reduced from time totime. The Revolving Facility matures in January 2009.

 

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

 

**Evaluationof Disclosure Controls and Procedures**

 

Our management, with theparticipation of our Chief Executive Officer and Chief Financial Officer, hasevaluated the effectiveness of our disclosure controls and procedures (as suchterm is defined in Rules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934, as amended (the “Exchange Act”)) as of the end of the periodcovered by this report. Based on that evaluation, our Chief Executive Officerand Chief Financial Officer have concluded that, as of the end of such period,our disclosure controls and procedures are effective.

 

**Changesin Internal Controls Over Financial Reporting**

 

There have not been anychanges in our internal control over financial reporting (as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during thefiscal quarter to which this report relates that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

**Part II - OTHER INFORMATION**

 

**Item 1****.****          ****Legal Proceedings**

 

Poster Financial is notinvolved in any litigation. GNLV and GNL are each defendants in variouslawsuits, most of which relate to routine matters incidental to the Company’sbusiness.  We do not believe that theoutcome of this pending litigation, considered in the aggregate, will have amaterial adverse effect on our business, financial condition, results ofoperations or liquidity.

 

**Item 2****.****           Changes in Securities and Use of Proceeds – None.**

 

**Item 3****.****           Defaults Upon Senior Securities –**None.

 

**Item 4****.****           Submission of Matters to a Vote of Security Holders – None.**

 

**Item 5****.****           OtherInformation**

 

On July 2, 2004,Poster Financial commenced an offer to exchange (the “Exchange Offer”) $155 millionaggregate principal amount of the outstanding Notes for $155 million aggregateprincipal amount of 83⁄4% Senior Secured Notes due 2011 (the“Exchange Notes”) that had been registered under the Securities Actof 1933, as amended.  The ExchangeOffer expired at 5:00 p.m., New York City time, on August 3, 2004, and atthat time holders of 100% of the outstanding aggregate principal amount of theNotes had tendered their Notes pursuant to the Exchange Offer and notwithdrawn.  On August 4, 2004,Poster Financial issued $155 million aggregate principal amount of ExchangeNotes in exchange for the tendered Notes and all outstanding Notes werecancelled.

 

###### **Item6.**           Exhibits and Reports onForm 8-K

 

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(a)                                  Exhibits–

 

No.31.1 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

 

No.31.2 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of2002.

 

No.32.1 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of2002.

 

No.32.2 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of2002.

 

(b)                                 Reportson Form 8-K

 

On August 11, 2004,the Company filed a Current Report on Form 8-K reporting items listed underItems 7 and 12.

 

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**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                             | Poster Financial Group,  Inc.,                                      |
|----------------------------------|---------------------------------------------------------------------|
|                             |                                                                |
|                             |                                                                |
| DATE:  August 16, 2004 | /s/ Dawn M. Prendes                                                 |   |
|                             | Dawn M. Prendes  Senior Vice President and  Chief Financial Officer |

 

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