**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington,D.C. 20549**

 

**Form 10-K**

 

**ý****              ****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934**

 

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

 

**For thefiscal year ended December 31, 2004**

 

**CommissionFile No. 333-88242**

 

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**JACOBSENTERTAINMENT, INC.**

(Exactname of Registrant as specified in its charter)

 
| **Delaware**                                                    | ** ** | **34-1959351**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |       | (I.R.S.  Employer Identification No.) |

 

**240 MainStreet, Black Hawk, Colorado 80422**

(Addressof principal executive offices) (Zip code)

 

**(303)582-1117**

(Registrant’stelephone number, including area code)

 

Securitiesregistered pursuant to Section 12(b) of the Act:**None.**

 

Securitiesregistered pursuant to Section 12(g) of the Act:**None.**

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 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   ý                    No   o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. ý

 

State the aggregate market value of the voting andnonvoting common equity of the registrant held by non-affiliates: No marketexists for the common stock of the registrant; all of its outstanding shares ofcommon stock are held by two persons.

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   o                    No   ý

 

State the aggregate market value of the voting andnon-voting common equity held by non-affiliates computed by reference to theprice at which the common equity was last sold, or the average bid and askedprice of such common equity, as of the last business day of the registrant’smost recently completed second fiscal quarter: No market exists for the common stock of the registrant; all of itsoutstanding shares of common stock are held by two persons.

 

Indicate the number of shares outstanding of each ofthe registrant’s classes of common stock, as of the latest practicable date:

 
| **Class**                      | ** ** | **Outstanding at March 15, 2005** |
|--------------------------------|------------|-----------------------------------|
| Common Stock, $0.01 par  value |       | 1,500 shares                      |

** **

**DOCUMENTSINCORPORATED BY REFERENCE:  ****None**

See the exhibit index which appears on page E-1.

 

 

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**JACOBSENTERTAINMENT, INC.**

**2004 ANNUALREPORT ON FORM 10-K**

 

**Table ofContents**

 
| **Item** | ** ** | **Description**                                                                                                    | ** ** |
|----------|------------|--------------------------------------------------------------------------------------------------------------------|------------|
|     |       |                                                                                                               |       |
| Item  1. |       | Business                                                                                                           |       |
| Item 2.  |       | Properties                                                                                                         |       |
| Item 3.  |       | Legal Proceedings                                                                                                  |       |
| Item 4.  |       | Submission of Matters to a Vote of Security  Holders                                                               |       |
| Item 5.  |       | Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities |       |
| Item 6.  |       | Selected Financial Data                                                                                            |       |
| Item 7.  |       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        |       |
| Item 7A. |       | Quantitative and Qualitative Disclosure  about Market Risk                                                         |       |
| Item 8.  |       | Financial Statements and Supplementary Data                                                                        |       |
| Item 9.  |       | Changes In and Disagreements with  Accountants on Accounting and Financial Disclosure                              |       |
| Item 9A. |       | Controls and Procedures                                                                                            |       |
| Item 9B. |       | Other Information                                                                                                  |       |
| Item 10. |       | Directors and Executive Officers of the  Registrant                                                                |       |
| Item 11. |       | Executive Compensation                                                                                             |       |
| Item 12. |       | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                    |       |
| Item 13. |       | Certain Relationships and Related  Transactions                                                                    |       |
| Item 14. |       | Principal Accountant Fees and Services                                                                             |       |
| Item 15. |       | Exhibits and Financial Statement Schedules                                                                         |       |

 

**STATEMENTUNDER THE SECURITIES LITIGATION REFORM ACT OF 1995**

 

This annual report on Form 10-K containsforward-looking statements that involve a number of risks and uncertainties.Such forward-looking statements are not historical facts and constitute or relyupon projections, forecasts, assumptions or other forward-looking information.Generally these statements may be identified by the use of forward-lookingwords or phrases such as “believes,” “expects,” “anticipates,” “intends,” “plans,”“estimates,” “may,” and “should.” These statements are inherently subject toknown and unknown risks, uncertainties and assumptions. Our future resultscould differ materially from those expected or anticipated in theforward-looking statements. Specific factors that might cause such differencesinclude factors described and discussed in the description of our business inItem 1 and in our management’s discussion and analysis of financial conditionand results of operations in Item 7 of this report.

 

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**PART I**

 

**Item 1.                    *Business***

 

**Introduction**

 

Jacobs Entertainment, Inc. (“Jacobs Entertainment”)was formed as a Delaware corporation on April 17, 2001. On February 22, 2002,we completed the transactions described below, which were primarily funded bythe proceeds from the issuance of $125 million in senior secured notes onFebruary 8, 2002. These notes bear an 117/8 % interestrate and are due in 2009. The principal components of the transactions are asfollows.

 

On February 22, 2002 Jeffrey P. Jacobs and TheRichard E. Jacobs Revocable Trust contributed substantially all of theirinterests in Diversified Opportunities Group Ltd. (“Diversified”) and theircombined 100% interest in Jalou II in exchange for 100% of the common stock ofJacobs Entertainment. On the acquisition date, immediately prior to theacquisition of the publicly held shares of Black Hawk Gaming & DevelopmentCompany, Inc. (“Black Hawk Gaming”) and Colonial Holdings, Inc. (“Colonial”)described below, Diversified owned 100% of Jalou L.L.C., approximately 44% ofColonial, approximately 32% of Black Hawk Gaming, and a 25% interest in TheLodge Casino at Black Hawk (“The Lodge”) (of which the remaining 75% was ownedby Black Hawk Gaming). On February 22, 2002, Jacobs Entertainment acquired theremaining 56% of Colonial’s common stock for approximately $4.6 million. JacobsEntertainment also acquired the remaining 68% of Black Hawk Gaming’s commonstock for approximately $37.0 million on February 22, 2002.

 

As a result of these transactions, we are ageographically diversified gaming and pari-mutuel wagering company withproperties in Colorado, Louisiana, Nevada and Virginia. We own and operatethree casinos, nine truck plaza video gaming facilities (one is leased) and ahorseracing track with six satellite wagering facilities (two are leased). Wereceived a gaming license for a seventh satellite facility on March 16, 2005.In addition, we are a party to an agreement that entitles us to a portion ofthe gaming revenue from an additional truck plaza video gaming facility. OnMarch 2, 2005, we acquired three of our nine truck plaza video gamingfacilities as more fully described under Item 13 below.

 

All of our gaming facilities target local customersand emphasize revenues from slot machine play or video gaming, or both. For theyear ended December 31, 2004, our net revenues were approximately $190 million.See note 14 to our consolidated financial statements for information concerningthe operational performance of the segments of our business.

 

Thefollowing table sets forth certain information and property level EBITDA(excluding corporate overhead) of our properties:

 
| ** **                                                  | ** ** | ** **                     | ** ** | ** **                                  | ** ** | **As of December 31, 2004**               | ** ** | **Year Ended  December 31, 2004** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------|------------|
| **Property**                                                | ** ** | **Location**                   | ** ** | **Facility Type**                           | ** ** | **Approximate  Gaming  Square   Footage** | ** ** | **Gaming   Machines**             | ** ** | **Table   Games** | ** ** | **Percentage  of Gaming  Revenue from   Machines** | ** ** | **Property Level  EBITDA (1)** | ** ** |
|                                                        |       |                           |       |                                        |       |                                      |       |                              |       |   |   |   |   | **(in thousands)** |   |
| The Lodge Casino                                            |       | Black Hawk,  Colorado          |       | Land-based  casino                          |       | 25,000                                    |       | 900                               |       | 30 |   | 91 | % | $ | 20,171 |   |
| Gilpin Hotel Casino                                         |       | Black Hawk,  Colorado          |       | Land-based  casino                          |       | 16,000                                    |       | 480                               |       | 4 |   | 99 |   | 4,043 |   |
| Gold Dust West Casino                                       |       | Reno, Nevada                   |       | Land-based  casino                          |       | 17,500                                    |       | 500                               |       | 0 |   | 100 |   | 7,535 |   |
| Louisiana Truck Plazas (existing)                           |       | Louisiana (various  locations) |       | Video gaming                                |       | 13,000                                    |       | 340                               |       | 0 |   | 100 |   | 10,110 |   |
| Colonial Downs Racetrack and satellite  wagering facilities |       | Virginia (various  locations)  |       |  Horse racing and pari-mutuel wagering |       | N/A                                       |       | N/A                               |       | N/A |   | N/A |   | 1,601 |   |
| **Total**                                                   |       | ** **                     |       | ** **                                  |       | 71,500                                    |       | 2,220                             |       | 34 |   |   |   | $ | 43,460 |   |

 

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(1)                    Property LevelEBITDA excludes corporate overhead expense of approximately $9,314 million inthe aggregate for all of our properties.

 

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**The following is a reconciliation of our property levelEBITDA to our property level net income:**

** **
| ** **                        | ** ** | ** **    | ** ** | **Depreciation** | ** ** | ** **   | ** ** | ** **   | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|------------------|------------|--------------|------------|--------------|------------|------------|------------|
| ** **                        | ** ** | ** **    | ** ** | **and**          | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Net**    | ** ** |
| **Year ended December 31, 2004**  | ** ** | **EBITDA(1)** | ** ** | **Amortization** | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Income** | ** ** |
| ** **                        | ** ** | ** **    | ** ** | ** **       | ** ** | ** **   | ** ** | ** **   | ** ** | ** ** | ** ** |
| The Lodge Casino                  |       | $             | 20,171     |             | $          | 3,385        |       | $            | 10         |       | $          | 8,378 |   | $ | 8,418 |   |
| Gilpin Hotel Casino               |       | 4,043         |       | 1,453            |       | 3            |       | 2,429        |       | 164        |       |
| Gold Dust West                    |       | 7,535         |       | 1,436            |       | 3            |       | 3,142        |       | 2,960      |       |
| Louisiana Truck Plazas (existing) |       | 10,110        |       | 1,749            |       | 3            |       | 1,989        |       | 6,375      |       |
| Colonial Downs                    |       | 1,601         |       | 1,544            |       | 29           |       | 121          |       | (35        | )          |
| Total Property Level EBITDA       |       | 43,460        |       | 9,567            |       | 48           |       | 16,059       |       | 17,882     |       |
| Corporate overhead                |       | (9,314        | )          | 178              |       | 16           |       | 3,419        |       | (12,895    | )          |
| **Total**                         | ** ** | **$**         | **34,146** | ** **       | **$**      | **9,745**    | ** ** | **$**        | **64**     | ** ** | **$**      | **19,478** | ** ** | **$** | **4,987** | ** ** |

 

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(1)                                  Please see note 7 on page 38 hereof for adiscussion of EBITDA, a non-GAAP financial measure.

 

**Our Properties and Operations**

 

***The LodgeCasino—Black Hawk, Colorado***. The Lodge Casino in Black Hawk, Colorado, which commenced operationsin June 1998, is one of 21 casinos located in the gaming district of BlackHawk. The Lodge services the greater Denver metropolitan area population ofapproximately 2.4 million located 40 miles east of Black Hawk, as well ascustomers from nearby communities such as Boulder and Fort Collins, Coloradoand Cheyenne, Wyoming. We believe that most of The Lodge’s customers areprimarily day trip patrons who reside in the greater Denver metropolitan area.As of December 31, 2004, the Black Hawk market had approximately 9,365 gamingdevices (slot machines, blackjack and poker tables) generating approximately$524 million in revenues for the year then ended. We are one of the largestgaming facilities in the market.

 

The Lodge is located on a 2.5 acre site that abutsState Highway 119, with approximately 25,000 square feet of gaming space on twofloors containing 900****slotmachines and 30 table games, 50 hotel rooms, three restaurants, four bars andonsite parking for 600 vehicles. Our property includes The White BuffaloGrille, an upscale dining facility and a buffet that was completely remodeledin 2002 at a cost of $1 million. Black Hawk has no significant lodgingfacilities other than our facility and the Isle of Capri, which has a 237-roomhotel at its Black Hawk casino and an additional 160 rooms under constructionwhich is anticipated to open in March 2005. Another competitor has announcedplans to construct a 300-room hotel directly across from our Lodge casino.

 

We utilize computerized slot data tracking systemsthat allow us to track individual play and payouts and develop mailing listsfor special events, contest play and promotions. The Lodge participates inbusing programs with unaffiliated transportation companies who transportpatrons to Black Hawk/Central City from the market areas described above. BlackHawk Gaming has obtained an exemption as a common carrier from the ColoradoPublic Utilities Commission and may elect to operate its own busing program inthe future.

 

***The Gilpin HotelCasino—Black Hawk, Colorado***. The Gilpin Hotel Casino, which commenced operations in October 1992,is a 37,000 square foot facility located on a one acre site in the centralBlack Hawk gaming district. We expanded our facility through the acquisition ofan adjacent casino in early 1994. We were one of the first casinos opened inColorado following the legalization of casino gaming in 1991. We offer 480 slotmachines,  a restaurant and two bars. Wealso offer slot club, busing and other promotional programs, and have availableto our customers 200 surface parking spots in the heart of historic Black Hawk.

 

We commenced a remodeling and expansion of theGilpin Hotel Casino in the third quarter of 2002 to place all gaming operationson a single floor and to upgrade and renovate the overall structure. Theseimprovements cost approximately $7.8 million and were completed in June 2003.Although we experienced construction and other disruptions that adverselyaffected our business during the remodeling period, we believe theserenovations have enhanced the Gilpin Hotel Casino’s competitiveness in theBlack Hawk market. Further, in November 2004, we began a renovation of thethird floor of the Gilpin Hotel Casino, which was completed in March 2005 at anapproximate cost of $1.8 million. This addition, called the Gilpin Poker Room,will initially add 16 live action poker tables with the space to add anadditional 4 tables.

 

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***The Gold DustWest Casino—Reno, Nevada***. The Gold Dust West Casino, located on 4.6 acres in Reno’s centraldowntown gaming district, has been operating since 1978. The casino caters toresidents of Reno and surrounding areas and has about 17,500 square feet ofgaming space, currently accommodating 500 slot machines. We offer the WildwoodRestaurant, a 6,600 square foot dining facility, 106 motel rooms, and surfaceparking for 300 vehicles. We implemented a slot player tracking system inSeptember 2001, which has facilitated improvement of the casino’s operatingresults. During 2002, we made several improvements to the property including asignificant remodeling of the Wildwood kitchen and serving line, the additionof outdoor signage, and general landscaping improvements. The Reno/Sparks,Nevada market area generated approximately $1.0 billion of gaming revenuesduring each of the years ended December 31, 2002, 2003 and 2004. There were 36casinos in the Reno/Sparks market area at December 31, 2004.

 

***Louisiana GamingProperties***. Ourtruck plaza properties consist of six truck plaza video gaming facilitieslocated in Louisiana and we share in the gaming revenues from an additionalLouisiana truck plaza gaming facility. We acquired three additional truck plazavideo gaming facilities on March 2, 2005 as described in Item 13. Ourproperties include the Houma Truck Plaza and Casino in Houma; Winner’s ChoiceCasino in Sulphur; Lucky Magnolia Truck Stop and Casino in St. Helena Parish;Bayou Vista Truck Plaza and Casino in Bayou Vista; Colonel’s Truck Plaza andCasino in Thibodaux; and Raceland Truck Plaza and Casino in Raceland. Our threenew truck plaza properties include Breaux Bridge in St. Martin Parish, Eunicein St. Landry Parish and Jefferson in Jefferson Parish (a leased property).Breaux Bridge is currently operating with 50 gaming devices; Eunice was grantedits gaming license on March 15, 2005 and expects to commence gaming operationsin late March 2005; we filed an application for a gaming license for Jeffersonon February 25, 2005 and we expect to commence gaming operations at thatfacility in June 2005, assuming we obtain gaming approval. We are also party toan agreement that entitles us to a portion of the gaming revenues from Cash’sTruck Plaza and Casino in Lobdell. Each truck plaza features a conveniencestore, fueling operations, a restaurant operating not fewer than 12 hours perday, and 50 video poker devices (except for Lucky Magnolia Truck Stop andCasino, which has 40 devices).

 

The Louisiana video gaming industry consists ofvideo gaming in 31 of Louisiana’s 64 parishes. The industry is highly regulatedand video gaming machines can only be placed in qualifying bars, restaurants,hotels, satellite wagering facilities and truck plazas. In order to qualify forvideo gaming, a truck plaza must offer diesel fuel, gasoline, a conveniencestore, a restaurant and a place for truck drivers to shower and sleep. Our videogaming machines are located in a separate gaming room that is designed toprovide a pleasant casino-like atmosphere. As of December 31, 2004, Louisianahad 153 licensed truck plazas.

 

The Louisiana truck plaza video gaming market catersprimarily to local residents, whom we believe contribute to the vast majorityof truck plaza gaming revenue. We believe that most of our video gamingcustomers live within a five-mile radius of our properties.

 

***Colonial Downs—NewKent, Virginia***.Colonial Downs, which opened in 1997, is a racetrack in New Kent, Virginia,which primarily conducts pari-mutuel wagering on thoroughbred and harnessracing. The track facility was designed to provide patrons with a pleasantatmosphere to enjoy quality horse racing. The outside grandstand area, locatedon the first floor of the track facility, has an occupancy capacity ofapproximately 4,000 patrons. Also located on the first floor of the trackfacility are two simulcast television amphitheaters, two covered patio-seatingareas, four bars, a large concession food court, gift shop, and wageringlocations with approximately 72 tellers. The Jockey Club, which is in the maingrandstand area located on the third floor of the track facility, includes afull-service dining area with a seating capacity of 548 patrons, two separatelounge areas, and additional wagering locations with 24 tellers. The Turf Clubis a private club and contains 10 luxury suites with skybox seating located onthe fourth floor of the track facility and has a wagering location with eighttellers.

 

The one and one-quarter mile dirt track is one ofthe largest tracks in the United States and its 180-foot wide turf track is thewidest turf track in North America. These unique configurations have attractedand are expected to continue to attract quality horses to the track. ColonialDowns has conducted more than 80% of its thoroughbred races over the turfcourse for the last two years, thereby establishing the track as a major turfracing center in the Mid-Atlantic region. Colonial Downs is developing theVirginia Derby, a turf race for three-year old thoroughbreds, into the marqueeevent of the thoroughbred meet. In 2005, the Virginia Derby will be a Grade IIIstakes race.

 

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Colonial Downs has announced plans to create a newstakes race — the Colonial Turf Cup — which together with the Virginia Derbywill form the first two legs of the Grand Slam of GrassTM. The GrandSlam of GrassTM consists of four races including the two races atColonial Downs, the Secretariat to be held at Arlington Park, and the JohnDeere Breeders’ Cup Turf at Belmont Park. Jacobs Investments, an affiliate ofours, has guaranteed $5 million to any horse that sweeps the series. The Companyintends to purchase an insurance policy to cover the potential estimated $2.8million bonus payment.

 

***SatelliteWagering Facilities, Virginia***. In addition to our racetrack facility, we operate six satellitewagering facilities in Virginia. These facilities provide simulcast pari-mutuelwagering on thoroughbred and harness racing from our racetrack and selectedother racetracks throughout the United States. Our satellite wageringfacilities are located in Chesapeake, Hampton, Brunswick, Vinton, and two inRichmond. These facilities employ state of the art audio/video technology forreceiving quality import simulcast thoroughbred and harness racing fromnationally known racetracks.

 

The facilities are structured to accommodate theneeds of various patrons, from the seasoned handicapper to the novice wagerer,and provide patrons with a comfortable, upscale environment including a fullbar and a range of restaurant services. In addition, self-serve automatedwagering equipment is available to patrons in order to make wagering moreuser-friendly to the novice and more efficient for the expert. This equipment,with touch-screen interactive terminals and personalized portable wageringterminals, provides patrons with current odds information and enables them toplace wagers and credit winning tickets to their accounts without waiting inline.

 

In 2003, the legislature of the Commonwealth ofVirginia passed a statute authorizing the Virginia Racing Commission to grantlicenses and thereafter regulate account wagering in Virginia. On April 28,2004, the Virginia Racing Commission granted Colonial a license to acceptwagers over the telephone or through the internet via its advanced depositwagering system. The advanced deposit wagering system became fully operationallate in the third quarter of 2004. In 2004, the legislature of the Commonwealthof Virginia passed a statute, signed by the governor of Virginia, authorizingup to ten satellite wagering facilities in localities that approved suchfacilities by referenda. On November 2, 2004, referenda were passed authorizingthe locating of a satellite wagering facility in the following counties inVirginia: Henry County, Scott County and Westmoreland County. On March 16,2005, the Virginia Racing Commission granted Colonial licenses to own andoperate a satellite wagering facility in Henry County, Virginia. The VirginiaRacing Commission can grant licenses for up to three more satellite wageringfacilities under existing legislation. Colonial Downs anticipates applying fortwo more licenses during 2005.

 

**Seasonality**

 

Seasonality and weather conditions can affect ourresults of operations. Our pari-mutuel wagering revenues are higher duringscheduled live racing than at other times of the year. Adverse weatherconditions can cause cancellation of or curtail attendance at outdoor races,thereby reducing wagering and our revenues. Attendance and wagering at bothoutdoor races and satellite wagering facilities can be harmed by holidays andother competing seasonal activities. Winter travel conditions can adverselyaffect patronage and revenues at our Colorado casinos. Although casino businessis not seasonal, levels of gaming activity increase significantly duringweekends and holidays, especially holiday weekends.

 

**Competition**

 

***General***. We face intense competition in each of themarkets in which we operate. Our existing gaming facilities compete directlywith other gaming properties and activities in Colorado, Nevada, Louisiana andVirginia. We expect this competition to increase as new gaming operators enterour markets, existing competitors expand their operations, gaming activitiesexpand in existing jurisdictions and gaming is legalized in new jurisdictions.Several of our competitors have significantly better name recognition and moremarketing and financial resources than we do. We cannot predict with anycertainty the effects of existing and future competition on our operatingresults.

 

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Wecompete with other forms of gaming and entertainment such as online computergaming, bingo, pull-tab games, card parlors, sports books, pari-mutuel ortelephonic betting on horse racing and dog racing, state-sponsored lotteries,video lottery terminals, and video poker terminals. In the future, we may competewith gaming at other venues.

 

Wealso compete with gaming operators in other gaming jurisdictions such as LasVegas, Nevada and Atlantic City, New Jersey. Our competition includes casinoslocated on Native American reservations throughout the United States, whichhave the advantage of being exempt from certain state and federal taxes. SomeNative American tribes are either establishing or are considering theestablishment of gaming at additional locations. Expansion of existing gamingjurisdictions and the development of new gaming jurisdictions and casinos onNative American-owned lands would increase competition for our existing andfuture operations. In addition, increased competition could limit newopportunities for us or result in the saturation of certain gaming markets.

 

***CasinoProperties*****.** We believe theprimary competitive factors in the Black Hawk, Colorado market are location,availability and convenience of parking; number and types of slot machines andgaming tables; types and pricing of amenities, including food; namerecognition; overall atmosphere; and customer service. We believe our Coloradocasinos generally compete favorably based on these factors.

 

OurColorado casinos are on opposite sides of Main Street in Black Hawk. Because oftheir proximity, our Black Hawk casinos compete for some of the same customers.Further, there were 19 other casinos operating in Black Hawk on December 31,2004. There were approximately 9,365 gaming devices (slot machines, blackjackand poker tables) in Black Hawk as of December 31, 2004.

 

CentralCity is located adjacent to Black Hawk and provides the most direct competitionto the gaming establishments in Black Hawk. There were five casinos operatingin Central City with approximately 1,635 gaming devices as of December 31,2004. Black Hawk has historically enjoyed a competitive advantage over CentralCity in large part because access by State Highway 119 (formerly the only majoraccess to Black Hawk from the Denver metropolitan area and Interstate 70) requirescustomers to drive by and, in part, through Black Hawk to reach Central City.Central City acquired a right-of-way and formed an entity to construct a roadfrom I-70, commonly referred to as the Southern Access. Financing was obtainedand road construction was completed in late 2004. It is now possible forcertain traffic that passed through Black Hawk to proceed directly to CentralCity from Interstate 70. Nonetheless, motorists driving from the Denvermetropolitan area still have the option of choosing to go either to Black Hawkor Central City without having to drive through the other town. Sincecompletion of the Southern Access, plans have been announced for thedevelopment or re-opening of three additional casinos in Central City.

 

Large,well-financed companies may enter the Black Hawk and other Colorado marketsthrough the purchase or expansion of existing facilities, which could have amaterial adverse effect on our results of operations and financial position.The Mountain High Casino (formerly the Black Hawk Casino by Hyatt) opened inDecember 2001. The Mountain High Casino is directly across the street from TheLodge Casino. Presently, this facility has approximately 1,320 slot machinesand 24 table games on a single, ground level floor, and a parking garageaccommodating 800 vehicles. In January, 2005, Ameristar Casinos, Inc. closedits purchase of the facility and has announced plans to expand it substantiallywith 300 hotel rooms, a convention center, and other amenities. Ameristar hasapplied for a ruling from the Gaming Commission that, if granted, would allowit to count its building area outside of the gaming district in calculating thesquare footage limitations set forth in the Colorado Constitution. Those limitsprovide that a casino may not use more than 50% of the total square footage ofany floor or 35% of the total square footage of the entire building for limitedgaming. If such relief is granted, Ameristar will be permitted to significantlyincrease the number of its gaming devices without expanding its physical plant,a competitive advantage that will negatively affect our Lodge and Gilpincasinos. No casinos are currently under construction in Black Hawk. The Isle ofCapri Casinos, Inc. recently purchased Colorado Central Station, directlyacross the street from its existing facility and is near completion of a majorrenovation and expansion project physically linking the two properties. Thecombined casinos are the largest in Black Hawk with approximately 2,300 gamingdevices, 400 hotel rooms and 2,500 parking spaces. The Isle of Capri is notedfor its aggressive marketing programs. The Mardi Gras casino, next to our Lodgecasino, was recently purchased and the new owners can be expected to developand implement new marketing programs. In addition, two Indian tribes claimingsignificant treaty rights to land in Colorado are pursuing a plan to exchangethose rights for land east of the Denver metropolitan area on which to buildand operate a large gaming facility. If this project survives political andother

 

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challenges, it could have a material adverseeffect on gaming revenues in Black Hawk and our Lodge and Gilpin casinos.

 

Therehas been a recent announcement of a planned acquisition of four Coloradoracetracks (two of which are in the Denver metropolitan area) that have beenowned and operated by Wembley, Plc, which may reinvigorate efforts to authorizevideo lottery terminals at the state’s racetracks. If this authorization isgranted by the Colorado Lottery Division, the Colorado state legislature, orthe voters, it could have a material adverse effect on gaming revenues in BlackHawk and at our Lodge and Gilpin casinos.

 

Thecasinos in Cripple Creek, located a driving distance of 110 miles to the southof the Black Hawk and Central City markets, and two Native American casinoslocated in the southwestern corner of the state, constitute the only othercasino gaming venues in the state of Colorado. We believe that Cripple Creek,located 45 miles west of Colorado Springs, provides only limited competition tothe Black Hawk market.

 

Inaddition to competing with other gaming facilities in Colorado as describedabove, Black Hawk Gaming competes to a lesser degree, for both customers and potentialfuture gaming sites, with gaming companies nationwide, including casinos inNevada and several other states, and casinos on Native American lands inseveral states, many of which have substantially greater financial resourcesand experience in the gaming business. The expansion of legalized casino gamingto new jurisdictions throughout the United States may also affect competitiveconditions.

 

The Gold Dust WestCasino encounters strong competition from large hotel and casino facilities andsmaller casinos similar in size to the Gold Dust West Casino in the Reno area,which includes Sparks, Nevada. There is also competition from gamingestablishments in other towns and cities in Nevada and, to a lesser extent,other jurisdictions in the United States where gaming has been legalized(including Native American gaming establishments such as a significant newNative American gaming facility located near the California-Nevada state line).There are approximately 36 licensed casinos in the Reno/Sparks area. In Reno,we compete with these other properties principally on the basis of location andparking while also directly appealing to the ‘‘locals’’ market. Additionalcompetition may come from the expansion or construction of other hotel andcasino properties or the upgrading of other existing facilities in the Renoarea.

 

Inaddition, we believe that the introduction of casino gaming, or the expansionof presently conducted gaming activities (particularly at Native Americanestablishments) in areas in or close to Nevada, such as California, Oregon,Washington, Arizona and western Canada, could adversely affect operations atour Reno property.

 

Theability to maintain our competitive position in Reno will require theexpenditure of sufficient funds for such items as updating slot machines toreflect changing technology, periodic refurbishing of rooms and public serviceareas, and replacing obsolete equipment on an ongoing basis.

 

***TruckPlaza Operations*****.** Our Louisianatruck plaza operations face competition from land-based and riverboat casinosthroughout Louisiana and on the Mississippi Gulf Coast, casinos on NativeAmerican lands and other non-casino gaming opportunities within Louisiana. TheLouisiana Riverboat Economic Development and Gaming Control Act limits thenumber of gaming casinos in Louisiana to 15 riverboat casinos statewide and oneland-based casino in New Orleans. All 15 available riverboat licenses areissued.

 

Ourvideo gaming operations also face competition from other truck plaza videogaming facilities located in surrounding areas, as well as competition fromLouisiana horse racing facilities, some of which have been authorized tooperate video gaming machines, and restaurants and bars with video gamingmachines. As of December 31, 2004, there were 153 truck plazas in Louisianalicensed to operate video gaming devices.

 

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***HorseRacing and Pari-Mutuel Wagering Operations*****.** We compete withracetracks located outside Virginia (including several in Delaware, Maryland,New Jersey, New York, Pennsylvania, and West Virginia, some of which augmenttheir purses with slot machine revenues) and other forms of gaming, such asland based casinos, including those in Atlantic City, and statewide lotteriesin Virginia and neighboring states. The possible legalization of other forms ofgaming in Virginia, such as Native American or riverboat casinos, could have anadverse effect on our performance. Although bills for the creation of riverboatcasinos have failed in the Virginia legislature, proponents of riverboat gamingin Virginia may continue to seek legislative approval. Additionally, certainNative American tribes are considering seeking federal recognition which, ifsuccessful, could result in additional gaming venues.

 

Wehave competed and will compete for wagering dollars and simulcast fees withlive racing and races simulcast from racetracks in other states, particularlyracetracks in neighboring states such as Charles Town in West Virginia, PimlicoRace Course, Laurel Park, and Rosecroft Raceway in Maryland, and Delaware Parkin Delaware. We believe that our existing management agreement with TheMaryland Jockey Club will continue to promote coordination of thoroughbredevents between Maryland and Virginia. However, if the Virginia or MarylandRacing Commissions do not approve either party’s proposed racing days, or ifthe Virginia-Maryland thoroughbred racing circuit is otherwise unsuccessful,our track may compete directly with Pimlico Race Course and Laurel Park inMaryland.

 

**Employees and Labor Relations**

 

As of December 31, 2004, we had approximately 1,000full-time and part time employees at our facilities in Black Hawk, Colorado andReno, Nevada, 180 employees at our facilities in Virginia and 185 employees atour facilities in Louisiana. Employees include cashiers, dealers, food andbeverage service personnel, facilities maintenance, security, valet,accounting, marketing, and personnel services. We consider relations with ouremployees to be good.

 

None of our employees are represented by any unionor other labor organization.

 

**Regulation**

 

***GamingRegulation and Licensing—Colorado***

 

TheState of Colorado created the Colorado Division of Gaming within the Departmentof Revenue to license, implement, regulate and supervise the conduct of limitedstakes gaming. The Division, under the supervision of the Gaming Commission,has been granted broad power to ensure compliance with Colorado law andregulations adopted thereunder (collectively, the “Colorado Regulations”). TheDivision may inspect, without notice, premises where gaming is being conducted;may seize, impound or remove any gaming device; may examine and copy all of alicensee’s records; may investigate the background and conduct of licensees andtheir employees; and may bring disciplinary actions against licensees and theiremployees. The Division may also conduct detailed background checks of personswho lend money to or invest money in a licensee.

 

Itis illegal to operate a gaming facility without a license issued by the GamingCommission. The Gaming Commission is empowered to issue five types of gamingand gaming related licenses. The licenses are revocable and nontransferable.Black Hawk Gaming’s failure or inability to obtain and maintain necessary gaminglicenses would have a material adverse effect on its gaming operations.

 

TheColorado casinos were granted retail/operator licenses concurrently with theiropenings. The licenses are subject to continued satisfaction of suitabilityrequirements and must be renewed annually. The current licenses for bothColorado casinos were renewed on May 14, 2004. There can be no assurance thatthe Colorado casinos can successfully renew their licenses in a timely mannerfrom year to year.

 

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Allpersons employed by Black Hawk Gaming who are involved, directly or indirectly,in gaming operations in Colorado also are required to obtain various forms ofgaming licenses. Key licenses are issued to “key employees,” which include anyexecutive, employee or agent of a licensee having the power to exercise asignificant influence over decisions concerning any part of the operations of alicensee. At least one key license holder must be on the premises of eachColorado casino at all times that a casino is open for business. Messrs. Jacobsand Roark and Stanley Politano (Black Hawk Gaming’s Secretary), among others,hold key licenses.

 

TheGaming Commission closely regulates the suitability of persons owning orseeking to renew an interest in a gaming license, and the suitability of alicensee can be adversely affected by persons associated with the licensee.Additionally, any person or entity having any direct interest in Black HawkGaming or any casino directly or indirectly owned by Black Hawk Gaming may besubject to administrative action, including personal history and backgroundinvestigations. The actions of persons associated with Jacobs Entertainment,Inc., such as its management or employees, could jeopardize any licenses heldby Black Hawk Gaming. All of Black Hawk Gaming’s directors are required to befound suitable as associated persons.

 

Asa general rule, under the Colorado Regulations, it is a criminal violation forany person to have a legal, beneficial, voting or equitable interest, or rightto receive profits, in more than three retail/operator gaming licenses inColorado. Black Hawk Gaming has an interest in two such licenses. Any expansionopportunities that we may have in Colorado are limited to one more license.

 

The ColoradoDivision of Gaming may require any person having an interest in a licensee oran applicant for a license to provide background information, information onsources of funding, and a sworn statement that the interested person orapplicant is not holding that interest for another party. The Gaming Commissionmay, at its discretion, require any person having an interest in a licensee toundergo a full background investigation and to pay for that investigation inthe same manner as an applicant for a license. A background investigationincludes an examination of one’s personal history, financial associations,character, record, and reputation, as well as the people with whom a person hasassociated.

 

TheGaming Commission has the right to request information from any person directlyor indirectly interested in, or employed by, a licensee, and to investigate themoral character, honesty, integrity, prior activities, criminal record,reputation, habits and associations of (i) all persons licensed pursuant to theColorado Limited Gaming Act, (ii) all officers, directors and stockholders of alicensed privately held corporation, (iii) all officers, directors andstockholders holding either a 5% or greater interest or a controlling interestin a licensed publicly traded corporation, (iv) any person who as agent,consultant, advisor or otherwise, exercises a significant influence upon themanagement or affairs of a publicly traded corporation, (v) all generalpartners and all limited partners of a licensed partnership, (vi) all personsthat have a relationship similar to that of an officer, director or stockholderof a corporation (such as members and managers of a limited liability company),(vii) all persons supplying financing or lending money to any licenseeconnected with the establishment or operation of limited gaming, and (viii) allpersons having a contract, lease or ongoing financial or business arrangementwith any licensee, if such contract, lease or arrangement relates to limitedgaming operations, equipment, devices or premises.

 

Ifthe Gaming Commission determines that a person or entity is not suitable to owna direct or indirect voting interest in Black Hawk Gaming or Gameco, Black HawkGaming may be sanctioned unless the person or entity disposes of its votinginterest. Sanctions may include the loss of the casino licenses. In addition,the Colorado Regulations prohibit a licensee or any affiliate of a licenseefrom paying dividends, interest or other remuneration to any person found to beunsuitable, or recognizing the exercise of any voting rights by any personfound to be unsuitable. The Colorado Regulations require an operating casinolicensee to include in its corporate charter provisions that permit therepurchase of the voting interests of any person found to be unsuitable. BlackHawk Gaming’s Articles of Incorporation include the required provisions.

 

TheGaming Commission also has the power to require Black Hawk Gaming to suspend ordismiss its officers, directors and other key employees or sever relationshipswith other persons who refuse to file appropriate applications or who are foundto be unsuitable to act in such capacities. The Commission or the Director ofthe Division of Gaming may review a licensee’s gaming contracts, requirechanges in the contract before the licensee’s application is approved orparticipation in the contract is allowed, and require a licensee to terminateits participation in any gaming contract.

 

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TheGaming Commission has enacted Rule 4.5, which imposes requirements on publiclytraded corporations holding gaming licenses in Colorado and on gaming licensesowned directly or indirectly by a publicly traded corporation, whether througha subsidiary or intermediary company. The term “publicly traded corporation”includes corporations, firms, limited liability companies, trusts, partnershipsand other forms of business organizations. Such requirements automaticallyapply to any ownership interest held by a publicly traded corporation, holdingcompany or intermediary company thereof, when the ownership interest directlyor indirectly is, or will be upon approval of the Gaming Commission, 5% or moreof the entire licensee. In any event, if the Gaming Commission determines thata publicly traded corporation, or a subsidiary, intermediary company or holdingcompany has the actual ability to exercise influence over a licensee,regardless of the percentage of ownership possessed by that entity, the GamingCommission may require the entity to comply with the disclosure regulationscontained in Rule 4.5.

 

Under Rule 4.5,gaming licensees, affiliated companies and controlling persons commencing apublic offering of voting securities must notify the Gaming Commission no laterthan ten business days after the initial filing of a registration statementwith the Securities and Exchange Commission. Licensed publicly tradedcorporations are also required to send proxy statements to the Division ofGaming within five days after their distribution. Licensees to whom Rule 4.5applies must include in their charter documents provisions that: restrict therights of the licensees to issue voting interests or securities except inaccordance with the Colorado Gaming Act and the Colorado Regulations; void thetransfer of voting securities or other voting interests issued in violation ofthe Colorado Gaming Act and the Colorado Regulations until the issuer ceases tobe subject to the jurisdiction of the Gaming Commission or until the Gaming Commission,by affirmative act, validates the transfer; and provide that holders of votinginterests or securities of licensees found unsuitable by the Gaming Commissionmay, within 60 days of such finding of unsuitability, be required to sell theirinterests or securities back to the issuer at the lesser of the cash equivalentof the holders’ investment or the market price as of the date of the finding ofunsuitability. Alternatively, the holders may, within 60 days after the findingof unsuitability, transfer the voting interests or securities to a personsuitable to the Gaming Commission. Until the voting interests or securities areheld by suitable persons, the issuer may not pay dividends or interest, thesecurities may not be voted, they may not be included in the voting orsecurities of the issuer, and the issuer may not pay any remuneration in anyform to the holders of the securities.

 

Notificationmust be given to the Division of Gaming of the acquisition of direct orindirect beneficial ownership of:

 

•                                          5% or more of anyclass of voting securities of a publicly traded corporation that is required toinclude in its articles of organization the Rule 4.5 charter languageprovisions; or

 

•                                          5% or more of thebeneficial interest in a gaming licensee directly or indirectly through anyclass of voting securities of any holding company or intermediary company of alicensee, referred to as qualifying persons.

 

Notificationmust be made by persons acquiring these interests. Such persons must submit allrequested information to the Division of Gaming, are subject to a finding ofsuitability as required by the Division of Gaming or the Gaming Commission, andmust be informed of these requirements by the licensee. A person other than aninstitutional investor whose interest equals 10% or more of a publicly tradedcorporation or a 10% beneficial interest in a gaming licensee must apply to theGaming Commission for a finding of suitability within 45 days after acquiringsuch securities.

 

An institutionalinvestor who, individually or in association with others, acquires, directly orindirectly, the beneficial ownership of 15% or more of any class of votingsecurities or 15% of the beneficial interest in a gaming licensee must apply tothe Gaming Commission for a finding of suitability within 45 days afteracquiring such interests.

 

Licenseesmust also notify any qualifying persons of these requirements. Whether or notso notified, qualifying persons are responsible for complying with theserequirements.

 

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TheColorado Regulations also provide for exemption from the requirements for afinding of suitability when the Gaming Commission finds such action to beconsistent with the purposes of the Colorado Gaming Control Act. The GamingCommission may determine that anyone with a material relationship to, ormaterial involvement with, a licensee or an affiliated company must apply for afinding of suitability or must apply for a key employee license.

 

Pursuantto Rule 4.5, persons found unsuitable by the Gaming Commission must be removedfrom any position as an officer, director, or employee of a licensee, or of aholding or intermediary company. Such unsuitable persons also are prohibitedfrom any beneficial ownership of the voting securities of any such entities.Licensees, or affiliated entities of licensees, are subject to sanctions forpaying dividends or distributions to persons found unsuitable by the GamingCommission, or for recognizing voting rights of, or paying a salary or anyremuneration for services to, unsuitable persons. Licensees or their affiliatedentities also may be sanctioned for failing to pursue efforts to requireunsuitable persons to relinquish their interests. The Gaming Commission mustprovide prior approval of any sale, lease, purchase, conveyance, or acquisitionof an interest in a casino licensee, except as provided in Rule 4.5 relating topublicly traded corporations.

 

Coloradocasinos may operate only between 8:00 a.m. and 2:00 a.m., and may permit onlyindividuals 21 years or older to gamble or consume alcohol in the casino. Slotmachines, black jack, poker and other approved variations of those games andvideo poker are the only permitted games, with a maximum single wager of $5.00.Colorado casinos may not extend credit to gaming patrons. The ColoradoConstitution and Regulations restrict the percentage of space a casino may usefor gaming to 50% of any floor and 35% of the overall square footage of thebuilding in which the casino is located. Effective July 1 of each year,Colorado establishes the gross gaming revenue tax rate for the ensuing 12months. Under the Colorado Constitution, the rate can be increased to as muchas 40% of adjusted gross proceeds. Colorado has both raised and lowered gamingtax rates since they were initially set in 1991. Currently, the maximum gamingtax rate is 20%.

 

***GamingRegulation and Licensing—Nevada***

 

Theownership and operation of casino gaming facilities in Nevada, including theNevada casino operated by our indirect subsidiary Gold Dust West Casino, Inc. (“GoldDust West”)  are subject to the NevadaGaming Control Act and the regulations promulgated thereunder (the “Nevada Act”)and to the licensing and regulatory control of the Nevada Gaming Commission(the “Nevada Commission”), the Nevada State Gaming Control Board (the “NevadaBoard”), and various local ordinances and regulations, including, withoutlimitation, those of the City of Reno (collectively, the “Nevada GamingAuthorities”).

 

Thelaws, regulations and supervisory procedures of the Nevada Gaming Authoritiesare based upon declarations of public policy which are concerned with, amongother things: (i) the prevention of unsavory or unsuitable persons from havinga direct or indirect involvement with gaming at any time or in any capacity;(ii) the establishment and maintenance of responsible accounting practices andprocedures; (iii) the maintenance of effective controls over the financialpractices of licensees, including the establishment of minimum procedures forinternal fiscal affairs and the safeguarding of assets and revenues, providingreliable record keeping and filing periodic reports with the Nevada GamingAuthorities; (iv) the prevention of cheating and fraudulent practices; and (v)providing a source of state and local revenues through taxation and licensingfees. Change in such laws, regulations and procedures could have an adverseeffect on our Nevada gaming operations.

 

Gold Dust West has been licensed by the NevadaGaming Authorities. Gaming licenses require the periodic payment of fees andtaxes and are not transferable. Our subsidiary Black Hawk Gaming &Development Company, Inc. (“Black Hawk Gaming”) is currently registered by theNevada Commission as an intermediary company and has been found suitable to ownthe stock of Gold Dust West, which is a corporate licensee under the terms ofthe Nevada Act. Jacobs Entertainment is currently registered by the NevadaCommission as a publicly traded corporation (a “Registered Corporation”) andhas been found suitable as the sole shareholder of Black Hawk Gaming.Registered Corporations, registered intermediary companies, and corporatelicensees are required periodically to submit detailed financial and operatingreports to the Nevada Commission and furnish any other information that theNevada Commission may require. Substantially all material loans, leases, salesof securities and similar financing transactions by Jacobs Entertainment, BlackHawk Gaming and Gold Dust West must be reported to or approved by the NevadaCommission. No person may become a stockholder of, or holder of an interest in,or

 

 

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receive any percentage ofprofits from, a corporate licensee without first obtaining licenses andapprovals from the Nevada Gaming Authorities. Jacobs Entertainment, Black HawkGaming, the Gold Dust West Casino and Black Hawk Gaming’s controlling persons,directors and certain officers have obtained from the Nevada Gaming Authoritiesthe various registrations, findings of suitability, approvals, permits andlicenses required in order to engage in gaming activities in Reno, Nevada.

 

TheNevada Gaming Authorities may investigate any individual who has a materialrelationship to, or material involvement with, Jacobs Entertainment, Black HawkGaming or Gold Dust West in order to determine whether that individual issuitable or should be licensed as a business associate of a gaming licensee.The officers, directors and shareholders of Jacobs Entertainment must file applicationswith and be licensed or found suitable by the Nevada Gaming Authorities. Theofficers, directors and certain key employees of Black Hawk Gaming and GoldDust West must file applications with the Nevada Gaming Authorities and may berequired to be licensed or found suitable by the Nevada Gaming Authorities. Theofficers, directors and key employees of Jacobs Entertainment and Black HawkGaming who are actively and directly involved in the gaming activities of GoldDust West may be required to be licensed or found suitable by the Nevada GamingAuthorities. The Nevada Gaming Authorities may deny an application forlicensing for any cause that they deem reasonable. A finding of suitability iscomparable to licensing, and both require submission of detailed personal andfinancial information followed by a thorough investigation. The applicant forlicensing or a finding of suitability must pay all the costs of theinvestigation. Changes in licensed positions must be reported to the NevadaGaming Authorities and, in addition to their authority to deny an applicationfor a finding of suitability or licensure, the Nevada Gaming Authorities havejurisdiction to disapprove a change in a corporate position.

 

Ifthe Nevada Gaming Authorities were to find an officer, director or key employeeunsuitable for licensing or unsuitable to continue having a relationship withJacobs Entertainment, Black Hawk Gaming or Gold Dust West, the companiesinvolved would have to sever all relationships with that person. In addition,the Nevada Commission may require Jacobs Entertainment, Black Hawk Gaming orGold Dust West to terminate the employment of any person who refuses to fileappropriate applications. Determinations of suitability or of questionspertaining to licensing are not subject to judicial review in Nevada.

 

JacobsEntertainment, Black Hawk Gaming and Gold Dust West are required periodicallyto submit detailed financial and operating reports to the Nevada Commission andfurnish any other information that the Nevada Commission may require.Substantially all of Jacobs Entertainment’s, Black Hawk Gaming’s and Gold DustWest’s material loans, leases, sales of securities and similar financingtransactions must be reported to or approved by the Nevada Commission.

 

Ifit were determined that the Nevada Act was violated by Jacobs Entertainment,Black Hawk Gaming or Gold Dust West, the registrations or gaming licenses thatJacobs Entertainment, Black Hawk Gaming & Gold Dust West hold could belimited, conditioned, suspended or revoked, subject to compliance with certainstatutory and regulatory procedures. In addition, Jacobs Entertainment, BlackHawk Gaming, Gold Dust West and the persons involved could be subject tosubstantial fines for each separate violation of the Nevada Act at thediscretion of the Nevada Commission. Further, a supervisor could be appointedby the Nevada Commission to operate the Gold Dust West Casino and, undercertain circumstances, earnings generated during the supervisor’s appointment(except for reasonable rental value of the casino) could be forfeited to theState of Nevada. Limitation, conditioning or suspension of the gaming licensesof Gold Dust West or the appointment of a supervisor could (and revocation ofany gaming license would) have a material adverse effect on JacobsEntertainment’s gaming operations, financial condition and results ofoperations.

 

TheNevada Act requires any person who acquires beneficial ownership of more than5% of a Registered Corporation’s voting securities to report the acquisition tothe Nevada Commission. The Nevada Act requires that beneficial owners of morethan 10% of a Registered Corporation’s voting securities apply to the NevadaCommission for a finding of suitability within 30 days after the Chairman ofthe Nevada Board mails the written notice requiring such filing. Under certaincircumstances, an “institutional investor,” as defined in the Nevada Act, thatacquires more than 10%, but not more than 15%, of our voting securities mayapply to the Nevada Commission for a waiver of a finding of suitability if thatinstitutional investor holds the voting securities for investment purposesonly. In certain circumstances, an institutional investor that has obtained awaiver may hold up to 19% of our voting securities for a limited period of timeand maintain the waiver. An institutional investor will not be deemed to hold

 

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voting securities for investment purposesunless the voting securities were acquired and are held in the ordinary courseof business as an institutional investor and not for the purpose of causing,directly or indirectly, the election of a majority of the members of our boardof directors, any change in our corporate charter, bylaws, management, policiesor operations, or of any of our gaming affiliates, or any other action that theNevada Commission finds to be inconsistent with holding our voting securitiesfor investment purposes only. Activities which are not deemed to beinconsistent with holding voting securities for investment purposes onlyinclude: (i) voting on all matters voted on by stockholders; (ii) makingfinancial and other inquiries of management of the type normally made bysecurities analysts for informational purposes and not to cause a change in itsmanagement, policies or operations; and (iii) such other activities as theNevada Commission may determine to be consistent with such investment intent.If the beneficial holder of voting securities who must be found suitable is acorporation, partnership or trust, it must submit detailed business andfinancial information, including a list of beneficial owners. The applicant isrequired to pay all costs of investigation.

 

Anyperson who fails or refuses to apply for a finding of suitability or a licensewithin 30 days after being ordered to do so by the Nevada Commission or theChairman of the Nevada Board may be found unsuitable. The same restrictionsapply to a record owner if the record owner, after request, fails to identifythe beneficial owner. Any stockholder found unsuitable and who holds, directlyor indirectly, any beneficial ownership of the common stock beyond such periodof time as may be prescribed by the Nevada Commission may be guilty of acriminal offense. We will be subject to disciplinary action if, after wereceive notice that a person is unsuitable to be a stockholder or to have anyother relationship with us, we (i) pay that person any dividend or interest onour voting securities, (ii) allow that person to exercise, directly orindirectly, any voting right conferred through securities held by that person,(iii) pay remuneration in any form to that person for services rendered orotherwise, or (iv) fail to pursue all lawful efforts to require that unsuitableperson to relinquish its voting securities including, if necessary, theimmediate purchase of the voting securities for cash at fair market value.Additionally, the City of Reno has the authority to approve all persons owningor controlling the stock of any corporation controlling a gaming licenseeoperating in Reno.

 

TheNevada Commission may, in its discretion, require the holder of any of our debtor similar securities, such as the notes or exchange notes, to fileapplications, be investigated and be found suitable to own our debt securitiesif the Nevada Commission has reason to believe that such ownership wouldotherwise be inconsistent with the declared policies of the State of Nevada. Ifthe Nevada Commission determines that a person is unsuitable to own those securities,then pursuant to the Nevada Act, we can be sanctioned, including by revocationof our approvals, if without the prior approval of the Nevada Commission, we(i) pay to the unsuitable person any dividend, interest, or any distributionwhatsoever; (ii) recognize any voting right by the unsuitable person inconnection with our securities; (iii) pay the unsuitable person remuneration inany form; or (iv) make any payment to the unsuitable person by way ofprincipal, redemption, conversion, exchange, liquidation, or similartransaction.

 

JacobsEntertainment and Black Hawk Gaming are required to maintain a current stockledger in Nevada that may be examined by the Nevada Gaming Authorities at anytime. If any securities are held in trust by an agent or by a nominee, therecord holder may be required to disclose the identity of the beneficial ownerto the Nevada Gaming Authorities. A failure to make the required disclosure maybe grounds for finding the record holder unsuitable. We are also required to rendermaximum assistance in determining the identity of the beneficial owner. TheNevada Commission has the power to require our stock certificates to bear alegend indicating that the securities are subject to the Nevada Act. To date,the Nevada Commission has not imposed such a requirement on us.

 

JacobsEntertainment and Black Hawk Gaming may not make a public offering of theirsecurities without the prior approval of the Nevada Commission if the proceedsof the offering are intended to be used to construct, acquire or finance gamingfacilities in Nevada, or to retire or extend obligations incurred for suchpurposes or for similar transactions. Any approval that we might receive in thefuture relating to such offerings will not constitute a finding, recommendationor approval by any of the Nevada Gaming Authorities as to the accuracy oradequacy of the offering memorandum or prospectus or the investment merits ofthe securities. Any representation to the contrary is unlawful. We have soughtconfirmation from the Nevada Board that the exchange offer will not be a publicoffering under the terms of the Nevada Act that requires the prior approval ofthe Nevada Commission. Additionally, we will file an application for priorapproval by the Nevada Commission to make public offerings for a period of twoyears, subject to certain conditions (“Shelf Approval”), which would coverexchange notes issued after the date of the Shelf Approval. If granted, theShelf Approval may be rescinded for good cause without prior

 

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notice upon the issuance of an interlocutorystop order by the Chairman of the Nevada Board and must be renewed at the endof the two-year approval period. The Shelf Approval will apply to anyaffiliated company that is wholly owned by us which is a publicly tradedcorporation or would become a publicly traded corporation by virtue of a publicoffering. The Shelf Approval will not constitute a finding, recommendation orapproval by any of the Nevada Gaming Authorities as to the accuracy or adequacyof the prospectus or the investment merits of the securities. Anyrepresentation to the contrary is unlawful. There can be no assurance that theShelf Approval, if necessary to effectuate the exchange offer, will be granted,or that it will be granted on a timely basis.

 

Changes in controlof Jacobs Entertainment or Black Hawk Gaming through merger, consolidation,stock or asset acquisitions, management or consulting agreements, or any act orconduct by a person by which it obtains control of Jacobs Entertainment orBlack Hawk Gaming, may not occur without the prior approval of the NevadaCommission. Entities seeking to acquire control of us must satisfy the NevadaBoard and Nevada Commission on a variety of stringent standards prior toassuming control of us. The Nevada Commission may also require controllingstockholders, officers, directors and other persons having a materialrelationship or involvement with the entity proposing to acquire control, to beinvestigated and licensed as part of the approval process relating to thetransaction.

 

TheNevada legislature has declared that some corporate acquisitions opposed bymanagement, repurchases of voting securities, and corporate defense tacticsaffecting Nevada corporate gaming licensees, may be injurious to stable andproductive corporate gaming. The Nevada Commission has established a regulatoryscheme to ameliorate the potentially adverse effects of these businesspractices on Nevada’s gaming industry and to further Nevada’s policy to: (i)assure the financial stability of corporate gaming licensees and theiraffiliates; (ii) preserve the beneficial aspects of conducting business in thecorporate form; and (iii) promote a neutral environment for the orderlygovernance of corporate affairs. Approvals are, in certain circumstances,required from the Nevada Commission before we can make exceptional repurchasesof voting securities above the current market price thereof and before acorporate acquisition opposed by management can be consummated. The Nevada Actalso requires prior approval of a plan of recapitalization proposed by us inresponse to a tender offer made directly to our stockholders for the purposesof acquiring control of us.

 

Licensefees and taxes, computed in various ways depending on the type of gaming oractivity involved, are payable to the State of Nevada and to the counties andcities in which the Nevada licensee’s operations are conducted. Depending onthe particular fee or tax involved, these fees and taxes are payable eithermonthly, quarterly or annually and are based on either (i) a percentage of thegross revenues received; (ii) the number of gaming devices operated; or (iii)the number of table games operated. A casino entertainment tax is also paid bycasino operations where entertainment is furnished in connection with anadmission fee and the selling or serving of food or refreshments or the sellingof merchandise. See “—Taxation” below.

 

Anyperson who is licensed, required to be licensed, registered, or required to beregistered, or is under common control with any such person (collectively, “Licensees”),and who is or proposes to become involved in a gaming venture outside ofNevada, is required to deposit with the Nevada Board, and thereafter maintain,a revolving fund in the amount of $10,000 to pay the expenses of investigationby the Nevada Board for its participation in that foreign gaming. The revolvingfund is subject to increase or decrease in the discretion of the NevadaCommission. Thereafter, foreign Licensees are required to comply with certainreporting requirements imposed by the Nevada Act. The licensees are alsosubject to disciplinary action by the Nevada Commission if they knowinglyviolate any laws of the foreign jurisdiction pertaining to the foreign gamingoperation, fail to conduct the foreign gaming operation in accordance with thestandards of honesty and integrity required of Nevada gaming operations, engagein activities or enter into associations that are harmful to the State ofNevada or its ability to collect gaming taxes and fees, or employ, contractwith or associate with a person in the foreign operation who has been denied alicense or finding of suitability in Nevada on the grounds of personalunsuitability.

 

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***GamingRegulation and Licensing—Louisiana***

 

Videogaming in Louisiana is regulated by the Louisiana Gaming Control Board, whichis part of the Department of Public Safety and Corrections. The enforcement armthereof in charge of licensing and criminal investigations is the Video GamingDivision of the Louisiana State Police, likewise a part of the Department ofPublic Safety and Corrections. The Gaming Section of the Attorney General’sOffice provides all legal counsel and representation with respect to allmatters involving licensing actions and any other litigation issue relative togaming and involving either the Louisiana Gaming Control Board (hereinafter the“Board”) or the Video Gaming Division of the Louisiana State Police(hereinafter the “Division”).

 

TheVideo Draw Poker Devices Control Law, which governs our operations inLouisiana, is contained within the Louisiana Revised Statutes at Title 27:301et seq. (the “act”) with accompanying regulations being promulgated by theBoard pursuant to the statutory authority contained within the act. The videodraw poker regulations are in Title 42 of the Louisiana Administrative Code atSections 2401 et seq.

 

Theact gives the Board broad authority and discretion in the licensing of personsfor video draw poker operations within the State of Louisiana. Generally, aperson may not be licensed for video draw poker if he has been convicted in anyjurisdiction of any of the following offenses within 10 years prior to the dateof the application for a video draw poker license or less than 10 years haselapsed between the date of application for a video draw poker license and thesuccessful completion or service of any sentence, deferred adjudication, orperiod of probation or parole for any such offense: (i) any offense punishableby imprisonment for more than one year; (ii) theft or any crime involving falsestatements or declarations; or (iii) gambling, as defined by the laws orordinances of any municipality, any parish, any state, or the United States.The act and its corresponding regulations further provide that an applicationfor a video draw poker license may be denied if it contains any materialomission of information. An applicant must also not be delinquent in state orfederal income taxes, penalties or interest or delinquent in the payment of anysales taxes, penalties, or interest to either the state or any local governingauthority of the parish or municipality in which the establishment is located.

 

Thereare several general suitability requirements for licensure. Specifically, thelaw requires that an applicant for a video draw poker license be: (i) a personof good character, honesty, and integrity; (ii) a person whose prioractivities, arrest or criminal record if any, reputation, habits, andassociations do not pose a threat to the public interest of Louisiana or to theeffective regulation of video draw poker, and do not create or enhance thedangers of unsuitable, unfair, or illegal practices, methods, and operations inthe activities authorized by the act and financial arrangements incidentalthereto; and (iii) a person who is likely to conduct business as authorized bythe act in complete compliance with the act.

 

Thesuitability standards must be met by every person who has or controls directlyor indirectly more than a five percent ownership, income, or profit interest inan entity that has or applies for a license in accordance with the act, or whoreceives more than a five percent revenue interest in the form of a commission,finder’s fee, loan repayment, or any other business expense related to thegaming operation, or who has the ability, in the opinion of the Division, toexercise a significant influence over the activities of a licensee authorizedor to be authorized by the act. For the purposes of the act, all gaming relatedassociations, outstanding loans, promissory notes, or other financialindebtedness of an applicant or licensee must be revealed to the Division forthe purposes of determining significant influence and suitability. Whilesignificant influence is determined on a case by case basis, it has generallybeen interpreted to include any person who is an officer or director of anyjuridical entity that is an applicant for a video draw poker license as well asthe spouse of any person having more than a five percent (5%) ownership,income, or profit interest in an applicant as well as the spouse of any officeror director of any juridical entity applicant.

 

Thesuitability criteria law makes an exception for institutional investors. Aninstitutional investor of any applicant otherwise required to be found suitableor qualified pursuant to the act is presumed suitable or qualified uponsubmitting documentation to the Board and the Division sufficient to establishqualifications as an institutional investor as described below, and uponcertifying that: (i) it owns, holds, or controls publicly traded securitiesissued by a licensee or permittee or a holding, intermediate, or parent companyof a licensee or permittee in the ordinary course of business for investmentpurposes only; (ii) it does not exercise influence over the affairs of theissuer of the securities or over any licensed or permitted subsidiary of theissuer of the securities; and (iii) it does not intend to

 

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exercise influence over the affairs of theissuer of the securities, or over any licensed or permitted subsidiary of theissuer of the securities, in the future, and that it agrees to notify the Boardin writing within thirty days if that intent should change.

 

Theexercise of voting privileges with regard to publicly traded securities is notdeemed to constitute the exercise of influence over the affairs of a licensee.The act also provides that this exception is not to be construed to precludethe Board or the Division from investigating the suitability or qualificationsof an institutional investor should the Board or Division become aware of factsor information which may result in such institutional investor being foundunsuitable or disqualified.

 

Aninstitutional investor is defined in the act as: (i) a plan or trustestablished and maintained by the United States Government, a state, or apolitical subdivision of a state for the benefit of their respective employees;(ii) an investment company that is registered under the Investment Company Actof 1940; (iii) a collective investment trust organized by a bank under PartNine of the Rules of the Comptroller of the Currency; (iv) a closed endinvestment trust that is registered with the United States Securities andExchange Commission; (v) a mutual fund; (vi) a life insurance company orproperty and casualty company; (vii) a federal or state bank; or (viii) aninvestment advisor registered under the Investment Advisers Act of 1940.

 

Ifany person required to be found qualified or suitable fails to provide all orpart of the documents or information required by the Board or the Division, andif, as a result, any person holding a license issued pursuant to the act is notor may no longer be qualified or suitable, the Board will issue, under penaltyof revocation of the license, a condition naming the person who failed toprovide all or part of the documents or information required by the Board orthe Division, and declaring that such person may not: (i) receive dividends orinterest on securities of a corporation holding a license, if the person has orcontrols directly or indirectly more than a five percent ownership, income, orprofit interest in such corporation; (ii) exercise directly, or through atrustee or nominee, a right conferred by securities of a corporation holding alicense, if the person has or controls directly or indirectly more than a fivepercent ownership, income, or profit interest in such corporation; (iii)receive remuneration or other economic benefit from any person holding alicense issued pursuant to the provisions of the act; (iv) exercise significantinfluence over the activities of a person holding a license issued pursuant tothe provisions of the act; or (v) continue owning or holding a security of acorporation holding a license if the person has or controls directly orindirectly more than a five percent ownership, income, or profit interest insuch corporation.

 

Operating videodraw poker devices at truck plazas in Louisiana requires both an establishmentlicense and a device owner license. The establishment license permits theplacement by a licensed device owner of video draw poker devices on the licensedpremises. A device owner license permits the licensed entity to place andoperate video draw poker devices at licensed establishments. In many cases, anestablishment licensed for the placement of video draw poker devices willcontract with a licensed device owner for video draw poker device placementservices for a percentage of the video draw poker revenues. A licensedestablishment may also, however, be a licensed device owner. A licensed deviceowner entity must be majority owned by a person who has resided within theState of Louisiana for a period of two years.

 

Licensedestablishments in Louisiana may be a restaurant, bar, motel or hotel, aLouisiana State Racing Commission licensed pari-mutuel wagering facility, aLouisiana State Racing Commission licensed satellite wagering facility, or aqualified truck stop facility. Generally, a licensed establishment pays to adevice owner a percentage of the net device revenues generated by video drawpoker devices placed at its business premises. There is no law that governs theminimum amount that a device owner must be compensated for its services.

 

Restaurantsand bars may contain up to three video draw poker devices and a hotel or motelmay have three video draw poker devices in each of its lounges and restaurantslicensed to sell alcoholic beverages, up to a total of twelve for each hotel ormotel. A pari-mutuel wagering facility and a licensed satellite wageringfacility may have an unlimited number of video draw poker devices. A truck stopfacility may have up to fifty video draw poker devices, with the number beingdetermined by the amount of fuel sales of the truck stop facility.

 

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Arestaurant, bar, motel or hotel, pari-mutuel wagering facility, and satellitewagering facility pays an initial non-refundable licensing and processing feeof $1,100. A truck stop facility pays an initial licensing and processing feeof $10,100. A license must be renewed every five years but a renewal fee isrequired each year. The non-refundable annual renewal and processing fee for arestaurant, bar, motel or hotel, pari-mutuel wagering facility, and satellitewagering facility is $200. The non-refundable annual renewal and processing feefor a truck stop facility is $1,100.

 

Inaddition to the licensing fee, the device owner collects all funds deposited ineach video draw poker device and is required to remit to the State of Louisianaon a bi-weekly basis a franchise payment in an amount equal to a percentage ofthe net device revenue derived from the operation of each video draw pokerdevice owned by him. The amount of the percentage is based on the type oflicensed establishment authorized by the Board for the placement of video drawpoker devices, as follows: (i) a restaurant, bar, tavern, cocktail lounge,club, motel, or hotel—26%; (ii) a qualified truck stop facility—32.5%; and(iii) a pari-mutuel wagering facility or satellite wagering facility—22.5%.

 

Thenumber of video draw poker devices permissible in a qualified truck stopfacility is based on average monthly fuel sales, as follows: (i) 100,000gallons of fuel, of which at least 40,000 gallons are diesel—not more than 50devices; (ii) 75,000 gallons of fuel, of which at least 30,000 gallons arediesel—not more than 40 devices; (iii) 50,000 gallons of fuel, of which atleast 10,000 are diesel—not more than 35 devices. Once licensed, if a truckstop facility sells less than an average of 50,000 gallons per month but morethan 25,000 gallons per month in any calendar quarter, the truck stop facilitywill not be permitted to operate any video draw poker devices in the followingcalendar quarter. A qualified truck stop facility that sells less than anaverage of 25,000 gallons per month in any calendar quarter will be subject torevocation of its video draw poker license. Bulk sales or transfers may not beused to calculate monthly averages. The fuel facility is required to offer fuelfor sale in the regular course of business at retail, at a price at least sixpercent (6%) above the delivered cost of the fuel.

 

Inaddition, under the act, a qualified truck stop facility is required to have atleast five developed contiguous acres and sell fuel, lubricating oil, and othervehicular merchandise, such as batteries, tires, or vehicle parts foreighteen-wheel tractor-trailers, and also meet all of the following criteria:(i) it must be located adjacent to a major state or interstate highway, asdefined by the Board (within 2,000 feet of a major state highway or U.S. interstatehighway); (ii) it must have an on-site restaurant with all of the followingfeatures: (a) provides seating for at least 50 patrons; (b) provides full tableservice for sit-down meals; (c) is open 12 hours a day; (d) offers a variedmenu; and (e) operates a fully equipped kitchen which includes, but is notlimited to, a range oven and refrigerated storage appliances used for thepreparation of foods for on-premises or immediate consumption; (iii) it musthave parking areas with each of the following: (a) a stable parking area for atleast 50 18-wheel tractor-trailer motor vehicles, either paved or concrete (orotherwise certified and approved), to support 18-wheel tractor- trailer motorvehicles and their loads, constructed according to industry specifications,subject to approval by the Board and the Division; (b) parking of sufficientsize is allowed for safe ingress and egress; (c) parking areas for othervehicles around business entrance ways and exits shall not constitute parkingareas for 18-wheel tractor-trailer motor vehicles; (iv) it must have diesel andgasoline fuel; (v) it must have on-site repair service facilities for 18-wheeltractor-trailer motor vehicles which facility may be in the form of a contractservices business which regularly performs this type of service; (vi) it musthave at least four of the following amenities: (a) a separate truckers’television lounge; (b) a full service laundry facility located in a convenientarea for truckers’ use; (c) private showers for men and women, not located inan area open to general public restroom facilities; (d) a travel store withitems commonly referred to as truckers’ supplies (items commonly used only bycommercial motor vehicles); (e) truck scales; (f) separate truckers’telephones; and (g) permanent storage facilities for fuel; (vii) it must havean area separated for adult patronage only; and (viii) it must have, ifavailable, a Class A—General retail permit or a Class A—Restaurant permit, asdefined in Part II of Chapter 1 or Part II of Chapter 2 of Title 26 of theLouisiana Revised Statutes of 1950, to serve or sell alcoholic beverages foron-premises consumption.

 

Additionally,no license can be granted to any truck stop facility located, at the timeapplication is made for a license to operate video draw poker devices, withinfive hundred feet of any property that is on the National Historic Registry,any public playground, or a building used exclusively as a church, synagogue,public library, or school.

 

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Allsuitability information and applications required to be submitted with respectto the six Louisiana truck plazas currently owned by our affiliates have beensubmitted to and approved by the Board and the Division. However, because the Boardand the Division conduct a new suitability investigation in connection witheach acquisition of a facility at which video gaming devices are to beoperated, regardless of prior approvals, there can be no guarantee that asuitability approval will ultimately result with respect to the plazas that wepropose to acquire.

 

***GamingRegulation and Licensing—Virginia***

 

ColonialHoldings’ success is dependent upon continued government and public acceptanceof horse racing as a form of legalized gaming. Although Colonial Holdingsbelieves that pari-mutuel wagering on horse racing will continue to be legal inVirginia, gaming has come under increasing scrutiny nationally and locally.

 

Oppositionto the Virginia Racing Act has been unsuccessfully introduced in the Virginialegislature in the past, but additional legislative opposition may arise in thefuture. Any repeal or material amendment of the Virginia Racing Act could havea material adverse effect on Colonial Holdings’ business of pari-mutuelwagering.

 

Underthe Virginia Racing Act, the Virginia Racing Commission is vested with controlover all aspects of horse racing with pari-mutuel wagering and the power toprescribe regulations and conditions under which such racing and wagering areconducted. The Virginia Racing Commission is responsible for, among otherthings, (i) conducting a review annually of the Colonial Holdings’ track andsatellite wagering facility licenses, (ii) annually approving Colonial Holdings’proposed schedule of racing days, (iii) approving new or modified types ofpari-mutuel wagering pools requested by Colonial Holdings, (iv) issuing permitsto all officers, directors, racing officials, and other employees of ColonialHoldings, and (v) approving simulcast schedules at the track and at thesatellite wagering facilities. The Virginia Racing Commission also has theauthority to promulgate regulations pertaining to Colonial Holdings’ trackfacilities, equipment, safety and security measures, and controls the issuingof licenses and permits for participants in pari-mutuel racing, includingColonial Holdings employees at the track and at the satellite wageringfacilities. In addition, the Virginia Racing Commission must approve anyacquisition or continuing ownership of a 5% or greater interest in ColonialHoldings. Action by the Virginia Racing Commission that is inconsistent withthe Colonial Holdings’ business plan could have a material adverse effect onColonial Holdings.

 

Duringthe 2000 session of the Virginia General Assembly, an amendment to the RacingAct was passed that requires Colonial Holdings to enter into contracts witheach representative horsemen’s group and provides for it to contribute to thepurse account of the respective breed a minimum of 5% of the first $75 millionof simulcast amounts wagered (“handle”), 6% of the next $75 million and 7% ofall handle over $150 million. The amendment also provides for the breakagegenerated by pari-mutuel wagering to be allocated 70% to capital expendituresand 30% to backstretch benevolent activities. Prior to this amendment, ColonialHoldings received all breakage. The Virginia Racing Act requires that, afterJuly 1, 2000, we enter into contracts with each representative horsemen’s groupthat provide for us to contribute, by breed of horse, a minimum of 5% of thefirst $75 million of handle, 6% of the next $75 million of handle and 7% of allhandle over $150 million to the purse account of the respective breed. Finally,the amendment empowers the Commission to summarily suspend Colonial Holdings’licenses if it believes the Racing Act or the regulations have been violated.In addition, the Interstate Horse Racing Act also requires that we secure theconsent of the Virginia Horsemen’s Benevolence and Protective Association (the “VaHBPA”)and the Virginia Harness Horse Association (“VHHA”) to the export simulcastingof races. These consents are usually contained in the agreement between eachgroup and us.

 

Thelicenses issued by the Virginia Racing Commission to Colonial Holdings are fora period of not less than 20 years, but are subject to annual review by theVirginia Racing Commission. It is possible that such licenses will not berenewed or that such licenses could be suspended or revoked by the VirginiaRacing Commission for violations of the Virginia Racing Act or Virginia RacingCommission rules.

 

Ouragreement with the VHHA expires December 31, 2005. Our agreement with theVaHBPA expired December 31, 2004 and has been extended temporarily until a newagreement is reached. We are currently negotiating a new agreement with theVaHBPA and expect to have such agreement in place by no later than May 31,2005. In the event we cannot reach agreement, the Virginia Racing Commissionhas the right to suspend our licenses to operate our racetrack and thesatellite wagering facilities until agreements are in place although it has notindicated that it will do so. Although it is difficult to the predict thelikelihood of such an event, closure of the

 

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satellite wagering facilities would bedetrimental to the horsemen’s groups as well as us since each horsemen’s group’sprimary source of purse funds is its percentage of wagering at the satellitefacilities.

 

Colonial Holdings,the track and the satellite wagering facilities are also subject to a varietyof other laws and regulations, including zoning, construction, and land-uselaws and the regulations of the Virginia Alcoholic Beverage Control Board. Suchlaws and regulations may affect the selection of racing center sites because ofparking, traffic flow, and other similar considerations. Any interruption ortermination of Colonial Holdings’ ability, or that of its concessionaires, toserve alcoholic beverages could have a material adverse effect on ColonialHoldings.

 

Finally, we arerequired to notify the Virginia gamingauthorities, on a post-closing basis, of the Proposed Acquisitions and our saleand issuance of the notes being offered hereby.

 

***GamingRegulation—Federal***

 

ColonialHoldings’ interstate simulcast operations are subject to the Federal InterstateHorse Racing Act, which regulates interstate satellite wagering. In order toconduct wagering on import simulcasting at the track or any racing center, theInterstate Horse Racing Act requires Colonial Holdings to obtain the consent ofthe Virginia Racing Commission, the consent of the racing commission of thestate where the horse racing meet originates, and the consent of therepresentative horsemen groups in the origination state. To conduct exportsimulcasting, Colonial Holdings must obtain the consent of the VirginiaHorseman’s Benevolent and Protective Association or the Virginia Harness HorseAssociation, and the Virginia Racing Commission. Also, in the case of satellitewagering to be conducted at any of Colonial Holdings’ satellite wageringfacilities, the Interstate Horse Racing Act requires Colonial Holdings toobtain the approval of all currently operating horse racetracks within 60 milesof the satellite wagering facilities or if there are no currently operatingtracks within 60 miles, the approval of the closest operating horse racetrack,if any, in an adjoining state. Significant delay in obtaining or failure toobtain these consents or approvals could have a material adverse effect onColonial Holdings.

 

TheNational Gaming Commission conducted a comprehensive legal and factual study ofgambling in the United States and existing federal, state, and local policiesand practices with respect to the legalization or prohibition of gamblingactivities. The commission published its findings and recommendations in 1999.Although no proposals have been put forward to implement the commission’srecommendations, the future adoption of some or all of these recommendationscould have a material adverse effect on our business and operations.

 

***LiquorRegulation***

 

Thesale of alcoholic beverages in Colorado is subject to licensing, control andregulation by certain Colorado state and local agencies (the ‘‘Liquor Agencies’’).Subject to certain exceptions, all persons who directly or indirectly own 5% ormore of a company or its casino must file applications with and are subject toinvestigation by the Liquor Agencies. The Liquor Agencies also may investigatepersons who, directly or indirectly, lend money to liquor licensees. All liquorlicenses are renewable, are revocable and are not transferable. The LiquorAgencies have broad powers to limit, condition, suspend or revoke any liquorlicense. Any disciplinary action by the Liquor Agencies or any failure to renewor other revocation of any of our liquor licenses would have a material adverseeffect on our operations and Black Hawk Gaming’s Colorado casinos.

 

UnderColorado law, it is a criminal violation for any person or entity to own adirect or indirect interest in more than one type of alcoholic beverage licenseor more than three gaming tavern liquor licenses. Black Hawk Gaming’s Coloradocasinos have gaming tavern liquor licenses. Accordingly, our expansion anddiversification opportunities in Colorado are limited by these licensingrestrictions.

 

Thesale of alcoholic beverages in Reno, Nevada, is subject to licensing, controland regulation by the City of Reno. All licenses are revocable and are nottransferable. The agencies involved have full power to limit, condition,suspend or revoke any such license, and any such disciplinary action could (andrevocation would) have a material adverse effect on the operations of the GoldDust West Casino.

 

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Alcoholregulation within the State of Louisiana is performed primarily by the Officeof Alcohol and Tobacco Control (the “Board”). The Commissioner of the Board isgiven broad discretion in the granting and denial of state alcohol permits.While permits are issued on a state level, the local municipality is alsopermitted to provide for concurrent local licensing. The state alcoholregulatory scheme is contained at Title 26:1 of the Louisiana Revised Statutes(hereinafter referred to as the ‘‘act’’). Generally, no permit may be issued ifthe applicable premises is located three hundred feet or less, as fixed by thelocal municipal ordinance, of a public playground or of a building usedexclusively as a church or synagogue, public library, or school. Local municipalitiesare also permitted to regulate the opening and closing hours of permittedbusinesses as well as to prohibit the sale of alcoholic beverages altogether byreferendum vote of the people within the municipality. A local municipality mayalso regulate via zoning designations the permissibility or prohibition of thepermitting of businesses that sell alcoholic beverages within thatmunicipality. All Louisiana video gaming truck plaza facilities are currentlylicensed by the applicable state and local alcohol licensing authorities.

 

Thesale of alcoholic beverages in Virginia is subject to licensing, control andregulation by the Virginia Department of Alcoholic Beverage Control (the ‘‘VirginiaABC Board’’), a Virginia state agency. The Virginia ABC Board issues licensesbased upon the type of beverage, type of establishment or place of consumption.Virginia ABC laws include the responsibility of the licensee to maintaincomplete and accurate records, certain restrictions on advertising and certainfood sale requirements.

 

Beforereceiving a Virginia ABC license, an applicant must satisfy severalrequirements. The Virginia ABC Board conducts an extensive backgroundinvestigation (to include a criminal history review as well as contacts withthe local governing body of each license application) and contacts localofficials, residents and business people in the vicinity of the establishmentto ascertain if any objections exist. The background investigation is completedfor all principal owners of the proposed licensee. Administrative hearings areavailable to afford all interested parties the opportunity to present anyconcerns with respect to an application.

 

Alicensee is required to maintain financial responsibility for its business,including timely payment of all taxes, creditor obligations and other bills,and must keep accurate records of all such transactions. Mixed beveragelicensees must record sales and purchases of all mixed beverages, food andnon-alcoholic beverages. Mixed beverage licensees must submit annual reviewreports to the Virginia ABC Board showing all purchases and sales of alcoholicbeverages during the year as well as an accurate inventory. Finally, theVirginia ABC Board imposes certain restrictions and limitations on advertising,the use of advertising materials and promotions.

 

IfVirginia ABC agents discover license violations, a disciplinary hearing willtypically be conducted with a Virginia ABC hearing officer. Any aggrievedlocalities and members of the community may attend the hearing and present anyadditional or relevant objections or complaints concerning the license. TheVirginia ABC Board has broad power to limit, condition, suspend or revoke anylicense granted on discovery of any violation. Any disciplinary action by theVirginia ABC Board or any failure to renew or any revocation of a liquorlicense would likely have a material adverse effect on the operation ofColonial Holdings’ track and satellite wagering facilities.

 

**Taxation**

 

Gamingoperators in Colorado are subject to state and local taxes and fees in additionto ordinary federal and state income taxes. The City of Black Hawk has imposedan annual license fee, currently $750, for each gaming device installed in acasino. In addition, Colorado has a tax on gross gaming revenue (also called “adjustedgross proceeds”) being generally defined as the total amount wagered less thetotal amount paid out in prizes. Currently, gaming tax rates are as follows:

 

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| **Tax as Percentage of**    | ** ** | **Annual Amount of Adjusted** | ** ** |
|-----------------------------|------------|-------------------------------|------------|
| **Adjusted Gross Proceeds** | ** ** | **Gross Proceeds**            | ** ** |
|                        |       |                          |       |   |   |   |   |
| 0.25%                       |       |                          | $          | 0 |   | – |   | 2,000,000 |   |
| 2.00%                       |       |                          | 2,000,001  |   | – |   | 4,000,000 |   |
| 4.00%                       |       |                          | 4,000,001  |   | – |   | 5,000,000 |   |
| 11.00%                      |       |                          | 5,000,001  |   | – |   | 10,000,000 |   |
| 16.00%                      |       |                          | 10,000,001 |   | – |   | 15,000,000 |   |
| 20.00%                      |       |                          | 15,000,001 |   | and above |   |
|                             |            |                               |            |  |  |  |  |  |  |

 

Bothof Black Hawk Gaming’s Colorado casinos are subject to the maximum rate.Neither the Colorado constitution nor the gaming statutes require that gamingtax rates be graduated, as they currently are. Under the Colorado constitution,the Colorado Gaming Commission could increase the top rate to as much as 40%. Amore recent tax limitation amendment to the Colorado constitution, however,states that neither the state nor any local government may increase a tax ratewithout an affirmative vote of the people; therefore, there is a question as towhether the Colorado Gaming Commission could constitutionally increase thestate tax levied on gross gaming revenues without such a vote. The Coloradolegislature rejected this argument after the top tax rate was increased to 20%in 1996, and no court was asked to rule on the applicability of the taxlimitation amendment to gaming tax rates.

 

InNevada, license fees and taxes, computed in various ways depending on the typeof gaming or activity involved, are payable to the State of Nevada, WashoeCounty and the City of Reno. Depending upon the particular fee or tax involved,these fees and taxes are payable either monthly, quarterly or annually and arebased upon either: (i) a percentage of the gross revenues received; (ii) thenumber of gaming devices operated; or (iii) the number of table games operated.A live entertainment tax is also paid by casino operations where entertainmentis furnished in connection with an admissions charge or the selling or servingof food or refreshments or the selling of merchandise. Presently the state taxin Nevada on adjusted gross revenue from gaming is 6.75%.

 

Videogaming operators in truck plazas in Louisiana are subject to state and localtaxes and fees in addition to ordinary federal and state income taxes. Thestate of Louisiana has imposed a franchise tax of 32.5% of the net devicerevenue from each video gaming device located at a truck plaza. The net devicerevenue is the amount remaining after all winnings have been paid. Thisfranchise tax is collected twice per month by the Louisiana state police basedon the data that is provided directly to them from the devices. There is alsoan annual state establishment license fee of $1,000. In addition, the stateimposes a device operation fee of $1,000 per year per device, which is paidquarterly, and each parish imposes an annual occupational license tax of up to$50 per device.

 

Colonial Holdings issubject to a number of federal, state and local taxes and fees. These includefees to support the Virginia Breeders’ Fund, taxes payable to the Commonwealthof Virginia, taxes and admission charges payable to New Kent County, where thetrack is located, and taxes payable to localities in which satellite wageringfacilities are located based upon attendance and the amount of monies wageredboth at the track and at the satellite wagering facilities. Colonial Holdingsbelieves that the public acceptance of pari-mutuel wagering on horse races, aswell as other forms of gaming, is based, in part, on the governmental revenuesit generates from taxes and fees on such activities. It is possible that gamingactivities, including horse racing, may become a target for additional federal,state, or local taxes and fees. A significant increase in such taxes or fees orthe creation of significant additional taxes or fees could have a materialadverse effect on us.

 

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**RISKFACTORS**

 

To inform readers of our future plans and businessstrategies, this report contains statements concerning our future performance,intentions, objectives, plans and expectations that are or may be deemed to be “forward-lookingstatements.” Our ability to do this has been fostered by the Private SecuritiesLitigation Reform Act of 1995, which provides a “safe harbor” forforward-looking statements to encourage companies to provide prospectiveinformation so long as those statements are accompanied by meaningfulcautionary statements identifying important factors that could cause actualresults to differ materially from those discussed in the statement. Suchfactors affecting us include, but are not limited to, the following:

 

**RisksRelated to Our Indebtedness**

 

***Our substantial indebtedness couldadversely affect our financial health and prevent us from fulfilling ourobligations under our debt agreements.***

 

We have a significant amount of indebtedness. As ofDecember 31, 2004 we had total indebtedness excluding accounts payable ofapproximately $148 million and total stockholders’ equity of approximately $72million. In March 2005, we issued an additional $23 million of our seniorsecured notes raising our indebtedness to approximately $171 million as ofMarch 15, 2005. The accounting treatment relating to our March 2005 noteissuance reduced our stockholders’ equity to approximately $60 million. Oursubstantial indebtedness could have important consequences. For example, itcould:

 

•                                          increase our vulnerability to general adverseeconomic and industry conditions;

•                                          require us to dedicate a substantial portionof our cash flow from operations to debt service, thereby reducing theavailability of our cash flow to fund working capital, capital expenditures,and other general corporate purposes;

•                                          limit our flexibility in planning for, orreacting to, changes in our business and the industry in which we operate;

•                                          limit our ability to fund a requiredregulatory redemption or a change of control offer;

•                                          place us at a competitive disadvantage to ourcompetitors that have less debt; and

•                                          limit, along with the financial and otherrestrictive covenants in our debt agreements, among other things, our abilityto borrow additional funds. A failure to comply with those covenants couldresult in an event of default which, if not cured or waived, could have asignificant adverse effect on us.

 

The occurrence of any one of these events could havea material adverse effect on our business, financial condition, results ofoperations, prospects and ability to satisfy our obligations under our debtagreements.

 

In addition, subject tospecified limitations in the indenture governing the notes, we may be able toincur additional indebtedness in the future. Our credit facility will permitborrowings of up to $10 million, and all of the security interests securingthose borrowings will be contractually senior to the notes and guarantees, asprovided in the intercreditor agreement between the trustee and Wells FargoFoothill, Inc., the lender under our credit facility. If new debt is added toour and our subsidiaries’ current debt levels, the related risks we and theynow face could intensify.

 

***Our debt agreements impose manyrestrictive covenants on us.***

 

Our debt agreements contain covenants that, amongother things, restrict our ability to:

 

•                                          incur more debt;

•                                          issue stock of subsidiaries;

•                                          make investments;

•                                          repurchase stock;

•                                          create liens;

•                                          enter into transactions with affiliates;

•                                          enter into sale-leaseback transactions;

 

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•                                          merge or consolidate; and

•                                          transfer and sell assets.

 

Our debt agreements also require us to meet a numberof financial ratios and tests. These covenants restrict the operations of oursubsidiaries and these limitations could impair our ability to meet suchfinancial ratios and tests. In addition, our ability to meet these ratios andtests and to comply with our provisions governing our indebtedness may beaffected by changes in economic or business conditions or other events beyondour control. Our failure to comply with our debt-related obligations couldresult in an event of default which, if not cured or waived, could result in anacceleration of our indebtedness.

 

Complying with these covenants could materiallylimit our financial and operating flexibility and could cause us to takeactions that we otherwise would not take or cause us not to take actions thatwe otherwise would take.

 

***Despite current indebtedness levels,we may still be able to incur substantially more debt, which could exacerbatethe risks described above.***

 

We and our subsidiaries may be able to incursubstantial additional indebtedness in the future. Our principal debtagreement, our note indenture, does not fully prohibit us or our subsidiariesfrom doing so. If new debt is added to our and our subsidiaries’ current debtlevels, the related risks that we and they now face could intensify.

 

***To service our indebtedness, we willrequire a significant amount of cash, the availability of which depends on manyfactors beyond our control.***

 

Our ability to make payments on and to refinance ourindebtedness and to fund our operations will depend on our ability to generatecash. This, to an extent, is subject to general economic, financial,competitive, legislative, regulatory and other factors that are beyond ourcontrol. Therefore, we cannot assure you that our business will generatesufficient cash flow from operations or that borrowings will be available to usin amounts sufficient to enable us to pay our indebtedness, or to fund ourother liquidity needs. In addition, if we consummate significant acquisitionsin the future, our cash requirements may increase significantly. If we areunable to generate sufficient cash flow and are unable to refinance or extendoutstanding borrowings, we may have to:

 

•                                          reduce or delay planned expansion and capitalexpenditures;

•                                          sell assets;

•                                          restructure debt; or

•                                          raise additional capital.

 

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

 

**RisksRelated to Our Senior Secured Notes**

 

***Holders’ rights to receive paymentson our 117/8 % Senior Secured Notes in the principalamount of $148 million as of March 15, 2005 (the “notes”) are effectivelysubordinated to payments under our Senior Credit Facility and any equipmentfinancing to the extent of the collateral securing this other debt. Theproceeds from the collateral securing the notes may not be sufficient to payall amounts owed under the notes if an event of default occurs, even if thefair market value of the collateral would otherwise be sufficient to pay theamounts owed under the notes.***

 

The notes and guarantees are effectively subordinatedto (a) up to $10.0 million principal amount of indebtedness that may beincurred under our Senior Credit Facility with respect to the assets securingthe Senior Credit Facility, pursuant to the intercreditor agreement describedbelow, and (b) any future equipment financing and purchase money debt, in eachcase to the extent of the assets securing that indebtedness. We may incurpurchase money obligations and capital lease obligations in an aggregateprincipal amount not to exceed the greater of $5.0 million or 15% of ourconsolidated earnings before interest, depreciation and amortization for thetrailing four

 

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quarters.Those obligations may be secured by liens on the financed collateral senior tothe lien securing the notes and guarantees, and the right of payment of thoseobligations will be pari pasu with the notes. As a result, upon anydistribution to our creditors or the creditors of any subsidiary guarantors inbankruptcy, liquidation, reorganization or similar proceedings, or followingacceleration of our indebtedness or an event of default under suchindebtedness, our lenders under our Senior Credit Facility, our equipmentfinancing and our purchase money indebtedness will be entitled to be repaid infull from the proceeds of the assets securing such indebtedness, or the sale ofthe equipment subject to such equipment financing, before any payment is madeto note holders from such proceeds. There can be no assurance that the fairmarket value of the collateral securing the notes would be sufficient to paythe amounts due under the notes, even absent the Senior Credit Facility, anyequipment financing and any purchase money debt.

 

The trustee under our note indenture and the lendersunder our Senior Credit Facility have entered into an intercreditor agreementgoverning the relationships among them and their obligations and rights.Financing by multiple lenders with security interests in common collateral mayresult in increased complexity and lack of flexibility in a debt restructuringor other work-out relating to us. Furthermore, under the intercreditoragreement, the trustee’s remedies in the event of a default are limited. Underthe intercreditor agreement, if the notes become due and payable prior to thestated maturity or are not paid in full at the stated maturity at a time duringwhich we have indebtedness outstanding under our Senior Credit Facility, thetrustee will not have the right to foreclose upon the assets securing theSenior Credit Facility unless and until the lenders under the Senior CreditFacility fail to take steps to exercise remedies with respect to or inconnection with the collateral within 180 days following notice to such lendersof the occurrence of an event of default under the indenture. In addition, theintercreditor agreement prevents the trustee and the holders of the notes frompursuing remedies with respect to the assets securing the Senior CreditFacility in an insolvency proceeding. The intercreditor agreement also providesthat the net proceeds from the sale of the assets securing the Senior CreditFacility will first be applied to repay indebtedness outstanding under thecredit facility and thereafter to the holders of the notes.

 

***The value of the collateral securingthe notes may not be sufficient to pay all amounts owed under the notes if anevent of default occurs.***

 

A large portion of the collateral securing the notesconsists of our casinos, truck plazas and personal property, which depreciatein value over time. As a result, if an event of default occurs with respect tothe notes, we can give no assurance that the liquidation of the collateralsecuring the notes will produce sufficient proceeds to pay all amounts owedunder the notes. The value of the collateral at any time will depend on marketand other economic conditions, including the availability of suitable buyersfor the collateral. If the proceeds are insufficient, the deficiency would bean unsecured obligation. There can be no assurance that note holders wouldrecover any deficiency.

 

***We may have subsidiaries in thefuture that will not guarantee the notes.***

 

We may have subsidiaries in the future that will notguarantee the notes. Any non-guarantor subsidiary would have no obligation tomake payments to us or in respect of the notes. In the event of a bankruptcy,liquidation or reorganization of any non-guarantor subsidiary, the creditors ofsuch subsidiary (including trade creditors) would generally be entitled topayment of their claims from the assets of such subsidiary before any assetswere made available for distribution to us as a stockholder. After paying itsown creditors, a non-guarantor subsidiary may not have any remaining assetsavailable for payment to note holders. As a result, the notes would beeffectively junior in right of payment to the obligations of any non-guarantorsubsidiary.

 

***The trustee’s ability to realize onthe collateral securing the notes may be limited.***

 

The trustee’s ability to foreclose on the pledgedshares and other collateral comprising our gaming businesses is limited byrelevant gaming laws. Regulations of the gaming authorities in the severalstates in which we operate provide that no person may acquire an interest in agaming licensee or enforce a security interest in the stock of a corporationthat is the holder of a gaming license or that owns stock in such a corporationwithout the prior approval of the gaming authority. As such, neither thetrustee nor any note holder is permitted to operate or manage any gaming businessor assets unless that person has been licensed under applicable law for thatpurpose.

 

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Gaming law requires that anyperson who proposes to own shares of licensed corporations or of registeredholding corporations must be found suitable as a stockholder of suchcorporations by the applicable gaming authority and other relevant gamingauthorities before acquiring ownership of those interests. Consequently, itwould be necessary for the trustee to file an application with the gamingauthorities requesting approval to enforce the security interest in any pledgedstock and obtain that approval before it may take any steps to enforce thesecurity interest. Additionally, the trustee must file applications with thegaming authorities requesting approval to enforce a security interest in ourgaming assets before it may take steps to enforce the security interest.Moreover, it would be necessary for a prospective purchaser of the pledgedstock or of the gaming assets to file the necessary applications, beinvestigated, and be licensed or found suitable by the gaming authoritiesbefore acquiring the gaming assets or the pledged stock through the foreclosuresale. These requirements may therefore limit the number of potential bidderswho would participate in any foreclosure sale and may delay the sale of anypledged stock or other gaming assets, either of which could have an adverseeffect on the proceeds received from those sales.

 

In addition, the trustee’sability to foreclose on and sell the collateral will be subject to theprocedural restrictions of state real estate law and the Uniform Commercial Code.Furthermore, the right of the trustee to foreclose upon and sell the collateralis likely to be significantly impaired by applicable bankruptcy law if abankruptcy proceeding were to be commenced by or against us or any of oursubsidiaries prior to, or possibly even after, the trustee has repossessed anddisposed of the collateral.

 

***We are a holdingcompany and will depend on the business of our subsidiaries to satisfy ourobligations under the notes.***

 

We are a holding company.Substantially all of the operations necessary to fund payment on the notes areconducted by our subsidiaries. Our ability to make payment on the notes dependson our subsidiaries’ cash flow and their payment of funds to us. Oursubsidiaries’ ability to make payments to us depends on their earnings, theterms of their indebtedness, business and tax considerations, legal andregulatory restrictions and economic conditions.

 

***We may not havethe ability to raise the funds necessary to finance the change of control offerrequired by the note indenture.***

 

Upon the occurrence ofcertain specific kinds of change of control events, we will be required tooffer to repurchase all outstanding notes. However, it is possible that we willnot have sufficient funds at the time of such a change of control to make therequired repurchase of notes. The change of control provisions may not protectnote holders in a transaction in which we incur a large amount of debt,including a reorganization, restructuring, merger or other similar transaction,because that kind of transaction may not involve any shift in voting power orbeneficial ownership, or may not involve a shift large enough to trigger achange of control as defined in the note indenture.

 

***Our originalissuance of senior notes in the amount of $125 million were issued in February 2002with original issue discount. As a result, note holders will generally berequired for United States federal income tax purposes to include in grossincome accrued original issue discount on the notes before the receipt of acash payment on account thereof, and in the event of a bankruptcy of theCompany, a note holder’s claim would not include any unamortized originaldiscount.***

 

Original issue discount (thedifference between the notes’ stated redemption price at maturity and theirissue price) will accrue from the issue date of the notes, and purchasers ofthe notes generally will be required to include such amounts in gross incomefor United States federal income tax purposes in advance of their receipt ofthe cash payments to which the income is attributable.

 

If a bankruptcy case iscommenced by or against us under the United States Bankruptcy Code after theissuance of the notes, the claim of a holder of the notes may be limited to anamount equal to the sum of (1) the notes’ issue price, (2) accrued and unpaidinterest thereon through the date of the bankruptcy filing, and (3) thatportion of the original issue discount deemed to have accrued from the issuedate through the date of the bankruptcy filing. Any original issue discountdeemed not to have accrued as of the date of any such bankruptcy filing wouldconstitute “unmatured interest” and would not be allowed under the BankruptcyCode. Accordingly, the holder’s claim would likely be less than the notes’stated redemption price at maturity.

 

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***Federal and statestatutes allow courts, under specific circumstances, to void guarantees,subordinate claims in respect of indebtedness and require debt holders to returnpayments received from guarantors.***

 

Under the federal bankruptcylaw and comparable provisions of state fraudulent transfer laws, a court couldvoid a guarantee of one or more of our subsidiaries or claims related to thenotes or subordinate a subsidiary’s guarantee to all of our other debts or allother debts of the guarantor if, among other things, we or the guarantor, atthe time we or it incurred the indebtedness evidenced by its guarantee:

 

•                                          received less than reasonably equivalentvalue or fair consideration for the incurrence of that indebtedness; and

 

•                                          we were or the guarantor was insolvent orrendered insolvent by reason of that incurrence;

 

•                                          we were or the guarantor was engaged in abusiness or transaction for which our or the guarantor’s remaining assetsconstituted unreasonably small capital; or

 

•                                          we or the guarantor intended to incur, or believed that we or it would incur,debts beyond our or its ability to pay those debts as they mature.

 

In addition, a court couldvoid any payment by us or the guarantor pursuant to the notes or a guaranteeand require that payment to be returned to us or the guarantor, or to a fundfor the benefit of our creditors or the creditors of the guarantor.

 

The measures of insolvencyfor purposes of these fraudulent transfer laws will vary depending upon the lawapplied in any proceeding to determine whether a fraudulent transfer hasoccurred. Generally, however, a guarantor would be considered insolvent if:

 

•                                          the sum of its debts, including contingent liabilities, were greater than thefair saleable value of all of its assets,

 

•                                          the present fair saleable value of its assetswere less than the amount that would be required to pay its probable liabilityon its existing debts, including contingent liabilities, as they becomeabsolute and mature, or

 

•                                          it could not pay its debts as they becomedue.

 

We believe that we and theguarantors have received reasonably equivalent value and fair consideration forthe incurrence of the indebtedness and obligations represented by the notes andthe guarantees. On the basis of historical financial information, recentoperating history and other factors, we believe that we and each subsidiaryguarantor, after giving effect to its guarantee of these notes, are notinsolvent, do not have unreasonably small capital for the business in which weare or it is engaged and have not incurred debts beyond our or its ability topay such debts as they mature. There can be no assurance, however, as to whatstandard a court would apply in making those determinations or that a courtwould agree with our conclusions in this regard.

 

**RisksRelated to Our Business**

 

***We facesignificant competition and regulation***.

 

See the captions “Business—Competition,”“—Regulation” and “—Taxation” above for detailed information regarding thesignificant competition we face in our business and the extensive regulationsand taxation to which our business is subject.

 

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***We depend on ourkey personnel, particularly Jeffrey P. Jacobs***.

 

We are highly dependent onthe services of Jeffrey P. Jacobs (one of our two principal owners and ourChief Executive Officer) and other officers and key employees. The loss of theservices of any of these individuals could materially harm our business,financial condition and results of operations. The loss of their experience andfamiliarity with our operations could have negative effects on management’sefficiency and could cause us to incur costs to find qualified replacements.

 

***We needto increase capital expenditures to compete effectively.***

 

Capitalexpenditures, amenity upgrades and new gaming equipment are necessary from timeto time to preserve the competitiveness of our properties. The gaming industrymarket is very competitive and is expected to become more competitive in thefuture. If cash from our operations is insufficient to provide for neededlevels of capital expenditures, our competitive position could deteriorate ifwe are unable to generate internal cash flow or borrow funds for such purposes.

 

***Economicconditions, seasonality and weather conditions could affect our operations***.

 

Our business, financialcondition and results of operations may be harmed by general and local economicconditions. If the U.S. economy or the local economy in a market in which weoperate suffers a downturn, our properties could be harmed as the disposableincome of consumers or their willingness to patronize our operations declines,resulting in a decrease in the number of patrons at our properties or adecrease in the amount that patrons are willing to wager.

 

In addition, seasonality andweather conditions can affect our results of operations. Our pari-mutuelwagering revenues are higher during scheduled live racing than at other timesof the year. Adverse weather conditions can cause cancellation of or curtailattendance at outdoor races, thereby reducing wagering and our revenues.Attendance and wagering at both outdoor races and satellite wagering facilitiescan be harmed by holidays and other competing seasonal activities. Wintertravel conditions can adversely affect patronage and revenues at our Coloradocasinos. Although casino business is not seasonal, levels of gaming activityincrease significantly during weekends and holidays, especially holidayweekends.

 

***Wedepend on agreements with Colonial Holdings’ horsemen to operate our racing andwagering business.***

 

The Federal Interstate Horseracing Act and theVirginia Racing Act require Colonial Holdings to have written agreements withrepresentative Virginia horsemen’s groups in order to simulcast races. Ouragreement with the Virginia Horsemen’s Benevolence and Protective Association(the “VaHBPA”) that expired on December 31, 2004 has been extendedtemporarily until a new agreement is reached. We are currently negotiating anew agreement with the VaHBPA and expect to have such agreement in place****no later than May31, 2005. Our current agreement with the Virginia Harness Horse Association(the “VHHA”) expires on December 31, 2005.

 

Inthe event we cannot continue to renew these agreements, the Virginia RacingCommission has the right to suspend our licenses to operate our racetrack andthe satellite wagering facilities until agreements are in place although it hasnot indicated that it will do so. Although it is difficult to predict thelikelihood of such an event, closure of the satellite wagering facilities wouldbe detrimental to the horsemen groups as well as us since each horsemen group’sprimary source of purse funds is its percentage of wagering at the satellitefacilities.

 

***Energy priceincreases may adversely affect our costs and our revenues***.

 

Our casino and horse racingand pari-mutuel wagering operations use significant amounts of electricity andother forms of energy. Any substantial increase in the cost of the forms ofenergy we use may negatively affect our results of operations. In addition,consumer energy or gasoline price increases may reduce the disposable income ofour potential customers or their willingness to patronize our operations andcorrespondingly reduce our patronage and revenues. Furthermore, a fuel priceincrease may impact fuel sales in Louisiana making it more difficult to meetminimum fuel sale requirements.

 

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***One of the threetruck plazas we acquired with proceeds from the sale of $23 million of notessold in March 2005 is not presently licensed.***

 

All video poker truck plazagaming facilities in Louisiana must be licensed by the Louisiana State Police.Of the three truck plazas we acquired with proceeds from the sale of $23million of notes sold in March 2005, one is not presently licensed. Theapplication process is underway with respect to this truck plaza and isexpected to be granted in June 2005. However, the issuance of such licenseis in the discretion of the Louisiana State Police and no absolute assurancethat the license will be issued can be given. If for any reason the licenseapplication is denied, we would appeal the decision which, in turn, could delayor prevent the opening of the gaming facility. In this event, there could be amaterial diminution in the value of that facility. See the risk factor abovecaptioned “We face extensive regulation from gaming authorities—LicensingRequirements.”

 

**Item 2.****                                          *****Properties***

 

See “Our Properties andOperations” in Item 1 above for a description of the location and generalcharacter of our principal properties. Each of our properties is subject toliens and encumbrances securing our senior credit facility and senior securednotes. See note 6 to our consolidated financial statements included elsewhereherein.

 

**Item 3.****                                          *****LegalProceedings***

 

On May 25, 2001, a lawsuitwas filed in The United States District Court for the District of Colorado(Case No. 01-D-0964) by Central City, several casino operators located inCentral City and others against the City of Black Hawk, the Black Hawk GamingOwners Association (formerly the Black Hawk Casino Owners Association) andseveral casino operators located in Black Hawk, including Black Hawk Gaming.The suit alleges that the defendants caused economic harm to the plaintiffs byengaging in a conspiracy and scheme to harm competition, restrain trade andmonopolize the gaming industry in the Gilpin County, Colorado market inviolation of federal and state constitutional law, statutory and common law.Also, the complaint alleges that in 1996 the City of Black Hawk beganinterfering in Central City’s plans to construct a road directly fromInterstate 70 to Central City. The plaintiffs seek compensatory, treble andexemplary damages against the defendants in amounts to be proven at trial alongwith interest, costs and attorneys’ fees. In March 2003, Central City’scity council voted to withdraw from the lawsuit. Central City has since beendismissed from the lawsuit. The remaining plaintiffs have continued to pursuethe lawsuit. On March 26, 2003, the district court entered an orderdismissing with prejudice the plaintiffs’ seventh, eighth, eleventh, twelfthand thirteenth claims for relief (*i.e.*,the state common law claims and the claims under RICO and its Coloradostatutory counterpart (COCCA)). On March 31, 2004, the district courtdismissed with prejudice the federal antitrust claims. The court declined toretain supplemental jurisdiction over the state antitrust claims, and dismissedthem without prejudice. On April 30, 2004, the plaintiffs filed a noticeof appeal in the district court, appealing the dismissals of their claims tothe United States Court of Appeals for the Tenth Circuit. The appeal has beenbriefed and was argued to a panel of the Tenth Circuit on January 13,2005. We are awaiting the decision of the Tenth Circuit. Although plaintiffshave appealed, we continue to believe that this lawsuit is without merit and weintend to contest it vigorously. We are unable to reasonably estimate theamount or range of amounts, if any associated with this litigation, but we donot believe the suit will result in any material liability.

 

In March 2003, GalacticGaming, Inc., one of the plaintiffs in Case No. 01-D-0964 (MJW), filed anaction in District Court in Jefferson County, Colorado, Case No. 03CV0793,Division 7, against many of the same defendants as in Case No. 01­D­0964 (MJW),including Black Hawk Gaming. This action asserted state common law claimsidentical or virtually identical to those that were asserted and dismissed withprejudice in the federal action. Plaintiff moved for voluntary dismissal and onJuly 16, 2003, the Jefferson County district court dismissed the actionwithout prejudice. Given the passage of time, we do not believe that plaintiffwill attempt to reassert this action after the Tenth Circuit appeal is decided.We are unable to reasonably estimate the amount, or range of amounts, if any,associated with this litigation. Even if the plaintiff in the future attemptsto reassert this action, we do not believe the suit will result in any materialliability.

 

We are involved in routinelitigation arising in the ordinary course of business. We believe these mattersare covered by appropriate insurance policies.

 

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**Item 4.****                                            **    ***Submissionof Matters to a Vote of Security Holders***

 

There were no matterssubmitted during the fourth quarter of the fiscal year covered by this reportto a vote of our security holders***.***

 

**Item 5*.******                                          ******Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities***

 

All of our outstandingcommon stock is held by two persons and, accordingly, there is no established tradingmarket for our common stock. We have elected to be taxed under the provisionsof SubChapter S of the Internal Revenue Code of 1986. Under those provisions,the two owners of our common stock pay taxes on our taxable income. Our abilityto make distributions to our two stockholders is limited by the terms ofagreements and indentures related to our indebtedness.

 

We have no equitycompensation, stock option or similar plans relating to our equity securities.

 

We have made no repurchasesof our equity securities since our inception in 2001.

 

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**Item 6.**                                           ***SelectedFinancial Data***

 

*JacobsEntertainment*

 

The following selectedconsolidated financial data should be read in conjunction with our management’sdiscussion and analysis of financial condition and results of operations andour consolidated financial statements and related notes thereto appearingelsewhere in this report. The consolidated statements of operations data andthe consolidated balance sheet data are derived from our consolidated financialstatements. The selected financial data provided below is not necessarilyindicative of our future results of operations or financial performance.

 
| ** **                                                      | ** ** | **2000**   | ** ** | **2001**   | ** ** | **2002**   | ** ** | **2003(1)** | ** ** | **2004**   | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------|------------|------------|------------|
| ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Statements  of Operations Data:**                             |       |       |       |       |       |       |       |        |       |       |       |
| Net revenues                                                    |       | $          | 31,796     |       | $          | 46,653     |       | $           | 153,720    |       | $          | 171,849 |   | $ | 189,715 |   |
| Total costs  and expenses                                       |       | 30,508     |       | 42,568     |       | 130,869    |       | 149,603     |       | 165,314    |       |
| Operating  income                                               |       | 1,288      |       | 4,085      |       | 22,851     |       | 22,246      |       | 24,401     |       |
| Interest  expense, net                                          |       | (2,396     | )          | (4,130     | )          | (18,106    | )          | (19,583     | )          | (19,414    | )          |
| Other income                                                    |       | —     |       | —     |       | —     |       | 10          |       | —     |       |
| Equity in  earnings (loss) of investments and minority interest |       | 5,399      |       | 4,635      |       | (1,807     | )          | —      |       | —     |       |
| Net income                                                      |       | $          | 4,291      |       | $          | 4,590      |       | $           | 2,938      |       | $          | 2,673 |   | $ | 4,987 |   |
| **Balance  Sheet Data (end of period):**                        |       |       |       |       |       |       |       |        |       |       |       |
| Current  assets                                                 |       | $          | 2,009      |       | $          | 5,148      |       | $           | 26,850     |       | $          | 22,045 |   | $ | 27,678 |   |
| Total assets                                                    |       | 86,118     |       | 105,992    |       | 236,226    |       | 236,573     |       | 242,761    |       |
| Current  liabilities                                            |       | 6,348      |       | 10,233     |       | 24,351     |       | 23,271      |       | 22,981     |       |
| Long-term  debt and other liabilities                           |       | 1,160      |       | 14,692     |       | 147,113    |       | 145,867     |       | 147,358    |       |
| Minority  interest                                              |       | 18,567     |       | 17,308     |       | —     |       | —      |       | —     |       |
| Stockholders’  equity                                      |       | 60,043     |       | 63,759     |       | 64,762     |       | 67,435      |       | 72,422     |       |

 

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(1)                       The comparability of selected financial data for 2003 compared to prioryears is affected by the transactions occurring on February 22, 2002, asdescribed more fully below in Item 7 and in note 1 to our consolidatedfinancial statements included elsewhere in this report.

 

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**Item 7.**                                           ***Management’sDiscussion and Analysis of Financial Condition and Results of Operations***

 

*This section discussesthe results of our operations. You should read the following discussions andanalyses in conjunction with the audited consolidated financial statements thatare  included in this Form 10-K. Certainstatements contained in this Management’s Discussion and Analysis of FinancialCondition and Results of Operations constitute “forward-looking statements,”which statements involve risks and uncertainties described elsewhere in thisreport.**The historical information should not necessarily be taken as areliable indication of our future performance.*

 

**TABLEOF CONTENTS TO MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)**

 
| **Description of item      ** | ** **                                                                                                                       |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|
| **1.**                                                 | **Historical  background of our company**                                                                                        |   |
| **2.**                                                 | **Overview  and discussion of our operations—i.e. how we look at things**                                                   |   |
| **3.**                                                 | **Comparison  of our historical operations for the year ended December 31, 2004 to the  year ended December 31, 2003** |   |
| **4.**                                                 | **Comparison  of our historical operations for the year ended December 31, 2003 to the  year ended December 31, 2002** |   |
| **5.**                                                 | **Liquidity and  capital resources**                                                                                             |   |
| **6.**                                                 | **Significant  accounting policies and estimates**                                                                               |   |
| **7.**                                                 | **EBITDA  segment information and discussion of operations**                                                                     |   |

 

**1.****                                     Historical background of theCompany**

 

In order for a reader to gain anunderstanding of our Company, we believe it is necessary to briefly discusssome of our history and how we have arrived to this point. On February 22,2002, we completed several acquisitions, which were primarily funded by theproceeds from the issuance of $125 million in senior secured notes on February 8,2002. On March 2, 2005, we issued an additional $23 million in principalamount of these same notes to acquire three video gaming truck plazas from arelated party. See Item 13 below for additional discussion regarding thistransaction. We are paying an interest rate of 117/8% onthese notes and they are due in February 2009.  A discussion of the principal components ofthe acquisitions is as follows.

 

On February 22, 2002 Jeffrey P. Jacobsand The Richard E. Jacobs Revocable Trust contributed substantially all oftheir interests in Diversified Opportunities Group Ltd. (“Diversified”) andtheir combined 100% interest in Jalou II in exchange for 100% of the commonstock of Jacobs Entertainment. Immediately prior to the acquisition of thepublicly held shares of Black Hawk Gaming & Development Company, Inc. (“BlackHawk Gaming”) and Colonial Holdings, Inc. (“Colonial”) described below,Diversified owned 100% of Jalou L.L.C., approximately 44% of Colonial,approximately 32% of Black Hawk Gaming, and a 25% interest in The Lodge Casinoat Black Hawk (“The Lodge”) (of which the remaining 75% was owned by Black HawkGaming). The exchange of Jacobs Entertainment, Inc. shares for the interests ofDiversified and Jalou II was accounted for as a combination of entities undercommon control, which is similar to the pooling of interests method ofaccounting for business combinations. The results of operations of Diversifiedand Jalou II are presented in the Jacobs Entertainment income statement asthough these transactions had been completed at the beginning of each yearpresented as described more fully below.

 

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The ownership interest of the Jalou entitiesand the acquisition dates for each property are as follows:

 
| ** **                            | ** ** | **Date  Acquired**     |
|---------------------------------------|------------|------------------------|
| Jalou, LLC:                           |       |                   |
| Houma Truck Plaza and Casino          |       | February 7, 2001  |
| Cash’s Casino - revenue interest |       | February 7, 2001  |
| Bayou Vista Truck Plaza and Casino    |       | January 11, 2002  |
| Lucky Magnolia Truck Stop and Casino  |       | January 11, 2002  |
| Raceland Truck Plaza and Casino       |       | February 22, 2002 |
| Jalou II:                             |       |                   |
| Winner’s Choice Casino           |       | February 7, 2001  |
| Colonel’s Truck Plaza and Casino |       | January 11, 2002  |

 

These acquisitions were recorded using thepurchase method of accounting for business combinations, and the total purchaseprice for the properties acquired in 2002 and 2001 was approximately $20.3million and $17.3 million, respectively. All of the Jalou property acquisitionscompleted prior to December 31, 2001, were accounted for using thepurchase method of accounting. Accordingly, the results of Diversified andJalou II for the year ended December 31, 2001 include the completedLouisiana acquisitions. We have described below the detail of the components ofthe operations of Jacobs Entertainment for the periods presented.

 

On February 22, 2002, JacobsEntertainment also acquired the remaining 56% of Colonial’s common stock forapproximately $4.6 million, which was recorded using the purchase method ofaccounting for business combinations. Jacobs Entertainment also acquired theremaining 68% of Black Hawk Gaming’s common stock for approximately $37.0million on February 22, 2002. This transaction was also recorded using thepurchase method of accounting for business combinations. As a result, theoperations of Colonial and Black Hawk Gaming are consolidated with JacobsEntertainment for the period subsequent to the February 22, 2002acquisition date.

 

As a result of these transactions, we are ageographically diversified gaming and pari-mutuel wagering company withproperties in Colorado, Louisiana, Nevada and Virginia. We own and operatethree land-based casinos, six truck plaza video gaming facilities (notincluding the three additional truck plazas we acquired in March 2005) anda horseracing track with six satellite wagering facilities. We received alicense for a seventh satellite wagering facility on March 16, 2005. Inaddition, we are a party to an agreement that entitles us to a portion of thegaming revenue from an additional truck plaza video gaming facility.

 

We have elected to be taxed under theprovisions of Subchapter “S” of the Internal Revenue Code of 1986. Under thoseprovisions, the owners of our company pay income taxes on our taxable income.

 

**2.****                                   Overviewand discussion of our operations—i.e. how we look at things**

 

Since the acquisitions described above, wepresently operate our company on a “de-centralized basis”. Each of our casinoproperties (The Lodge, the Gilpin, and the Gold Dust West) i.e. the “WesternDivision”, is managed by an on-site General Manager each of whom reports to aVice-President of Operations who is located in our Black Hawk, Coloradooffices. Our “Eastern Division” comprises all of our truck-stop video pokeroperations and our Virginia race-track and satellite betting parlor facilities.Our respective divisions are headed up by a President each of whom reports toour Chief Executive Officer located in West Palm Beach, Florida. Our managementteam conducts monthly video conferencing and tele-conferencing calls and eachof the units functions as a separate profit center. We account for ourbusinesses in segments, with each segment signified by state of operations.Presently, we operate with four segments; Colorado, Nevada, Virginia andLouisiana. It is our plan during the next year to consolidate functional areasand operate our company on a more centralized basis. By doing so we believe wewill be able to obtain some economies of scale in accounting, human resources,centralized purchasing and other areas.

 

When we analyze and operate our businessunits, we focus on several measurements which we believe provide us with thenecessary ratios and key performance indicators allowing us to determine “howwe are doing” versus our competition and against our own internal goals andbudgets.  We confer monthly and discussand analyze significant variances and try to identify trends and changes in ourbusiness. Additionally, we utilize EBITDA (earnings before interest, taxes,depreciation and amortization) as one of the methods of reviewing and analyzingthe

 

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results of our operations of each property. While we recognize thatEBITDA is not a generally accepted accounting principle (*i.e.*, non-GAAP) financial measure, wenonetheless believe it is useful because it allows investors and management toevaluate and compare operating results from continuing operations from periodto period in a meaningful and consistent manner in addition to standard GAAPfinancial measures. Additionally, most analysts following the gaming industryutilize EBITDA as a financial measurement and when our bondholders inquire anddiscuss our operational performance with us, they consistently inquire as toour EBITDA and our EBITDA margins versus our competitors. Finally, EBITDA is akey component of certain financial covenants in our debt agreements and as suchit is a critical ingredient that we closely watch in order to measure ourhistorical performance as well as to determine our ability to achieve futuregrowth.

 

In addition to the above performancemeasurements we pay particular attention to our monthly and annual cash flow.Our business is sensitive to shifts in volumes and levels of activity and wefind it necessary to watch our cash closely. Further, every six months (February 1and August 1) we have a cash interest payment due on our $148 million bondissuance amounting to $8,787,500. We have a $10 million revolver with a lenderon which we usually draw about $2 to $5 million every six months in order tomake our interest payments. This is generally a function of the timing of cashreceipts from our operations coupled with the amount of cash we need to run thebusiness—i.e. our “cash-inventory.” We estimate that we require approximately$12 million of “cash-inventory” to run our business. We believe we will be ableto reduce this amount when we are able to consolidate our cash from our variousoperations as a result of our centralization efforts. This would reduce theamount of borrowings we may need to pay interest on our notes and/or to financeoperations. However, under our existing super-senior bank loan covenants we areunable to consolidate our cash. We are in the process of obtaining covenants toallow us to do so or change lenders in the near future. See “Liquidity andCapital Resources.”

 

Asummary of our consolidated operating results for the years ended December 31,2004, 2003 and 2002 is as follows:

 
| ** **                                                                       | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                       | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                       | ** ** | **(in thousands)**               | ** ** |
| **Revenues**                                                                     | ** ** | ** **                       | ** ** |
| Gaming:                                                                          |       |                             |       |   |   |   |   |
| Casino                                                                           |       | $                                | 108,347    |   | $ | 96,816 |   | $ | 83,515 |   |
| Truck stop                                                                       |       | 24,294                           |       | 24,108 |   | 21,884 |   |
| Pari-mutuel                                                                      |       | 32,946                           |       | 29,189 |   | 27,872 |   |
| Food and  beverage                                                               |       | 17,783                           |       | 16,383 |   | 12,405 |   |
| Convenience  store—fuel                                                     |       | 18,424                           |       | 17,229 |   | 14,909 |   |
| Other                                                                            |       | 8,022                            |       | 7,776 |   | 7,214 |   |
| Less: promotional  allowances                                                    |       | (20,101                          | )          | (19,652 | ) | (14,079 | ) |
|                                                                             |       |                             |       |   |   |   |   |
| Total Net  revenues                                                              |       | $                                | 189,715    |   | $ | 171,849 |   | $ | 153,720 |   |
|                                                                             |       |                             |       |   |   |   |   |
| Costs and  expenses                                                              |       | $                                | 165,314    |   | $ | 149,603 |   | $ | 130,869 |   |
| Operating  income                                                                |       | $                                | 24,401     |   | $ | 22,246 |   | $ | 22,851 |   |
| Interest  expense, net                                                           |       | 19,414                           |       | 19,583 |   | 18,106 |   |
| Other income                                                                     |       | —                           |       | 10 |   | — |   |
| Equity in  (loss) earnings of investments  –Black Hawk Gaming and The Lodge |       | —                           |       | — |   | (1,980 | ) |
| Minority  interest in loss  –Colonial Holdings                              |       | —                           |       | — |   | 173 |   |
|                                                                             |       |                             |       |   |   |   |   |
| Net income                                                                       |       | $                                | 4,987      |   | $ | 2,673 |   | $ | 2,938 |   |

 

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**3.****             ****Comparison of our historicaloperations for the year ended December 31, 2004 to the year ended December 31,2003**.

 

Casinorevenues increased $11.5 million or 12% from $96.8 million for the year ended December 31,2003 to $108.3 million for the year ended December 31, 2004. The increasein casino revenue is a result of increased casino revenues at The Lodge of $6.5million or 11%, the Gilpin of $2.5 million or 15% and Gold Dust West of $2.5million or 13%. We believe that the increase in the revenues at our propertiesis a result of several factors. We have expanded capital expenditures in ourslot product over the last year including the implementation of a Ticket-InTicket-Out (“TITO”) system at Gold Dust West. Additionally, our marketingefforts have proved successful as we continue to receive more than our fairshare of the market (i.e. the percentage of casino revenues in our market ascompared to the percentage of machines in our market). Finally, casino revenuesat our two Colorado properties were positively impacted due to constructiondisruption at two competing casinos. It is anticipated that these competingcasinos will have completed additions to their garage, restaurants and gamingfacilities in the spring of 2005 with the completion of a hotel addition in thespring of 2006.

 

Truck stoprevenues increased $0.2 million or 1% from $24.1 million for the year ended December 31,2003 to $24.3 million for the year ended December 31, 2004. The increasein gaming revenues is a result of continuing marketing programs implemented todrive video poker revenue.

 

Pari-mutuelrevenues increased $3.7 million or 13% from $29.2 million for the year ended December 31,2003 to $32.9 million for the year ended December 31, 2004. The increasein revenues is primarily attributable to the new satellite wagering facilitythat we opened in November 2003 in Richmond, Virginia, and the newsatellite wagering facility opened in October 2004 in Vinton, Virginia,coupled with eight additional live racing days at our track in New Kent,Virginia during the year ended 2004 as compared to the year ended 2003.

 

Food andBeverage revenues increased $1.4 million or 9% from $16.4 million for the yearended December 31, 2003 to $17.8 million for the year ended December 31,2004. This increase is primarily attributable to an increase of $0.5 million atthe Gilpin, $0.5 million at The Lodge, $0.1 at Colonial, and $0.3 at the truckstops in the current period as compared to the prior year. The increase in foodand beverage revenues at The Lodge and Gilpin casinos was primarily a result ofincreased traffic through the casinos as discussed above. The increase in foodand beverage revenues at Colonial is primarily attributable to the newsatellite facility that opened in November 2003 in Richmond, Virginia andthe new satellite wagering facility opened in October 2004 in Vinton,Virginia. The increase in food and beverage revenues at the truck stops in 2004as compared to the year ended 2003 was primarily a result of increasedcomplimentary activity to customers which was designed to drive an increase infuel sales volume and truck stop casino revenues.

 

Conveniencestore fuel revenues increased $1.2 million or 7% from $17.2 million for theyear ended December 31, 2003 to $18.4 million for the year ended December 31,2004. The increase is primarily attributable to the increase in the averageprice of fuel during the current year as compared to the prior year.

 

Other revenuesincreased $0.2 million or 3% from $7.8 million for the year ended December 31,2003 to $8.0 million for the year ended December 31, 2004. The increase isprimarily attributable to miscellaneous sales made at the new satellitefacility that opened in November 2003 in Richmond, Virginia and the newsatellite wagering facility opened in October 2004 in Vinton, Virginia.

 

Promotionalallowances increased $0.4 million or 2% from $19.7 million for the year ended December 31,2003 to $20.1 million for the year ended December 31, 2004. The increaseis primarily due to an increase of $0.2 million in promotional allowance at thetruck stop facilities and a $0.3 million increase in promotional allowance atthe Gilpin offset by a decrease of $0.1 million in promotional allowances atThe Lodge. The increases in the truck stop and The Gilpin’s promotionalallowances are associated with increased complimentary food and beveragepromotions for our players. The decrease in promotional allowances at The Lodgewas attributable to a change in the marketing cash back program during 2004.

 

Costs andexpenses increased $15.7 million or 11% from $149.6 million for the year ended December 31,2003 to $165.3 million for the year ended December 31, 2004. The increasein costs and expenses was primarily related to the increased revenue levels asdiscussed above. However, abandoned project costs increased $2.7 million

 

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in the current year as compared to the prioryear.. During the year ended 2004, we recorded a $2.9 million charge tooperations which is attributable to the write-off of abandoned project costs.Included in these costs is approximately $1.8 million related to developmentcosts associated with a potential gaming site in D’Iberville, Mississippi.After considering various development projects, we chose to pursue otheralternatives which, in our estimation would result in greater returns than thepotential of the D’Iberville site. The majority of these abandoned project costexpenditures were primarily associated with land option payments and design,development and planning costs. Further, we charged to operations approximately$0.8 million in direct acquisition costs consisting of option payments, legaland accounting fee expenditures associated with four separate unrelated partiesto acquire seven video poker truck stop operations in Louisiana. Based on theresults of the due diligence work, we abandoned the potential acquisitions withall seven truck stop operations targeted for acquisition. Finally,approximately $0.3 million in other capitalized costs were charged tooperations due to abandonment of miscellaneous other projects.

 

**4.****                                   Comparisonof our historical operations for the year ended December 31, 2003 to theyear ended December 31, 2002**.

 

The overall composition of our financialposition and the results of our operations have significantly changed for theyear ended December 31, 2003 as compared to the year ended December 31,2002. The changes are primarily attributable to the following factors:

 

•               The2003 results include 100% of Colonial’s operations. The 2002 results include100% of Colonial’s operations for the period following the February 22,2002 acquisition date plus 100% of operations reduced by the 56% minority interestprior to that date in 2002. We no longer record minority interest for theresults of operations subsequent to February 22, 2002 because we now own100% of Colonial.

 

•               Thecomparability of pari-mutuel revenues is not impacted by the acquisition ofstock from the minority shareholders because Colonial’s results were alsoconsolidated in 2002. The increase in our year ended December 31, 2003pari-mutuel revenue from the year ended December 31, 2002 is due primarilyto the opening in November of new satellite wagering facility in SouthRichmond, an increase in the number of live racing days in 2003 from 49 to 58,as well as increased gaming revenue at the Chesapeake and Alberta satellitewagering facilities.

 

•               The2003 results include 100% of BHWK’s revenues, compared to the same period in2002 where results include 100% of BHWK’s revenues for the period from the February 22,2002 acquisition date through December 31, 2002. For the period prior tothe February 22, 2002 acquisition, BHWK’s and The Lodge’s results wereincluded as a component of equity in (loss) earnings of investments. Subsequentto the February 22, 2002 transaction we no longer record “equity in (loss)earnings of investments” relative to BHWK and The Lodge because we now own 100%of BHWK, which includes the Lodge. Therefore, our equity in (loss) earnings ofinvestments of approximately $2.0 million for the year ended December 31,2002 is not comparable to the consolidated results shown year ended December 31,2003. The equity in (loss) earnings of investments for the year ending December 31,2002 was primarily the result of the write off of various costs and expenses ofBHWK relating to our acquisition of the remaining outstanding shares on February 22,2002.

 

•               Inaddition to gaming revenue for BHWK for the current year, the 2003gaming-casino revenue also includes video poker revenue for the seven truckstop locations for the entire year, whereas the 2002 results include only 3locations for the entire year, 3 locations from their January 11, 2002acquisition date through December 31, 2002, and 1 location from its February 22,2002 acquisition date through December 31, 2002.

 

•               Otherrevenue in 2003 is primarily comprised of sales from the convenience store,fuel and restaurant operations located in the six truck stop facilities that weowned for the full year in 2003 combined with food, beverage, and hotelrevenues of BHWK for the full year ended 2003. Other revenue in the year ended2002 consisted of similar revenues from three truck stops for the full

 

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year, threetruck stops for the period from their acquisition on January 11, 2002through December 31, 2002, one truck stop from its acquisition date of February 22,2002 through December 31, 2002 and food, beverage, and hotel revenues fromour three casinos subsequent to February 22, 2002 through December 31,2002 (recall that all casino operations were included as a component of equityin earnings (loss) of investments for periods prior to the February 22,2002 acquisition date).

 

•               Interestexpense in 2003 includes, among other debt, a full year of interest related toour $125.0 million debt offering as compared to 2002, which only includedinterest charges from February 8, 2002 to December 31, 2002.

 

Refer to the pro forma presentation below for more informationcomparing the year ended December 31, 2003 to the year ended December 31,2002.

 

**5.****                                   Liquidityand Capital Resources**

 

On February 22, 2002 we completed thesale of $125 million of our senior secured notes. These notes are due 2009 andwe pay annual interest at the rate of 117/8% on asemi-annual basis, which occurs on the first day of February and August.The notes were sold at 96.04% of par and we received net proceeds of $120.05million. We utilized the proceeds of the notes plus cash from our combinedcompanies of approximately $8.0 million to acquire the remaining shares ofBlack Hawk Gaming for approximately $37.0 million (which includes $3.1 millionfor the buyout of all outstanding options at February 22, 2002), assumeand refinance Black Hawk Gaming’s existing reducing revolving credit facilitytotaling approximately $60.0 million and pay Black Hawk Gaming’s interest rateswap breakage costs of $1.1 million (net of tax benefit) on the acquisitiondate; acquire the remaining shares of Colonial for $4.6 million; pay the cashportion of the purchase price for the Louisiana truck plazas of $14.5 million;pay accrued interest, advances and other payables to affiliates of $3.2million; and pay remaining transaction fees and expenses incurred subsequent toDecember 31, 2001, totaling an estimated $2.4 million. In addition, weissued $5.8 million of promissory notes to the sellers of the Louisiana truckplazas we acquired.

 

On March 2, 2005, we issued anadditional $23 million of our senior secured notes at 110% of principal faceamount. These notes are identical to the $125 million of our senior securednotes issued in 2002. See Item 13 for additional details.

 

We entered into a $10 million senior creditfacility on July 12, 2002. The trustee under the indenture entered into anintercreditor agreement with the lender under the new credit facility, which,among other things, subordinated some of the liens securing the senior securednotes and the guarantees to the indebtedness under the new credit facility withrespect to a portion of the assets securing the new credit facility. The newsenior credit facility carries an interest rate of 1.75% above the prime rateand expires in July 2007.

 

At December 31, 2004, cash and cashequivalents were approximately $22.9 million, which included $1.7 million ofrestricted cash. Our total debt approximated $148 million at December 31,2004 and has increased to approximately $171 million after giving effect to theMarch 2, 2005 transaction discussed above.

 

Our future liquidity, which includes ourability to make semi-annual interest payments on our senior secured notesdepends upon our future overall success. Additionally, as discussed above our abilityto successfully integrate our operations is a significant factor in the overallgeneration of our cash flows from operations.

 

We do not have any off-balance sheetfinancing arrangements or transactions with unconsolidated, limited purposeentities nor are any contemplated in the future.

 

We believe that our cash flow fromoperations, our current cash and cash equivalent balances and our senior $10million credit facility discussed above will be adequate to meet our debtservice obligations as well as our capital expenditure requirements for thenext twelve months. However, we can give no assurance that these sources ofcash will be sufficient to enable us to do so. As our credit covenants allow orif we pursue additional equity and/or debt sources, we anticipate that we willpursue the acquisition of other properties and engage in new developmentopportunities. However, if we are unable to sustain our current operations wemay need to enter into

 

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new financing arrangements andraise additional capital in the future. Our ability to incur additional debt isfurther restricted by the terms and covenants of our senior secured notes. Wecan give no assurance that we will be able to raise capital or obtain thenecessary sources of liquidity and financing on favorable terms, if at all.Additionally, any debt financing that we may incur in the future will increasethe amount of our total outstanding indebtedness and our debt servicerequirements, and heighten the related risks we currently face.

 

We may from time to time seek to retire ouroutstanding debt, including our senior secured notes, through cash purchasesand/or exchanges for equity securities, in open market purchases, privatelynegotiated transactions or otherwise. Such repurchases or exchanges, if any,will depend on prevailing market conditions, our liquidity requirements,contractual restrictions and other factors. The amounts involved may bematerial.

 

We also face the risk that there could be adecline in the demand for our entertainment products and services, which wouldreduce our ability to generate funds from operations. While we believe our cashflows are geographically diverse, at present we do have a significantconcentration of cash flows generated in the Black Hawk gaming market. Shouldthe Black Hawk market decline or become saturated or should the competitionerode our market share, we would suffer a decline in the available fundsgenerated from operations. If this were to occur, there exists the possibilitythat our credit rating could be downgraded, which would further reduce ourability to access the capital markets and obtain additional or alternativefinancing. Our notes are presently rated B2 and B by Moody’s Investors Serviceand Standard & Poor’s, respectively.

 

The following table provides disclosureconcerning our obligations and commitments to make future payments undercontracts, such as debt and lease agreements, and purchase and other long-termobligations as of December 31, 2004.

 
| ** **                          | ** ** | **Total** | ** **  | **Less than 1  Year** | ** ** | **1-3  Years** | ** ** | **4-5  Years** | ** ** | **After 5  Years** | ** ** |
|-------------------------------------|------------|-----------|-------------|-----------------------|------------|----------------|------------|----------------|------------|--------------------|------------|
| Long-term  debt(1)                  |       | $         | 229,776     |                  | $          | 18,104         |       | $              | 35,639     |               | $          | 163,430 |   | $ | 12,603 |   |
| Operating  leases(2)                |       | 14,337    |        | 924                   |       | 1,698          |       | 1,247          |       | 10,468             |       |
| Other  long-term obligations(3)     |       | 3,111     |        | 971                   |       | 1,240          |       | 900            |       |               |       |
| Total  contractual cash obligations | ** ** | **$**     | **247,224** | ** **            | **$**      | **19,999**     | ** ** | **$**          | **38,577** | ** **         | **$**      | **165,577** | ** ** | **$** | **23,071** | ** ** |

 

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(1)           Long-termdebt includes principal and interest owing under the terms of our notes, theBlack Hawk special assessment bonds, indebtedness of Colonial Holdings, and thesubordinated debt to affiliates.

 

(2)           Operatingleases include a land and warehouse lease for the Gold Dust West in Reno,Nevada, as well as other leases for property and equipment.

 

(3)           Otherlong-term obligations include the commitment of our truck stop operations topay $1 per video poker machine per day, plus $1,000 per machine annually inlicensing to an outside party to maintain our video poker machines in our truckstop premises. Other long-term obligations also include amounts payable underemployment contracts described in Item 11 below.

 

In addition, Jacobs Entertainment, throughits subsidiary Colonial, has entered into an agreement with a totalisatorcompany, which provides wagering services and designs, programs, andmanufactures totalisator systems for use in wagering applications. The basicterms of the agreement state that the totalisator company shall providetotalisator services to Colonial for all wagering held at Colonial’s facilitiesthrough 2004 at a rate of .365% of handle. In addition, Colonial agreed to usecertain equipment provided by the totalisator company.

 

On March 16, 2005 Colonial entered intoan amendment with the totalisator company that extends the term of theagreement to 2012, provides upgraded equipment to the existing equipment, andincreases the rate to .385% of handle up to $270 million in handle. Handleabove $270 million will be charged a rate of .345%. The amendment also providesfor a minimum charge per calendar year of $330,000. The amendment is subject tothe approval of the Virginia Racing Commission.

 

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Colonial is party to a Management andConsulting Agreement, with Maryland-Virginia Racing Circuit, Inc. (the “Circuit”),an affiliate of the Maryland Jockey Club that owns and operates thoroughbredhorse racetracks in Maryland, pursuant to which the Circuit provides certainmanagement services at the racetrack and satellite wagering facilities andcoordinates a Virginia-Maryland thoroughbred racing circuit. Under theagreement, Colonial pays a management fee of 1.0% of the first $75 million ofthe aggregate gross amounts wagered in any calendar year in Virginia, excludingcertain amounts specified in the agreement (“Handle”), and 2.0% of all Handlein excess of $75 million per calendar year and 3.25% of any Handle forsatellite wagering facilities located in the counties of Loudoun, Fairfax,Prince William, and Arlington and the Virginia cities of Manassas, ManassasPark, Fairfax City, Falls Church, and Alexandria. (Colonial currently does nothave satellite wagering  facilitieslocated in such localities.) The term of the agreement expires in 2036(assuming the amendment we signed March 16, 2005 is approved by theVirginia Racing Commission). See note 12 to our consolidated financialstatements.

 

Finally, ouroutstanding senior secured notes aggregating $148 million (after giving effectto the March 2005 acquisitions described above) are redeemable on or afterFebruary 1, 2006 at the following redemption prices (expressed aspercentages of principal amounts) plus accrued and unpaid interest, as follows:

 
| **Year** | ** ** | **Percentage** | ** ** |
|----------|------------|----------------|------------|
| 2006     |       | 105.938        | %          |
| 2007     |       | 102.969        | %          |
| 2008     |       | 100.000        | %          |

 

In the event that interest rates and market conditions dictate, thecompany would more than likely be willing to refinance its notes at lowerrates. However, a refinancing would be predicated upon our ability to securefinancing on terms favorable and in amounts necessary to generate borrowings(in excess of current principal amounts) as illustrated in the above table. Ifwe were unable to secure such refinancing, our ability to repay the entirecurrent principal amount outstanding (which is due in 2009) may be difficult,if not impossible, barring an entire liquidation of the company’s assets.However, we believe we will be able to secure such a refinancing package whichwill be acceptable to the company sometime between 2006 and 2009 in order torepay our existing senior secured notes.

 

**6.****                                   Significantcritical accounting policies and estimates**

 

The preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amount of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting periods. Weperiodically evaluate our policies and the estimates and assumptions related tothese policies. All of our subsidiary companies operate in a highly regulatedindustry. In our Colorado, Virginia, Louisiana and Nevada operations, we aresubject to regulations that describe and regulate operating and internalcontrol procedures. The majority of our casino revenue is in the form of cash,personal checks, credit cards or gaming chips and tokens, which by their naturedo not require complex estimations. We estimate certain liabilities withpayment periods that extend for longer than several months. Such estimatesinclude our slot club liabilities, outstanding gaming chip, token andpari-mutuel ticket liability, self-insured medical and workers compensationliabilities, and litigation costs. We believe that these estimates are reasonablebased on our past experience with the business and based upon our assumptionsrelated to possible outcomes in the future. Future actual results will likelydiffer from these estimates.

 

***Property and equipment***

 

We have a significantinvestment in long-lived property and equipment representing approximately 72%of our total assets. We estimate that the undiscounted future cash flowsexpected to result from the use of these assets exceed the current carryingvalue of these assets. Any adverse change to the estimate of these undiscountedcash flows could necessitate an impairment charge that would adversely affectoperating results. We review the carrying value of our property and equipmentwhen events and circumstances indicate that the carrying value of an asset maynot be recoverable from the estimated future cash flows expected to result fromits use.  Further, we assign lives to ourassets based on our standard policy, which is established by management as representativeof the useful life of each class of assets. Should the actual useful life of a class of assets differ from theestimated useful life, we would

 

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record an impairment charge. We review useful livesand obsolescence and assess the commercial viability of our assetsperiodically.

 

***Goodwill and other intangible assets***

 

We have approximately $26.8 million ingoodwill recorded on our consolidated balance sheet resulting from theacquisition of other businesses. We do not have any other nonamortizingintangible assets on our consolidated balance sheet. We adopted an accountingstandard in 2002 requiring an annual review of goodwill for impairment. Theannual evaluation of goodwill requires the use of estimates about futureoperating results of each reporting unit to determine its estimated fair value.Changes in forecasted operations can materially affect these estimates.  Once an impairment of goodwill has beenrecorded, it cannot be reversed. We completed our initial assessment forimpairment of goodwill in 2002 and determined that no impairment of ourbalances existed.  Further, we performedour most recent annual impairment test as of September 30, 2004 anddetermined that goodwill was not impaired. Finally, we have reassessed the useful lives of our identifiableintangible assets without any change to the previously established amortizationperiods of such assets.

 

**7.****                                   EBITDA segment information and results ofoperations**

 

As discussedabove, we have four segments representing the geographic regions of ouroperations. Each segment is managed separately because of the uniquecharacteristics of revenue stream and customer base attributable to thatsegment.

 

The Coloradosegment consists of The Lodge and Gilpin casinos and the Nevada segment consistsof the Gold Dust West casino. The Virginia segment consists of Colonial’spari-mutuel operations and the Louisiana operations consist of Jalou’s truckplaza/video poker facilities.

 

The information presented is by each segmentin which we have operations and also presents our EBITDA (earnings beforeinterest, taxes, depreciation and amortization) for each segment. We believethat the presentation of a non-GAAP financial measure such as EBITDA is usefulbecause it allows investors and management to evaluate and compare ouroperating results from continuing operations from period to period in ameaningful and consistent manner in addition to standard GAAP financialmeasures. Management internally evaluates the performance of our propertiesusing EBITDA measures as do most analysts following the gaming industry.Additionally, EBITDA is an element of certain financial covenants in our debtagreements and as such is a critical component that we closely watch in orderto determine our ability to achieve future growth and to ensure we are incompliance with our debt agreements. We are presenting EBITDA in the tablesbelow as supplemental information and to provide further discussion andanalysis of our operating results. EBITDA can be reconciled directly to ourconsolidated net income by adding the amounts shown for depreciation,amortization, and interest to our net income. This information should not beconsidered as an alternative to any measure of performance as promulgated underaccounting principles generally accepted in the United States of America, suchas net income, nor should it be considered as an indicator of our overallfinancial performance. Our calculation of EBITDA may be different from thecalculation used by other companies and comparability may be limited. Thecomponents of operations presented below differ from the analysis providedabove for actual results as many items are reclassified or grouped in order toshow our operations by the segments we measure. The following presentationsreflect 100% of the operations for all entities for 2004 and 2003, and proforma information for the year ended 2002 to compare our operations “as if” thebusiness combinations that took place February 22, 2002 had been completedas of January 1, 2002.  The componentsof operations presented below for the year ended December 31, 2002 differfrom the analysis provided above for actual results as the composition of thecompany has changed due to the transactions occurring during the first quarterof 2002. The following presentations reflect 100% of the operations for allentities for the respective periods and, therefore, we believe this representsthe most appropriate method of presenting the true operating performancecapabilities of the combined operations of the entities involved.

 

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| ** **                | ** ** | **For the Years Ended  December 31,** | ** ** |
|---------------------------|------------|--------------------------------------------|------------|
| ** **                | ** ** | **2004**                                   | ** ** | **2003** | ** ** | **Pro-forma  2002** | ** ** |
| ** **                | ** ** | **(In Thousands)**                         | ** ** |
| **NET  REVENUES**         |       |                                       |       |   |   |   |   |
| Colorado                  |       | $                                          | 82,281     |   | $ | 72,477 |   | $ | 75,960 |   |
| Nevada                    |       | 22,465                                     |       | 19,864 |   | 18,868 |   |
| Louisiana                 |       | 47,868                                     |       | 46,505 |   | 42,787 |   |
| Virginia                  |       | 37,101                                     |       | 33,003 |   | 31,224 |   |
|                      |       |                                       |       |   |   |   |   |
| Total net  revenues       |       | $                                          | 189,715    |   | $ | 171,849 |   | $ | 168,839 |   |
|                      |       |                                       |       |   |   |   |   |
| **COSTS  AND EXPENSES**   |       |                                       |       |   |   |   |   |
| Colorado                  |       | $                                          | 58,067     |   | $ | 53,769 |   | $ | 54,721 |   |
| Nevada                    |       | 14,930                                     |       | 14,122 |   | 13,676 |   |
| Louisiana                 |       | 37,758                                     |       | 36,165 |   | 32,747 |   |
| Virginia                  |       | 35,500                                     |       | 31,220 |   | 28,696 |   |
| Net  corporate overhead   |       | 9,314                                      |       | 5,256 |   | 8,460 |   |
|                      |       |                                       |       |   |   |   |   |
| Total costs  and expenses |       | $                                          | 155,569    |   | $ | 140,532 |   | $ | 138,300 |   |
|                      |       |                                       |       |   |   |   |   |
| **EBITDA**                |       |                                       |       |   |   |   |   |
| Colorado                  |       | $                                          | 24,214     |   | $ | 18,708 |   | $ | 21,239 |   |
| Nevada                    |       | 7,535                                      |       | 5,742 |   | 5,192 |   |
| Louisiana                 |       | 10,110                                     |       | 10,340 |   | 10,040 |   |
| Virginia                  |       | 1,601                                      |       | 1,783 |   | 2,528 |   |
| Net  corporate overhead   |       | (9,314                                     | )          | (5,256 | ) | (8,460 | ) |
| ** **                |       |                                       |       |   |   |   |   |
| **EBITDA**                |       | $                                          | 34,146     |   | $ | 31,317 |   | $ | 30,539 |   |

 

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The following table sets forth a reconciliation ofEBITDA, a non-GAAP financial measure, to net income, a GAAP financial measure.

 
| **Year ended December 31, 2004** | ** ** | **EBITDA** | ** ** | **Depreciation and  Amortization** | ** ** | **Interest  Income** | ** ** | **Interest  Expense** | ** ** | **Net  Income** | ** ** |
|---------------------------------------|------------|------------|------------|------------------------------------|------------|----------------------|------------|-----------------------|------------|-----------------|------------|
|                                  |       |       |       |                               |       |                 |       |                  |       |            |       |   |   |   |   |   |
| Colorado                              |       | $          | 24,214     |                               | $          | 4,838                |       | $                     | 13         |            | $          | 10,807 |   | $ | 8,582 |   |
| Nevada                                |       | 7,535      |       | 1,436                              |       | 3                    |       | 3,142                 |       | 2,960           |       |
| Louisiana                             |       | 10,110     |       | 1,749                              |       | 3                    |       | 1,989                 |       | 6,375           |       |
| Virginia                              |       | 1,601      |       | 1,544                              |       | 29                   |       | 121                   |       | (35             | )          |
| Corporate  overhead                   |       | (9,314     | )          | 178                                |       | 16                   |       | 3,419                 |       | (12,895         | )          |
| Totals                                |       | $          | 34,146     |                               | $          | 9,745                |       | $                     | 64         |            | $          | 19,478 |   | $ | 4,987 |   |

 
| **Year ended December 31, 2003** | ** ** | **EBITDA** | ** ** | **Depreciation and   Amortization** | ** ** | **Interest   Income** | ** ** | **Interest****   Expense** | ** ** | **Net   Income** | ** ** |
|---------------------------------------|------------|------------|------------|-------------------------------------|------------|-----------------------|------------|---------------------------------|------------|------------------|------------|
|                                  |       |       |       |                                |       |                  |       |                            |       |             |       |   |   |   |   |   |
| Colorado                              |       | $          | 18,708     |                                | $          | 4,759                 |       | $                               | 3          |             | $          | 10,774 |   | $ | 3,178 |   |
| Nevada                                |       | 5,742      |       | 1,241                               |       | —                |       | 3,123                           |       | 1,378            |       |
| Louisiana                             |       | 10,340     |       | 1,650                               |       | 14                    |       | 1,986                           |       | 6,718            |       |
| Virginia                              |       | 1,783      |       | 1,285                               |       | 44                    |       | 264                             |       | 278              |       |
| Corporate  overhead                   |       | (5,256     | )          | 136                                 |       | 11                    |       | 3,498                           |       | (8,879           | )          |
| Totals                                |       | $          | 31,317     |                                | $          | 9,071                 |       | $                               | 72         |             | $          | 19,645 |   | $ | 2,673 |   |

 
| **Pro forma**                         | ** ** | ** ** | ** ** | **Depreciation and** | ** ** | **Interest** | ** ** | **Interest**** ** | ** ** | **Net**    | ** ** |
|---------------------------------------|------------|------------|------------|----------------------|------------|--------------|------------|------------------------|------------|------------|------------|
| **Year ended December 31, 2002** | ** ** | **EBITDA** | ** ** | **Amortization**     | ** ** | **Income**   | ** ** | **Expense**            | ** ** | **Income** | ** ** |
|                                  |       |       |       |                 |       |         |       |                   |       |       |       |   |   |   |   |   |
| Colorado                              |       | $          | 21,239     |                 | $          | 6,454        |       | $                      | 29         |       | $          | 10,933 |   | $ | 3,881 |   |
| Nevada                                |       | 5,192      |       | 1,404                |       | 2            |       | 3,879                  |       | (89        | )          |
| Louisiana                             |       | 10,040     |       | 1,548                |       | 28           |       | 2,029                  |       | 6,491      |       |
| Virginia                              |       | 2,528      |       | 1,414                |       | 35           |       | 611                    |       | 538        |       |
| Corporate  overhead                   |       | (8,460     | )          | 74                   |       | 115          |       | 3,755                  |       | $          | (12,174    | ) |
| Totals                                |       | $          | 30,539     |                 | $          | 10,894       |       | $                      | 209        |       | $          | 21,207 |   | $ | (1,353 | ) |

 

**COLORADO**

 

***Overview***

 

Generally, the acquisition by Jacobs Entertainment ofall of the capital stock of Black Hawk Gaming as of February 22, 2002 doesnot affect the comparability of the pro forma operations of Black Hawk Gaming.The following discussion pertains to the results of operations of The Lodge andGilpin properties.

 

A summary of the net revenue, costs and expenses andEBITDA of our Colorado properties is as follows:

 

40

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| ** **                | ** ** | **For the Years Ended   December 31,** | ** ** |
|---------------------------|------------|---------------------------------------------|------------|
| ** **                | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                | ** ** | **(In Thousands)**                          | ** ** |
| Net revenues              |       |                                        |       |   |   |   |   |
| Lodge                     |       | $                                           | 64,144     |   | $ | 57,136 |   | $ | 58,643 |   |
| Gilpin                    |       | 18,137                                      |       | 15,341 |   | 17,317 |   |
|                      |       |                                        |       |   |   |   |   |
| Total net  revenues       |       | 82,281                                      |       | 72,477 |   | 75,960 |   |
|                      |       |                                        |       |   |   |   |   |
| Costs and  expenses       |       |                                        |       |   |   |   |   |
| Lodge                     |       | 43,973                                      |       | 40,262 |   | 40,920 |   |
| Gilpin                    |       | 14,094                                      |       | 13,507 |   | 13,801 |   |
|                      |       |                                        |       |   |   |   |   |
| Total costs  and expenses |       | 58,067                                      |       | 53,769 |   | 54,721 |   |
|                      |       |                                        |       |   |   |   |   |
| EBITDA                    |       |                                        |       |   |   |   |   |
| Lodge                     |       | 20,171                                      |       | 16,874 |   | 17,723 |   |
| Gilpin                    |       | 4,043                                       |       | 1,834 |   | 3,516 |   |
|                      |       |                                        |       |   |   |   |   |
| EBITDA                    |       | $                                           | 24,214     |   | $ | 18,708 |   | $ | 21,239 |   |

 

The following table sets forth a reconciliation ofEBITDA, a non-GAAP financial measure, to net income, a GAAP financial measure.

 
| **For the year ended December 31, 2004** | ** ** | **EBITDA** | ** ** | **Depreciation and   Amortization** | ** ** | **Interest   Income** | ** ** | **Interest   Expense** | ** ** | **Net   Income** | ** ** |
|-----------------------------------------------|------------|------------|------------|-------------------------------------|------------|-----------------------|------------|------------------------|------------|------------------|------------|
|                                          |       |       |       |                                |       |                  |       |                   |       |             |       |
| Lodge                                         |       | $          | 20,171     |                                | $          | 3,385                 |       | $                      | 10         |             | $          | 8,378 |   | $ | 8,418 |   |
| Gilpin                                        |       | 4,043      |       | 1,453                               |       | 3                     |       | 2,429                  |       | 164              |       |
| Total                                         |       | $          | 24,214     |                                | $          | 4,838                 |       | $                      | 13         |             | $          | 10,807 |   | $ | 8,582 |   |

 
| ** **                                    | ** ** | ** ** | ** ** | **Depreciation and** | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Net**    | ** ** |
|-----------------------------------------------|------------|------------|------------|----------------------|------------|--------------|------------|--------------|------------|------------|------------|
| **For the year ended December 31, 2003** | ** ** | **EBITDA** | ** ** | **Amortization**     | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Income** | ** ** |
|                                          |       |       |       |                 |       |         |       |         |       |       |       |
| Lodge                                         |       | $          | 16,874     |                 | $          | 3,339        |       | $            | 2          |       | $          | 8,341 |   | $ | 5,196 |   |
| Gilpin                                        |       | 1,834      |       | 1,420                |       | 1            |       | 2,433        |       | (2,018     | )          |
| Total                                         |       | $          | 18,708     |                 | $          | 4,759        |       | $            | 3          |       | $          | 10,774 |   | $ | 3,178 |   |

 
| ** **                                    | ** ** | ** **    | ** ** | **Depreciation and** | ** ** | **Interest**  | ** ** | **Interest**  | ** ** | **Net**       | ** ** |
|-----------------------------------------------|------------|---------------|------------|----------------------|------------|---------------|------------|---------------|------------|---------------|------------|
| ** **                                    | ** ** | **EBITDA**    | ** ** | **Amortization**     | ** ** | **Income**    | ** ** | **Expense**   | ** ** | **Income**    | ** ** |
| **For the year ended December 31, 2002** | ** ** | **Pro forma** | ** ** | **Pro forma**        | ** ** | **Pro forma** | ** ** | **Pro forma** | ** ** | **Pro forma** | ** ** |
|                                          |       |          |       |                 |       |          |       |          |       |          |       |
| Lodge                                         |       | $             | 17,723     |                 | $          | 4,818         |       | $             | 21         |          | $          | 8,731 |   | $ | 4,195 |   |
| Gilpin                                        |       | 3,516         |       | 1,636                |       | 8             |       | 2,202         |       | (314          | )          |
| Total                                         |       | $             | 21,239     |                 | $          | 6,454         |       | $             | 29         |          | $          | 10,933 |   | $ | 3,881 |   |

 

**Thefollowing is a discussion of our results of operations by segment, for the yearended December 31, 2004 compared to the year ended December 31, 2003**

 

***IncreasedCompetition in the Black Hawk Market***

 

The competitive aspects of the market inBlack Hawk continue to be a significant factor in our operations. As a resultof the increased level of development activity in Black Hawk over the lastthree years, there were 9,365 gaming devices in the City at December 31,2004. At December 31, 2004 we had 1,380 devices in this market (900

 

41

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at The Lodge and 480 at the Gilpin) which represented approximately14.7% of the total devices in the Black Hawk market.

 

At December 31, 2004 our gross gamingrevenues at The Lodge and the Gilpin totaled $86.1 million ($82.3 million innet revenues) which represented 16.5% of the total gaming revenues in BlackHawk. While the overall market in 2004 grew by 3.6% in gross gaming revenues,the average total gaming devices fell by 1.6%. We managed to generate 112%efficiencies (our percentage of the gross gaming revenues divided by ourpercentage of the gaming devices) within the market for 2004. Managementfollows our efficiency levels very closely as we believe this to be a usefulmeasure of how well we are performing within this market.

 

We expect some of our previous and existingmarket share to be lost to increased competition. As more properties continueto compete for their “fair share” of the market our personnel costs, marketingcosts, and other costs will likely increase as we attempt to keep our marketshare.

 

***Net Revenues***.The $9.8 million increase in net revenues of our Colorado operations for theyear ended December 31, 2004 compared to the same period of 2003 isattributable to an increase in net revenue at the Gilpin of $2.8 million and$7.0 million at The Lodge. We believe that the increase in the revenues at ourColorado properties is a result of several factors. We expanded capitalexpenditures in our slot product in Colorado over the past year attempting toprovide the latest games available to our customers. In addition, our Coloradocasino revenues were positively impacted due to construction disruption at twocompeting casinos.

 

***Costs and Expenses****.*Total costs and expenses associated with our Colorado operations increased $4.3million for the year ended December 31, 2004 compared to the same periodof 2003. The increase was a result of increased costs and expenses at The Lodgeof $3.7 million and at the Gilpin of $0.6 million.  The increase in costs and expensesattributable to The Lodge was a result of increased gaming taxes (due toincreased gaming revenues), food and beverage cost of sales, slotparticipation, and marketing related expenses. The increase at the Gilpin was a result of increased gaming taxes (dueto increased gaming revenues), food and beverage costs of sales, slotparticipation expenses, and marketing related expenses offset by a decrease inemployee benefit costs.

 

***Earnings Before Interest, Taxes, Depreciationand Amortization****.*One additional measurement that management utilizes to gaugeperformance of our operating segments is what we refer to as “flow-through” onincremental revenue. Generally speaking, we have significant fixed costs andwhen we are able to increase our revenues a significant portion of thoseincremental revenues, after the payment of gaming taxes and promotional andadvertising costs to capture those additional revenues, will “flow-through” toour EBITDA. For the various reasons discussed above, our net revenues at TheLodge increased approximately $7 million during 2004 which caused an increasein our costs and expenses of approximately $3.3 million, resulting in anincrease in our EBITDA in 2004 over 2003 of approximately $3.3 million. Inother words, we were able to realize approximately 47% of those incrementalrevenues which flowed-through to our EBITDA. Additionally, our net revenues atthe Gilpin increased approximately $2.8 million in 2004 as compared to 2003with approximately 78% of that amount flowing-through to our EBITDA in 2004. This measurement is only one of the tools we use to gauge the success ofour marketing programs and it also serves to highlight our fixed costinfra-structure and how those costs effect the operations and performance ofour properties.

 

**NEVADA**

 

***Overview***

 

***We acquired ourReno, Nevada property in January 2001. In September 2001 we installeda “slot-player tracking” system and began to directly market to our localcustomer base. During 2002, we made several improvements to the propertyincluding a significant remodeling of the Wildwood kitchen and serving line,the addition of outdoor signage, and general landscaping improvements.  During 2003, we improved the exterior signageand focused on the casino’s slot product improvements.  During 2004, we continued to focus on ourslot product by introducing Ticket-In Ticket-Out technology to our gamingfloor.***

 

***42***

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***Net revenues***. The net revenues of Gold Dust West increased by $2.6 million for theyear ended December 31, 2004 as compared to the same period of 2003. Weexpanded our capital expenditures in our slot product over the last yearincluding the implementation of a Ticket-In Ticket-Out (“TITO”) system.  Additionally, we continue to realize successwith our marketing and slot club efforts.

 

***Costs and Expenses***.Costs and expenses of Gold Dust Westincreased $0.8 million for the year ended December 31, 2004 as compared tothe same period of 2003. The increase in costs and expenses attributable toGold Dust West was a result in increased gaming taxes, slot participation, andrepairs and maintenance expenses.

 

***Earnings Before Interest,Taxes, Depreciation and Amortization***. The Gold Dust West’s EBITDAwas approximately $7.5 million and $5.7 million for the years ended December 31,2004 and 2003, respectively. The increase of $1.8 million, or 9.6%, resultedprimarily from the increase in gaming revenue. Approximately 68% of our increased revenues flowed through to EBITDA asa result of realized labor savings associated to the implementation of TITO andsuccessful marketing programs.

 

**LOUISIANA**

 

***Overview***

 

The Louisiana truck plazavideo gaming properties consist of six truck plaza gaming facilities located inLouisiana and a share in the gaming revenues of an additional truck plaza. Theacquisition dates of each of the respective truck stops were discussedpreviously.

 

Each truck plaza features aconvenience store, fueling operations, a restaurant operating not fewer than 12 hours per day, and 50 videogaming devices (except for Lucky Magnolia Truck Stop and Casino which has 40 videogaming devices).

 

The Louisiana truck plazas’revenues are comprised of (i) revenue from video poker gaming machines; (ii)sales of gasoline and diesel fuel; (iii) sales of groceries, trucker suppliesand sundry items through their convenience stores; (iv) sales of food andbeverages in their restaurants and bars; and (v) miscellaneous commissions onATMs, pay phones and lottery sales.

 

All video poker activity is reported instantaneouslyvia a computer phone line directly to the Louisiana State Police. The Louisianatruck plazas’ revenues are heavily dependent on meeting the minimum gallons offuel sales requirements necessary to operate video poker gaming machines inLouisiana. These requirements must be complied with on a quarterly basis. Inthe event of noncompliance, the Louisiana State Police must turn off a portionof the video poker machines. We believe the Louisiana truck plazas willcontinue to meet the fuel sales requirements necessary to operate video pokergaming machines in Louisiana at current levels.

 

***Net revenues***.The Louisiana truck plazas generated net revenues of $47.9 million for the yearended December 31, 2004 compared to $46.5 million for the year ended December 31,2003. This increase of 3.0% is due to increases in gaming and fuel revenues. Gamingrevenues have increased as a result of the continuing advertising andpromotional marketing efforts driven to create a brand and identity for ourlocations. Fuel revenues have increased primarily due to a weighted averageprice per gallon increase from $1.45 per gallon in 2003 to $1.75 per gallon in2004.

 

***Costs and Expenses***.The Louisiana truck plazas’ costs and expenses were $37.8 and $36.2 million forthe years ended December 31, 2004 and 2003, respectively. Costs andexpenses increased $1.6 million due primarily to the increase in gaming andfuel revenues, and an increase in general and administrative expenses.

 

***Earnings Before Interest,Taxes, Depreciation and Amortization***. TheLouisiana properties’ EBITDA was approximately $10.1 million and $10.3 millionfor the years ended December 31, 2004 and 2003, respectively. The decreaseof $0.2 million, or 1.9%, resulted primarily from the increase in general andadministrative expense.

 

43

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**  VIRGINIA**

 

***Overview***

 

Colonial Holdings’ revenues are comprised of(i) pari-mutuel commissions from wagering on races broadcast from out-of-stateracetracks to Colonial’s satellite wagering facilities and the track usingimport simulcasting; (ii) wagering at the track and Colonial’s satellitewagering facilities on its live races; (iii) admission fees, program and racingform sales, and certain other ancillary activities; and (iv) net income fromfood and beverage sales and concessions.

 

Colonial’s revenues are heavily dependent onthe operations of its satellite wagering facilities. Revenues from thesatellite wagering facilities help support live racing at the track. The amountof revenue Colonial earns from each wager depends on where the race is run andwhere the wagering takes place. Revenues from import simulcasting ofout-of-state races and from wagering at the track and at the satellite wageringfacilities on races run at the track consist of the total amount wagered atColonial’s facilities, less the amount paid as winning wagers. The percentageof each dollar wagered on horse races that must be returned to the public aswinning wagers (typically about 79%) is legislated by the state in which a racetakes place. Revenues from export simulcasting consist of amounts payable toColonial by the out-of-state racetracks and their simulcast facilities withrespect to wagering on races run at the track.

 

Colonial entered into a Management andConsulting Agreement, with Maryland-Virginia Racing Circuit, Inc. (the “Circuit”),an affiliate of the Maryland Jockey Club (“MJC”), to provide experiencedmanagement for the racetrack and satellite facilities and to create aVirginia-Maryland thoroughbred racing circuit. Under the agreement, MJC agreesto suspend live racing at their racetracks, Laurel Park and Pimlico RaceCourse, during Colonial’s live thoroughbred meets. Parties to the agreementalso exchange simulcast signals for their live meets at no cost to eitherparty. The Circuit manages Colonial’s satellite facilities as well as the livestandardbred and thoroughbred meets and provides certain personnel, at itsexpense, for the live thoroughbred meet. For its services, the Circuit receivesa management fee of 1.0% of the first $75 million of the aggregate grossamounts wagered in any calendar year in Virginia, excluding certain amountsspecified in the agreement (“Handle”), and 2.0% of all Handle in excess of $75million per calendar year. In addition, Colonial agreed to pay a management feeof 3.25% of Handle for any future satellite facilities located in the countiesof Loudoun, Fairfax, Prince William, and Arlington and the Virginia cities ofManassas, Manassas Park, Fairfax City, Falls Church, and Alexandria. See note12 to our consolidated financial statements.

 

In February 2003, Colonial entered intoan amendment to the agreement pursuant to which the Circuit agreed to amanagement fee of 1.5% of Handle for Handle in excess of $125 million generatedfrom the racetrack and satellite facilities located in Richmond, Chesapeake, Brunswick,and Hampton and certain localities in the Central and Southside portions ofVirginia.

 

The agreement will remain in effect until2036, as amended, provided Colonial owns, controls, or operates the racetrackunder its existing licenses. At Colonial’s option, Colonial may terminate theagreement any time after 2021 upon payment of a fee equal to 17 times theaverage management fee paid during the three years immediately preceding suchtermination. On March 16, 2005 Colonial entered into an amendment to theagreement with the Circuit in which the Circuit agreed, among other matters, toreduce the term of the agreement by 10 years to November 24, 2036. Theamendment is subject to the approval of the Virginia Racing Commission.

 

On March 8, 2004, theVirginia Racing Commission granted the license to Colonial to open its sixthsatellite wagering facility in Vinton, Virginia. Construction on the facilitystarted in the second quarter of 2004 and the facility opened for business on October 11,2004.

 

On April 28, 2004, theVirginia Racing Commission granted Colonial a license to accept wagers over thetelephone or through the internet through its advanced deposit wagering system.The advanced deposit wagering system became fully operational late in the thirdquarter 2004.

 

44

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On November 2,2004 referenda were passed in the following counties in Virginia; Henry County;Scott County and Westmoreland County. On March 16, 2005 the VirginiaRacing Commission granted Colonial licenses to own and operate a satellitewagering facility in Henry County, Virginia. Colonial anticipates applying fortwo more licenses during 2005.

 

***Total Revenues***.Colonial generated net revenues for the year ended December 31, 2004 of$37.1 million compared to $33.0 million for the same period of 2003. Theincrease of total revenues of $4.1 million, or 12.4%, is due primarily to theopening in November 2003 of a new satellite wagering facility in Richmond,the opening in October 2004 of a new satellite wagering facility inVinton, Virginia, an increase in the number of live racing days in 2004 from 58to 66, as well as increased gaming revenue at the Hampton  satellite wagering facility.

 

***Costs and expenses****.*Colonial’s direct operating costs and expenses were $35.5million for the year ended December 31, 2004 compared to $31.2 million forthe same period of 2003. Costs and expenses increased $4.3 million, or 13.8%,for the year ended December 31, 2004 from the same period of 2003. This increase is primarily attributable tothe opening of the new satellite wagering facilities in Richmond and Vintonwhich we opened in November 2003 and October 2004, respectively, andan increase in expense due to additional live race days.

 

***Earnings Before Interest,Taxes, Depreciation and Amortization***. The Virginiaproperty EBITDA was approximately $1.6 million and $1.8 million for the yearsended December 31, 2004 and 2003, respectively. The decrease of $0.2million was due primarily to expenses associated with the new satellitewagering facility in  Vinton, andadditional live racing days.

 

**Net Corporate Overhead**

 

***Overview***

 

Generally, our corporate operations are not aprofit center, but rather a cost center that directs the overall managerial,operational and administrative aspects of the Company.

 

***Costs andexpenses.*** Corporate overhead costs and expensesincreased from $5.3 million for the year ended December 31, 2003 to $9.3million in the current period of 2004. The $4.0 million increase is primarilydue to a $2.9 million charge to earnings associated with the abandonment ofprojects during the current year.  Theincrease in other corporate overhead expenses of $1.2 million is attributableto an increase in labor, rent and political campaign costs in Virginia as wellas an increase in travel, labor and consulting costs associated with SarbanesOxley Section 404 preparatory compliance work.

 

***Pro Forma Results of Operations for the yearended December 31, 2003 compared to the year ended December 31, 2002***

 

**COLORADO**

 

***Net Revenues***.The decrease in net revenues of our Colorado operations is attributable to areduction in net revenues at the Gilpin of approximately $2.0 million or 11%and $1.5 million or 3% at The Lodge. Colorado’s operations were impacted byincreased competition during negative market growth during 2003. In addition,on June 24, 2003 we completed our $7.8 million expansion for the Gilpin,which commenced during the third quarter of 2002.

 

***Costs and Expenses****.*Total costs and expenses associated with our Colorado operations decreased $1.0million for the year ended December 31, 2003 compared to the same periodof 2002. The decrease of $0.7 million in costs and expenses attributable to TheLodge was primarily comprised of reductions in labor, slot participation costs,gaming tax and the elimination of management fees. The decrease of $0.3 millionin costs and expenses attributable to the Gilpin was also primarily comprisedof reductions in labor, slot participation, and gaming taxes.

 

***Earnings Before Interest, Taxes, Depreciation and Amortization.***The Colorado properties EBITDA wasapproximately $16.9 million and $1.8 million for The Lodge and Gilpin,respectively. The decrease in The Lodge’s EBITDA of $0.8 million from $17.7million for the year

 

45

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ended December 31, 2002 to $16.9 million forthe year ended December 31, 2003 was primarily due to the negative marketgrowth during 2003. The decrease in the Gilpin’s EBITDA of $1.7 million from$3.5 million for the year ended December 31, 2002 to $1.8 million for theyear ended December 31, 2003 is attributable to the negative market growthas well as the construction interruption during the current year.

 

**NEVADA**

 

***Net revenues***.The Gold Dust West generated net revenues of $19.9 million for the year ended December 31,2003 compared to $18.9 million for the year ended December 31, 2002. Webelieve this increase of 5.3% is due to the success of our slot club programs.In September of 2001, we completed the installation of our slot playertracking system and we have been since actively enrolling members into our slotplayers club and modifying our marketing programs. We believe this effortcontinues to increase play from our customers and accounts for the increase inour net revenues during the current year.

 

***Costs and Expenses***.The Gold Dust West’s costs and expenses were up approximately $0.5 million from$13.6 million for the year ended December 31, 2002 to $14.1 million forthe year ended December 31, 2003. The increase is primarily due toincreased costs of providing complimentary food and beverage of approximately$0.2 million, $0.2 million in gaming taxes, and other net costs and expenses of$0.1 million.

 

***Earnings Before Interest,Taxes, Depreciation and Amortization***. The Gold Dust West’s EBITDAwas approximately $5.7 million and $5.2 million for the years ended December 31,2003 and 2002, respectively. The increase of $0.5 million, or 9.6%, resultedprimarily from the increase in gaming revenue.

 

**LOUISIANA**

 

***Net revenues***.The Louisiana truck plazas generated net revenues of $46.5 million for the yearended December 31, 2003 compared to $42.8 million for the year ended December 31,2002. This increase of 8.6% is due to increases in gaming and fuel revenues.Gaming revenues have increased as a result of advertising and promotionalmarketing efforts driven to create a brand and identity for our locations. Fuelrevenues have increased primarily due to a weighted average price per gallonincrease from $1.28 per gallon in 2002 to $1.45 per gallon in 2003.

 

***Costs and Expenses***.The Louisiana truck plazas’ costs and expenses were $36.2 and $32.8 million forthe years ended December 31, 2003 and 2002, respectively. Costs andexpenses increased $3.4 million due primarily to the increase in gaming andfuel revenues.

 

***Earnings Before Interest,Taxes, Depreciation and Amortization***. TheLouisiana properties’ EBITDA was approximately $10.3 million and $10.0 millionfor the years ended December 31, 2003 and 2002, respectively. The increaseof $0.3 million, or 3.0%, resulted primarily from the increase in gamingrevenue.

 

**VIRGINIA**

 

***Total Revenues***.Colonial generated net revenues for the year ended December 31, 2003 of$33.0 million compared to $31.2 million for the same period of 2002. Theincrease of total revenues of $1.8 million, or 5.8%, is due primarily to theopening in November of a new satellite wagering facility in Richmond, anincrease in the number of live racing days in 2003 from 49 to 58, as well asincreased gaming revenue at the Chesapeake and Brunswick satellite wageringfacilities.

 

***Costs and expenses****.*Colonial’s direct operating costs and expenses were $31.2million for the year ended December 31, 2003 compared to $28.7 million forthe same period of 2002. Costs and expenses increased $2.5 million, or 8.7%,for the year ended December 31, 2003 from the same period of 2002. Thecost increases were primarily due to the new satellite wagering facility, andexpenses associated with live racing, as well as increased revenue at theChesapeake, Hampton and Brunswick satellite wagering facilities.

 

46

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***Earnings Before Interest,Taxes, Depreciation and Amortization***. The Virginiaproperty EBITDA was approximately $1.8 million and $2.5 million for the yearsended December 31, 2003 and 2002, respectively. The decrease of $0.7million was due primarily to expenses associated with the new satellitewagering facility in Richmond, live racing, as well as cannibalization of someof the existing Richmond site’s business as a result of the new facility inSouth Richmond.

 

**Net Corporate Overhead**

 

***Overview***

 

Generally, our corporate operations are not aprofit center, but rather a cost center that directs the overall managerial,operational and administrative aspects of the Company.

 

***Costs andexpenses.*** Corporateoverhead costs and expenses totaled $5.3 million for the year ended December 31,2003 as compared to $8.5 million for the same period of 2003.  The decrease is primarily attributable to theFebruary 22, 2002 transaction related non-recurring privatization costsand expenses of $4.2 million in addition to reductions in travel and laborcosts of $0.2 and $0.1 million respectively. The decrease in costs and expenses was offset by a $0.5 million contributionto defeat Amendment 33 in Colorado, $0.2 million in costs and expensesassoicated with the successful passage of a referendum allowing a satellitewagering facility in Vinton Virginia, $0.4 million in costs and expensesspecifically associated with professional accounting and valuation work, and$0.2 million in costs associated with abandoned development work.

 

**Item 7A.****                                 *****Quantitativeand Qualitative Disclosure about Market Risk***

 

**Market Risk**

 

Market risk is the risk ofloss arising from adverse changes in market rates and prices, such as interestrates, foreign currency exchange rates, and commodity prices. On February 8,2002 we issued $125.0 million in 117/8% senior securednotes due in 2009 and in March 2005 we issued an additional $23.0 million ofsuch notes. All debt currently bears interest at a fixed rate, except our $10million line of credit (which currently has no amounts outstanding), that bearsinterest at 1.75% above the prime rate published by Wells Fargo Bank, N.A. A 1%change in the variable interest rate would not have a material impact on ourresults of operations.

 

We currently do not investin derivative financial instruments, interest rate swaps or other similarinvestments to alter interest rate exposure.

 

**Item 8.****                                          *****FinancialStatements and Supplementary Data***

 

Reference is made to thefinancial statements, the notes, and the reports of our registered publicaccounting firm commencing on page F-1 of this report, which financialstatements, notes, and reports are incorporated herein by reference.

 

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

 

None.

 

47

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**Item 9A.****                                 *****Controlsand Procedures***

 

We carried out an evaluationunder the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of our disclosure controls and procedures (asdefined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of1934, as amended (the “Exchange Act”)) as of the end of the period covered bythis Annual Report on Form 10-K (the “Evaluation Date”). Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat, as of the Evaluation Date, our disclosure controls and procedures areeffective to ensure that information required to be disclosed by us in ourExchange Act reports was recorded, processed, summarized and reported withinthe applicable time periods. Since the Evaluation Date, there have been nosignificant changes to our internal controls or, to our knowledge, in otherfactors that could significantly affect these controls, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 

**Item 9B.****                                        *Other Information***

 

There is noinformation we were required to report on Form 8-K during our fourth fiscalquarter of the year ended December 31, 2004 that was not so reported.

 

**Item 10.**                                    ***Directorsand Executive Officers of the Registrant***

 

The following table providesinformation regarding our directors and executive officers and key employees ofBlack Hawk Gaming, Colonial Holdings and the Louisiana properties as of March 15,2004:

 
| **Name**          | ** ** | **Age** | ** ** | **Position**                                                                        |
|-------------------|------------|---------|------------|-------------------------------------------------------------------------------------|
| Jeffrey P. Jacobs |       | 51      |       | Chief Executive Officer,  President, Secretary, Treasurer and Chairman of the Board |
| Richard E. Jacobs |       | 79      |       | Director                                                                            |
| Stephen R. Roark  |       | 57      |       | Chief Financial Officer  and President of Casino Operations                         |
| Ian M. Stewart    |       | 50      |       | President of Pari-Mutuel  Wagering and Video Poker Operations                       |
| Michael T. Shubic |       | 50      |       | Vice President of Casino  Operations                                                |
| Stan Guidroz      |       | 38      |       | Vice President of  Louisiana Operations                                             |
| Michael Frawley   |       | 46      |       | General Manager of The  Lodge Casino                                                |

 

Jeffrey P. Jacobs is ourChairman, Chief Executive Officer, President, Secretary and Treasurer. From1996 to present, he served as Chairman and Chief Executive Officer ofDiversified Opportunities Group Ltd., a company co-founded by Mr. Jacobs andhis father, Richard E. Jacobs, and based in Cleveland, Ohio, that hasinvestments in gaming companies and ventures. Diversified was acquired byJacobs Entertainment on February 22, 2002. From 1975 to present, Mr.Jacobs has also served as Chairman and Chief Executive Officer of JacobsInvestments, Inc., a company engaged in the development, construction andoperation of residential and commercial real estate projects in Ohio. He isalso involved in a variety of private equity transactions and investments. Mr.Jacobs served in the Ohio House of Representatives from 1982 until 1986. He isalso Chairman and Chief Executive Officer of Colonial Holdings, and Chairmanand Chief Executive Officer of Black Hawk Gaming.

 

Richard E. Jacobs is ourother Director. Mr. Jacobs was Chairman of the Board, President and ChiefExecutive Officer of Cleveland Indians Baseball Company, Inc. from itsinception in 1998 to February 2000. From 1986 to 1998, Mr. Jacobs wasChairman of the Board, President and Chief Executive Officer of ClevelandBaseball Corporation, which previously served as the general partner of thepartnership that now owns the Cleveland Indians Baseball team. Mr. Jacobs isalso Chairman of the Board and Chief Executive Officer of The Richard E. JacobsGroup Inc., a real estate management and development company.

 

Stephen R.Roark is currently our Chief Financial Officer and President of CasinoOperations. He has been employed as Chief Financial Officer of Black HawkGaming since August 1993. Mr. Roark became a director of Black Hawk Gamingin 1994. He was elected President of Black Hawk Gaming in September 1995.Prior to that time he was an independent consultant in the Denver arearendering financial and accounting assistance to

 

48

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companies in the public marketplace. Mr. Roark has17 years of public accounting experience having served as a partner with alocal accounting firm based in Denver and as a partner with a nationalaccounting firm. Mr. Roark was with Hanifen, Imhoff and Prudential Securities, Inc. for three years andis a member of the American Institute of Certified Public Accountants and theColorado Society of Certified Public Accountants. Mr. Roark obtained his B.S.B.A. in Accounting from the University of Denver in 1973.

 

Ian M. Stewart is currentlyour President of Pari-Mutuel Wagering and Video PokerOperations. He has served as President of Colonial Holdings since November 1998and its Chief Financial Officer since June 1997. From January 1998through November 1998, Mr. Stewart served as Chief Operating Officer ofColonial Holdings. From October 1994 to June 1997, Mr. Stewart servedas a consultant and a temporary Chief Financial Officer for severalVirginia-based businesses. From December 1989 to September 1994, Mr. Stewartwas Vice President and CFO of Hat Brands, Inc. Mr. Stewart is a certifiedpublic accountant and holds an M.B.A. degree from the University of Michigan.

 

Michael T. Shubic is currently our Vice President of Casino Operationshaving joined us in December 2002. From 2000 to 2002, Mr. Shubic was Vice President and General Manager of the Isleof Capri Black Hawk Casino in Black Hawk, Colorado. From 1997 to 2000, as aprivate individual, he explored and participated in various aspects of the golfindustry, including education, sales and management. From 1984 to 1997, Mr. Shubic was employed by several gaming companies in LasVegas and Reno, Nevada, Joliet, Illinois and Nassau, Bahamas. His positionsincluded marketing manager, casino administrator, customer analysis manager,casino credit manager and food and beverage manager. Mr. Shubicholds a B.S. degree in Hotel Administration from the University of Nevada.

 

Stan Guidroz is currently our Vice President of LouisianaOperations, having joined us in July 2002. Prior to that he was Directorof Sales and Marketing for our Louisiana operations where he managed the salesand marketing efforts as well as the development of a proprietary fuel programfor our truck stop plazas. Prior to joining us, Mr. Guidrozheld the position of Director of Operations for PumpellyOil, the largest petroleum marketing company in the gulf coast for six years.Mr. Guidroz recently completed his MBA at theUniversity of Louisiana of Lafayette.

 

Michael Frawley joined us in October of 2003 and is currentlyGeneral Manager of The Lodge Casino. Prior to joining us, Mr. Frawley served as Executive Vice President and GeneralManager of Paragon Casino Resort and as Corporate Vice President of Operationsfor First Nation Gaming, an Indian Gaming Management and Development companyfor three years. While at First Nation he was accountable for the developmentof three Native American Casinos based in Southern California and New Mexico.Mr. Frawley began his career as a dealer in 1978 atResorts International. He has since held additional management and executivepositions at Caesars Atlantic City, Grand Casinos Inc. and the Westin HotelCorporation.

 

We are a companywholly-owned by Jeffrey P. Jacobs and a revocable trust established by hisfather, Richard E. Jacobs. Our board of directors, consisting of Messrs.Jeffrey P. Jacobs and Richard E. Jacobs, has no nominating, audit, compensationor other committees. Presently, the board, through the Company’s Sarbanes-Oxleyimplementation team, has received a draft copy of a code of ethics policy. Theboard is in the process of reviewing the draft code of ethics policy, which isapplicable to our CEO, CFO and our employees, and we anticipate filing it withthe Securities and Exchange Commission during the second or third quarter of2005. We rely on our employment procedures, system of internal controls andprocedures, and our independent accountant’s reports to deter wrongdoing and topromote honest and ethical conduct, full, fair and accurate disclosure in ourreports, our compliance with governmental laws, rules and regulations andinternal reporting of violations of our policies.

 

49

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**Item 11.****                *****ExecutiveCompensation***

 

Prior to 2002, JacobsEntertainment paid no compensation to any of its executive officers ordirectors.

 

Because we are a SubChapter S corporation under the Internal Revenue Code of1986 and our stockholders, rather than we, pay taxes on our income, weanticipate making distributions to our stockholders in amounts sufficient toenable them to make the required tax payments. We expect to formulateadditional incentive compensation plans for upper management and selectedmiddle management personnel based on Jacobs Entertainment’s achievement ofmulti-year financial and growth objectives. The terms of the incentivecompensation plans will be established by Jacobs Entertainment’s Board ofDirectors.

 

The following table setsforth information regarding the compensation paid by Jacobs Entertainment toeach of the following individuals for services rendered in all capacities forthe years indicated:

 
| ** **                          | ** ** | ** ** | ** ** | ** **              | ** ** | ** **           | ** ** | ** **                           | ** ** | **Long-Term Compensation**                  | ** ** | ** **                                     | ** ** |
|-------------------------------------|------------|------------|------------|-------------------------|------------|----------------------|------------|--------------------------------------|------------|---------------------------------------------|------------|------------------------------------------------|------------|
| ** **                          | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Awards**           | ** ** | **Payouts**                          | ** ** | ** **                                  | ** ** |
| **Name and  Principal Position(1)** | ** ** | **Year**   | ** ** | **Salary  ($)**         | ** ** | **Bonus  ($ )** | ** ** | **Other  Annual  Compensation  ($)** | ** ** | **Restricted  Stock  Awards(s)  ($ )** | ** ** | **Securities  Underlying  Options/  SARs (#)** | ** ** | **LTIP****Payouts  ($ )** | ** ** | **All Other  Compensation  ($ )** | ** ** |
| Jeffrey P. Jacobs                   |       | 2004       |       | 500,000                 |       | 250,000              |       |                                 |       |                                        |       |                                           |       |   |   | (2 | ) |
|                                |       | 2003       |       | 500,000                 |       | -0-                  |       | —                               |       | —                                      |       | —                                         |       | — |   | (2 | ) |
|                                |       | 2002       |       | 500,000                 |       | 125,000              |       | —                               |       | —                                      |       | —                                         |       | — |   | (2 | ) |
| Stephen R. Roark                    |       | 2004       |       | 350,000                 |       | 72,700               |       |                                 |       |                                        |       |                                           |       |   |   |   |   |
|                                |       | 2003       |       | 300,000                 |       | 30,000               |       | —                               |       | —                                      |       | —                                         |       | — |   | — |   |
|                                |       | 2002       |       | 300,000                 |       | 75,000               |       | —                               |       | —                                      |       | —                                         |       | — |   | — |   |
| Ian M. Stewart                      |       | 2004       |       | 250,000                 |       | 30,000               |       |                                 |       |                                        |       |                                           |       |   |   | — |   |
|                                |       | 2003       |       | 215,000                 |       | 40,000               |       | —                               |       | —                                      |       | —                                         |       | — |   |   |   |
|                                |       | 2002       |       | 200,500                 |       | 50,000               |       | —                               |       | —                                      |       | —                                         |       | — |   | 150,000 |   |
| Michael T. Shubic                   |       | 2004       |       | 240,000                 |       | 59,440               |       |                                 |       |                                        |       |                                           |       |   |   |   |   |
|                                |       | 2003       |       | 200,000                 |       | 30,000               |       |                                 |       |                                        |       |                                           |       |   |   |   |   |
|                                |       | 2002       |       | NA                      |       | NA                   |       | —                               |       | —                                      |       | —                                         |       | — |   | — |   |
| Michael Frawley                     |       | 2004       |       | 188,000                 |       | 45,700               |       |                                 |       |                                        |       |                                           |       |   |   |   |   |
|                                |       | 2003       |       | 38,500                  |       | 5,000                |       |                                 |       |                                        |       |                                           |       |   |   |   |   |
|                                |       | 2002       |       | NA                      |       | NA                   |       |                                 |       |                                        |       |                                           |       |   |   |   |   |

 

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(1)           See Item 10 above which describes the principal positions of the namedexecutives.

 

(2)           See Item 13 below which describes consulting fees paid to an affiliateof Mr. Jacobs.

 

We entered into a three yearemployment agreement with Jeffrey P. Jacobs effective as of February 22,2002 that contains customary terms and conditions and provides for a basesalary of $500,000 per year and a bonus determined by Jacobs Entertainment’sBoard of Directors. Mr. Jacobs is entitled to the present value of his basesalary for the unexpired term of the agreement if he is terminated withoutcause, plus a pro rata portion of the bonus to which he would be entitled forthe portion of the year in which the termination occurred.

 

We entered into a three yearemployment agreement with Richard E. Jacobs effective as of February 22,2002 that contains customary terms and conditions and provides for a basesalary of $250,000 per year and a bonus determined by Jacobs Entertainment’sBoard of Directors. Mr. Jacobs is entitled to the present value of his basesalary for the unexpired term of the agreement if he is terminated withoutcause, plus a pro rata portion of the bonus to which he would be entitled forthe portion of the year in which the termination occurred.

 

As of March 15, 2005,the employment agreements referred to above with the Messrs. Jacobs had notbeen renewed. However, it is anticipated that these two agreements will beextended during 2005.

 

50

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We entered into a three yearemployment agreement with Michael T. Shubic effectiveas of December 2, 2002 that contains customary terms and conditions andprovides for a base salary of $200,000 per year. Mr. Shubicis also entitled to receive a bonus of up to 33% of his base salary, with thepercentage to be established by our board of directors. Mr. Shubicis entitled to the present value of his base salary for the unexpired term ofthe agreement if he is terminated without cause, plus a pro rata portion of thebonus to which he would be entitled for the year in which the terminationoccurred.

 

**Item 12.**                 ***SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters***

 

The following table setsforth certain information regarding the beneficial ownership of our commonstock as of March 15, 2005, for (i) eachstockholder who is known by us to own beneficially more than 5% of our commonstock, (ii) each director and executive officer, and (iii) all of our directorsand executive officers as a group. Except as otherwise indicated, we believe,based on information furnished by the persons named in this table, that such personshave voting and investment power with respect to all shares of common stockbeneficially owned by them, subject to community property laws, whereapplicable.

 

As of March 15, 2005,there were 1,500 shares of our common stock outstanding. We have no equitycompensation, stock option or similar plans relating to our equity securities.

 
| **Stockholder**                                 | ** ** | **Number of Shares** | ** ** | **Percentage** | ** ** |
|-------------------------------------------------|------------|----------------------|------------|----------------|------------|
| Jeffrey P. Jacobs(1)                            |       | 750                  |       | 50             | %          |
| Golden Bear Plaza                               |       |                 |       |           |       |
| East Tower                                      |       |                 |       |           |       |
| 1170 U.S. Highway One, Suite 600                |       |                 |       |           |       |
| North Palm Beach, Florida 33408                 |       |                 |       |           |       |
|                                            |       |                 |       |           |       |
| Richard E. Jacobs(2)                            |       | 750                  |       | 50             | %          |
| 25425 Center Ridge Road                         |       |                 |       |           |       |
| Cleveland, Ohio 41445                           |       |                 |       |           |       |
|                                            |       |                 |       |           |       |
| All executive officers and directors as a group |       | 1,500                |       | 100            | %          |

 

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(1)           Jeffrey P. Jacobs is our Chief Executive Officer, President, Secretary,Treasurer and Chairman of the Board.

 

(2)           All 750 shares shown as beneficially owned by Richard E. Jacobs areowned by The Richard E. Jacobs Revocable Trust, of which Richard E. Jacobs isthe sole trustee.

 

Our two shareholders arepresently engaged in estate planning. In that regard, they propose during 2005to recapitalize the company with two classes of common stock and to exchangetheir existing shares for shares of both new classes. Jeffrey P. Jacobs willcontribute some of his newly exchanged shares to two trusts for the benefit ofhis spouse and heirs. The Richard E. Jacobs Revocable Trust will contributesome of its newly exchanged shares to a trust for the benefit of Jeffrey P.Jacobs’ heirs.

 

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**Item 13.****                *****CertainRelationships and Related Transactions***

 

In order to assist BlackHawk Gaming in its efforts to research, develop, perform due diligence on andpossibly acquire new gaming opportunities, it entered into an agreement withPremier One Development Company effective October 1, 1997. On May 9, 2000,Premier merged into Jacobs Investments Management Co. Inc., 82% of which isowned by Jeffrey P. Jacobs and the remaining 18% of which is owned in equalportions by two former directors of Colonial Holdings. Jacobs Entertainment,Inc. paid or accrued $450,000 to Jacobs Investments Management Company forservices during the year ended December 31,2004, 2003 and 2002. In 2002,this agreement was extended until December 31, 2009 at the rate of$450,000 annually.

 

We provide monthlymanagement and accounting services to truck stops owned by an affiliate ofJeffrey P. Jacobs and the Trust. In addition, the affiliate purchases repairparts from us. Total charges to the affiliate for management services andrepair part purchases totaled $502,000, $318,000 and $125,000 for the yearsended December 31, 2004, 2003 and 2002, respectively. Accounts receivabledue from affiliates totaled $245,000, $221,000 and $32,000 as of December 31,2004, 2003 and 2002, respectively

 

Jacobs Entertainment is theobligor on notes to Jeffrey P. Jacobs and the Trust totaling $9.0 million, withinterest only payable semi-annually at 12% per annum, and the principal amountdue and payable on January 31, 2010. These notes were issued in connectionwith our acquisition of the Louisiana truck stops described in Item 1 above. Weare also an obligor on $10.5 million of notes issued in connection with ouracquisition of additional truck stops from an unaffiliated party. These noteswere purchased from the seller in February 2003 for $7 million by JeffreyP. Jacobs and the Trust. The amount and terms of the notes now payable to Mr.Jacobs and the Trust are identical to those described above. As a result ofthis transaction, for tax purposes our shareholders recognized taxable incomein the form of a discharge of indebtedness of $3.5 million representing thedifference between the $10.5 million face amount of the notes and the purchaseprice of $7.0 million.

 

InMarch 2005, we issued an additional $23 million in principal amount of our117/8 Senior Secured Notes due 2009. We used proceedsderived from the sale of the notes to complete a purchase and sale agreementwith Gameco Holdings, Inc., a company owned andcontrolled by our two directors and sole owners—the Richard E. Jacobs RevocableTrust and Jeffrey P. Jacobs. We purchased from Gamecoall of the membership interests of three limited liability companies, each ofwhich owned or leased a video gaming truck plaza in Louisiana. The truck plazasare described below in greater detail. The aggregate purchase price of theentire membership interests in the three LLCs was$22.5 million. The assets of each LLC were purchased free and clear of liensand encumbrances and were pledged as additional collateral under our indenture.

 

Theproperties held by the three LLCs consist of threevideo gaming truck plaza facilities, one of which is still under development,located in Louisiana. The properties include JalouBreaux Bridge, LLC in St. Martin Parish (“Breaux Bridge”); JalouEunice, LLC in St. Landry Parish (“Eunice”); and Jalouof Jefferson, LLC in Jefferson Parish (“Jefferson”). Each truck plaza featuresor will soon feature a convenience store, a fueling operation, a restaurant,and 40 or 50 video poker devices. At the Jefferson location, the conveniencestore, fueling operation and restaurant will be operated by unrelated thirdparties. Under Louisiana gaming regulations, all video poker devices at thesethree properties, like all of our Louisiana properties, are owned by, andplaced at each location by agreement with, an unaffiliated third party,Southern Trading Corporation.  Inaddition, Jefferson has a development agreement with an unrelated third party,Jackpot Truckstop, LLC, which includes a consultingfee to be paid to Jackpot based upon a percentage of net gaming revenue rangingfrom 5% to 25% depending on the amount of such net revenue. Two of the threetruck plazas we acquired have not yet obtained their gaming licenses. Thegaming licenses and number of video poker devices are dependent upon, amongother things, meeting certain minimum levels of fuel sales that determine thenumber of allowable gaming devices up to the limit of 50 gaming devices perlocation.

 

BreauxBridge was developed by Gameco, and opened in February 2004.Breaux Bridge’s cost to develop and open was $4.0 million, $2.8 million ofwhich was funded by a mortgage on the property, which mortgage was paid in fullat the closing by the seller out of sales proceeds. The facility consists of a9,606-square-foot convenience store, restaurant and gaming facility, located on14.6 acres. Breaux Bridge met its minimum fuel sales requirements, received itsgaming license, and opened the gaming facility with 50 gaming devices in September 2004.Breaux Bridge is approximately three miles from Lafayette, Louisiana.

 

52

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Eunicewas developed by Gameco, and opened in July 2004.  Eunice’s cost to develop and open was $3.3million, $2.3 million of which was funded by a mortgage on the property, whichmortgage was paid in full at the closing by the seller out of sales proceeds.The facility consists of a 5,400-square-foot convenience store, restaurant andgaming facility, located on 7.1 acres. Eunice has met its minimum fuel salesrequirements and, accordingly, has applied for its gaming license. Eunicereceived its gaming license in March 2005. The facility will initiallyoperate 40 gaming devices. Eunice is approximately 40 miles from Lafayette,Louisiana.

 

Weanticipate completion of the Jefferson gaming facility construction by the endof March 2005 at a total cost of approximately $3.8 million, of which $1.5million has been funded by a mortgage, which mortgage was paid in full at theclosing by the seller out of sales proceeds. Gamecowill bear all costs associated with completion of construction and theinstallation of gaming devices at the Jefferson facility. The gaming facilitywill total 5,706 square feet and is located on land leased from an unrelatedthird party. The fuel requirements have already been met with the existing fueloperations. Gameco has applied for a gaming licenseand anticipates the approval of the license application and an opening date in June 2005.  The facility will operate 50 gaming devices.Jefferson is approximately six miles from New Orleans, Louisiana.

 

InFebruary 2004, a nearby property owner and a competitor filed lawsuitsagainst the landowners of the Jefferson truck plaza site. The lawsuits allegedthat the Jefferson Parish Council improperly adopted three ordinances necessaryto the construction of the Jefferson truck plaza. After a full hearing on themerits, the plaintiffs’ request for a preliminary injunction againstconstruction of the truck plaza was denied by the court on March 16, 2004.The plaintiffs have failed to respond to any further pleadings. Constructionand other permits were subsequently issued by the Parish and construction ofthe truck plaza is near completion. While no one can guarantee the outcome ofany litigation, we believe that the lawsuits are without merit and as such willhave no material impact on the operations or financial condition of theJefferson truck plaza.

 

Theacquisitions described above were a combination of entities under commoncontrol and, as a result, the transaction was treated for accounting andfinancial reporting purposes similar to a pooling of interests. Under thismethod of accounting, the acquisitions were recorded at the transferor’s (Gameco’s) book value (rather than fair value), which isprimarily represented by the historical identifiable cash cost in the assetstransferred. This amount is approximately $11 million. The difference betweenthis amount and the purchase price of $22.5 million will be regarded foraccounting and financial reporting purposes as a distribution to our two ownersand will reduce our stockholders’ equity by that amount. We do not believe theamount treated as a distribution for accounting purposes is a distribution forpurposes of the indenture and therefore is not subject to its provisionsregarding restricted payments. However, for the avoidance of doubt, we obtainedthe consent of the existing noteholders to exceptfrom the provision regarding restricted payments the payment of considerationto related parties in connection with the acquisitions.

 

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**Item 14.****                *****PrincipalAccountant Fees and Services***

 

Fees paid toour registered public accounting firm for the last two years were as follows:

 
| ** **          | ** ** | **Year Ended   December 31,** | ** ** |
|---------------------|------------|------------------------------------|------------|
| ** **          | ** ** | **2004**                           | ** ** | **2003** | ** ** |
|                |       |                               |       |   |   |
| Audit fees          |       | $                                  | 675,000    |   | $ | 535,000 |   |
| Audit related fees* |       | 177,500                            |       | 30,000 |   |
| Tax fees**          |       | 166,000                            |       | 210,000 |   |
| All other fees***   |       | 541,000                            |       | 61,000 |   |
|                     |            |                                    |            |  |  |  |  |

 

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*              Auditrelated fees are principally comprised of our 401(k) audits and fees related tothe internal control consulting services associated with our Sarbanes-Oxleyimplementation project of $170,000 and $15,000 for 2004 and 2003 respectively.

**           Taxfees are principally comprised of preparation of federal and state corporateincome tax returns, various state tax returns, and research and related taxconsultation services.

***         2004comprises of $538,000 in audit fees related to several Louisiana truck stopplazas we ultimately decided not to purchase and $3,000 in other miscellaneousconsulting services.  2003 comprises ofvarious research and consultation services.

 

We have noaudit committee. Our board of directors has considered and has determined thatprovision of the services described above and amounts paid for those servicesis compatible with maintaining our principal accountant’s independence.

 

**Item 15.****                *****Exhibitsand Financial Statement Schedules***

 

(a)           *Financial Statements andFinancial Statement Schedules*

 

(1)   Financial Statementsare listed in the Index to Consolidated Financial Statements on page F-1 ofthis report.

 

(2)   No FinancialStatement Schedules are included herein because such schedules are notapplicable, are not required, or because the required financial information isincluded in the Consolidated Financial Statements or notes thereto.

 

(b)           *Exhibits*

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1(1)          |       | Agreement and Plan of Merger dated as of April 25,  2001, among Black Hawk Gaming & Development Company, Gameco,  Inc., and BH Acquisition, Inc.                      |
|            |       |                                                                                                                                                                           |
| 2.2(1)          |       | Amendment to Agreement and Plan of Merger dated as  of November 12, 2001 among Black Hawk Gaming & Development Company,  Inc., Gameco, Inc. and BH  Acquisition, Inc. |
|            |       |                                                                                                                                                                           |
| 2.3(1)          |       | Exchange Agreement dated February 22, 2002  among Gameco, Inc., Jeffrey P. Jacobs and The  Richard E. Jacobs Revocable Trust.                                             |
|            |       |                                                                                                                                                                           |
| 2.4(1)          |       | Agreement and Plan of Merger dated as of June 11,  2001 among Colonial Holdings, Inc., Gameco, Inc.  and Gameco Acquisitions, Inc.                                        |

 

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| **Exhibit No.** | ** ** | **Description**                                                                                                                                          |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.5(1)          |       | Amendment to Agreement and Plan of Merger dated as  of November 16, 2001 among Colonial Holdings, Inc., Gameco,  Inc., and Gameco Acquisition, Inc. |
|            |       |                                                                                                                                                     |
| 2.6(1)          |       | Agreement and Plan of Merger, dated February 22,  2002 between Gameco, Inc. and Jacobs Entertainment,  Inc.                                         |
|            |       |                                                                                                                                                     |
| 3.1(1)          |       | Certificate of Incorporation of Gameco, Inc.                                                                                                             |
|            |       |                                                                                                                                                     |
| 3.2(1)          |       | By-Laws of Gameco, Inc.                                                                                                                                  |
|            |       |                                                                                                                                                     |
| 3.3(1)          |       | Articles of Incorporation of Black Hawk Gaming  & Development Company, Inc.                                                                          |
|            |       |                                                                                                                                                     |
| 3.4(1)          |       | Bylaws of Black Hawk Gaming & Development  Company, Inc.                                                                                             |
|            |       |                                                                                                                                                     |
| 3.5(1)          |       | Articles of Incorporation of Gold Dust West  Casino, Inc.                                                                                                |
|            |       |                                                                                                                                                     |
| 3.6(1)          |       | Code of By-laws of Gold Dust West Casino, Inc.                                                                                                           |
|            |       |                                                                                                                                                     |
| 3.7(1)          |       | Articles of Organization of Black Hawk/Jacobs  Entertainment, LLC.                                                                                       |
|            |       |                                                                                                                                                     |
| 3.8(1)          |       | Operating Agreement of Black Hawk/Jacobs  Entertainment, LLC.                                                                                            |
|            |       |                                                                                                                                                     |
| 3.9(1)          |       | Joint Venture Agreement of Gilpin Hotel Venture.                                                                                                         |
|            |       |                                                                                                                                                     |
| 3.10(1)         |       | Articles of Incorporation of Gilpin Ventures, Inc.                                                                                                       |
|            |       |                                                                                                                                                     |
| 3.11(1)         |       | By-Laws of Gilpin Ventures, Inc.                                                                                                                         |
|            |       |                                                                                                                                                     |
| 3.12(1)         |       | Articles of Incorporation of Jalou  II Inc.                                                                                                              |
|            |       |                                                                                                                                                     |
| 3.13(1)         |       | By-Laws of Jalou II Inc.                                                                                                                                 |
|            |       |                                                                                                                                                     |
| 3.14(1)         |       | Articles of Incorporation of Winner’s Choice  Casino, Inc.                                                                                          |
|            |       |                                                                                                                                                     |
| 3.15(1)         |       | By-Laws of Winner’s Choice Casino, Inc.                                                                                                             |
|            |       |                                                                                                                                                     |
| 3.16(1)         |       | Articles of Organization of Diversified  Opportunities Group Ltd.                                                                                        |
|            |       |                                                                                                                                                     |
| 3.17(1)         |       | Articles of Organization of Jalou  L.L.C.                                                                                                                |
|            |       |                                                                                                                                                     |
| 3.18(1)         |       | Articles of Organization of Houma Truck Plaza  & Casino, L.L.C.                                                                                      |
|            |       |                                                                                                                                                     |
| 3.19(1)         |       | Articles of Organization of Jalou-Cash’s  L.L.C.                                                                                                    |
|            |       |                                                                                                                                                     |
| 3.20(1)         |       | Articles of Incorporation of JACE,  Inc.                                                                                                                 |
|            |       |                                                                                                                                                     |
| 3.21(1)         |       | Articles of Organization of Lucky Magnolia Truck  Stop and Casino, L.L.C.                                                                                |
|            |       |                                                                                                                                                     |
| 3.22(1)         |       | Articles of Organization of Bayou Vista Truck  Plaza and Casino, L.L.C.                                                                                  |
|            |       |                                                                                                                                                     |
| 3.23(1)         |       | Articles of Organization of Raceland Truck Plaza  and Casino, L.L.C.                                                                                     |
|            |       |                                                                                                                                                     |
| 3.24(1)         |       | Articles of Incorporation of JACE,  Inc. (duplicate of Exhibit 3.20).                                                                                    |
|            |       |                                                                                                                                                     |
| 3.25(2)         |       | Certificate of Amendment of Certificate of  Incorporation of Gameco, Inc.                                                                                |
|            |       |                                                                                                                                                     |
| 3.26(2)         |       | Amended and Restated Certificate of Limited Partnership  of Colonial Downs, L.P.                                                                         |

 

55

----

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                       |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.27(2)         |       | Limited Partnership Agreement of Colonial Downs,  L.P.                                                                                                                                                                                                                                                                                                                |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.28(2)         |       | Amended and Restated Articles of Incorporation of  Colonial Downs Holdings, Inc.                                                                                                                                                                                                                                                                                      |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.29(2)         |       | Amendment to Articles of Incorporation of Colonial  Downs Holdings, Inc.                                                                                                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.30(2)         |       | Bylaws of Colonial Downs Holdings, Inc.                                                                                                                                                                                                                                                                                                                               |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.31(2)         |       | Articles of Incorporation of Stansley  Racing Corp.                                                                                                                                                                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.32(2)         |       | Articles of Amendment to the Articles of  Incorporation of Stansley Racing Corp.                                                                                                                                                                                                                                                                                      |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.33(2)         |       | Bylaws of Stansley  Racing Corp.                                                                                                                                                                                                                                                                                                                                      |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.34(2)         |       | Amended and Restated Operating Agreement of  Diversified Opportunities Group Ltd.                                                                                                                                                                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.35(2)         |       | Amendment to the Operating Agreement of Black  Hawk/Jacobs Entertainment, LLC.                                                                                                                                                                                                                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.36(2)         |       | Amendment to the Certificate of Incorporation of Gameco, Inc.                                                                                                                                                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.37(8)         |       | Articles of Organization of Jalou  Breaux Bridge, LLC dated January 29, 2003.                                                                                                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.38(8)         |       | Articles of Organization of Jalou  Eunice, LLC dated March 27, 2003.                                                                                                                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.39(8)         |       | Articles of Organization of Jalou  of Jefferson, LLC dated September 23, 2003.                                                                                                                                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.1(1)          |       | Indenture dated February 8, 2002 by and among  Gameco, Inc., certain guarantors and Wells Fargo  Bank Minnesota, National Association relating to 117/8%  Senior Secured Notes due 2009.                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.2(1)          |       | Form of Gameco, Inc. 117/8%  Senior Secured Notes due 2009 (included as part of the Indenture at Exhibit  4.1).                                                                                                                                                                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.3(1)          |       | Supplemental Indenture dated February 22,  2002 by and among Gameco, Inc. certain guarantors  and Wells Fargo Bank Minnesota, National Association relating to 117/8%  Senior Secured Notes due 2009.                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.4(1)          |       | Form of Subsidiary Guaranty for 117/8%  Senior Secured Notes due 2009 (included as part of the Indenture at 4.1).                                                                                                                                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.5(1)          |       | Registration Rights Agreement dated as of February 8,  2002 by and among Gameco, Inc., certain guarantors,  CIBC World Markets Corp. And Libra Securities, LLC.                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.6(1)          |       | Security Agreement dated February 8, 2002  among Gameco, Inc., certain guarantors and Wells  Fargo Bank Minnesota, National Association as Trustee.                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.7(1)          |       | Amendment to the Security Agreement dated February 22,  2002 among Gameco, Inc., certain guarantors and  Wells Fargo Bank Minnesota, National Association.                                                                                                                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.8(1)          |       | Joinder Agreements dated February 22, 2002  between Wells Fargo Bank Minnesota, National Association and each guarantor.                                                                                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.9(1)          |       | Guaranty of each guarantor dated February 22,  2002.                                                                                                                                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.10(1)         |       | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Security Agreements and fixture filings by Black  Hawk/Jacobs Entertainment LLC and Gilpin Hotel Venture to the Public Trustee  of Gilpin County, State of Colorado, as Trustee for the Benefit of Wells  Fargo Bank Minnesota, National Association as Beneficiary, dated February 22,  2002. |

 

56

----

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                    |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.11(1)         |       | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Security Agreements and fixture filings by Gold Dust  Casino, Inc. to the First American Title Company of Nevada, as Trustee for  the Benefit of Wells Fargo Bank Minnesota, National Association as  Beneficiary, dated February 22, 2002. |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.12(1)         |       | Leasehold Mortgage, Assignment of Leases and  Rents, Security Agreement and fixture filing by Houma Truck Plaza &  Casino, L.L.C. to Wells Fargo Bank Minnesota,  National Association, as Trustee dated February 22, 2002.                                                                               |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.13(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Winner’s Choice Casino, Inc. to Wells Fargo  Bank Minnesota, National Association as Trustee dated February 22, 2002.                                                                                               |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.14(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Raceland Truck Plaza and Casino, LLC to  Wells Fargo Bank Minnesota, National Association as Trustee dated February 22,  2002.                                                                                           |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.15(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Bayou Vista Truck Plaza and Casino, LLC to  Wells Fargo Bank Minnesota, National Association as Trustee dated February 22,  2002.                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.16(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Lucky Magnolia Truck Stop and Casino, L.L.C. to Wells Fargo Bank Minnesota, National  Association as Trustee dated February 22, 2002.                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.17(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by JACE, Inc. to  Wells Fargo Bank Minnesota, National Association as Trustee dated February 22,  2002.                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.18(1)         |       | Collateral Assignment of Deeds of Trust,  Assignments of Rents and Leases, Security Agreements and fixture filings and  other loan documents by Gameco, Inc. to Wells Fargo  Bank Minnesota, National Association as Trustee dated February 22, 2002.                                                         |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.19(1)         |       | Escrow Agreement between Gameco,  Inc. and Wells Fargo Bank Minnesota, National Association dated February 22,  2002.                                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.20(1)         |       | Supplemental Indenture dated June 14, 2002 by  and among Jacobs Entertainment, Inc., certain guarantors and Wells Fargo Bank  Minnesota, National Association relating to 117/8%  Senior Secured Notes due 2009.                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.21(2)         |       | Joinder Agreements dated June 14, 2002  between Wells Fargo Bank, National Association and each guarantor.                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.22(2)         |       | Subsidiary Guarantee of each subsidiary guarantor  dated June 14, 2002 for 117/8% Senior Secured  Notes due 2009.                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.23(2)         |       | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Downs, L.P. to David F. Belkowitz and James L. Weinberg as Trustees for the  benefit of Wells Fargo Bank Minnesota, National Association, dated June 14,  2002.                                             |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.24(2)         |       | Leasehold Deed of Trust, Assignment of Leases and  Rents, Security Agreement and Fixture Filing by Colonial Downs, L.P. to David  F. Belkowitz and James L. Weinberg as Trustees for  the benefit of Wells Fargo Bank Minnesota, National Association, dated June 14,  2002.                                  |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.25(2)         |       | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Holdings, Inc. to David F. Belkowitz and James L. Weinberg as Trustees for the  benefit of Wells Fargo Bank Minnesota, National Association, dated June 14,  2002.                                          |
|            |       |                                                                                                                                                                                                                                                                                                               |
| 4.26(2)         |       | Loan and Security Agreement dated July 12,  2002 by and among Jacobs Entertainment, Inc., certain subsidiaries and  Foothill Capital Corporation.                                                                                                                                                             |

 

57

----

 
| **Exhibit No.**   | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                          |
|-------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.27(2)           |       | Promissory Note dated July 12, 2002 by and  among Jacobs Entertainment, Inc., certain borrowers and Foothill Capital  Corporation.                                                                                                                                                                                                                  |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.28(2)           |       | Guaranty of Gold Dust West Casino, Inc. and  Diversified Opportunities Group Ltd., dated July 12, 2002.                                                                                                                                                                                                                                             |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.29(2)           |       | Intercreditor Agreement dated July 12, 2002 by and  between Wells Fargo Bank Minnesota, National Association and Foothill Capital  Corporation.                                                                                                                                                                                                     |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.30(2)           |       | Memorandum of Intercreditor  Agreement dated July 12, 2002 by and among Foothill Capital Corporation,  Wells Fargo Bank Minnesota, National Association and Borrowers.                                                                                                                                                                              |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.31(2)           |       | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Securiting Agreement and Fixture  Filing by Black Hawk Gaming & Development Company, Inc., Black  Hawk/Jacobs Entertainment, LLC, and Gilpin Hotel Venture to the Public  Trustee of Gilpin County, State of Colorado and Foothill Capital Corporation,  dated July 12, 2002. |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.32(5)           |       | Second Supplemental Indenture dated June 14,  2002 among Jacobs Entertainment, Inc., certain guarantors and Wells Fargo  Bank Minnesota, National Association (Trustee).                                                                                                                                                                            |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.33(a)  (5) |       | Subsidiary Guarantees of Colonial Holding, Inc.  dated June 28, 2002.                                                                                                                                                                                                                                                                               |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.33(b)  (5) |       | Subsidiary Guarantee of Colonial Downs, L.P. dated  June 28, 2002.                                                                                                                                                                                                                                                                                  |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.33(c)  (5) |       | Subsidiary Guarantee of Stansley  Racing Corp. dated June 28, 2002.                                                                                                                                                                                                                                                                                 |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.34(a)  (5) |       | Joinder Agreement of Colonial Holdings, Inc. dated  June 28, 2002.                                                                                                                                                                                                                                                                                  |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.34(b)  (5) |       | Joinder Agreement of Colonial Downs, L.P. dated June 28,  2002.                                                                                                                                                                                                                                                                                     |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.34(c)  (5) |       | Joinder Agreement of Stansley  Racing Corp. dated June 28, 2002.                                                                                                                                                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.35(a)(1)(5)     |       | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Holdings, Inc. (New Kent  Racetrack) dated June 28, 2002.                                                                                                                                                                                         |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.35(a)(2)(5)     |       | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing (Richmond Southwest) dated June 28,  2002.                                                                                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.35(b)(1)(5)     |       | Leasehold Deed of Trust, Assignment of Leases and  Rents, Security Agreement and Fixture Filing (New Kent and Chesapeake) dated June 28,  2002.                                                                                                                                                                                                     |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.36(5)           |       | Form of Control Agreement Concerning Deposit  Accounts (Citizens Bank/Colonial Downs, L.P.) dated June 14, 2002.                                                                                                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.37(5)           |       | Form of Control Agreement Concerning Deposit  Accounts (Citizens Bank/Colonial Holdings, Inc.) dated June 14, 2002.                                                                                                                                                                                                                                 |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.38(6)           |       | Subsidiary Guarantee—Colonial Downs, LLC dated June 4,  2003.                                                                                                                                                                                                                                                                                  |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.39(6)           |       | Security Agreement Amendment by Colonial Holdings,  Inc. dated June 4, 2003.                                                                                                                                                                                                                                                                        |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.40(6)           |       | Supplemental Letter by Colonial Downs, LLC dated June 4,  2003.                                                                                                                                                                                                                                                                                     |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.41(6)           |       | Third Supplemental Indenture dated June 4,  2003 among Jacobs Entertainment, Inc., certain Guarantors and Wells Fargo  Bank Minnesota, National Association (Trustee).                                                                                                                                                                              |
|              |       |                                                                                                                                                                                                                                                                                                                                                     |
| 4.42(6)           |       | Supplemental Deed of Trust, Assignment of Leases  and Rents, Security Agreement and Fixture Filing by Colonial Downs, LLC dated  June 4, 2003.                                                                                                                                                                                                      |

 

58

----

 
| **Exhibit No.**   | ** ** | **Description**                                                                                                                                                                                                                                                     |
|-------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.43(a)(7)        |       | Fourth Supplemental Indenture among Jacobs  Entertainment, Inc., certain Guarantors and Wells Fargo Bank, National  Association dated March 2, 2005.                                                                                                           |
|              |       |                                                                                                                                                                                                                                                                |
| 4.43(b)(7)        |       | Fifth Supplemental Indenture among Jacobs  Entertainment, Inc., certain Guarantors and Wells Fargo Bank, National  Association dated March 2, 2005.                                                                                                            |
|              |       |                                                                                                                                                                                                                                                                |
| 4.44(8)           |       | Amendment No. 2 to Security Agreement dated March 2,  2005 between Jalou, LLC and Wells Fargo Bank,  National Association.                                                                                                                                     |
|              |       |                                                                                                                                                                                                                                                                |
| 4.45(8)           |       | Supplement to Security Agreement dated March 2,  2005 by Jalou Breaux Bridge, LLC, Jalou Eunice, LLC and Jalou of  Jefferson, LLC and Wells Fargo Bank, National Association.                                                                                  |
|              |       |                                                                                                                                                                                                                                                                |
| 4.46(8)           |       | Leasehold Mortgage, Assignment of Leases and  Rents, Security Agreement and Fixture Filing dated March 2, 2005 by Jalou of Jefferson, LLC and Wells Fargo Bank, National  Association.                                                                         |
|              |       |                                                                                                                                                                                                                                                                |
| 4.47(8)           |       | Mortgage, Assignment of Leases and Rents, Security  Agreement and Fixture Filing dated March 2, 2005 by Jalou  Breaux Bridge, LLC and Wells Fargo Bank, National Association.                                                                                  |
|              |       |                                                                                                                                                                                                                                                                |
| 4.48(8)           |       | Mortgage, Assignment of Leases and Rents, Security  Agreement and Fixture Filing dated March 2, 2005 by Jalou  Eunice, LLC and Wells Fargo Bank, National Association.                                                                                         |
|              |       |                                                                                                                                                                                                                                                                |
| 4.49(a)(8)        |       | Subsidiary Guarantee dated March 2, 2005 by Jalou of Jefferson, LLC.                                                                                                                                                                                           |
|              |       |                                                                                                                                                                                                                                                                |
| 4.49(b)(8)        |       | Subsidiary Guarantee dated March 2, 2005 by Jalou Breaux Bridge, LLC.                                                                                                                                                                                          |
|              |       |                                                                                                                                                                                                                                                                |
| 4.49(c)  (8) |       | Subsidiary Guarantee dated March 2, 2005 by Jalou Eunice, LLC.                                                                                                                                                                                                 |
|              |       |                                                                                                                                                                                                                                                                |
| 4.50(8)           |       | First Amendment to Fee and Leasehold Deed of  Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing  dated March 2, 2005 between Black Hawk Gaming & Development Company,  Inc., et al, and Wells Fargo Bank, National Association. |
|              |       |                                                                                                                                                                                                                                                                |
| 4.51(8)           |       | First Amendment to Fee and Leasehold Deed of  Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing  dated March 2, 2005 between Gold Dust West Casino, Inc. and Wells Fargo  Bank, National Association.                               |
|              |       |                                                                                                                                                                                                                                                                |
| 10.1(1)           |       | Consulting Agreement between Diversified  Opportunities Group Ltd. and Ian M Stewart dated January 1, 2001.                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                |
| 10.2(1)           |       | Executive Employment Agreement between Gameco, Inc. and Jeffrey P. Jacobs dated February 22,  2002.                                                                                                                                                            |
|              |       |                                                                                                                                                                                                                                                                |
| 10.3(1)           |       | Executive Employment Agreement between Gameco, Inc. and Richard E. Jacobs dated February 22,  2002.                                                                                                                                                            |
|              |       |                                                                                                                                                                                                                                                                |
| 10.4(1)           |       | Executive Employment Agreement between Gameco, Inc. and Stephen R. Roark dated February 22,  2002.                                                                                                                                                             |
|              |       |                                                                                                                                                                                                                                                                |
| 10.5(1)           |       | Executive Employment Agreement between Colonial  Holdings, Inc. and Ian M. Stewart dated February 22, 2002.                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                |
| 10.7(3)           |       | Standardbred Horsemen’s Contract effective March 1,  2003 among Colonial Downs L.P. Stansley Racing  Corp. and The Virginia Harness Horse Association.                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                |
| 10.8(3)           |       | Thoroughbred Horsemen’s Agreement dated December 23,  2002 between Colonial Downs L.P. and the Virginia Horseman’s Benevolent and  Protective Association.                                                                                           |
|              |       |                                                                                                                                                                                                                                                                |
| 10.8A(3)          |       | First Amendment dated January 1, 2003 to  Thoroughbred Horsemen’s Agreement dated December 23, 2002 between  Colonial Downs L.P. and the Virginia Horsemen’s Benevolent and Protective  Association.                                            |

 

59

----

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                         |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| 10.9(4)         |       | Consulting Agreement dated January 1, 2003  between Jacobs Entertainment, Inc. and Jacobs Investments Management Co.,  Inc.        |
|            |       |                                                                                                                                    |
| 10.10(3)        |       | Option Agreement dated January 20, 2004  regarding Vinton, Virginia Off Track Wagering Facility.                                   |
|            |       |                                                                                                                                    |
| 10.11(3)        |       | Deed of Lease dated May 8, 2003 between Haynes Chippenham Plaza, LLC and Colonial Downs, L.P.                                           |
|            |       |                                                                                                                                    |
| 10.12(8)        |       | Assignment of Membership Interests between Jacobs  Entertainment, Inc. and Gameco Holdings, LLC dated February 22,  2005.          |
|            |       |                                                                                                                                    |
| 10.13(8)        |       | Registration Rights Agreement dated March 2,  2005 by and among Jacobs Entertainment, Inc., the Guarantors and the  Purchasers.    |
|            |       |                                                                                                                                    |
| 21.1(8)         |       | Subsidiaries of Jacobs Entertainment, Inc.                                                                                              |
|            |       |                                                                                                                                    |
| 25.1(1)         |       | Statement of Eligibility of Trustee on Form T-1.                                                                                        |
|            |       |                                                                                                                                    |
| 31.1(8)         |       | Chief Executive Officer Certificate under Section 302  of the Sarbanes-Oxley Act of 2002.                                          |
|            |       |                                                                                                                                    |
| 31.2(8)         |       | Chief Financial Officer Certification under Section 302  of the Sarbanes-Oxley Act of 2002.                                        |
|            |       |                                                                                                                                    |
| 32.1(8)         |       | Chief Executive Officer Certification under Section 906  of the Sarbanes-Oxley Act of 2002.                                        |
|            |       |                                                                                                                                    |
| 32.2(8)         |       | Chief Financial Officer Certification under Section 906  of the Sarbanes-Oxley Act of 2002.                                        |
|            |       |                                                                                                                                    |
| 99.1(1)         |       | Form of Letter of Transmittal.                                                                                                          |
|            |       |                                                                                                                                    |
| 99.2(1)         |       | Form of Notice of Guaranteed Delivery.                                                                                                  |
|            |       |                                                                                                                                    |
| 99.3(1)         |       | Jacobs Entertainment, Inc. Exchange of all  Outstanding 117/8% Senior Secured Notes Due 2009 For 117/8%  Senior Secured Notes Due 2009. |
|            |       |                                                                                                                                    |
| 99.4(1)         |       | Jacobs Entertainment, Inc. Letter to Depository  Trust Company Participants.                                                            |
|            |       |                                                                                                                                    |
| 99.5(8)         |       | Significant Guarantor Information.                                                                                                      |

 

----

| (1) |   | Incorporated hereby by  reference from our registration statement on Form S-4 (SEC Registration No.  333-88242) filed on May 14, 2002.                           |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Incorporated hereby by  reference from Amendment No. 1 of our registration statement on Form S-4 (SEC  Registration No. 333-88242) filed on August 8, 2002. |
| (3) |   | Incorporated hereby by  reference from our Form 10-K filed on March 29, 2004.                                                                               |
| (4) |   | Incorporated hereby by  reference from our Form 10-K filed on March 31, 2003.                                                                               |
| (5) |   | Incorporated by reference  from our Form 10-Q filed August 13, 2004.                                                                                        |
| (6) |   | Incorporated hereby by  reference from our Report on Form 8-K filed October 7, 2004.                                                                        |
| (7) |   | Incorporated hereby by  reference to Exhibits 2.01(a)and 2.01(b) from our Report on Form 8-K dated  March 4, 2005.                                          |
| (8) |   | Filed herewith.                                                                                                                                                  |

 

60

----

 

**SIGNATURES**

 

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

 
|       | JACOBS ENTERTAINMENT, INC. |
|------------|----------------------------|
|       |                       |
|       | By:                        | /s/ JEFFREY P. JACOBS |   |
| ** ** | ** **                 | **Jeffrey P.  Jacobs** |   |
| ** ** | ** **                 | **Chief  Executive Officer** |   |
| ** ** | ** **                 | ** ** | ** ** |
|       | By:                        | /s/ STEPHEN R. ROARK |   |
| ** ** | ** **                 | **Stephen R.  Roark** |   |
| ** ** | ** **                 | **Chief  Financial Officer** |   |

 

Date: March 28, 2005

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.

 
| **Signature**          | ** ** | **Title**                                       | ** ** | **Date**            |
|------------------------|------------|-------------------------------------------------|------------|---------------------|
|                   |       |                                            |       |                |
| /s/ JEFFREY P. JACOBS  |       | Chairman of the Board of Directors and Chief    |       | March 28, 2005 |
| **Jeffrey P.  Jacobs** |       | Executive Officer (Principal Executive Officer) |       |                |
| ** **             |       |                                            |       |                |
| /s/ STEPHEN R. ROARK   |       | Chief Financial Officer                         |       | March 28, 2005 |
| **Stephen R.  Roark**  |       | (Principal Financial and Accounting Officer)    |       |                |
| ** **             |       |                                            |       |                |
| /s/ RICHARD E. JACOBS  |       | Director                                        |       | March 28, 2005 |
| **Richard E.  Jacobs** |       |                                            |       |                |

 

61

----

 

***Jacobs Entertainment, Inc.***

 

*Consolidated Financial Statements Years Ended December 31, 2004, 2003 and 2002and Independent Auditors’ Report*

 

----

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

Boardof Directors and Stockholders Jacobs Entertainment, Inc.Black Hawk, Colorado

 

Wehave audited the accompanying consolidated balance sheets of JacobsEntertainment, Inc. as of December 31, 2004 and 2003, and the relatedconsolidated statements of income, stockholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2004. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits. The consolidated financial statements give retroactive effect tothe merger of Jacobs Entertainment, Inc., Diversified Opportunities Group,Ltd. and Jalou II Inc., which, as a combination ofentities under common control, has been accounted for similar to a pooling ofinterests as described in Note 1 to the consolidated financial statements.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In ouropinion, such consolidated financial statements present fairly, in all materialrespects, the financial position of Jacobs Entertainment, Inc. andsubsidiaries as of December 31, 2004 and 2003, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2004, in conformity with accounting principles generallyaccepted in the United States of America.

 

Asmore fully described in Note 6 to the consolidated financial statements,on February 8, 2002, the Company completed a $125,000,000 privateplacement of senior secured notes that was used to fund the February 22,2002 acquisitions described in Notes 1 and 4.

 

Deloitte &Touche  LLP

 

Denver,Colorado

 

March 25,2005

 

F-1

----

 

**JACOBS ENTERTAINMENT, INC.**

** **

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2004 AND 2003**

**(Dollars in thousands)**

 
| ** **                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| **ASSETS**                                      |       |     |       |     |       |
| ** **                                      |       |     |       |     |       |
| CURRENT ASSETS:                                 |       |     |       |     |       |
| Cash and cash  equivalents                      |       | $        | 21,210     |     | $          | 16,238 |   |
| Restricted cash                                 |       | 1,670    |       | 1,907    |       |
| Accounts  receivable                            |       | 1,520    |       | 1,087    |       |
| Inventory                                       |       | 1,256    |       | 1,202    |       |
| Prepaid expenses  and other current assets      |       | 2,022    |       | 1,611    |       |
|                                            |       |     |       |     |       |
| Total current  assets                           |       | 27,678   |       | 22,045   |       |
|                                            |       |     |       |     |       |
| PROPERTY, PLANT  AND EQUIPMENT:                 |       |     |       |     |       |
| Land and  improvements                          |       | 51,652   |       | 50,221   |       |
| Buildings and  improvements                     |       | 118,904  |       | 114,363  |       |
| Equipment,  furniture and fixtures              |       | 36,219   |       | 31,318   |       |
| Leasehold  improvements                         |       | 2,344    |       | 2,179    |       |
|                                            |       |     |       |     |       |
| Total                                           |       | 209,119  |       | 198,081  |       |
|                                            |       |     |       |     |       |
| Less accumulated  depreciation and amortization |       | (34,052  | )          | (26,952  | )          |
|                                            |       |     |       |     |       |
| PROPERTY, PLANT  AND EQUIPMENT—Net         |       | 175,067  |       | 171,129  |       |
|                                            |       |     |       |     |       |
| OTHER ASSETS:                                   |       |     |       |     |       |
| Goodwill                                        |       | 26,773   |       | 26,773   |       |
| Identifiable  intangible assets—net        |       | 6,788    |       | 7,176    |       |
| Debt issue costs—net                       |       | 5,426    |       | 6,789    |       |
| Capitalized  project costs                      |       |     |       | 1,500    |       |
| Other assets                                    |       | 1,029    |       | 1,161    |       |
|                                            |       |     |       |     |       |
| TOTAL                                           |       | $        | 242,761    |     | $          | 236,573 |   |

 

(Continued)

 

F-2

----

 

**JACOBS ENTERTAINMENT, INC.**

** **

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2004 AND 2003**

**(Dollars in thousands)**

 
| ** **                                                                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                  |       |     |       |     |       |
| ** **                                                                                      |       |     |       |     |       |
| CURRENT  LIABILITIES:                                                                           |       |     |       |     |       |
| Accounts payable  and accrued expenses                                                          |       | $        | 13,638     |     | $          | 12,289 |   |
| Gaming taxes  payable                                                                           |       | 2,841    |       | 2,709    |       |
| Interest Payable                                                                                |       | 5,691    |       | 5,719    |       |
| Current portion  of long-term debt and capital lease obligations                                |       | 811      |       | 2,554    |       |
| Total current  liabilities                                                                      |       | 22,981   |       | 23,271   |       |
|                                                                                            |       |     |       |     |       |
|                                                                                            |       |     |       |     |       |
|                                                                                            |       |     |       |     |       |
| LONG-TERM DEBT  AND CAPITAL LEASE OBLIGATIONS                                                   |       | 127,516  |       | 125,861  |       |
|                                                                                            |       |     |       |     |       |
| LONG-TERM DEBT—Related  parties                                                            |       | 19,489   |       | 19,489   |       |
|                                                                                            |       |     |       |     |       |
| OTHER                                                                                           |       | 353      |       | 517      |       |
|                                                                                            |       |     |       |     |       |
| Total  liabilities                                                                              |       | 170,339  |       | 169,138  |       |
|                                                                                            |       |     |       |     |       |
| COMMITMENTS AND  CONTINGENCIES                                                                  |       |     |       |     |       |
|                                                                                            |       |     |       |     |       |
| STOCKHOLDERS’  EQUITY:                                                                     |       |     |       |     |       |
| Common stock,  $.01 par value—1,500 shares authorized; 1,500 shares issued and outstanding |       |     |       |     |       |
| Additional  paid-in capital                                                                     |       | 27,992   |       | 27,992   |       |
| Retained  earnings                                                                              |       | 44,430   |       | 39,443   |       |
|                                                                                            |       |     |       |     |       |
| Total  stockholders’ equity                                                                |       | 72,422   |       | 67,435   |       |
|                                                                                            |       |     |       |     |       |
| TOTAL                                                                                           |       | $        | 242,761    |     | $          | 236,573 |   |

 

(Concluded)

 

See notes to consolidatedfinancial statements.

 

F-3

----

 

**JACOBS ENTERTAINMENT, INC.**

 

**CONSOLIDATED STATEMENTS OF INCOME**

**YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002**

**(Dollars in thousands)**

 
| ** **                                                                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                           |       |     |       |     |       |     |       |
| REVENUES:                                                                      |       |     |       |     |       |     |       |
| Gaming:                                                                        |       |     |       |     |       |     |       |
| Casino                                                                         |       | $        | 108,347    |     | $          | 96,816   |       | $ | 83,515 |   |
| Truck stop                                                                     |       | 24,294   |       | 24,108   |       | 21,884   |       |
| Pari-mutuel                                                                    |       | 32,946   |       | 29,189   |       | 27,872   |       |
| Food and  beverage                                                             |       | 17,783   |       | 16,383   |       | 12,405   |       |
| Convenience  store—fuel                                                   |       | 18,424   |       | 17,229   |       | 14,909   |       |
| Convenience  store—other                                                  |       | 3,314    |       | 3,403    |       | 3,329    |       |
| Hotel                                                                          |       | 1,382    |       | 1,370    |       | 1,271    |       |
| Other                                                                          |       | 3,326    |       | 3,003    |       | 2,614    |       |
|                                                                           |       |     |       |     |       |     |       |
| Total revenues                                                                 |       | 209,816  |       | 191,501  |       | 167,799  |       |
|                                                                           |       |     |       |     |       |     |       |
| Promotional  allowances                                                        |       | (20,101  | )          | (19,652  | )          | (14,079  | )          |
|                                                                           |       |     |       |     |       |     |       |
| Net revenues                                                                   |       | 189,715  |       | 171,849  |       | 153,720  |       |
|                                                                           |       |     |       |     |       |     |       |
| COSTS AND  EXPENSES:                                                           |       |     |       |     |       |     |       |
| Gaming:                                                                        |       |     |       |     |       |     |       |
| Casino                                                                         |       | 38,586   |       | 36,209   |       | 31,057   |       |
| Truck stop                                                                     |       | 12,514   |       | 12,579   |       | 10,419   |       |
| Pari-mutuel                                                                    |       | 27,505   |       | 24,212   |       | 23,108   |       |
| Food and  beverage                                                             |       | 9,776    |       | 8,577    |       | 7,690    |       |
| Convenience  store—fuel                                                   |       | 17,116   |       | 15,881   |       | 13,648   |       |
| Convenience  store—other                                                  |       | 3,858    |       | 3,880    |       | 4,292    |       |
| Hotel                                                                          |       | 747      |       | 743      |       | 517      |       |
| Marketing,  general and administrative                                         |       | 42,576   |       | 38,278   |       | 31,225   |       |
| Abandoned  project costs                                                       |       | 2,891    |       | 173      |       |     |       |
| Privatization  and other non-recurring costs                                   |       |     |       |     |       | 524      |       |
| Depreciation and  amortization                                                 |       | 9,745    |       | 9,071    |       | 8,389    |       |
|                                                                           |       |     |       |     |       |     |       |
| Total costs and  expenses                                                      |       | 165,314  |       | 149,603  |       | 130,869  |       |
|                                                                           |       |     |       |     |       |     |       |
| OPERATING INCOME                                                               |       | 24,401   |       | 22,246   |       | 22,851   |       |
|                                                                           |       |     |       |     |       |     |       |
| Interest income                                                                |       | 64       |       | 62       |       | 194      |       |
| Other income                                                                   |       |     |       | 10       |       |     |       |
| Interest expense                                                               |       | (19,478  | )          | (19,645  | )          | (18,300  | )          |
|                                                                           |       |     |       |     |       |     |       |
| INCOME BEFORE  EQUITY IN EARNINGS OF INVESTMENTS AND MINORITY INTEREST IN LOSS |       | 4,987    |       | 2,673    |       | 4,745    |       |
|                                                                           |       |     |       |     |       |     |       |
| EQUITY IN LOSS  OF INVESTMENTS—                                           |       |     |       |     |       |     |       |
| Black Hawk and  the Lodge                                                      |       |     |       |     |       | (1,980   | )          |
|                                                                           |       |     |       |     |       |     |       |
| MINORITY  INTEREST IN LOSS—Colonial                                       |       |     |       |     |       | 173      |       |
|                                                                           |       |     |       |     |       |     |       |
| NET INCOME                                                                     |       | $        | 4,987      |     | $          | 2,673    |       | $ | 2,938 |   |

 

See notes toconsolidated financial statements.

 

F-4

----

 

**JACOBSENTERTAINMENT, INC.**

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002**

**(Dollars in thousands)**

 
| ** **                            | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Retained** | ** ** | ** **   | ** ** |
|---------------------------------------|------------|------------------|------------|-------------------------|------------|--------------|------------|--------------|------------|
| ** **                            | ** ** | **Shares**       | ** ** | **Amount***             | ** ** | **Capital**  | ** ** | **Earnings** | ** ** | **Total** | ** ** |
|                                  |       |             |       |                    |       |         |       |         |       |   |   |
| BALANCES—January 1,  2002   |       | 1,500            |       | $                       | —     |         | $          | 27,992       |       | $ | 35,767 |   | $ | 63,759 |   |
|                                  |       |             |       |                    |       |         |       |         |       |   |   |
| Net income                            |       |             |       |                    |       |         |       | 2,938        |       | 2,938 |   |
|                                  |       |             |       |                    |       |         |       |         |       |   |   |
| Stockholder  distributions            |       |             |       |                    |       |         |       | (1,935       | )          | (1,935 | ) |
|                                  |       |             |       |                    |       |         |       |         |       |   |   |
| BALANCES—December 31,  2002 |       | 1,500            |       | —                  |       | 27,992       |       | 36,770       |       | 64,762 |   |
|                                  |       |             |       |                    |       |         |       |         |       |   |   |
| Net income                            |       |             |       |                    |       |         |       | 2,673        |       | 2,673 |   |
|                                  |       |             |       |                    |       |         |       |         |       |   |   |
| BALANCES—December 31,  2003 |       | 1,500            |       | —                  |       | 27,992       |       | 39,443       |       | 67,435 |   |
|                                  |       |             |       |                    |       |         |       |         |       |   |   |
| Net income                            |       |             |       |                    |       |         |       | 4,987        |       | 4,987 |   |
|                                  |       |             |       |                    |       |         |       |         |       |   |   |
| BALANCES—December 31,  2004 |       | 1,500            |       | $                       | —     |         | $          | 27,992       |       | $ | 44,430 |   | $ | 72,422 |   |

 

----

*The par valueamount of Jacobs Entertainment, Inc. common stock outstanding for theperiods presented is less than $500 and is therefore presented as $0 above dueto rounding.

 

See notes toconsolidated financial statements.

 

F-5

----

 

**JACOBSENTERTAINMENT, INC.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002**

**(Dollars in thousands)**

** **
| ** **                                                                                         | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| OPERATING  ACTIVITIES:                                                                             |       |       |       |       |       |       |       |
| Net income                                                                                         |       | $          | 4,987      |       | $          | 2,673      |       | $ | 2,938 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:                 |       |       |       |       |       |       |       |
| Equity in loss  (earnings) of investments                                                          |       |       |       |       |       | 1,980      |       |
| Minority  interest                                                                                 |       |       |       |       |       | (173       | )          |
| Depreciation and  amortization                                                                     |       | 9,745      |       | 9,071      |       | 8,389      |       |
| Loss on sale of  equipment                                                                         |       | 90         |       | 94         |       | 42         |       |
| Deferred  financing cost amortization                                                              |       | 1,363      |       | 1,361      |       | 1,031      |       |
| Bond issue  discount amortization                                                                  |       | 710        |       | 707        |       | 693        |       |
| Loan discount  amortization                                                                        |       | 23         |       | 180        |       |       |       |
| Noncash  abandoned project costs                                                                   |       | 1,500      |       | 35         |       |       |       |
| Changes in  operating assets and liabilities—net of the effect of acquisitions:               |       |       |       |       |       |       |       |
| Restricted cash                                                                                    |       | 237        |       | (512       | )          | (273       | )          |
| Accounts  receivable                                                                               |       | (433       | )          | 369        |       | (253       | )          |
| Inventory                                                                                          |       | (54        | )          | 85         |       | (99        | )          |
| Prepaid expenses  and other current assets                                                         |       | (330       | )          | (86        | )          | 5,225      |       |
| Accounts payable  and accrued expenses                                                             |       | 1,289      |       | (821       | )          | 2,988      |       |
|                                                                                               |       |       |       |       |       |       |       |
| Net cash provided  by operating activities                                                         |       | 19,127     |       | 13,156     |       | 22,488     |       |
|                                                                                               |       |       |       |       |       |       |       |
| INVESTING  ACTIVITIES:                                                                             |       |       |       |       |       |       |       |
| Equipment  purchases and additions to property, plant, and equipment                               |       | (11,673    | )          | (14,201    | )          | (7,341     | )          |
| Proceeds from  sale of equipment                                                                   |       | 280        |       | 66         |       | 226        |       |
| Purchase of  device rights                                                                         |       | (209       | )          | (235       | )          |       |       |
| Capitalized  project costs                                                                         |       |       |       | (1,465     | )          | (72        | )          |
| Acquisitions—net  of cash acquired:                                                           |       |       |       |       |       |       |       |
| Black Hawk  Gaming                                                                                 |       |       |       |       |       | (86,916    | )          |
| Colonial Downs                                                                                     |       |       |       |       |       | (4,644     | )          |
| Truck stops                                                                                        |       |       |       |       |       | (14,234    | )          |
|                                                                                               |       |       |       |       |       |       |       |
| Net cash used in  investing activities                                                             |       | (11,602    | )          | (15,835    | )          | (112,981   | )          |
|                                                                                               |       |       |       |       |       |       |       |
| FINANCING  ACTIVITIES:                                                                             |       |       |       |       |       |       |       |
| Net proceeds  from bond issuance                                                                   |       |       |       |       |       | 120,050    |       |
| Payments to  obtain financing                                                                      |       |       |       | (49        | )          | (7,798     | )          |
| Proceeds from  long-term debt                                                                      |       |       |       | 228        |       |       |       |
| Proceeds from revolving  line of credit                                                            |       | 4,265      |       | 11,210     |       | 4,130      |       |
| Payments on  long-term debt                                                                        |       | (2,553     | )          | (2,620     | )          | (1,637     | )          |
| Payments on  revolving line of credit                                                              |       | (4,265     | )          | (11,210    | )          | (4,130     | )          |
| Distributions to  stockholders                                                                     |       |       |       |       |       | (1,935     | )          |
|                                                                                               |       |       |       |       |       |       |       |
| Net cash (used  in) provided by financing activities                                               |       | (2,553     | )          | (2,441     | )          | 108,680    |       |
|                                                                                               |       |       |       |       |       |       |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                              |       | 4,972      |       | (5,120     | )          | 18,187     |       |
|                                                                                               |       |       |       |       |       |       |       |
| CASH AND CASH  EQUIVALENTS—Beginning of year                                                  |       | 16,238     |       | 21,358     |       | 3,171      |       |
|                                                                                               |       |       |       |       |       |       |       |
| CASH AND CASH  EQUIVALENTS—End of year                                                        |       | $          | 21,210     |       | $          | 16,238     |       | $ | 21,358 |   |
|                                                                                               |       |       |       |       |       |       |       |
| SUPPLEMENTAL  CASH FLOW INFORMATION:                                                               |       |       |       |       |       |       |       |
| Cash paid for  interest, net of amounts capitalized in 2004 and 2003 of $27 and $140  respectively |       | $          | 17,329     |       | $          | 17,582     |       | $ | 9,512 |   |
|                                                                                               |       |       |       |       |       |       |       |
| Non-cash  investing and financing activity:                                                        |       |       |       |       |       |       |       |
| Acquisition of  property                                                                           |       | $          | 1,732      |       | $          | 10,489     |       | $ | 3,280 |   |
|                                                                                               |       |       |       |       |       |       |       |
| Debt conversion  to related party                                                                  |       | $          | —     |       | $          | —     |       | $ | — |   |

 

Seenotes to consolidated financial statements.

 

F-6

----

 

**JACOBS ENTERTAINMENT, INC.**

 

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

**YEARS ENDED DECEMBER 31,2004, 2003 AND 2002**

**(Dollars in thousands)**

 

**1.**       BUSINESS AND ORGANIZATION

** **

Jacobs Entertainment, Inc. (“JEI”or the “Company”) was formed on April 17, 2001, as a SubchapterS corporation under the Internal Revenue Code of 1986, as amended, tobecome a geographically diversified gaming and pari-mutuel wagering companywith properties in Colorado, Nevada, Louisiana, and Virginia. The Company’ssole stockholders, who each own 50% of JEI’s commonstock, are Jeffrey P. Jacobs and The Richard E. Jacobs Revocable Trust, ofwhich Richard E. Jacobs is the sole trustee (collectively, “Jacobs”). As aresult of the transactions on February 22, 2002, described below, JEI owns and operates three casinos, six truck plaza videogaming facilities, and a horse racing track with six satellite wageringfacilities (of which, two are leased). In addition, the Company receives apercentage of gaming revenue from an additional truck plaza video gamingfacility.

 

On February 22, 2002, JEIsimultaneously completed the acquisition of a 100% interest in entities inwhich Jacobs owned either a full, majority, or minority interest. The entitiesinvolved in the transaction, and the accounting treatment for the components ofthe acquisitions are described below and in Note 4.

 

On March 2, 2005, JEIcompleted the acquisition of three truck plaza video gaming facilities inLouisiana from a related party. See Notes 6 and 15 below.

 

On March 16, 2005, Colonial Downs receivedlicenses to own and operate a seventh satellite wagering facility in Virginia.

 

***DiversifiedOpportunities Group Ltd. (“Diversified”) and Jalou  L.L.C. and Jalou II(collectively, “Jalou”)*****—**Jacobs contributed substantially all of their interests inDiversified and their 100% interest in Jalou II inexchange for 100% of the common stock of JEI. On theacquisition date, prior to the acquisition of the remaining shares of theentities described below, Diversified owned 100% of JalouL.L.C., approximately 44% (with a majority votinginterest of over fifty percent of the outstanding voting shares) of ColonialHoldings, Inc. (“Colonial”), approximately 32% of Black Hawk Gaming &Development Company, Inc. (“Black Hawk”), and a 25% interest in The LodgeCasino at Black Hawk (“The Lodge”), of which the remaining 75% was owned byBlack Hawk. The exchange of JEI shares for theinterests of Diversified and Jalou II on February 22,2002, was accounted for as a combination of entities under common control,which is similar to the pooling of interests method of accounting for businesscombinations. Accordingly, JEI’s results from January 1,2001, through February 22, 2002, include consolidated operations ofColonial reduced by the 56% minority interest in earnings reflecting theearnings attributable to the common stock of Colonial not owned prior to theacquisition, 32%, and 25% of the operations of Black Hawk, and The Lodge,respectively, and 100% of the operations of these entities thereafter as aresult of the acquisition of the remaining shares of these entities on February 22,2002. Furthermore, the prior year financial statements of JEIreflect the pooled financial position, based on historical cost, and theresults of operations of JEI, Diversified, and Jalou II as a result of the combination of entities undercommon control on February 22, 2002.

 

***Jalou*****—**Jalou operates six truck plaza video gaming facilities ofwhich five are owned and one is leased, and receives a percentage of gamingrevenue from an additional truck plaza video gaming facility in

 

F-7

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Louisiana. The ownership interest of Jalou LLC and Jalou II(collectively, “Jalou”) and the acquisition dates foreach property are as follows.

 

*Jalou**LLC*—HoumaTruck Plaza and Casino (“Houma”) and an interest in the gaming revenues of Cash’sTruck Plaza and Casino (“Cash’s”) were acquired on February 7, 2001. BayouVista Truck Plaza and Casino (“Bayou”) and Lucky Magnolia Truck Stop and Casino(“Lucky”) were acquired on January 11, 2002, and Raceland Truck Plaza andCasino (“Raceland”) was acquired on February 22, 2002.

 

*Jalou**II*—Winner’sChoice Casino (“Winner’s”) was acquired on February 7, 2001, and ColonelsTruck Plaza and Casino was acquired on January 11, 2002.

 

These acquisitions were recorded using the purchasemethod of accounting for business combinations. See Note 4 for a furtherdescription of the Bayou, Lucky, Raceland, and Colonel’s acquisitions occurringin 2002. The aggregate purchase price for the 2002 acquisitions of the Jalou entities was approximately $20,282. Additionally,100% of the operations of the Jalou entities has beenincluded in the consolidated income statements from the date of each respectiveacquisition.

 

***Colonial*****—**Colonial owns and operates a horse racing track with sixsatellite wagering facilities in Virginia of which four are owned and two areleased. On February 22, 2002, JEI acquired theremaining 56% of Colonial’s common stock and all outstanding options forapproximately $4,644, which was recorded using the purchase method ofaccounting for business combinations, and accordingly, 100% of Colonial’soperations are included in JEI’s results for theperiod subsequent to the acquisition date. Prior to the acquisition date,Colonial’s operations were consolidated due to Jacobs’ ownership in themajority of the voting rights (see Note 5). On July 12, 2003, theVirginia Racing Commission granted a license to Colonial to open its fifthsatellite wagering facility in Richmond Virginia. This facility was opened in November 2003.On March 8, 2004, the Virginia Racing Commission granted the license toColonial to open its sixth satellite wagering facility in Vinton, Virginia.This facility was opened in October 2004. On November 2, 2004, votersin Henry, Scott and Westmoreland counties, Virginia passed referendumsauthorizing a satellite wagering facility in each of their counties. As voterapproval has been obtained, the Virginia Racing Commission has the authority togrant a license for each facility to an entity that holds an unlimited licensefor pari-mutuel operations in Virginia. On March 16, 2005, the VirginiaRacing Commission granted Colonial licenses to own and operate a satellitewagering facility in Henry County, Virginia.

 

***Black Hawk*****—**Black Hawk owns a 75% interest in The Lodge and a 100%interest in both the Gilpin Hotel Casino (“the Gilpin”) and the Gold Dust WestCasino (“GDW”), located in Black Hawk, Colorado, andReno, Nevada, respectively. On February 22, 2002, JEIacquired the remaining 68% of Black Hawk’s common stock and all outstandingoptions for approximately $36,980 and assumed and refinanced approximately$59,950 of Black Hawk’s outstanding debt. This transaction was recorded usingthe purchase method of accounting for business combinations, and accordingly,100% of Black Hawk’s operations are included in JEI’sresults for the period subsequent to the acquisition date. Prior to theacquisition date, JEI accounted for its ownership interestin Black Hawk and The Lodge using the equity method of accounting. See Note 5.

 

**2.**       SIGNIFICANT ACCOUNTING POLICIES

** **

***Consolidation*—**Theaccompanying consolidated balance sheets as of December 31, 2004 and 2003,and the related consolidated statements of income, stockholders’ equity, andcash flows for each of the three years in the period ended December 31,2004, are presented to reflect the accounts of JEI,Diversified and Jalou II, similar to the pooling ofinterests method of accounting for business combinations. All inter-companytransactions and balances have been eliminated in consolidation. The Companyalso

 

F-8

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records a minority interest, which reflects theportion of the equity and earnings of Colonial which are applicable to theminority interest owners of Colonial, for periods prior to February 22,2002.

 

***Cash and CashEquivalents*****—**TheCompany considers all demand deposits and time deposits with originalmaturities of three months or less to be cash equivalents.

 

***Restricted Cash*****—**Amounts due under agreementswith the Virginia Horsemen’s Benevolent and Protective Association, Inc.and the Virginia Harness Horse Association are accrued based on the terms ofthe agreements. Funds for purses for future live race meets are held inrestricted cash accounts. Amounts held in certificates of deposit for thepurpose of security with expiration dates in excess of three months are held inrestricted cash accounts.

 

***Inventory*****—**Inventory consists of food andbeverages and uniforms at the casinos and of fuel, convenience store, andrestaurant items at Jalou’s truck stop operations,and is recorded at the lower of cost (first-in, first-out method) or market.

 

***Property, Plant andEquipment*****—**Property,plant and equipment are stated at historical cost. Depreciation is computedusing the straight-line method over the estimated useful lives of the relatedassets. Leasehold improvements are depreciated, using the straight-line method,over the shorter of the lease term or the useful life of the asset. Estimateduseful lives used are as follows: 

 
| Land  improvements                 |   | 20 to 40 years |   |
|------------------------------------|--------|----------------|--------|
| Buildings and  improvements        |   | 5 to 40 years  |   |
| Equipment,  furniture and fixtures |   | 2 to 20 years  |   |
| Leasehold  improvements            |   | 7 to 40 years  |   |

 

Costs of major improvements are capitalized, whilecosts of normal repairs and maintenance are charged to expense as incurred.Gains or losses on disposal of assets are recognized as incurred.

 

***Investments*****—**Through February 22, 2002,the Company accounted for its investments in Black Hawk and The Lodge under theequity method. Under this method, the Company records the income attributableto its share of Black Hawk and The Lodge as an increase to the investment andreduces its investment for actual distributions received. Subsequent to thisdate, these entities have been consolidated.

 

***Goodwill*****—**Goodwill represents the excesspurchase price over the fair value of the net identifiable assets acquiredrelated to the acquisitions described in Notes 1 and 4.

 

***IdentifiableIntangible Assets*****—**Identifiableintangible assets are comprised of revenue rights and device use rightsassociated with the Jalou truck stop acquisitions.Amortization of the revenue rights and device use rights are being amortized ona straight line basis over 50 years and five years, respectively, representingthe initial terms of the related agreements.

 

***Debt Issue Costs*****—**Debt issue costs arecapitalized and amortized, using the effective interest method, over the lifeof the related loan, and are included as a component of other assets in theaccompanying consolidated balance sheets.

 

***Slot Club Liability*****—**The Company’s casinos offer customers the ability to becomemembers in their respective slot clubs. Once a member, the customer can inserta special card into slot and video poker machines while playing in the Company’scasinos to earn “points.” Based on their point totals, members receive variouscash rewards and gift prizes. The Company accrues the cost of points as theyare earned

 

F-9

----

 

by the members of the slot clubs as a component ofaccounts payable and accrued expenses in the accompanying consolidated balancesheets.

 

***Outstanding GamingChip and Token Liability*****—**Whencustomers exchange cash for gaming chips and tokens, the Company has aliability as long as those chips and tokens are not redeemed or won by thehouse. That liability is established by determining the difference between thetotal chips and tokens placed in service and the actual inventory of chips andtokens in custody or under the control of the casinos. The chip and tokenliability is adjusted periodically to reflect an estimate of chips and tokensthat will never be redeemed, such as chips and tokens that have been lost ortaken as souvenirs and is reflected as a component of accounts payable andaccrued expenses in the accompanying consolidated balance sheets.

 

***Revenue–Casino*—**Casinorevenues are the net winnings from gaming activities, which is the differencebetween gaming wins and losses.

 

***Revenue–Truck Stop*****—**Videopoker revenue is the net winnings from gaming activities of the Company’s truckstops, which is the difference between gaming wins and losses.

 

***Revenue***–***Pari-Mutuel*****—**Pari-mutuel revenue includes the Company’s share of pari-mutuelwagering on live races after payments of amounts returned on winning wagers,and the Company’s share of wagering from import and export simulcastingat its racing centers.

 

***Revenue–Food andBeverage*—**TheCompany recognizes food and beverage revenue at the time that goods or servicesare rendered.

 

***Revenue***–***Convenience Store–Fuel and Other*****—**The Company recognizes revenue at the time of sale for fueland convenience-store items.

 

***Revenue***–***Hotel*—**The Company recognizes hotelrevenue at the time that goods or services are provided.

 

***Revenue***–***Other*****—**Other revenue consists of ATM commissions, cash advancecommissions, miscellaneous vending commissions, admission charges, and programand concession sales at Colonial’s live racing events. Other revenues arerecognized at the time services are provided to patrons.

 

***PromotionalAllowances*****—**Gross revenuesinclude the retail amount of rooms, food and beverages provided gratuitously tocustomers. When computing net revenues, the retail amount of rooms, food andbeverages and coupons, gratuitously provided to customers, as well as slot clubplayer point redemptions, is deducted from gross revenues as promotionalallowances. The estimated cost of such complimentary services for rooms, food,and beverages is charged to casino operations and was $9,191 and $9,388 and$8,744 for the years ended December 31, 2004, 2003 and 2002, respectively.

 

***Privatization andOther Non-Recurring Costs*—**Costs incurred by Colonial and Black Hawk in relation tothe acquisition of its remaining shares on February 22, 2002, described inNotes 1 and 4, primarily consisting of legal and accounting fees, are expensedin the accompanying 2002 consolidated statement of income.

 

***Income Taxes*****—**The Company has elected forincome tax purposes to be treated as a Subchapter S Corporation under theInternal Revenue Code of 1986, as amended, and, consequently, no current ordeferred income taxes have been reflected in the accompanying consolidatedfinancial statements as these taxes are the responsibility of the stockholders.

 

F-10

----

 

No provision for income taxes had been made forColonial’s operations for periods prior to February 22, 2002, since it hadoperated at a net loss. See Note 7.

 

***Long-Lived Assets*—**TheCompany periodically evaluates the value of long-lived assets, includingproperty, plant and equipment, goodwill and identifiable intangibles, forpotential impairment. If an impairment is indicated, such impaired assets arewritten down to their estimated fair value. As of December 31, 2004 and2003, management determined that there was no impairment of the Company’slong-lived assets.

 

***Minority Interest*—**TheCompany recorded a minority interest through February 22, 2002, whichreflects the portion of the equity and earnings of Colonial which areapplicable to the interests of the owners of Colonial other than Jacobs. TheMinority interest in Colonial was acquired on February 22, 2002. SeeNote 4.

 

***Operating Segments*—**TheCompany has four reportable segments (Colorado, Nevada, Virginia andLouisiana), as defined by SFAS No. 131, *Disclosures about Segments of an Enterprise andRelated Information. S*ee Note 13.

 

***Use of Estimates*—**The preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amount of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting periods.Management periodically evaluates the Company’s policies, and the estimates andassumptions related to such policies. All of JEI’ssubsidiary companies operate in a highly regulated industry. The Colonial, Jalou and Black Hawk operations are subject to regulationsthat describe and regulate operating and internal control procedures. Themajority of gaming revenue is in the form of cash which by nature does notrequire complex estimations. Management estimates certain liabilities withpayment periods that extend for longer than several months. Such estimatesinclude the self-insured medical and workers compensation liabilities andlitigation costs. Furthermore, JEI believes thatthese estimates are reasonable based on past experience with the business andbased upon assumptions related to possible outcomes in the future. Actualresults could differ from those estimates.

 

Furthermore, we have determined that the policyassociated with our long-lived assets, goodwill and identifiable intangibleassets, and related estimates are critical to the preparation of ourconsolidated financial statements. We have a significant investment inlong-lived property and equipment. We estimate that the undiscounted futurecash flows expected to result from the use of these assets exceeds the currentcarrying value of these assets. Any adverse change to the estimate of theseundiscounted cash flows could necessitate an impairment charge that wouldadversely affect operating results. We estimate the useful lives for our assetsbased on historical experience, estimates of assets’ commercial lives, and thelikelihood of technological obsolescence. Should the actual useful life of aclass of assets differ from the estimated useful life, we would record animpairment charge. We review useful lives and obsolescence and assesscommercial viability of our assets periodically.

 

***Reclassifications*—**Certainreclassifications have been made in the 2003 and 2002 financial statements toconform with the classifications used in 2004. These reclassifications had noeffect on the Company’s financial position or net income.

 

**3.**       GOODWILL AND OTHER INTANGIBLE ASSETS

 

SFAS No. 142 applies tointangibles and goodwill acquired after June 30, 2001, as well as goodwilland intangibles previously acquired. Under SFAS No. 142,goodwill as well as other intangibles determined to have an indefinite lifewill no longer be amortized; however, these assets will be reviewed for

 

F-11

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impairment on a periodic basis. The Company adopted SFAS No. 142 on January 1, 2002, has completedits transitional impairment test at January 1, 2002, and has determinedthat no impairment of its goodwill balances exists. In addition, the Companyhas reassessed the useful lives of its identifiable intangible assets withoutany change to the previously established amortization periods of such assets.

 

Furthermore, the Company performed its most recentannual impairment test as of September 30, 2004 and determined thatgoodwill was not impaired.

 

Acquired intangible assets consist of the following(in thousands):

 
| ** **                      | ** ** | **As of December 31, 2004** | ** ** | **As of December 31, 2003** | ** ** |
|---------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **Gross  Carrying  Amount**      | ** ** | **Accumulated  Amortization**    | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
|                            |       |                             |       |                             |       |   |   |   |   |
| Amortizable  intangible assets: |       |                             |       |                             |       |   |   |   |   |
| Revenue rights                  |       | $                                | 6,000      |                             | $          | 360 |   | $ | 6,000 |   | $ | 240 |   |
| Device use  rights              |       | 2,491                            |       | 1,343                            |       | 2,281 |   | 865 |   |
|                            |       |                             |       |                             |       |   |   |   |   |
| Total                           |       | $                                | 8,491      |                             | $          | 1,703 |   | $ | 8,281 |   | $ | 1,105 |   |

 
| ** **                      | ** ** | **Years Ended December 31** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| ** **                      | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
|                            |       |                             |       |   |   |   |   |
| Aggregate  amortization expense |       | $                                | 597        |   | $ | 581 |   | $ | 524 |   |
|                                 |            |                                  |            |  |  |  |  |  |  |  |

 

Estimated amortization expense for the years ended December 31:

 
| 2005       |   | $      | 618    |   |
|------------|--------|--------|--------|--------|
| 2006       |   | 618    |   |
| 2007       |   | 209    |   |
| 2008       |   | 162    |   |
| 2009       |   | 141    |   |
| Thereafter |   | 5,040  |   |
|       |   |   |   |
| Total      |   | $      | 6,788  |   |

 

F-12

----

 

**4.**       ACQUISITIONS

** **

The following table summarizes the values assigned toassets acquired and liabilities assumed and recorded as of February 22,2002, for the transactions occurring on that date as described in Note 1.

 
| ** **                       | ** ** | **Colonial** | ** ** | **Jalou** | ** ** | **Black Hawk** | ** ** | **Totals** | ** ** |
|----------------------------------|------------|--------------|------------|-----------|------------|----------------|------------|------------|------------|
|                             |       |         |       |      |       |           |       |       |       |
| Current assets                   |       | $            | 3,237      |      | $          | 6,053          |       | $          | 17,864     |   | $ | 27,154 |   |
| Property and  equipment—net |       | 50,104       |       | 16,794    |       | 95,094         |       | 161,992    |       |
| Other assets                     |       |         |       | 41        |       | 1,684          |       | 1,725      |       |
| Goodwill                         |       |         |       | 11,227    |       | 15,611         |       | 26,838     |       |
| Identifiable  intangible assets  |       |         |       | 8,046     |       |           |       | 8,046      |       |
|                             |       |         |       |      |       |           |       |       |       |
| Total assets  acquired           |       | 53,341       |       | 42,161    |       | 130,253        |       | 225,755    |       |
|                             |       |         |       |      |       |           |       |       |       |
| Current  liabilities             |       | 8,214        |       | 2,081     |       | 9,184          |       | 19,479     |       |
| Long-term debt                   |       | 11,549       |       | 33,942    |       | 101,082        |       | 146,573    |       |
|                             |       |         |       |      |       |           |       |       |       |
| Total  liabilities assumed       |       | 19,763       |       | 36,023    |       | 110,266        |       | 166,052    |       |
|                             |       |         |       |      |       |           |       |       |       |
| Net assets  acquired             |       | $            | 33,578     |      | $          | 6,138          |       | $          | 19,987     |   | $ | 59,703 |   |

 

Goodwill resulting from the transactions isattributable to anticipated future cash flows associated with the acquiredentities. Amortization expense recorded on these identifiable intangible assetswas $529, $529, and $524 for the years ended December 31, 2004, 2003 and2002, respectively.

 

Assuming the transactions had occurred at thebeginning of each period presented, pro forma revenue and net income would havebeen as follows:

 
| **Year Ended December 31,  2002** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|
|                                   |       |       |       |
| Net revenue                            |       | $          | 168,839    |   |
| Net loss                               |       | (1,256     | )          |
|                                        |            |            |            |  |

 

The pro forma information is not necessarilyindicative of the results of operations that would have occurred had theacquisitions occurred at the beginning of each period presented, nor are theyindicative of future operating results.

 

**5.**       INVESTMENTS

** **

***Colonial*****—**During 1996, the Company acquired a 50% interest inColonial Downs, L.P., (“Colonial Downs”) a Virginia limited partnership, for$2,000.

 

In March 1997, the Company’s partnershipinvestment in Colonial Downs was exchanged for 1,500,000 shares of Class Bcommon shares of Colonial, which then conducted an initial public offering (“IPO”)of its stock that resulted in a total of 7,250,000 shares outstanding (Class Ashares 5,000,000; Class B shares 2,250,000). As a result of the IPO, theCompany retained approximately a 22% equity interest and a 46% voting interestin Colonial.

 

In September 1998, the Company purchased1,140,000 Class A common shares of Colonial in the open market for $1,409.As a result, the Company increased its equity and voting interests toapproximately 36% and 53% respectively.

 

F-13

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In July 1999, the Company received 510,000 Class Band 15,000 Class A shares of Colonial common stock at the agreed-uponvalue of $2.50 per share as full payment on a note receivable. As a result theCompany increased its equity and voting interests to approximately 44% and 69%,respectively.

 

In September 2001, the Company converted 790,000shares of Colonial Class B common stock to Class A common stock. As aresult of the conversion, the Company’s equity and voting interests changed toapproximately 44% and 61%, respectively.

 

***Investment in BlackHawk*****—**During 1996,the Company acquired 190,476 shares at $5.25 per share, and during 1997acquired 1,333,333 shares upon conversion of a note at the price of $5.25 pershare of common stock of Black Hawk, representing approximately a 32% ownershipinterest in Black Hawk.

 

The Company accounted for its interest in Black Hawkunder the equity method of accounting through February 22, 2002. Underthis method, the Company recorded its share of the income attributable to itsshare of Black Hawk as an increase to the investment and reduced its investmentfor actual distributions received. In January 2001, Black Hawk acquiredGold Dust West Casino, which was accounted for under the purchase method ofaccounting for business combinations, resulting in the recording of goodwill ofapproximately $15,000. Condensed data for Black Hawk is as follows: 

 
| **Statement of Operations**       | ** ** | **January 1 -  February 22,  2002** | ** ** |
|-----------------------------------|------------|-----------------------------------------------|------------|
|                              |       |                                          |       |
| Revenues—net                 |       | $                                             | 13,970     |   |
| Operating  expenses               |       | 17,145                                        |       |
|                              |       |                                          |       |
| Operating loss                    |       | (3,175                                        | )          |
|                              |       |                                          |       |
| Other income                      |       | 119                                           |       |
| Interest expense—net         |       | (2,868                                        | )          |
|                              |       |                                          |       |
| Loss before  minority interest    |       | (5,924                                        | )          |
|                              |       |                                          |       |
| Minority  interest                |       | 127                                           |       |
| Income taxes                      |       |                                          |       |
|                              |       |                                          |       |
| Net loss                          |       | (5,797                                        | )          |
|                              |       |                                          |       |
| Equity in net  loss of investment |       | $                                             | 2,622      |   |

 

As discussed in Notes 1 and 4, the outstanding sharesof Black Hawk were acquired on February 22, 2002. For the period from January 1,2002, through February 22, 2002, the Company recorded a $1,980 net loss onits investment in Black Hawk which was primarily related to charges incurred byBlack Hawk associated with the acquisition. Specifically, Black Hawk terminatedits interest rate swap, wrote off of its existing debt issue costs, andincurred a charge related to the redemption of outstanding stock optionsresulting in charges of approximately $7,319.

 

***Investment in TheLodge*—**During1996, the Company acquired an approximate 25% interest in The Lodge (the other75% is owned by Black Hawk). The Company accounted for its interest in TheLodge under the equity method through February 22, 2002. Under thismethod, the Company recorded the income attributable to its share of The Lodgeas an increase to the investment, and reduced its investment for actualdistributions received.

 

F-14

----

 

Condensed data for The Lodge is as follows: 

 
| **Statement of Loss**     | ** ** | **January 1 -  February 22,  2002** | ** ** |
|---------------------------|------------|-----------------------------------------------|------------|
|                      |       |                                          |       |
| Revenues—net         |       | $                                             | 8,658      |   |
| Operating  expenses       |       | 7,734                                         |       |
|                      |       |                                          |       |
| Operating income          |       | 924                                           |       |
|                      |       |                                          |       |
| Interest expense—net |       | 1,430                                         |       |
|                      |       |                                          |       |
| Net loss                  |       | $                                             | (506       | ) |
|                      |       |                                          |       |
| Net loss of  investment   |       | $                                             | (127       | ) |

 

F-15

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**6.**       LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, ANDCAPITAL LEASES

** **

Long-term debt, notes payable-related parties, andcapital leases, consists of the following as of December 31:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
| Indebtedness of JEI:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
| Senior secured  notes due 2009, with interest only payable each February 1, and August 1,  beginning August 1, 2002 at a fixed interest rate of 117/8%.  The notes were issued at a 3.96% discount which is being amortized using the  effective interest method over the expected life of the Notes.                                                                                                                                                                                                                                                                                                                                                                                                                    |       | $        | 122,103    |     | $          | 121,393 |   |
| Indebtedness of  Black Hawk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |     |       |     |       |
| Bonds payable;  issued in two series with interest payments varying between 6.25% and 6.50%;  principal and interest payments approximating $360 are due semi-annually beginning  in June 2000 continuing until December 2011; secured by infrastructure  improvements made by the Lodge                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 3,997    |       | 4,438    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
| Indebtedness of  Colonial:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |     |       |     |       |
| Note payable to  Chesapeake Forest Products Company, LLC, maturing September 30, 2004, bearing  interest at the prime (4.00% at December 31, 2003) rate commencing October 1,  2003; a principal payment of $1,770 was payable September 30, 2003 and  the remaining principal balance plus all interest was due September 30,  2004, secured by the land purchased with the Note.                                                                                                                                                                                                                                                                                                                             |       |     |       | 1,747    |       |
| Note payable to  Maryland Jockey Club, maturing December 2005, bearing interest at a rate  of 7.75% payable quarterly for the first two years, and equal installments of  interest and principal to be paid quarterly over the remaining five year term  of the note, beginning in the first quarter of 2001                                                                                                                                                                                                                                                                                                                                                                                                                       |       | 290      |       | 580      |       |
| Note payable to  John Deere Credit, maturing October 2008, bearing interest at a rate of  2.25% payable monthly in equal installments of interest and principal  beginning November 2003, secured by the equipment purchased with the  Note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 177      |       | 221      |       |
| Capital Lease  payable to Lancerlot Sports Complex, L.C., with  interest and principal payments of $10 per month, maturing September 11,  2009, secured by the land held under the lease, with the right to extend the  term of the lease five times for five year intervals, or to purchase the land  for $800 at any time after the term and first renewal period of the lease  (after September 11, 2014). The effective interest rate is 11.84%. Each  lease renewal if elected will result in an increase in monthly payments by  10% over the previous lease term.                                                                                                                                                      |       | 976      |       |     |       |
| Capital Lease  payable to an individual, with interest and principal payments of $4 per  month, until the earlier of occupancy or June 1, 2005, then interest and  principal payments of $8 per month, maturing June 1, 2010, secured by  the land and building held under the lease, with the right to extend the term  of the lease four times for five year intervals, or to purchase the land and  building for $700 at any time after the initial term of the lease (after  June 1, 2010), with the purchase price increasing 8% with any successive  renewal term. The effective interest rate is 10.31%. Each lease renewal if  elected will result in an increase in annual payments by $8 over the lease  term. |       | 756      |       |     |       |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       | 28       |       | 36       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 2,227    |       | 2,584    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
| Indebtedness to  related parties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |     |       |     |       |
| Notes payable to  affiliates, maturing January 31, 2010, semi-annual payments of interest only  at 12.0%, unsecured                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |     | 9,000      |     |       | 9,000 |   |
| Note payable to  affiliates maturing March 2009, semi-annual payments of interest only at  8.5%, secured by the land, buildings, and related improvements of Houma                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | 1,811    |       | 1,811    |       |
| Note payable to  affiliates maturing March 2009, semi-annual payments of interest only at  8.5%, secured by the land, buildings and related improvements of Winner’s                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |       | 1,208    |       | 1,208    |       |
| Note payable to  affiliates maturing March 2009, semi-annual payments of interest only at  8.5%, secured by the land, buildings, and related improvements of Cash’s                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | 1,717    |       | 1,717    |       |
| Note payable to  affiliates maturing March 2009, semi-annual payments of interest only at  8.5%, secured by the land, buildings, and related improvements of Colonel’s                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 2,172    |       | 2,172    |       |
| Note payable to  affiliates maturing March 2009, semi-annual payments of interest only at  8.5%, secured by the land, buildings, and related improvements of Lucky  Magnolia’s                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | 788      |       | 788      |       |
| Note payable to  affiliates maturing March 2009, semi-annual payments of interest only at  8.5%, secured by the land, buildings, and related improvements of Bayou Vista                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | 1,679    |       | 1,679    |       |
| Note payable to  affiliates maturing March 2009, semi-annual payments of interest only at  8.5%, secured by the land, buildings, and related improvements of Raceland                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | 1,114    |       | 1,114    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | 19,489   |       | 19,489   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
| Total indebtedness                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | 147,816  |       | 147,904  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
| Less current  indebtedness                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       | (811     | )          | (2,554   | )          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |     |       |     |       |
| Total long-term  indebtedness                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | $        | 147,005    |     | $          | 145,350 |   |

 

F-16

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On February 8, 2002, JEIcompleted a $125,000 private placement of 117/8% SeniorSecured Notes (the “Notes”) due 2009, with interest payable on each February 1,and August 1, with payments beginning August 1, 2002. The Notes wereissued at a 3.96% discount from their principal amount, resulting in a discountof $4,950, which is being amortized using the effective interest method overthe life of the Notes. The proceeds of the Notes were primarily used to fundthe acquisition of the common stock of the entities described in Note 4, and torefinance certain debt of these entities in connection with the acquisitions.The Notes are secured by the assets and stock of the acquired entities. JEI has no independent assets or operations and thesubsidiaries’ guarantees on the Notes are full and unconditional and joint andseveral. The Notes contain a number of affirmative and negative covenants whichamong other things require JEI to maintain certainfinancial ratios and refrain from certain actions without prior approval fromthe Trustee of the Notes. As of December 31, 2004, management believes JEI is in compliance with all such debt covenants.

 

On February 13, 2003, $10,489 of notes issued bythe seller in connection with the acquisition of certain Jaloutruck stops from an unaffiliated party were acquired by a related party. Seediscussion in Note 10 below.

 

F-17

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Scheduled principal payments as of December 31,2004 are as follows:

 
| 2005       |   | $       | 811     |   |
|------------|--------|---------|---------|--------|
| 2006       |   | 588     |    |
| 2007       |   | 607     |    |
| 2008       |   | 634     |    |
| 2009       |   | 136,130 |    |
| Thereafter |   | 11,942  |    |
|       |   |    |    |
| Total      |   | $       | 150,712 |   |

 

Effective July 12, 2002, the Company entered intoa $10,000 line of credit (“LOC”) agreement with Wells Fargo Foothill, Inc.,expiring July 12, 2007. The LOC bears interest at the prime rate publishedby Wells Fargo Bank, N.A., plus 1.75%. The LOC iscollateralized by the land, buildings and related improvements of The Lodge andthe Gilpin Hotel and Casino, the Company’s Colorado casino properties. Thesecurity interests under the terms of the LOC are contractually senior to theNotes. There were no amounts outstanding under the LOC as of December 31,2004 and 2003.

 

On March 2, 2005, JEIissued $23,000 in debt subject to the indenture of the Notes described above.The terms of the new notes are the same as the existing notes, which carry acoupon rate of 117/8% per annum and mature February 2009.See Note 15.

 

**7.**       INCOME TAXES

** **

In conjunction with the acquisitions on February 22,2002, discussed in Notes 1 and 4, effective February 22, 2002 Black Hawkand Colonial filed elections to change their tax status as C-Corporations toS-Corporations, and such conversions have been declared effective by theInternal Revenue Service. Subsequent to conversion to S-Corporations, noprovision for federal income taxes is reflected in Black Hawk’s, Colonial’s or JEI’s financial statements as the stockholders of JEI report any taxable income or loss on their personal taxreturns.

 

As of February 22, 2002, Colonial has netoperating loss carryforwards of approximately $16,500for income tax purposes that expire in years 2012 through 2020. A valuationallowance has been recognized to reduce the deferred tax assets by the entireamount. As described in Notes 1 and 4, on February 22, 2002, Colonialcompleted a merger with an affiliate of the principal shareholder, whichrepurchased all outstanding common stock not owned by the principal shareholderand his affiliates. As a result of these transactions, utilization of the netoperating loss carryforwards may be significantlylimited, thereby resulting in the expiration of a portion of the carryforwards prior to offsetting future taxable income.

 

On March 11, 2002, the Company received noticefrom the Internal Revenue Service asserting deficiencies in federal corporateincome taxes for the Black Hawk’s 1998 tax year. The proposed adjustmentindicates an increase to taxable ordinary income for the 1998 tax year of$1,193, and relates to the deductibility of depreciation taken against certaincosts incurred by the Lodge to build and improve public assets. The Company hasanalyzed these matters and believe the Lodge has meritorious defenses to thedeficiencies asserted by the Internal Revenue Service. The Company will contestthe asserted deficiencies through the administrative appeals process, andbelieves that any amounts assessed for the 1998 and future tax years will nothave a material effect on Black Hawk’s financial position or results ofoperations. Due to the preliminary nature of this proceeding, management isunable to reasonably estimate the amount, or range of amounts, of any potentialincome tax liability associated with the notice.

 

F-18

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**8.**       ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

** **

The following disclosure of estimated fair value ofthe Company’s financial instruments has been determined by the Company usingavailable market information and generally accepted valuation methodologies.However, considerable judgment is required to interpret market data in order todevelop the estimates of fair value. Accordingly, the estimates herein are notnecessarily indicative of the amounts the Company could realize in a currentmarket exchange. The use of different market assumptions and/or estimationmethodologies may have a material effect on the estimated fair value amounts.The amounts for the Company’s financial instruments are as follows:

 
| ** **                                                     | ** ** | **2004**             | ** ** | **2003**                   | ** ** |
|----------------------------------------------------------------|------------|----------------------|------------|----------------------------|------------|
| ** **                                                     | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair  Value** | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair  Value** | ** ** |
|                                                           |       |                 |       |                       |       |   |   |   |   |
| Liabilities—long-term  debt and capital lease obligations |       | $                    | 147,816    |                       | $          | 166,466 |   | $ | 147,904 |   | $ | 155,466 |   |
|                                                                |            |                      |            |                            |            |  |  |  |  |  |  |  |  |

 

The estimation methodologies utilized by the Companyare summarized as follows:

 

***Debt*—**Thefair value of variable-rate debt is estimated to be equal to its carryingamount. The fair value of senior secured notes issued in 2002 is based uponquoted market rates. The fair value of other fixed rate debt is estimated basedon a discounted cash flow analysis, using the prevailing market interest ratesfor debt of similar dollar amount, maturity and risk.

 

Theestimated fair value of the Company’s other financial instruments, such as cashand cash equivalents, accounts receivable, inventory and accounts payable, havebeen determined to approximate carrying value based on the short-term nature ofthose financial instruments.

 

**9.**       EMPLOYEE BENEFIT PLANS

** **

In June 1998, Colonial implemented a 401(k) Planin which all full time and part time employees are eligible to participateafter six months of employment. The Plan is a defined contribution plancovering eligible employees of Colonial. The Plan allows eligible employees tomake tax-deferred contributions that are matched by the Company up to aspecified level. On July 9, 2004, the Colonial 401(k) plan was merged intothe Black Hawk Gaming & Development Company Inc. 401(k) plan (re-namedJacobs Entertainment, Inc. plan on December 21, 2004). The Company’scontributions to the 401(k) Plan were approximately $14, $14 and $12 for theperiod ended July 9, 2004, and for the years ended 2003 and 2002,respectively.

 

On January 1, 1997, the Gilpin Hotel CasinoEmployees’ 401(k) Plan (re-named Black Hawk Gaming & DevelopmentCompany Inc.’s 401(k) Plan on March 31, 1999, further re-named JacobsEntertainment, Inc.’s 401(k) plan on December 20, 2004) (the “Plan”)was organized and began accepting contributions on September 1, 1997. ThePlan is a defined contribution plan covering eligible employees of Black Hawk,The Lodge, the Gilpin, GDW, and Colonial (after July 9,2004). The Plan allows eligible employees to make tax-deferred contributionsthat are matched by the Company up to a specified level. The Companycontributed approximately $257 and $249 and $263 to the Plan for the yearsended December 31, 2004, 2003, and 2002, respectively. On July 9,2004, Colonial’s Plan and Jacobs Entertainment, Inc.’s Plan were mergedinto one plan covering all eligible employees of JEI.

 

F-19

----

 

**10.**     RELATED PARTY TRANSACTIONS

** **

In order to assist Black Hawk in its efforts toresearch, develop, perform due diligence on and possibly acquire new gamingopportunities, Black Hawk entered into an agreement with Premier OneDevelopment Company effective October 1, 1997. On May 9, 2000,Premier merged into Jacobs Investments Management Co. Inc. (“Management”), 82%of which is owned by Jeffrey P. Jacobs and the remaining 18% of which is ownedin equal portions by two former directors of Colonial Holdings. Black Hawk paidor accrued $450, $450 and $450 for Management’s services during the years endedDecember 31, 2004, 2003 and 2002, respectively. The agreement expired on December 31,2002, but was extended for a period of nine years, at $450 per year, payable onJanuary 15 of each year.

 

Pursuant to an agreement with Diversified, thepresident of Colonial received compensation for consulting services toDiversified in connection with its acquisition of the Louisiana truck plazavideo gaming facilities. Diversified paid $150 in 2002 for services inconnection with the acquisition of the Louisiana truck plaza video gamingfacilities acquired by Jacobs Entertainment in February 2002. Theagreement also contains a two year non-compete clause with respect to anyaspect of the operations of those truck plaza facilities. An affiliate ofJacobs also paid $38 for services rendered in 2002.

 

The Company and Black Hawk shared a management fee of5% of adjusted gross gaming proceeds for the gaming operations of The Lodge.For the first year of operations, the sharing ratio of this management fee wasdisbursed 40% to the Company and 60% to Black Hawk. For all subsequent years ofoperations, the management fee is disbursed 50% to the Company and 50% to BlackHawk. This arrangement was terminated on February 22, 2002. During theyear ended December 31, 2002, the Company was paid $228 for managementfees from The Lodge.

 

The Company provides monthly management and accountingservices to truckstops owned by an affiliate. Inaddition, the affiliates purchase repair parts from the Company. Total chargesto affiliates for management services and repair part purchases totaled $502and $318 for the years ended December 31, 2004 and 2003, respectively.Accounts receivables due from affiliate totaled $245 and $221 as of December 31,2004 and 2003, respectively.

 

JEI is the obligor on notes toJacobs totaling $9,000, with interest only payable semi-annually at 12% perannum, and the principal amount due and payable on January 31, 2010. Thesenotes were issued in connection with the acquisition of certain Louisiana truckstops. JEI is also the obligor of $10,489 of notesissued by the seller in connection with the acquisition of additional truckstops from an unaffiliated party. These notes were acquired from the seller byJacobs on February 13, 2003 for $7,000. The terms of the notes payable to Jacobsare identical to those of the seller notes described above. As a result of thistransaction, for tax purposes JEI recognized taxableincome in the form of a discharge of indebtedness of $3,489 representing thedifference between the $10,489 seller notes and the acquisition price of$7,000, which was reported on JEI’s tax return astaxable income to its shareholders.

 

**11.**     CAPITALIZED AND ABANDONED PROJECT COSTS

** **

During the year ended 2004, we recorded a $2,900charge to operations which is attributable to the write-off of abandonedproject costs. Included in these costs is approximately $1,800 related todevelopment costs associated with a potential gaming site in D’Iberville, Mississippi. After considering variousdevelopment alternatives, we chose to abandon the project to pursue otheralternatives which, in our estimation would result in greater returns than thepotential of the D’Iberville site. The majority ofthese expenditures were primarily associated with land option payments anddesign, development and planning costs. Further, we charged to operationsapproximately $800 consisting of option payments, legal and accounting feeexpenditures associated with four separate unrelated parties to acquire sevenvideo poker stop operations in Louisiana. Based on the results of the duediligence work, we abandoned

 

F-20

----

 

the potential acquisitions with all seven truck stopoperations targeted for acquisition. Finally, approximately $300 in othercapitalized costs were charged to operations due to abandonment ofmiscellaneous other projects.

 

**12.**     COMMITMENTS AND CONTINGENCIES

** **

Colonial entered into a Management and ConsultingAgreement, as amended (the “Management Agreement”), with Maryland-VirginiaRacing Circuit, Inc. (the “Circuit”), an affiliate of the Maryland JockeyClub (“MJC”), to provide experienced management forthe racetrack and satellite facilities and to create a Virginia-Marylandthoroughbred racing circuit. Under the Management Agreement, MJC agrees to suspend live racing at their racetracks,Laurel Park and Pimlico Race Course, during Colonial’slive thoroughbred meets. Parties to the Management Agreement also exchangesimulcast signals for their live thoroughbred meets at no cost to either party.The effect of the exchange of signals is immaterial to the consolidatedfinancial statements. The Circuit manages Colonial’s satellite facilities aswell as the live standardbred and thoroughbred meetsand provides certain personnel, at its expense, for the live thoroughbred meet.For its services, the Circuit receives a management fee of 1.0% of the first$75 million of the aggregate gross amounts wagered in any calendar year inthe Commonwealth of Virginia, excluding certain amounts specified in the ManagementAgreement (“Handle”), and 2.0% of all Handle in excess of $75 million percalendar year. In February 2003, Colonial entered into an amendment to theManagement Agreement pursuant to which the Circuit agreed to a management feeof 1.5% of Handle for Handle in excess of $125 million generated from theracetrack and its satellite facilities. TheManagement Agreement will remain in effect until 2036, as amended, assuming theamendment we signed March 16, 2005 is approved by the Virginia Racing Commision provided Colonial owns, controls, or operates theracetrack under its existing licenses. At Colonial’s option, Colonial mayterminate the Management Agreement any time after 2021 upon payment of a feeequal to 17 times the average management fee paid during the three yearsimmediately preceding such termination. Management fees incurred under theManagement Agreement are approximately $2,082, $1,831 and $1,700 during each ofthe years ended December 31, 2004, 2003 and 2002, respectively.

 

Colonial has entered into an agreement with a totalisator company which provides wagering services anddesigns, programs, and manufactures totalisatorsystems for the Company’s pari-mutuel wagering applications. The basic terms ofthe agreement state that the totalisator companyshall provide totalisator services to Colonial forall wagering held at Colonial’s facilities through 2004 at a rate of .365% ofthe gross amounts wagered. Totalisator fees incurredunder this agreement was approximately $622, $497, and $381 for the years endedDecember 31, 2004, 2003 and 2002,respectively.

 

On March 16, 2005, Colonial entered into anamendment with the totalisator company that extendsthe term of the agreement to 2012, provides replacement equipment for theexisting equipment, and increases the rate to .385% of handle up to $270,000 inhandle. Handle above $270,000 will be charged a rate of .345%. The amendmentalso provides for minimum charge per calendar year of $330. The amendment issubject to the Virginia Racing Commission’s approval.

 

Colonial has entered into agreements with a companywhich provides broadcasting and simulcastingequipment and services. The agreements for live racing services at the horseracing track, and equipment leases at two of the off track wagering facilitieswere extended during 2002 until December 31, 2007. Effective November 6,2002, Colonial acquired certain equipment located at the horse racing trackpreviously leased under these agreements. Total expense incurred for totalisator and broadcasting and simulcastingequipment was approximately $922, $745 and $1,179 for the years ended December 31,2004, 2003 and 2002, respectively.

 

F-21

----

 

Colonial leases automobiles, building space, andcertain equipment under operating leases expiring at various dates. Totalrental expense under these non-cancelable leases was approximately $420, $357,and $251 for the years ended December 31, 2004, 2003 and 2002,respectively.

 

Black Hawk leases land and warehouse space for theGold Dust in Reno, Nevada as well as automobiles, and other property andequipment under operating leases expiring at various dates. Total rentalexpense under these non-cancelable leases was approximately $357, $352, and$351 for the years ended December 31, 2004, 2003, and 2002, respectively.

 

The following are the future estimated minimumcommitments relating to JEI’s non-cancelableoperating agreements and leases: 

 
| **Year Ended  December 31** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
|                             |       |       |       |
| 2005                             |       | $          | 924        |   |
| 2006                             |       | 850        |       |
| 2007                             |       | 847        |       |
| 2008                             |       | 631        |       |
| 2009                             |       | 616        |       |
| Thereafter                       |       | 10,468     |       |
|                             |       |       |       |
| Total                            |       | $          | 14,336     |   |

 

Other long-term obligations include the commitment ofthe Louisiana truck plaza video gaming facilities to pay $1 per video pokermachine per day, plus $1,000 per machine annually in licensing to an outsideparty to maintain its video poker machines in its truck stop premises. Otherlong-term obligations also include commitments under employment contracts withmembers of senior management.

 

The following analysis of the leased property under capitalleases:

 
| **Class of Property**                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
|                                       |       |     |       |     |       |
| Land                                       |       | $        | 1,323      |     | $          | — |   |
| Building                                   |       | 409      |       |     |       |
| Other                                      |       | 16       |       | 16       |       |
| Less acumulated depreciation               |       | (5       | )          | (3       | )          |
|                                       |       |     |       |     |       |
| Total leased  property under capital lease |       | $        | 1,743      |     | $          | 13 |   |

 

F-22

----

 

The following is a schedule by years of futureminimum lease payments under capital leases together with the present value ofthe net minimum lease payments as of December 31, 2004:

 
| **Year Ending December 31**                                         | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|
|                                                                     |       |       |       |
| 2005                                                                     |       | $          | 194        |   |
| 2006                                                                     |       | 211        |       |
| 2007                                                                     |       | 211        |       |
| 2008                                                                     |       | 210        |       |
| 2009                                                                     |       | 213        |       |
| Thereafter                                                               |       | 2,180      |       |
|                                                                     |       |       |       |
| Total future mimimum lease payments                                      |       | 3,219      |       |
|                                                                     |       |       |       |
| Less amount  representing interest ranging from 1.6% to 11.75% per annum |       | 1,482      |       |
|                                                                     |       |       |       |
| Present net  value of net minimum lease payments                         |       | $          | 1,737      |   |

 

On May 25, 2001, a lawsuit was filed in theUnited States District Court for the District of Colorado (Case No. 01-D-0964)by Central City, several casino operators located in Central City and othersagainst the City of Black Hawk, the Black Hawk Gaming Association (formerly theBlack Hawk Casino Owners Association) and several casino operators located inthe City of Black Hawk, including Black Hawk Gaming. The suit alleges that thedefendants caused economic harm to the plaintiffs by engaging in a conspiracyand scheme to harm competition, restrain trade and monopolize the gamingindustry in the Gilpin County, Colorado market in violation of federal andstate constitutional, statutory and common law. Also, the complaint alleges thatstarting in 1996, the City of Black Hawk began interfering with Central City’splans to construct a road directly from Interstate 70 to Central City. Theplaintiffs seek compensatory, treble and exemplary damages against thedefendants in amounts to be proven at trial along with interest, costs andattorneys’ fees. In March 2003, Central City’s city council voted towithdraw from the lawsuit. Central City has since been dismissed from thelawsuit. The remaining plaintiffs have continued to pursue the lawsuit. On March 26,2003, the district court entered an order dismissing with prejudice theplaintiffs’ seventh, eighth, eleventh, twelfth and thirteenth claims for relief(i.e., the state common law claims and the claims under RICO and its Coloradostatutory counterpart (COCCA)). On March 31,2004, the district court dismissed with prejudice the federal antitrust claims.The court declined to retain supplemental jurisdiction over the state antitrustclaims, and dismissed them without prejudice. On April 30, 2004, theplaintiffs filed a notice of appeal in the district court, appealing thedismissals of their claims to the United States Court of Appeals for the TenthCircuit. The appeal has been briefed and was argued to a panel of the TenthCircuit on January 13, 2005. We are awaiting the decision of the TenthCircuit. Although plaintiffs have appealed, we continue to believe that thislawsuit is without merit and we intend to contest it vigorously. We are unableto reasonably estimate the amount or range of amounts, if any associated withthis litigation. But we do not believe the suit will result in any materialliability.

 

In March 2003, Galactic Gaming, Inc., one ofthe plaintiffs in Case No. 01-D-0964 (MJW),filed an action in District Court in Jefferson County, Colorado, Case No. 03CV0793,Division 7, against many of the same defendants as in Case No. 01-D-0964 (MJW), including Black Hawk Gaming. This action assertedstate common law claims identical or virtually identical to those that wereasserted and dismissed with prejudice in the federal action. Plaintiff movedfor voluntary dismissal and on July 16, 2003, the Jefferson Countydistrict court dismissed the action without prejudice. Given the passage oftime, we do not believe that plaintiff will attempt to reassert this actionafter the Tenth Circuit appeal is

 

F-23

----

 

decided. We are unable to reasonably estimate theamount or range of amounts, if any associated with this litigation. But even ifthe plaintiff in the future attempts to reassert this action, we do not believeit will result in any material liability.

 

The Company is also involved in routine litigationarising in the ordinary course of business. These matters are believed by theCompany to be covered by appropriate insurance policies.

 

**13.**     STOCK OPTIONS

 

In conjunction with the acquisition of the remainingshares of Colonial discussed in Notes 1 and 4, 237,000 options outstanding onthat date became 100% vested, and Colonial recognized a $21 charge tooperations on February 22, 2002, representing the difference between therespective options’ exercise price and the per share acquisition price of$1.12. All outstanding options including those available for grant wereterminated upon JEI’s acquisition of the remainingshares of Colonial on February 22, 2002.

 

Colonial implemented a stock option plan on March 31,1997. Options granted under the plan were either Incentive Stock Options orNon-qualified Stock Options, based on the discretion of the Board of Directors.The maximum aggregate number of shares which could be optioned and sold underthe plan was 395,000 shares of Colonial’s Class A Common Stock. Theexercise price per share for Incentive Options was no less than the fair valueof the stock at the grant date. The exercise of Non-qualified Options wasdetermined by the Board of Directors on the grant date. The term of the planwas ten years. On June 14, 1999, 20,000 granted and outstanding optionswere repriced from $10.45 to $1.7875 per share. On December 15,1998, 118,000 granted and outstanding options were repricedfrom $9.50 per share to $1.00 per share. On February 22, 2002, thefollowing tables summarize activity of the Stock Option Plan and the stockoptions outstanding through the termination date of the plan February 22,2002.

 

**14.**     SEGMENT INFORMATION

** **

At December 31, 2004 and 2003, the Company hasfour segments representing the geographic regions of their operations. Eachsegment is managed separately because of the unique characteristics of revenuestream and customer base.

 

The Colorado segment consists of The Lodge and Gilpincasinos and the Nevada segment consists of the Gold Dust West casino. TheVirginia segment consists of Colonial’s pari-mutuel operations and theLouisiana operations consist of Jalou’s truckplaza/video poker facilities.

 

The accounting policies of the segments are the sameas those described in Note 1. The corporate operations represent all otherrevenues and expenses, and are also presented. The following segmentinformation is presented after elimination of inter-segment transactions.

 

F-24

----

 
| ** **                                               | ** ** | **Year Ended December 31, 2004** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **(Dollars in thousands)**            | ** ** |
| ** **                                               | ** ** | **Colorado**                          | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Total** | ** ** |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Total revenues:                                          |       |                                  |       |   |   |   |   |   |   |   |   |
| Gaming:                                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Casino                                                   |       | $                                     | 86,115     |   | $ | 22,232 |   | $ | — |   | $ | — |   | $ | 108,347 |   |
| Truck stop                                               |       |                                  |       |   |   |   |   | 24,294 |   | 24,294 |   |
| Pari-mutuel                                              |       |                                  |       |   |   | 32,946 |   |   |   | 32,946 |   |
| Food and  beverage                                       |       | 9,618                                 |       | 3,527 |   | 2,056 |   | 2,582 |   | 17,783 |   |
| Convenience  store—fuel                             |       |                                  |       |   |   |   |   | 18,424 |   | 18,424 |   |
| Convenience  store—other                            |       |                                  |       |   |   |   |   | 3,314 |   | 3,314 |   |
| Hotel                                                    |       | 800                                   |       | 582 |   |   |   |   |   | 1,382 |   |
| Other                                                    |       | 755                                   |       | 152 |   | 2,099 |   | 320 |   | 3,326 |   |
| Total revenues                                           |       | 97,288                                |       | 26,493 |   | 37,101 |   | 48,934 |   | 209,816 |   |
| Promotional  allowances                                  |       | (15,007                               | )          | (4,028 | ) |   |   | (1,066 | ) | (20,101 | ) |
| Net revenues                                             |       | $                                     | 82,281     |   | $ | 22,465 |   | $ | 37,101 |   | $ | 47,868 |   | $ | 189,715 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                           |       | $                                     | 4,838      |   | $ | 1,436 |   | $ | 1,544 |   | $ | 1,749 |   | $ | 9,567 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 178 |   |
| Consolidated  depreciation and amortization              |       |                                  |       |   |   |   |   |   |   | $ | 9,745 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Interest income                                          |       | 13                                    |       | 3 |   | 29 |   | 3 |   | $ | 48 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 16 |   |
| Consolidated  total interest income                      |       |                                  |       |   |   |   |   |   |   | $ | 64 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Interest expense                                         |       | 10,807                                |       | 3,142 |   | 121 |   | 1,989 |   | $ | 16,059 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 3,419 |   |
| Consolidated  total interest expense                     |       |                                  |       |   |   |   |   |   |   | $ | 19,478 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Net income                                               |       | $                                     | 8,582      |   | $ | 2,960 |   | $ | (35 | ) | $ | 6,375 |   | $ | 17,882 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | (12,895 | ) |
| Consolidated net  income                                 |       |                                  |       |   |   |   |   |   |   | $ | 4,987 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| EBITDA  (1)                                              |       | $                                     | 24,214     |   | $ | 7,535 |   | $ | 1,601 |   | $ | 10,110 |   | $ | 43,460 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | (9,314 | ) |
| Consolidated EBITDA                                      |       |                                  |       |   |   |   |   |   |   | $ | 34,146 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Goodwill                                                 |       | $                                     | 6,711      |   | $ | 8,836 |   | $ | — |   | $ | 11,226 |   | $ | 26,773 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Identifiable  intangible assets—net                 |       | $                                     | —     |   | $ | — |   | $ | — |   | $ | 6,788 |   | $ | 6,788 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Property, plant  and equipment—net                  |       | $                                     | 87,294     |   | $ | 11,594 |   | $ | 59,690 |   | $ | 16,039 |   | $ | 174,617 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 450 |   |
| Consolidated net  property, plant and equipment—net |       |                                  |       |   |   |   |   |   |   | $ | 175,067 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Total assets                                             |       | $                                     | 111,277    |   | $ | 24,577 |   | $ | 63,538 |   | $ | 40,239 |   | $ | 239,631 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 3,130 |   |
| Consolidated  total assets                               |       |                                  |       |   |   |   |   |   |   | $ | 242,761 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Long-term debt                                           |       | $                                     | 78,265     |   | $ | 22,682 |   | $ | 1,888 |   | $ | 19,489 |   | $ | 122,324 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 24,681 |   |
| Consolidated  total long-term debt                       |       |                                  |       |   |   |   |   |   |   | $ | 147,005 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                    |       | $                                     | 5,585      |   | $ | 1,619 |   | $ | 5,665 |   | $ | 536 |   | $ | 13,405 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Consolidated  capital expenditures                       |       |                                  |       |   |   |   |   |   |   | $ | 13,405 |   |

 

F-25

----

 
| ** **                                               | ** ** | **Year Ended December 31, 2003** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **(Dollars in thousands)**            | ** ** |
| ** **                                               | ** ** | **Colorado**                          | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Total** | ** ** |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Total revenues:                                          |       |                                  |       |   |   |   |   |   |   |   |   |
| Gaming:                                                  |       |                                  |       |   |   |   |   |   |   |   |   |
| Casino                                                   |       | $                                     | 77,137     |   | $ | 19,679 |   | $ | — |   | $ | — |   | $ | 96,816 |   |
| Truck stop                                               |       |                                  |       |   |   |   |   | 24,108 |   | 24,108 |   |
| Pari-mutuel                                              |       |                                  |       |   |   | 29,189 |   |   |   | 29,189 |   |
| Food and  beverage                                       |       | 8,646                                 |       | 3,446 |   | 1,951 |   | 2,340 |   | 16,383 |   |
| Convenience  store—fuel                             |       |                                  |       |   |   |   |   | 17,229 |   | 17,229 |   |
| Convenience  store—other                            |       |                                  |       |   |   |   |   | 3,403 |   | 3,403 |   |
| Hotel                                                    |       | 792                                   |       | 578 |   |   |   |   |   | 1,370 |   |
| Other                                                    |       | 722                                   |       | 131 |   | 1,863 |   | 287 |   | 3,003 |   |
| Total revenues                                           |       | 87,297                                |       | 23,834 |   | 33,003 |   | 47,367 |   | 191,501 |   |
| Promotional  allowances                                  |       | (14,820                               | )          | (3,970 | ) |   |   | (862 | ) | (19,652 | ) |
| Net revenues                                             |       | 72,477                                |       | 19,864 |   | 33,003 |   | 46,505 |   | $ | 171,849 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                           |       | 4,759                                 |       | 1,241 |   | 1,285 |   | 1,650 |   | $ | 8,935 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 136 |   |
| Consolidated  depreciation and amortization              |       |                                  |       |   |   |   |   |   |   | $ | 9,071 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Interest income                                          |       | 3                                     |       |   |   | 44 |   | 14 |   | $ | 61 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 1 |   |
| Consolidated  total interest income                      |       |                                  |       |   |   |   |   |   |   | $ | 62 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Other income                                             |       |                                  |       |   |   |   |   |   |   | $ | 10 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Interest expense                                         |       | 10,774                                |       | 3,123 |   | 264 |   | 1,986 |   | $ | 16,147 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 3,498 |   |
| Consolidated  total interest expense                     |       |                                  |       |   |   |   |   |   |   | $ | 19,645 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Net income                                               |       | $                                     | 3,178      |   | $ | 1,378 |   | $ | 278 |   | $ | 6,718 |   | $ | 11,552 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | (8,879 | ) |
| Consolidated net  income                                 |       |                                  |       |   |   |   |   |   |   | $ | 2,673 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| EBITDA  (1)                                              |       | $                                     | 18,708     |   | $ | 5,742 |   | $ | 1,783 |   | $ | 10,340 |   | $ | 36,573 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | $ | (5,256 | ) |
| Consolidated EBITDA                                      |       |                                  |       |   |   |   |   |   |   | $ | 31,317 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Goodwill                                                 |       | $                                     | 6,711      |   | $ | 8,836 |   | $ | — |   | $ | 11,226 |   | $ | 26,773 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Identifiable  intangible assets—net                 |       | $                                     | —     |   | $ | — |   | $ | — |   | $ | 7,176 |   | $ | 7,176 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Property, plant  and equipment—net                  |       | $                                     | 86,770     |   | $ | 11,579 |   | $ | 55,569 |   | $ | 16,635 |   | $ | 170,553 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 576 |   |
| Consolidated net  property, plant and equipment—net |       |                                  |       |   |   |   |   |   |   | $ | 171,129 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Total assets                                             |       | 108,775                               |       | 24,071 |   | 59,363 |   | 40,486 |   | $ | 232,695 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 3,878 |   |
| Consolidated  total assets                               |       |                                  |       |   |   |   |   |   |   | $ | 236,573 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Long-term debt                                           |       | $                                     | 78,302     |   | $ | 22,549 |   | $ | 471 |   | $ | 19,489 |   | $ | 120,811 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 24,539 |   |
| Consolidated  total long-term debt                       |       |                                  |       |   |   |   |   |   |   | $ | 145,350 |   |
|                                                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                    |       | $                                     | 8,226      |   | $ | 1,080 |   | $ | 2,804 |   | $ | 1,651 |   | $ | 13,761 |   |
| Corporate  adjustments and eliminations                  |       |                                  |       |   |   |   |   |   |   | 440 |   |
| Consolidated  capital expenditures                       |       |                                  |       |   |   |   |   |   |   | $ | 14,201 |   |

 

F-26

----

 
| ** **                                                                                     | ** ** | **Year Ended December 31, 2002** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                     | ** ** | **(Dollars in thousands)**            | ** ** |
| ** **                                                                                     | ** ** | **Colorado**                          | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Total** | ** ** |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Total revenues:                                                                                |       |                                  |       |   |   |   |   |   |   |   |   |
| Gaming:                                                                                        |       |                                  |       |   |   |   |   |   |   |   |   |
| Casino                                                                                         |       | $                                     | 68,297     |   | $ | 15,218 |   | $ | — |   | $ | — |   | $ | 83,515 |   |
| Truck stop                                                                                     |       |                                  |       |   |   |   |   | 21,884 |   | 21,884 |   |
| Pari-mutuel                                                                                    |       |                                  |       |   |   | 27,872 |   |   |   | 27,872 |   |
| Food and  beverage                                                                             |       | 6,458                                 |       | 2,343 |   | 1,650 |   | 1,954 |   | 12,405 |   |
| Convenience  store—fuel                                                                   |       |                                  |       |   |   |   |   | 14,909 |   | 14,909 |   |
| Convenience  store-other                                                                       |       |                                  |       |   |   |   |   | 3,329 |   | 3,329 |   |
| Hotel                                                                                          |       | 811                                   |       | 460 |   |   |   |   |   | 1,271 |   |
| Other                                                                                          |       | 519                                   |       | 68 |   | 1,702 |   | 325 |   | 2,614 |   |
| Total revenues                                                                                 |       | 76,085                                |       | 18,089 |   | 31,224 |   | 42,401 |   | 167,799 |   |
| Promotional  allowances                                                                        |       | (11,336                               | )          | (1,974 | ) |   |   | (769 | ) | (14,079 | ) |
| Net revenues                                                                                   |       | 64,749                                |       | 16,115 |   | 31,224 |   | 41,632 |   | $ | 153,720 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                                 |       | 4,513                                 |       | 840 |   | 1,414 |   | 1,548 |   | $ | 8,315 |   |
| Corporate adjustments  and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | 74 |   |
| Consolidated  depreciation and amortization                                                    |       |                                  |       |   |   |   |   |   |   | $ | 8,389 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Interest income                                                                                |       | 15                                    |       | 1 |   | 35 |   | 28 |   | $ | 79 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | 115 |   |
| Consolidated  total interest income                                                            |       |                                  |       |   |   |   |   |   |   | $ | 194 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Interest expense                                                                               |       | 9,247                                 |       | 2,684 |   | 611 |   | 2,003 |   | $ | 14,545 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | 3,755 |   |
| Consolidated  total interest expense                                                           |       |                                  |       |   |   |   |   |   |   | $ | 18,300 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Income (loss)  before equity in loss of investments and minority interest in loss              |       | $                                     | 4,530      |   | $ | 997 |   | $ | 538 |   | $ | 6,199 |   | $ | 12,264 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | (7,519 | ) |
| Consolidated  total income before equity in loss of investments and minority interest in  loss |       |                                  |       |   |   |   |   |   |   | $ | 4,745 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Equity in loss  of investments—Black Hawk and the Lodge                                   |       | $                                     | (1,980     | ) | $ | — |   | $ | — |   | $ | — |   | $ | (1,980 | ) |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Minority  interest in loss—Colonial                                                       |       | $                                     | —     |   | $ | — |   | $ | 173 |   | $ | — |   | $ | 173 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Net income  (loss)                                                                             |       | $                                     | 2,550      |   | $ | 997 |   | $ | 711 |   | $ | 6,199 |   | $ | 10,457 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | (7,519 | ) |
| Consolidated net  income                                                                       |       |                                  |       |   |   |   |   |   |   | $ | 2,938 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| EBITDA  (1)                                                                                    |       | $                                     | 18,238     |   | $ | 4,519 |   | $ | 2,528 |   | $ | 9,722 |   | $ | 35,007 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | (3,767 | ) |
| Consolidated EBITDA                                                                            |       |                                  |       |   |   |   |   |   |   | $ | 31,240 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Goodwill                                                                                       |       | $                                     | 6,765      |   | $ | 8,847 |   | $ | — |   | $ | 11,226 |   | $ | 26,838 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Identifiable  intangible assets—net                                                       |       | $                                     | —     |   | $ | — |   | $ | — |   | $ | 7,522 |   | $ | 7,522 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Property, plant  and equipment—net                                                        |       | $                                     | 81,225     |   | $ | 11,804 |   | $ | 54,116 |   | $ | 16,072 |   | $ | 163,217 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | 233 |   |
| Consolidated net  property, plant and equipment—net                                       |       |                                  |       |   |   |   |   |   |   | $ | 163,450 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                   |       | 113,416                               |       | 23,962 |   | 57,478 |   | 41,359 |   | $ | 236,215 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | 11 |   |
| Consolidated  total assets                                                                     |       |                                  |       |   |   |   |   |   |   | $ | 236,226 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Long-term debt                                                                                 |       | $                                     | 77,982     |   | $ | 22,300 |   | $ | 2,440 |   | $ | 19,489 |   | $ | 122,211 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | 24,902 |   |
| Consolidated  total long-term debt                                                             |       |                                  |       |   |   |   |   |   |   | $ | 147,113 |   |
|                                                                                           |       |                                  |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                                                          |       | $                                     | 3,510      |   | $ | 1,450 |   | $ | 1,732 |   | $ | 339 |   | $ | 7,031 |   |
| Corporate  adjustments and eliminations                                                        |       |                                  |       |   |   |   |   |   |   | 310 |   |
| Consolidated  capital expenditures                                                             |       |                                  |       |   |   |   |   |   |   | $ | 7,341 |   |

 

F-27

----

 

----

(1)EBITDA (earnings before interest, taxes, depreciation and amortization) is presentedas supplemental information in the tables above and in the discussion of ouroperating results. EBITDA can be reconciled directlyto our consolidated net income by adding the amounts shown for depreciation,amortization, and interest. This information should not be considered as analternative to any measure of performance as promulgated under accountingprinciples generally accepted in the United States of America, such as net(loss) income, nor should it be considered as an indicator of our overallfinancial performance. Our calculation of EBITDA maybe different from the calculation used by other companies and comparability maybe limited. Management believes that presentation of a non-GAAPfinancial measure such as EBITDA is useful because itallows investors and management to evaluate and compare the Company’s operatingresults from continuing operations from period to period in a meaningful andconsistent manner in addition to standard GAAPfinancial measures. Management internally evaluates the performance of itsproperties using EBITDA measures as do most analystsfollowing the gaming industry. EBITDA is also acomponent of certain financial covenants in the Company’s debt agreements.

 

**15.**     SUBSEQUENT EVENT

** **

On March 2, 2005, JEIissued $23,000 in debt subject to the indenture of the Notes described above.The terms of the new notes are the same as the existing notes, which carry acoupon rate of 117/8% per annum and mature February 2009.Additionally, the notes were issued at a 10% premium from their principalamount resulting in a premium of $2,300, which is being amortized using theeffective interest method over the life of the notes. The majority of theproceeds from the financing ($22,500) was used to purchase three truck plazavideo gaming facilities in Louisiana from a related party. The acquisition is acombination of entities under common control, and as a result, will be treatedfor accounting and financial reporting purposes as a pooling of interest. Theexcess of the purchase price over the book value of the net assets acquiredwill be recorded as a distribution to the Company’s owners in the amount ofapproximately $12,000. The results of operations of the acquired entities werenot material for 2003 and 2004.

 

******

 

F-28

----

 

SUPPLEMENTAL INFORMATION TOBE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BYREGISTRANT WHICH HAVE NOT BEEN REGISTERED SECURITIES PURSUANT TO SECTION 12OF THE ACT.

 

No annual report or proxymaterial has been sent to the two security holders of the registrant coveringthe registrant’s last fiscal year or with respect to any annual or other metingof the registrant’s security holders.

 

----

 

**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1(1)          |       | Agreement and Plan of Merger dated as of April 25,  2001, among Black Hawk Gaming & Development Company, Gameco,  Inc., and BH Acquisition, Inc.                      |
|            |       |                                                                                                                                                                           |
| 2.2(1)          |       | Amendment to Agreement and Plan of Merger dated as  of November 12, 2001 among Black Hawk Gaming & Development Company,  Inc., Gameco, Inc. and BH  Acquisition, Inc. |
|            |       |                                                                                                                                                                           |
| 2.3(1)          |       | Exchange Agreement dated February 22, 2002  among Gameco, Inc., Jeffrey P. Jacobs and The  Richard E. Jacobs Revocable Trust                                              |
|            |       |                                                                                                                                                                           |
| 2.4(1)          |       | Agreement and Plan of Merger dated as of June 11,  2001 among Colonial Holdings, Inc., Gameco, Inc.  and Gameco Acquisitions, Inc.                                        |
|            |       |                                                                                                                                                                           |
| 2.5(1)          |       | Amendment to Agreement and Plan of Merger dated as  of November 16, 2001 among Colonial Holdings, Inc., Gameco,  Inc., and Gameco Acquisition, Inc.                       |
|            |       |                                                                                                                                                                           |
| 2.6(1)          |       | Agreement and Plan of Merger, dated February 22,  2002 between Gameco, Inc. and Jacobs Entertainment,  Inc.                                                               |
|            |       |                                                                                                                                                                           |
| 3.1(1)          |       | Certificate of Incorporation of Gameco, Inc.                                                                                                                                   |
|            |       |                                                                                                                                                                           |
| 3.2(1)          |       | By-Laws of Gameco, Inc.                                                                                                                                                        |
|            |       |                                                                                                                                                                           |
| 3.3(1)          |       | Articles of Incorporation of Black Hawk Gaming &  Development Company, Inc.                                                                                                |
|            |       |                                                                                                                                                                           |
| 3.4(1)          |       | Bylaws of Black Hawk Gaming & Development  Company, Inc.                                                                                                                   |
|            |       |                                                                                                                                                                           |
| 3.5(1)          |       | Articles of Incorporation of Gold Dust West  Casino, Inc.                                                                                                                      |
|            |       |                                                                                                                                                                           |
| 3.6(1)          |       | Code of By-laws of Gold Dust West Casino, Inc.                                                                                                                                 |
|            |       |                                                                                                                                                                           |
| 3.7(1)          |       | Articles of Organization of Black Hawk/Jacobs  Entertainment, LLC.                                                                                                             |
|            |       |                                                                                                                                                                           |
| 3.8(1)          |       | Operating Agreement of Black Hawk/Jacobs  Entertainment, LLC.                                                                                                                  |
|            |       |                                                                                                                                                                           |
| 3.9(1)          |       | Joint Venture Agreement of Gilpin Hotel Venture                                                                                                                                |
|            |       |                                                                                                                                                                           |
| 3.10(1)         |       | Articles of Incorporation of Gilpin Ventures, Inc.                                                                                                                             |
|            |       |                                                                                                                                                                           |
| 3.11(1)         |       | By-Laws of Gilpin Ventures, Inc.                                                                                                                                               |
|            |       |                                                                                                                                                                           |
| 3.12(1)         |       | Articles of Incorporation of Jalou  II Inc.                                                                                                                                    |
|            |       |                                                                                                                                                                           |
| 3.13(1)         |       | By-Laws of Jalou II Inc.                                                                                                                                                       |
|            |       |                                                                                                                                                                           |
| 3.14(1)         |       | Articles of Incorporation of Winner’s Choice  Casino, Inc.                                                                                                                |
|            |       |                                                                                                                                                                           |
| 3.15(1)         |       | By-Laws of Winner’s Choice Casino, Inc.                                                                                                                                   |
|            |       |                                                                                                                                                                           |
| 3.16(1)         |       | Articles of Organization of Diversified  Opportunities Group Ltd.                                                                                                              |
|            |       |                                                                                                                                                                           |
| 3.17(1)         |       | Articles of Organization of Jalou  L.L.C.                                                                                                                                      |
|            |       |                                                                                                                                                                           |
| 3.18(1)         |       | Articles of Organization of Houma Truck Plaza  & Casino, L.L.C.                                                                                                            |
|            |       |                                                                                                                                                                           |
| 3.19(1)         |       | Articles of Organization of Jalou-Cash’s  L.L.C.                                                                                                                          |
|            |       |                                                                                                                                                                           |
| 3.20(1)         |       | Articles of Incorporation of JACE,  Inc.                                                                                                                                       |
|            |       |                                                                                                                                                                           |
| 3.21(1)         |       | Articles of Organization of Lucky Magnolia Truck  Stop and Casino, L.L.C.                                                                                                      |
|            |       |                                                                                                                                                                           |
| 3.22(1)         |       | Articles of Organization of Bayou Vista Truck  Plaza and Casino, L.L.C.                                                                                                        |

 

E-1

----

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                      |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.23(1)         |       | Articles of Organization of Raceland Truck Plaza  and Casino, L.L.C.                                                                                                                                                                                                                                                                                                 |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.24(1)         |       | Articles of Incorporation of JACE,  Inc. (duplicate of Exhibit 3.20)                                                                                                                                                                                                                                                                                                 |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.25(2)         |       | Certificate of Amendment of Certificate of  Incorporation of Gameco, Inc.                                                                                                                                                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.26(2)         |       | Amended and Restated Certificate of Limited  Partnership of Colonial Downs, L.P.                                                                                                                                                                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.27(2)         |       | Limited Partnership Agreement of Colonial Downs,  L.P.                                                                                                                                                                                                                                                                                                               |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.28(2)         |       | Amended and Restated Articles of Incorporation of  Colonial Downs Holdings, Inc.                                                                                                                                                                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.29(2)         |       | Amendment to Articles of Incorporation of Colonial  Downs Holdings, Inc.                                                                                                                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.30(2)         |       | Bylaws of Colonial Downs Holdings, Inc.                                                                                                                                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.31(2)         |       | Articles of Incorporation of Stansley  Racing Corp.                                                                                                                                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.32(2)         |       | Articles of Amendment to the Articles of  Incorporation of Stansley Racing Corp.                                                                                                                                                                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.33(2)         |       | Bylaws of Stansley  Racing Corp.                                                                                                                                                                                                                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.34(2)         |       | Amended and Restated Operating Agreement of  Diversified Opportunities Group Ltd.                                                                                                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.35(2)         |       | Amendment to the Operating Agreement of Black  Hawk/Jacobs Entertainment, LLC                                                                                                                                                                                                                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.36(2)         |       | Amendment to the Certificate of Incorporation of Gameco, Inc.                                                                                                                                                                                                                                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.37(8)         |       | Articles of Organization of Jalou  Breaux Bridge, LLC dated January 29, 2003                                                                                                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.38(8)         |       | Articles of Organization of Jalou  Eunice, LLC dated March 27, 2003                                                                                                                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 3.39(8)         |       | Articles of Organization of Jalou  of Jefferson, LLC dated September 23, 2003                                                                                                                                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.1(1)          |       | Indenture dated February 8, 2002 by and among  Gameco, Inc., certain guarantors and Wells Fargo  Bank Minnesota, National Association relating to 117/8%  Senior Secured Notes due 2009                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.2(1)          |       | Form of Gameco, Inc. 117/8%  Senior Secured Notes due 2009 (included as part of the Indenture at Exhibit  4.1)                                                                                                                                                                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.3(1)          |       | Supplemental Indenture dated February 22,  2002 by and among Gameco, Inc. certain guarantors  and Wells Fargo Bank Minnesota, National Association relating to 117/8%  Senior Secured Notes due 2009                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.4(1)          |       | Form of Subsidiary Guaranty for 117/8%  Senior Secured Notes due 2009 (included as part of the Indenture at 4.1)                                                                                                                                                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.5(1)          |       | Registration Rights Agreement dated as of February 8,  2002 by and among Gameco, Inc., certain guarantors,  CIBC World Markets Corp. And Libra Securities, LLC                                                                                                                                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.6(1)          |       | Security Agreement dated February 8, 2002  among Gameco, Inc., certain guarantors and Wells  Fargo Bank Minnesota, National Association as Trustee                                                                                                                                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.7(1)          |       | Amendment to the Security Agreement dated February 22,  2002 among Gameco, Inc., certain guarantors and  Wells Fargo Bank Minnesota, National Association                                                                                                                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.8(1)          |       | Joinder Agreements dated February 22, 2002  between Wells Fargo Bank Minnesota, National Association and each guarantor                                                                                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.9(1)          |       | Guaranty of each guarantor dated February 22,  2002                                                                                                                                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                 |
| 4.10(1)         |       | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Security Agreements and fixture filings by Black  Hawk/Jacobs Entertainment LLC and Gilpin Hotel Venture to the Public Trustee  of Gilpin County, State of Colorado, as Trustee for the Benefit of Wells  Fargo Bank Minnesota, National Association as Beneficiary, dated February 22,  2002 |

 

E-2

----

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                   |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.11(1)         |       | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Security Agreements and fixture filings by Gold Dust  Casino, Inc. to the First American Title Company of Nevada, as Trustee for  the Benefit of Wells Fargo Bank Minnesota, National Association as  Beneficiary, dated February 22, 2002 |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.12(1)         |       | Leasehold Mortgage, Assignment of Leases and  Rents, Security Agreement and fixture filing by Houma Truck Plaza &  Casino, L.L.C. to Wells Fargo Bank Minnesota,  National Association, as Trustee dated February 22, 2002                                                                               |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.13(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Winner’s Choice Casino, Inc. to Wells Fargo  Bank Minnesota, National Association as Trustee dated February 22, 2002                                                                                               |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.14(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Raceland Truck Plaza and Casino, LLC to  Wells Fargo Bank Minnesota, National Association as Trustee dated February 22,  2002                                                                                           |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.15(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Bayou Vista Truck Plaza and Casino, LLC to  Wells Fargo Bank Minnesota, National Association as Trustee dated February 22,  2002                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.16(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Lucky Magnolia Truck Stop and Casino, L.L.C. to Wells Fargo Bank Minnesota, National Association  as Trustee dated February 22, 2002                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.17(1)         |       | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by JACE, Inc. to  Wells Fargo Bank Minnesota, National Association as Trustee dated February 22,  2002                                                                                                                     |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.18(1)         |       | Collateral Assignment of Deeds of Trust,  Assignments of Rents and Leases, Security Agreements and fixture filings and  other loan documents by Gameco, Inc. to Wells Fargo  Bank Minnesota, National Association as Trustee dated February 22, 2002                                                         |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.19(1)         |       | Escrow Agreement between Gameco,  Inc. and Wells Fargo Bank Minnesota, National Association dated February 22,  2002                                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.20(1)         |       | Supplemental Indenture dated June 14, 2002 by  and among Jacobs Entertainment, Inc., certain guarantors and Wells Fargo Bank  Minnesota, National Association relating to 117/8%  Senior Secured Notes due 2009                                                                                              |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.21(2)         |       | Joinder Agreements dated June 14, 2002  between Wells Fargo Bank, National Association and each guarantor                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.22(2)         |       | Subsidiary Guarantee of each subsidiary guarantor  dated June 14, 2002 for 117/8% Senior Secured  Notes due 2009                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.23(2)         |       | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Downs, L.P. to David F. Belkowitz and James L. Weinberg as Trustees for the benefit  of Wells Fargo Bank Minnesota, National Association, dated June 14, 2002                                              |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.24(2)         |       | Leasehold Deed of Trust, Assignment of Leases and  Rents, Security Agreement and Fixture Filing by Colonial Downs, L.P. to David  F. Belkowitz and James L. Weinberg as Trustees for  the benefit of Wells Fargo Bank Minnesota, National Association, dated June 14,  2002                                  |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.25(2)         |       | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Holdings, Inc. to David F. Belkowitz and James L. Weinberg as Trustees for the  benefit of Wells Fargo Bank Minnesota, National Association, dated June 14,  2002                                          |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.26(2)         |       | Loan and Security Agreement dated July 12,  2002 by and among Jacobs Entertainment, Inc., certain subsidiaries and  Foothill Capital Corporation                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.27(2)         |       | Promissory Note dated July 12, 2002 by and  among Jacobs Entertainment, Inc., certain borrowers and Foothill Capital  Corporation                                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.28(2)         |       | Guaranty of Gold Dust West Casino, Inc. and  Diversified Opportunities Group Ltd., dated July 12, 2002                                                                                                                                                                                                       |
|            |       |                                                                                                                                                                                                                                                                                                              |
| 4.29(2)         |       | Intercreditor Agreement dated July 12, 2002 by and  between Wells Fargo Bank Minnesota, National Association and Foothill Capital  Corporation                                                                                                                                                               |

 

E-3

----

 
| **Exhibit No.**   | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                         |
|-------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.30(2)           |       | Memorandum of Intercreditor  Agreement dated July 12, 2002 by and among Foothill Capital Corporation,  Wells Fargo Bank Minnesota, National Association and Borrowers                                                                                                                                                                              |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.31(2)           |       | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Securiting Agreement and Fixture  Filing by Black Hawk Gaming & Development Company, Inc., Black  Hawk/Jacobs Entertainment, LLC, and Gilpin Hotel Venture to the Public  Trustee of Gilpin County, State of Colorado and Foothill Capital Corporation,  dated July 12, 2002 |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.32(5)           |       | Second Supplemental Indenture dated June 14,  2002 among Jacobs Entertainment, Inc., certain guarantors and Wells Fargo  Bank Minnesota, National Association (Trustee)                                                                                                                                                                            |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.33(a)  (5) |       | Subsidiary Guarantees of Colonial Holding, Inc.  dated June 28, 2002                                                                                                                                                                                                                                                                               |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.33(b)  (5) |       | Subsidiary Guarantee of Colonial Downs, L.P. dated  June 28, 2002                                                                                                                                                                                                                                                                                  |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.33(c)  (5) |       | Subsidiary Guarantee of Stansley  Racing Corp. dated June 28, 2002                                                                                                                                                                                                                                                                                 |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.34(a)  (5) |       | Joinder Agreement of Colonial Holdings, Inc. dated  June 28, 2002                                                                                                                                                                                                                                                                                  |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.34(b)  (5) |       | Joinder Agreement of Colonial Downs, L.P. dated June 28,  2002                                                                                                                                                                                                                                                                                     |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.34(c)  (5) |       | Joinder Agreement of Stansley  Racing Corp. dated June 28, 2002                                                                                                                                                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.35(a)(1)(5)     |       | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Holdings, Inc. (New Kent  Racetrack) dated June 28, 2002                                                                                                                                                                                         |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.35(a)(2)(5)     |       | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing (Richmond Southwest) dated June 28,  2002                                                                                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.35(b)(1)(5)     |       | Leasehold Deed of Trust, Assignment of Leases and  Rents, Security Agreement and Fixture Filing (New Kent and Chesapeake) dated June 28,  2002                                                                                                                                                                                                     |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.36(5)           |       | Form of Control Agreement Concerning Deposit  Accounts (Citizens Bank/Colonial Downs, L.P.) dated June 14, 2002                                                                                                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.37(5)           |       | Form of Control Agreement Concerning Deposit  Accounts (Citizens Bank/Colonial Holdings, Inc.) dated June 14, 2002.                                                                                                                                                                                                                                |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.38(6)           |       | Subsidiary Guarantee—Colonial Downs, LLC dated June 4,  2003                                                                                                                                                                                                                                                                                  |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.39(6)           |       | Security Agreement Amendment by Colonial Holdings,  Inc. dated June 4, 2003                                                                                                                                                                                                                                                                        |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.40(6)           |       | Supplemental Letter by Colonial Downs, LLC dated June 4,  2003                                                                                                                                                                                                                                                                                     |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.41(6)           |       | Third Supplemental Indenture dated June 4,  2003 among Jacobs Entertainment, Inc., certain Guarantors and Wells Fargo  Bank Minnesota, National Association (Trustee)                                                                                                                                                                              |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.42(6)           |       | Supplemental Deed of Trust, Assignment of Leases  and Rents, Security Agreement and Fixture Filing by Colonial Downs, LLC dated  June 4, 2003                                                                                                                                                                                                      |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.43(a)(7)        |       | Fourth Supplemental Indenture among Jacobs Entertainment,  Inc., certain Guarantors and Wells Fargo Bank, National Association dated March 2,  2005                                                                                                                                                                                                |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.43(b)(7)        |       | Fifth Supplemental Indenture among Jacobs  Entertainment, Inc., certain Guarantors and Wells Fargo Bank, National  Association dated March 2, 2005                                                                                                                                                                                                 |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.44(8)           |       | Amendment No. 2 to Security Agreement dated March 2,  2005 between Jalou, LLC and Wells Fargo Bank,  National Association                                                                                                                                                                                                                          |
|              |       |                                                                                                                                                                                                                                                                                                                                                    |
| 4.45(8)           |       | Supplement to Security Agreement dated March 2,  2005 by Jalou Breaux Bridge, LLC, Jalou Eunice, LLC and Jalou of  Jefferson, LLC and Wells Fargo Bank, National Association                                                                                                                                                                       |

 

E-4

----

 
| **Exhibit No.**   | ** ** | **Description**                                                                                                                                                                                                                                                    |
|-------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.46(8)           |       | Leasehold Mortgage, Assignment of Leases and  Rents, Security Agreement and Fixture Filing dated March 2, 2005 by Jalou of Jefferson, LLC and Wells Fargo Bank, National  Association                                                                         |
|              |       |                                                                                                                                                                                                                                                               |
| 4.47(8)           |       | Mortgage, Assignment of Leases and Rents, Security  Agreement and Fixture Filing dated March 2, 2005 by Jalou  Breaux Bridge, LLC and Wells Fargo Bank, National Association                                                                                  |
|              |       |                                                                                                                                                                                                                                                               |
| 4.48(8)           |       | Mortgage, Assignment of Leases and Rents, Security  Agreement and Fixture Filing dated March 2, 2005 by Jalou  Eunice, LLC and Wells Fargo Bank, National Association                                                                                         |
|              |       |                                                                                                                                                                                                                                                               |
| 4.49(a)(8)        |       | Subsidiary Guarantee dated March 2, 2005 by Jalou of Jefferson, LLC.                                                                                                                                                                                          |
|              |       |                                                                                                                                                                                                                                                               |
| 4.49(b)(8)        |       | Subsidiary Guarantee dated March 2, 2005 by Jalou Breaux Bridge, LLC.                                                                                                                                                                                         |
|              |       |                                                                                                                                                                                                                                                               |
| 4.49(c)  (8) |       | Subsidiary Guarantee dated March 2, 2005 by Jalou Eunice, LLC.                                                                                                                                                                                                |
|              |       |                                                                                                                                                                                                                                                               |
| 4.50(8)           |       | First Amendment to Fee and Leasehold Deed of  Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing  dated March 2, 2005 between Black Hawk Gaming & Development Company,  Inc., et al, and Wells Fargo Bank, National Association |
|              |       |                                                                                                                                                                                                                                                               |
| 4.51(8)           |       | First Amendment to Fee and Leasehold Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing dated March 2,  2005 between Gold Dust West Casino, Inc. and Wells Fargo Bank, National  Association                               |
|              |       |                                                                                                                                                                                                                                                               |
| 10.1(1)           |       | Consulting Agreement between Diversified  Opportunities Group Ltd. and Ian M Stewart dated January 1, 2001                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                               |
| 10.2(1)           |       | Executive Employment Agreement between Gameco, Inc. and Jeffrey P. Jacobs dated February 22,  2002                                                                                                                                                            |
|              |       |                                                                                                                                                                                                                                                               |
| 10.3(1)           |       | Executive Employment Agreement between Gameco, Inc. and Richard E. Jacobs dated February 22,  2002                                                                                                                                                            |
|              |       |                                                                                                                                                                                                                                                               |
| 10.4(1)           |       | Executive Employment Agreement between Gameco, Inc. and Stephen R. Roark dated February 22,  2002                                                                                                                                                             |
|              |       |                                                                                                                                                                                                                                                               |
| 10.5(1)           |       | Executive Employment Agreement between Colonial  Holdings, Inc. and Ian M. Stewart dated February 22, 2002                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                               |
| 10.7(3)           |       | Standardbred Horsemen’s Contract effective March 1,  2003 among Colonial Downs L.P. Stansley Racing  Corp. and The Virginia Harness Horse Association                                                                                                    |
|              |       |                                                                                                                                                                                                                                                               |
| 10.8(3)           |       | Thoroughbred Horsemen’s Agreement dated December 23,  2002 between Colonial Downs L.P. and the Virginia Horseman’s Benevolent and  Protective Association                                                                                           |
|              |       |                                                                                                                                                                                                                                                               |
| 10.8A(3)          |       | First Amendment dated January 1, 2003 to  Thoroughbred Horsemen’s Agreement dated December 23, 2002 between  Colonial Downs L.P. and the Virginia Horsemen’s Benevolent and Protective  Association                                            |
|              |       |                                                                                                                                                                                                                                                               |
| 10.9(4)           |       | Consulting Agreement dated January 1, 2003  between Jacobs Entertainment, Inc. and Jacobs Investments Management Co.,  Inc.                                                                                                                                   |
|              |       |                                                                                                                                                                                                                                                               |
| 10.10(3)          |       | Option Agreement dated January 20, 2004  regarding Vinton, Virginia Off Track Wagering Facility                                                                                                                                                               |
|              |       |                                                                                                                                                                                                                                                               |
| 10.11(3)          |       | Deed of Lease dated May 8, 2003 between Haynes Chippenham Plaza, LLC and Colonial Downs, L.P.                                                                                                                                                                      |
|              |       |                                                                                                                                                                                                                                                               |
| 10.12(8)          |       | Assignment of Membership Interests between Jacobs  Entertainment, Inc. and Gameco Holdings, LLC dated February 22,  2005                                                                                                                                      |
|              |       |                                                                                                                                                                                                                                                               |
| 10.13(8)          |       | Registration Rights Agreement dated March 2,  2005 by and among Jacobs Entertainment, Inc., the Guarantors and the  Purchasers                                                                                                                                |
|              |       |                                                                                                                                                                                                                                                               |
| 21.1(8)           |       | Subsidiaries of Jacobs Entertainment, Inc.                                                                                                                                                                                                                         |
|              |       |                                                                                                                                                                                                                                                               |
| 25.1(1)           |       | Statement of Eligibility of Trustee on Form T-1                                                                                                                                                                                                                    |
|              |       |                                                                                                                                                                                                                                                               |
| 31.1(8)           |       | Chief Executive Officer Certificate under Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                      |

 

E-5

----

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                         |
|-----------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| 31.2(8)         |       | Chief Financial Officer Certification under Section 302  of the Sarbanes-Oxley Act of 2002                                         |
|            |       |                                                                                                                                    |
| 32.1(8)         |       | Chief Executive Officer Certification under Section 906  of the Sarbanes-Oxley Act of 2002                                         |
|            |       |                                                                                                                                    |
| 32.2(8)         |       | Chief Financial Officer Certification under Section 906  of the Sarbanes-Oxley Act of 2002                                         |
|            |       |                                                                                                                                    |
| 99.1(1)         |       | Form of Letter of Transmittal                                                                                                           |
|            |       |                                                                                                                                    |
| 99.2(1)         |       | Form of Notice of Guaranteed Delivery                                                                                                   |
|            |       |                                                                                                                                    |
| 99.3(1)         |       | Jacobs Entertainment, Inc. Exchange of All  Outstanding 117/8% Senior Secured Notes  Due 2009 for 117/8% Senior Secured Notes  Due 2009 |
|            |       |                                                                                                                                    |
| 99.4(1)         |       | Jacobs Entertainment, Inc. Letter to Depository  Trust Company Participants                                                             |
|            |       |                                                                                                                                    |
| 99.5(8)         |       | Significant Guarantor Information                                                                                                       |
|            |       |                                                                                                                                    |

 

----

| (1) |   | Incorporated hereby by reference from our  registration statement on Form S-4 (SEC Registration No. 333-88242) filed on  May 14, 2002.                           |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Incorporated hereby by reference from Amendment  No. 1 of our registration statement on Form S-4 (SEC Registration No.  333-88242) filed on August 8, 2002. |
| (3) |   | Incorporated hereby by reference from our Form  10-K filed on March 29, 2004.                                                                               |
| (4) |   | Incorporated hereby by reference from our Form  10-K filed on March 31, 2003.                                                                               |
| (5) |   | Incorporated by reference from our Form 10-Q filed  August 13, 2004.                                                                                        |
| (6) |   | Incorporated hereby by reference from our Report  on Form 8-K filed October 7, 2004.                                                                        |
| (7) |   | Incorporated hereby by reference to Exhibits  2.01(a)and 2.01(b) from our Report on Form 8-K dated March 4, 2005.                                           |
| (8) |   | Filed herewith.                                                                                                                                                  |

 

E-6

----