**Table of Contents**

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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**Form 10-K**

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| **x**      | **ANNUAL REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  (“Act”)** |
|------------|------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                             |
| ** ** | **For  the fiscal year ended December 31, 2008**                                                                  |
| ** ** | ** **                                                                                                             |
| **o**      | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**               |

** **

**Commission File 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.) |

 

**17301 WestColfax, Suite 250, Golden, Colorado 80401**

(Addressof principal executive offices) (Zip code)

 

**(303)215-5200**

(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.**

 

Indicate by check mark if the registrant is awell-known seasoned issuer as defined in Rule 405 of the Securities Act.

 

Yes   o  No   x

 

Indicate by check mark if the issuer is not requiredto file reports pursuant to Section 13 or 15(d) of the Act.

 

Yes   x  No   o

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theAct during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

 

Yes   x  No   o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company. See the definitions of “large accelerated filer”, “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer  o |   | Accelerated filer  o |   | Non-accelerated filer  x             |   | Smaller reporting company  o |
|--------------------------------------|--------|--------------------------------|--------|------------------------------------------------|--------|----------------------------------------|
|                                 |   |                           |   | (Do not check if a smaller  reporting company) |   |                                   |

 

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

 

Yes   o  No   x

 

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; as of March 18,2009 all of its outstanding shares of common stock are held by one person andthree trusts.

 

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 18, 2009** |
|--------------------------------------------|------------|-------------------------------------------------------|
| Class A Common Stock, $0.01 par value |       | 1,320 shares                                          |
| Class B Common Stock, $0.01 par value |       | 180 shares                                            |

** **

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

 

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

 

 

 

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**JACOBSENTERTAINMENT, INC.**

**2008 ANNUALREPORT ON FORM 10-K**

 

**Table ofContents**

 
| Item        | ** ** | **Description**                                                                                                     | ** ** | ** ** |
|-------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|
|        |       |                                                                                                                |       |       |
| Item 1.     |       | Business                                                                                                            |       |       |
| Item  1A.   |       | Risk  Factors                                                                                                       |       |       |
| Item 1B.    |       | Unresolved  Staff Comments                                                                                          |       |       |
| 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 9A(T). |       | Controls and  Procedures                                                                                            |       |       |
| Item 9B.    |       | Other Information                                                                                                   |       |       |
| Item 10.    |       | Directors,  Executive Officers and Corporate Governance                                                             |       |       |
| 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, and Director Independence                                          |       |       |
| Item 14.    |       | Principal  Accounting Fees and Services                                                                             |       |       |
| Item 15.    |       | Exhibits,  Financial Statement Schedules                                                                            |       |       |

 

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**SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

We make statements in this report that relate to matters that are nothistorical facts that we refer to as “forward-looking statements” regarding,among other things, our business strategy, our prospects and our financialposition. These statements may be identified by the use of forward-lookingterminology such as “believes,” “estimates, “expects, “intends,” “may,” “should”or “anticipates” or the negative or other variation of these or similar words,or by discussion of strategy or risks and uncertainties. Forward-lookingstatements in this report include, among other things, statements concerning:

 

·                                          projections of future results of operationsor financial condition;

 

·                                          expectations for our casino, truck plaza andhorse racing properties; and

 

·                                          expectations of the availability of capitalresources.

 

Any forward-looking statement made by us necessarily is based upon anumber of estimates and assumptions that, while considered reasonable by us,are inherently subject to significant business, economic, regulatory andcompetitive uncertainties and contingencies, many of which are beyond ourcontrol, and are subject to change. Actual results of our operationsmay vary materially from any forward-looking statement made by us or onour behalf. Forward-looking statements should not be regarded asrepresentations by us or any other person that the forward-looking statementswill be achieved. Undue reliance should not be placed on any forward-lookingstatements. The contingencies and uncertainties to which any forward-lookingstatement contained herein is subject to include, but are not limited to, thefollowing:

 

·                                          Our substantial indebtedness could adverselyaffect our financial health and prevent us from fulfilling our debtobligations.

 

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

 

·                                          Our indebtedness imposes restrictivecovenants on us and our ability to refinance our debt in the foreseeable futureis problematic given the recent and continuing turmoil in the credit markets.

 

·                                          We may not be able to successfullyintegrate the operations of recent and future acquisitions into our business.

 

·                                          We may experience a loss of market sharedue to intense competition and the possible introduction of slot machines atone or more Colorado racetracks.

 

·                                          We face extensive regulation from gaming andother government authorities and the possibility that legislative changesmay prohibit or limit our gaming activities.

 

·                                          Changes to applicable tax laws could have amaterial adverse effect on our operations and financial condition.

 

·                                          Our operations could continue to be adverselyaffected due to the adoption of anti-smoking regulations in Colorado and theirpossible adoption in Nevada.

 

·                                          We depend upon our key employees and certainmembers of our management.

 

·                                          The single member of our board of directorsand his family trusts indirectly own or control the issued and outstandingshares of Jacobs Entertainment, Inc. and could have interests thatconflict with yours.

 

·                                          We rely on the maintenance of agreements withhorsemen at our horse racing facility.

 

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·                                          Our business relies heavily on certainmarkets and an economic downturn in these markets as has been experienced in2008 could have a material adverse effect on our future results of operations.

 

·                                          Seasonality and weather conditions canadversely affect our results of operations.

 

All subsequent written and oral forward-looking statements attributableto us or persons acting on our behalf are expressly qualified in their entiretyby the cautionary statements included in this report. We undertake noobligation to publicly update or revise any forward-looking statements, whetheras a result of new information, future events or otherwise. In light of theserisks, uncertainties and assumptions, the forward-looking events discussed inthis report might not occur.

 

**NON-GAAPFINANCIAL MEASURES**

 

Consolidated and property level EBITDA and the related ratios presentedin this report are supplemental measures of our performance that are notrequired by, or presented in accordance with, generally accepted accountingprinciples. EBITDA is not a measurement of our financial performance undergenerally accepted accounting principles and should not be considered as analternative to net income, operating income or any other performance measuresderived in accordance with generally accepted accounting principles, or as analternative to cash flow from operating activities as a measure of ourliquidity.

 

EBITDA consists of net income (loss) plus depreciation andamortization, interest, net of capitalized interest, and income taxes. EBITDAis presented because it is used by our management as a supplemental performancemeasure to analyze the performance of our business and because it is frequentlyused by securities analysts, investors and others in their evaluation ofcompanies in our industry, substantially all of which present EBITDA whenreporting their results.

 

Our bank credit agreement and our indenture use EBITDA, subject tocertain adjustments, to measure our compliance with debt covenants. We also useEBITDA to evaluate and price potential acquisition candidates. We believeEBITDA facilitates operating performance comparisons from period to period andcompany to company by removing potential differences caused by variations incapital structures (affecting relative interest expense), tax positions (suchas the impact on periods or type of companies of changes in effective tax ratesor net operating losses) and the age and book depreciation of facilities andequipment (affecting relative depreciation expense).

 

EBITDA has limitations as an analytical tool, and you should notconsider it in isolation, or as a substitute for analysis of our results asreported under generally accepted accounting principles. Some of theselimitations are:

 

·                                          EBITDA does not reflect our cashexpenditures, or future requirements for capital expenditures or contractualcommitments;

 

·                                          EBITDA does not reflect changes in, or cashrequirements for, our working capital needs;

 

·                                          EBITDA does not reflect the cash requirementsnecessary to service interest or principal payments, on our debts;

 

·                                          although depreciation and amortization arenon-cash charges, the assets being depreciated and amortized will often have tobe replaced in the future, and EBITDA does not reflect any cash requirementsfor such replacements; and

 

·                                          other companies in our industrymay calculate EBITDA differently than we do, limiting its usefulness as acomparative measure.

 

Because of these limitations, EBITDA should not be considered as ameasure of discretionary cash available to us to invest in the growth of ourbusiness. We compensate for these limitations by relying primarily on ourresults under generally accepted accounting principles and using EBITDA onlysupplementally. See our consolidated financial statements and the notes tothose statements included elsewhere in this report.

 

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**INDUSTRYAND MARKET DATA**

 

This report includes market and industry data that we obtained from ourown research, studies conducted by third party sources that we believe to bereliable and industry and general publications by third parties and, in somecases, management estimates based on industry and other knowledge. We have notindependently verified any of the data from third party sources, and we make norepresentation as to the accuracy of such information. While we believeinternal company estimates are reliable and market definitions are appropriate,they have not been verified by any independent sources.  Actual results could differ from thoseestimates.

 

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**PART I**

 

**Item 1.               *Business.***

 

**Introduction**

 

Jacobs Entertainment, Inc. (“Jacobs Entertainment,” “JEI,” the “Company,”“us,” “our” or “we”) was formed as a Delaware corporation on April 17,2001. We are a developer, owner and operator of gaming and pari-mutuel wageringfacilities throughout the United States, with properties located in Colorado,Louisiana, Nevada and Virginia. We own and operate five land-based casinos, 18video gaming truck plazas (five of which are leased) and a horse racing trackwith eight satellite wagering facilities (four of which are leased). Inaddition, we are party to an agreement that entitles us to a portion of thegaming revenue from an additional truck plaza video gaming facility.

 

All of our gaming facilities target local customers and emphasizerevenues from slot machine play or video gaming, or both. For the year ended December 31,2008, our net revenues and EBITDA were approximately $362.5 million and $43.0million, respectively. See Note 15 to our consolidated financial statements forinformation concerning the operational performance of the segments of ourbusiness.

 

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

 
| ** **                                                  | ** ** | ** **                       | ** ** | ** **                            | ** ** | **As of December 31, 2008** | ** ** | **Year Ended  December 31,  2008** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                  | ** ** | ** **                       | ** ** | ** **                            | ** ** | **Approximate**                                 | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                       | ** ** | ** **                            | ** ** | **Gaming**                                      | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | ** **                       | ** ** | ** **                            | ** ** | **Square**                                      | ** ** | **Gaming**                                   | ** ** | **Table** | ** ** | **Hotel** | ** ** | **Property Level** | ** ** |
| **Property**                                                | ** ** | **Location**                     | ** ** | **Facility Type**                | ** ** | **Footage**                                     | ** ** | **Machines**                                 | ** ** | **Games** | ** ** | **Rooms** | ** ** | **EBITDA (1)** | ** ** |
| ** **                                                  | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **                                      | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** | **(in thousands)** | ** ** |
| The Lodge Casino                                            |       | Black Hawk, Colorado             |       | Land-based casino                     |       | 25,000                                          |       | 944                                          |       | 32 |   | 50 |   | $ | 25,759 |   |
| Gilpin Casino                                               |       | Black Hawk, Colorado             |       | Land-based casino                     |       | 16,000                                          |       | 429                                          |       | 18 |   | 0 |   | 5,407 |   |
| Gold Dust West-Reno                                         |       | Reno, Nevada                     |       | Land-based casino                     |       | 17,500                                          |       | 470                                          |       | 0 |   | 27 |   | 6,239 |   |
| Gold Dust West -Carson  City                                |       | Carson City, Nevada              |       | Land-based casino                     |       | 12,000                                          |       | 392                                          |       | 6 |   | 146 |   | (1,279 | ) |
| Gold Dust West-Elko(2)                                      |       | Elko, Nevada                     |       | Land-based casino                     |       | 13,000                                          |       | 329                                          |       | 7 |   | 0 |   | 1,288 |   |
| Louisiana Truck  Plazas                                     |       | Louisiana (19 various locations) |       | Video gaming                          |       | 12,000                                          |       | 929                                          |       | 0 |   | 0 |   | 21,688 |   |
| Colonial Downs  Racetrack and satellite wagering facilities |       | Virginia (8 various locations)   |       | Horse racing and pari-mutuel wagering |       | N/A                                             |       | N/A                                          |       | N/A |   |   |   | 599 |   |
|                                                        |       |                             |       |                                  |       |                                            |       |                                         |       |   |   |   |   |   |   |
| **Total**                                                   |       |                             |       |                                  |       | 95,500                                          |       | 3,493                                        |       | 63 |   | 223 |   | $ | 59,701 |   |

 

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| (1)    | Property Level EBITDA  excludes corporate overhead expense of $16.7 million. |
|--------|------------------------------------------------------------------------------|
|   |                                                                         |
| (2)    | Opened March 5, 2007.                                                   |

 

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**The following is a reconciliation of our propertylevel EBITDA to our net loss (in thousands):**

 
| ** **                     | ** ** | **Year Ended  December 31, 2008** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|
| Total Property  Level EBITDA   |       | $                                                | 59,701     |   |
| Corporate  overhead            |       | (16,677                                          | )          |
|                           |       |                                             |       |
| Total EBITDA                   |       | 43,024                                           |       |
|                           |       |                                             |       |
| Depreciation and  amortization |       | (19,935                                          | )          |
| Interest  expense, net         |       | (27,227                                          | )          |
| ** **                     | ** ** | ** **                                       | ** ** |
| Net Loss                       |       | $                                                | (4,138     | ) |

 

**BusinessStrategy and Competitive Strengths**

** **

Our business strategy is tocontinue to develop a broad, geographically diversified base of gaming andpari-mutuel wagering properties that seek to provide our customers with anenjoyable entertainment experience, and in turn, to generate significantcustomer loyalty and repeat business.  We believe that there are opportunities forgrowth and operational efficiencies in the markets in which we operate.

 

BlackHawk, Colorado was one of the fastest growing gaming markets in the country,having experienced a 26.3% compound annual growth in gaming revenue from 1998 through2000. Revenues in 2001 through 2003 stabilized at approximately $500 millionannually and rose to $524 million in 2004, $535 million in 2005, $554 millionin 2006, and $581 million in 2007. However, in 2008, revenues fell to $509 million due to a statewidesmoking ban and a nationwide economic recession, combined with a pronouncedslowdown in the gaming industry.

 

In2006, we acquired an operating casino in Carson City, Nevada, and we enteredinto a land and building lease to develop a casino in Elko, Nevada that openedon March 5, 2007. We continue to consider several other potential smallcasino opportunities in Nevada.

 

Inthe last three years, we acquired and/or developed seven additional Louisianatruck plaza video gaming facilities and we believe that there are otherLouisiana truck plaza video gaming properties that may be available foracquisition.

 

Wemay acquire or develop additional gaming properties in differentjurisdictions catering to local gaming patrons in the future, further expandingour geographic diversity.

 

InNovember 2003 and 2004, referendums were passed in four localities inVirginia that allowed us to expand our off-track wagering facilities from fourto nine such facilities and we now operate eight. Our strategy for our horseracing operations is to be a competitive participant in the industry bycapitalizing on our unique dirt and turf track facilities for live racing,hosting marquee racing events, and expanding our off-track wagering facilitynetwork under appropriate circumstances. On January 11, 2008, we announcedthat we intend to sell our racetrack and offsite wagering facilities inVirginia.  At this point a sale is notprobable and we are not actively seeking a buyer.

 

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Ourcompetitive strategies and strengths include:

 

***GenerateRepeat Business by Catering to Local Gaming Patrons.*** We focus onattracting and fostering repeat business from local gaming patrons at all ofour properties. Our strategy for establishing a strong presence with localresidents or patrons is to provide a user-friendly gaming environment featuringconvenient locations, high quality food at affordable prices and promotionalincentives that reward frequent play. In order to maximize exposure to thelocal and surrounding communities in the most cost-effective manner, we utilizecomputerized slot data tracking systems that allow us to track individual playand payouts and develop mailing lists for special events, contest play andpromotions. We also participate in busing programs with unaffiliatedtransportation companies to bring patrons from the greater Denver metropolitanarea and surrounding communities to our two properties located in Black Hawk,Colorado.

 

***ExpandLouisiana Truck Plaza Business.*** Our strategy of expanding our presence inthe Louisiana truck plaza market is driven by: (i) the consistent revenueeach facility generates, (ii) the high return on investment associatedwith operating the truck plazas, and (iii) the relatively low capitalexpenditures necessary to maintain the facilities.

 

***EnterAdditional Locals-Oriented Markets.*** Our managementteam has a proven track record of successfully operating casinos that cater tolocal residents or day trip patrons who reside in close proximity to theproperties. In an effort to leverage this operating experience and enter twoadditional locals-oriented markets, we acquired Piñon Plaza (subsequentlyrenamed “Gold Dust West-Carson City”), located in Carson City, Nevada, in June 2006.This facility has 392 slot machines and six table games on its 12,000 squarefoot gaming floor. We opened a new casino in Elko, Nevada (“Gold Dust West-Elko”)on March 5, 2007 that features a 13,000 square-foot casino floor with 329ticket in-ticket out (TITO) slot machines and seven table games.

 

***BroadGeographic and Asset Diversification*****.** We believe that because of our geographic and asset diversification, weare less dependent on results at a specific property or in a specific market togenerate our cash flow. This geographic diversity helps mitigate oursusceptibility to regional economic downturns or weather conditions.

 

***StrongEmphasis on Slot and Video Gaming Revenues*****.** All of our gamingfacilities emphasize slot machine or video gaming play, or both. We believeslot machine play to be the fastest growing, most consistently profitable andlowest risk segment of the gaming entertainment business. We offer a widevariety of games to attract customers and encourage them to play for longerperiods of time, thereby promoting the stability of our gaming revenue. Weintend to maximize slot and video gaming revenue by continuing to invest instate-of-the art equipment and systems and replacing older models with the mostcurrent product offerings in appropriate markets. In addition, we believe thatour plans to introduce table games in our Colorado casinos will enable us tomaintain our competitive edge in that market.

 

***Significant Barriers to Entry*****.** There aresignificant regulatory and other barriers to entry in each of the markets inwhich we operate. The gaming industry in each of our markets is governed by astate gaming commission. In order to enter the gaming industry in any of our markets,a potential new entrant must work through a costly and lengthy regulatoryprocess, which could last anywhere from 12 to 18 months depending onjurisdiction and type of gaming. Beyond the regulatory barriers, the need forsignificant investments of time and capital also restricts potential newentrants. The discussion that follows provides a sample of the specificbarriers to entry in each of our markets.

 

In the Black Hawk, Colorado market, barriers toentry include: (i) the scarcity of land available for development withinthe approved gaming district, which is defined in the state constitution, theGaming Commission’s regulations and the City of Black Hawk’s ordinances, and (ii) thehigh cost of acquiring land and constructing new gaming facilities.

 

There are stringent licensing requirements andsubstantial licensing and compliance expenses attendant to commencing andconducting gaming operations in Nevada.

 

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In Louisiana, the barriers to entry includerestrictions that require truck plaza video gaming facilities to meet specifiedminimum levels of diesel and total fuel sales, have a specified minimum site acreageand conduct restaurant operations not fewer than 12 hours per day and to keep aconvenience store open 24 hours per day. These restrictions also prohibit theoperation of more than 50 video gaming machines at any location and requiretruck plaza video gaming facilities to be located only in those parishes thatvoted to continue video gaming during a one-time statewide referendum in 1996.

 

In Virginia, in all but the county in which weoperate and one additional county, any potential operator of any competinghorse racing track would need to secure passage of a referendum in the localein which the track is to be operated. In addition, an unlimited racetrack owner’sand operator’s license is required in order to have off-track wageringfacilities. Off-track wagering facilities can be opened only in the currentjurisdictions in which we operate plus one other county without passage ofadditional referendums. The number of off-track wagering facilities is limitedby statute to a statewide total of 10 and we currently operate eight, leavingonly two potentially available. The high cost of building a new racetrack inVirginia presents an additional barrier in that state.

 

***Strong, Experienced Management Team.*****Our seniormanagement team is an experienced group of industry veterans. Jeffrey P.Jacobs, our Chairman and Chief Executive Officer, has been Black Hawk Gaming’sChief Executive Officer since November 1996 and the Chief ExecutiveOfficer of Colonial Holdings, Inc. (“Colonial”), our wholly ownedsubsidiary, since March 1997. Stephen R. Roark, our President, has beenBlack Hawk Gaming’s President since September 1995 and was its ChiefFinancial Officer from 1993 to 2006. Ian M. Stewart, our President ofPari-Mutuel Wagering Operations, has been President of Colonial since November 1998and its Chief Financial Officer since June 1997. Michael T. Shubic, ourChief Operating Officer, has over 35 years of experience in the gamingindustry. Brett A. Kramer, our Chief Financial Officer, has over 14 yearsexperience with us in various financial capacities. Stanley Politano, ourExecutive Vice President, has 15 years of experience in the gaming industry.The five general managers of our casinos have numerous years of casinomanagement experience and report to Mr. Shubic. The Vice President ofLouisiana Operations oversees our truck plaza video gaming operations, has over14 years of experience in the truck plaza video gaming business and alsoreports directly to Mr. Shubic. We believe the expertise and experience ofour management team enables us to enhance the operation of our existingproperties and any properties we may acquire in the future.

 

**Our Properties and Operations**

 

***The Lodge Casino—Black Hawk,Colorado***. TheLodge Casino in Black Hawk, Colorado, which commenced operations in June 1998,is one of 18 casinos located in the gaming district of Black Hawk. The Lodgeservices the greater Denver metropolitan area, which is located 40 miles eastof Black Hawk and has a population of approximately 2.4 million, 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, 2008, the Black Hawk market had approximately 9,750gaming devices (slot machines, blackjack and poker tables) generatingapproximately $509 million in revenues for the year then ended. The Lodge isone of the largest gaming facilities in the market.

 

The Lodge is located on a 2.5 acre site that abuts State Highway 119,with approximately 25,000 square feet of gaming space on three floorscontaining 944****slot machines and32 table games, 50 hotel rooms, three restaurants, four bars and on-siteparking for 600 vehicles. Our property includes The White Buffalo Grille, anupscale dining facility, a buffet and a snack bar. Black Hawk has nosignificant lodging facilities other than our facility and the Isle of Capri,which has a 402-room hotel at its Black Hawk casino. Anothercompetitor is nearing completion of a 536-room hotel directly across fromThe Lodge Casino, which is expected to be completed in the fourth quarter of2009 or early 2010.

 

We utilize computerized slot data tracking systems that allow us totrack individual play and payouts and develop mailing lists for special events,contest play and promotions. The Lodge participates in busing programs withunaffiliated transportation companies who transport patrons to BlackHawk/Central City from the market areas described above. Black Hawk Gaming hasobtained an exemption as a common carrier from the Colorado Public UtilitiesCommission and may elect to operate its own busing program in the future.

 

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During 2008, we providedfinancial support for a proposed constitutional amendment (“Colorado Amendment50”) that would increase the types of games, wagering limits and hours ofoperation at Colorado casinos.  Coloradoresidents approved the proposed constitutional amendment on November 4,2008.  The amendment was subsequentlyvoted upon and approved by the residents of each of the three gaming towns inColorado (Black Hawk, Central City and Cripple Creek).  The new gaming regulation, which will beeffective on July 2, 2009 at Colorado casinos, allows for the introductionof craps and roulette, increases the maximum wager limit to one hundreddollars, allows 24-hour gaming operations, and sets a maximum gaming tax rateof 20%.  The Colorado Division of Gaminghas commenced revisions of the Internal Control Minimum Procedures which willgovern the procedures encompassing the new games, limits and hours.  For the year ended December 31, 2008, wefunded a total of $1.4 million in support of this amendment.  For further discussion, see Item 7 “Management’sDiscussion and Analysis of Financial Condition and Results of Operations.”

 

***The Gilpin Casino—Black Hawk,Colorado***. TheGilpin Casino, which commenced operations in October 1992, is located on aone-acre site in the central Black Hawk gaming district. We expanded ourfacility through the acquisition of an adjacent casino in early 1994 and wefurther expanded the casino in 2005. We were one of the first casinos opened inColorado following the legalization of casino gaming in 1991. We offer 429 slotmachines and an 18 table poker room where we provide both tournament and cashpoker play. The Gilpin has a restaurant and two bars and a slot club andutilizes busing and other promotional programs, similar to those of The Lodge.We have available to our customers 200 surface parking spots in the heart ofhistoric Black Hawk.

 

***Gold Dust West-Reno—Reno, Nevada***. Gold Dust West-Reno, which we acquired in2001, is located on 4.6 acres in Reno’s central downtown gaming district andhas been operating since 1978. Gold Dust West-Reno caters to residents of Renoand surrounding areas and has approximately 17,500 square feet of gaming space,which offers 470 slot machines. Gold Dust West-Reno also features the WildwoodRestaurant, a 6,600 square foot dining facility, and has parking for 300vehicles. The property currently offers 27 motel rooms.

 

***Gold Dust West-Carson City******—Carson City,Nevada.*** On June 25, 2006, we closed an agreement with Capital CityEntertainment, Inc. (“CCI”), an unaffiliated party, under which weacquired all of the assets of Piñon Plaza, a division of CCI which we have nowre-branded as Gold Dust West-Carson City. The assets included all of thepersonal property, buildings and improvements used by Piñon Plaza in theoperation of its casino, hotel, bowling alley and RV park in Carson City,Nevada. The purchase price for the assets was $14.5 million.  Additionally, during 2006 and 2007, we spentapproximately $5.0 million in total for property and equipment improvements.

 

Contemporaneously, we entered into a triplenet ground lease covering land underlying the assets which began upon closingof the asset purchase agreement discussed above. The lessor is a family trustaffiliated with CCI. The lease has a ten year term with two ten year extensionsat our option. Rentals under the lease are $250,000 per year for years onethrough five, $300,000 per year for years six through ten, and a rate based onan MAI (Member of the Appraisal Institute) appraisal of the property during thefirst and second extension terms. We have the right to purchase the leased landat an MAI appraised value at the end of the first ten year term. We also have aright of first refusal should the lessor seek to sell the leased land to athird party.

 

Gold Dust West-Carson City, which commencedoperations in 1995, is a 140,000 square foot facility located on approximately18 acres covered by the land lease described above. Gold Dust West-Carson Cityoffers 392 slot machines and six table games, four restaurants and two bars. Ithas a slot club and offers various promotional packages, many associated withits 32 bowling lanes. Gold Dust West-Carson City has 146 hotel rooms. It alsoowns and operates a 48 space RV park as part of the resort. There are approximately 850 parking spaces for Gold Dust West-Carson City’s casino patrons andhotel guests.

 

***Gold Dust West-Elko—Elko, Nevada.*** On November 14, 2005, we entered into atriple net lease with an unaffiliated party for the lease of a 37,000 squarefoot building and approximately six acres of land in Elko, Nevada. The leasehas a five-year term with three five-year renewals at our option. Rent underthe lease was $225,000 for the first year, with $50,000 of the first year rentabated as an allowance for tenant improvements. The second year’s rent is$375,000 and for years three through five the annual rent is $450,000.

 

Wehave the right to buy the land and the building any time after the first12 months through the 60th month for $5 million and from the 61st month through the 120th month for $5.4 million.

 

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Werenovated and upgraded the building and installed 329 slot machines, seventable games and appropriate food and beverage offerings. Pre-opening and gamingdevice costs totaled approximately $21 million. We commenced renovationduring the third quarter of 2006 and opened the casino on March 5, 2007.

 

***Louisiana Gaming Properties.*** Our truck plaza properties consist of 18truck plaza video gaming facilities located in Louisiana (of which five areleased). We are also party to an agreement that entitles us to a portion of thegaming revenues from a 19th truckplaza (Cash’s Truck Plaza and Casino in Lobdell). Each truck plaza features a24 hour per day convenience store, fueling operations, a restaurantoperating not fewer than 12 hours per day, and up to 50 video gamingdevices in the casino depending on the level of fuel sales and availablespace.  At December 31, 2008, ourtruck plaza video gaming facilities had a combined total of 929 video gamingdevices.

 

TheLouisiana truck plazas’ revenues are comprised of: (i) revenue from videopoker gaming machines; (ii) sales of gasoline and diesel fuel; (iii) salesof groceries, trucker supplies and various items through their conveniencestores; (iv) sales of food and beverages in their restaurants and bars;and (v) miscellaneous commissions on ATMs, pay phones and lottery sales.

 

The Louisiana video gaming industry consists of video gaming in 31 ofLouisiana’s 64 parishes. The industry is highly regulated and video gamingmachines can only be placed in qualifying bars, restaurants, hotels, satellitewagering facilities and truck plazas. In order to qualify for video gaming, atruck plaza must offer diesel fuel, gasoline, a convenience store, a restaurantand a place for truck drivers to shower and sleep. Our video gaming machinesare located in a separate gaming room that is designed to provide apleasant casino-like atmosphere. As of December 31, 2008, Louisiana had181 licensed video gaming truck plazas.

 

The Louisiana truck plaza video gaming market caters primarily to localresidents, whom we believe contribute to the vast majority of truck plazagaming revenue. We believe that most of our video gaming customers live withina five-mile radius of our properties.

 

***Colonial Downs—New Kent, Virginia***. Colonial Downs, which opened in 1997, is aracetrack in New Kent, Virginia, which primarily conducts pari-mutuel wageringon thoroughbred and harness racing. The track facility was designed to providepatrons with a pleasant atmosphere to enjoy quality horse racing. The outsidegrandstand area, located on the first floor of the track facility, has anoccupancy capacity of approximately 4,000 patrons. Also located on the firstfloor of the track facility are two simulcast television amphitheaters, two coveredpatio-seating areas, two bars, a large concession food court, gift shop, andwagering locations with approximately 72 tellers. The Jockey Club, which is inthe main grandstand area located on the third floor of the track facility,includes a full-service dining area with a seating capacity of 548 patrons, twoseparate lounge areas, and additional wagering locations with 24 tellers. Onthe fourth floor is the Turf Club with seating for full service dining for 125along with 10 luxury suites with skybox seating and a wagering location witheight tellers. In 2005, we added outdoor seating for additional patrons alongthe track’s homestretch in an area called “the Green.”

 

Thedirt track at Colonial Downs is one and one-quarter miles in length and is one ofthe largest tracks in the United States. Based on our knowledge of theindustry, we believe the 180-foot wide turf track is the widest turf track inthe country, thereby establishing the track as one of the major turf racingfacilities in the Mid-Atlantic region. In addition to our racetrack, we presently operate eight satellitewagering facilities in Virginia as described below.  We previously operated nine such facilitiesuntil we closed our Chesapeake Military Highway facility in November 2008in order to consolidate operations with our Chesapeake Indian River Roadfacility.

 

In 2005, Colonial Downs created a new stakes race, the Colonial TurfCup, which together with the Virginia Derby forms the first two legs of theGrand Slam of GrassTM. The Grand Slam of GrassTM consists of four races includingthe two races at Colonial Downs, the Secretariat to be held at Arlington Park,and the John Deere Breeders’ Cup Turf at Monmouth Park. Since the inception ofThe Grand Slam of GrassTM, we have guaranteed a minimum of $5 million to anyhorse that sweeps the four race series. Of the $5 million guarantee,approximately $2.6 million would be paid as a result of the cumulative pursewinnings from the four races. The remaining approximate $2.4 million would bepaid by us as a bonus award. Annually, we purchase an insurance policy to covera portion of the $2.4 million of this bonus payment if that payment were to berequired.  Since the inception of TheGrand Slam of GrassTM, no single horse has won all four legs of the series.

 

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*** ***

***Satellite Wagering Facilities,Virginia***. Inaddition to our racetrack facility, we operate eight satellite wageringfacilities in Virginia (four are leased). These facilities provide simulcastpari-mutuel wagering on thoroughbred and harness racing from our racetrack andselected other racetracks throughout the United States. Our satellite wageringfacilities are located in Alberta, Chesapeake, Hampton, Martinsville, WeberCity, Vinton, and two in Richmond. These facilities employ state-of-the-artaudio/video technology for receiving quality import simulcast thoroughbred andharness racing from nationally known racetracks.

 

The facilities are structured to accommodate the needs of variouspatrons, from the seasoned handicapper to the novice wagerer, and provide patronswith a comfortable, upscale environment including a full bar and a range ofrestaurant services. In addition, self-serve automated wagering equipment isavailable to patrons in order to make wagering more user-friendly to the noviceand more efficient for the expert. This equipment, with touch-screeninteractive terminals and personalized portable wagering terminals, providespatrons with current odds information and enables them to place wagers andcredit winning tickets to their accounts without waiting in line.

 

In 2003, the legislature of the Commonwealth of Virginia passed astatute authorizing the Virginia Racing Commission to grant licenses andthereafter regulate account wagering in Virginia. On April 28, 2004, theVirginia Racing Commission granted Colonial a license to accept wagers over thetelephone or through the internet via its advanced deposit wagering system. Theadvanced deposit wagering system became fully operational late in the thirdquarter of 2004. In addition, Colonial has entered into agreements with otherlicensed account wagering providers in Virginia. Pursuant to these agreements,Colonial receives a share of source market fees for wagers placed by Virginiansthrough these account wagering service providers. In February 2009, theVirginia General Assembly amended the statutory provisions relating to accountwagering to set the source market fee for wagers originating from Virginia at10% of such wagers. Colonial shares the source market fee equally with therecognized majority horsemen’s groups. Virginia’s Governor has signed thelegislation and it is scheduled to become effective July 1, 2009.

 

In 2004, the legislature of the Commonwealth of Virginia passed astatute, signed by the governor of Virginia, authorizing up to ten satellitewagering facilities in localities that approved such facilities by referenda.On November 2, 2004, referenda were passed authorizing the locating of asatellite wagering facility in the following counties in Virginia: HenryCounty, Scott County and Westmoreland County. Thereafter, the Virginia RacingCommission granted Colonial licenses to own and operate a satellite wageringfacility in Henry County and Scott County, Virginia. The Virginia RacingCommission can grant licenses for two more satellite wagering facilities underexisting legislation.

 

***The Nautica Properties.*** We have acquired from affiliated parties several options to lease andoptions to purchase six parcels of land and certain improvements on the westbank of the Cuyahoga River in Cleveland, Ohio. We refer to these properties,covering an aggregate of approximately 624,000 square feet of land (14.4 acres)and a building comprised of 47,380 square feet of net rentable space, as theNautica Properties. The Nautica Properties currently require aggregate optionpayments totaling $200,000 per year.

 

DuringMarch 2008, we exercised our option to acquire one of these parcelsreferred to as “Lot D.”  On April 1,2008, we purchased this parcel for $800,000. The company that owned this parcel of land and parking lot business waswholly owned by our Chairman and Chief Executive Officer.  In January 2009, we acquired another ofthese parcels referred to as “Sugar Warehouse” for $2,575,000.  See Item 13 “CertainRelationships and Related Transactions, and Director Independence.”

 

The option agreements give us the right until July 2010to purchase one of the remaining parcels and the right to purchase or enterinto long-term leases on the remaining three parcels.  Our Chairman and Chief Executive Officer ownsvarying interests in three of the four remaining parcels.

 

Although we may elect notto exercise all the options unless casino gaming opportunities arise, wenonetheless have the right to acquire all or part of the Nautica Properties forother purposes.  If casino gaming is notlegalized but we decide to exercise our options, the aggregate purchase pricewould be approximately $3.0 million for one of the parcels and the aggregateannual lease payments on the remaining three parcels would be approximately$355,000. If all four remaining parcels are purchased and none leased, thetotal purchase price would be approximately $6.5 million, less any aggregateoption payments previously made. The purchase price and rent 

 

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payments would beincreased based on independent appraisals of the land and improvement valuesif, in the future, casino gaming were to become legalized in Ohio and a casinois licensed at Nautica.

 

**Seasonality and Weather Conditions**

 

Seasonality and weather conditions can affect our results ofoperations. Winter travel conditions can adversely affect patronage andrevenues at our Colorado and Nevada casinos. Although casino business is notseasonal, levels of gaming activity increase significantly during weekends andholidays, especially holiday weekends. Hurricanes Katrina and Rita temporarilyaffected our truck plaza video gaming operations in late 2005, while HurricanesGustav and Ike temporarily affected our truck plaza video gaming operations inlate 2008. Similar hurricanes could have a material adverse effect on ourLouisiana operations in future years. Our pari-mutuel wagering revenues are higherduring scheduled 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.

 

**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 and near Colorado, Nevada,Louisiana and Virginia. We expect this competition to increase as new gamingoperators enter our markets, existing competitors expand their operations,gaming activities expand in existing jurisdictions and gaming is legalized innew jurisdictions. Several of our competitors have significantly better namerecognition and more marketing and financial resources than we do. We cannotpredict with any certainty the effects of existing and future competition onour operating results.

 

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. We may compete withgaming from other venues including internet gaming, although its legality ispresently unclear.

 

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. SeeItem 1A “Risk Factors—Competition” below.

 

***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 16 other casinos operating in Black Hawk on December 31,2008. There were approximately 9,750 gaming devices (slot machines, blackjackand poker tables) in Black Hawk as of December 31, 2008.

 

CentralCity is located adjacent to Black Hawk and provides the most direct competitionto the gaming establishments in Black Hawk. There were six casinos operating inCentral City with approximately 2,100 gaming devices as of December 31,2008. Black Hawk has historically enjoyed a competitive advantage over CentralCity in large part because access by State Highway 119 (formerly the onlymajor access to Black Hawk from the Denver metropolitan area and Interstate 70)requires customers to drive by and, in part, through Black Hawk to reach 

 

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CentralCity. In late 2004, Central City constructed a road from I-70 directly intoCentral City, commonly referred to as the Central City Parkway. It is nowpossible for certain traffic that passed through Black Hawk to proceed directlyto Central City from Interstate 70. Nonetheless, motorists driving from theDenver metropolitan area still have the option of choosing to go either toBlack Hawk or Central City without having to drive through the other town.

 

Large,well-financed companies have entered the Black Hawk and other Colorado marketsand others may enter through the purchase or expansion of existing facilities,which could have a material adverse effect on our results of operations andfinancial position. For example, the Mountain High Casino (formerly the BlackHawk Casino by Hyatt) opened in December 2001. The Mountain High Casino isdirectly across the street from The Lodge Casino. On January 1, 2005,Ameristar Casinos, Inc. purchased this facility and has since commencedconstruction of a 536 hotel room tower (expected to be completed in the fourth quarter of 2009 or early 2010), a convention center, and other amenities.Under Ameristar’s ownership, this facility has been expanded to approximately1,600 slot machines and 26 table games, and a parking garage accommodating1,550 vehicles. No other casinos are currently under construction in BlackHawk. In 2003, the Isle of Capri Casinos, Inc. purchased Colorado CentralStation, directly across the street from its existing facility and subsequentlycompleted a major renovation and expansion project physically linking the twoproperties. The combined casinos are the largest in Black Hawk withapproximately 2,000 slot machines, 34 table games, 402 hotel rooms and 2,300parking spaces. The Isle of Capri is noted for its aggressive marketingprograms. The Mardi Gras casino, next to our Lodge casino, was purchased in2005 and the owners have developed and implemented new marketing programs.

 

OurGold Dust West Casino-Reno encounters strong competition from large hotel andcasino facilities and smaller casinos similar in size to our Gold DustWest-Reno in the Reno area, which includes Sparks, Nevada. There is alsocompetition from gaming establishments in other towns and cities in Nevada andfrom Native American gaming facilities located near Sacramento, California. OurGold Dust West-Carson City and Gold Dust West-Elko, Nevada casinos facecompetition from several casinos in those cities and many other venues inNevada.

 

***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 from Louisianahorse racing facilities, some of which have been authorized to operate videogaming machines, and restaurants and bars with video gaming machines. As of December 31,2008, there were 181 truck plazas in Louisiana licensed to operate video gamingdevices.

 

***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,certain Native American tribes are considering seeking federal recognitionwhich, if successful, could result in additional gaming venues. Similarly, theexpansion of other forms of gaming in neighboring states, such as table gamesin West Virginia and slot machines in Maryland, could have an adverse effect onour performance.

 

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 and Laurel Park in Maryland, and Delaware Park in Delaware. Webelieve that our existing agreements will continue to promote coordination ofthoroughbred events between Maryland and Virginia. However, if the Virginia orMaryland Racing Commissions do not approve either party’s proposed racing days,or if the Virginia-Maryland thoroughbred racing circuit is otherwiseunsuccessful, our track may have to compete directly with Pimlico Race Courseand Laurel Park in Maryland.

 

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We also compete for wagering dollars with accountwagering companies operating both legally and illegally in Virginia. Thesecompanies take wagers from Virginians both over the phone and the internet. Webelieve our agreements with four licensed account wagering companies andlegislative changes scheduled to go into effect July 1, 2009 provide uswith fair compensation for their activities. During 2008, we settled ourlawsuit against Youbet.com, Inc. which resulted in an agreement with ourfourth licensed account wagering company. Unlicensed account wagering companieshave lower costs than Colonial and thus are able to attract customers inVirginia with large wagering rebates.

 

**Employees and Labor Relations**

 

As of December 31, 2008, we had approximately 1,200 full-time andpart-time employees at our facilities in Black Hawk, Colorado, and Reno, CarsonCity, and Elko, Nevada, 400 employees at our facilities in Virginia and 500employees at our facilities in Louisiana. Employees include cashiers, dealers,food and beverage service personnel, facilities maintenance, security, valet,accounting, marketing, and personnel services. We consider relations with ouremployees to be good.

 

None of our employees are presently represented by any union or otherlabor organization. See “Risk Factors” under Item 1A below.

 

**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 and regulationsadopted thereunder (collectively, the “Colorado Regulations”). The Divisionmay inspect, without notice, premises where gaming is being conducted;may seize, impound or remove any gaming device; may examine and copyall of a licensee’s records; may investigate the background and conduct oflicensees and their employees; and may bring disciplinary actions againstlicensees and their employees. The Division may also conduct detailedbackground checks of persons who 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.Our failure or inability to obtain and maintain necessary gaming licenses wouldhave 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 April 17, 2008. There can be no assurancethat the Colorado casinos can successfully renew their licenses in a timelymanner from year to year.  Beginning in2009, Colorado licenses must be renewed biyearly.

 

Allpersons employed by us in Colorado who are involved, directly or indirectly, ingaming 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 operationsof a licensee. At least one key license holder must be on the premises of eachColorado casino at all times that a casino is open for business.

 

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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 our subsidiaryBlack Hawk Gaming & Development Company, Inc. (“Black Hawk Gaming”)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 shareholders, its officers, directors, management or employees,could jeopardize any licenses held by Black Hawk Gaming. All of Black HawkGaming’s directors are required to be found 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 morelicense.

 

TheColorado Division of Gaming may require any person having an interest in alicensee or an applicant for a license to provide background information,information on sources of funding, and a sworn statement that the interestedperson or applicant is not holding that interest for another party. The GamingCommission may, at its discretion, require any person having an interest in alicensee to undergo a full background investigation and to pay for thatinvestigation in the same manner as an applicant for a license. A backgroundinvestigation includes an examination of one’s personal history, financialassociations, character, record, and reputation, as well as the people withwhom a person has associated.

 

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 pursuantto the Colorado Limited Gaming Act, (ii) all officers, directors andstockholders of a licensed privately held corporation, (iii) all officers,directors and stockholders holding either a 5% or greater interest or acontrolling interest in a licensed publicly traded corporation, (iv) anyperson who as agent, consultant, advisor or otherwise, exercises a significantinfluence upon the management or affairs of a publicly traded corporation, (v) allgeneral partners and all limited partners of a licensed partnership, (vi) allpersons that have a relationship similar to that of an officer, director orstockholder of a corporation (such as members and managers of a limitedliability company), (vii) all persons supplying financing or lending moneyto any licensee connected with the establishment or operation of limitedgaming, and (viii) all persons having a contract, lease or ongoingfinancial or business arrangement with any licensee, if such contract, lease orarrangement relates to limited gaming operations, equipment, devices orpremises.

 

Ifthe Gaming Commission determines that a person or entity is not suitable to owna direct or indirect voting interest in Black Hawk Gaming or JacobsEntertainment, Black Hawk Gaming or Jacobs Entertainment may be sanctionedunless the person or entity disposes of its voting interest. Sanctionsmay include the loss of the casino licenses. In addition, the ColoradoRegulations prohibit a licensee or any affiliate of a licensee from payingdividends, interest or other remuneration to any person found to be unsuitable,or recognizing the exercise of any voting rights by any person found to beunsuitable. The Colorado Regulations require an operating casino licensee toinclude in its corporate charter provisions that permit the repurchase of thevoting interests of any person found to be unsuitable. Black Hawk Gaming’sArticles 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.

 

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 

 

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corporation,holding company or intermediary company thereof, when the ownership interestdirectly or indirectly is, or will be upon approval of the Gaming Commission,5% or more of the entire licensee. In any event, if the Gaming Commissiondetermines that a publicly traded corporation, or a subsidiary, intermediarycompany or holding company has the actual ability to exercise influence over alicensee, regardless of the percentage of ownership possessed by that entity,the Gaming Commission may require the entity to comply with the disclosureregulations contained in Rule 4.5.

 

UnderRule 4.5, gaming licensees, affiliated companies and controlling personscommencing a public offering of voting securities must notify the GamingCommission no later than ten business days after the initial filing of aregistration statement with the Securities and Exchange Commission. Licensedpublicly traded corporations are also required to send proxy statements to theDivision of Gaming within five days after their distribution. Licensees to whomRule 4.5 applies must include in their charter documents provisions that:restrict the rights of the licensees to issue voting interests or securitiesexcept in accordance with the Colorado Gaming Act and the Colorado Regulations;void the transfer of voting securities or other voting interests issued inviolation of the Colorado Gaming Act and the Colorado Regulations until theissuer ceases to be subject to the jurisdiction of the Gaming Commission oruntil the Gaming Commission, by affirmative act, validates the transfer; andprovide that holders of voting interests or securities of licensees foundunsuitable by the Gaming Commission may, within 60 days of such finding ofunsuitability, be required to sell their interests or securities back to theissuer at the lesser of the cash equivalent of the holders’ investment or themarket price as of the date of the finding of unsuitability. Alternatively, theholders may, within 60 days after the finding of unsuitability, transfer thevoting interests or securities to a person suitable to the Gaming Commission.Until the voting interests or securities are held by suitable persons, theissuer may not pay dividends or interest, the securities may not bevoted, they may not be included in the voting or securities of the issuer,and the issuer may not pay any remuneration in any form to theholders 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 isrequired to include in its articles of organization the Rule 4.5 charterlanguage provisions; 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 companyof a licensee, referred to as qualifying persons.

 

Ownersof any such interests, whether owned individually or in association withothers, are subject to all finding of suitability. Notification must be made bypersons acquiring these interests. Such persons must submit all requestedinformation to the Division of Gaming, are subject to a finding of suitabilityas required by the Division of Gaming or the Gaming Commission, and must beinformed 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.

 

Aninstitutional investor who, individually or in association with others, acquires,directly or indirectly, the beneficial ownership of 15% or more of anyclass of voting securities or 15% of the beneficial interest in a gaminglicensee must apply to the Gaming Commission for a finding of suitabilitywithin 45 days after acquiring 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 beremoved from any position as an officer, director, or employee of a licensee,or of a holding 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 4.5relating to publicly traded corporations.

 

As of December 31, 2008, Colorado casinosmay operate only between 8:00 a.m. and 2:00 a.m., andmay permit only individuals 21 years or older to gamble or consume alcoholin the casino. Slot machines, black jack, poker and other approvedvariations of those games and video poker are the only permitted games, with amaximum single wager of $5.00. Colorado casinos may not extend credit togaming patrons. The Colorado Constitution and Regulations restrict thepercentage of space a casino may use for gaming to 50% of any floor and35% of the overall square footage of the building in which the casino islocated. Effective July 1 of each year, Colorado establishes the grossgaming revenue tax rate for the ensuing 12 months. Under the ColoradoConstitution, the rate can be increased to as much as 40% of adjusted grossproceeds. Colorado has both raised and lowered gaming tax rates since they wereinitially set in 1991. Currently, the maximum gaming tax rate is 20%.

 

On November 4, 2008,Colorado Amendment 50 was approved by Colorado voters and was subsequentlyvoted upon and approved by each of the three gaming towns in Colorado (BlackHawk, Central City and Cripple Creek). The new gaming regulation, which will be effective on July 2, 2009at Colorado casinos, allows for the introduction of craps and roulette,increases the maximum single wager limit to $100, allows 24-hour gamingoperations, and sets a maximum tax rate of 20%. For further discussion, see Item 7 “Management’s Discussion and Analysisof Financial Condition and Results of Operations.”

 

***GamingRegulation and Licensing—Nevada***

 

Theownership and operation of casino gaming facilities in Nevada, including theNevada casino operated by Jacobs Entertainment’s direct and indirectsubsidiaries Gold Dust West Casino, Inc. (“Gold Dust West”), Jacobs PiñonPlaza Entertainment, Inc. (“Piñon Plaza”) and Jacobs Elko Entertainment, Inc. (“Elko”)(collectively, the “Nevada Gaming Subsidiaries”), are subject to the Nevada Gaming Control Act and the regulationspromulgated thereunder (the “Nevada Act”) and to the licensing and regulatorycontrol of the Nevada Gaming Commission (the “Nevada Commission”), the NevadaState Gaming Control Board (the “Nevada Board”), and various local ordinancesand regulations, including, without limitation, those of the cities of Reno,Carson City and Elko, Nevada (collectively, the “Nevada Gaming Authorities”).

 

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 fromhaving a direct or indirect involvement with gaming at any time or in anycapacity; (ii) the establishment and maintenance of responsible accountingpractices and procedures; (iii) the maintenance of effective controls overthe financial practices of licensees, including the establishment of minimumprocedures for internal fiscal affairs and the safeguarding of assets andrevenues, providing reliable record keeping and filing periodic reports withthe Nevada Gaming Authorities; (iv) the prevention of cheating andfraudulent practices; and (v) providing a source of state and localrevenues through taxation and licensing fees. Change in such laws, regulationsand procedures could have an adverse effect on Jacobs Entertainment’s Nevadagaming operations.

 

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The Nevada Gaming Subsidiaries have been licensed by the Nevada GamingAuthorities as corporate licensees. Gaming licenses require the periodicpayment of fees and taxes and are not transferable. Jacobs Entertainment’sparent company, Jacobs Investments, Inc. (“Jacobs Investments” or “JII”),has been registered by the Nevada Commission as a holding company and has beenfound suitable to own Jacobs Entertainment’s stock. Black Hawk Gaming hasbeen registered by the Nevada Commission as an intermediary company and hasbeen found suitable to own the stock of Gold Dust West. Jacobs Entertainmenthas been registered by the Nevada Commission as a publicly traded corporation(a “Registered Corporation”) and has been found suitable as the soleshareholder of Black Hawk Gaming, PiñonPlaza and Elko.  RegisteredCorporations, registered intermediary companies, and corporate licensees arerequired periodically to submit detailed financial and operating reports to theNevada Commission and furnish any other information that the Nevada Commissionmay require. Substantially all material loans, leases, sales of securitiesand similar financing transactions by Jacobs Investments, Jacobs Entertainment,Black Hawk Gaming, and the Nevada Gaming Subsidiaries must be reported to orapproved by the Nevada Commission. No person may become a stockholder of,or holder of an interest in, or receive any percentage of profits from acorporate licensee without first obtaining licenses and approvals from theNevada Gaming Authorities. The controlling shareholders, directors and certainofficers of Jacobs Investments, Jacobs Entertainment, Black Hawk Gaming, andthe Nevada Gaming Subsidiaries have obtained from the Nevada Gaming Authoritiesthe various registrations, findings of suitability, approvals, permits andlicenses that are required in order to engage in gaming activities in Reno,Carson City and Elko,****Nevada.

 

TheNevada Gaming Authorities may investigate any person who has a materialrelationship to, or material involvement with, Jacobs Investments, JacobsEntertainment, Black Hawk Gaming, or the Nevada Gaming Subsidiaries in order todetermine whether that individual is suitable or should be licensed as abusiness associate of a gaming licensee. The officers, directors andshareholders of Jacobs Investments and Jacobs Entertainment must fileapplications with and be licensed or found suitable by the Nevada GamingAuthorities. The officers, directors and certain key employees of the NevadaGaming Subsidiaries must file applications with and may be required to belicensed or found suitable by the Nevada Gaming Authorities. The officers,directors and key employees of Jacobs Investments, Jacobs Entertainment andBlack Hawk Gaming who are actively and directly involved in the gamingactivities of the Nevada  GamingSubsidiaries may be required to be licensed or found suitable by theNevada Gaming Authorities. The Nevada Gaming Authorities may deny anapplication for licensing for any cause that they deem reasonable. A finding ofsuitability is comparable to licensing, and both require submission of detailedpersonal and financial information followed by a thorough investigation. Theapplicant for licensing or a finding of suitability must pay all the costs ofthe investigation. 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 Investments, Jacobs Entertainment, Black Hawk Gaming or the NevadaGaming Subsidiaries, the companies involved would have to sever allrelationships with that person. In addition, the Nevada Commissionmay require Jacobs Investments, Jacobs Entertainment, Black Hawk Gaming orthe Nevada Gaming Subsidiaries to terminate the employment of any person whorefuses to file appropriate applications. Determinations of suitability or ofquestions pertaining to licensing are not subject to judicial review in Nevada.

 

JacobsInvestments, Jacobs Entertainment, Black Hawk Gaming and the Nevada GamingSubsidiaries are required periodically to submit detailed financial andoperating reports to the Nevada Commission and furnish any other informationthat the Nevada Commission may require. Substantially material loans,leases, sales of securities and similar financing transactions of Jacobs Investments,Jacobs Entertainment, Black Hawk Gaming and the Nevada Gaming Subsidiaries mustbe reported to or approved by the Nevada Commission.

 

Ifit were determined that the Nevada Act was violated by Jacobs Investments,Jacobs Entertainment, Black Hawk Gaming Jacobs Investments, JacobsEntertainment, Black Hawk Gaming or the Nevada Gaming Subsidiaries, theregistrations or gaming licenses that Jacobs Investments, Jacobs Entertainment,Black Hawk Gaming Jacobs Investments, Jacobs Entertainment, Black Hawk Gaming andthe Nevada Gaming Subsidiaries hold could be limited, conditioned, suspended orrevoked, subject to compliance with certain statutory and regulatoryprocedures. In addition, Jacobs Investments, Jacobs Entertainment, Black HawkGaming, or the Nevada Gaming Subsidiaries and the persons involved could besubject to substantial fines for each separate violation of the Nevada Act atthe 

 

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discretionof the Nevada Commission. Further, a supervisor could be appointed by theNevada Commission to operate the casinos operated by the Nevada GamingSubsidiaries and, under certain circumstances, earnings generated during the supervisor’sappointment (except for reasonable rental value of the casino) could beforfeited to the State of Nevada. Limitation, conditioning or suspension of thegaming licenses of the Nevada Gaming Subsidiaries or the appointment of asupervisor could (and revocation of any gaming license would) have a materialadverse effect on the gaming operations, financial condition and results ofoperations of Jacobs Entertainment.

 

TheNevada Act requires any person who acquires beneficial ownership of more than 5%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 a Registered Corporation’svoting securities may apply to the Nevada Commission for a waiver of afinding of suitability if that institutional investor holds the votingsecurities for investment purposes only. In certain circumstances, aninstitutional investor that has obtained a waiver may hold up to 19% of aRegistered Corporation’s voting securities for a limited period of time andmaintain the waiver. An institutional investor will not be deemed to holdvoting securities for investment purposes unless the voting securities wereacquired and are held in the ordinary course of business as an institutionalinvestor and not for the purpose of causing, directly or indirectly, theelection of a majority of the members of the Registered Corporation’s board ofdirectors, any change in the Registered Corporation’s corporate charter,bylaws, management, policies or operations, or of any of its gaming affiliates,or any other action that the Nevada Commission finds to be inconsistent withholding the Registered Corporation’s voting securities for investment purposesonly. Activities which are not deemed to be inconsistent with holding votingsecurities for investment purposes only include: (i) voting on all mattersvoted on by stockholders; (ii) making financial and other inquiries ofmanagement of the type normally made by securities analysts for informationalpurposes and not to cause a change in management, policies or operations; and (iii) suchother activities as the Nevada Commission may determine to be consistentwith such investment intent. If the beneficial holder of voting securities whomust be found suitable is a corporation, partnership or trust, it must submitdetailed business and financial information, including a list of beneficialowners. The applicant is required to pay all costs of investigation.

 

Anyofficer, director or stockholder of a licensed or registered company who failsor refuses to apply for a finding of suitability or a license within 30 daysafter being directed to do so by the Nevada Commission or the Chairman of theNevada Board may be found unsuitable. The same restrictions apply to arecord owner of stock if the record owner, after request, fails to identify thebeneficial owner. Any stockholder found unsuitable who holds, directly orindirectly, any beneficial ownership of the stock of a licensed or registeredcompany beyond such period of time as may be prescribed by the NevadaCommission may be guilty of a criminal offense. A Registered Corporationis subject to disciplinary action if, after it receives notice that a person isunsuitable to be a stockholder or to have any other relationship with theRegistered Corporation, the Registered Corporation (i) pays that personany dividend or interest, (ii) allows that person to exercise, directly orindirectly, any voting right conferred through securities held by that person, (iii) paysremuneration in any form to that person for services rendered orotherwise, or (iv) fails to pursue all lawful efforts to require thatunsuitable person to relinquish its voting securities including, if necessary,the immediate purchase of the voting securities for cash at fair market value.Additionally, the Cities of Reno, Carson City and Elko, Nevada have theauthority to approve all persons owning or controlling the stock of anycorporation controlling a gaming licensee operating in those cities.

 

TheNevada Commission may, in its discretion, require the holder of any of the debtor similar securities of a Registered Corporation to file applications, beinvestigated and be found suitable to own such debt securities if the NevadaCommission has reason to believe that such ownership would otherwise beinconsistent with the declared policies of the State of Nevada. If the NevadaCommission determines that a person is unsuitable to own those securities, thenpursuant to the Nevada Act, a Registered Corporation can be sanctioned,including by revocation of its approvals and those of its affiliates, ifwithout the prior approval of the Nevada Commission, the Registered Corporation(i) pays to the unsuitable person any dividend, interest, or anydistribution whatsoever; (ii) recognizes any voting right by theunsuitable person in connection with the Registered Corporation’s securities; (iii) paysthe unsuitable person remuneration in any form; or (iv) makes any paymentto the unsuitable person by way of principal, redemption, conversion, exchange,liquidation, or similar transaction.

 

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Jacobs Investments, Jacobs Entertainment, Black HawkGaming and the Nevada Gaming Subsidiaries are required to maintain currentstock ledgers in Nevada that may be examined by the Nevada GamingAuthorities at any time. If any securities are held in trust by an agent or bya nominee, the record holder may be required to disclose the identity ofthe beneficial owner to the Nevada Gaming Authorities. A failure to make therequired disclosure may be grounds for finding the record holderunsuitable. Licensed and registered companies are also required to rendermaximum assistance in determining the identity of beneficial owners of theirsecurities. The Nevada Commission has the power to require Jacobs Entertainment’sstock certificates to bear a legend indicating that the securities are subjectto the Nevada Act. To date, the Nevada Commission has not imposed such arequirement.

 

Jacobs Investments, JacobsEntertainment and Black Hawk Gaming may not make a public offering withoutthe prior approval of the Nevada Commission if the proceeds from the offeringare intended to be used to construct, acquire or finance gaming facilities inNevada, or to retire or extend obligations incurred for those purposes or forsimilar transactions. On September 20, 2007, the Nevada Commission grantedJacobs Entertainment prior approval to make public offerings for a period oftwo years, subject to certain conditions (the “Shelf Approval”). The ShelfApproval also applies to any affiliated company wholly owned by JacobsEntertainment which is a publicly traded corporation or would become a publiclytraded corporation pursuant to a public offering. The Shelf Approvalmay be rescinded for good cause without prior notice upon the issuance ofan interlocutory stop order by the Chairman of the Nevada Board. The ShelfApproval does not constitute a finding, recommendation or approval by any ofthe Nevada Gaming Authorities as to the accuracy or adequacy of the offering memorandumor the investment merits of the securities. Any representation to the contraryis unlawful.

 

Changes in control of aRegistered Corporation through merger, consolidation, stock or assetacquisitions, management or consulting agreements, or any act or conduct by aperson by which it obtains control of a Registered Corporation, may notoccur without the prior approval of the Nevada Commission. Entities seeking toacquire control of a Registered Corporation must satisfy the Nevada Board andNevada Commission on a variety of stringent standards prior to assuming suchcontrol. The Nevada Commission may also require controlling stockholders,officers, directors and other persons having a material relationship orinvolvement with the entity proposing to acquire control, to be investigatedand licensed as part of the approval process relating to the transaction.

 

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. Regulations of the Nevada Gaming Commissionprovide that control of a Registered Corporation cannot be acquired through atender offer, merger, consolidation, acquisition of assets, management orconsulting agreements or any form of takeover whatsoever without the priorapproval of the Nevada Gaming Commission. The Nevada Commission has establisheda regulatory scheme to ameliorate the potentially adverse effects of thesebusiness practices on Nevada’s gaming industry and to further Nevada’s policyto: (i) assure the financial stability of corporate gaming licensees andtheir affiliates; (ii) preserve the beneficial aspects of conductingbusiness in the corporate form; and (iii) promote a neutral environmentfor the orderly governance of corporate affairs. Approvals are, in certaincircumstances, required from the Nevada Commission before a RegisteredCorporation can make exceptional repurchases of voting securities above thecurrent market price thereof and before a corporate acquisition opposed bymanagement can be consummated. The Nevada Act also requires prior approval of aplan of recapitalization proposed by a Registered Corporation in response to atender offer made directly to its stockholders for the purposes of acquiringcontrol of the Registered Corporation.

 

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 Gaming Subsidiaries’ operations are conducted.Depending on the particular fee or tax involved, these fees and taxes arepayable either monthly, quarterly or annually and are based on either (i) apercentage of the gross revenues received; (ii) the number of gamingdevices operated; or (iii) the number of table games operated. A liveentertainment tax is also paid by gaming establishments where liveentertainment is furnished in connection with an admission fee or the sellingor serving of food, refreshments or merchandise.

 

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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 personal unsuitability.

 

***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. Theenforcement arm thereof in charge of licensing and criminal investigations isthe Video Gaming Division of the Louisiana State Police, likewise apart of the Department of Public Safety and Corrections. The Gaming Section ofthe Attorney General’s Office provides all legal counsel and representationwith respect to all matters involving licensing actions and any otherlitigation issue relative to gaming and involving either the Louisiana GamingControl Board (hereinafter the “Board”) or the Video Gaming Division of theLouisiana 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 convictedin any jurisdiction of any of the following offenses within ten years prior tothe date of the application for a video draw poker license or less than tenyears has elapsed between the date of application for a video draw pokerlicense and the successful completion or service of any sentence, deferredadjudication, or period of probation or parole for any such offense: (i) anyoffense punishable by imprisonment for more than one year; (ii) theft orany crime involving false statements or declarations; or (iii) gambling,as defined by the laws or ordinances of any municipality, any parish, anystate, or the United States. The act and its corresponding regulations furtherprovide that an application for a video draw poker license may be deniedif it contains any material omission of information. An applicant must also notbe delinquent in state or federal income taxes, penalties or interest ordelinquent in the payment of any sales taxes, penalties, or interest to eitherthe state or any local governing authority of the parish or municipality inwhich 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) aperson of good character, honesty, and integrity; (ii) a person whoseprior activities, 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 asauthorized by the act in complete compliance with the act.

 

Thesuitability standards must be met by every person who has or controls directlyor indirectly more than a 5% ownership, income, or profit interest in an entitythat has or applies for a license in accordance with the act, or who receivesmore than a 5% revenue interest in the form of a commission, finder’s fee,loan repayment, or any other business expense related to the gaming operation,or who has the ability, in the opinion of the Division, to exercise asignificant influence over the activities of a licensee authorized or to beauthorized by the act. For the purposes of the act, all gaming-relatedassociations, outstanding loans, promissory notes, leases, or other financialindebtedness of an applicant or licensee must be revealed to the Division forthe purposes of determining significant 

 

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influenceand suitability. While significant influence is determined on a case-by-casebasis, it has generally been interpreted to include any person who is anofficer or director of any juridical entity that is an applicant for a videodraw poker license as well as the spouse of any person having more than a 5%ownership, income, or profit interest in an applicant as well as the spouse ofany officer or director of any juridical entity applicant. As of the middle of2007, the Louisiana State Police made a policy decision that generally removedspouses from the list of parties required to file suitability documentationrelated to video draw poker establishment licenses. However, the companionlegislation was not approved nor sent to the governor for signature during thecorresponding legislative session.

 

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 tradedsecurities issued by a licensee or permittee or a holding, intermediate, orparent company of a licensee or permittee in the ordinary course of businessfor investment purposes only; (ii) it does not exercise influence over theaffairs of the issuer of the securities or over any licensed or permittedsubsidiary of the issuer of the securities; and (iii) it does not intendto exercise influence over the affairs of the issuer of the securities, or overany licensed or permitted subsidiary of the issuer of the securities, in thefuture, and that it agrees to notify the Board in writing within 30 days ifthat 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 CompanyAct of 1940; (iii) a collective investment trust organized by a bank underPart Nine of the Rules of the Comptroller of the Currency; (iv) aclosed end investment trust that is registered with the United StatesSecurities and Exchange Commission; (v) a mutual fund; (vi) a lifeinsurance company or property and casualty company; (vii) a federal orstate bank; or (viii) an investment advisor registered under theInvestment 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 theDivision, and if, as a result, any person holding a license issued pursuant tothe act is not or may no longer be qualified or suitable, the Board willissue, under penalty of revocation of the license, a condition naming theperson who failed to provide all or part of the documents or informationrequired by the Board or the Division, and declaring that such personmay not: (i) receive dividends or interest on securities of acorporation holding a license, if the person has or controls directly orindirectly more than a 5% ownership, income, or profit interest in suchcorporation; (ii) exercise directly, or through a trustee or nominee, aright conferred by securities of a corporation holding a license, if the personhas or controls directly or indirectly more than a five percent ownership,income, or profit interest in such corporation; (iii) receive remunerationor other economic benefit from any person holding a license issued pursuant tothe provisions of the act; (iv) exercise significant influence over theactivities of a person holding a license issued pursuant to the provisions ofthe act; or (v) continue owning or holding a security of a corporationholding a license if the person has or controls directly or indirectly morethan a 5% ownership, income, or profit interest in such corporation.

 

Operatingvideo draw poker devices at truck plazas in Louisiana requires both anestablishment license and a device owner license. The establishment licensepermits the placement by a licensed device owner of video draw poker devices onthe licensed premises. A device owner license permits the licensed entity toplace and operate video draw poker devices at licensed establishments. In manycases, an establishment licensed for the placement of video draw poker deviceswill contract with a licensed device owner for video draw poker deviceplacement services for a percentage of the video draw poker revenues. Alicensed establishment may also, however, be a licensed device owner. Alicensed device owner entity must be majority-owned by a person or persons whohave resided within the State of Louisiana for a period of two years.

 

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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 ormotel may have three video draw poker devices in each of its lounges andrestaurants licensed to sell alcoholic beverages, up to a total of twelve foreach hotel or motel. A pari-mutuel wagering facility and a licensed satellitewagering facility may have an unlimited number of video draw poker devices.A truck stop facility may have up to fifty video draw poker devices, withthe number being determined by the amount of fuel sales of the truck stopfacility.

 

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 wageringfacility—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; and (iii) 50,000 gallons of fuel, ofwhich at least 10,000 are diesel—not more than 35 devices. Compliance with theforegoing thresholds is measured quarterly for the first year of operation and,thereafter, is measured annually. Once licensed, if a truck stop facility sellsless than an average of 50,000 gallons per month but more than 25,000 gallonsper month in any calendar year, the truck stop facility will not be permittedto operate any video draw poker devices in the following calendar year. Aqualified truck stop facility that sells less than an average of 25,000 gallonsper month in any calendar year will be subject to revocation of its video drawpoker license. Bulk sales or transfers may not be used to calculatemonthly averages. Fuel facilities may, however, offer fuel for sale at a lowerprice (a) when motor fuel is sold upon the final liquidation of abusiness; (b) when motor fuel is advertised, offered for sale, or sold byany fiduciary or other officer under the order or direction of any court; (c) whenmotor fuel is sold for promotional purposes limited to a grand opening, anannual anniversary, or an annual customer appreciation day sale, each of whichdoes not exceed three consecutive days; and (d) when motor fuel is sold ina good faith effort to meet the legal price of a competitor. Louisiana lawcreates a presumption that a fuel facility will not violate the pricerequirement when it sells fuel below the required price to meet the price of acompetitor if it makes a bona fide effort to determine the legality of theprice of such competitor and determines in good faith that the competitor’sprice is a legal price.

 

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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) itmust be located adjacent to a major state or interstate highway, as defined bythe 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 thefollowing features: (a) provides seating for at least 50 patrons; (b) providesfull table service for sit-down meals; (c) is open 12 hours a day; (d) offersa varied menu; and (e) operates a fully equipped kitchen which includes,but is not limited to, a range oven and refrigerated storage appliances usedfor the preparation of foods for on-premises or immediate consumption; (iii) itmust have parking areas with each of the following: (a) a stable parkingarea for at least 50 18-wheel tractor-trailer motor vehicles, either paved orconcrete (or otherwise certified and approved), to support 18-wheel tractor-trailer motor vehicles and their loads, constructed according to industryspecifications, subject to approval by the Board and the Division; (b) parkingof sufficient size is allowed for safe ingress and egress; and (c) parkingareas for other vehicles around business entrance ways and exits shall notconstitute parking areas for 18-wheel tractor-trailer motor vehicles; (iv) itmust have diesel and gasoline fuel; (v) it must have on-site repairservice facilities for 18-wheel tractor-trailer motor vehicles which facilitymay be in the form of a contract services business which regularlyperforms this type of service; (vi) it must have at least four of thefollowing amenities: (a) a separate truckers’ television lounge; (b) afull service laundry facility located in a convenient area for truckers’ use; (c) privateshowers for men and women, not located in an area open to general publicrestroom facilities; (d) a travel store with items commonly referredto as truckers’ supplies (items commonly used only by commercial motorvehicles); (e) truck scales; (f) separate truckers’ telephones; and (g) permanentstorage facilities for fuel; (vii) it must have an area separated foradult patronage only; and (viii) it must have, if available, a Class A—Generalretail permit or a Class A—Restaurant permit, as defined in Part IIof Chapter 1 or Part II of Chapter 2 of Title 26 of the Louisiana RevisedStatutes of 1950, to serve or sell alcoholic beverages for on-premisesconsumption and be owned and leased by a person who meets all personalqualifications for such permit. In light of Hurricane Katrina and other recentevents, the Louisiana legislature has recently put in place exceptions to theamenities requirements and fuel requirements that allow qualified truck stopfacility licensees to operate casinos with a previously approved number ofgaming devices, notwithstanding certain non-compliance with the amenities orfuel requirements. The exceptions may apply, depending on the circumstances andas determined by the Division, if the non-compliance is caused by forcemajeure, expropriation by political subdivision, road construction or othernon-commercial circumstances that directly affect compliance. An owner orlessor of a qualified truck stop facility may lease or sublease any restaurant,convenience store, fuel facility, or any other business operation located onthe premises of the qualified truck stop facility to another person, providedthat such person executes a written lease which contains a requirement that thelessee or sublessee comply with the laws and regulations which govern theoperation of video draw poker devices. If such lease or sublease is granted,the owner or lessor of such qualified truck stop facility shall maintainultimate supervision and control of that entire truck stop premises.

 

Additionally,no license can be granted to any truck stop facility located, at the time applicationis made for a license to operate video draw poker devices, within five hundredfeet of any property that is on the National Historic Registry, any publicplayground, or a building used exclusively as a church, synagogue, publiclibrary, or school. In addition, no license shall be issued for any truck stopfacility unless previously applied for or licensed as of January 1, 2008,located, at the time application is made for a license to operate video drawpoker devices, within two thousand five hundred feet of any property that is onthe National Historic Registry, any public playground, or a building usedexclusively as a church, synagogue, public library, or school unless theapplicant for the license has applied prior to January 1, 2008, with the localgoverning authority of the parish where the truck stop is located for acertificate of compliance with applicable zoning ordinances and building codesand a statement of approval for the operation of video draw poker devices at atruck stop facility or has applied with the appropriate authority for abuilding permit prior to January 1, 2008.

 

Allsuitability information and applications required to be submitted with respectto the 18 Louisiana truck plazas currently owned by us, as well as the truck stopin which we share in the revenue, have been submitted to the Board and theDivision. All applications submitted have been approved and none are currentlypending.  However, because the Board andthe Division conduct a new suitability investigation in connection with eachacquisition of a facility at which video gaming devices are to be operated,regardless of prior approvals, there can be no guarantee that a suitabilityapproval will ultimately result with respect to the plazas that we propose toacquire.

 

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***GamingRegulation and Licensing—Virginia***

 

Colonial’ssuccess is dependent upon continued government and public acceptance of horseracing as a form of legalized gaming. Although Colonial believes thatpari-mutuel wagering on horse racing will continue to be legal in Virginia,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 arisein the future. Any repeal or material amendment of the Virginia Racing Actcould have a material adverse effect on Colonial’s 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 Colonial’s track and satellitewagering facility licenses, (ii) annually approving Colonial’s proposedschedule of racing days, (iii) approving new or modified types ofpari-mutuel wagering pools requested by Colonial, (iv) issuing permits toall officers, directors, racing officials, and other employees of Colonial, and(v) approving simulcast schedules at the track and at the satellitewagering facilities. The Virginia Racing Commission also has the authority topromulgate regulations pertaining to Colonial’s track facilities, equipment,safety and security measures, and controls the issuing of licenses and permitsfor participants in pari-mutuel racing, including Colonial employees at thetrack and at the satellite wagering facilities. In addition, the VirginiaRacing Commission must approve any acquisition or continuing ownership of a 5%or greater interest in Colonial. Action by the Virginia Racing Commission thatis inconsistent with the Colonial’s business plan could have a material adverseeffect on Colonial.

 

Duringthe 2000 session of the Virginia General Assembly, an amendment to the RacingAct was passed that requires Colonial to enter into contracts with eachrepresentative horsemen’s group and provides for it to contribute to the purseaccount of the respective breed a minimum of 5% of the first $75 million ofsimulcast amounts wagered (“handle”), 6% of the next $75 million and 7% of allhandle 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, Colonialreceived all breakage. The Virginia Racing Act requires that, after July 1,2000, we enter into contracts with each representative horsemen’s group thatprovide for us to contribute, by breed of horse, a minimum of 5% of the first$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’s licensesif it believes the Racing Act or the regulations have been violated. Inaddition, 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 for the racetrackand its satellite wagering facilities are for a period of not less than 20years, but are subject to annual review by the Virginia Racing Commission. Itis possible that such licenses will not be renewed or that such licenses couldbe suspended or revoked by the Virginia Racing Commission for violations of theVirginia Racing Act or Virginia Racing Commission rules. We also hold anadvance deposit account wagering license that is renewable annually. Ourcurrent advance deposit account wagering license expires December 31,2009.

 

Wehave entered into an agreement with the VHHA that expires December 31,2011.  Our agreement with the VaHBPAexpired December 31, 2008.  We arecurrently negotiating a new contract with the VaHBPA. ** **Inthe event our VaHBPA agreement cannot continue to be renewed in the future, theVirginia Racing Commission could suspend our licenses to operate our racetrackand the satellite wagering facilities until an agreement is in place althoughit has not indicated that it will do so. Although it is difficult to predictthe likelihood of such an event, closure of the satellite wagering facilitieswould be detrimental to the horsemen’s groups and us since each horsemen’sgroup’s primary source of purse funds is its percentage of wagering at thesatellite facilities.

 

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Colonial,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 sitesbecause of parking, traffic flow, and other similar considerations. Anyinterruption or termination of Colonial’s ability, or that of itsconcessionaires, to serve alcoholic beverages could have a material adverseeffect on Colonial.

 

***GamingRegulation—Federal***

 

Colonial’sinterstate simulcast operations are subject to the Federal Interstate HorseRacing Act, which regulates interstate satellite wagering. In order to conductwagering on import simulcasting at the track or any racing center, theInterstate Horse Racing Act requires Colonial to obtain the consent of theVirginia Racing Commission, the consent of the racing commission of the statewhere the horse racing meet originates, and the consent of the representativehorsemen groups in the origination state. To conduct export simulcasting,Colonial must obtain the consent of the Virginia Horseman’s Benevolent andProtective Association or the Virginia Harness Horse Association, and theVirginia Racing Commission. Also, in the case of satellite wagering to beconducted at any of Colonial’s satellite wagering facilities, the InterstateHorse Racing Act requires Colonial to obtain the approval of all currentlyoperating horse racetracks within 60 miles of the satellite wagering facilitiesor if there are no currently operating tracks within 60 miles, the approval ofthe closest operating horse racetrack, if any, in an adjoining state.Significant delay in obtaining or failure to obtain these consents or approvalscould have a material adverse effect on Colonial.

 

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 alsomay investigate persons who, directly or indirectly, lend money to liquorlicensees. All liquor licenses are renewable, are revocable and are nottransferable. The Liquor Agencies have broad powers to limit, condition,suspend or revoke any liquor license. Any disciplinary action by the LiquorAgencies or any failure to renew or other revocation of any of our liquorlicenses would have a material adverse effect on our operations and Black HawkGaming’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 the cities of Reno, Carson City and Elko,Nevada, is subject to licensing, control and regulation by those cities. Alllicenses are revocable and are not transferable. The agencies involved havefull power to limit, condition, suspend or revoke any such license, and anysuch disciplinary action could (and revocation would) have a material adverseeffect on the operations of one or more of our Gold Dust West casinos inNevada.

 

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 issuedif the applicable premises is located three hundred feet or less, as fixed anddetermined by the local municipal ordinance, of a public playground or of abuilding used exclusively as a church or synagogue, public library, school,full-time daycare 

 

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centeror corrections facility housing inmates, including but not limited to, ahalfway house. Louisiana parishes may enact ordinances extending the distancebetween the applicable premises and the property line of such locations to 500feet. Local municipalities are also permitted to regulate the opening andclosing hours of permitted businesses as well as to prohibit the sale ofalcoholic beverages altogether by referendum vote of the people within themunicipality. A local municipality may also regulate via zoningdesignations the permissibility or prohibition of the permitting of businessesthat sell alcoholic beverages within that municipality. All of our video gamingtruck plaza facilities are currently licensed by the applicable state and localalcohol 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 and non-alcoholicbeverages. Mixed beverage licensees must submit annual review reports to theVirginia ABC Board showing all purchases and sales of alcoholic beveragesduring the year as well as an accurate inventory. Finally, the Virginia ABCBoard imposes certain restrictions and limitations on advertising, the use ofadvertising materials and promotions.

 

IfVirginia ABC agents discover license violations, a disciplinary hearing willtypically be conducted with a Virginia ABC hearing officer. Any aggrieved localitiesand 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’s 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. Beginning July 1, 2008, gaming tax rates are as follows:

 
| **Tax as Percentage of** | ** ** | **Annual Amount of Adjusted** | ** ** |
|-----------------------------------------|------------|----------------------------------------------|------------|
| **Adjusted Gross Proceeds**   | ** ** | **Gross Proceeds**                      | ** ** |
| ** **                              | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| 0.25%                                   |       | $                                            | 0          |   | — |   | 2,000,000 |   |
| 2.00%                                   |       | 2,000,001                                    |       | — |   | 5,000,000 |   |
| 9.00%                                   |       | 5,000,001                                    |       | — |   | 8,000,000 |   |
| 11.00%                                  |       | 8,000,001                                    |       | — |   | 10,000,000 |   |
| 16.00%                                  |       | 10,000,001                                   |       | — |   | 13,000,000 |   |
| 20.00%                                  |       | 13,000,001                                   |       |   |   | and above |   |
|                                         |            |                                              |            |  |  |  |  |  |

 

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Bothof JEI’s Colorado casinos are subject to the maximum rate. Neither the Coloradoconstitution nor the gaming statutes require that gaming tax rates begraduated, as they currently are. However, with the passage of ColoradoAmendment 50, the gaming tax rates were set in accordance with the table above andcan only be increased with an amendment to the Colorado Constitution.

 

InNevada, license fees and taxes, computed in various ways depending on the typeof gaming or activity involved, are payable to the State of Nevada, Washoe,Carson City, and Elko Counties and the Cities of Reno, Carson City, and Elko.Depending upon the particular fee or tax involved, these fees and taxes arepayable either monthly, quarterly or annually and are based upon either: (i) apercentage of the gross revenues received; (ii) the number of gamingdevices operated; or (iii) the number of table games operated. A liveentertainment tax is also paid by casino operations where entertainment isfurnished in connection with an admissions charge or the selling or serving offood or refreshments or the selling of merchandise. Presently the state tax inNevada 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 “gaming franchise fee” of 32.5% of the netdevice revenue from each video gaming device located at a truck plaza. The netdevice revenue is the amount remaining after all winnings have been paid. Thisfranchise fee 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 is subject to a number of federal,state and local taxes and fees. These include fees to support the VirginiaBreeders Fund, taxes payable to the Commonwealth of Virginia, taxes andadmission charges payable to New Kent County, where the track is located, andtaxes payable to localities in which satellite wagering facilities are locatedbased upon attendance and the amount of monies wagered both at the track and atthe satellite wagering facilities. Colonial believes that the public acceptanceof pari-mutuel wagering on horse races, as well as other forms of gaming, isbased, in part, on the governmental revenues it generates from taxes and feeson such activities. It is possible that gaming activities, including horseracing, may become a target for additional federal, state, or local taxes andfees. A significant increase in such taxes or fees or the creation ofsignificant additional taxes or fees could have a material adverse effect onus.

 

**Item 1A.****                                   *****Risk Factors.***

 

To inform readers of our future plans and business strategies, thisreport 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 statements. 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 of December 31,2008, we had total indebtedness excluding accounts payable and accrued expensesof approximately $290.7 million and total stockholder’s equity of approximately$24.9 million. Our substantial indebtedness could have considerableconsequences. For example, it could:

 

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·                                          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 have a material adverseeffect on our business, financial condition, results of operations, prospectsand ability to satisfy our obligations under our debt agreements.

 

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

 

Our debt agreements contain covenants that, among other 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;

 

·                                          merge or consolidate; and

 

·                                          transfer and sell assets.

 

In addition, our seniorcredit facility contains many restrictive covenants similar to the covenants ofour indenture but the covenants in our senior credit facility are generallymore restrictive than those contained in our indenture. Our senior credit facilityalso requires us to maintain specified consolidated financial ratios andsatisfy certain consolidated financial tests. Our ability to meet thosefinancial ratios and financial tests may be affected by events beyond ourcontrol, and we may not be able to continue to meet those tests. If we fail tomeet those tests or breach any of the covenants, the lenders under our seniorcredit facility could declare all amounts outstanding thereunder, together withthe accrued interest, to be immediately due and payable. Our assets may not besufficient to repay in full such indebtedness or any other indebtedness,including $210 million of our senior unsecured notes issued under ourindenture. Further, any other agreements we may enter into in the futuregoverning our indebtedness may impose additional restrictions on us, any ofwhich may adversely affect our ability to finance our future operations orcapital needs or to pursue available business opportunities.  Our failure to pay interest, repay our indebtednesswhen due, or maintain 

 

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compliance with our debt covenantswould result in an event of default under both our senior credit facility andour note indenture.

 

Complying with these covenants could materially limit our financial andoperating flexibility and could cause us to take actions that we otherwisewould not take or cause us not to take actions that we 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 incur substantial additionalindebtedness in the future. The indenture governing our senior unsecured notesand our senior credit facility do 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 our indebtedness andto fund our operations will depend on our ability to generate cash. This, to anextent, is subject to general economic, financial, competitive, legislative,regulatory and other factors that are beyond our control. Our business may notgenerate sufficient cash flow from operations and future borrowings may not beavailable to us in amounts sufficient to enable us to pay our indebtedness, orto fund our other liquidity needs. In addition, if we consummate significantacquisitions in the future, our cash requirements may increase significantly.If we are unable to generate sufficient cash flow and are unable to refinanceor extend outstanding borrowings, we may have to:

 

·                                          reduce or delay planned expansion and capitalexpenditures;

 

·                                          sell assets;

 

·                                          restructure debt; or

 

·                                          raise additional capital.

 

Furthermore, we intend to refinance all of our debt on or beforematurity. We cannot assure you that we will be able to refinance any of ourdebt on commercially reasonable terms or at all.

 

***Our senior notes are not secured by any of our assets and seniornoteholders’ rights to enforce remedies will be limited to the rights ofholders of unsecured debt.***

 

Oursenior notes are not secured by any of our assets. Our obligations under oursenior credit facility are secured by liens on substantially all of our assets.If we become insolvent or are liquidated, or if payments under our seniorcredit facility are accelerated, the lenders under our senior credit facilitywill be entitled to exercise the remedies available to a secured lender under applicablelaw and our senior credit facility. Accordingly, such lenders will have a priorclaim with respect to our assets and there may not be sufficient assetsremaining to pay amounts due on our senior unsecured notes then outstanding.

 

***We are a holding company and will depend on the business of oursubsidiaries to satisfy our obligations under our indebtedness.***

 

Weare a holding company. Substantially all of the operations necessary to fundpayment on our indebtedness are conducted by our subsidiaries. Our ability tomake payments on our indebtedness will depend on our subsidiaries’ cash flowand their payment of funds to us. Our subsidiaries’ ability to make payments tous will depend on their earnings, the terms of their indebtedness, business andtax considerations, legal and regulatory restrictions and economic conditions.

 

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***We may not have the ability to raise the funds necessary to finance thechange of control offer required by our indebtedness.***

 

Uponthe occurrence of certain change of control events, we will be required tooffer to repurchase all outstanding senior unsecured notes at a purchase priceequal to 101% of their principal amount. Moreover, a change of controlconstitutes a default under our senior credit facility. However, it is likelythat we will not have sufficient funds at the time of such a change of controlto make the required repurchase of our notes or repay the indebtedness underour senior credit facility. The change of control provisions may not protectyou in a transaction in which we incur a large amount of debt, including areorganization, restructuring, merger or other similar transaction, becausethat 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 our debt agreements.

 

***Federal and state statutes allow courts, under specific circumstances,to void guarantees, subordinate claims in respect of indebtedness and requiredebt holders to return payments received from guarantors.***

 

Underthe federal bankruptcy law and comparable provisions of state fraudulenttransfer laws, a court could void a guarantee of one or more of oursubsidiaries or claims related to our senior unsecured notes or subordinate asubsidiary’s guarantee to all of our other debts or all other debts of theguarantor if, among other things, we or the guarantor, at the time we or itincurred 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 a businessor transaction for which our or the guarantor’s remaining assets constitutedunreasonably small capital; or

 

·                                          we or the guarantor intended to incur, orbelieved that we or it would incur, debts beyond our or its ability to paythose debts as they mature.

 

Inaddition, a court could void any payment by us or the guarantor pursuant to oursenior unsecured notes or a guarantee and require that payment to be returnedto us or the guarantor, or to a fund for the benefit of our creditors or thecreditors of the guarantor.

 

Themeasures of insolvency for purposes of these fraudulent transfer laws will varydepending upon the law applied in any proceeding to determine whether afraudulent transfer has occurred. Generally, however, a guarantor would beconsidered insolvent if:

 

·                                          the sum of its debts, including contingentliabilities, were greater than the fair 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.

 

Webelieve that we and the guarantors have received reasonably equivalent valueand fair consideration for the incurrence of the indebtedness and obligationsrepresented by our senior unsecured notes and the guarantees. On the basis ofhistorical financial information, recent operating history and other factors,we believe that we and each subsidiary guarantor, after giving effect to itsguarantee of our senior unsecured notes, are not insolvent, do not haveunreasonably small capital for the business in which we are or it is engagedand have not incurred debts beyond our or its ability to pay such debts as theymature. However, a court might disagree with any or all of our conclusions inthis regard and it could apply different legal standards.

 

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***Holdersof our senior unsecured notes may be required to comply with registration,licensing, qualification or other requirements under gaming laws or dispose of theirsecurities.***

 

Thegaming authorities of any jurisdiction in which we currently or in the futureconduct or propose to conduct gaming, either through our subsidiaries or ajoint venture, may require that a holder or beneficial owner of our seniorunsecured notes be registered, licensed, qualified or found suitable, or complywith any other requirement under applicable gaming laws. If you have aninterest in our senior unsecured notes, by the terms of the indenture, you willbe deemed to agree to comply with all of these requirements, including youragreement to register or apply for and maintain in full force and effect alicense, qualification or a finding or suitability, or comply with any otherrequirement, within the required time period, as provided by the relevantgaming authority. If you fail to apply to be, or fail to become, registered,licensed or qualified or such registration, license or qualification issuspended or revoked or not maintained, or you are found unsuitable or fail tocomply with any other requirement of a gaming authority, then we will have theright, at our option, to:

 

·                                          require you to sell your senior unsecurednotes or beneficial interest in the senior unsecured notes in accordance withapplicable gaming requirements within 30 days after you receive notice ofour election, or by any earlier date that the relevant gaming authority mayrequest or prescribe; or

 

·                                          redeem your senior unsecured notes (possiblywithin less than 30 days following the notice of redemption if requestedor prescribed by the gaming authority) at a redemption price equal to thelesser of:

 

·                                          your cost;

 

·                                          100% of the principal amount of the seniorunsecured notes, plus accrued and unpaid interest, if any, to the redemptiondate or the date of the first to occur of any (i) failure to become orcontinue to be registered, licensed or qualified, (ii) failure to be foundor continue to be suitable, (iii) failure to comply with relevant gamingauthority requirements or (iv) receipt of notice from the relevant gamingauthority that you will not be registered, licensed or qualified; and

 

·                                          any other amount required by applicable lawor by order of any gaming authority.

 

Ifwe elect, in our sole discretion, to redeem your senior unsecured notes, wewill notify the indenture trustee in writing of any redemption as soon aspracticable. We will not be responsible for any costs or expenses you may incurin connection with your registration, application for a license, qualificationor a finding of suitability, or your renewal or continuation of the foregoingor compliance with any other requirement of a gaming authority. The indenturealso provides that as soon as you are required to sell your senior unsecurednotes as a result of a gaming authority action, you will, to the extentrequired by the applicable gaming authority, have no further right:

 

·                                          to exercise, directly or indirectly, anyright conferred by the senior unsecured notes; or

 

·                                          to receive from us any interest or any otherdistributions or payments, or any remuneration in any form, relating to thesenior unsecured notes, except the redemption price we refer to above.

 

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**RisksRelated to Our Business**

 

***We face significant competition.***

 

The gaming industry is characterized by ahigh degree of competition among a large number of participants, many of whichhave financial and other resources that are greater than our resources.Competitive gaming activities include casinos, pari-mutuel wagering, videolottery terminals and other gaming devices, and other forms of legalizedgaming. New or expanded operations by other persons can be expected to increasecompetition for our gaming operations and could have a material adverse impacton us.

 

*Casino Operations*. Our casino operationsare conducted in Black Hawk, Colorado, and Reno, Carson City, and Elko, Nevada.Competition in the Black Hawk gaming market, which is the primary gaming marketin Colorado, is intense. In addition, large, well-financed companies haveentered the Black Hawk and other Colorado markets through the purchase orexpansion of existing facilities and others may continue to do so, all of whichcould materially harm our business, financial condition and results ofoperations. For example:

 

·                                          Ameristar Casinos, Inc. (“Ameristar”)purchased Mountain High Casino (formerly the Black Hawk Casino by Hyatt) in abankruptcy sale. That casino is directly across highway 119 from The Lodge andAmeristar has expanded the casino area to accommodate approximately 1,700 totalgaming devices with new slot product, expanded the parking garage andrefurbished and rebranded its dining venues. Ameristar has commencedconstruction of a $235-240 million, 33 story, 536-room hotel, a conventioncenter and other amenities and facilities which are expected to be completed inthe second half of 2009. In all respects, Ameristar is known to be a fiercecompetitor in gaming markets in which it operates;

 

·                                          Isle of Capri Casinos, Inc. ownsColorado Central Station, across the street from its existing facility and in2005 completed a major renovation and expansion project physically linking thetwo properties. The combined casinos are the largest in Black Hawk withapproximately 2,100 total gaming devices, 402 hotel rooms and 2,300 parking spaces;

 

·                                          the 2005 acquisition of four Coloradoracetracks (two of which are in the Denver metropolitan area) that are ownedand operated by BLB Investors, L.L.C., a joint venture including KerznerInternational Limited, Starwood Capital Group Global, L.L.C., and WaterfordGroup, L.L.C., may reinvigorate efforts to authorize video lottery terminals,slot machines or other types of gaming at the state’s racetracks. BLB haspublicly discussed a statewide initiative to expand slot machine gaming to bothof its Denver area facilities and potentially to one or both of its othertracks in the southern part of the state. If this authorization is granted bythe Colorado Lottery Division, the Colorado state legislature, or the voters,it would have a material adverse effect on gaming revenues in Black Hawk and atThe Lodge and Gilpin casinos.

 

·                                          the Mardi Gras casino, next to our casino,The Lodge, was purchased in 2005 and the owners have developed and implementednew marketing programs, expanded the poker room and added new slot product;

 

·                                          late in 2004, Central City, a gaming areaabout one mile from Black Hawk, completed the “Southern Access,” a road whichdirectly connects Central City to Interstate 70. The new access road to CentralCity enables existing casinos and possible new casinos to pose a significantcompetitive threat to gaming activities in Black Hawk; and

 

·                                          in the recent past, the Cheyenne and ArapahoeIndian tribes have claimed significant treaty rights to land in Colorado havepursued a plan to exchange those rights for land east of the Denvermetropolitan area on which to build and operate a large casino gaming facility.Although this project appears to be dormant at present, if it is renewed andsurvives political and other challenges, it could have a material adverseeffect on gaming revenues in Black Hawk and at The Lodge and Gilpin casinos.

 

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Inaddition to competing with other gaming facilities in Colorado as describedabove, we compete to a lesser degree, for both customers and potential futuregaming sites, with gaming companies nationwide, including casinos in Nevada andseveral other states, and casinos on Native American lands in several states,many of which have substantially greater financial resources and experience inthe gaming business. The expansion of legalized casino gaming to newjurisdictions throughout the United States may also affect competitiveconditions.

 

TheGold Dust West casino in Reno, Nevada, encounters strong competition from largehotel and casino facilities and smaller casinos similar in size to the GoldDust West casino in the Reno area, which includes Sparks, Nevada. There is alsocompetition from gaming establishments in other towns and cities in Nevada andfrom Native American gaming facilities located near Sacramento, California. OurCarson City and Elko, Nevada Gold Dust West casinos face competition fromseveral casinos in those cities and other venues in Nevada. Gold Dust West-Elkofaces additional competitive and other risks associated with being anewly-opened casino.

 

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 materially harm our operations atour Reno property.

 

*Louisiana Truck Plaza Operations*. Our Louisianatruck plaza operations compete with other truck plazas located in Louisiana andother forms of gaming, such as land-based, riverboat and Native Americancasinos, as well as slot machines located at horseracing tracks and video pokermachines located in bars, restaurants, hotels, off-track wagering facilitiesand bingo parlors. There were 181 licensed video poker truck plazas inLouisiana at December 31, 2008.

 

*Pari-Mutuel Wagering Operations*. We operate aracetrack in New Kent, Virginia, and off-track wagering facilities in Alberta,Chesapeake, Hampton, Martinsville, Weber City, Vinton, and Richmond (two),Virginia. Similarly, the expansion of other forms of gaming in neighboringstates, such as table games in West Virginia and slot machines in Maryland,could have an adverse effect on our performance.

 

Wecompete with racetracks located outside Virginia (including several inDelaware, Maryland, New Jersey, New York, Pennsylvania, and West Virginia, someof which augment their purses with slot machine revenues) and other forms ofgaming, such as land-based casinos, including those in Atlantic City, NewJersey, and statewide lotteries in Virginia and neighboring states. We alsoface competition from a wide range of entertainment options, including live andtelevised sporting events and other recreational activities such as theme parks(Kings Dominion to the northwest and Busch Gardens to the southeast).

 

We compete for wagering dollars and simulcastfees with live racing and races simulcast from racetracks in other states,particularly racetracks in neighboring states such as Charles Town in WestVirginia, Pimlico Race Course and Laurel Park in Maryland, and Delaware Park inDelaware. We also compete for wagering dollars with account wagering companiesoperating both legally and illegally in Virginia. These companies take wagersfrom Virginians both over the phone and the internet. We believe our agreementswith four licensed account wagering companies and legislative changes scheduledto go into effect July 1, 2009 provide us with fair compensation for theiractivities. Unlicensed account wagering companies have lower costs thanColonial Downs and thus are able to attract customers in Virginia with largewagering rebates.

 

***We face extensive regulation from gaming authorities.***

 

*Licensing Requirements.*As owners andoperators of gaming and pari-mutuel wagering facilities, we are subject toextensive state and local and some federal regulation. State and localauthorities require us and our subsidiaries to demonstrate suitability toobtain and retain various licenses and require that we have registrations,permits and approvals to conduct gaming and wagering operations. Variousregulatory authorities, including the Colorado Limited Gaming Control Commission,the Nevada Gaming Commission, the Nevada State Gaming Control Board, theLouisiana Gaming Control Board and the Virginia Racing Commission may, for anyreason set forth in the applicable legislation, limit, condition, suspend orrevoke a license or registration to conduct gaming or wagering operations orprevent us from owning the securities of any of our gaming or wageringsubsidiaries. Like all gaming and wagering operators in the jurisdictions inwhich we operate, we will need to apply periodically to renew our licenses orregistrations. We cannot assure you that we will be able to obtain suchrenewals. Regulatory 

 

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authorities may also levy substantial fines againstus or seize our assets or those of our subsidiaries or of the people involvedin violating gaming laws or regulations. Any of these events could materiallyharm our business, financial condition and results of operations. Gamingauthorities in the United Sates can generally require that any beneficial ownerof our securities, including holders of our debt, file an application for afinding of suitability.

 

*Potential Changes in Regulatory Environment.*From time to time,legislators and special interest groups have proposed legislation that wouldexpand, restrict or prevent gaming or wagering operations in the jurisdictionsin which we operate. Any expansion of gaming or wagering or restriction on or prohibitionof our gaming or wagering operations could materially harm our business,financial condition and results of operations. In particular in Colorado, therehave been repeated attempts to expand gambling beyond Black Hawk, Central Cityand Cripple Creek to other towns, racetracks, bingo halls, and tribal gamingthrough legislation, ballot initiatives, and administrative action by state orlocal agencies and this is a continued competitive threat to us.

 

*Taxation.*We believe that the prospect of significantadditional revenue is one of the primary reasons that jurisdictions permitlegalized gaming and wagering. As a result, gaming and wagering companies aretypically subject to significant taxes and fees in addition to normal federal,state, local and provincial income taxes, and such taxes and fees are subjectto increase at any time. We pay substantial taxes and fees with respect to allof our operations. From time to time, federal, state and local legislators andofficials have proposed changes in tax laws, or in the administration of suchlaws, affecting the gaming and wagering industry. It is not possible to predictthe likelihood of changes in tax laws or in the administration of such laws.Similarly, special improvement districts, now in existence or those that may beformed in the future, may impose assessments in the form of additional taxes orfees that will finance infrastructure improvements that enhance theattractiveness or accessibility of casinos with which we compete and/or add toour costs of doing business, either of which can negatively affect thecompetitive position of our Lodge and Gilpin casinos. Such changes, if adopted,could materially harm our business, financial condition and results ofoperations.

 

*Compliance with Other Laws.*We are also subjectto a variety of other rules and regulations, including zoning,environmental, construction and land-use laws and regulations governing theserving of alcoholic beverages.

 

***We depend on our key personnel, particularly Jeffrey P. Jacobs***.

 

We are highly dependent onthe services of Jeffrey P. Jacobs (one of our indirect owners and our ChiefExecutive Officer) and other officers and key employees. The loss of theservices of any of these individuals could materially harm our business, financialcondition 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.

 

***Our Chief Executive Officer and hisfamily trusts  own a controllingbeneficial interest in our capital stock and may significantly influence ouraffairs or may pursue other activities that compete with us.***

 

All of our equity securitiesare presently owned by Jacobs Investments, Inc. (“JII”). Jeffrey P.Jacobs, our Chairman and Chief Executive Officer, and his family trusts ownvirtually all of JII’s equity securities. JII has the ability to significantlyinfluence our affairs, including the election of our directors and transactionsincluding mergers, consolidations or sales of assets. Although Mr. Jacobshas agreed not to pursue any U.S. casino or gaming activities except through us(excepting investments in publicly traded companies and his involvementtherein), he is allowed to purchase and own additional truck plazas inLouisiana which we have the right to buy. Any such activities by him could becompetitive with our operations in that state.

 

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***We need toincrease 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 industryis very competitive and is expected to become more competitive in the future.If cash from our operations is insufficient to provide for needed levels ofcapital expenditures, our competitive position could deteriorate if we areunable to borrow funds for such purposes.

 

***Economic conditions, seasonality andweather conditions could affect our operations***.

 

Our business, financial condition and results of operations may beharmed by general and local economic conditions. If the U.S. economy or thelocal economy in a market in which we operate suffers a downturn, ourproperties could be harmed as the disposable income of consumers or theirwillingness to patronize our operations declines, resulting in a decrease inthe number of patrons at our properties or a decrease in the amount thatpatrons are willing to wager.

 

In addition, seasonality andweather conditions can affect our results of operations. Winter travelconditions can adversely affect patronage and revenues at our Colorado andNevada casinos. Although casino business is not seasonal, levels of gamingactivity increase significantly during weekends and holidays, especiallyholiday weekends. Hurricanes Katrina and Rita temporarily affected our truckplaza video gaming operations in late 2005, while Hurricanes Gustav and Iketemporarily affected our truck plaza video gaming operations in late 2008.  Similar hurricanes could have a materialadverse effect on our Louisiana operations in future years. 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.

 

***We depend onagreements with Colonial’s horsemen to operate our racing and wageringbusiness.***

 

TheFederal Interstate Horseracing Act and the Virginia Racing Act require Colonialto have written agreements with representative Virginia horsemen’s groups inorder to simulcast races.

 

Wehave entered into an agreement with the VHHA that expires December 31,2011.  Our agreement with the VaHBPAexpired December 31, 2008.  We arecurrently negotiating a new contract with the VaHBPA. ** **Inthe event our VaHBPA agreement cannot continue to be renewed in the future, theVirginia Racing Commission could suspend our licenses to operate our racetrackand the satellite wagering facilities until an agreement is in place althoughit has not indicated that it will do so. Although it is difficult to predictthe likelihood of such an event, closure of the satellite wagering facilitieswould be detrimental to the horsemen’s groups and us since each horsemen’sgroup’s primary source of purse funds is its percentage of wagering at thesatellite facilities.

 

***Energy price increases may adversely affect our costs and our revenues.***

 

Ourcasino and horse racing and pari-mutuel wagering operations use significantamounts of electricity and other forms of energy. Any substantial increase inthe cost of the forms of energy we use may negatively affect our results ofoperations. In addition, consumer energy or gasoline price increases may reducethe disposable income of our potential customers or their willingness topatronize our operations and correspondingly reduce our patronage and revenues.Furthermore, a fuel price increase may impact fuel sales in Louisiana, makingit more difficult to meet minimum fuel sale requirements which in turn couldlimit (or eliminate entirely) the number of video gaming devices we can operateat any given truck plaza.

 

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***Our business, financial condition, and results of operations may beharmed by union efforts to organize our employees.***

 

Ouremployees are not covered by collective bargaining agreements. However, in January andFebruary 2007, the United Food and Commercial Workers local union #7conducted some initial organizing activities in Black Hawk by direct mail tocasino employees, handouts at bus stops and personal solicitations. Theseefforts were directed to employees of all major casinos in Black Hawk. A smallnumber of our employees, which we estimate to be about 22, signed up with thelocal as internal organizers in January and February 2007.  Since that time we have not been notified ofany other employees being involved with organizing.  All union organization activity seems to haveceased in April 2007.  If this or any other union seeks to organizeany of our employees, we could experience disruption in our business and incursignificant costs, both of which could have a material adverse effect on ourresults of operation and financial condition. If a union were successful inorganizing any of our employees, we could experience significant increases inour labor costs which could also have a material adverse effect on ourbusiness, financial condition, and results of operations.

 

***Weare subject to potential exposure to environmental liabilities.***

 

Generally, we are subjectto various federal, state and local governmental laws and regulations relating tothe use, storage, discharge, emission and disposal of hazardous materials.Failure to comply could result in the imposition of severe penalties orrestrictions on our operations by governmental agencies or courts. We are notaware of any such exposure at our properties. Black Hawk, Colorado is locatedwithin a 400-square mile area that in 1983 was designated as the Clear CreekCentral/City National Priorities List Site Study Area under the ComprehensiveEnvironmental Response, Compensation and Liability Act of 1980, as amended.Although our Colorado casinos are not within any of the specific areascurrently identified for investigation or remediation under that statute,environmental problems may subsequently be discovered, including in connectionwith any future construction on our property. Furthermore, governmentalauthorities could broaden their investigations and identify areas of concernwithin the site, we could be identified as a “potentially responsible party”and any related liability could have a material adverse effect on us. We do nothave insurance to cover environmental liabilities, if we incur any.

 

***Failure to complete any future construction or development projects onbudget and on time could adversely affect our financial condition.***

 

Anyfuture construction or expansion projects will be subject to significant risks,any of which could cause unanticipated cost increases and delays. Theseinclude, among others, the following:

 

·                                          shortages of material and skilled laborers;

 

·                                          labor disputes and work stoppages;

 

·                                          weather interference or delays;

 

·                                          engineering problems;

 

·                                          environmental problems;

 

·                                          regulatory problems;

 

·                                          changes to plans or specifications;

 

·                                          fire, earthquake, flood and other naturaldisasters; and

 

·                                          geological, construction, excavation andequipment problems.

 

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Ourexpansion projects may not be completed within our budget, our constructionactivities may disrupt our operations and our new operations may not open onschedule. We have limited experience in developing properties and cannotpredict all of the risks that any particular construction or remodeling projectmight face. In addition, we have experienced delays that adversely affected ourbusiness during similar remodeling and expansion projects. Failure to completea construction or expansion project on time or within our budget may cause usto devote additional resources to the project, which could divert our time andattention away from the operation of our other businesses and could cause ourbusiness to suffer.

 

***If we are unable to finance our expansion and renovation projects aswell as capital expenditures through cash flow, borrowings under our seniorcredit facility and additional financings, our expansion and renovation effortswill be jeopardized.***

 

Weintend to finance our current and future expansion and renovation projectsprimarily with cash flow from operations and borrowings under our senior creditfacility. If we are unable to finance our current or future expansion projects,we will have to adopt one or more alternatives, such as reducing or delayingplanned expansion, development and renovation projects as well as capitalexpenditures, selling assets, restructuring debt, or obtaining additionalequity financing or joint venture partners, or modifying our senior creditfacility. These sources of funds may not be sufficient to finance ourexpansion, and other financing may not be available on acceptable terms in atimely manner or at all. In addition, our existing indebtedness containscertain restrictions on our ability to incur additional indebtedness. If we areunable to secure additional financing, we could be forced to limit or suspendexpansion, development and renovation projects, which may adversely affect ourbusiness, financial condition and results of operations.

 

***The concentration and evolution of the slot machine manufacturingindustry could impose additional costs on us.***

 

Amajority of our revenues are attributable to slot machines operated by us atour gaming facilities. It is important, for competitive reasons, that we offerthe most popular and up to date slot machine games with the latest technologyto our customers.

 

Webelieve that a substantial majority of the slot machines sold in the U.S. in2008 were manufactured by a few select companies. In addition, we believe thatone company in particular provided a majority of all slot machines sold in theU.S. in 2008.

 

Inrecent years, the prices of new slot machines have escalated faster than therate of inflation. Furthermore, in recent years, slot machine manufacturershave frequently refused to sell slot machines featuring the most popular games,instead requiring participation lease arrangements in order to acquire themachines. Participation slot machine leasing arrangements typically require thepayment of a fixed daily rental. Such agreements may also include a percentagepayment of coin-in or net win. Generally, a participation lease issubstantially more expensive over the long term than the cost to purchase a newmachine.

 

Forcompetitive reasons, we may be forced to purchase new slot machines or enterinto participation lease arrangements that are more expensive than our currentcosts associated with the continued operation of our existing slot machines. Ifthe new slot machines do not result in sufficient incremental revenues tooffset the increased investment and participation lease costs, it could hurtour profitability.

 

***Our operations could be adversely affected due to the adoption ofcertain anti-smoking regulations.***

 

InNovember 2006, a ballot initiative listed as Question 5 and entitled the “NevadaClean Indoor Air Act” (the “Question 5”) was approved by a majority of Nevadavoters. Question 5 restricts smoking in all indoor public places of employmentwith certain exceptions. Among the exceptions are the gaming areas of casinosand “stand alone” bars, taverns and saloons that do not serve meals. If futureballot initiatives or anti-smoking legislation are passed in Nevada removing orrestricting these exceptions to Question 5, there could be a resulting materialadverse effect on our business.

 

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The “Colorado Clean Indoor Act” (the “Indoor Act”) was adopted in theColorado legislature in March 2006. It bans smoking in virtually allpublic places although certain portions of gaming casinos, including gamingareas, were exempt from the Indoor Act until January 1, 2008. Compliancewith the Indoor Act which now bans smoking in casinos has had an adverse effecton our business.

 

**Item 1B.****                                                 *****UnresolvedStaff Comments.***

 

None.

 

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

 

See “Our Properties and Operations” in Item 1 above for a descriptionof the location and general character of our principal properties. Each of ourproperties is subject to liens and encumbrances securing our senior creditfacility. See Note 5 to our consolidated financial statements includedelsewhere herein.

 

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

 

We are involved in routine litigation arising in the ordinary course ofour business pertaining to workers’ compensation claims, equal opportunityemployment issues, or guest injury claims. All such claims are routinely turnedover to our insurance providers. We believe these matters are covered byappropriate insurance policies, less applicable deductibles which are accruedin our financial statements.  None of theclaims or payment of deductibles is expected to have a material impact on ourfinancial position, results of operations or cash flows.

 

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

 

There were no matters submitted to a vote of our security holdersduring the fourth quarter of the fiscal year covered by this report.

 

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

 

Effective January 31, 2007, all of our outstanding common stockbecame held by Jacobs Investments, Inc., a private holding company and,accordingly, there is no established trading market for our common stock. Wehave elected to be taxed under the provisions of Subchapter S of the InternalRevenue Code of 1986. Under those provisions, the owner of our common stockpays taxes on our taxable income. Our ability to make distributions to ourstockholder is limited by the terms of the credit agreement and indenturerelated to our indebtedness.

 

We have no equity compensation, stock option or similar plans relatingto our equity securities.

 

We made no repurchases of our equity securities during the fourthquarter of the fiscal year covered by this report.

 

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

 

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.

 
| ** **                                                            | ** ** | **As of and for the Year Ended December 31,**                | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2008**                                                                                             | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                            | ** ** | **(Dollars In Thousands, except Distributions per Common Share)** | ** ** |
|                                                                  |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| **Statements  of Operations Data:**(1)                                |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Net revenues                                                          |       | $                                                                                                    | 362,524    |   | $ | 349,858 |   | $ | 322,410 |   | $ | 252,247 |   | $ | 206,346 |   |
| Total costs and  expenses                                             |       | 339,435                                                                                              |       | 316,779 |   | 290,749 |   | 233,062 |   | 182,349 |   |
| Operating income                                                      |       | 23,089                                                                                               |       | 33,079 |   | 31,661 |   | 19,185 |   | 23,997 |   |
| Interest  expense, net                                                |       | (27,227                                                                                              | )          | (28,067 | ) | (32,271 | ) | (22,660 | ) | (20,008 | ) |
| Pre-payment  penalties, tender and consent costs                      |       | —                                                                                               |       | — |   | (9,321 | ) | — |   | — |   |
| Income tax  (expense) benefit                                         |       | —                                                                                               |       | — |   | 103 |   | (423 | ) | — |   |
| Net income  (loss)                                                    |       | $                                                                                                    | (4,138     | ) | $ | 5,012 |   | $ | (9,828 | ) | $ | (3,898 | ) | $ | 3,989 |   |
| **Balance  Sheet Data (end of period):**(1)                           |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Current assets                                                        |       | $                                                                                                    | 32,552     |   | $ | 35,517 |   | $ | 37,040 |   | $ | 32,705 |   | $ | 29,454 |   |
| Total assets                                                          |       | 342,529                                                                                              |       | 355,915 |   | 350,830 |   | 298,250 |   | 259,179 |   |
| Current  liabilities                                                  |       | 27,374                                                                                               |       | 28,755 |   | 30,526 |   | 32,260 |   | 26,589 |   |
| Long-term debt,  capital lease obligations and other liabilities |       | 290,249                                                                                              |       | 298,735 |   | 284,940 |   | 194,969 |   | 158,202 |   |
| Stockholder’s  equity                                            |       | 24,906                                                                                               |       | 28,425 |   | 35,364 |   | 71,021 |   | 74,388 |   |
| **Financial  Data**                                                   |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Ratio of  earnings to fixed charges(2)                                |       | 0.86                                                                                                 | x          | 1.16 | x | 0.71 | x | 0.85 | x | 1.19 | x |
| **Distributions  per Common Share**                                   |       | $                                                                                                    | 1,200      |   | $ | 10,962 |   | $ | 22,803 |   | $ | 15,000 |   | — |   |

 

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(1)                                Seea discussion of our recent acquisition activities in Note 4 and our debtissuances in Note 5 to the consolidated financial statements.

 

(2)                                Theratio of earnings to fixed charges is computed by dividing earnings by fixedcharges. Earnings consist of income (loss) before income taxes, plus fixedcharges and amortization of capitalized interest, less interest capitalizedduring the period. Fixed charges consist of interest on indebtedness (whetherexpensed or capitalized), amortization of deferred financing costs, discountsand premiums and that portion of rental expense that we believe isrepresentative of interest. For the years ended December 31, 2008, 2006and 2005, we had a deficiency of $4,063, $10,014 and $3,514, respectively, inearnings to fixed charges.

 

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

 

*This sectiondiscusses the results of our operations on a historical basis for the yearsindicated. You should read the following discussion and analysis in conjunctionwith the audited consolidated financial statements that are included elsewherein this Form 10-K. Certain statements contained in this Management’sDiscussion and Analysis of Financial Condition and Results of Operationsconstitute “forward-looking statements,” which statements involve risks anduncertainties described elsewhere in this report.*

 

*Our historical information may not necessarily bemeaningful when making year-to-year comparisons, as our cost structure, debtstructure, capitalization, and the overall composition of our company followingthe transactions discussed herein have significantly changed. Further, thehistorical information should not necessarily be taken as a reliable indicationof our future performance.*

 

**TABLE OF CONTENTS TOMANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)**

 
| Description of item | ** **                                                                                                        | ** ** |
|-------------------------------|-------------------------------------------------------------------------------------------------------------------|------------|
|                          |                                                                                                              |       |   |
| A.                            | Company background                                                                                                |       | 37 |
| B.                            | Significant transactions  occurring during the year ended December 31, 2008                                  |       | 37 |
| C.                            | Overview and discussion of  our operations                                                                        |       | 38 |
| D.                            | Comparison of our operations  for the year ended December 31, 2008 to the year ended December 31,  2007 |       | 42 |
| E.                            | Comparison of our operations  for the year ended December 31, 2007 to the year ended December 31,  2006 |       | 43 |
| F.                            | Segment  information for the three years ended December 31, 2008                                             |       | 46 |
| G.                            | Liquidity  and capital resources—December 31, 2008                                                      |       | 49 |
| H.                            | Critical  accounting policies and estimates                                                                       |       | 51 |

 

**A.****                                   ****Company background**

 

We are a developer, owner and operator of gaming andpari-mutuel wagering facilities throughout the United States, with propertieslocated in Colorado, Nevada, Louisiana and Virginia. As of December 31,2008, we own and operate two casinos in Colorado and three casinos in Nevada,18 video gaming truck plazas in Louisiana and a horse racing track with eightsatellite wagering facilities in Virginia. In addition, we are party to anagreement that entitles us to a portion of the gaming revenues from anadditional truck plaza video gaming facility.

 

Wehave elected to be taxed under the provisions of Subchapter “S” of the InternalRevenue Code of 1986. Under those provisions, the owner of our company paysincome taxes on our taxable income.

 

Effective January 31, 2007, we became awholly-owned subsidiary of Jacobs Investments, Inc. (“JII”), which in turnwas 50% owned by Jeffrey P. Jacobs, our Chief Executive Officer, and two of hisfamily trusts, and 50% owned by a revocable trust and an irrevocable trustestablished by his father, Richard E. Jacobs. On October 1, 2008, JII redeemed the shares owned by the Richard E.Jacobs Revocable Trust.  As a result,Jeffrey P. Jacobs and his family trusts own 80% of JII’s Class A sharesand 100% of its Class B shares.  TheRichard E. Jacobs Irrevocable Trust owns 20% of JII’s Class A shares.Additionally, effective October 15, 2008, Richard E. Jacobs resigned hisposition as a member of the Board of Directors of JEI. These changes inownership had no impact on our financial position or results of operations.

 

**B.****                                   ****Significant transactionsoccurring during the year ended December 31, 2008**

 

***NauticaProperty Acquisition***

 

We have acquired from affiliated parties severaloptions to lease and options to purchase six parcels of land and certainimprovements on the west bank of the Cuyahoga River in Cleveland, Ohio.  We refer to these properties as the NauticaProperties.  During March 2008, weexercised our option to acquire one of the Nautica parcels referred to as “LotD.”  On April 1, 2008, we purchasedthis parcel for $0.8 million.  Thecompany that owned this 

 

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parcelof land and parking lot business was wholly owned by our Chairman and ChiefExecutive Officer. The purchase of this parking lot business was accounted foras a combination of entities under common control.  Accordingly, the consolidated financialstatements and the accompanying management’s discussion and analysis offinancial condition and results of operations presented in this Form 10-Khave been retroactively adjusted to include the operations of Lot D from January 1,2006.  See Note 4 of the consolidatedfinancial statements.

 

Additionally, on January 15,2009, we exercised our option to acquire one of these parcels referred to as “SugarWarehouse,” and on January 21, 2009, we purchased this parcel for $2.6million.  The company that owned thisbuilding was 29.5% owned by our Chairman and Chief Executive Officer and 70.5%owned by third parties.

 

***Acquisition of Land in the Gulf Coast of Mississippi***

 

During 2008, we completed several land purchasetransactions with owners of real estate lots in the Gulf Coast of Mississippi,resulting in total purchases of $3.0 million, including acquisition costs of$0.2 million.  Additionally, during September 2008,we entered into two land purchase options totaling $0.2 million.  These land purchase options each have aninitial term of one-year, expiring June 2009, with two one-year extensionsat the option of JEI. During November 2008, we entered into a third landpurchase option totaling $0.1 million, expiring May 2009, with a one-yearextension at the option of JEI. The total purchase price of all parcels underthese three option agreements is $42 million. During January 2009, we completed one additional land purchasetransaction, resulting in a total purchase of $0.3 million.

 

We are conducting due diligence on the lots andevaluating the feasibility of developing and constructing a mixed use projectwhich may include a licensed gaming establishment, a hotel, restaurant, condominiums,retail development and parking facilities. Furthermore, we have filed an application with Hancock County,Mississippi, to rezone property to waterfront district, as part of our plan tobuild a casino resort and hotel. The project is subject to all necessaryapprovals from the Mississippi Gaming Commission as well as necessaryfinancing.

 

***Abandonment Costs***

 

On November 10, 2008, we closed one of our twosatellite wagering facilities in Chesapeake, Virginia. We recorded animpairment of leasehold improvements at this location totaling $0.8 million inthe fourth quarter of 2008. Additionally, we incurred costs for the termination of the operatinglease and severance totaling less than $0.1 million in the fourth quarter of2008.

 

**C.****                                   ****Overview and discussion ofour operations**

 

We have four segmentsrepresenting the geographic regions of our operations: Colorado, Nevada,Louisiana and Virginia. Each segment is managed separately because of theunique characteristics of its revenue stream, regulatory environment andcustomer base.

 

Our Chief Executive Officer(“CEO”) is the chief operating decision maker. Our casino properties inColorado (The Lodge and Gilpin casinos) and Nevada (the Gold Dust West-Reno,Gold Dust West-Carson City and Gold Dust West-Elko casinos) are managed by ourChief Operating Officer (“COO”) who is located in our Golden, Coloradocorporate offices. Further, our 19 video poker truck plaza operations are alsomanaged by our COO. Additionally, we have two Regional Vice Presidents who reportto the COO and assist in managing these operations. Our COO reports to ourPresident, who is also located in Golden, Colorado.  Our President reports directly to our CEO.Our Virginia racetrack and satellite wagering facilities are managed by ouron-site President of Pari-Mutuel Operations, and he also reports directly toour CEO. Our management team conducts monthly video conferencing andteleconferencing calls with our CEO.

 

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When we analyze and manageour segments, we focus on several measurements that we believe provide us withthe necessary ratios and key performance indicators for us to determine how weare performing versus our competition and against our own internal goals andbudgets. We confer monthly and discuss and analyze significant variances in aneffort to identify trends and changes in our business. We focus on EBITDA(earnings before interest, income taxes, depreciation and amortization) as oneof the primary measurements of reviewing and analyzing the operating results ofeach segment. While we recognize that EBITDA is not a measure defined under generallyaccepted accounting principles (i.e. it is a non-GAAP financial measure), wenonetheless believe it is useful because it allows holders of our debt andmanagement to evaluate and compare operating results from continuing operationsfrom period to period in a meaningful and consistent manner in addition tostandard GAAP financial measures. Additionally, most financial analystsfollowing the gaming industry utilize EBITDA as a financial measurement, andwhen our debt holders (both secured and unsecured) inquire and discuss ouroperational performance with us, they consistently inquire about our EBITDAperformance levels versus the prior year as well as our EBITDA margins versusour competitors. Finally, EBITDA is a key component of certain financialcovenants contained in our debt agreements, among other things, and as such itis a critical ingredient that we must watch in order to ensure compliance withour bank credit agreement and our note indenture covenants, measure ourhistorical operating performance, and determine our ability to achieve futuregrowth.

 

In addition to the aboveperformance measurements, we pay particular attention to our monthly and annualcash flow. Our business is sensitive to shifts in volumes and levels ofactivity and we find it necessary to watch our cash closely. Every six months (June 15and December 15) we have a cash interest payment due on our $210 millionsenior unsecured notes amounting to $10.2 million. Additionally, we have drawn$60 million on our senior secured credit facility with interest due at varyingintervals.  As previously discussed, wehave a $40 million revolving loan with a bank group on which we can draw asneeded in order to facilitate the cash flow we generate from operations. Thisis generally a function of the timing of generating cash from operationscoupled with the amount of cash we need to run the business—i.e., our cashinventory. Presently, we estimate that we require approximately $15 million ofcash inventory to operate our properties. See also Section G, “Liquidityand Capital Resources.”

 

***Colorado***

 

OurColorado operations consist of The Lodge Casino at Black Hawk (“The Lodge”) andthe Gilpin Casino (“Gilpin”), both of which are located in Black Hawk,Colorado. The competitive aspects of the market in Black Hawk continue to be asignificant factor in our operations. There were approximately 9,750 gamingdevices in the city of Black Hawk at December 31, 2008. At December 31,2008, we had 1,423 devices in this market (976 at The Lodge and 447 at theGilpin), which represented approximately 15% of the total devices in the BlackHawk market.

 

For the year ended December 31, 2008, our gross gaming revenues atThe Lodge and the Gilpin totaled $100.8 million, which represented 20% of thetotal gaming revenues in Black Hawk. The overall Black Hawk market in 2008declined by 12.5% in gross gaming revenues, and total gaming devices decreasedby 1.5%. We managed to generate 135% efficiencies (our percentage of the grossgaming revenues divided by our percentage of the gaming devices) within themarket for 2008. We follow our efficiency level very closely as we believe thisis a useful measure of how well we are performing within the market.

 

We expect some of our previous and existing market share to be lost dueto increased competition. As more properties continue to compete for their fairshare of the market, our personnel costs, marketing costs, and other costs willlikely increase as we attempt to keep our market share.

 

***Nevada***

 

OurNevada operations consist of Gold Dust West-Reno, located in Reno, Nevada,which was acquired on January 5, 2001; Gold Dust West-Carson City, locatedin Carson City, Nevada, which was acquired on June 25, 2006; and ournewly-developed casino, Gold Dust West-Elko, located in Elko, Nevada, which openedon March 5, 2007.

 

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Asin Colorado, our Nevada casinos operate in highly competitive markets. As aresult of the added competition from Indian Gaming in California, many NorthernNevada casinos advertise themselves as “locals’ casinos.” At December 31,2008, Reno had approximately 12,800 gaming devices, of which Gold DustWest-Reno had 470 devices, or 3.7% of the market. For the year ended December 31,2008, our gross gaming revenues were 4% of the Reno market, with an efficiencyrate of 104%.

 

Sinceits acquisition in June 2006, Gold Dust West-Carson City (formerly PiñonPlaza Resort), has undergone major renovations and changes to the operationsemerging January 24, 2007 as the “new” Gold Dust West-Carson City by wayof an extensive rebranding program. The Carson City area (state capital) is 30miles south of Reno and services the areas of Dayton, Gardnerville and Mindensurrounding it with a total population base of 60,000 plus. The area hasapproximately 4,600 gaming devices of which Gold Dust West-Carson City has 398(9% of total devices).  For the yearended December 31, 2008, our efficiency rate was 91%. This property isexpected to substantially improve its efficiency through enhanced utilizationof its many unique amenities.

 

AtDecember 31, 2008, Gold Dust West-Elko has 336 gaming devices,representing 8% of the total devices in the market.  For the year ended December 31, 2008,our gross gaming revenues were 10% of the Elko market, with an efficiency rateof 122%.

 

***Louisiana***

 

The Louisiana truck plaza video gaming facilities consist of 18 truckplazas located in Louisiana and a share in the gaming revenues of an additionaltruck plaza. Each truck plaza features a convenience store, fueling operations,a restaurant and up to 50 video gaming devices in the casino depending on thelevel of fuel sales and available space. At December 31, 2008, our truck plaza video gaming facilities had acombined total of 929 video gaming devices.

 

The Louisiana truck plazas’ revenues are comprised of: (i) revenuefrom video poker gaming machines; (ii) sales of gasoline and diesel fuel; (iii) salesof groceries, trucker supplies and sundry items through their conveniencestores; (iv) sales of food and beverages in their restaurants and bars;and (v) miscellaneous commissions on ATMs, pay phones and lottery sales.

 

Allvideo poker activity is reported via a computer phone line directly to theLouisiana State Police. The Louisiana truck plazas’ revenues are dependent onmeeting the minimum gallons of fuel sales requirements necessary to operatevideo poker gaming machines in Louisiana. The fuel sales requirements must becomplied with on an annual basis (except for the first year of operationsduring which it must be complied with on a quarterly basis) and in the event ofnoncompliance, the Louisiana State Police will turn off a portion of the videopoker machines until the minimum fuel sales requirements are met. Management ofthe Louisiana truck plazas believes that they will continue to meet the fuelsales requirements necessary to operate video poker gaming machines inLouisiana at current levels, however, we can give no assurance in this regard.

 

***Virginia***

 

Colonial’s revenues are comprised of: (i) pari-mutuelcommissions from wagering on races broadcast from out-of-state racetracks toColonial’s satellite wagering facilities and the track using importsimulcasting; (ii) wagering at the track and Colonial’s satellite wageringfacilities on its live races; (iii) commissions from advance depositaccount wagering by telephone and over the internet; (iv) admission fees,program and racing form sales, and certain other ancillary deposit accountactivities; and (v) net income from food and beverage sales andconcessions.

 

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Colonial’s revenues are heavily dependent on the operationsof its satellite wagering facilities. Revenues from the satellite wagering facilities help support live racingat the track. The amount of revenue Colonial earns from each wager depends onwhere the race is run.  Revenues fromimport simulcasting of out-of-state races and from wagering at the track and atthe satellite wagering facilities on races run at the track consist of thetotal amount wagered at Colonial’s facilities, less the amount paid as winningwagers. The percentage of each dollar wagered on horse races that must bereturned to the public as winning wagers (typically about 79%) is legislated bythe state in which a race takes place. Revenues from export simulcastingconsist of amounts payable to Colonial by the out-of-state racetracks and theirsimulcast facilities with respect to wagering on races run at the track.

 

As discussed above, on November 10, 2008, weclosed one of our two satellite wagering facilities in Chesapeake, Virginia. Wenow operate eight satellite wagering facilities in Virginia.

 

***Summary of Consolidated OperatingResults***

 

Our results of operations reflect the consolidatedoperations of all our subsidiaries. A summary of our consolidated operatingresults for the years ended December 31, 2008, 2007 and 2006 is as follows:

 
| ** **                                                       | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                       | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                       | ** ** | **(Dollars in Thousands)**       | ** ** |
| **Revenues**                                                     |       |                                       |       |   |   |   |   |
| Gaming:                                                          |       |                                       |       |   |   |   |   |
| Casino                                                           |       | $                                          | 139,492    |   | $ | 144,656 |   | $ | 121,483 |   |
| Truck stop                                                       |       | 67,590                                     |       | 64,322 |   | 66,418 |   |
| Pari-mutuel                                                      |       | 38,657                                     |       | 41,309 |   | 39,787 |   |
| Food and  beverage                                               |       | 30,736                                     |       | 29,260 |   | 25,069 |   |
| Convenience  store—fuel                                     |       | 97,021                                     |       | 81,329 |   | 77,520 |   |
| Other                                                            |       | 22,746                                     |       | 20,935 |   | 18,571 |   |
| Less:  promotional allowances                                    |       | (33,718                                    | )          | (31,953 | ) | (26,438 | ) |
|                                                             |       |                                       |       |   |   |   |   |
| Total net  revenues                                              |       | 362,524                                    |       | 349,858 |   | 322,410 |   |
|                                                             |       |                                       |       |   |   |   |   |
| **Costs  and expenses**                                          |       |                                       |       |   |   |   |   |
| Gaming:                                                          |       |                                       |       |   |   |   |   |
| Casino                                                           |       | 46,809                                     |       | 48,427 |   | 43,567 |   |
| Truck stop                                                       |       | 40,990                                     |       | 37,954 |   | 37,621 |   |
| Pari-mutuel                                                      |       | 31,172                                     |       | 32,977 |   | 32,559 |   |
| Food and  beverage                                               |       | 15,417                                     |       | 16,416 |   | 13,704 |   |
| Convenience  store—fuel                                     |       | 90,714                                     |       | 77,269 |   | 73,389 |   |
| Other                                                            |       | 18,260                                     |       | 16,290 |   | 15,017 |   |
| Marketing,  general and administrative                           |       | 68,533                                     |       | 69,342 |   | 60,787 |   |
| Loss on change  in fair value of investment in equity securities |       | 6,577                                      |       |   |   |   |   |
| Goodwill  impairment                                             |       | 199                                        |       |   |   |   |   |
| Abandonment  costs                                               |       | 829                                        |       |   |   |   |   |
| Depreciation and  amortization                                   |       | 19,935                                     |       | 18,104 |   | 14,105 |   |
|                                                             |       |                                       |       |   |   |   |   |
| Total costs and  expenses                                        |       | 339,435                                    |       | 316,779 |   | 290,749 |   |
|                                                             |       |                                       |       |   |   |   |   |
| Operating income                                                 |       | 23,089                                     |       | 33,079 |   | 31,661 |   |
| Interest  expense, net                                           |       | (27,227                                    | )          | (28,067 | ) | (32,271 | ) |
| Pre-payment  penalties, tender and consent costs                 |       |                                       |       |   |   | (9,321 | ) |
| Income tax  benefit                                              |       |                                       |       |   |   | 103 |   |
|                                                             |       |                                       |       |   |   |   |   |
| Net (loss)  income                                               |       | $                                          | (4,138     | ) | $ | 5,012 |   | $ | (9,828 | ) |

 

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**D.****                                  ****Comparisonof our operations for the year ended December 31, 2008 to the year ended December 31,2007**

 

*All comparisons below begin withthe 2008 results followed by the 2007 results**.*

 

Casino revenues decreased $5.2 million or 4% to $139.5million from $144.7 million.  Thedecrease in casino revenues is a result of decreased casino revenues at TheLodge of $2.2 million or 3%, the Gilpin of $3.4 million or 13%, Gold Dust West-Renoof $1.3 million or 6% and Gold Dust West-Carson City of $0.3 million or3%.  These decreases were partiallyoffset by an increase of $2.0 million at Gold Dust West-Elko, which opened on March 5,2007.  Casino revenues at our twoColorado properties have been negatively affected due to the smoking ban whichbecame effective on January 1, 2008. Overall, the City of Black Hawk casino win declined 12.5% during 2008compared to 2007.  The decreased revenuesat our casinos in Black Hawk and Reno are also attributable to general economicconditions, higher gas prices during the summer months and decreased customerspend per visit.

 

Truck stop gaming revenues increased $3.3 million or5% to $67.6 million from $64.3 million. Of this increase, $1.8 million is due to video gaming activity at theSilver Dollar location that began in September 2007, combined with a netincrease totaling $1.5 million at all other truck stop locations.  The increase in gaming revenue is primarilyattributable to the increased bet and jackpot limits that became effective inlate 2007.

 

Pari-mutuelrevenues decreased $2.7 million or 6% to $38.7 million from $41.3 million.  The decrease in revenues is primarilyattributable to a $3.6 million decrease at the off track wagering facilitiescombined with a $0.2 million decrease at the racetrack, somewhat offset by a$1.1 million increase in account wagering revenues.

 

Food and beverage revenues increased $1.5 million or5% to $30.7 million from $29.3 million. This increase is attributable to increases of $1.0 million at The Lodge,$0.1 million at Gold Dust West-Reno, $0.4 million at Gold Dust West-Elko and$0.3 million at the truck stop facilities, primarily due to increasedpromotional activity, offset by decreases of $0.1 million at the Gilpin, $0.1million at Gold Dust West-Carson City and $0.1 million at Colonial.

 

Convenience store-fuelrevenues increased $15.7 million or 19% to $97.0 million from $81.3million.  The average selling price offuel increased to $3.58 per gallon in 2008 from $2.74 per gallon in 2007.  These increases in fuel revenues weresomewhat offset by a decrease in volume to 27.1 million gallons from 29.7million gallons.

 

Other revenues increased $1.8 million or 9% to $22.7million from $20.9 million and were primarily attributable to an increase of$2.0 million in convenience store and other revenues at the truck stops, $0.1million at Colonial due to an increase in Virginia Derby sponsorship revenuecombined with a one-time lawsuit settlement with Youbet, and an increase of$0.1 million at The Lodge, somewhat offset by a decrease of $0.4 million inhotel and other revenues at Gold Dust West-Carson City.

 

Promotional allowancesincreased $1.8 million or 6% to $33.7 million from $32.0 million.  The increase is attributable to an increasein promotional allowances of $1.1 million at The Lodge, $0.3 million at GoldDust West-Reno, $0.6 million at Gold Dust West-Elko and $0.2 million at thetruck stops, somewhat offset by a decrease of $0.4 million at the Gilpin.

 

Casino expenses decreased $1.6 million or 3% to $46.8million from $48.4 million.  Thisdecrease is primarily due to decreases of $0.4 million at The Lodge, $1.1million at the Gilpin, $0.2 million at Gold Dust West-Reno and $0.3 million atGold Dust West-Carson City, offset by an increase of $0.4 million at Gold DustWest-Elko. These variances are consistent with the changes in casino revenuesby property as discussed above.

 

Truck stop gamingexpenses increased $3.0 million or 8% to $41.0 million from $38.0 million.  Of this increase, $1.2 million is due tovideo gaming activity at the Silver Dollar location that began in September 2007,combined with a net increase totaling $1.8 million at all other truck stoplocations.

 

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Pari-mutuel costsand expenses decreased $1.8 million or 5% to $31.2 million from $33.0million.  The decrease is primarilyattributable to a $2.4 million decrease in pari-mutuel taxes, purses and otherdirect expenses associated with decreased pari-mutuel revenues at the racetrackand off track wagering facilities, partially offset by a $0.6 million increasein account wagering direct costs and expenses.

 

Food and beverage costs and expenses decreased $1.0million or 6% to $15.4 million from $16.4 million due to decreases of $0.4million at The Lodge, $0.1 million at the Gilpin, $0.5 million at Gold DustWest-Carson City and $0.2 million at Colonial, offset by an increase of $0.2million at the truck stops.

 

Convenience store-fuelexpenses increased $13.4 million or 17% to $90.7 million from $77.3million.  The average cost of fuelincreased to $3.35 per gallon in 2008 from $2.60 per gallon in 2007.  These increases in fuel expenses weresomewhat offset by a decrease in volume.

 

Other costs and expenses increased $2.0 million or 12%to $18.3 million from $16.3 million, and were primarily attributable to anincrease in convenience store expenses at the truck stops.

 

Marketing, generaland administrative expenses decreased $0.8 million or 1% to $68.5 million from$69.3 million.  This decrease isprimarily the result of  decreases of$0.8 million at Colonial due to decreased lobbying costs associated with InstantRacing, and decreases of $0.4 million at The Lodge, $0.6 million at the Gilpin,$0.3 million at Gold Dust West-Reno, $0.1 million at Gold Dust West-Carson Cityand $0.1 million at Gold Dust West-Elko. These decreases were partially offsetby an increase of $1.5 million at corporate, primarily due to politicalcontributions totaling $1.4 million made for a Colorado campaign, which isfurther discussed in Note 11 to the financial statements.

 

During 2008, werecorded an impairment totaling $6.6 million on the change in fair value of ourinvestment in equity securities of MTR Gaming Group, Inc., which isfurther discussed in Note 6 to the financial statements.  No comparable transaction occurred during2007.

 

A goodwillimpairment totaling $0.2 million was recorded at Gold Dust West-Carson Cityduring 2008, which is further discussed in Note 3 to the financialstatements.  No comparable transactionoccurred during 2007.

 

Abandonment coststotaling $0.8 million were recorded during 2008 due to the closure one of ourtwo satellite wagering facilities in Chesapeake, Virginia, which is furtherdiscussed in Note 12 to the financial statements.  No comparable transaction occurred during2007.

 

Depreciation andamortization expense increased $1.8 million or 10% to $19.9 million from $18.1million.  Of this increase, $0.4 millionis attributable to Gold Dust West-Elko and $0.2 million is attributable to theSilver Dollar truck stop location. Additionally, The Lodge increased by $0.5million, the Gilpin increased by $0.1 million, Gold Dust West-Reno increased by$0.1 million, Gold Dust West-Carson City increased by $0.3 million and theremaining truck stops combined increased by $0.2 million due to capital assetpurchases.

 

Net interest expense decreased $0.8 million or 3% to$27.2 million from $28.1 million.  Thedecrease is attributable to lower effective interest rates on our variable ratebank debt, partially offset by an increase in debt outstanding during the yearended December 31, 2008 compared to the year ended December 31, 2007.

 

**E.****                                    ****Comparison****of our operations for theyear ended December 31, 2007 to the year ended December 31, 2006**

 

*All comparisons below begin withthe 2007 results followed by the 2006 results**.*

 

Casino revenues increased to $144.7 million from$121.5 million, or 19%, due to increases at The Lodge of $10.4 million or 15%and the Gilpin of $1.5 million or 6%. Additionally, Gold Dust West-Carson City, which was acquired on June 25,2006, contributed $5.4 million and Gold Dust West-Elko, which opened March 5,2007, also contributed $7.4 million. These increases were somewhat offset by a decrease at Gold DustWest-Reno of $1.5 million due to a soft Reno market.  The increase in the casino revenues at ourColorado properties is a result of

 

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severalfactors.  We have expanded capitalinvestments in our slot product over the last year, and the completion of thesouth entrance of The Lodge enabled us to add 60 devices and has generatedincreased walk-in traffic into the casino. Additionally, City of Black Hawkcasino win grew 5% during 2007 compared to 2006.

 

Truck stop gaming revenues decreased to $64.3 millionfrom $66.4 million, or 3%.  HurricanesKatrina and Rita, which hit the Louisiana, Mississippi and Texas Gulf Coast in August andSeptember 2005, respectively, disrupted riverboat and other casinocompetition in the region.  For the firsthalf of 2006, our truck stops benefited from the reduction in competition aswell as the population relocation from the New Orleans area. No increasedbusiness levels for similar reasons were experienced in 2007, resulting in ayear-over-year decrease of $5.4 million. This decrease is partially offset by an increase of $3.3 million due tothe acquisitions of the Vinton and St. Helena locations, purchased in June andJuly 2006, respectively, and the installation of video gaming devices atthe Silver Dollar location in September 2007.  Our truck stop gaming revenue results areconsistent with the overall market decline in Louisiana.

 

Pari-mutuelrevenues increased 4% to $41.3 million from $39.8 million.  This increase is primarily attributable to a$0.9 million increase in account wagering revenues combined with a $0.6 millionincrease in wagering revenues at our off track wagering facilities andracetrack.

 

Food and beverage revenues increased to $29.3 millionfrom $25.1 million, or 17%.  Thisincrease is attributable to $1.4 million generated by Gold Dust West-CarsonCity and $1.9 million generated by Gold Dust West-Elko, as well as increases of$0.2 million at Colonial and $0.7 million at the truck stop facilities.  Of the increase at the truck stops, $0.4million is attributable to the addition of the Vinton and St. Helena locationsin June and July 2006, respectively, $0.2 million is attributable tothe St. Martin and Diamond locations and $0.1 million is attributable to allother truck stop locations combined.

 

Convenience store-fuelrevenues increased $3.8 million or 5% to $81.3 million from $77.5 million.  The addition of the St. Helena and SilverDollar truck stops in July 2006 and February 2007, respectively,generated $6.1 million in additional fuel revenues. This increase in fuelrevenues was offset by a $2.3 million year-over-year decrease on a same storebasis attributable to the following: (1) stabilized business levels during2007 from the 2006 impact of Hurricanes Katrina and Rita, as previouslymentioned and (2) new competitors having recently entered some of ourmarkets, which negatively impacted our fuel revenues. Our average selling priceof fuel increased from $2.57 per gallon in 2006 to $2.74 per gallon in 2007.

 

Other revenues, which are comprised of our conveniencestore and hotel operations, increased to $20.9 million from $18.5 million, or13%.  The increase is attributable toGold Dust West-Carson City which was acquired on June 25, 2006 andcontributed $1.5 million, an increase of $0.7 million primarily due to theVinton, St. Helena and Silver Dollar truck stops which were acquired in June 2006,July 2006 and February 2007, respectively, and increases of $0.1million at The Lodge and $0.1 million at Gold Dust West-Elko.

 

Promotional allowancesincreased 21% to $32.0 million from $26.4 million.  The increase is attributable to an increasein promotional allowances at the truck stops of $0.9 million, The Lodge of $1.8million, the Gilpin of $0.3 million, and $0.4 million at Gold Dust West-Reno,while Gold Dust West-Carson City contributed $1.1 million and Gold DustWest-Elko also contributed $1.1 million. The increase at the truck stops is primarily due to complimentary foodand beverage sales at the recently acquired locations.

 

Casino expenses increased $4.9 million or 11% to $48.4million from $43.5 million. Of this increase, $2.0 million is due to theaddition of Gold Dust West-Carson City and $3.1 million is due to the additionof Gold Dust West-Elko.  Additionally,casino expenses increased by $0.9 million at The Lodge offset by decreases of$0.7 million at the Gilpin and $0.4 million at Gold Dust West-Reno.

 

Truck stop gamingexpenses increased to $38.0 million from $37.6 million.  The 2007 video gaming expenses from theVinton and St. Helena locations purchased in June and July 2006,respectively, and the installation of video gaming devices at the Silver Dollarlocation in September 2007 account for an increase of $2.2 million.  This increase is partially offset by ayear-over-year decrease of $1.8 million due to increased business levels duringthe first half of 2006 as a result of Hurricanes Katrina and Rita, which hitthe Louisiana, Mississippi 

 

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and Texas Gulf Coast in August andSeptember 2005, respectively, disrupting riverboat and other competitionin the region.  No such increasedbusiness levels were experienced in 2007.

 

Pari-mutuel costsand expenses increased to $33.0 million from $32.6 million.  The $0.4 million increase is primarilyattributable to pari-mutuel taxes and other direct expenses associated withincreased pari-mutuel revenues, somewhat offset by a decrease in trackmaterials costs resulting from a one-time purchase in 2006.

 

Food and beveragecosts and expenses increased to $16.4 million from $13.7 million, or 20%. Theaddition of Gold Dust West-Carson City provided $1.3 million, Gold DustWest-Elko provided $1.2 million, the remaining three casinos increased by atotal of $0.1 million, and an increase of $0.1 million at the truck stops.

 

Convenience store-fuelexpenses increased by $3.9 million or 5% to $77.3 million from $73.4million.  The addition of the St. Helenaand Silver Dollar truck stops in July 2006 and February 2007,respectively, generated $6.0 million in additional fuel expenses. This increasein fuel expenses was offset by a $2.1 million year-over-year decrease on a samestore basis attributable to two factors: (1) stabilized business levelsduring 2007 from the 2006 impact of Hurricanes Katrina and Rita, as previouslymentioned, and (2) new competitors having recently entered some of ourmarkets, which negatively impacted fuel volumes. The average cost of fuelincreased from $2.43 per gallon in 2006 to $2.60 per gallon in 2007.

 

Other costs and expenses increased to $16.3 millionfrom $15.0 million and were primarily attributable to the addition of hoteloperations at Gold Dust West-Carson City, which was acquired on June 25,2006, and convenience store-other costs generated by the addition of the St.Helena and Silver Dollar truck stops in July 2006 and February 2007,respectively.

 

Marketing, general and administrative expensesincreased $8.6 million or 14% to $69.4 million from $60.8 million.  This increase is the result of the additionof our Gold Dust West-Carson City casino which accounted for $3.8 million ofthe increase and our Gold Dust West-Elko casino which also accounted for anincrease of $3.8 million, as well as increases at The Lodge of $2.1 million, Gilpinof $1.1 million, Colonial of $0.8 million, and the truck stops of $0.8 million,offset by decreases of $3.3 million in corporate overhead expenses and $0.5million at Gold Dust West-Reno.  Theincreased marketing costs at our operating units drove increased revenues forall segments.  The increase at our twonew Nevada casinos was substantially due to expenses incurred in launching andrebranding the casinos with the Gold Dust West name.  The increase at Colonial is primarilyattributable to a $0.6 million increase in marketing costs related primarily tothe national television broadcast of the 2007 Virginia Derby combined with a$0.6 million increase in non-recurring lobbying costs, partially offset bydecreased security costs, the 2006 write-off of assets under renovation, andthe one-time accrual for the Virginia Thoroughbred Association’s share ofaccount wagering in 2006. The increase at the truck stops was primarily due tothe addition of office space and additional staff to accommodate expansion.  The $3.3 million net decrease in ourcorporate overhead was primarily the result of 2006 political campaign costsincurred in Ohio to support a constitutional amendment that would have allowedslot machines at the state’s existing racetracks and two locations in downtownCleveland.

 

Depreciation andamortization expense increased to $18.1 million from $14.1 million.  Of this increase, $1.1 million isattributable to the acquisition of Gold Dust West-Carson City and $2.0 millionis attributable to Gold Dust West-Elko. Additionally, The Lodge increased by $0.5 million primarily due to thenew south entrance, corporate increased by $0.2 million due to capital assetpurchases, and increases were experienced of $0.1 million at the Gilpin and$0.1 million at the truck stops.

 

Net interest expense decreased $4.2 million or 13% to$28.1 million from $32.3 million.  As aresult of our debt refinancing during June 2006, we wrote off $5.7 millionin financing fees and $1.9 million of note issue discount, partially offset bythe write off of $1.5 million of note issue premium, on the debt refinanced.This net decrease is somewhat offset by an increase in additional debtoutstanding during the year ended December 31, 2008 compared to the yearended December 31, 2006, partially offset by lower effective interestrates as a result of the refinancing transactions which occurred in June 2006.

 

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Pre-payment penalties, tender and consent costs in theamount of $9.3 million were incurred during June 2006.  These costs represented the premium requiredto purchase the senior secured notes in 2006, prior to their maturity in 2009and consent solicitation fees and expenses as part of the tender offer for suchnotes.  No comparable transactionoccurred during 2007.

 

For the year ended December 31, 2006, we receiveda tax refund for a portion of an income tax charge incurred during 2005, resultingin an income tax benefit of $0.1 million.  No comparable transactionoccurred during 2007.

 

**F.****                                     ****Segment information for thethree years ended December 31, 2008**

 

As discussed above, we havefour segments representing the geographic regions of our operations: Colorado,Nevada, Louisiana and Virginia. Each segment is managed separately because ofthe unique characteristics of its revenue stream, regulatory environment andcustomer base.

 

Theinformation presented is by each segment in which we have operations and alsopresents our EBITDA (earnings before interest, income taxes, depreciation andamortization) for each segment. We believe that the presentation of a non-GAAPfinancial measure such as EBITDA is useful because it allows holders of ourdebt and management to evaluate and compare our operating results fromcontinuing operations from period to period in a meaningful and consistentmanner in addition to standard GAAP financial measures. Management internallyevaluates the performance of our segments using EBITDA measures as do mostanalysts following the gaming industry. EBITDA is an element of certain keyfinancial covenants in our debt agreements and, as such, is a criticalcomponent that we closely watch in order to determine our ability to achievefuture growth and to ensure we are in compliance with our debt agreements. Wepresent EBITDA in the tables below to provide further discussion and analysisof our operating results. EBITDA can be reconciled directly to our consolidatednet income (loss) by adding the amounts shown for depreciation andamortization, interest and income taxes to net income (loss). This informationshould not be considered as an alternative to any measure of performance aspromulgated under accounting principles generally accepted in the United Statesof America, such as net income (loss), nor should it be considered as anindicator of our overall financial performance. Our calculation of EBITDA maybe different from the calculation used by other companies and comparability maybe limited.

 

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The following is a summaryof the net revenues, costs and expenses and EBITDA, for the three years ended December 31,2008, 2007 and 2006 (dollars in thousands):

 
| ** **                                                                                                | ** ** | **For the Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2008**                                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| **NET  REVENUES**                                                                                         |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                 |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                 |       | $                                                             | 73,853     |   | $ | 76,051 |   | $ | 67,315 |   |
| Gilpin                                                                                                    |       | 20,200                                                        |       | 23,323 |   | 22,245 |   |
| Total Colorado                                                                                            |       | 94,053                                                        |       | 99,374 |   | 89,560 |   |
| Nevada:                                                                                                   |       |                                                          |       |   |   |   |   |
| Gold Dust  West-Reno                                                                                      |       | 19,457                                                        |       | 20,986 |   | 22,893 |   |
| Gold Dust  West-Carson City                                                                               |       | 13,085                                                        |       | 13,833 |   | 6,517 |   |
| Gold Dust  West-Elko                                                                                      |       | 10,189                                                        |       | 8,243 |   |   |   |
| Total Nevada                                                                                              |       | 42,731                                                        |       | 43,062 |   | 29,410 |   |
| Louisiana                                                                                                 |       | 182,101                                                       |       | 161,070 |   | 158,859 |   |
| Virginia                                                                                                  |       | 43,592                                                        |       | 46,322 |   | 44,549 |   |
| Corporate and  other                                                                                      |       | 47                                                            |       | 30 |   | 32 |   |
| **Total  Net Revenues**                                                                                   |       | 362,524                                                       |       | 349,858 |   | 322,410 |   |
|                                                                                                      |       |                                                          |       |   |   |   |   |
| **COSTS  AND EXPENSES (excluding depreciation and amortization, net interest expense  and income taxes)** |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                 |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                 |       | 48,094                                                        |       | 49,359 |   | 46,286 |   |
| Gilpin                                                                                                    |       | 14,793                                                        |       | 16,594 |   | 16,158 |   |
| Total Colorado                                                                                            |       | 62,887                                                        |       | 65,953 |   | 62,444 |   |
| Nevada:                                                                                                   |       |                                                          |       |   |   |   |   |
| Gold Dust  West-Reno                                                                                      |       | 13,218                                                        |       | 13,794 |   | 14,675 |   |
| Gold Dust  West-Carson City (1)                                                                           |       | 14,364                                                        |       | 15,064 |   | 7,664 |   |
| Gold Dust  West-Elko                                                                                      |       | 8,901                                                         |       | 8,567 |   | 499 |   |
| Total Nevada                                                                                              |       | 36,483                                                        |       | 37,425 |   | 22,838 |   |
| Louisiana                                                                                                 |       | 160,413                                                       |       | 141,771 |   | 135,747 |   |
| Virginia (2)                                                                                              |       | 42,993                                                        |       | 44,921 |   | 43,686 |   |
| Corporate  overhead and other (3)(4)                                                                      |       | 16,724                                                        |       | 8,605 |   | 21,250 |   |
| **Total  Costs and Expenses**                                                                             |       | 319,500                                                       |       | 298,675 |   | 285,965 |   |
|                                                                                                      |       |                                                          |       |   |   |   |   |
| **EBITDA**                                                                                                |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                 |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                 |       | 25,759                                                        |       | 26,692 |   | 21,029 |   |
| Gilpin                                                                                                    |       | 5,407                                                         |       | 6,729 |   | 6,087 |   |
| Total Colorado                                                                                            |       | 31,166                                                        |       | 33,421 |   | 27,116 |   |
| Nevada:                                                                                                   |       |                                                          |       |   |   |   |   |
| Gold Dust  West-Reno                                                                                      |       | 6,239                                                         |       | 7,192 |   | 8,218 |   |
| Gold Dust  West-Carson City (1)                                                                           |       | (1,279                                                        | )          | (1,231 | ) | (1,147 | ) |
| Gold Dust  West-Elko                                                                                      |       | 1,288                                                         |       | (324 | ) | (499 | ) |
| Total Nevada                                                                                              |       | 6,248                                                         |       | 5,637 |   | 6,572 |   |
| Louisiana                                                                                                 |       | 21,688                                                        |       | 19,299 |   | 23,112 |   |
| Virginia (2)                                                                                              |       | 599                                                           |       | 1,401 |   | 863 |   |
| Corporate  overhead and other (3)(4)                                                                      |       | (16,677                                                       | )          | (8,575 | ) | (21,218 | ) |
|                                                                                                      |       |                                                          |       |   |   |   |   |
| **Total  EBITDA**                                                                                         |       | $                                                             | 43,024     |   | $ | 51,183 |   | $ | 36,445 |   |

 

SeeSections D and E above which provide explanations regarding the fluctuations inour revenues and costs and expenses by property and segment.

 

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The following table sets forth a reconciliation of our EBITDA, anon-GAAP financial measure, to our net income (loss), a GAAP financial measure(dollars in thousands):

 
| **Year Ended December 31, 2008** | ** ** | **EBITDA** | ** ** | **Depreciation and   Amortization** | ** ** | **Interest   Expense, net** | ** ** | **Income Tax   Benefit** | ** ** | **Net   Income (Loss)** | ** ** |
|------------------------------------------------------|------------|------------|------------|-----------------------------------------------|------------|---------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| Colorado:                                            |       |       |       |                                          |       |                                  |       |                               |       |                              |       |
| The Lodge                                            |       | $          | 25,759     |                                          | $          | 4,825                                 |       | $                                  | 6,715      |                              |       |   | $ | 14,219 |   |
| Gilpin                                               |       | 5,407      |       | 1,998                                         |       | 1,903                                 |       |                               |       | 1,506                             |       |
| Total Colorado                                       |       | 31,166     |       | 6,823                                         |       | 8,618                                 |       |                               |       | 15,725                            |       |
| Nevada:                                              |       |       |       |                                          |       |                                  |       |                               |       |                              |       |
| Gold Dust  West-Reno                                 |       | 6,239      |       | 1,589                                         |       | 2,617                                 |       |                               |       | 2,033                             |       |
| Gold Dust  West-Carson City (1)                      |       | (1,279     | )          | 2,079                                         |       | 1,533                                 |       |                               |       | (4,891                            | )          |
| Gold Dust  West-Elko                                 |       | 1,288      |       | 2,364                                         |       | 1,423                                 |       |                               |       | (2,499                            | )          |
| Total Nevada                                         |       | 6,248      |       | 6,032                                         |       | 5,573                                 |       |                               |       | (5,357                            | )          |
| Louisiana                                            |       | 21,688     |       | 4,219                                         |       | 4,875                                 |       |                               |       | 12,594                            |       |
| Virginia (2)                                         |       | 599        |       | 2,114                                         |       | 520                                   |       |                               |       | (2,035                            | )          |
| Corporate  overhead and other (3)                    |       | (16,677    | )          | 747                                           |       | 7,641                                 |       |                               |       | (25,065                           | )          |
| TOTAL                                                |       | $          | 43,024     |                                          | $          | 19,935                                |       | $                                  | 27,227     |                              |       |   | $ | (4,138 | ) |

 
| **Year Ended December 31, 2007** | ** ** | **EBITDA** | ** ** | **Depreciation and   Amortization** | ** ** | **Interest   Expense, net** | ** ** | **Income Tax   Benefit** | ** ** | **Net   Income (Loss)** | ** ** |
|------------------------------------------------------|------------|------------|------------|-----------------------------------------------|------------|---------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| Colorado:                                            |       |       |       |                                          |       |                                  |       |                               |       |                              |       |
| The Lodge                                            |       | $          | 26,692     |                                          | $          | 4,318                                 |       | $                                  | 6,884      |                              |       |   | $ | 15,490 |   |
| Gilpin                                               |       | 6,729      |       | 1,854                                         |       | 1,891                                 |       |                               |       | 2,984                             |       |
| Total Colorado                                       |       | 33,421     |       | 6,172                                         |       | 8,775                                 |       |                               |       | 18,474                            |       |
| Nevada:                                              |       |       |       |                                          |       |                                  |       |                               |       |                              |       |
| Gold Dust  West-Reno                                 |       | 7,192      |       | 1,520                                         |       | 2,605                                 |       |                               |       | 3,067                             |       |
| Gold Dust  West-Carson City                          |       | (1,231     | )          | 1,819                                         |       | 1,521                                 |       |                               |       | (4,571                            | )          |
| Gold Dust  West-Elko                                 |       | (324       | )          | 1,974                                         |       | 1,790                                 |       |                               |       | (4,088                            | )          |
| Total Nevada                                         |       | 5,637      |       | 5,313                                         |       | 5,916                                 |       |                               |       | (5,592                            | )          |
| Louisiana                                            |       | 19,299     |       | 3,848                                         |       | 4,774                                 |       |                               |       | 10,677                            |       |
| Virginia                                             |       | 1,401      |       | 2,065                                         |       | 486                                   |       |                               |       | (1,150                            | )          |
| Corporate  overhead and other                        |       | (8,575     | )          | 706                                           |       | 8,116                                 |       |                               |       | (17,397                           | )          |
| TOTAL                                                |       | $          | 51,183     |                                          | $          | 18,104                                |       | $                                  | 28,067     |                              |       |   | $ | 5,012 |   |
|                                                 |       |       |       |                                          |       |                                  |       |                               |       |                              |       |
| **Year Ended December 31, 2006** | ** ** | **EBITDA** | ** ** | **Depreciation and   Amortization** | ** ** | **Interest   Expense, net** | ** ** | **Income Tax   Benefit** | ** ** | **Net   Income (Loss)** | ** ** |
| Colorado:                                            |       |       |       |                                          |       |                                  |       |                               |       |                              |       |
| The Lodge                                            |       | $          | 21,029     |                                          | $          | 3,810                                 |       | $                                  | 10,049     |                              |       |   | $ | 7,170 |   |
| Gilpin                                               |       | 6,087      |       | 1,725                                         |       | 3,045                                 |       |                               |       | 1,317                             |       |
| Total Colorado                                       |       | 27,116     |       | 5,535                                         |       | 13,094                                |       |                               |       | 8,487                             |       |
| Nevada:                                              |       |       |       |                                          |       |                                  |       |                               |       |                              |       |
| Gold Dust West-Reno                                  |       | 8,218      |       | 1,539                                         |       | 3,822                                 |       |                               |       | 2,857                             |       |
| Gold Dust  West-Carson City                          |       | (1,147     | )          | 727                                           |       | 814                                   |       |                               |       | (2,688                            | )          |
| Gold Dust  West-Elko                                 |       | (499       | )          |                                          |       | 86                                    |       |                               |       | (585                              | )          |
| Total Nevada                                         |       | 6,572      |       | 2,266                                         |       | 4,722                                 |       |                               |       | (416                              | )          |
| Louisiana                                            |       | 23,112     |       | 3,712                                         |       | 4,363                                 |       |                               |       | 15,037                            |       |
| Virginia                                             |       | 863        |       | 2,069                                         |       | 549                                   |       |                               |       | (1,755                            | )          |
| Corporate  overhead and other (4)                    |       | (21,218    | )          | 523                                           |       | 9,543                                 |       | $                                  | 103        |                              | (31,181    | ) |
| TOTAL                                                |       | $          | 36,445     |                                          | $          | 14,105                                |       | $                                  | 32,271     |                              | $          | 103 |   | $ | (9,828 | ) |

 

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(1)                                 Includedin Gold Dust West-Carson City for 2008 is a $0.2 million impairment ofgoodwill.

 

(2)                                 Includedin Virginia for 2008 is a $0.8 million charge for the closure of a satellitewagering facility.

 

(3)                                 Includedin corporate overhead and other for 2008 is a $6.6 million impairment of thefair value of an 

 

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investmentin equity securities and $1.4 million we expended in support of aconstitutional amendment in Colorado to expand games, limits and hours.

 

(4)                                 Includedin corporate overhead and other for 2006 are $9.3 million in pre-paymentpenalties, tender and consent costs for our debt refinancing and $3.3 millionwe expended to pursue a constitutional amendment in Ohio to allow slot machinesat the seven existing racetracks and two locations in downtown Cleveland.

 

**G.****                                   ****Liquidity and capital resources—December 31,2008**

 

As of December 31, 2008, we had cash and cash equivalents of $21.8million compared to $24.4 million in cash and cash equivalents as of December 31,2007. The decrease is the result of $25.6 million cash provided by operatingactivities, $17.7 million cash used in investing activities, and $10.5 millionused in financing activities, which is further discussed below.  Our primary sources of liquidity are cashprovided by operating activities and external borrowings.  Our primary uses of cash are for debtservice, capital improvements, development and acquisitions.

 

Thecash used in investing activities during 2008 was primarily the result ofproperty and equipment and device rights additions totaling $15.0 million forongoing capital investments at our existing properties and $3.0 million forMississippi land purchase transactions, offset by $0.3 million of proceeds fromthe sale of equipment.

 

Thecash used in financing activities during 2008 was the result of net repaymentson the revolving senior credit facility totaling $7.0 million, payments onlong-term debt totaling $1.7 million and distributions to stockholders totaling$1.8 million, including $0.8 million for the purchase of Lot D.

 

As of December 31,2008, we had $23.5 million available on our $40 million revolving senior creditfacility for acquisitions, capital expenditure programs and working capital,although we drew $2.5 million on the credit line in January 2009 tocomplete the acquisition of Sugar Warehouse. See Item 1 “Business—OurProperties and Operations.”  Therevolving senior credit facility carries an interest rate of 3.00% above LIBORand expires in June 2011. As of December 31, 2008, our total debtapproximates $290.7 million. Our future liquidity, which includes our abilityto make semi-annual interest payments on June 15 and December 15 ofeach year, depends upon our future operational success.  Ourfailure to pay interest, repay our indebtedness when due, or maintaincompliance with our debt covenants would result in an event of default underboth our senior credit facility and our note indenture.

 

At December 31,2008, we were in compliance with our financial covenants.  At March 31, 2009, certain debtcovenants under our senior secured credit facility were to become morerestrictive.  We entered into a secondamendment to our credit agreement which became effective February 5,2009.  The second amendment increased themaximum permitted senior secured leverage ratio and adjusted the test periods.

 

While our owners have made capital contributions to facilitate ourvarious acquisitions from time to time, we can give no assurance that they willcontinue to do so in the future. Additionally, as we are a Subchapter SCorporation, we may from time to time make distributions to our owners on anytaxes due as a result of taxable income generated by us. Furthermore, annualdistributions may be made to our owners in an aggregate amount not to exceedthe greater of $1 million and 50% of consolidated net income as defined in ourcredit agreement and indenture.

 

We believe that our cash flow from operations, cash and cashequivalents and our $40 million senior revolving credit facility discussedabove will be adequate to meet our debt service obligations and operationalexpenditures, as well as our capital expenditure requirements for the nexttwelve months.  During 2009, we anticipatespending approximately $13 million for discretionary capital expenditures andalso approximately $3.0 million for expansion capital expenditures, includingthe acquisition of a second Nautica parcel referred to above as SugarWarehouse. While we believe these sources will provide us sufficient liquidityover the next twelve months, we can give no assurance that these sources ofcash will be sufficient to enable us to do so. Further, in addition to ournormal capital expenditure requirements, we anticipate that we will pursue theacquisition of other properties and continue to engage in the pursuit of newdevelopment opportunities. It is possible that we may need to enter into newfinancing arrangements and raise additional capital in the future if we areunable to generate sufficient cash to 

 

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sustainexpansion.  However, due to existinguncertainties in the capital and credit markets, our access to funding may belimited or available only on terms unacceptable to us.  Also, our ability to incur additional debt isfurther restricted by the terms and covenants of our senior secured and seniorunsecured notes. We can give no assurance that we will be able to raise anycapital or obtain the necessary sources of liquidity and financing on favorableterms, if at all. Additionally, any debt financing that we may incur in thefuture will increase the amount of our total outstanding indebtedness and ourdebt service requirements, and therefore heighten the related risks wecurrently face.

 

We also face the risk that there could be further declines in thedemand for our products and services, which would reduce our ability togenerate funds from operations. Adverse national and local economic conditionscould persist or worsen. While we believe our cash flows are geographicallydiverse, at present we do have a significant concentration of cash flowsgenerated in the Black Hawk, Colorado and Louisiana markets.  Should the Black Hawk or Louisiana marketsdecline or become saturated or should competition erode our market share, wewould suffer a decline in available funds generated from operations.  If this were to occur, there exists thepossibility that our credit rating could be downgraded, which would furtherreduce our ability to access the capital markets and obtain additional oralternative financing.  See the section “RiskFactors” in Item 1A above.

 

Thefollowing table provides disclosure concerning our obligations and commitmentsto make future payments under contracts, such as debt and lease agreements, andpurchase and other long-term obligations as of December 31, 2008.

 
| ** **                          | ** ** | ** ** | ** ** | **Next**           | ** ** | **1-3**    | ** ** | **4-5**    | ** ** | **After 5** | ** ** |
|-------------------------------------|------------|------------|------------|--------------------|------------|------------|------------|------------|------------|------------------|------------|
| **(In Thousands)**             | ** ** | **Total**  | ** ** | **12 Months** | ** ** | **Years**  | ** ** | **Years**  | ** ** | **Years**        | ** ** |
| ** **                          | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** |
| Long-term debt  (1)                 |       | $          | 407,079    |               | $          | 24,284     |       | $          | 64,087     |             | $          | 98,470 |   | $ | 220,238 |   |
| Capital lease  obligations          |       | 9,137      |       | 622                |       | 1,819      |       | 948        |       | 5,748            |       |
| Operating leases  (2)               |       | 36,962     |       | 2,699              |       | 4,537      |       | 3,567      |       | 26,159           |       |
| Other long-term  obligations (3)    |       | 23,389     |       | 1,794              |       | 3,388      |       | 2,582      |       | 15,625           |       |
| Total  contractual cash obligations |       | $          | 476,567    |               | $          | 29,399     |       | $          | 73,831     |             | $          | 105,567 |   | $ | 267,770 |   |

 

----

(1)                                 Long-term debt includes principal andinterest owing under the terms of our senior unsecured notes, our senior securedcredit facility and the Black Hawk special assessment bonds. Interest onvariable rate debt is computed based on rates outstanding at December 31, 2008.

 

(2)                                 Operatingleases include various land and building leases for certain properties inNevada, Louisiana and Virginia; office space in Colorado, Louisiana, Virginiaand Florida; and other equipment leases at all locations.

 

(3)                                 Other long-term obligations include a20-year, $1.25 million per year management agreement with Jacobs InvestmentsManagement Co. Inc., an affiliated company, and our obligation to pay $1 peroperating video poker machine per day to the third party owner of the videopoker machines in order to maintain the machines used in our truck plazaoperations. In addition, Colonial has entered into an agreement with a totalisatorcompany, which provides wagering services and designs, programs, andmanufactures totalisator systems for use in wagering applications. Theamendment provides for a minimum charge per calendar year of $210,000.

 

Finally,our outstanding senior unsecured notes aggregating $210 million cannot beredeemed until June 15, 2010. We can, however, with proceeds from anequity offering on more than one occasion redeem up to 35% of the aggregateprincipal amount of the notes at a redemption price of 109.75% of the principalamount thereof, plus accrued and unpaid interest.

 

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**H.****                                   ****Critical accounting policies andestimates**

 

Thepreparation of financial statements in accordance with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amount of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting periods. We periodically evaluate our policies and theestimates and assumptions related to these policies. All of our subsidiarycompanies operate in a highly regulated industry. Our Colorado, Nevada,Louisiana and Virginia operations are subject to regulations that describe andregulate operating and internal control procedures. The majority of our casinorevenue is in the form of cash, personal checks, credit cards or gaming chipsand tokens, which by their nature do not require complex estimations. Weestimate certain liabilities with payment periods that extend for longer thanseveral months. Such estimates include our slot club liabilities, outstandinggaming chip, token and pari-mutuel ticket liability, self-insured medical andworkers compensation liabilities, and litigation costs. We believe that theseestimates are reasonable based on our past experience with the business andbased upon our assumptions related to possible outcomes in the future. Futureactual results will likely differ from these estimates.

 

***Property andequipment***

 

Wehave a significant investment in long-lived property and equipment,representing approximately 71% of our total assets, which includes the recentacquisitions of Gold Dust West-Carson City, Gold Dust West-Elko and the videogaming truck stops. 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 our property and equipment for potentialimpairment when events and circumstances indicate that the carrying value of anasset may not be recoverable from the estimated future cash flows expected toresult from its use. Further, we assign lives to our assets based on ourstandard policy, which is established by management as representative of theuseful life of each class of assets. Should the actual useful life of a classof assets differ from the estimated useful life, we would record an impairmentcharge. We review useful lives and obsolescence and assess the commercialviability of our assets periodically. During 2008, we performed an impairmentanalysis of property and equipment at our Gold Dust West-Carson City andVirginia reporting units, and we determined that property and equipment is notimpaired at either reporting unit.

 

***Goodwill andother intangible assets***

 

Wehave $46.5 million in goodwill recorded on our consolidated balance sheetresulting from the acquisition of businesses. We do not have any othernonamortizing intangible assets on our consolidated balance sheet. We annuallyreview our goodwill for impairment. The annual evaluation of goodwill requiresthe use of estimates about future operating results of each reporting unit todetermine its estimated fair value. Changes in forecasted operations canmaterially affect these estimates. Once an impairment of goodwill has beenrecorded, it cannot be reversed.

 

Ourreporting units with goodwill balances at December 31, 2008 are The Lodge($4.2 million), Gilpin ($2.5 million), Gold Dust West-Reno($8.8 million) and Louisiana ($31.0 million). There is no goodwillrecorded in our Gold Dust West-Carson City, Gold Dust West-Elko or Virginiareporting units. We performed our most recent annual impairment test for ourreporting units as of September 30, 2008. Our annual impairment testincluded an analysis of the gaming industry overall as well as an analysis ofthe specific locations in which we operate. We determined the fair values foreach of these reporting units using both the market approach (recent comparabletransactions from which we derived an applicable valuation multiple) and theincome approach (net present value of our anticipated future cash flows). Thesefair values were then compared to the carrying values for the respectivereporting unit. We determined that goodwill was impaired at our Gold DustWest-Carson City reporting unit, resulting in a goodwill impairment totaling$0.2 million, which is further discussed in Note 3 to the financial statements.We determined that goodwill is not impaired at any of our other reportingunits.  Furthermore, if the fair value ofthese reporting units declined by 10%, no goodwill impairment would exist.

 

Wehave also reassessed the useful lives of our identifiable intangible assetswithout any change to the previously established amortization periods of suchassets.

 

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

 

**Market Risk**

 

Market risk is the risk of loss arising from adverse changes in marketrates and prices, such as commodity prices and interest rates.  We purchase and sell fuel at market prices,subject to daily price changes.

 

We have issued $210 million of 93⁄4% fixed rate senior unsecured notesdue in 2014 and a $100 million variable rate senior secured credit facilityconsisting of: (i) a $40 million revolving credit facility due in 2011, (ii) a$40 million term loan facility due in 2012, and (iii) a $20 milliondelayed draw term loan due in 2012.  Asof December 31, 2008, $16.5 million is outstanding on the senior securedrevolving credit facility and $58.6 million is outstanding on our seniorsecured term loan debt, bearing interest at a blended variable rateapproximating 3.30% at December 31, 2008.

 

If market interest rates increase, our cash requirements for intereston the senior secured credit facility balance would also increase. Conversely,if market interest rates decrease, our cash requirements for interest on thesenior secured credit facility balance would also decrease. There would be anapproximate change in our cash requirements of $0.3 million annually forinterest should market rates increase or decrease by 10% compared to interestrate levels at December 31, 2008.

 

We currently do not use interest rate swaps or other similarinvestments to alter interest rate exposure.

 

The recent severeeconomic downturn and adverse conditions in the local, regional, national andglobal markets has negatively affected our operations, and may continue tonegatively affect our operations in the future. During periods of economiccontraction such as the current period, our revenues may decrease while some ofour costs remain fixed or even increase, resulting in decreased earnings.Gaming and other leisure activities we offer represent discretionaryexpenditures and participation in such activities may decline during economicdownturns, during which consumers generally earn less disposable income. Evenan uncertain economic outlook may adversely affect consumer spending in ourgaming operations and related facilities, as consumers spend less inanticipation of a potential economic downturn. Furthermore, otheruncertainties, including national and global economic conditions, terroristattacks or other global events, could adversely affect consumer spending,increase gasoline prices and adversely affect our operations.

 

We use significantamounts of electricity, natural gas and other forms of energy. While we havegenerally not experienced any major shortages of energy, any substantialincreases in the cost of electricity and natural gas in the United States couldnegatively impact our operating results. The extent of any impact is subject tothe magnitude and duration of the energy price increases and could be material.

 

Also, if gas prices rise,this may result in a reduction of automobile travel and a decrease in thenumber of patrons at our properties.  Ourbusiness, assets, financial condition and results of operations could beadversely affected by a weakening of national economic conditions, highgasoline prices and/or adverse winter weather conditions.

 

We are a highlylevered company. While we intend to finance expansion and capital expenditureswith existing cash, cash flow from operations and borrowing under our existingsenior secured credit facilities, we may require additional financing tosupport our continued growth. However, due to the existing uncertainty in thecapital and credit markets, our access to capital may not be available on termsacceptable to us or at all. Further, if adverse regional and national economicconditions persist or worsen, we could experience decreased revenues from ouroperations attributable to decreases in consumer spending levels and could failto satisfy the financial and other restrictive covenants to which we aresubject under our existing indebtedness.

 

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

 

Reference is made to the financial statements, the notes, and thereport of our independent registered public accounting firm commencing on page F-1of this report.

 

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

 

None.

 

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

 

*Evaluationof Disclosure Controls and Procedures*

 

We have carried out an evaluation, under the supervision and with theparticipation of our management, including our Chief Executive Officer and ourChief Financial Officer, of the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31,2008. Based on such evaluation, we have concluded that, as of such date, ourdisclosure controls and procedures were effective to ensure that informationrequired to be disclosed by us in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified inapplicable SEC rules and forms, and that such information is accumulatedand communicated to our management, including our Chief Executive Officer andChief Financial Officer, as appropriate, to allow timely discussions regardingrequired disclosure.

 

*Management’sReport on Internal Control Over Financial Reporting*

 

Our management is responsiblefor establishing and maintaining adequate internal control over financialreporting as defined in Rules 13a-15(f) and 15d-15(f) promulgatedunder the Exchange Act. Those rules define internal control over financialreporting as a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples and includes those policies and procedures that:

 

·             Pertain to the maintenance of recordsthat, in reasonable detail, accurately and fairly reflect the transactions anddispositions of our assets;

 

·             Provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat our receipts and expenditures are being made only in accordance withauthorizations of our management and directors; and

 

·             Provide reasonable assurance regardingprevention or timely detection of unauthorized acquisitions, use or dispositionof our assets that could have a material effect on our financial statements.

 

Because of its inherentlimitations, internal controls over financial reporting may not prevent ordetect misstatements. Projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

Management assessed the effectiveness of our internalcontrol over financial reporting as of December 31, 2008. In making thisassessment, our management used the criteria established in *Internal Control-Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). Basedon our assessment, we believe that, as of December 31, 2008, our internalcontrol over financial reporting is effective based on those criteria.

 

*Changesin Internal Control Over Financial Reporting*

 

There has been no change during our most recent fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

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**Item9A(T).****                                 *****Controlsand Procedures.***

 

 This annual report does not include anattestation report of our registered public accounting firm regarding internalcontrol over financial reporting. Management’s report was not subject to attestation by our registeredpublic accounting firm pursuant to temporary rules of the Securities andExchange Commission that permit us to provide only management’s report in thisannual report.

 

**Item 9B.****                                              *****OtherInformation.***

 

There is no information we were required to report on Form 8-Kduring our fourth fiscal quarter of the year ended December 31, 2008 thatwas not so reported.

 

**Item 10.****                                                *****Directors,Executive Officers and Corporate Governance.***

 

The following table provides information regarding our directors andexecutive officers and key employees as of March 1, 2009:

 
| **Name**          | ** ** | **Age** | ** ** | **Position**                                                             |
|-------------------|------------|---------|------------|--------------------------------------------------------------------------|
| Jeffrey P. Jacobs |       | 55      |       | Chief Executive Officer, Secretary, Treasurer and  Chairman of the Board |
| Stephen R. Roark  |       | 61      |       | President                                                                |
| Ian M. Stewart    |       | 54      |       | President of Pari-Mutuel Wagering Operations                             |
| Michael T. Shubic |       | 55      |       | Chief Operating Officer                                                  |
| Brett A. Kramer   |       | 40      |       | Chief Financial Officer                                                  |
| Stanley Politano  |       | 59      |       | Executive Vice President                                                 |

 

Jeffrey P. Jacobs is our Chairman, Chief Executive Officer, Secretaryand Treasurer and sole director. He is also Chairman and Chief ExecutiveOfficer of Colonial, and Chairman and Chief Executive Officer of Black HawkGaming, two of our subsidiaries. From 1996 to 2007, he served as Chairman andChief Executive Officer of Diversified Opportunities Group Ltd. (“Diversified”),a company co-founded by Mr. Jacobs and his father, Richard E. Jacobs, andbased in Cleveland, Ohio, that has investments in gaming companies and otherventures. Jacobs Entertainment, Inc. acquired Diversified on February 22,2002 and it was dissolved in 2007. Mr. Jacobs serves as the Chairman andChief Executive Officer of Jacobs Investments, Inc., a company which ownsall of our equity securities and which engages in a variety of private equitytransactions and other investments. From 1975 to present, Mr. Jacobs hasalso served as the Chairman and Chief Executive Officer of Jacobs InvestmentsManagement Co., Inc., a company engaged in the development, construction andoperations of various residential and commercial real estate projects in Ohio. Mr. Jacobsbecame a director of MTR Gaming Group, Inc. (“MTR”) on May 6, 2008and became its Chairman on October 31, 2008. MTR has a class of equitysecurities registered under the Securities Exchange Act of 1934.

 

Stephen R. Roark was appointed as our President on December 5,2006. During the five years prior to that, he was our Chief Financial Officerand President of Casino Operations. He was employed as Chief Financial Officerof Black Hawk Gaming since August 1993. Mr. Roark became a directorof Black Hawk Gaming in 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 companies in the publicmarketplace. Mr. Roark has 17 years of public accounting experience,having served as a partner with a local accounting firm based in Denver and asa partner with a national accounting firm. Mr. Roark was with Hanifen,Imhoff and Prudential Securities, Inc. for three years and is a member ofthe American Institute of Certified Public Accountants and the Colorado Societyof Certified Public Accountants. Mr. Roark obtained his B.S.B.A. inAccounting from the University of Denver in 1973.

 

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Ian M. Stewart is currently our President of Pari-Mutuel WageringOperations. He has served as President of Colonial since November 1998 andits Chief Financial Officer since June 1997. From January 1998through November 1998, Mr. Stewart served as Chief Operating Officerof Colonial. 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 aCertified Public Accountant and holds an M.B.A. degree from the University ofMichigan.

 

Michael T. Shubic has been our Chief Operating Officer since July 1,2006. From December 1, 2002 when he joined us until his appointment as ourChief Operating Officer, he served as our Vice President of Operations. From2000 to 2002, Mr. Shubic was Vice President and General Manager of theIsle of Capri Black Hawk Casino in Black Hawk, Colorado. From 1997 to 2000, asa private individual, he explored and participated in various aspects of thegolf industry, including education, sales and management. From 1984 to 1997, Mr. Shubicwas employed by several gaming companies in Las Vegas and Reno, Nevada, Joliet,Illinois, and Nassau, Bahamas. His positions included general manager, casinoadministrator, customer analysis manager, casino credit manager and food andbeverage manager. Mr. Shubic holds a B.S. degree in Hotel Administrationfrom the University of Nevada.

 

Brett A. Kramer has been our Chief Financial Officer since December 5,2006. He has been employed by us and certain of our predecessor subsidiariesfor 14 years. He was responsible for overseeing accounting managers andcontrollers of our multi-state operating subsidiaries, over 30 in all. He hasalso been involved in developing our system of internal controls in order tocomply with various gaming regulations and provisions of the Sarbanes-Oxley Actof 2002. Mr. Kramer was a staff and senior accountant for five years withDeloitte & Touche, LLP. He graduated with a degree in accounting fromthe University of Colorado in 1990.

 

Stanley Politano is our Executive Vice President and has been with theCompany and its predecessor, Black Hawk Gaming & Development Company, Inc.since 1994. He is a former officer and director of Black Hawk Gaming.  He currently serves on our Company’s NevadaCompliance Committee and our Audit and Disclosure Committee.  Mr. Politano received his B.S. degree inBusiness, majoring in finance, from the University of Colorado in 1972.  He has 22 years of experience in thesecurities industry, in both retail and wholesale organizations.  He has worked for Rauscher Pierce SecuritiesCorporation and Prudential-Bache Securities, Inc. and was a vice presidentwith E.F. Hutton & Company, Inc. and Hanifen Imhoff SecuritiesCorporation.

 

We are a company wholly owned by Jacobs Investments, Inc. (“JII”),which in turn was 50% owned by Jeffrey P. Jacobs and two of his family trusts,and 50% owned by a revocable trust and an irrevocable trust established by hisfather, Richard E. Jacobs.  On October 1,2008, JII redeemed the shares owned by the Richard E. Jacobs RevocableTrust.  As a result, Jeffrey P. Jacobsand his family trusts own 80% of JII’s Class A shares and 100% of its Class Bshares.  The Richard E. JacobsIrrevocable Trust owns 20% of JII’s Class A shares, of which Jeffrey P.Jacobs is the sole trustee. Additionally, effective October 15, 2008, Richard E. Jacobsresigned his position as a member of the Board of Directors of JEI. Our board of directors, currently consistingonly of Jeffrey P. Jacobs, has no nominating, audit, compensation or othercommittees. Jeffrey P. Jacobs and Richard E. Jacobs had served as our directorssince our formation in 2001. The board of directors is elected each year. Theboard has adopted a code of ethics policy which is applicable to our CEO, CFOand our employees. We rely on our employment procedures and system of internalcontrols and procedures, to deter wrongdoing and to promote honest and ethicalconduct, full, fair and accurate disclosure in our reports, our compliance withgovernmental laws, rules and regulations, and internal reporting ofviolations of our policies.

 

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

 

**Compensation Discussion and Analysis**

 

Thefollowing discussion of our executive compensation policies and practicesinclude:

 

·                                          an overview of our board of directors’philosophy as to executive compensation;

 

·                                          a discussion of the overall objectives of ourcompensation program for executive officers; and

 

·                                          a discussion of all material components ofcompensation, particularly for the five named executive officers listed in theSummary Compensation table.

 

***Overview and Objectives***

 

Asdescribed in Item 12 immediately below, we are a wholly owned subsidiary of aprivately-held company, hence we have no publicly traded securities, nor anyoption or other equity based incentive programs for our executives oremployees. Our Chairman and Chief Executive Officer, Jeffrey P. Jacobs, andtrusts that he and his father, Richard E. Jacobs, have established, own theequity securities of Jacobs Investments, Inc., the company that owns allof our equity securities.

 

During2008, the total cash compensation to Messrs. Jeffrey P. Jacobs and RichardE. Jacobs, who resigned effective October 15, 2008, is limited to anaggregate of $1 million per year under our credit agreements. As a result, mostelements of our compensation plans discussed below do not include our CEO,Jeffrey P. Jacobs. However, as also discussed below, our sole shareholdernonetheless is entitled under our credit agreements to certain taxdistributions since, as a Subchapter S corporation, our taxable income flowsthrough and is taxed to it. Finally and also as discussed in detail in Item 13below, Messrs. Jeffrey P. Jacobs and Richard E. Jacobs have receivedcertain direct dividends from us and constructive dividends resulting from theaccounting treatment required of certain related party transactions.

 

OurExecutive Compensation Program (Program) is designed to attract, motivate andretain high performing executives who are critical to our long-term success.The Program is structured to link executive compensation to how successfully weexecute our business plans and meet a number of corporate, financial andoperational goals. This design is intended to provide executives increased compensationwhen we do well and to provide less compensation when we do not.

 

Thedesign and effectiveness of compensation policies and programs are reviewed byour CEO periodically in light of general industry and peer trends, andrecommendations for changes are made to the board of directors as deemedadvisable by the CEO. The CEO reviews such compensation matters with ourinternal personnel. The board of directors believes that the role played by theCEO in this process is reasonable and appropriate because the CEO is bestsuited to evaluate the performance of our executive personnel.

 

OurCEO reviews the philosophy, goals and objectives of the Program at leastannually. In assessing their continued appropriateness, our CEO examines oursuccess and the contributions of the individual executives in achieving ourbusiness plans. Our CEO considers the motivational impact of the Program as anincentive in attaining desired business results and in the continued ability toattract and retain high-quality executives. Key factors in judging whether theProgram has met its goals are the Program’s relationship to our financialresults, our future outlook and our ability to attract and retain key executivetalent.

 

Asa result of our corporate structure, the base compensation structure andamounts paid to all of our executive officers, except Jeffrey P. Jacobs, aredetermined after individual negotiations with each executive and approved byhim. We formulate an annual cash incentive compensation plan for our named executiveofficers and selected middle management personnel based on our achievement ofmulti-year financial and growth objectives. Our discretionary annual bonus ispaid in cash in an amount reviewed and approved by our CEO and traditionallyhas been paid in a single installment in the first quarter following thecompletion of a given fiscal year. Pursuant to 

 

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current employmentagreements, each named executive officer is eligible for a discretionary annualbonus up to an amount equal to 35% of such executive’s base salary. The actualamount of discretionary bonus, which varies by individual, is determined by ourCEO following a review of each executive’s individual performance andcontribution to our strategic and financial goals. In support of hisrecommendations, Mr. Jacobs considers the desirability of maintaining acohesive, long standing management and operating group and keeps himselfinformed of the salaries and benefits offered by competitors although he doesnot adhere to specific benchmarks, median placements, percentages or ranges ofcompensation paid by competitors or others.

 

Thefollowing table sets forth information regarding the compensation paid by us toeach of the following individuals for services rendered in all capacities forthe years indicated:

 
| **Name and Principal**

**Position(1)** | ** ** | **Year**   | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Stock**

**Awards** | ** ** | **Option**

**Awards** | ** ** | **Non-Equity**

**Incentive Plan**

**Compensation** | ** ** | **Change in  Pension Value**

**and Non-  Qualified  Deferred  Compensation**

**Earnings** | ** ** | **All Other  Compensation**

**(2)(3)** | ** ** | **Total** | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|-----------|------------|-----------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------|------------|
| ** **                                        | ** ** | ** ** | ** ** | **($)**    | ** ** | **($)**   | ** ** | **($)**               | ** ** | **($)**                | ** ** | **($)**                                                   | ** ** | **($)**                                                                                                    | ** ** | **($)**                                      | ** ** | **($)**   | ** ** |
| Jeffrey P. Jacobs                                 |       | 2008       |       | 562,500    |       | 250,000   |       |                  |       |                   |       |                                                      |       |                                                                                                       |       | 1,340,000                                    |       | 2,152,500 |       |
|                                              |       | 2007       |       | 500,000    |       | 167,000   |       |                  |       |                   |       |                                                      |       |                                                                                                       |       | 1,609,000                                    |       | 2,276,000 |       |
|                                              |       | 2006       |       | 500,000    |       | 250,000   |       |                  |       |                   |       |                                                      |       |                                                                                                       |       | 1,513,000                                    |       | 2,263,000 |       |
|                                              |       |       |       |       |       |      |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       |      |       |
| Stephen R. Roark                                  |       | 2008       |       | 457,816    |       | 133,000   |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 590,816   |       |
|                                              |       | 2007       |       | 406,134    |       | 129,188   |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 535,322   |       |
|                                              |       | 2006       |       | 370,529    |       | 140,000   |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 510,529   |       |
|                                              |       |       |       |       |       |      |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       |      |       |
| Ian M. Stewart                                    |       | 2008       |       | 300,661    |       | 65,000    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 365,661   |       |
|                                              |       | 2007       |       | 282,392    |       | 75,000    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 357,392   |       |
|                                              |       | 2006       |       | 264,769    |       | 50,000    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 314,769   |       |
|                                              |       |       |       |       |       |      |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       |      |       |
| Michael T. Shubic                                 |       | 2008       |       | 339,094    |       | 98,000    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 437,094   |       |
|                                              |       | 2007       |       | 314,192    |       | 93,303    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 407,495   |       |
|                                              |       | 2006       |       | 272,445    |       | 105,000   |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 377,445   |       |
|                                              |       |       |       |       |       |      |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       |      |       |
| Brett A. Kramer                                   |       | 2008       |       | 231,821    |       | 70,000    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 301,821   |       |
|                                              |       | 2007       |       | 205,320    |       | 64,594    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 269,914   |       |
|                                              |       | 2006       |       | 166,921    |       | 70,000    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 236,921   |       |
|                                              |       |       |       |       |       |      |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       |      |       |
| Stanley Politano                                  |       | 2008       |       | 171,440    |       | 49,000    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 220,440   |       |
|                                              |       | 2007       |       | 159,239    |       | 47,369    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 206,608   |       |
|                                              |       | 2006       |       | 150,951    |       | 54,250    |       |                  |       |                   |       |                                                      |       |                                                                                                       |       |                                         |       | 205,201   |       |

 

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(1)                                See Item 10 above which describes the principalpositions of the named executives.

 

(2)                                See Item 13 below which describes consultingfees paid to Jacobs Investments Management Co., Inc., an affiliate of Mr. Jacobs.

 

(3)                                Also see Director Compensation andItem 13 below that describe distributions to our owners during 2008, whichdirectly and indirectly benefited our Chief Executive Officer.

 

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***Employment Agreements***

 

Eachof our five executive officers, except our CEO, Jeffrey P. Jacobs, is a partyto an Executive Employment Agreement as follows:

 
| ** **         | ** ** | ** **                                   | ** ** | ** **              | ** ** | **Base Salary** | ** ** |
|--------------------|------------|----------------------------------------------|------------|-------------------------|------------|----------------------|------------|
| **Name**           | ** ** | **Title**                                    | ** ** | **Effective Date** | ** ** | **Year One**    | ** ** | **Year Two** | ** ** | **Year Three** | ** ** |
|               |       |                                         |       |                    |       |                 |       |   |   |   |   |
| Stephen R. Roark   |       | President                                    |       | December 5, 2006   |       | $                    | 400,000    |   | $ | 450,000 |   | $ | 475,000 |   |
|               |       |                                         |       |                    |       |                 |       |   |   |   |   |
| Michael T.  Shubic |       | Chief Operating Officer                      |       | July 1, 2006       |       | 300,000              |       | 325,000 |   | 350,000 |   |
|               |       |                                         |       |                    |       |                 |       |   |   |   |   |
| Ian M. Stewart     |       | President of Pari-Mutuel Wagering Operations |       | August 1, 2006     |       | 275,000              |       | 287,500 |   | 300,000 |   |
|               |       |                                         |       |                    |       |                 |       |   |   |   |   |
| Brett A. Kramer    |       | Chief Financial Officer                      |       | December 5, 2006   |       | 200,000              |       | 225,000 |   | 250,000 |   |
|               |       |                                         |       |                    |       |                 |       |   |   |   |   |
| Stanley Politano   |       | Executive Vice President                     |       | December 5, 2006   |       | 155,000              |       | 165,000 |   | 175,000 |   |
|                    |            |                                              |            |                         |            |                      |            |  |  |  |  |  |  |  |

 

Allemployment agreements are substantially identical except with respect to theamount of the executives’ respective salaries. Among the more importantprovisions of the agreements are the following:

 

(a)                                  the term of each agreement is three yearsfrom its effective date;

 

(b)                                 the base salaries are set forth above; inaddition, each executive is entitled to receive an annual bonus of up to 35% ofhis base salary if certain performance criteria (established each year) aremet;

 

(c)                                  the agreements provide that if the executiveis terminated without cause or dies, he or his estate is entitled to a lump sumpayment equal to six month’s salary and a pro rated portion of his bonus. Ifthere is a change in our control and the executive is not offered employmentsatisfactory to him, he is entitled to a lump sum payment equal to one year’ssalary except in the case of Mr. Roark who is entitled to a lump sumpayment equal to three year’s salary; and

 

(d)                                 each agreement contains customary provisionsregarding vacations, automobile benefits, insurance and expense reimbursements.

 

***Director Compensation***

 

Wehad two directors, Jeffrey P. Jacobs, who is also our CEO, and Richard E.Jacobs, his father. In 2008, Richard E. Jacobs was paid $187,500 for his serviceas a director. Effective October 15, 2008, Richard E. Jacobsresigned his position as a member of the Board of Directors of JEI. Our directors received no other compensationfor their services as directors.

 

As explained in Item 13 below, our stockholder received compensationfrom us in 2008 as a result of amounts accounted for as a distributionresulting from the sale of a certain Nautica Property. Additionally, annual distributions may be made to ourowners in an aggregate amount not to exceed the greater of $1 million and 50%of consolidated net income as defined in our credit agreement and indenture.Distributions to our stockholder totaled $1,800,000 in 2008, including $800,000for the purchase of Lot D.

 

Finally,under the terms of our bank credit agreement and note indenture, we are allowedto make a tax distribution to our stockholder to cover the tax on our incomewhich is taxable to our stockholder because of our Subchapter S status.

 

Theboard of directors has reviewed and discussed the foregoing CompensationDiscussion and Analysis with management and based thereon, the board ofdirectors has recommended that it be included in this Annual Report on Form 10-K.

 

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During2008, there were no interlocking relationships between any member of our boardof directors and any of our executive officers that would be required to bedisclosed under Item 407(e)(4) of Regulation S-K.

 

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

 

Asof March 1, 2009, there were 1,500 shares of our common stock outstandingdivided into 1,320 Class A shares and 180 Class B shares. The sharesare equal in all respects except that each Class B share entitles theholder to 50,000 votes on each matter required to be voted upon by ourshareholders. We have no equity compensation, stock option or similar plansrelating to our equity securities. All 1,500 shares (100%) of our issued andoutstanding common stock are owned by Jacobs Investments, Inc., a Delawarecorporation (“JII”).

 

Thefollowing table sets forth certain information regarding the beneficialownership of JII’s common stock as of March 1, 2009, for each stockholderwho is known by us to own beneficially more than 5% of JII’s common stock.

 
| ** **                                                                                                                                    | ** ** | **Number of Shares** | ** ** | **Percentage**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------------|------------|
| **Stockholder of JII**                                                                                                              | ** ** | **Class A**               | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Jeffrey P.  Jacobs(1)

Golden Bear  Plaza

East Tower

1170 U.S.  Highway One, Suite 600

North Palm  Beach, Florida 33408               |       | 528                            |       | —           |       | 32 | % | — |   |
|                                                                                                                                          |       |                           |       |             |       |   |   |   |   |
| Jacobs Family  Economic and Control Trusts(2)

Hahn  Loeser & Parks LLP

200 Public  Square, Suite 2800

Cleveland, Ohio  44114 |       | 792                            |       | 180              |       | 48 | % | 100 | % |
|                                                                                                                                          |       |                           |       |             |       |   |   |   |   |
| Richard E.  Jacobs Irrevocable Trust(3)

25425 Center  Ridge Road

Cleveland, Ohio  41445                                                     |       | 326                            |       | —           |       | 20 | % | — |   |
|                                                                                                                                          |       |                           |       |             |       |   |   |   |   |
| All executive  officers and directors as a group                                                                                              |       | 528                            |       | —           |       | 32 | % | — |   |

 

----

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

 

(2)                                The Jacobs Family Economic Trust owns 792 Class Ashares and the Jacobs Family Control Trust owns 180 Class B shares. Bothtrusts are dynasty trusts established by Jeffrey P. Jacobs for the benefit ofhis current and future heirs and place certain restrictions on the transfer ofthe shares by the trustee. The current trustee of both trusts is Stanley R.Gorom III, a partner in the Cleveland, Ohio law firm of Hahn Loeser &Parks LLP.

 

(3)                                Jeffrey P. Jacobs is the sole trustee of theRichard E. Jacobs Irrevocable Trust.

 

(4)                                The trusts referred to in the two precedingnotes are referred to herein collectively as the “Trusts.”

 

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**Item 13.****                                                   *****CertainRelationships and Related Transactions, and Director Independence.***

 

Inorder to assist us in our efforts to research, develop, perform due diligenceon and possibly acquire new gaming opportunities, we have a consultingagreement with Jacobs Investments Management Co. Inc. (“JIMCO”), 82% of whichis owned by Jeffrey P. Jacobs and the remaining 18% of which is owned in equalportions by two former directors of Colonial. On June 16, 2006, thisconsulting agreement was amended and restated retroactive to January 1,2006 for a period of 20 years, and calls for $1.25 million per year payable intwo equal installments of $625,000 on January 1st and July 1st each year plus two and one-half percent (2.5%)of budgeted development costs for projects undertaken by us, if certain debtcovenant ratios are met. Totals incurred under this agreement with JIMCO were$1,340,000, $1,609,000 and $1,513,000 for the years ended December 31,2008, 2007 and 2006, respectively.

 

We provide monthlymanagement and accounting services for various truck stops owned by GamecoHoldings, Inc. (“Gameco”), another wholly owned subsidiary of JII. Chargesto the affiliate for these management services totaled $1,157,000, $1,035,000,and $302,000 for the years ended December 31, 2008, 2007 and 2006,respectively. Additionally, we provide shared services such as a branded fuelcard that can be used at the truck stops owned both by us and Gameco, andrepair parts purchased by Gameco from us. These transactions result inreceivables from and payables to Gameco. As of December 31, 2008 and 2007,these transactions resulted in net payables to affiliate totaling $210,000 and$435,000, respectively. We expect to continue to render management andaccounting services to Gameco in the future. We believe the fees paid to us areno less favorable to us than those that would be paid to unaffiliated vendors.

 

We may invest up to$3 million per year in private or publicly traded securities ofunaffiliated companies. These investments may be selected and managed by JII,provided that under our senior credit agreement our pro forma consolidatedleverage ratio (ratio of our total pro forma debt to our pro forma EBITDA) mustbe 5.0 to 1.0 or less after giving effect to any such investment and providedthat under our note indenture our fixed charge coverage ratio (ratio of ourConsolidated EBITDA to our fixed charges, primarily interest) was at least 2.0to 1.0 for the preceding four quarter period; and provided further that to theextent that less than $3.0 million in the aggregate of such investmentsare made in any fiscal year, the unused amount may be used in the succeedingfiscal year, subject to the pro forma leverage condition just discussed.Furthermore, we may invest an aggregate amount not to exceed $5.0 million atany time outstanding.  At December 31,2008, we had invested $7,943,000 (cost) in the securities of an unaffiliatedpublic company; the market value of such securities at December 31, 2008was $1,367,000.

 

Gameco owns and has theright to acquire additional video gaming truck plazas in Louisiana. We have theright to purchase any existing or future video gaming facilities acquired byGameco at a price equal to (i) the lesser of (a) seven times trailing12 months EBITDA, and (b) the sum of the consideration paid by theaffiliated company plus or minus an adjustment for working capital and plus anamount equal to the trailing 12 months EBITDA, or (ii) an amountsupported by a fairness opinion by a nationally recognized accounting,investment banking or appraisal firm; provided that after giving effect to eachsuch acquisition and pro forma for contemplated expenditures, (x) theremust be at least $10,000,000 of undrawn availability under our revolving creditline, (y) we must be in pro forma compliance with all financial covenantsunder our credit agreements, and (z) we must maintain specified levelswith respect to our consolidated total leverage ratio. Any such acquisitions byus could result in significant profits to Gameco.

 

During July 2006, weacquired from affiliated parties several options to lease and options topurchase six parcels of land and certain improvements on the west bank of theCuyahoga River in Cleveland, Ohio. We refer to these properties, covering anaggregate of approximately 624,000 square feet of land (14.4 acres) and abuilding comprised of 47,380 square feet of net rentable space, as the NauticaProperties. The Nautica Properties currently require aggregate option paymentstotaling $200,000 per year.

 

During March 2008, we exercised our option toacquire one of these parcels referred to as “Lot D.”  On April 1,2008, we purchased this parcel for $800,000, which was accounted for as adistribution to our stockholder.  The company that owned this parcel ofland and parking lot business was wholly owned by our Chairman and ChiefExecutive Officer. Thenet assets acquired were $131,000, resulting in an effective net distributionof $669,000. Additionally, on January 15, 2009, we exercised ouroption to acquire another of these parcels referred to as “Sugar Warehouse,”and on January 21, 2009, we purchased this parcel for $2,575,000.  The company that owned this building was29.5% owned by our Chairman and Chief Executive Officer and 70.5% owned bythird parties.  An affiliate 

 

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(“Affiliate”) of our Chairman and Chief Executive Officer is thegeneral partner and a limited partner of the seller, a limitedpartnership.  Of the net proceeds fromthe sale, the Affiliate received approximately $80,000 (subject to increasedepending on tax adjustments) attributable to its partnership interests andrepayment to the Affiliate of a $504,000 loan.

 

The option agreements giveus the right until July 2010 to purchase one of the remaining parcels andthe right to purchase or enter into long-term leases on the remaining threeparcels. Our Chairman and Chief Executive Officer owns varying interests inthree of the four remaining parcels.  Theoption agreements may be extended.

 

Although we may elect not toexercise all the options unless casino gaming opportunities arise, wenonetheless have the right to acquire all or part of the Nautica Properties forother purposes. If casino gaming is not legalized but we decide to exercise ouroptions, the aggregate purchase price would be approximately $3.0 millionfor one of the parcels and the aggregate annual lease payments on the remainingthree parcels would be approximately $355,000. If all four remaining parcelsare purchased and none leased, the total purchase price would be approximately$7 million, less any aggregate option payments previously made. The purchaseprice and rent payments would be increased based on independent appraisals ofthe land and improvement values if, in the future, casino gaming were to becomelegalized in Ohio and a casino is licensed at Nautica.

 

**Director Independence**

 

We are a privately heldcompany wholly owned by Jacobs Investments, Inc. which in turn is ownedbeneficially by our director, Jeffrey P. Jacobs, who is also our ChiefExecutive Officer and several trusts created by him or his father, Richard E.Jacobs. Therefore, our board of directors is not independent, nor are anyindependence standards applicable to us as a result of stock exchange or anyother self regulatory organization’s requirements.

 

The transactions reported above were approved by ourtwo directors who were also the persons controlling JII, our solestockholder.  One director resigned on October 15,2008 leaving Jeffrey P. Jacobs, our Chief Executive Officer, as our soledirector.  Mr. Jacobs approves alltransactions required to be reported under this Item giving due regard to thecovenants in our bank credit agreement and in our note indenture.

 

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

 

Feespaid to our registered public accounting firm for the last two years were asfollows:

 
| ** **           | ** ** | **Year Ended**   | ** ** |
|----------------------|------------|-----------------------|------------|
| ** **           | ** ** | **December 31,** | ** ** |
| ** **           | ** ** | **2008**              | ** ** | **2007** | ** ** |
| Audit fees           |       | $                     | 1,100,000  |   | $ | 992,000 |   |
| Audit related  fees* |       | 29,000                |       | 21,000 |   |
| Tax fees**           |       | 334,000               |       | 271,000 |   |
| All other fees       |       | 122,000               |       | 258,000 |   |
|                      |            |                       |            |  |  |  |  |

 

----

*                                         Audit-related fees are comprised of our 401(k) auditsand fees.

 

**                                  Tax fees are principally comprised ofpreparation of federal and state corporate income tax returns, various statetax returns, and research and related tax consultation services.

 

Wehave no audit committee. Our board of directors considered and determined thatprovision of the services described above and amounts paid for those servicesare compatible with maintaining our principal accountant’s independence.

 

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

 

(a)                                  *Financial Statements andFinancial Statement Schedules*

 

(1)                                  Financial Statements filed herewith arelisted in the Index to Consolidated Financial Statements on page F-1 ofthis report.

 

(2)                                  No Financial Statement Schedules are includedherein because such schedules are not applicable, are not required, or becausethe required financial information is included in the Consolidated FinancialStatements or notes thereto.

 

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(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.                                            |
|                 |       |                                                                                                                                                                                              |
| 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. (merged  out of existence on December 31, 2007).                                                                                                  |
|                 |       |                                                                                                                                                                                              |
| 3.13(1)              |       | By-Laws of Jalou II Inc. (merged out of existence on  December 31, 2007).                                                                                                                    |
|                 |       |                                                                                                                                                                                              |
| 3.14(1)              |       | Articles of Incorporation of Winner’s Choice  Casino, Inc., now Cash Magic Winner’s Choice, LLC                                                                                    |
|                 |       |                                                                                                                                                                                              |
| 3.15(1)              |       | By-Laws of Winner’s Choice Casino, Inc., now  Cash Magic Winner’s Choice, LLC                                                                                                      |
|                 |       |                                                                                                                                                                                              |
| 3.16(1)              |       | Articles of Organization of Diversified  Opportunities Group Ltd. (dissolved December 31, 2007).                                                                                             |
|                 |       |                                                                                                                                                                                              |
| 3.17(1)              |       | Articles of Organization of Jalou L.L.C. (dissolved  December 31, 2007).                                                                                                                     |
|                 |       |                                                                                                                                                                                              |
| 3.18(1)              |       | Articles of Organization of Houma Truck  Plaza & Casino, L.L.C.                                                                                                                          |

 

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| 3.19(1)   |   | Articles of Organization of Jalou-Cash’s L.L.C.                                                                         |
|-----------|--------|------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                         |
| 3.20(1)   |   | Articles of Incorporation of JACE, Inc.  (converted to LLC, Exhibit 3.24).                                         |
|      |   |                                                                                                                         |
| 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 Organization of JACE, LLC (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.                                          |
|      |   |                                                                                                                         |
| 3.40(10)  |   | Certificate of Amendment of Certificate of  Incorporation of Jacobs Entertainment, Inc. dated September 27,  2005. |
|      |   |                                                                                                                         |
| 3.41(10)  |   | Articles of Incorporation of Jacobs Piñon Plaza  Entertainment, Inc. dated November 2, 2005.                  |
|      |   |                                                                                                                         |
| 3.41A(12) |   | Bylaws of Jacobs Piñon Plaza  Entertainment, Inc. dated November 8, 2005.                                     |
|      |   |                                                                                                                         |
| 3.42(12)  |   | Articles of Organization of Fuel Stop 36, LLC dated  August 24, 1989.                                                   |
|      |   |                                                                                                                         |
| 3.43(12)  |   | Articles of Organization of Jalou of Larose, LLC  dated November 3, 2005, now Cash Magic Larose, LLC.                   |
|      |   |                                                                                                                         |
| 3.44(12)  |   | Articles of Incorporation of Jacobs Elko  Entertainment, Inc.                                                           |

 

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| 3.45(12) |   | Bylaws of Jacobs Elko Entertainment, Inc.                                                      |
|----------|--------|-----------------------------------------------------------------------------------------------------|
|     |   |                                                                                                |
| 3.46(12) |   | Articles of Organization of Jacobs Dakota Works,  LLC.                                              |
|     |   |                                                                                                |
| 3.47(12) |   | Operating Agreement of Jacobs Dakota Works, LLC.                                                    |
|     |   |                                                                                                |
| 3.48(12) |   | Articles of Organization of Jalou Diamond L.L.C.                                                    |
|     |   |                                                                                                |
| 3.49(12) |   | Limited Liability Company Agreement of Jalou Diamond  L.L.C.                                        |
|     |   |                                                                                                |
| 3.50(12) |   | Articles of Organization of Jalou Magic L.L.C. (nka  Cash Magic Vinton, LLC).                       |
|     |   |                                                                                                |
| 3.51(12) |   | Limited Liability Company Agreement of Jalou Magic  L.L.C. (nka Cash Magic Vinton, LLC).            |
|     |   |                                                                                                |
| 3.52(12) |   | Articles of Organization of Jalou of Vinton-Bingo,  LLC.                                            |
|     |   |                                                                                                |
| 3.53(12) |   | Limited Liability Company Agreement of Jalou of  Vinton-Bingo, LLC.                                 |
|     |   |                                                                                                |
| 3.54(12) |   | Articles of Organization of Jalou of Vinton, LLC.                                                   |
|     |   |                                                                                                |
| 3.55(12) |   | Limited Liability Company Agreement of Jalou of  Vinton, LLC.                                       |
|     |   |                                                                                                |
| 3.56(12) |   | Articles of Organization of Jalou of St. Helena,  LLC. (nka Cash Magic St. Helena, LLC).            |
|     |   |                                                                                                |
| 3.57(12) |   | Limited Liability Company Agreement of Jalou of St.  Helena, LLC. (nka Cash Magic St. Helena, LLC). |
|     |   |                                                                                                |
| 3.58(12) |   | Amended and Restated Articles of Incorporation of  Jacobs Piñon Plaza Entertainment, Inc. |
|     |   |                                                                                                |
| 3.59(12) |   | Articles of Organization of Jalou of St. Martin,  L.L.C.                                            |
|     |   |                                                                                                |
| 3.60(12) |   | Limited Liability Company Agreement of Jalou of St.  Martin, L.L.C.                                 |
|     |   |                                                                                                |
| 3.61(12) |   | Limited Liability Company Agreement of Jalou L.L.C.  (dissolved as of December 31, 2007).      |
|     |   |                                                                                                |
| 3.62(12) |   | Operating Agreement of Houma Truck Plaza Stop and  Casino, L.L.C.                                   |
|     |   |                                                                                                |
| 3.63(12) |   | Limited Liability Company Agreement of Jalou-Cash’s  L.L.C.                                    |
|     |   |                                                                                                |
| 3.64(12) |   | Limited Liability Company Agreement of Lucky  Magnolia Truck Stop and Casino, L.L.C.                |
|     |   |                                                                                                |
| 3.65(12) |   | Limited Liability Company Agreement of Bayou Vista  Truck Plaza and Casino, L.L.C.                  |
|     |   |                                                                                                |
| 3.66(12) |   | Limited Liability Company Agreement of Raceland  Truck Plaza and Casino, L.L.C.                     |
|     |   |                                                                                                |
| 3.67(12) |   | Limited Liability Company Agreement of Jalou Breaux  Bridge, LLC.                                   |
|     |   |                                                                                                |
| 3.68(12) |   | Limited Liability Company Agreement of Jalou of  Eunice, LLC.                                       |
|     |   |                                                                                                |
| 3.69(12) |   | Limited Liability Company Agreement of Jalou of  Jefferson, LLC.                                    |
|     |   |                                                                                                |
| 3.70(12) |   | Limited Liability Company Agreement of Jalou of  Larose, LLC, now Cash Magic Larose, LLC.           |
|     |   |                                                                                                |
| 3.71(12) |   | Articles of Organization of Colonial Downs, LLC.                                                    |
|     |   |                                                                                                |
| 3.72(12) |   | Operating Agreement of Colonial Downs, LLC.                                                         |

 

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| 3.73(12)  |   | Articles of Organization of JRJ Properties, LLC.                                                                                                                                                                                                                                                                                 |
|-----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.74(12)  |   | Limited Liability Company Agreement of JRJ  Properties, LLC.                                                                                                                                                                                                                                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.75(12)  |   | Articles of Organization of Virginia Concessions,  LLC.                                                                                                                                                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.76(12)  |   | Amended and Restated Operating Agreement of Virginia  Concessions, LLC.                                                                                                                                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.77A(12) |   | Articles of Amendment to the Articles of  Incorporation of Old Dominion Racing Association, Inc.                                                                                                                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.77B(12) |   | Articles of Amendment to the Articles of  Incorporation of Old Dominion Racing Association, Inc.                                                                                                                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.77C(12) |   | Articles of Amendment to the Articles of  Incorporation of Old Dominion Jockey Club, Inc.                                                                                                                                                                                                                                   |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.77D(12) |   | Articles of Amendment to the Articles of  Incorporation of Maryland-Virginia Racing Circuit, Inc.                                                                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.78(17)  |   | Articles of Organization of Jalou Fox, LLC dated  November 14, 2005.                                                                                                                                                                                                                                                        |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.79(17)  |   | Limited Liability Company Agreement of Jalou Fox,  LLC dated September 1, 2005.                                                                                                                                                                                                                                             |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.80(19)  |   | Articles of Organization of Jalou Silver Dollar,  LLC.                                                                                                                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.81(19)  |   | Limited Liability Company Agreement of Jalou Silver  Dollar, LLC.                                                                                                                                                                                                                                                                |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.82(20)  |   | Certificate of Incorporation of Jacobs Nautica  Development, Inc.                                                                                                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.83(20)  |   | Bylaws of Jacobs Nautica Development, Inc.                                                                                                                                                                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.84(22)  |   | Certificate of Formation of Diamondhead Real Estate,  LLC                                                                                                                                                                                                                                                                        |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.85(22)  |   | Limited Liability Company Agreement of Diamondhead  Real Estate, LLC                                                                                                                                                                                                                                                             |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.86(22)  |   | Articles of Organization of JEI Distributing, LLC                                                                                                                                                                                                                                                                                |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.87(22)  |   | Limited Liability Company Agreement of JEI  Distributing, LLC                                                                                                                                                                                                                                                                    |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.88(22)  |   | Certificate of Incorporation of Jacobs Sugar  Warehouse, Inc.                                                                                                                                                                                                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 3.89(22)  |   | Bylaws of Jacobs Sugar Warehouse, Inc.                                                                                                                                                                                                                                                                                      |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 4.1(13)   |   | Trust Indenture Agreement by and between Jacobs  Entertainment, Inc. and Wells Fargo Bank, as Trustee, dated  June 16, 2006.                                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 4.2(13)   |   | Registration Rights Agreement by and between Jacobs  Entertainment, Inc. and Credit Suisse Securities (USA) LLC, CIBC World  Markets Corp., Libra Securities, LLC, Wells Fargo Securities, LLC and KeyBanc  Capital Markets, a Division of McDonald Investments Inc., as the initial  purchasers, dated June 16, 2006. |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 4.3(12)   |   | Pledge Agreement dated as of June 16, 2006 by  and among Jacobs Entertainment, Inc., Black Hawk Gaming &  Development Company, Inc. and Credit Suisse, Cayman Islands Branch.                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                             |
| 4.4(12)   |   | Guarantee Agreement dated as of June 16, 2006,  by and among Jacobs Entertainment, Inc., certain of the subsidiaries of  Jacobs Entertainment, Inc. and Credit Suisse, Cayman Islands Branch.                                                                                                                     |

 

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| 4.5(12)  |   | Security Agreement dated as of June 16, 2006,  made by Jacobs Entertainment, Inc. and each of the guarantors listed on  the signature pages or from time to time a party by execution of a  joinder agreement, as pledgors, assignors and debtors in favor of Credit  Suisse, Cayman Islands Branch, in its capacity as collateral agent for the  Secured Parties pursuant to the Credit Agreement. |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.6(12)  |   | Contribution Agreement dated June 16, 2006, by  and among Jacobs Entertainment, Inc. and affiliates of Jacobs  Entertainment, Inc.                                                                                                                                                                                                                                                                  |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.7(12)  |   | Custodian Agreement dated as of June 16, 2006,  by and between Dunham Trust Company, 1 East Liberty Street, Sixth Floor,  Reno, NV 89504, as custodian, Credit Suisse, Cayman Islands Branch as  Collateral Agent under the Credit Agreement, Jacobs Entertainment, Inc.,  as the Borrower under the Credit Agreement and Blackhawk Gaming & Development  Company, Inc.                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.8(12)  |   | Form of Jacobs Entertainment, Inc. 9.75%  Rule 144A Global Note due 2014.                                                                                                                                                                                                                                                                                                                           |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.9(12)  |   | Form of Jacobs Entertainment, Inc. 9.75%  Regulation S Global Note due 2014.                                                                                                                                                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.10(12) |   | Form of Jacobs Entertainment, Inc. 9.75%  IAI Global Note due 2014.                                                                                                                                                                                                                                                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.11(12) |   | Intercompany Note dated as of June 16, 2006 by  and among Jacobs Entertainment, Inc., and Credit Suisse, Cayman Islands  Branch.                                                                                                                                                                                                                                                                         |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.12(12) |   | Purchase Agreement dated June 9, 2006 by and  among Jacobs Entertainment, Inc. and Credit Suisse Securities (USA) LLC,  on behalf of the purchasers of the $210,000,000 9.75% Senior Notes.                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 4.13(12) |   | Pledge Agreement dated June 16, 2006 by and  among Jacobs Entertainment, Inc., Black Hawk Gaming &  Development Company, Inc. and Canadian Imperial Bank of Commerce, acting  through its New York Agency.                                                                                                                                                                                 |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.1(3)  |   | Deed of Lease dated May 8, 2003 between Haynes  Chippenham Plaza, LLC and Colonial Downs, L.P.                                                                                                                                                                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.2(10) |   | Asset Purchase Agreement dated November 2, 2005  among Capital City Entertainment, Inc. and Jacobs Piñon Plaza  Entertainment, Inc.                                                                                                                                                                                                                                                            |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.3(12) |   | Piñon Plaza Ground Lease dated June 26, 2006 by  and between Clark G. Russell and Jean M. Russell, Trustees of The Clark and  Jean Russell Family Trust and Jacobs Entertainment, Inc.                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.4(11) |   | Triple Net Lease dated November 14, 2005 among  Route 225 Investments, LLC and Jacobs Entertainment, Inc.                                                                                                                                                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.5(13) |   | Ground Lease and Option Purchase Agreement dated  September 12, 2005 between Dakota/Blackhawk, LLC and Jacobs  Entertainment, Inc.                                                                                                                                                                                                                                                                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.6(13) |   | Thoroughbred Horseman’s Agreement dated  January 1, 2005 between Colonial Downs, L.P., Stansley Racing Corp. and  The Virginia Horsemen’s Benevolent and Protective Association, Inc.                                                                                                                                                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.7(13) |   | Shopping Center Lease dated February 28, 2005  between Jay F. Wilks, Trustee under Indenture dated December 20, 1976 by  and between Herbert Cashvan and Marvin Simon, as Settlors, and Jay F. Wilks  as Trustee, and Colonial Downs, L.P.                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.8(12) |   | Standardbred Horsemen’s Contract effective  March 1, 2006 among Colonial Downs L.P., Stansley Racing Corp. and The  Virginia Harness Horse Association.                                                                                                                                                                                                                                                  |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.9(12) |   | Membership Interests  Purchase Agreement dated May 16, 2006 by and between Gameco  Holdings, Inc. and Jacobs Entertainment, Inc.                                                                                                                                                                                                                                                                    |

 

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| 10.10A(12) |   | Asset Purchase Agreement dated  May 17, 2006 between Feliciana Ventures, Inc., Forest Gold Truck  Plaza and Casino, L.L.C., St. Helena Express & Casino, L.L.C.,  Seabuckle Gaming, Inc., Janice M. Penn and Minnie L. Hughes, as Sellers,  Claude M. Penn, Jr., and Gameco Holdings, Inc. as Purchaser.  (Assigned as to St. Helena to Jacobs Entertainment, Inc.).                                                                                                                        |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.10B(12) |   | First Amendment to Asset Purchase  Agreement dated July 12, 2006 between Feliciana Ventures, Inc.,  Forest Gold Truck Plaza and Casino, L.L.C., St. Helena Express &  Casino, L.L.C., Seabuckle Gaming, Inc., Janice M. Penn and Minnie L.  Hughes, as Sellers, Claude M. Penn, Jr., and Gameco Holdings, Inc.  as Purchaser. (Assigned as to St. Helena to Jacobs Entertainment, Inc.).                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.11(14)  |   | Credit Agreement by and between Jacobs  Entertainment, Inc., Credit Suisse Securities (USA) LLC and CIBC World  Markets Corp., as Joint Lead Arrangers and Joint Bookrunners, and CIBC World  Markets Corp., as Syndication Agent, and Wells Fargo Bank, National  Association, as Documentation Agent and Swingline Lender, and CIT Lending  Services Corporation, as Documentation Agent, and Credit Suisse, Cayman  Islands Branch, as Issuing Bank, Administrative Agent and Collateral Agent,  dated June 16, 2006. |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.12(12)  |   | Consulting Agreement dated January 1, 2006 and  amended June 16, 2006, by and among Jacobs Entertainment, Inc. and  Jacobs Investments Management Co., Inc.                                                                                                                                                                                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.13(12)  |   | Fourth Amendment to Option  Purchase Agreement dated May 15, 2006 between Dakota/Blackhawk, LLC and  Jacobs Entertainment, Inc.                                                                                                                                                                                                                                                                                                                                                                                          |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.14(12)  |   | Option Agreement dated  July 11, 2006 between Jacobs Entertainment, Inc. and Nautica Phase  2 Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.15(12)  |   | Option Agreement dated July 11, 2006 between  Jacobs Entertainment, Inc. and Jacobs Lot D, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.16(12)  |   | Option Agreement dated April 18, 2006 between  Jacobs Entertainment, Inc. and Flats Development, Inc.                                                                                                                                                                                                                                                                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.17(12)  |   | Option Agreement dated July 11, 2006 between  Jacobs Entertainment, Inc. and Sycamore & Main, Inc.                                                                                                                                                                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.18(12)  |   | Option Agreement dated  July 11, 2006 between Jacobs Entertainment, Inc. and Nautica  Peninsula Land Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.19(12)  |   | Option Agreement dated July 11, 2006 between  Jacobs Entertainment, Inc. and Sugar Warehouse Limited Partnership.                                                                                                                                                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.20(12)  |   | Lease and Option to Purchase Agreement dated  June 21, 2006 by and between Curray Corporation, Texas Pelican, LLC and  Jalou of Vinton, LLC.                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.21(12)  |   | Amendments to Thoroughbred Horsemen’s Agreements,  dated May 11, 2006, by and between Colonial Downs, L.P. and The Virginia  Horsemen’s Benevolent and Protective Association, Inc.                                                                                                                                                                                                                                                                                                                            |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.22(12)  |   | Amendment to Standard Horsemen’s Agreements, dated  May 26, 2006, by and between Colonial Downs, L.P. and The Virginia  Harness Horse Association.                                                                                                                                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.23(16)  |   | Executive Employment Agreement dated  December 5, 2006 between Jacobs Entertainment, Inc. and Stephen R.  Roark.                                                                                                                                                                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.24(16)  |   | Executive Employment Agreement effective  July 1, 2006 between Jacobs Entertainment, Inc. and Michael T.  Shubic.                                                                                                                                                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.25(16)  |   | Executive Employment Agreement effective  August 1, 2006 between Jacobs Entertainment, Inc. and Ian M.  Stewart.                                                                                                                                                                                                                                                                                                                                                                                                         |

 

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| 10.26(16)  |   | Executive Employment Agreement dated  December 5, 2006 between Jacobs Entertainment, Inc. and Brett  Kramer.                             |
|------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                               |
| 10.27(16)  |   | Executive Employment Agreement dated  December 5, 2006 between Jacobs Entertainment, Inc. and Stanley  Politano.                         |
|       |   |                                                                                                                                               |
| 10.28(17)  |   | Membership Interests Purchase Agreement dated  August 20, 2007 by and between Gameco Holdings, Inc. and Jacobs  Entertainment, Inc. |
|       |   |                                                                                                                                               |
| 10.28A(18) |   | Amendment No. 1 dated May 4, 2007 to  Credit Agreement among Jacobs Entertainment, Inc. and various lenders.                        |
|       |   |                                                                                                                                               |
| 10.29(19)  |   | Asset Purchase Agreement dated October 4, 2006  regarding the Silver Dollar Truck Plaza.                                                      |
|       |   |                                                                                                                                               |
| 10.30(20)  |   | Purchase Agreement dated March 14, 2008  regarding Jacobs Lot D, Inc.                                                                    |
|       |   |                                                                                                                                               |
| 10.31(21)  |   | Amendment No. 2 dated February 5, 2009 to  Credit Agreement among Jacobs Entertainment, Inc. and various lenders.                   |
|       |   |                                                                                                                                               |
| 12(22)     |   | Computation of Ratio of Earnings to Fixed Charges.                                                                                                 |
|       |   |                                                                                                                                               |
| 14.1(19)   |   | Code of Ethics (as revised).                                                                                                                       |
|       |   |                                                                                                                                               |
| 21.2(22)   |   | Subsidiaries of Jacobs Entertainment, Inc.                                                                                                    |
|       |   |                                                                                                                                               |
| 25.1(12)   |   | Statement of Eligibility of Trustee on  Form T-1.                                                                                             |
|       |   |                                                                                                                                               |
| 31.1(22)   |   | Chief Executive Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002.                                                   |
|       |   |                                                                                                                                               |
| 31.2(22)   |   | Chief Financial Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002.                                                   |
|       |   |                                                                                                                                               |
| 32.1(22)   |   | Chief Executive Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002.                                                   |
|       |   |                                                                                                                                               |
| 32.2(22)   |   | Chief Financial Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002.                                                   |

 

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----

| (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)  |   | Incorporated hereby by reference from our  Form 10-K filed March 28, 2005.                                                                                            |
| (9)  |   | Incorporated hereby by reference from our Report on  Form 8-K filed on March 4, 2005.                                                                                 |
| (10) |   | Incorporated by reference from our Form 10-Q  filed November 14, 2005.                                                                                                |
| (11) |   | Incorporated hereby by reference from our Report on  Form 8-K filed on November 15, 2005.                                                                             |
| (12) |   | Incorporated hereby by reference from our  registration statement on Form S-4 (SEC Registration  No. 333-136066) filed on July 27, 2006.                         |
| (13) |   | Incorporated hereby by reference from our  Form 8-K filed on March 23, 2006.                                                                                          |
| (14) |   | Incorporated hereby by reference from our  Form 8-K filed on June 22, 2006.                                                                                           |
| (15) |   | Incorporated hereby by reference from our  Form 10-K filed on March 29, 2006.                                                                                         |
| (16) |   | Incorporated hereby by reference from our Form 8-K  filed on December 8, 2006.                                                                                        |
| (17) |   | Incorporated hereby by reference from our  Form 8-K filed on September 6, 2007.                                                                                       |
| (18) |   | Incorporated hereby by reference from our  Form 8-K filed on May 10, 2007.                                                                                            |
| (19) |   | Incorporated hereby by reference from our Form 10-K  filed on March 26, 2008.                                                                                         |
| (20) |   | Incorporated hereby by reference from our  Form 10-Q filed on May 13, 2008.                                                                                           |
| (21) |   | Incorporated hereby by reference from our  Form 8-K filed on February 6, 2009.                                                                                        |
| (22) |   | Filed herewith.                                                                                                                                                                 |

 

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**SIGNATURES**

 

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

 
|       | JACOBS ENTERTAINMENT, INC. |
|------------|----------------------------|
|       |                       |
|       | By:                        | /s/ JEFFREY P. JACOBS |
| ** ** | ** **                 | **Jeffrey  P. Jacobs** |
| ** ** | ** **                 | **Chief  Executive Officer** |
| ** ** | ** **                 | ** ** |
|       | By:                        | /s/ BRETT A. KRAMER |
| ** ** | ** **                 | **Brett  A. Kramer** |
| ** ** | ** **                 | **Chief  Financial Officer** |

 

Date: March 18, 2009

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 

| **Signature**          | ** ** | **Title**                                       | ** ** | **Date**            |
|------------------------|------------|-------------------------------------------------|------------|---------------------|
|                   |       |                                            |       |                |
| /s/ JEFFREY P. JACOBS  |       | Chairman of the Board of Directors and Chief    |       | March 18, 2009 |
| **Jeffrey  P. Jacobs** |       | Executive Officer (Principal Executive Officer) |       |                |
|                   |       |                                            |       |                |
| /s/ BRETT A. KRAMER    |       | Chief Financial Officer                         |       | March 18, 2009 |
| **Brett  A. Kramer**   |       | (Principal Financial and Accounting Officer)    |       |                |
|                   |       |                                            |       |                |

 

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***Jacobs Entertainment, Inc.***

 

*Consolidated Financial Statements as of December 31,2008 and 2007, and for the Years Ended December 31, 2008, 2007 and 2006,and Report of Independent Registered Public Accounting Firm*

 

----

**Table ofContents**

 

**REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

** **

To the Board of Directorsand Stockholder ofJacobs Entertainment, Inc.Golden, Colorado

 

We have audited theaccompanying consolidated balance sheets of Jacobs Entertainment, Inc. andsubsidiaries (the “Company”) as of December 31, 2008 and 2007, and therelated consolidated statements of operations, stockholder’s equity, and cashflows for each of the three years in the period ended December 31, 2008.These financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements basedon our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. The Company is not required to have, nor were weengaged to perform, an audit of its internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Jacobs Entertainment, Inc. and subsidiaries as of December 31,2008 and 2007, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2008, inconformity with accounting principles generally accepted in the United Statesof America.

 
| /s/ Deloitte & Touche LLP |   |
|------------------------------------|--------|
|                               |   |
| Denver, Colorado                   |   |
| March 18, 2009                |   |

 

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**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**AS OF DECEMBER 31, 2008 AND 2007**

**(Dollars in thousands)**

 
| ** **                                                                                                                                      | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **ASSETS**                                                                                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT ASSETS:                                                                                                                                 |       |       |       |       |       |
| Cash and cash  equivalents                                                                                                                      |       | $          | 21,790     |       | $          | 24,397 |   |
| Restricted cash                                                                                                                                 |       | 1,423      |       | 1,398      |       |
| Accounts  receivable, net of allowance for doubtful accounts of $740 and $521,  respectively                                                    |       | 2,967      |       | 3,609      |       |
| Inventory                                                                                                                                       |       | 3,421      |       | 3,328      |       |
| Prepaid expenses  and other current assets                                                                                                      |       | 2,951      |       | 2,785      |       |
| Total current  assets                                                                                                                           |       | 32,552     |       | 35,517     |       |
| PROPERTY, PLANT  AND EQUIPMENT:                                                                                                                 |       |       |       |       |       |
| Land and  improvements                                                                                                                          |       | 59,451     |       | 56,372     |       |
| Buildings and  improvements                                                                                                                     |       | 181,468    |       | 177,716    |       |
| Equipment,  furniture and fixtures                                                                                                              |       | 87,332     |       | 80,999     |       |
| Leasehold  improvements                                                                                                                         |       | 1,625      |       | 2,460      |       |
| Construction in  progress                                                                                                                       |       | 945        |       | 837        |       |
|                                                                                                                                            |       | 330,821    |       | 318,384    |       |
| Less accumulated  depreciation                                                                                                                  |       | (86,214    | )          | (69,683    | )          |
| Property, plant  and equipment, net                                                                                                             |       | 244,607    |       | 248,701    |       |
| OTHER NONCURRENT  ASSETS:                                                                                                                       |       |       |       |       |       |
| Goodwill                                                                                                                                        |       | 46,471     |       | 46,670     |       |
| Identifiable  intangible assets, net                                                                                                            |       | 9,192      |       | 9,491      |       |
| Debt issue  costs, net                                                                                                                          |       | 6,795      |       | 8,276      |       |
| Investment in  equity securities                                                                                                                |       | 1,367      |       | 5,524      |       |
| Other assets                                                                                                                                    |       | 1,545      |       | 1,736      |       |
| Total other  noncurrent assets                                                                                                                  |       | 65,370     |       | 71,697     |       |
| TOTAL                                                                                                                                           |       | $          | 342,529    |       | $          | 355,915 |   |
|                                                                                                                                            |       |       |       |       |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT  LIABILITIES:                                                                                                                           |       |       |       |       |       |
| Accounts payable  and accrued expenses                                                                                                          |       | $          | 21,638     |       | $          | 22,713 |   |
| Gaming taxes  payable                                                                                                                           |       | 3,195      |       | 3,279      |       |
| Interest payable                                                                                                                                |       | 992        |       | 1,027      |       |
| Due to affiliate                                                                                                                                |       | 210        |       | 435        |       |
| Current portion  of long-term debt and capital lease obligations                                                                                |       | 1,339      |       | 1,301      |       |
| Total current  liabilities                                                                                                                      |       | 27,374     |       | 28,755     |       |
|                                                                                                                                            |       |       |       |       |       |
| Long-term debt  and capital lease obligations                                                                                                   |       | 289,358    |       | 298,045    |       |
| Other noncurrent  liabilities                                                                                                                   |       | 891        |       | 690        |       |
| Total  liabilities                                                                                                                              |       | 317,623    |       | 327,490    |       |
| COMMITMENTS AND  CONTINGENCIES (Note 8)                                                                                                         |       |       |       |       |       |
| STOCKHOLDER’S  EQUITY:                                                                                                                     |       |       |       |       |       |
| Class A  Common stock, $.01 par value; 1,800 shares authorized, 1,320 shares issued  and outstanding as of December 31, 2008 and 2007 |       | —     |       | —     |       |
| Class B  Common stock, $.01 par value; 200 shares authorized, 180 shares issued and  outstanding as of December 31, 2008 and 2007     |       | —     |       | —     |       |
| Additional  paid-in capital                                                                                                                     |       | 30,251     |       | 32,051     |       |
| Accumulated  deficit                                                                                                                            |       | (5,345     | )          | (1,207     | )          |
| Accumulated  other comprehensive loss                                                                                                           |       | —     |       | (2,419     | )          |
| Total  stockholder’s equity                                                                                                                |       | 24,906     |       | 28,425     |       |
| TOTAL                                                                                                                                           |       | $          | 342,529    |       | $          | 355,915 |   |

 

Seenotes to consolidated financial statements.

 

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**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**FOR THEYEARS ENDED DECEMBER 31, 2008, 2007 and 2006**

**(Dollars inthousands)**

 
| ** **                                                       | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **REVENUES**                                                     |       |     |       |     |       |     |       |
| Gaming:                                                          |       |     |       |     |       |     |       |
| Casino                                                           |       | $        | 139,492    |     | $          | 144,656  |       | $ | 121,483 |   |
| Truck stop                                                       |       | 67,590   |       | 64,322   |       | 66,418   |       |
| Pari-mutuel                                                      |       | 38,657   |       | 41,309   |       | 39,787   |       |
| Food and  beverage                                               |       | 30,736   |       | 29,260   |       | 25,069   |       |
| Convenience  store—fuel                                     |       | 97,021   |       | 81,329   |       | 77,520   |       |
| Convenience  store—other                                    |       | 12,908   |       | 11,133   |       | 10,611   |       |
| Hotel                                                            |       | 4,101    |       | 4,415    |       | 3,509    |       |
| Other                                                            |       | 5,737    |       | 5,387    |       | 4,451    |       |
| Total revenues                                                   |       | 396,242  |       | 381,811  |       | 348,848  |       |
| Less:  Promotional allowances                                    |       | (33,718  | )          | (31,953  | )          | (26,438  | )          |
| Net revenues                                                     |       | 362,524  |       | 349,858  |       | 322,410  |       |
|                                                             |       |     |       |     |       |     |       |
| **COSTS  AND EXPENSES**                                          |       |     |       |     |       |     |       |
| Gaming:                                                          |       |     |       |     |       |     |       |
| Casino                                                           |       | 46,809   |       | 48,427   |       | 43,567   |       |
| Truck stop                                                       |       | 40,990   |       | 37,954   |       | 37,621   |       |
| Pari-mutuel                                                      |       | 31,172   |       | 32,977   |       | 32,559   |       |
| Food and  beverage                                               |       | 15,417   |       | 16,416   |       | 13,704   |       |
| Convenience  store—fuel                                     |       | 90,714   |       | 77,269   |       | 73,389   |       |
| Convenience  store—other                                    |       | 17,222   |       | 15,175   |       | 14,283   |       |
| Hotel                                                            |       | 1,038    |       | 1,115    |       | 734      |       |
| Marketing, general  and administrative                           |       | 68,533   |       | 69,342   |       | 60,787   |       |
| Loss on change  in fair value of investment in equity securities |       | 6,577    |       | —   |       | —   |       |
| Goodwill  impairment                                             |       | 199      |       | —   |       | —   |       |
| Abandonment  costs                                               |       | 829      |       | —   |       | —   |       |
| Depreciation and  amortization                                   |       | 19,935   |       | 18,104   |       | 14,105   |       |
|                                                             |       |     |       |     |       |     |       |
| Total costs and  expenses                                        |       | 339,435  |       | 316,779  |       | 290,749  |       |
|                                                             |       |     |       |     |       |     |       |
| OPERATING INCOME                                                 |       | 23,089   |       | 33,079   |       | 31,661   |       |
|                                                             |       |     |       |     |       |     |       |
| Interest income                                                  |       | 194      |       | 345      |       | 382      |       |
| Interest  expense, net of amounts capitalized                    |       | (27,421  | )          | (28,412  | )          | (32,653  | )          |
| Pre-payment  penalties, tender and consent costs                 |       | —   |       | —   |       | (9,321   | )          |
|                                                             |       |     |       |     |       |     |       |
| (LOSS) INCOME  BEFORE INCOME TAXES                               |       | (4,138   | )          | 5,012    |       | (9,931   | )          |
|                                                             |       |     |       |     |       |     |       |
| Income tax  benefit                                              |       | —   |       | —   |       | 103      |       |
|                                                             |       |     |       |     |       |     |       |
| NET (LOSS)  INCOME                                               |       | $        | (4,138     | )        | $          | 5,012    |       | $ | (9,828 | ) |

 

See notes to consolidatedfinancial statements.

 

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**JACOBSENTERTAINMENT, INC.****AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDER’S EQUITY**

**FOR THEYEARS ENDED DECEMBER 31, 2008, 2007 and 2006**

**(Dollars in thousands)**

 
| ** **                                                    | ** ** | **Common Stock**    | ** ** | **Additional**           | ** ** | **Retained  Earnings** | ** ** | **Accumulated**

**Other** | ** ** | ** **                     | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|------------------------|------------|----------------------------|------------|--------------------------------|------------|
| ** **                                                    | ** ** | **Class A  Shares** | ** ** | **Class B  Shares** | ** ** | **Amount***            | ** ** | **Paid-in  Capital**       | ** ** | **(Accumulated**

**Deficit)** | ** ** | **Comprehensive**

**Income (Loss)** | ** ** | **Total** | ** ** |
| BALANCES,  JANUARY 1, 2006                               |       | 1,320                    |       | 180                      |       | $                      | —     |                       | $          | 57,039                         |       | $ | 14,083 |   |   |   | $ | 71,122 |   |
| Capital  contribution                                         |       |                     |       |                     |       |                   |       | 6,276                      |       |                           |       |   |   | 6,276 |   |
| Distributions                                                 |       |                     |       |                     |       |                   |       | (27,704                    | )          | (6,501                         | )          |   |   | (34,205 | ) |
| Comprehensive  income (loss):                                 |       |                     |       |                     |       |                   |       |                       |       |                           |       |   |   |   |   |
| Change in fair  value of equity securities available-for-sale |       |                     |       |                     |       |                   |       |                       |       |                           |       | $ | 1,999 |   | 1,999 |   |
| Net loss                                                      |       |                     |       |                     |       |                   |       |                       |       | (9,828                         | )          |   |   | (9,828 | ) |
| Total  comprehensive loss                                     |       |                     |       |                     |       |                   |       |                       |       |                           |       |   |   | (7,829 | ) |
| BALANCES,  DECEMBER 31, 2006                                  |       | 1,320                    |       | 180                      |       | $                      | —     |                       | $          | 35,611                         |       | $ | (2,246 | ) | $ | 1,999 |   | $ | 35,364 |   |
| Capital  contribution                                         |       |                     |       |                     |       |                   |       | 8,910                      |       |                           |       |   |   | 8,910 |   |
| Distributions                                                 |       |                     |       |                     |       |                   |       | (12,470                    | )          | (3,973                         | )          |   |   | (16,443 | ) |
| Comprehensive  income (loss):                                 |       |                     |       |                     |       |                   |       |                       |       |                           |       |   |   |   |   |
| Change in fair  value of equity securities available-for-sale |       |                     |       |                     |       |                   |       |                       |       |                           |       | (4,418 | ) | (4,418 | ) |
| Net income                                                    |       |                     |       |                     |       |                   |       |                       |       | 5,012                          |       |   |   | 5,012 |   |
| Total  comprehensive income                                   |       |                     |       |                     |       |                   |       |                       |       |                           |       |   |   | 594 |   |
| BALANCES,  DECEMBER 31, 2007                                  |       | 1,320                    |       | 180                      |       | $                      | —     |                       | $          | 32,051                         |       | $ | (1,207 | ) | $ | (2,419 | ) | $ | 28,425 |   |
| Distributions                                                 |       |                     |       |                     |       |                   |       | (1,800                     | )          |                           |       |   |   | (1,800 | ) |
| Comprehensive  income (loss):                                 |       |                     |       |                     |       |                   |       |                       |       |                           |       |   |   |   |   |
| Change in fair  value of equity securities (Note 6)           |       |                     |       |                     |       |                   |       |                       |       |                           |       | 2,419 |   | 2,419 |   |
| Net loss                                                      |       |                     |       |                     |       |                   |       |                       |       | (4,138                         | )          |   |   | (4,138 | ) |
| Total  comprehensive loss                                     |       |                     |       |                     |       |                   |       |                       |       |                           |       |   |   | (1,719 | ) |
| BALANCES,  DECEMBER 31, 2008                                  |       | 1,320                    |       | 180                      |       | $                      | —     |                       | $          | 30,251                         |       | $ | (5,345 | ) | $ | — |   | $ | 24,906 |   |

 

----

*                                        Thepar value amount of Jacobs Entertainment, Inc. common stock outstandingfor the periods presented is less than $500 and is therefore presented as $0above due to rounding.

 

See notes to consolidatedfinancial statements.

 

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**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006**

**(Dollars in thousands)**

 
| ** **                                                                                            | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **OPERATING  ACTIVITIES:**                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net (loss)  income                                                                                    |       | $          | (4,138     | )          | $          | 5,012      |       | $ | (9,828 | ) |
| Adjustments to  reconcile net (loss) income to net cash provided by operating activities:             |       |       |       |       |       |       |       |
| Depreciation and  amortization                                                                        |       | 19,935     |       | 18,104     |       | 14,105     |       |
| Goodwill  impairment                                                                                  |       | 199        |       | —     |       | —     |       |
| Loss on change  in fair value of investment in equity securities                                      |       | 6,577      |       | —     |       | —     |       |
| Loss (gain) on  sale of equipment                                                                     |       | 240        |       | (115       | )          | 201        |       |
| Deferred  financing cost amortization and write-off                                                   |       | 1,481      |       | 1,510      |       | 7,508      |       |
| Note issue  discount amortization and write-off                                                       |       | —     |       | —     |       | 2,189      |       |
| Note issue  premium amortization and write-off                                                        |       | —     |       | —     |       | (1,811     | )          |
| Noncash abandonment  costs                                                                            |       | 782        |       | —     |       | —     |       |
| Other                                                                                                 |       | (75        | )          | 55         |       | 385        |       |
| Changes in  operating assets and liabilities, net of acquisitions:                                    |       |       |       |       |       |       |       |
| Restricted cash                                                                                       |       | (25        | )          | (447       | )          | 564        |       |
| Accounts  receivable, net                                                                             |       | 642        |       | 1,137      |       | (1,737     | )          |
| Inventory                                                                                             |       | (93        | )          | (608       | )          | (250       | )          |
| Prepaid expenses  and other assets                                                                    |       | 11         |       | 172        |       | (233       | )          |
| Accounts payable  and accrued expenses                                                                |       | 524        |       | 2,584      |       | 2,886      |       |
| Gaming taxes  payable                                                                                 |       | (84        | )          | 74         |       | 39         |       |
| Interest payable                                                                                      |       | (35        | )          | (271       | )          | (6,817     | )          |
| Due from/to  affiliate                                                                                |       | (385       | )          | 1,926      |       | (2,589     | )          |
| Net cash provided  by operating activities                                                            |       | 25,556     |       | 29,133     |       | 4,612      |       |
| **INVESTING  ACTIVITIES:**                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to  property, plant and equipment                                                           |       | (17,178    | )          | (28,296    | )          | (24,357    | )          |
| Proceeds from  sale of equipment                                                                      |       | 370        |       | 280        |       | 72         |       |
| Purchase of  device rights                                                                            |       | (900       | )          | (1,002     | )          | (868       | )          |
| Purchase of  available-for-sale securities                                                            |       | —     |       | —     |       | (7,943     | )          |
| Acquisitions,  net of cash acquired:                                                                  |       |       |       |       |       |       |       |
| Casino                                                                                                |       | —     |       | —     |       | (14,702    | )          |
| Truck stops                                                                                           |       | —     |       | (4,234     | )          | (6,250     | )          |
| Net cash used in  investing activities                                                                |       | (17,708    | )          | (33,252    | )          | (54,048    | )          |
| **FINANCING  ACTIVITIES:**                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from  note issuance                                                                          |       | —     |       | —     |       | 210,000    |       |
| Payments to  obtain financing                                                                         |       | —     |       | (342       | )          | (10,415    | )          |
| Proceeds from  long-term debt                                                                         |       | —     |       | —     |       | 60,000     |       |
| Proceeds from  revolving line of credit                                                               |       | 20,038     |       | 38,500     |       | 26,461     |       |
| Capital contributions  from stockholders                                                              |       | —     |       | —     |       | 591        |       |
| Payments on  long-term debt (including $19,489 paid to related parties in 2006)                       |       | (1,693     | )          | (1,494     | )          | (172,480   | )          |
| Payments on  revolving line of credit                                                                 |       | (27,000    | )          | (15,000    | )          | (31,051    | )          |
| Distributions to  stockholders                                                                        |       | (1,800     | )          | (17,443    | )          | (33,205    | )          |
| Net cash (used  in) provided by financing activities                                                  |       | (10,455    | )          | 4,221      |       | 49,901     |       |
| NET (DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS                                                 |       | (2,607     | )          | 102        |       | 465        |       |
| CASH AND CASH  EQUIVALENTS—Beginning of year                                                     |       | 24,397     |       | 24,295     |       | 23,830     |       |
| CASH AND CASH  EQUIVALENTS—End of year                                                           |       | $          | 21,790     |       | $          | 24,397     |       | $ | 24,295 |   |
| SUPPLEMENTAL  CASH FLOW INFORMATION:                                                                  |       |       |       |       |       |       |       |
| Cash paid for  interest (including $768 paid to related parties in 2006), net of amounts  capitalized |       | $          | 26,130     |       | $          | 27,613     |       | $ | 31,085 |   |
| Non-cash  investing and financing activities:                                                         |       |       |       |       |       |       |       |
| Capital  contribution exchanged for retirement of note paid by affiliate                              |       | $          | —     |       | $          | 8,910      |       | $ | 5,685 |   |
| Non-cash  additions to property                                                                       |       | $          | 988        |       | $          | 2,386      |       | $ | 5,374 |   |
| Acquisition of  property under capital lease agreements                                               |       | $          | —     |       | $          | 40         |       | $ | 287 |   |
| Distributions  payable                                                                                |       | $          | —     |       | $          | —     |       | $ | 1,000 |   |

 

See notes to consolidatedfinancial statements.

 

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**JACOBS ENTERTAINMENT, INC. ANDSUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2008 AND 2007, AND FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 and 2006(Dollars in thousands)**

** **

**1.**                   BUSINESS ANDORGANIZATION

** **

JacobsEntertainment, Inc. (“JEI,” the “Company,” “us,” “our,” or “we”) wasformed on April 17, 2001, as a Subchapter S Corporation under the InternalRevenue Code of 1986, as amended, to become a geographically diversified gamingand pari-mutuel wagering company with properties in Colorado, Nevada,Louisiana, and Virginia.  We are awholly-owned subsidiary of Jacobs Investments, Inc. (“JII”).  Effective October 1, 2008, 80% of the Class Ashares of JII are owned by Jeffrey P. Jacobs, our Chief Executive Officer, andtwo of his family trusts, and 20% of the Class A shares are owned by anirrevocable trust established by his father, Richard E. Jacobs, of whichJeffrey P. Jacobs is the sole trustee. Additionally, Jeffrey P. Jacobs’ family trusts own all 180 outstandingshares of JII’s Class B common stock. These persons and their affiliates are referred to herein as “Jacobs.”  As of December 31, 2008, we own andoperate five casinos through wholly-owned subsidiaries.  Our casinos include The Lodge Casino at BlackHawk (“The Lodge”) and the Gilpin Hotel Casino (“Gilpin”), both in Black Hawk,Colorado, the Gold Dust West Casino (“Gold Dust West-Reno”) in Reno, Nevada,the Gold Dust West-Carson City (“Gold Dust West-Carson City”) in Carson City,Nevada and the Gold Dust West-Elko (“Gold Dust West-Elko”) in Elko, Nevada,which opened on March 5, 2007.  JEIalso owns and operates 18 truck plaza video gaming facilities in Louisiana,which are collectively referred to as “Jalou,” “truck stops” or “truck plazas.”  We also receive a percentage of gamingrevenue from an additional truck plaza video gaming facility.  Finally, JEI owns and operates a horse racingtrack with eight satellite wagering facilities in Virginia through awholly-owned subsidiary, Colonial Holdings, Inc. (“Colonial”).

 

On June 16,2006, we acquired three truck plaza video gaming facilities, land and equipmentin Louisiana; and on September 4, 2007, we acquired one additional truckplaza video gaming facility in Louisiana, all of which were previously owned byJacobs.  The purchases of these truckplaza video gaming facilities were accounted for as combinations of entitiesunder common control.  Our 2007 and 2006financial statements were previously adjusted to include the operations ofthese truck plaza acquisitions from January 1, 2006 to their respectiveacquisition dates.  Additionally, on April 1,2008, we acquired one of the Nautica parcels (see Note 7) referred to as “LotD.”  The company that owned this parcelof land and parking lot business was wholly owned by our Chairman and ChiefExecutive Officer. The purchase of this parking lot business was accounted foras a combination of entities under common control.  Accordingly, the accompanying consolidatedfinancial statements have been retroactively adjusted to include the operationsof Lot D from January 1, 2006.  SeeNote 4 below.

 

**2.**                   SIGNIFICANTACCOUNTING POLICIES

** **

***Consolidation***—The accompanying consolidatedfinancial statements include the accounts of JEI and its wholly-ownedsubsidiaries.  All intercompanytransactions and balances have been eliminated in consolidation.

 

***Cash and Cash Equivalents***—We consider all demanddeposits and time deposits with original maturities of three months or less tobe cash equivalents.

 

***Restricted Cash***—Amounts due under agreements withthe Virginia Horsemen’s Benevolent and Protective Association, Inc. andthe Virginia Harness Horse Association are accrued based on the terms of theagreements.  Funds for purses for futurelive race meets are held in restricted cash accounts.

 

***AccountsReceivable***—Our accounts receivable balances primarilyconsist of receivables from convenience store fuel sales on account.  Generally, our receivables are collectedwithin two months, and we have had 

 

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minimal bad debtlosses.  We routinely assess therecoverability of all material receivables to determine their collectibility.

 

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

 

***Property, Plant, and Equipment***—Property, plant,and equipment are stated at historical cost. Depreciation is computed using the straight-line method over theestimated useful lives of the related assets. Leasehold improvements are depreciated, using the straight-line method,over the shorter of the lease term or the useful life of the asset.  Estimated useful lives used are as follows:

 
| Land  improvements                 |   | 20-40 years |   |
|------------------------------------|--------|-------------|--------|
| Buildings and  improvements        |   | 5-40 years  |   |
| Equipment,  furniture and fixtures |   | 2-20 years  |   |
| Leasehold improvements             |   | 5-25 years  |   |

 

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

 

***Goodwill***—Goodwillrepresents the excess purchase price over the fair value of the netidentifiable assets acquired related to third party acquisitions.  See Notes 3 and 4.

 

***IdentifiableIntangible Assets***—Identifiable intangible assets arecomprised of revenue rights, device use rights associated with video pokermachines used at each truck stop, and restriction agreements associated withcertain Jalou truck stop acquisitions. Revenue rights are amortized on a straight line basis over 50 years,representing the term of the related agreement.  Device use rights are amortized on a straightline basis over five years, representing the terms of the relatedagreements.  Restriction agreements areamortized on a straight line basis over five or ten years, representing theterms of the related agreements.

 

***CapitalizedInterest***—Interest costs associated with majorconstruction projects are capitalized. When no debt is incurred specifically for a project, interest iscapitalized on amounts expended for the project using our weighted average costof borrowing.  Capitalization of interestceases when the project or discernible portions of the project aresubstantially complete.  We amortizecapitalized interest over the estimated useful life of the related asset.  Capitalized interest for the years ended December 31,2008, 2007 and 2006 was $0, $159 and $154, respectively.

 

***DebtIssue Costs***—Debt issue costs that are incurred by us inconnection with the issuance of debt are capitalized and amortized to interestexpense, using the effective interest method, over the expected terms of therelated debt agreements.

 

***Investmentsin Equity Securities***—Investments in equity securities arerecorded at fair value and included in other noncurrent assets.  See Note 6.

 

***SlotClub Liability***—Our casinos offer customers the ability tobecome members in their respective slot clubs. Once a member, the customer can insert a special card into slot andvideo poker machines while playing in our casinos to earn “points.”  Based on their point totals, members receivevarious cash rewards and gift prizes.  Weaccrue the cost of points as they are earned by the members of the slot clubsas a component of accounts payable and accrued expenses in the accompanyingconsolidated balance sheets.

 

***OutstandingGaming Chip and Token Liability***—When customers exchangecash for gaming chips and tokens, we have a liability as long as those chipsand tokens are not redeemed or won by the house.  That liability is established by determiningthe difference between the total chips and tokens placed in service and theactual inventory of chips and tokens in custody or under the control of thecasinos.  The chip and token liability isadjusted periodically to reflect an estimate of chips and tokens that willnever be redeemed, such as 

 

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chips and tokensthat have been lost or taken as souvenirs and is reflected as a component ofaccounts payable and accrued expenses in the accompanying consolidated balancesheets.

 

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

 

***Revenue***—***Truck Stop***—Video poker revenue isthe net winnings from gaming activities of our truck stops, which is thedifference between gaming wins and losses.

 

***Revenue***—***Pari-Mutuel***—Pari-mutuelrevenue includes our share of pari-mutuel wagering on live races after paymentsof amounts returned on winning wagers, and our share of wagering from importand export simulcasting at our racing centers.

 

***Revenue***—***Food and Beverage***—Werecognize food and beverage revenue at the time that goods or services arerendered.

 

***Revenue***—***Convenience Store***—***Fuel and Other***—We recognize revenueat the time of sale for fuel and convenience-store items.

 

***Revenue***—***Hotel***—Werecognize hotel revenue at the time rooms are provided to customers.

 

***Revenue***—***Other***—Otherrevenue consists of ATM commissions, cash advance commissions, miscellaneousvending commissions, rental income, admission charges, and program andconcession sales at Colonial’s live racing events.  Other revenues are recognized at the timeservices are provided to patrons.

 

***Promotional Allowances***—Gross revenues include theretail amount of rooms, food and beverages, and other goods and servicesprovided gratuitously to customers.  Whencomputing net revenues, the retail amount of rooms, food and beverages andcoupons, as well as slot club player point redemptions, is deducted from grossrevenues as promotional allowances.  Theestimated cost of such complimentary services in our casino operations forrooms, food, and beverages is charged to casino operations.  The estimated cost of such complimentaryservices in our truck stops related to video poker operations for food andbeverages is charged to truck stop operations. The estimated cost of such complimentary services in our truck stopsrelated to fuel operations for food and beverages is charged to conveniencestore operations.  The estimated costs ofcomplimentary services charged to casino operations, truck stop operations andconvenience store operations, respectively, are as follows:

 
| ** **                    | ** ** | **Years Ended December 31** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|
| ** **                    | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
|                          |       |                                       |       |   |   |   |   |
| Casino  operations            |       | $                                          | 13,686     |   | $ | 11,012 |   | $ | 10,445 |   |
| Truck stop  operations        |       | 2,243                                      |       | 2,005 |   | 1,738 |   |
| Convenience  store operations |       | 463                                        |       | 599 |   | 507 |   |
|                               |            |                                            |            |  |  |  |  |  |  |  |

 

***Comprehensive Income (Loss)***—We account for comprehensive income(loss) in accordance with SFAS No. 130, *ReportingComprehensive Income*, which established standards for the reportingand presentation of comprehensive income in our consolidated financialstatements.  We present comprehensiveincome (loss) in our consolidated statements of stockholder’s equity.

 

***Income Taxes***—We have elected for income taxpurposes to be treated as a Subchapter S Corporation under the InternalRevenue Code of 1986, as amended, and, consequently, no current or deferredincome taxes have been reflected in the accompanying consolidated financialstatements as these taxes are the responsibility of the stockholder.  See Note 13 for information relating to theincome tax benefit for the year ended December 31, 2006.

 

***Long-Lived Assets***—We periodically evaluate thevalue of long-lived assets, including property, plant and equipment and identifiableintangibles, for potential impairment. If an impairment is indicated, such impaired 

 

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assetsare written down to their estimated fair value. As of December 31, 2008 and 2007, we determined that there was noimpairment of our long-lived assets other than those discussed in Notes 3 and12.

 

***Operating Segments***—We have four reportablesegments (Colorado, Nevada, Virginia, and Louisiana), as defined by SFAS No. 131,*Disclosures about Segments of an Enterpriseand Related Information.*  See Note 15.

 

***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.

 

Weperiodically evaluate our policies, and the estimates and assumptions relatedto such accounting principles.  All ofour subsidiary companies operate in a highly regulated industry.  Our operations are subject to regulationsthat describe and regulate operating and internal control procedures.  The majority of gaming revenue is in the formof cash which by nature does not require complex estimations.  We estimate certain liabilities with paymentperiods that extend for longer than several months.  Such estimates include the self-insuredmedical and workers compensation liabilities and litigation costs.  Furthermore, we believe that these estimatesare reasonable based on past experience with the business and based uponassumptions related to possible outcomes in the future.  Actual results could differ from thoseestimates.

 

Furthermore,we have determined that the policies associated with our long-lived assets,goodwill and identifiable intangible assets, and related estimates are criticalto the preparation of our consolidated financial statements.  We have a significant investment inlong-lived property and equipment.  Weestimate that the undiscounted future cash flows expected to result from theuse of these assets exceeds the current carrying value of these assets.  Any adverse change to the estimate of theseundiscounted cash flows could necessitate an impairment charge that wouldadversely affect operating results.  Weestimate the useful lives for our assets based on historical experience,estimates of assets’ commercial lives, and the likelihood of obsolescence.  Should the actual useful life of a class ofassets differ from the estimated useful life, we would record an impairment charge.

 

***New AccountingPronouncements***—In September 2006, the FinancialAccounting Standards Board (“FASB”) issued Statement No. 157, *Fair Value Measurements*(“SFAS 157”).  SFAS 157establishes a single definition of fair value and a framework for measuring fairvalue, sets out a fair value hierarchy to be used to classify the source ofinformation used in fair value measurements, and requires new disclosures ofassets and liabilities measured at fair value based on their level in thehierarchy. SFAS 157 was effective for us on January 1, 2008. We partially adopted SFAS 157 as of January 1,2008, pursuant to FASB Staff Position (“FSP”) No. FAS 157-2,*Effective Date of FASB Statement No. 157*,which delayed the effective date of SFAS 157 for all nonrecurring fair valuemeasurements of nonfinancial assets and nonfinancial liabilities until fiscalyears beginning after November 15, 2008. FSP No. FAS 157-2 statesthat a measurement is recurring if it happens at least annually and definesnonfinancial assets and nonfinancial liabilities as all assets and liabilitiesother than those meeting the definition of a financial asset or financialliability in SFAS 159.  The statement also notes that if SFAS 157 is notapplied in its entirety, we must disclose: (1) that we have only partiallyadopted SFAS 157 and (2) the categories of assets and liabilities recordedor disclosed at fair value to which the statement was not applied.

 

We chose to adoptFSP No. FAS 157-2 as of January 1, 2008 and delay full application ofSFAS 157.  Therefore, we did not applySFAS 157 to nonrecurring fair value measurements of nonfinancial assets andnonfinancial liabilities, including nonfinancial long-lived assets measured atfair value for an impairment assessment under SFAS No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets,* and goodwill impairment assessment under SFAS No. 142,*Goodwill and Other Intangible Assets*. Weare still required to apply SFAS 157 to recurring financial and non-financialinstruments, which affects the fair value disclosure of our investment inequity securities.  See Note 6 for fairvalue disclosures.

 

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In February 2007, the FASB issued Statement No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities* — Including an amendment of FAS 115 (“SFAS 159”),which allows entities to choose at specified election dates, to measureeligible financial assets and liabilities at fair value that are not otherwiserequired to be measured at fair value. If a company elects the fair valueoption for an eligible item, changes in that item’s fair value in subsequentreporting periods must be recognized in current earnings.  SFAS 159 also establishes presentationdisclosure requirements designed to draw comparison between entities that electdifferent measurement attributes for similar assets and liabilities.  SFAS 159 was effective for us on January 1,2008. We adopted the fair value measurement provisions of SFAS 159 during thefourth quarter of 2008 for our investment in equity securities.  See Note 6 below.

 

In December 2007, the FASB issued Statement No. 141R,*Business Combinations*(“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer ina business combination: (a) recognizes and measures in its financialstatements the identifiable assets acquired, the liabilities assumed, and anynoncontrolling interest in the acquiree; (b) recognizes and measures thegoodwill acquired in the business combination or a gain from a bargain purchaseoption; and (c) determines what information to disclose to enable users ofthe financial statements to evaluate the nature and financial effects of thebusiness combination.  SFAS 141(R) is effective for all fiscal yearsbeginning on or after December 15, 2008 and is to be appliedprospectively.  Accordingly, any business combinations the Company engagesin will be recorded and disclosed following existing accounting pronouncementsuntil January 1, 2009. We expect SFAS 141(R) will have an impact onour consolidated results of operations, cash flows and financial position wheneffective, but the nature and magnitude of the specific effects will dependupon the nature, terms and size of the acquisitions we consummate after theeffective date.

 

In May 2008, the FASB issued Statement No. 162,*Hierarchy of Generally Accepted AccountingPrinciples* (“SFAS 162”), which identifies the sources of accountingprinciples and the framework for selecting the principles used in thepreparation of financial statements of nongovernmental entities that arepresented in conformity with GAAP in the United States (the GAAP hierarchy).The FASB does not expect that this statement will result in a change in currentpractice. SFAS 162 is effective for all pronouncement and applications ofaccounting principles issued after March 15, 1992. We have determined thatthe adoption of SFAS 162 did not have a material effect on our consolidatedfinancial statements.

 

**3.**                   GOODWILL ANDIDENTIFIABLE INTANGIBLE ASSETS

** **

We test goodwill forimpairment as of September 30 each year or when circumstances indicate itis necessary.  Testing compares theestimated fair values of our reporting units to the reporting units’ carryingvalue.  We consider a variety of factorswhen estimating the fair value of our reporting units, including estimatesabout the future operating results of each reporting unit, multiples of EBITDA,investment banker market analyses, and recent sales of comparable businessunits if such information is available to us. A variety of estimates and judgments about the relevance andcomparability of these factors to the reporting units are made.  As of September 30, 2008, we believe thecarrying value of the goodwill in our Gold Dust West-Carson City reporting unitis impaired. Market conditions in 2008 resulted in Gold Dust West-Carson Citynot meeting the financial performance expectations originally forecast at thetime of acquisition.  Consequently, GoldDust West-Carson City recorded a goodwill impairment charge of $199 during theyear ended December 31, 2008.  As aresult of the impairment charge, the carrying amount of the Gold DustWest-Carson City goodwill was reduced to zero.

 

The changes in the carrying amount of goodwill for theyears ended December 31, 2008 and 2007 are as follows:

 
| ** **                           | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
|                                 |       |     |       |     |       |
| Balance as of  beginning of year     |       | $        | 46,670     |     | $          | 44,016 |   |
| Goodwill  acquired during the year   |       |     |       | 2,654    |       |
| Goodwill impairment  during the year |       | (199     | )          |     |       |
|                                 |       |     |       |     |       |
| Balance as of  end of year           |       | $        | 46,471     |     | $          | 46,670 |   |

 

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In addition, we have assessed the useful lives of ouridentifiable intangible assets without any change to the previously establishedamortization periods of such assets.

 

Identifiableintangible assets as of December 31, 2008 and 2007 consist of thefollowing:

 
| ** **                      | ** ** | **Weighted**  | ** ** | **2008**     | ** ** | **2007**         | ** ** |
|---------------------------------|------------|---------------|------------|--------------|------------|------------------|------------|
| ** **                      | ** ** | **Average**   | ** ** | **Gross**    | ** ** | ** **       | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                      | ** ** | **Remaining** | ** ** | **Carrying** | ** ** | **Accumulated**  | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                      | ** ** | **Life**      | ** ** | **Amount**   | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
|                            |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Amortizable  intangible assets: |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Revenue rights                  |       | 43.00         |       | $            | 6,000      |             | $          | 840 |   | $ | 5,160 |   | $ | 6,000 |   | $ | 720 |   | $ | 5,280 |   |
| Device use  rights              |       | 2.32          |       | 8,820        |       | 5,393            |       | 3,427 |   | 7,982 |   | 4,638 |   | 3,344 |   |
| Noncompete  agreements          |       | 2.92          |       | 1,779        |       | 1,174            |       | 605 |   | 1,779 |   | 912 |   | 867 |   |
|                            |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Total                           |       |          |       | $            | 16,599     |             | $          | 7,407 |   | $ | 9,192 |   | $ | 15,761 |   | $ | 6,270 |   | $ | 9,491 |   |

 

Aggregateamortization expense of identifiable intangible assets was $1,398, $1,281, and$1,680 for the years ended December 31, 2008, 2007 and 2006, respectively.

 

Estimatedamortization expense for the years ending December 31 (in thousands):

 
| 2009       |   | $      | 1,531  |   |
|------------|--------|--------|--------|--------|
| 2010       |   | 1,326  |   |
| 2011       |   | 781    |   |
| 2012       |   | 622    |   |
| 2013       |   | 314    |   |
| Thereafter |   | 4,618  |   |
|       |   |   |   |
| Total      |   | $      | 9,192  |   |

 

**4.**                   RECENTACQUISITION ACTIVITY

** **

*Acquisition of St. Martin, Diamond and Magic*

 

On June 16, 2006, with the proceeds of therefinancing occurring on the same date (see Note 5), we acquired from Jacobs,three truck plaza video gaming facilities for $14,380 and raw land andequipment for $620 to possibly develop a fourth truck plaza video gamingfacility.  Two of the three truck plazavideo gaming facilities acquired, Jalou Diamond and Jalou of St. Martin arelocated in Broussard, Louisiana, and the third facility, Jalou Magic, islocated in Vinton, Louisiana.  The landand equipment on which we may develop a fourth truck plaza video gaming and/orhotel facility is also located in Vinton, Louisiana.  The acquisitions of the three truck plazafacilities, the raw land and equipment were accounted for as a combination ofentities under common control, and as such are reflected for accounting andfinancial reporting purposes similar to a pooling of interests.  Therefore, the acquisitions have beenrecorded at Jacobs’ historical cost basis in the net assets transferred.

 

A distribution of $14,380 was recorded on theacquisition date.  The net assets of theentities acquired have been retroactively accounted for in JEI’s financialstatements.  Therefore, an effective netdistribution of $6,987 (the $14,380 distribution reduced by the $7,393 of netassets acquired) results from the transactions.

 

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The following tablesummarizes the net assets acquired and liabilities assumed as of June 16,2006, for the transactions occurring on that date:

 
| ** **                      | ** ** | **St. Martin** | ** ** | **Diamond** | ** ** | **Magic** | ** ** | **Total** | ** ** |
|---------------------------------|------------|---------------------|------------|-------------|------------|-----------|------------|-----------|------------|
|                            |       |                |       |        |       |      |       |      |       |
| Current assets                  |       | $                   | 1,056      |        | $          | 772       |       | $         | 641        |   | $ | 2,469 |   |
| Property and  equipment, net    |       | 1,622               |       | 1,113       |       | 1,688     |       | 4,423     |       |
| Goodwill                        |       |                |       | 628         |       |      |       | 628       |       |
| Other assets                    |       | 86                  |       | 74          |       | 59        |       | 219       |       |
| Identifiable  intangible assets |       | 195                 |       | 127         |       | 83        |       | 405       |       |
|                            |       |                |       |        |       |      |       |      |       |
| Total assets  acquired          |       | 2,959               |       | 2,714       |       | 2,471     |       | 8,144     |       |
|                            |       |                |       |        |       |      |       |      |       |
| Current  liabilities assumed    |       | 191                 |       | 384         |       | 176       |       | 751       |       |
|                            |       |                |       |        |       |      |       |      |       |
| Net assets  acquired            |       | $                   | 2,768      |        | $          | 2,330     |       | $         | 2,295      |   | $ | 7,393 |   |

 

*Acquisitionof Vinton*

 

On June 21,2006, we acquired from an unaffiliated party the Texas Pelican Truck Plaza (“Vinton”),in Vinton, Louisiana for $2,169, plus acquisition costs of $397.  Additionally, we entered into a leasecovering the land, building, furniture, fixtures and equipment used by Vintonin the operation of its video gaming facility, the convenience store, and thefood and beverage outlet.  The lease hasa five year term with two five year extensions at the option of JEI.  Rentals under the lease are $480 per year foryears one through five, $540 per year for years six through ten, and $600 peryear for years eleven through fifteen. JEI has the right to purchase the leased property for $5,000 during thefirst five year term reduced by a $100 option payment credit, and an $8 creditfor each month in which rent has been paid with a maximum credit of $450irrespective of the number of months paid. After the first term and through all remaining terms, JEI has the rightto purchase the leased property for $5,000, reduced by the $450 rent credit.

 

Under the purchase methodof accounting, the total purchase price is allocated to Vinton’s tangible andintangible assets and liabilities based on their estimated fair value as of theacquisition date.  A valuation wascompleted to determine the fair values for property and equipmentacquired.  Goodwill resulting from theVinton transaction is attributable to anticipated future cash flows associatedwith the acquired entity. The following table summarizes the allocation of the purchaseprice to net assets acquired and liabilities assumed as of June 21, 2006,for the purchase of Vinton:

 
| ** **                      | ** ** | **Vinton** | ** ** |
|---------------------------------|------------|------------|------------|
|                            |       |       |       |
| Property and  equipment         |       | $          | 255        |   |
| Goodwill                        |       | 2,277      |       |
| Identifiable  intangible assets |       | 305        |       |
|                            |       |       |       |
| Total assets  acquired          |       | 2,837      |       |
|                            |       |       |       |
| Current  liabilities            |       | 61         |       |
| Long-term  liabilities          |       | 210        |       |
| Total  liabilities assumed      |       | 271        |       |
|                            |       |       |       |
| Net assets  acquired            |       | $          | 2,566      |   |

 

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*Acquisitionof Gold Dust West-Carson City*

 

On June 25,2006, we acquired the assets of the Piñon Plaza Resort (“Piñon Plaza”), adivision of Capital City Entertainment, Inc. (“CCI”), an unaffiliatedparty.  In January 2007, werebranded Piñon Plaza to Gold Dust West-Carson City.  Under the purchase method of accounting, thetotal purchase price is allocated to Gold Dust West-Carson City’s tangible andintangible assets and liabilities based on their estimated fair value as of theacquisition date.  A valuation wascompleted to determine the fair values for property and equipmentacquired.  Goodwill resulting from theGold Dust West-Carson City transaction is attributable to anticipated futurecash flows associated with the acquired entity.

 

Theassets purchased included all of the personal property, buildings andimprovements used by Gold Dust West-Carson City in the operation of its casino,hotel, bowling alley and RV Park in Carson City, Nevada.  The purchase price for the assets was $14,500plus $519 for cash on hand at closing and acquisition costs of $224.  Additionally, we entered into a triple netground lease covering land underlying the assets which began at the closingdate of the asset purchase.  The lessoris a family trust affiliated with CCI. The operating lease has a ten year term with two ten year extensions atthe option of JEI.  Rentals under thelease are $250 per year for years one through five, $300 per year for years sixthrough ten, and a rate based on an appraisal performed by a Member of theAppraisal Institute (“MAI”) of the property during the first and secondextension terms.  JEI has the right topurchase the leased land at an MAI appraised value at the end of the first tenyear term.  It also has a right of firstrefusal should the lessor seek to sell the leased land to a third party.

 

Thefollowing table summarizes the allocation of the purchase price to net assetsacquired and liabilities assumed as of June 25, 2006, for the purchase ofGold Dust West-Carson City:

 
| ** **                   | ** ** | **Gold Dust West-  Carson City** | ** ** |
|------------------------------|------------|-------------------------------------------------|------------|
| ** **                   | ** ** | ** **                                      | ** ** |
| Current assets               |       | $                                               | 679        |   |
| Property and  equipment      |       | 14,500                                          |       |
| Goodwill                     |       | 199                                             |       |
|                         |       |                                            |       |
| Total assets  acquired       |       | 15,378                                          |       |
|                         |       |                                            |       |
| Current  liabilities assumed |       | 135                                             |       |
|                         |       |                                            |       |
| Net assets  acquired         |       | $                                               | 15,243     |   |

 

*Acquisitionof St. Helena*

 

On July 12,2006, we acquired from an unaffiliated party the St. Helena Truck Plaza inAmite, Louisiana (“St. Helena”) which includes a truck plaza, conveniencestore, casino and food and beverage outlet operation for $3,094, plus $200 forcash on hand at closing, $90 for inventory and acquisition costs of $72.

 

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Underthe purchase method of accounting, the total purchase price is allocated to St.Helena’s tangible and intangible assets and liabilities based on theirestimated fair value as of the acquisition date.  A valuation was completed to determine thefair values for property and equipment acquired.  Goodwill resulting from the St. Helenatransaction is attributable to anticipated future cash flows associated withthe acquired entity. The following table summarizes the allocation of thepurchase price to net assets acquired and liabilities assumed as of July 12,2006, for the purchase of St. Helena:

 
| ** **                      | ** ** | **St. Helena** | ** ** |
|---------------------------------|------------|---------------------|------------|
|                            |       |                |       |
| Current assets                  |       | $                   | 290        |   |
| Property and  equipment         |       | 2,330               |       |
| Goodwill                        |       | 444                 |       |
| Identifiable  intangible assets |       | 395                 |       |
|                            |       |                |       |
| Total assets  acquired          |       | 3,459               |       |
|                            |       |                |       |
| Current liabilities             |       | 3                   |       |
|                            |       |                |       |
| Net assets  acquired            |       | $                   | 3,456      |   |

 

*Acquisitionof Silver Dollar*

 

On October 4, 2006,we entered into an asset purchase agreement with an unaffiliated party toacquire the Silver Dollar truck plaza in Shreveport, Louisiana (“Silver Dollar”),which was under construction.  On January 15,2007, we agreed with the seller to operate the business and simultaneouslyassume the terms of its land lease.  Theland lease has an initial term of ten-years, which began July 1, 2005,with seven five-year extensions at the option of JEI.  Rentals under the lease increase throughoutthe initial term from $72 per year to $196 per year.  Rentals under the extension periods increasefrom $196 per year to $262 per year.  JEIhas the right of first refusal to purchase the leased land should the lessorreceive a bona-fide, arm’s length, good faith offer to purchase any or all ofthe real property and improvements from a third party.

 

On February 9,2007, we began operating the convenience store and fuel operations and on March 29,2007, we acquired Silver Dollar for $4,000 plus acquisition costs of $197.  The purchase agreement includes an “earn-outpayment” (additional purchase price) to be determined and paid 19 calendarmonths after the video poker devices are legally operating at SilverDollar.  The earn-out payment is based on5.0 times annualized EBITDA of the truck stop, less the initial $4,000 purchaseprice paid, up to a maximum of $1,500 additional purchase price.

 

On September 18,2007, Silver Dollar received approval from Louisiana gaming regulators to offerup to 50 video poker devices, and on September 28, 2007, we beganoperating 40 video poker devices. During the first quarter of 2008, we beganoperating 10 additional video poker devices for a total of 50 video pokerdevices.

 

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Underthe purchase method of accounting, the total purchase price is allocated toSilver Dollar’s tangible and intangible assets and liabilities based on theirestimated fair value as of the acquisition date.  A valuation was completed to determine thefair values for property and equipment acquired.  Goodwill resulting from the Silver Dollartransaction is attributable to anticipated future cash flows associated withthe acquired entity.  The following tablesummarizes the allocation of the purchase price to net assets acquired as of March 29,2007, for the purchase of Silver Dollar:

 
| ** **                      | ** ** | **Silver Dollar** | ** ** |
|---------------------------------|------------|------------------------|------------|
|                            |       |                   |       |
| Property and  equipment         |       | $                      | 1,459      |   |
| Goodwill                        |       | 2,638                  |       |
| Identifiable  intangible assets |       | 100                    |       |
|                            |       |                   |       |
| Total assets  acquired          |       | $                      | 4,197      |   |

 

*Acquisitionof Silver Fox*

 

On September 4,2007, with funds available on our revolving credit facility, we acquired fromGameco, the Silver Fox truck plaza video gaming facility for $13,794.  Silver Fox is located in Denham Springs,Louisiana.  The acquisition of the truckplaza facility was accounted for as a combination of entities under common control,and as such is reflected for accounting and financial reporting purposessimilar to a pooling of interests. Therefore, the acquisition has been recorded at Jacobs’ historical costbasis in the net assets transferred.

 

At January 1, 2007,Silver Fox’s debt outstanding totaled $9,021. On September 4, 2007, with proceeds from the sale of Silver Fox,Jacobs repaid the outstanding principal and interest of $8,910.  The debt was not assumed by JEI and isreflected as a capital contribution in the statement of stockholder’s equity.

 

A distribution of $13,794was recorded on the acquisition date. The net assets of the entity acquiredhave been retroactively accounted for in JEI’s financial statements.  Therefore, an effective net distribution of$2,339 (the $13,794 distribution reduced by the $11,455 of net assets acquired)results from the transaction.

 

The following tablesummarizes the net assets acquired and liabilities assumed as of September 4,2007, for the Silver Fox acquisition:

 
| ** **                      | ** ** | **Silver Fox** | ** ** |
|---------------------------------|------------|---------------------|------------|
|                            |       |                |       |
| Current assets                  |       | $                   | 609        |   |
| Property and  equipment, net    |       | 2,743               |       |
| Goodwill                        |       | 7,342               |       |
| Other assets                    |       | 4                   |       |
| Identifiable  intangible assets |       | 1,004               |       |
|                            |       |                |       |
| Total assets  acquired          |       | 11,702              |       |
|                            |       |                |       |
| Current  liabilities assumed    |       | 247                 |       |
|                            |       |                |       |
| Net assets  acquired            |       | $                   | 11,455     |   |

*** ***

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*** ***

*Acquisitionof Nautica Lot D*

 

As discussed further inNote 7, on April 1, 2008, we acquired Nautica Lot D (“Lot D”) for $800.The acquisition of Lot D and its parking lot business was accounted for as acombination of entities under common control. Therefore, the acquisition has been recorded at Jacobs’ historical costbasis in the assets transferred.  Accordingly,the accompanying consolidated financial statements have been retroactivelyadjusted from January 1, 2006 to include the operations of the parking lotbusiness as though the transaction had occurred at January 1, 2006.

 

A distribution of $800was recorded on the acquisition date. The net assets of the entity acquired have been retroactively accountedfor in our financial statements. Therefore, an effective net distribution of $669 (the $800 distributionreduced by the $131 of net assets acquired) results from the transaction.

 

The following tablesummarizes the net assets acquired and liabilities assumed as of April 1,2008, for the Lot D acquisition:

 
| ** **                   | ** ** | **Lot D** | ** ** |
|------------------------------|------------|----------------|------------|
|                         |       |           |       |
| Current assets               |       | $              | 1          |   |
| Property and  equipment, net |       | 143            |       |
|                         |       |           |       |
| Total assets acquired        |       | 144            |       |
|                         |       |           |       |
| Current  liabilities assumed |       | 13             |       |
|                         |       |           |       |
| Net assets  acquired         |       | $              | 131        |   |

*** ***

*Acquisitionof Land in the Gulf Coast of Mississippi*

 

During 2008, we completedseveral land purchase transactions with owners of real estate lots in the GulfCoast of Mississippi, resulting in total purchases of $3,047, includingacquisition costs of $246.  Additionally,during September 2008, we entered into two land purchase options totaling$160.  These land purchase options eachhave an initial term of one-year, expiring June 2009, with two one-yearextensions at the option of JEI.  During November 2008,we entered into a third land purchase option totaling $100, expiring May 2009,with a one-year extension at the option of JEI. The total purchase price of allparcels under these three option agreements is $42,000.  During January 2009, we completed oneadditional land purchase transaction, resulting in a total purchase of $307,including acquisition costs of $7.

 

We are conducting duediligence on the lots and evaluating the feasibility of developing andconstructing a mixed use project which may include a licensed gamingestablishment, a hotel, restaurant, condominiums, retail development andparking facilities.  Furthermore, we havefiled an application with Hancock County, Mississippi, to rezone property towaterfront district, as part of our plan to build a casino resort andhotel.  The project is subject to allnecessary approvals from the Mississippi Gaming Commission as well as necessaryfinancing.

 

***Assuming the 2006 acquisitions of Vinton, Gold DustWest-Carson City and St. Helena had occurred as of January 1, 2006,combined unaudited proforma net revenues, costs and expenses, and net income(loss) for 2006 would have been as follows:***

 
| ** **          | ** ** | **2006** | ** ** |
|---------------------|------------|----------|------------|
|                |       |     |       |
| Net revenues        |       | $        | 334,421    |   |
| Costs and  expenses |       | 344,680  |       |
|                |       |     |       |
| Net loss            |       | $        | (10,259    | ) |

 

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There are no proforma effects from the Silver Dollaracquisition that occurred on March 29, 2007 since it was a newlyconstructed truck stop.

 

The proforma information for 2006 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.**                   LONG-TERMDEBT

** **

Long-term debt and capital lease obligations as of December 31,2008 and 2007 consist of the following:

 
| ** **                                               | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |     |       |
| 93⁄4% Senior  Unsecured Notes due 2014                |       | $        | 210,000    |     | $          | 210,000 |   |
| Senior Secured  Term Loan Facility due 2012              |       | 39,000   |       | 39,400   |       |
| Senior Secured  Delayed Draw Term Loan Facility due 2012 |       | 19,550   |       | 19,750   |       |
| Senior Secured  Revolving Credit Facility expiring 2011  |       | 16,537   |       | 23,500   |       |
| Black Hawk Bonds  Payable due 2011                       |       | 1,525    |       | 2,484    |       |
| Other Notes  Payable — Colonial                     |       |     |       | 40       |       |
| Capital Leases                                           |       | 4,085    |       | 4,172    |       |
|                                                     |       |     |       |     |       |
| Total  indebtedness                                      |       | 290,697  |       | 299,346  |       |
|                                                     |       |     |       |     |       |
| Less current  indebtedness                               |       | (1,339   | )          | (1,301   | )          |
|                                                     |       |     |       |     |       |
| Total long-term  indebtedness                            |       | $        | 289,358    |     | $          | 298,045 |   |

 

***93⁄4% Senior Unsecured Notes due 2014 and Senior Secured Credit Facility***

 

On June 16, 2006, weissued senior unsecured notes in the amount of $210,000 bearing interest at 93⁄4%due June 15, 2014 with interest only payments due each June 15 and December 15,beginning on December 15, 2006.  Wealso have a $100,000 senior secured credit facility consisting of: (i) a$40,000 five-year revolving credit facility; (ii) a $40,000 six-year termloan facility; and (iii) a $20,000 six-year delayed draw term loan.  Borrowings under our senior secured creditfacility bear interest at a rate equal to an applicable margin plus, at ouroption, either (a) a base rate determined by reference to the higher of (1) theprime rate, as defined, and (2) the federal funds rate plus 1⁄2 of 1% or (b) aLIBOR rate for the interest period relevant to such borrowing adjusted forcertain costs.  At December 31, 2008, the blendedinterest rate on our senior secured credit facility was approximately 3.30%. Asof December 31, 2008, $23,463 was available on the revolving creditfacility.  Proceeds from the seniorunsecured notes and the term loan were used to (i) pay off $148,000aggregate principal amount of our outstanding 117/8%senior secured notes due 2009, along with accrued and unpaid interest of $6,652and to pay related tender and consent costs of $9,321, (ii) acquire theassets of Piñon Plaza (renamed Gold Dust West-Carson City) in Carson City,Nevada for a purchase price of $15,243 including acquisition costs (see Note4), (iii) acquire three truck plazas and raw land in Louisiana from anaffiliated party for $14,380 and $620, respectively (see Note 4), (iv) acquiretwo additional truck plazas for a purchase price of $2,566 and $3,456 includingacquisition costs (see Note 4), (v) pay a distribution to our stockholdersin connection with December 2005 truck plaza acquisitions of $8,825, (vi) paya distribution to our stockholders of $10,000, (vii) refinanceapproximately $26,568 aggregate principal amount of existing indebtedness(including $19,489 of subordinated debt held by our stockholders), along with$840 accrued and unpaid interest, and (viii) pay related fees and expensesassociated with the issuance of approximately $9,688.  Excess uses over the initial borrowings werepaid from our cash.

 

Our $210,000 of 93⁄4%senior unsecured notes rank equally in right of payment with all of ourexisting and future unsecured senior indebtedness and senior to any existingand future subordinated indebtedness. The notes are effectively subordinated to any secured indebtedness(including indebtedness under our senior credit facility) up to the value ofthe collateral securing such indebtedness. The notes are guaranteed by our current 

 

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and future restrictedsubsidiaries that also guarantee our senior secured credit facility.  Our$210,000 of outstanding seniorunsecured notes cannot be redeemed until June 15, 2010. We can, however,with proceeds from an equity offering on more than one occasion redeem up to35% of the aggregate principal amount of the notes at a redemption price of109.75% of the principal amount thereof, plus accrued and unpaid interest.

 

Thereare many restrictions and covenants placed upon us under both our secured andunsecured indebtedness. We are required to maintain certain operatingperformance ratios, our covenants impose various restrictions on us as to thetiming of redemptions of our notes, there are various change of controlcovenants, and there are many other restrictive and operational limitations onus that would be difficult or impossible for us to change. The occurrence ofany one of these events and/or covenant violations to our debt agreements couldhave a material adverse effect on our business, financial condition, results ofoperations, prospects and ability to satisfy our obligations under our debtagreements.  Our failure to pay interest, repay ourindebtedness when due, or maintain compliance with our debt covenants wouldresult in an event of default under both our senior credit facility and our noteindenture.

 

Weentered into an amendment to our credit agreement which revised certain debtcovenant ratios and became effective May 4, 2007.  The amendment increased the maximum permittedtotal leverage ratio, increased the maximum permitted senior secured leverageratio, decreased the minimum interest coverage ratio and adjusted the testperiods.  At December 31, 2008, weare in compliance with the revised financial covenants.

 

At March 31,2009, certain debt covenants under our senior secured credit facility were to become morerestrictive.   Subsequent to year-end, weentered into a second amendment to our credit agreement which became effective February 5,2009.  The second amendment increased themaximum permitted senior secured leverage ratio and adjusted the test periods.

 

***Black Hawk Bonds Payable due 2011***

 

The Black Hawk bondspayable were issued in two series with interest payments varying between 6.25%and 6.50%.  Principal and interestpayments totaling $368 are due semi-annually beginning in June 2000 andcontinuing until December 2011. These bonds are secured by infrastructure improvements made by TheLodge.

 

***OtherNotes Payable — Colonial***

 

A note payable to JohnDeere Credit, maturing October 2008, bearing interest at a rate of 2.25%payable monthly in equal installments of interest and principal beginning November 2003,is secured by the equipment purchased with the note.  This note was paid in full in 2008.

 

***CapitalLeases***

 

Gold Dust West-Elko has acapital lease on its building with interest and principal payments of $21 permonth, maturing October 2010, with the right to extend the lease threetimes for five year intervals, or to purchase the land and building for $5,000any time commencing with the day after the last day of the first year of theinitial term through the end of the initial term, or for $5,398 at any timeduring the first renewal period.  Thepurchase option is no longer available after the first renewal period.  The effective interest rate is 16.9%.  Each lease renewal if elected will result inan increase in monthly payments based on a base index rate established with theAugust 2005 Consumer Price Index as published.

 

Colonial has a capitallease on the land for its satellite wagering facility in Vinton, Virginia, withinterest and principal payments of $10 per month, maturing September 11,2009, with the right to extend the term of the lease five times for five yearintervals, or to purchase the land for $800 at any time after the term andfirst renewal period of the lease (after September 11, 2014).  The effective interest rate is 11.8%.  Each lease renewal if elected will result inan increase in monthly payments by 10% over the previous lease term.

 

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Colonial has a capitallease on the land and building for its satellite wagering facility inMartinsville, Virginia, with interest and principal payments of $8 per month,maturing June 1, 2010, with the right to extend the term of the lease fourtimes for five year intervals, or to purchase the land and building for $700 atany time after the initial term of the lease (after June 1, 2010), withthe purchase price increasing 8% with any successive renewal term. Theeffective interest rate is 10.3%.  Eachlease renewal if elected will result in an increase in annual payments by $8over the lease term.

 

Colonial has a capitallease on the land and building for its satellite wagering facility inChesapeake, Virginia, with interest and principal payments of $6 per monthuntil October 2010, then interest and principal payments of $7 per monthuntil October 2015, with three renewal periods of five years each withmonthly payments starting at $8 per month increasing to $11 per month.  The effective interest rate is 10.5% perannum.

 

Jalou has a capital leaseon equipment at its truck plaza in Vinton, Louisiana, with interest andprincipal payments of $5 per month until May 2011, with two renewalperiods of five years each with monthly payments starting at $6 per monthincreasing to $7 per month.  Theeffective interest rate is 9.75% per annum.

 

Finally, the Company hastwo capital leases for autos with combined interest and principal payments of$1 per month until May 2011.  Theeffective interest rates are approximately 6% per annum on each lease.

 

Scheduled maturities of long-term debt and capitallease obligations as of December 31, 2008, are as follows:

 
| 2009       |   | $       | 1,339   |   |
|------------|--------|---------|---------|--------|
| 2010       |   | 2,100   |    |
| 2011       |   | 17,442  |    |
| 2012       |   | 56,808  |    |
| 2013       |   | 67      |    |
| Thereafter |   | 212,941 |    |
|       |   |    |    |
| Total      |   | $       | 290,697 |   |

 

**6**.                   **FAIR VALUE OF FINANCIALINSTRUMENTS**

 

Effective January 1, 2008, we adopted SFAS 157 for all financialand nonfinancial assets and liabilities measured at fair value on a recurringbasis.  The statement establishes a framework for measuring fairvalue and requires enhanced disclosures about fair valuemeasurements.  SFAS 157 defines fair value as the price that would bereceived to sell an asset or paid to transfer a liability (an exit price) in anorderly transaction between market participants at the measurementdate.  The statement establishes market or observable inputs as thepreferred sources of values, followed by assumptions based on hypotheticaltransactions in the absence of market inputs.  The statement establishesa hierarchy for grouping these assets and liabilities, based on thesignificance level of the following inputs:

 

·                  Level 1 — inputs are unadjusted quoted prices for *identical* assets or liabilities in active markets.

 

·                  Level 2 — inputs include quoted prices for *similar* assets and liabilities in active markets, and inputsthat are observable for the asset or liability, either directly or indirectly,for substantially the full term of the financial instrument.

 

·                  Level 3 — inputs are unobservable and consideredsignificant to the fair value measurement.

 

A financial instrument’s categorization within the hierarchy is basedupon the lowest level of input that is significant to the fair valuemeasurement.

 

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***Investment in Equity Securities***

 

During 2006, we acquired approximately three percent of the outstandingshares of MTR Gaming Group, Inc. (“MTR”), a publicly-traded gaming company.Our CEO, Jeffrey P. Jacobs, his father, as well as other entities affiliatedwith them, also invested in MTR, increasing their combined ownership to over18% of the outstanding common shares of MTR, making the group MTR’s largestshareholder. Effective May 6, 2008, our CEO was appointed to the Board ofDirectors of MTR, and effective October 31, 2008, he was appointedChairman and three of his nominees were added as Board members.  Through October 31, 2008, our investmentin MTR was accounted for as an available-for-sale investment and was recordedat fair value and included in other noncurrent assets, with unrealized gainsand losses recognized as accumulated other comprehensive income (loss).

 

During the fourth quarterof 2008, we determined that we and our affiliates had reached a level ofsignificant influence on the operations of MTR because of the foregoingfactors, which required us to account for our investment in MTR using theequity method of accounting. Alternatively, we have elected the fair value option permitted by SFAS159, and beginning November 1, 2008, we have recognized changes in thefair value of our investment in MTR as unrealized gains/losses in earningsbased on its quoted market price.

 

The fair value of ourinvestment in MTR is based entirely upon quoted market prices, which is a Level1 input.  As of December 31, 2007,the fair value of our investment in MTR was $5,524 and unrealized lossesincluded in accumulated other comprehensive loss totaled $2,419.  At June 30, 2008, we determined that thedecline in fair value was deemed to be “other-than-temporary” due to asignificant decline in the stock price of MTR over an extended period of time.Therefore, during the second quarter of 2008, we recorded an impairment of ourinvestment in MTR totaling $4,063.  Inaddition, on October 31, 2008, prior to electing the fair value optionavailable under SFAS 159, as discussed above, we recorded an additional “other-than-temporary”impairment charge of $1,700, due to the continuing decline in the stock priceof MTR.  Subsequent to electing the fairvalue option for our investment in MTR, we recorded an additional unrealizedloss on the change in the fair value of the investment totaling $814.  As of December 31, 2008, the fair valueof our investment in MTR is $1,367.

 

Consistent with therequirements of SFAS 159 and Rule 4-08(g) of Regulation S-X of theSecurities Exchange Act of 1934, following is summary level financialinformation of MTR as of December 31, 2008 and 2007 and for each of the threeyears in the period ended December 31, 2008:

 
| ** **                                | ** ** | **Years Ended December 31** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2008**                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                      |       |                                       |       |   |   |   |   |
| Net revenues                              |       | $                                          | 470,851    |   | $ | 415,846 |   | $ | 297,780 |   |
| Total operating  expenses                 |       | 432,686                                    |       | 389,268 |   | 268,800 |   |
| (Loss) income  from continuing operations |       | (15,278                                    | )          | (5,868 | ) | 7,407 |   |
| Net (loss)  income                        |       | (17,711                                    | )          | (11,359 | ) | 4,446 |   |
|                                           |            |                                            |            |  |  |  |  |  |  |  |

 
| ** **              | ** ** | **As of December 31,** | ** ** |
|-------------------------|------------|---------------------------------------|------------|
| ** **              | ** ** | **2008**                              | ** ** | **2007** | ** ** |
| Current assets          |       | $                                     | 71,095     |   | $ | 59,940 |   |
| Noncurrent  assets      |       | $                                     | 456,615    |   | $ | 551,380 |   |
| Current  liabilities    |       | $                                     | 70,688     |   | $ | 61,591 |   |
| Noncurrent  liabilities |       | $                                     | 361,419    |   | $ | 437,277 |   |

 

***Other Financial Instruments***

 

The following disclosure of estimated fair value ofour financial instruments has been determined using available marketinformation and generally accepted valuation methodologies.  However, considerable judgment is required tointerpret market data in order to develop the estimates of fair value.  Accordingly, the estimates herein are notnecessarily indicative of the amounts we could realize in a current marketexchange.

 

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The use of different market assumptions and/orestimation methodologies may have a material effect on the estimated fair valueamounts.

 

The estimated fair value of our financial instrumentsis as follows:

 
| ** **                                           | ** ** | **2008**     | ** ** | **2007**      | ** ** |
|------------------------------------------------------|------------|--------------|------------|---------------|------------|
| ** **                                           | ** ** | ** **   | ** ** | **Estimated** | ** ** | ** ** | ** ** | **Estimated** | ** ** |
| ** **                                           | ** ** | **Carrying** | ** ** | **Fair**      | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                                           | ** ** | **Amount**   | ** ** | **Value**     | ** ** | **Amount** | ** ** | **Value** | ** ** |
|                                                 |       |         |       |          |       |   |   |   |   |
| Liabilities—Debt  and capital lease obligations |       | $            | 290,697    |          | $          | 187,491 |   | $ | 299,346 |   | $ | 285,965 |   |
|                                                      |            |              |            |               |            |  |  |  |  |  |  |  |  |

 

The estimation methodologies utilized are summarizedas follows:

 

***Debt***—Thefair value of our variable rate debt is estimated to be equal to its carryingamount.  The fair value of our seniorunsecured notes issued in 2006 is based upon quoted market rates.  The fair value of other fixed rate debt isestimated based on a discounted cash flow analysis, using the prevailing marketinterest rates for debt of similar dollar amount, maturity and risk.

 

The estimated fair value of our other financialinstruments, such as cash and cash equivalents, accounts receivable andaccounts payable, have been determined to approximate carrying value based onthe short-term nature of those financial instruments.

 

**7.**                   RELATEDPARTY TRANSACTIONS

** **

In order to assist us in our efforts to research,develop, perform due diligence on and possibly acquire new gamingopportunities, we have an agreement with Jacobs Investments Management Co. Inc.(“JIMCO”), 82% of which is owned by Jeffrey P. Jacobs and the remaining 18% ofwhich is owned in equal portions by two former directors of Colonial.  This agreement calls for $1,250 per yearpayable in two equal installments of $625 on January 1st and July 1st each year plus two and one-half percent (2.5%)of budgeted development costs for projects undertaken by us, if certain debtcovenant ratios are met.  Totals incurredunder this agreement with JIMCO were $1,340, $1,609 and $1,513 for the yearsended December 31, 2008, 2007 and 2006, respectively.

 

We provide monthly management and accounting servicesfor various truck stops owned by Jacobs. Charges for these management services totaled $1,157, $1,035 and $302for the years ended December 31, 2008, 2007 and 2006, respectively.  Additionally, we provide shared services suchas a branded fuel card that can be used at the truck stops owned both by us andJacobs, and repair parts purchased by Jacobs from us.  These transactions result in receivables fromand payables to our affiliate.  As of December 31,2008 and 2007, these transactions resulted in net payables to affiliatetotaling $210 and $435, respectively.

 

During July 2006, weacquired from affiliated parties several options to lease and options topurchase six parcels of land and certain improvements on the west bank of theCuyahoga River in Cleveland, Ohio. We refer to these properties, covering anaggregate of approximately 624,000 square feet of land (14.4 acres) and abuilding comprised of 47,380 square feet of net rentable space, as the NauticaProperties. The Nautica Properties currently require aggregate option paymentstotaling $200 per year.

 

During March 2008,we exercised our option to acquire one of these parcels referred to as “Lot D.”  On April 1, 2008, we purchased this parcelfor $800.  The company that owned thisparcel of land and parking lot business was wholly owned by our Chairman andChief Executive Officer.  See Note 4above.  Additionally, on January 15,2009, we exercised our option to acquire one of these parcels referred to as “SugarWarehouse,” and on January 21, 2009, we purchased this parcel for$2,575.  The company that owned thisbuilding was 29.5% owned by our Chairman and Chief Executive Officer and 70.5%owned by third parties. An affiliate (“Affiliate”) of our Chairman and ChiefExecutive Officer is the general partner and a limited partner of the seller, alimited partnership.  Of the net proceedsfrom the sale, the Affiliate received approximately $80 (subject to

 

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increase depending on taxadjustments) attributable to its partnership interests and repayment to theAffiliate of a $504 loan.

 

The option agreementsgive us the right until July 2010 to purchase one of the remaining parcelsand the right to purchase or enter into long term leases on the remaining threeparcels.  Our Chairman and ChiefExecutive Officer owns varying interests in three of the four remainingparcels.

 

Although we may elect notto exercise all the options unless casino gaming opportunities arise, wenonetheless have the right to acquire all or part of the Nautica Properties forother purposes. If casino gaming is not legalized but we decide to exercise ouroptions, the aggregate purchase price would be approximately $3,000 for one ofthe parcels and the aggregate annual lease payments on the remaining threeparcels would be approximately $355. If all four remaining parcels arepurchased and none leased, the total purchase price would be $6,550, less anyaggregate option payments previously made. The purchase price and rent payments would be increased based onindependent appraisals of the land and improvement values if, in the future,casino gaming were to become legalized in Ohio and a casino is licensed atNautica.

 

**8.**                   COMMITMENTSAND CONTINGENCIES

** **

***Commitments***

 

Colonial has entered into an agreement with atotalisator company which provides wagering services and designs, programs, andmanufactures totalisator systems for our pari-mutuel wageringapplications.  The basic terms of theagreement state that the totalisator company shall provide totalisator servicesto Colonial for all wagering held at Colonial’s facilities to 2012, and to providereplacement equipment for existing equipment, at a rate of .385% of handle upto $270,000 in handle.  Handle above$270,000 will be charged a rate of .345%. The agreement also provides for a minimum charge per calendar year of$210.  In addition, Colonial hadagreements with a company which provides broadcasting and simulcastingequipment and services.  The agreementsfor live racing broadcasting and simulcasting services at the horse racingtrack, and equipment leases at two of the satellite wagering facilities expiredDecember 31, 2007.  We purchased theleased equipment at the two satellite wagering facilities and extended theagreement for live race broadcasting and simulcasting services for one yearthrough December 31, 2008.  Weintend to seek an additional extension to this agreement or seek an alternativevendor if terms cannot be reached. Total expense incurred for totalisator andbroadcasting and simulcasting equipment was $930, $1,145, and $1,146 for theyears ended December 31, 2008, 2007 and 2006, respectively.

 

TheInterstate Horse Racing Act requires that we secure the consent of the VirginiaHorsemen’s Benevolence and Protective Association (the “VaHBPA”) and theVirginia Harness Horse Association (“VHHA”) to the export simulcasting of races.These consents are usually contained in the agreement between each group andColonial.  We have entered into an agreement with theVHHA that expires December 31, 2011. Our agreement with the VaHBPA expired December 31, 2008.  We are currently negotiating a new contractwith the VaHBPA. ** **In the event our VaHBPA agreementcannot continue to be renewed in the future, the Virginia Racing Commissioncould suspend our licenses to operate our racetrack and the satellite wageringfacilities until an agreement is in place although it has not indicated that itwill do so. Although it is difficult to predict the likelihood of such anevent, closure of the satellite wagering facilities would be detrimental to thehorsemen’s groups and Colonial since each horsemen’s group’s primary source ofpurse funds is its percentage of wagering at the satellite facilities.

 

Additionally, under Louisianalaw, video poker machines must be owned by Louisiana residents. TheJalou truck plaza video gaming facilities pay a fee to the third party owner ofthe machines in order to maintain the machines used in our truck plazaoperations, plus reimbursement for the owner’s licensing costs and variousother expenses.  Total expense underthese obligations was $1,273, $1,268 and$1,180 for the years ended December 31, 2008, 2007 and 2006, respectively.

 

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***Operating Leases***

 

Our operating leases include various land and buildingleases for certain properties in Nevada, Louisiana and Virginia, leases foroffice space in Colorado, Louisiana, Virginia and Florida, as well as leasesfor automobiles and other property and equipment at all locations, expiring atvarious dates.  Total expense under thesenon-cancelable operating leases was $2,968,$2,948 and $2,359 for the years ended December 31, 2008, 2007 and2006, respectively.

 

The future minimum commitments relating to JEI’snon-cancelable operating agreements and leases are as follows:

 
| **Years Ending December 31** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
|                                        |       |       |       |
| 2009                                        |       | $          | 2,699      |   |
| 2010                                        |       | 2,551      |       |
| 2011                                        |       | 1,986      |       |
| 2012                                        |       | 1,793      |       |
| 2013                                        |       | 1,774      |       |
| Thereafter                                  |       | 26,159     |       |
|                                        |       |       |       |
| Total                                       |       | $          | 36,962     |   |

 

***Capital Leases***

 

The following is an analysis of the leased propertyunder capital leases:

 
| **Class of Property**             | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land                                        |       | $          | 1,523      |       | $          | 1,523 |   |
| Buildings                                   |       | 2,095      |       | 2,095      |       |
| Equipment and  furniture and fixtures       |       | 255        |       | 255        |       |
| Other                                       |       | 72         |       | 72         |       |
| Less:  accumulated depreciation             |       | (398       | )          | (235       | )          |
|                                        |       |       |       |       |       |
| Total leased  property under capital leases |       | $          | 3,547      |       | $          | 3,710 |   |

 

As of December 31, 2008, the following is aschedule by years of future minimum lease payments under capital leasestogether with the net present value of the minimum lease payments:

 
| **Years Ending December 31**                             | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|
|                                                                    |       |       |       |   |
| 2009                                                                    |       | $          | 622        |   |
| 2010                                                                    |       | 1,299      |       |
| 2011                                                                    |       | 520        |       |
| 2012                                                                    |       | 474        |       |
| 2013                                                                    |       | 474        |       |
| Thereafter                                                              |       | 5,748      |       |
|                                                                    |       |       |       |
| Total future  minimum lease payments                                    |       | 9,137      |       |
|                                                                    |       |       |       |
| Less amount  representing interest ranging from 6.3% to 16.9% per annum |       | 5,052      |       |
|                                                                    |       |       |       |
| Net present  value of minimum lease payments                            |       | $          | 4,085      |   |

 

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***Contingencies***

 

We are involved inroutine litigation arising in the ordinary course of our business pertaining toworkers compensation claims, equal opportunity employment issues, or guestinjury claims.  All such claims areroutinely turned over to our insurance providers.  None of the claims is expected to have amaterial impact on our financial position, results of operations or cashflows.  We believe these matters arecovered by appropriate insurance policies.

 

**9.**                   COMMON STOCK

** **

Effective January 31, 2007, we became awholly-owned subsidiary of JII, which in turn was 50% owned by Jeffrey P.Jacobs, our Chief Executive Officer, and two of his family trusts, and 50%owned by a revocable trust and an irrevocable trust established by Richard E.Jacobs. On October 1, 2008, JII redeemed the shares owned by the RichardE. Jacobs Revocable Trust in exchange for a $5,200 promissory note fromJII.  As a result, effective October 1,2008, 80% of the Class A shares of JII are owned by Jeffrey P. Jacobs, ourChief Executive Officer, and two of his family trusts, and 20% of the Class Ashares are owned by an irrevocable trust established by his father, Richard E.Jacobs, of which Jeffrey P. Jacobs is the sole trustee. Additionally, JeffreyP. Jacobs and his family trusts own all 180 outstanding shares of JII’s Class Bcommon stock.

 

**10.**            EMPLOYEEBENEFIT PLANS

** **

On January 1, 1997, the Gilpin Hotel CasinoEmployees’ 401(k) Plan (renamed 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 JEI, TheLodge, the Gilpin, Gold Dust West-Reno, Gold Dust West-Carson City, Gold DustWest-Elko, Jalou and Colonial.  The Planallows eligible employees to make tax-deferred contributions that are matchedby us up to a specified level.  Wecontributed approximately $540, $412, and $357 to the Plan for the years ended December 31,2008, 2007 and 2006, respectively.

 

**11.**            CONSTITUTIONALAMENDMENTS

** **

During 2008, we providedfinancial support for a proposed constitutional amendment that would increasethe types of games, wagering limits and hours of operation at Coloradocasinos.  Colorado residents approved theproposed constitutional amendment on November 4, 2008.  The amendment was subsequently voted upon andapproved by the residents of each of the three gaming towns in Colorado (BlackHawk, Central City and Cripple Creek). The new gaming regulation, which will be effective on July 2, 2009at Colorado casinos, allows for the introduction of craps and roulette,increases the maximum wager limit to one hundred dollars, allows 24-hour gamingoperations, and sets a maximum gaming tax rate of 20%.  The Colorado Division of Gaming has commencedrevisions of the Internal Control Minimum Procedures which will govern theprocedures encompassing the new games, limits and hours.  For the year ended December 31, 2008, wefunded a total of $1,371 in support of this amendment.

 

During 2006, we provided support for a proposedconstitutional amendment in Ohio that would have allowed slot machines at thestate’s seven existing racetracks and two locations in downtown Cleveland.  Ohio residents voted on the proposedconstitutional amendment on November 7, 2006 and the amendment was notapproved by voters.  For the year ended December 31,2006, we funded a total of $3,255 in support of this amendment.

 

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**12.**            ABANDONMENTCOSTS

** **

**On November 10,2008, we closed one of our two satellite wagering facilities in Chesapeake,Virginia. We recorded an impairment of leasehold improvements at this locationtotaling $783 in the fourth quarter of 2008. Additionally, we incurred costs for the termination of the operatinglease and severance totaling $46 in the fourth quarter of 2008.**

** **

**13.**            INCOME TAXES

** **

On March 11,2002, we received notice from the Internal Revenue Service assertingdeficiencies in federal corporate income taxes for a subsidiary’s 1998 taxyear.  The proposed adjustment related tothe deductibility of depreciation taken against certain costs incurred by TheLodge to build and improve public assets. During 2005, we settled this issue with the Internal Revenue Service andrecorded a charge to earnings totaling $423. During 2006, we received a tax refund of a portion of this chargetotaling $103.

 

**14.**            HURRICANE

** **

During the third quarter of 2008, hurricanes Gustavand Ike struck certain of our Louisiana operations causing minimal damage.  Our damages totaled approximately $213.  We received insurance proceeds related to thedamages totaling $462 during January and February 2009.

 

**15.**            SEGMENTINFORMATION

** **

Our Chief Executive Officer (“CEO”) is our chiefoperating decision maker. Our casino properties in Colorado (The Lodge andGilpin casinos) and Nevada (the Gold Dust West-Reno, Gold Dust West-Carson Cityand Gold Dust West-Elko casinos) are managed by our Chief Operating Officer (“COO”)who is located in our Golden, Colorado corporate offices.  Further, our 19 video poker truck plazaoperations are also managed by our COO. Additionally, we have two Regional Vice Presidents who report to the COOand assist in managing these operations. Our COO reports to our President, whois also located in Golden, Colorado.  OurPresident reports directly to our CEO. Our Virginia racetrack and satellitewagering facilities are managed by our on-site President of Pari-MutuelOperations, and he also reports directly to our CEO. Our management teamconducts monthly video conferencing and teleconferencing calls with our CEO.

 

At December 31, 2008, 2007 and 2006, we have foursegments representing the geographic regions of our operations. Each segment ismanaged separately because of the unique characteristics of its revenue streamand customer base.

 

We have aggregated our operations into the foursegments based on similarities in the nature of the properties’ businesses,customers and regulatory environment in which each property operates. TheColorado segment consists of The Lodge and Gilpin casinos.  Our Nevada segment includes the Gold DustWest-Reno, Gold Dust West-Carson City and Gold Dust West-Elko casinos.  The Louisiana operations consist of our truckplaza/video poker facilities, and the Virginia segment consists of Colonial’spari-mutuel operations and its satellite wagering facilities.

 

The accounting policies of the segments are the sameas those described in Note 2.  Thecorporate adjustments, eliminations and other represent all other income andexpenses, and are also presented.  

 

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**As of andfor the Year Ended December 31,2008**

 
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Corporate**      | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|---------------|------------|--------------|------------|--------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Adjustments,**   | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Eliminations**   | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Louisiana** | ** ** | **Virginia** | ** ** | **and Other** | ** ** | **Total**  | ** ** |
| Revenues                                      |       |         |       |       |       |          |       |         |       |               | ** ** | ** ** | ** ** |
| Gaming                                        |       |         |       |       |       |          |       |         |       |               | ** ** | ** ** | ** ** |
| Casino                                        |       | $            | 100,807    |       | $          | 38,685        |       |         |       |               |       |       |       | $ | 139,492 |   |
| Truck stop                                    |       |         |       |       |       | $             | 67,590     |         |       |               |       |       | 67,590     |   |
| Pari-mutuel                                   |       |         |       |       |       |          |       | $            | 38,657     |               |       |       | 38,657     |   |
| Food and  beverage                            |       | 10,812       |       | 8,757      |       | 8,264         |       | 2,903        |       |               |       | 30,736     |       |
| Convenience  store — fuel                |       |         |       |       |       | 97,021        |       |         |       |               |       | 97,021     |       |
| Convenience  store — other               |       |         |       |       |       | 12,908        |       |         |       |               |       | 12,908     |       |
| Hotel                                         |       | 1,946        |       | 2,155      |       |          |       |         |       |               |       | 4,101      |       |
| Other                                         |       | 927          |       | 1,420      |       | 1,311         |       | 2,032        |       | $                  | 47         |       | 5,737      |   |
| Total revenues                                |       | 114,492      |       | 51,017     |       | 187,094       |       | 43,592       |       | 47                 |       | 396,242    |       |
| Less:  Promotional allowances                 |       | (20,439      | )          | (8,286     | )          | (4,993        | )          |         |       |               |       | (33,718    | )          |
| Net revenues                                  |       | $            | 94,053     |       | $          | 42,731        |       | $            | 182,101    |               | $          | 43,592     |       | $ | 47 |   | $ | 362,524 |   |
|                                          |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Depreciation and  amortization                |       | $            | 6,823      |       | $          | 6,032         |       | $            | 4,219      |               | $          | 2,114      |       | $ | 747 |   | $ | 19,935 |   |
| Interest income                               |       | $            | 3          |       | $          | 4             |       | $            | 19         |               | $          | 83         |       | $ | 85 |   | $ | 194 |   |
| Interest  expense, net of amounts capitalized |       | $            | 8,621      |       | $          | 5,577         |       | $            | 4,894      |               | $          | 603        |       | $ | 7,726 |   | $ | 27,421 |   |
| Net income  (loss)                            |       | $            | 15,725     |       | $          | (5,357        | )          | $            | 12,594     |               | $          | (2,035     | )          | $ | (25,065 | ) | $ | (4,138 | ) |
| EBITDA(1)                                     |       | $            | 31,166     |       | $          | 6,248         |       | $            | 21,688     |               | $          | 599        |       | $ | (16,677 | ) | $ | 43,024 |   |
|                                          |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Goodwill                                      |       | $            | 6,711      |       | $          | 8,836         |       | $            | 30,924     |               |       |       |       |   | $ | 46,471 |   |
| Identifiable  intangible assets, net          |       |         |       |       |       | $             | 9,192      |         |       |               |       |       | $          | 9,192 |   |
| Property, plant  and equipment, net           |       | $            | 90,574     |       | $          | 44,241        |       | $            | 40,517     |               | $          | 64,106     |       | $ | 5,169 |   | $ | 244,607 |   |
| Total assets                                  |       | $            | 110,441    |       | $          | 61,552        |       | $            | 90,396     |               | $          | 69,453     |       | $ | 10,687 |   | $ | 342,529 |   |
| Long-term debt                                |       | $            | 85,655     |       | $          | 61,556        |       | $            | 51,174     |               | $          | 5,644      |       | $ | 85,329 |   | $ | 289,358 |   |
| Capital  expenditures                         |       | $            | 5,348      |       | $          | 5,138         |       | $            | 2,561      |               | $          | 781        |       | $ | 3,350 |   | $ | 17,178 |   |

 

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Tableof Contents

 

**As of andfor the Year Ended December 31,2007**

 
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Corporate**      | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|---------------|------------|--------------|------------|--------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Adjustments,**   | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Eliminations**   | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Louisiana** | ** ** | **Virginia** | ** ** | **and Other** | ** ** | **Total**  | ** ** |
| Revenues:                                     |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Gaming                                        |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Casino                                        |       | $            | 106,409    |       | $          | 38,247        |       |         |       |               |       |       |       | $ | 144,656 |   |
| Truck stop                                    |       |         |       |       |       | $             | 64,322     |         |       |               |       |       | 64,322     |   |
| Pari-mutuel                                   |       |         |       |       |       |          |       | $            | 41,309     |               |       |       | 41,309     |   |
| Food and  beverage                            |       | 9,944        |       | 8,315      |       | 7,974         |       | 3,027        |       |               |       | 29,260     |       |
| Convenience  store — fuel                |       |         |       |       |       | 81,329        |       |         |       |               |       | 81,329     |       |
| Convenience  store — other               |       |         |       |       |       | 11,133        |       |         |       |               |       | 11,133     |       |
| Hotel                                         |       | 1,939        |       | 2,476      |       |          |       |         |       |               |       | 4,415      |       |
| Other                                         |       | 848          |       | 1,434      |       | 1,089         |       | 1,986        |       | $                  | 30         |       | 5,387      |   |
| Total revenues                                |       | 119,140      |       | 50,472     |       | 165,847       |       | 46,322       |       | 30                 |       | 381,811    |       |
| Less:  Promotional allowances                 |       | (19,766      | )          | (7,410     | )          | (4,777        | )          |         |       |               |       | (31,953    | )          |
| Net revenues                                  |       | $            | 99,374     |       | $          | 43,062        |       | $            | 161,070    |               | $          | 46,322     |       | $ | 30 |   | $ | 349,858 |   |
|                                          |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Depreciation and  amortization                |       | $            | 6,172      |       | $          | 5,313         |       | $            | 3,848      |               | $          | 2,065      |       | $ | 706 |   | $ | 18,104 |   |
| Interest income                               |       | $            | 46         |       | $          | 40            |       | $            | 87         |               | $          | 113        |       | $ | 59 |   | $ | 345 |   |
| Interest  expense, net of amounts capitalized |       | $            | 8,821      |       | $          | 5,956         |       | $            | 4,861      |               | $          | 599        |       | $ | 8,175 |   | $ | 28,412 |   |
| Net income  (loss)                            |       | $            | 18,474     |       | $          | (5,592        | )          | $            | 10,677     |               | $          | (1,150     | )          | $ | (17,397 | ) | $ | 5,012 |   |
| EBITDA(1)                                     |       | $            | 33,421     |       | $          | 5,637         |       | $            | 19,299     |               | $          | 1,401      |       | $ | (8,575 | ) | $ | 51,183 |   |
|                                          |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Goodwill                                      |       | $            | 6,711      |       | $          | 9,035         |       | $            | 30,924     |               |       |       |       |   | $ | 46,670 |   |
| Identifiable  intangible assets, net          |       |         |       |       |       | $             | 9,491      |         |       |               |       |       | $          | 9,491 |   |
| Property, plant  and equipment, net           |       | $            | 93,593     |       | $          | 45,458        |       | $            | 40,727     |               | $          | 66,381     |       | $ | 2,542 |   | $ | 248,701 |   |
| Total assets                                  |       | $            | 114,615    |       | $          | 64,430        |       | $            | 92,650     |               | $          | 71,991     |       | $ | 12,229 |   | $ | 355,915 |   |
| Long-term debt                                |       | $            | 86,680     |       | $          | 61,773        |       | $            | 51,227     |               | $          | 5,669      |       | $ | 92,696 |   | $ | 298,045 |   |
| Capital  expenditures                         |       | $            | 7,925      |       | $          | 17,075        |       | $            | 2,016      |               | $          | 939        |       | $ | 341 |   | $ | 28,296 |   |

 

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Tableof Contents

 

**As of andfor the Year Ended December 31,2006**

 
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Corporate**      | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|---------------|------------|--------------|------------|--------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Adjustments,**   | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Eliminations**   | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Louisiana** | ** ** | **Virginia** | ** ** | **and Other** | ** ** | **Total**  | ** ** |
| Revenues                                      |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Gaming                                        |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Casino                                        |       | $            | 94,547     |       | $          | 26,936        |       |         |       |               |       |       |       | $ | 121,483 |   |
| Truck stop                                    |       |         |       |       |       | $             | 66,418     |         |       |               |       |       | 66,418     |   |
| Pari-mutuel                                   |       |         |       |       |       |          |       | $            | 39,787     |               |       |       | 39,787     |   |
| Food and  beverage                            |       | 9,997        |       | 4,953      |       | 7,296         |       | 2,823        |       |               |       | 25,069     |       |
| Convenience  store — fuel                |       |         |       |       |       | 77,520        |       |         |       |               |       | 77,520     |       |
| Convenience  store — other               |       |         |       |       |       | 10,611        |       |         |       |               |       | 10,611     |       |
| Hotel                                         |       | 1,887        |       | 1,622      |       |          |       |         |       |               |       | 3,509      |       |
| Other                                         |       | 827          |       | 705        |       | 948           |       | 1,939        |       | $                  | 32         |       | 4,451      |   |
| Total revenues                                |       | 107,258      |       | 34,216     |       | 162,793       |       | 44,549       |       | 32                 |       | 348,848    |       |
| Less:  Promotional allowances                 |       | (17,698      | )          | (4,806     | )          | (3,934        | )          |         |       |               |       | (26,438    | )          |
| Net revenues                                  |       | $            | 89,560     |       | $          | 29,410        |       | $            | 158,859    |               | $          | 44,549     |       | $ | 32 |   | $ | 322,410 |   |
|                                          |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Depreciation and  amortization                |       | $            | 5,535      |       | $          | 2,266         |       | $            | 3,712      |               | $          | 2,069      |       | $ | 523 |   | $ | 14,105 |   |
| Interest income                               |       | $            | 47         |       | $          | 49            |       | $            | 121        |               | $          | 78         |       | $ | 87 |   | $ | 382 |   |
| Interest  expense, net of amounts capitalized |       | $            | 13,141     |       | $          | 4,771         |       | $            | 4,484      |               | $          | 627        |       | $ | 9,630 |   | $ | 32,653 |   |
| Income tax  benefit                           |       |         |       |       |       |          |       |         |       | $                  | 103        |       | $          | 103 |   |
| Net income  (loss)                            |       | $            | 8,487      |       | $          | (416          | )          | $            | 15,037     |               | $          | (1,755     | )          | $ | (31,181 | ) | $ | (9,828 | ) |
| EBITDA(1)                                     |       | $            | 27,116     |       | $          | 6,572         |       | $            | 23,112     |               | $          | 863        |       | $ | (21,218 | ) | $ | 36,445 |   |
|                                          |       |         |       |       |       |          |       |         |       |               |       |       |       |
| Goodwill                                      |       | $            | 6,711      |       | $          | 9,013         |       | $            | 28,292     |               |       |       |       |   | $ | 44,016 |   |
| Identifiable  intangible assets, net          |       |         |       |       |       | $             | 9,653      |         |       |               |       |       | $          | 9,653 |   |
| Property, plant  and equipment, net           |       | $            | 91,557     |       | $          | 36,973        |       | $            | 39,739     |               | $          | 67,717     |       | $ | 2,893 |   | $ | 238,879 |   |
| Total assets                                  |       | $            | 111,909    |       | $          | 53,551        |       | $            | 92,153     |               | $          | 73,785     |       | $ | 19,432 |   | $ | 350,830 |   |
| Long-term debt                                |       | $            | 87,255     |       | $          | 62,191        |       | $            | 47,754     |               | $          | 5,727      |       | $ | 81,540 |   | $ | 284,467 |   |
| Capital  expenditures                         |       | $            | 7,473      |       | $          | 10,151        |       | $            | 2,277      |               | $          | 1,919      |       | $ | 2,537 |   | $ | 24,357 |   |

 

----

(1)          EBITDA(earnings before interest, income taxes, depreciation and amortization) ispresented as supplemental information in the tables above as it is a keymeasure of operating performance used by our chief operating decisionmaker.  EBITDA can be reconciled directlyto our consolidated net income (loss) by adding the amounts shown fordepreciation, amortization, income taxes and interest to net income (loss).  This information should not be considered asan alternative to any measure of performance as promulgated under accountingprinciples generally accepted in the United States of America, such as netincome (loss), nor should it be considered as an indicator of our overallfinancial performance.  Our calculationof EBITDA may be different from the calculation used by other companies andcomparability may be limited.  Managementbelieves that presentation of a non-GAAP financial measure such as EBITDA isuseful because it allows holders of our debt and management to evaluate andcompare our operating results from continuing operations from period to periodin a meaningful and consistent manner in addition to standard GAAP financialmeasures.  Management internallyevaluates the performance of our segments using EBITDA measures as do mostanalysts following the gaming industry. EBITDA is also a key component of certain financial covenants in ourdebt agreements.

 

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**16.**            CONDENSEDCONSOLIDATING FINANCIAL INFORMATION

** **

On June 16, 2006, we completed a debt refinancingin the form of secured and unsecured indebtedness.  The secured portion of our indebtedness,which was with a bank syndicate group, consists of a $100,000 senior securedcredit facility comprising: (1) a $40,000 six-year term loan facility; (2) a$40,000 five-year revolving credit facility; and (3) a $20,000 six-yeardelayed draw term loan facility.  Theunsecured portion of our debt is in the form of $210,000 of 93⁄4% unsecuredsenior notes.  The senior secured creditfacility and the unsecured senior notes are both guaranteed by our current andfuture restricted subsidiaries.  Eachsubsidiary guarantor is 100% owned by the parent company, all guarantees arefull and unconditional and joint and several, and all subsidiaries of JEIguarantee the securities.

 

Thefollowing information sets forth our Condensed Consolidating Balance Sheets asof December 31, 2008 and 2007, and the Condensed Consolidating Statementsof Operations and the Condensed Consolidating Statements of Cash Flows for thethree years ended December 31, 2008 as required by Rule 3-10 ofRegulation S-X of the Securities Exchange Act of 1934, as amended.  Investments in our subsidiaries are accountedfor on the equity method.  Accordingly,entries necessary to consolidate the Parent Company Issuer and our SubsidiaryGuarantors are reflected in the eliminations column.

 

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Tableof Contents

 

**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATING BALANCE SHEETS**

 

**AS OF DECEMBER 31, 2008**

 
| ** **                                             | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                             | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                             |       |        |       |           |       |             |       |             |       |
| Current assets                                         |       | $           | 1,026      |           | $          | 31,526           |       |             |       | $ | 32,552 |   |
| Property, plant  and equipment, net                    |       | 1,984       |       | 242,623        |       |             |       | 244,607          |       |
| Net investment  in and advances to subsidiaries        |       | 106,787     |       |           |       | $                | (106,787   | )                | —     |   |
| Other long-term  assets                                |       | 4,255       |       | 61,115         |       |             |       | 65,370           |       |
| **Total  assets**                                      |       | $           | 114,052    |           | $          | 335,264          |       | $                | (106,787   | ) | $ | 342,529 |   |
|                                                   |       |        |       |           |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**         |       |        |       |           |       |             |       |             |       |
| Current  liabilities                                   |       | $           | 3,797      |           | $          | 23,577           |       |             |       | $ | 27,374 |   |
| Long-term debt                                         |       | 284,511     |       | 4,847          |       |             |       | 289,358          |       |
| Long-term debt  (receivable from) payable to affiliate |       | (199,182    | )          | 199,182        |       |             |       | —           |       |
| Other long-term  liabilities                           |       | 20          |       | 871            |       |             |       | 891              |       |
| Stockholder’s  equity                             |       | 24,906      |       | 106,787        |       | $                | (106,787   | )                | 24,906     |   |
| **Total  liabilities and stockholder’s equity**   |       | $           | 114,052    |           | $          | 335,264          |       | $                | (106,787   | ) | $ | 342,529 |   |

 

**AS OF DECEMBER 31, 2007**

 
| ** **                                             | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                             | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                             | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                             |       |        |       |           |       |             |       |             |       |
| Current assets                                         |       | $           | 439        |           | $          | 35,078           |       |             |       | $ | 35,517 |   |
| Property, plant  and equipment, net                    |       | 2,400       |       | 246,301        |       |             |       | 248,701          |       |
| Net investment  in and advances to subsidiaries        |       | 112,456     |       |           |       | $                | (112,456   | )                | —     |   |
| Other long-term  assets                                |       | 9,247       |       | 62,450         |       |             |       | 71,697           |       |
| **Total  assets**                                      |       | $           | 124,542    |           | $          | 343,829          |       | $                | (112,456   | ) | $ | 355,915 |   |
|                                                   |       |        |       |           |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**         |       |        |       |           |       |             |       |             |       |
| Current  liabilities                                   |       | $           | 3,410      |           | $          | 25,345           |       |             |       | $ | 28,755 |   |
| Long-term debt                                         |       | 292,078     |       | 5,967          |       |             |       | 298,045          |       |
| Long-term debt  (receivable from) payable to affiliate |       | (199,382    | )          | 199,382        |       |             |       | —           |       |
| Other long-term  liabilities                           |       | 11          |       | 679            |       |             |       | 690              |       |
| Stockholder’s  equity                             |       | 28,425      |       | 112,456        |       | $                | (112,456   | )                | 28,425     |   |
| **Total  liabilities and stockholder’s equity**   |       | $           | 124,542    |           | $          | 343,829          |       | $                | (112,456   | ) | $ | 355,915 |   |

 

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**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS**

 

**FOR THE YEAR ENDED DECEMBER 31, 2008**

 
| ** **                          | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|-------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                          | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net revenues                        |       |        |       | $              | 362,549    |             | $          | (25              | )          | $ | 362,524 |   |
| Costs and  expenses                 |       | $           | (17,450    | )              | (322,010   | )                | 25         |             | (339,435   | ) |
| Interest  expense, net              |       | (6,048      | )          | (21,179        | )          |             |       | (27,227          | )          |
| Equity in  earnings of subsidiaries |       | 19,360      |       |           |       | (19,360          | )          |             |       |
| Net income  (loss)                  |       | $           | (4,138     | )              | $          | 19,360           |       | $                | (19,360    | ) | $ | (4,138 | ) |

 

**FOR THE YEAR ENDED DECEMBER 31, 2007**

 
| ** **                          | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|-------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                          | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net revenues                        |       |        |       | $              | 349,908    |             | $          | (50              | )          | $ | 349,858 |   |
| Costs and  expenses                 |       | $           | (9,328     | )              | (307,501   | )                | 50         |             | (316,779   | ) |
| Interest  expense, net              |       | (6,527      | )          | (21,540        | )          |             |       | (28,067          | )          |
| Equity in  earnings of subsidiaries |       | 20,867      |       |           |       | (20,867          | )          |             |       |
| Net income  (loss)                  |       | $           | 5,012      |           | $          | 20,867           |       | $                | (20,867    | ) | $ | 5,012 |   |

 

**FOR THE YEAR ENDED DECEMBER 31, 2006**

 
| ** **                                       | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                       | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net revenues                                     |       |        |       | $              | 322,435    |             | $          | (25              | )          | $ | 322,410 |   |
| Costs and  expenses                              |       | $           | (12,441    | )              | (278,333   | )                | 25         |             | (290,749   | ) |
| Interest  expense, net                           |       | (7,953      | )          | (24,318        | )          |             |       | (32,271          | )          |
| Pre-payment  penalties, tender and consent costs |       | (9,321      | )          |           |       |             |       | (9,321           | )          |
| Equity in  earnings of subsidiaries              |       | 19,784      |       |           |       | (19,784          | )          |             |       |
| Income (loss)  before income taxes               |       | (9,931      | )          | 19,784         |       | (19,784          | )          | (9,931           | )          |
| Income tax  benefit                              |       | 103         |       |           |       |             |       | 103              |       |
| Net income  (loss)                               |       | $           | (9,828     | )              | $          | 19,784           |       | $                | (19,784    | ) | $ | (9,828 | ) |

 

F-31

----

Tableof Contents

 

**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATING****STATEMENTS OF CASH FLOWS**

**FOR THE YEAR ENDED DECEMBER 31, 2008**

 
| ** **                                               | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                               | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **Net  cash provided by operating activities**           |       | $           | 20,504     |           | $          | 5,052            |       | $                |       |   | $ | 25,556 |   |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **INVESTING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Additions to  property, plant and equipment              |       | (301        | )          | (16,877        | )          |             |       | (17,178          | )          |
| Proceeds from  sale of equipment                         |       |        |       | 370            |       |             |       | 370              |       |
| Purchase of  device rights                               |       |        |       | (900           | )          |             |       | (900             | )          |
| **Net  cash used in investing activities**               |       | (301        | )          | (17,407        | )          |             |       | (17,708          | )          |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **FINANCING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Proceeds from  revolving line of credit                  |       | 20,038      |       |           |       |             |       | 20,038           |       |
| Payments on  long-term debt                              |       | (405        | )          | (1,288         | )          |             |       | (1,693           | )          |
| Payments on  revolving line of credit                    |       | (27,000     | )          |           |       |             |       | (27,000          | )          |
| Net advances  to/from subsidiaries                       |       | (10,784     | )          | 10,784         |       |             |       |             |       |
| Distributions to  stockholders                           |       | (1,800      | )          |           |       |             |       | (1,800           | )          |
| **Net  cash (used in) provided by financing activities** |       | (19,951     | )          | 9,496          |       |             |       | (10,455          | )          |
|                                                     |       |        |       |           |       |             |       |             |       |
| Net Increase  (Decrease) in Cash and Cash Equivalents    |       | 252         |       | (2,859         | )          |             |       | (2,607           | )          |
| Cash and Cash  Equivalents — Beginning of Year      |       | 235         |       | 24,162         |       |             |       | 24,397           |       |
| Cash and Cash  Equivalents — End of Year            |       | $           | 487        |           | $          | 21,303           |       | $                |       |   | $ | 21,790 |   |

 

F-32

----

Tableof Contents

 

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATING****STATEMENTS OF CASH FLOWS**

**FOR THE YEAR ENDED DECEMBER 31, 2007**

 
| ** **                                               | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                               | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **Net  cash provided by operating activities**           |       | $           | 19,265     |           | $          | 9,868            |       | $                |       |   | $ | 29,133 |   |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **INVESTING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Additions to  property, plant and equipment              |       | (322        | )          | (27,974        | )          |             |       | (28,296          | )          |
| Proceeds from  sale of equipment                         |       | 115         |       | 165            |       |             |       | 280              |       |
| Purchase of  device rights                               |       |        |       | (1,002         | )          |             |       | (1,002           | )          |
| Acquisitions of  truck stops, net of cash acquired       |       |        |       | (4,234         | )          |             |       | (4,234           | )          |
| **Net  cash used in investing activities**               |       | (207        | )          | (33,045        | )          |             |       | (33,252          | )          |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **FINANCING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Payments to  obtain financing                            |       | (342        | )          |           |       |             |       | (342             | )          |
| Proceeds from  revolving line of credit                  |       | 38,500      |       |           |       |             |       | 38,500           |       |
| Payments on  long-term debt                              |       | (608        | )          | (886           | )          |             |       | (1,494           | )          |
| Payments on  revolving line of credit                    |       | (15,000     | )          |           |       |             |       | (15,000          | )          |
| Net advances  to/from subsidiaries                       |       | (25,782     | )          | 25,782         |       |             |       |             |       |
| Distributions to  stockholders                           |       | (17,443     | )          |           |       |             |       | (17,443          | )          |
| **Net  cash (used in) provided by financing activities** |       | (20,675     | )          | 24,896         |       |             |       | 4,221            |       |
|                                                     |       |        |       |           |       |             |       |             |       |
| Net (Decrease)  Increase in Cash and Cash Equivalents    |       | (1,617      | )          | 1,719          |       |             |       | 102              |       |
| Cash and Cash  Equivalents — Beginning of Year      |       | 1,852       |       | 22,443         |       |             |       | 24,295           |       |
| Cash and Cash  Equivalents — End of Year            |       | $           | 235        |           | $          | 24,162           |       | $                |       |   | $ | 24,397 |   |

 

F-33

----

Tableof Contents

 

**JACOBS ENTERTAINMENT, INC. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATING****STATEMENTS OF CASH FLOWS**

**FOR THE YEAR ENDED DECEMBER 31, 2006**

 
| ** **                                               | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                               | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                     |       |        |       |           |       |             |       |             |       |
| **Net  cash (used in) provided by operating activities** |       | $           | (229       | )              | $          | 4,841            |       | $                |       |   | $ | 4,612 |   |
|                                                     |       |        |       |           |       |             |       |             |       |
| **INVESTING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Additions to  property, plant and equipment              |       | (2,537      | )          | (21,820        | )          |             |       | (24,357          | )          |
| Proceeds from  sale of equipment                         |       |        |       | 72             |       |             |       | 72               |       |
| Purchase of  device rights                               |       |        |       | (868           | )          |             |       | (868             | )          |
| Purchase of  available-for-sale securities               |       | (7,943      | )          |           |       |             |       | (7,943           | )          |
| Acquisitions,  net of cash acquired:                     |       |        |       |           |       |             |       |             |       |
| Casino                                                   |       |        |       | (14,702        | )          |             |       | (14,702          | )          |
| Truck stops                                              |       |        |       | (6,250         | )          |             |       | (6,250           | )          |
| **Net  cash used in investing activities**               |       | (10,480     | )          | (43,568        | )          |             |       | (54,048          | )          |
|                                                     |       |        |       |           |       |             |       |             |       |
| **FINANCING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Proceeds from  note issuance                             |       | 210,000     |       |           |       |             |       | 210,000          |       |
| Payments to  obtain financing                            |       | (4,147      | )          | (6,268         | )          |             |       | (10,415          | )          |
| Proceeds from  long-term debt                            |       | 60,000      |       |           |       |             |       | 60,000           |       |
| Proceeds from  revolving line of credit                  |       | 26,461      |       |           |       |             |       | 26,461           |       |
| Capital  contributions from stockholders                 |       |        |       | 591            |       |             |       | 591              |       |
| Payments on  long-term debt                              |       | (148,200    | )          | (24,280        | )          |             |       | (172,480         | )          |
| Payments on  revolving line of credit                    |       | (31,051     | )          |           |       |             |       | (31,051          | )          |
| Net advances  to/from subsidiaries                       |       | (67,985     | )          | 67,985         |       |             |       |             |       |
| Distributions to  stockholders                           |       | (33,205     | )          |           |       |             |       | (33,205          | )          |
| **Net  cash provided by financing activities**           |       | 11,873      |       | 38,028         |       |             |       | 49,901           |       |
|                                                     |       |        |       |           |       |             |       |             |       |
| Net Increase  (Decrease) in Cash and Cash Equivalents    |       | 1,164       |       | (699           | )          |             |       | 465              |       |
| Cash and Cash  Equivalents — Beginning of Year      |       | 688         |       | 23,142         |       |             |       | 23,830           |       |
| Cash and Cash  Equivalents — End of Year            |       | $           | 1,852      |           | $          | 22,443           |       | $                |       |   | $ | 24,295 |   |

 

******

 

F-34

----

Tableof Contents

 

**EXHIBIT INDEX**

 
| 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. (merged  out of existence on December 31, 2007)                                                                                                   |
|             |       |                                                                                                                                                                                              |
| 3.13(1)          |       | By-Laws of Jalou II Inc. (merged out of existence on  December 31, 2007)                                                                                                                     |
|             |       |                                                                                                                                                                                              |
| 3.14(1)          |       | Articles of Incorporation of Winner’s Choice  Casino, Inc., now Cash Magic Winner’s Choice, LLC                                                                                    |
|             |       |                                                                                                                                                                                              |
| 3.15(1)          |       | By-Laws of Winner’s Choice Casino, Inc., now  Cash Magic Winner’s Choice, LLC                                                                                                      |
|             |       |                                                                                                                                                                                              |
| 3.16(1)          |       | Articles of Organization of Diversified  Opportunities Group Ltd. (dissolved December 31, 2007)                                                                                              |
|             |       |                                                                                                                                                                                              |
| 3.17(1)          |       | Articles of Organization of Jalou L.L.C. (dissolved  December 31, 2007)                                                                                                                      |
|             |       |                                                                                                                                                                                              |
| 3.18(1)          |       | Articles of Organization of Houma Truck  Plaza & Casino, L.L.C.                                                                                                                          |

 

E-1

----

Tableof Contents

 
| 3.19(1)   |   | Articles of Organization of Jalou-Cash’s L.L.C.                                                                        |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                        |
| 3.20(1)   |   | Articles of Incorporation of JACE, Inc.  (converted to LLC, Exhibit 3.24)                                         |
|      |   |                                                                                                                        |
| 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 Organization of JACE, LLC (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                                          |
|      |   |                                                                                                                        |
| 3.40(10)  |   | Certificate of Amendment of Certificate of  Incorporation of Jacobs Entertainment, Inc. dated September 27,  2005 |
|      |   |                                                                                                                        |
| 3.41(10)  |   | Articles of Incorporation of Jacobs Piñon Plaza  Entertainment, Inc. dated November 2, 2005                  |
|      |   |                                                                                                                        |
| 3.41A(12) |   | Bylaws of Jacobs Piñon Plaza  Entertainment, Inc. dated November 8, 2005                                     |
|      |   |                                                                                                                        |
| 3.42(12)  |   | Articles of Organization of Fuel Stop 36, LLC dated  August 24, 1989                                                   |
|      |   |                                                                                                                        |
| 3.43(12)  |   | Articles of Organization of Jalou of Larose, LLC  dated November 3, 2005, now Cash Magic Larose, LLC                   |
|      |   |                                                                                                                        |
| 3.44(12)  |   | Articles of Incorporation of Jacobs Elko  Entertainment, Inc.                                                          |

 

E-2

----

Tableof Contents

 
| 3.45(12) |   | Bylaws of Jacobs Elko Entertainment, Inc.                                                      |
|----------|--------|-----------------------------------------------------------------------------------------------------|
|     |   |                                                                                                |
| 3.46(12) |   | Articles of Organization of Jacobs Dakota Works, LLC                                                |
|     |   |                                                                                                |
| 3.47(12) |   | Operating Agreement of Jacobs Dakota Works, LLC                                                     |
|     |   |                                                                                                |
| 3.48(12) |   | Articles of Organization of Jalou Diamond L.L.C.                                                    |
|     |   |                                                                                                |
| 3.49(12) |   | Limited Liability Company Agreement of Jalou Diamond  L.L.C.                                        |
|     |   |                                                                                                |
| 3.50(12) |   | Articles of Organization of Jalou Magic L.L.C. (nka  Cash Magic Vinton, LLC)                        |
|     |   |                                                                                                |
| 3.51(12) |   | Limited Liability Company Agreement of Jalou Magic  L.L.C. (nka Cash Magic Vinton, LLC)             |
|     |   |                                                                                                |
| 3.52(12) |   | Articles of Organization of Jalou of Vinton-Bingo,  LLC                                             |
|     |   |                                                                                                |
| 3.53(12) |   | Limited Liability Company Agreement of Jalou of  Vinton-Bingo, LLC                                  |
|     |   |                                                                                                |
| 3.54(12) |   | Articles of Organization of Jalou of Vinton, LLC                                                    |
|     |   |                                                                                                |
| 3.55(12) |   | Limited Liability Company Agreement of Jalou of  Vinton, LLC                                        |
|     |   |                                                                                                |
| 3.56(12) |   | Articles of Organization of Jalou of St. Helena, LLC  (nka Cash Magic St. Helena, LLC)              |
|     |   |                                                                                                |
| 3.57(12) |   | Limited Liability Company Agreement of Jalou of St.  Helena, LLC (nka Cash Magic St. Helena, LLC)   |
|     |   |                                                                                                |
| 3.58(12) |   | Amended and Restated Articles of Incorporation of  Jacobs Piñon Plaza Entertainment, Inc. |
|     |   |                                                                                                |
| 3.59(12) |   | Articles of Organization of Jalou of St. Martin,  L.L.C.                                            |
|     |   |                                                                                                |
| 3.60(12) |   | Limited Liability Company Agreement of Jalou of St.  Martin, L.L.C.                                 |
|     |   |                                                                                                |
| 3.61(12) |   | Limited Liability Company Agreement of Jalou L.L.C.  (dissolved as of December 31, 2007)       |
|     |   |                                                                                                |
| 3.62(12) |   | Operating Agreement of Houma Truck Plaza Stop and  Casino, L.L.C.                                   |
|     |   |                                                                                                |
| 3.63(12) |   | Limited Liability Company Agreement of Jalou-Cash’s  L.L.C.                                    |
|     |   |                                                                                                |
| 3.64(12) |   | Limited Liability Company Agreement of Lucky  Magnolia Truck Stop and Casino, L.L.C.                |
|     |   |                                                                                                |
| 3.65(12) |   | Limited Liability Company Agreement of Bayou Vista  Truck Plaza and Casino, L.L.C.                  |
|     |   |                                                                                                |
| 3.66(12) |   | Limited Liability Company Agreement of Raceland  Truck Plaza and Casino, L.L.C.                     |
|     |   |                                                                                                |
| 3.67(12) |   | Limited Liability Company Agreement of Jalou Breaux  Bridge, LLC                                    |
|     |   |                                                                                                |
| 3.68(12) |   | Limited Liability Company Agreement of Jalou of  Eunice, LLC                                        |
|     |   |                                                                                                |
| 3.69(12) |   | Limited Liability Company Agreement of Jalou of  Jefferson, LLC                                     |
|     |   |                                                                                                |
| 3.70(12) |   | Limited Liability Company Agreement of Jalou of  Larose, LLC, now Cash Magic Larose, LLC            |
|     |   |                                                                                                |
| 3.71(12) |   | Articles of Organization of Colonial Downs, LLC                                                     |
|     |   |                                                                                                |
| 3.72(12) |   | Operating Agreement of Colonial Downs, LLC                                                          |

 

E-3

----

Tableof Contents

 
| 3.73(12)  |   | Articles of Organization of JRJ Properties, LLC                                                                                                                                                                                                                                                                                 |
|-----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.74(12)  |   | Limited Liability Company Agreement of JRJ  Properties, LLC                                                                                                                                                                                                                                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.75(12)  |   | Articles of Organization of Virginia Concessions,  LLC                                                                                                                                                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.76(12)  |   | Amended and Restated Operating Agreement of Virginia  Concessions, LLC                                                                                                                                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.77A(12) |   | Articles of Amendment to the Articles of  Incorporation of Old Dominion Racing Association, Inc.                                                                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.77B(12) |   | Articles of Amendment to the Articles of  Incorporation of Old Dominion Racing Association, Inc.                                                                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.77C(12) |   | Articles of Amendment to the Articles of Incorporation  of Old Dominion Jockey Club, Inc.                                                                                                                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.77D(12) |   | Articles of Amendment to the Articles of  Incorporation of Maryland-Virginia Racing Circuit, Inc.                                                                                                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.78(17)  |   | Articles of Organization of Jalou Fox, LLC dated  November 14, 2005.                                                                                                                                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.79(17)  |   | Limited Liability Company Agreement of Jalou Fox,  LLC dated September 1, 2005.                                                                                                                                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.80(19)  |   | Articles of Organization of Jalou Silver Dollar,  LLC.                                                                                                                                                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.81(19)  |   | Limited Liability Company Agreement of Jalou Silver  Dollar, LLC.                                                                                                                                                                                                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.82(20)  |   | Certificate of Incorporation of Jacobs Nautica  Development, Inc.                                                                                                                                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.83(20)  |   | Bylaws of Jacobs Nautica Development, Inc.                                                                                                                                                                                                                                                                                 |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.84(22)  |   | Certificate of Formation of Diamondhead Real Estate,  LLC                                                                                                                                                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.85(22)  |   | Limited Liability Company Agreement of Diamondhead  Real Estate, LLC                                                                                                                                                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.86(22)  |   | Articles of Organization of JEI Distributing, LLC                                                                                                                                                                                                                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.87(22)  |   | Limited Liability Company Agreement of JEI  Distributing, LLC                                                                                                                                                                                                                                                                   |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.88(22)  |   | Certificate of Incorporation of Jacobs Sugar  Warehouse, Inc.                                                                                                                                                                                                                                                              |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 3.89(22)  |   | Bylaws of Jacobs Sugar Warehouse, Inc.                                                                                                                                                                                                                                                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 4.1(13)   |   | Trust Indenture Agreement by and between Jacobs  Entertainment, Inc. and Wells Fargo Bank, as Trustee, dated  June 16, 2006                                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 4.2(13)   |   | Registration Rights Agreement by and between Jacobs  Entertainment, Inc. and Credit Suisse Securities (USA) LLC, CIBC World  Markets Corp., Libra Securities, LLC, Wells Fargo Securities, LLC and KeyBanc  Capital Markets, a Division of McDonald Investments Inc., as the initial  purchasers, dated June 16, 2006 |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 4.3(12)   |   | Pledge Agreement dated as of June 16, 2006 by  and among Jacobs Entertainment, Inc., Black Hawk Gaming &  Development Company, Inc. and Credit Suisse, Cayman Islands Branch                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                            |
| 4.4(12)   |   | Guarantee Agreement dated as of June 16, 2006,  by and among Jacobs Entertainment, Inc., certain of the subsidiaries of  Jacobs Entertainment, Inc. and Credit Suisse, Cayman Islands Branch                                                                                                                     |

 

E-4

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Tableof Contents

 
| 4.5(12)  |   | Security Agreement dated as of June 16, 2006,  made by Jacobs Entertainment, Inc. and each of the guarantors listed on  the signature pages or from time to time a party by execution of a  joinder agreement, as pledgors, assignors and debtors in favor of Credit  Suisse, Cayman Islands Branch, in its capacity as collateral agent for the  Secured Parties pursuant to the Credit Agreement |
|----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.6(12)  |   | Contribution Agreement dated June 16, 2006, by  and among Jacobs Entertainment, Inc. and affiliates of Jacobs  Entertainment, Inc.                                                                                                                                                                                                                                                                 |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.7(12)  |   | Custodian Agreement dated as of June 16, 2006,  by and between Dunham Trust Company, 1 East Liberty Street, Sixth Floor,  Reno, NV 89504, as custodian, Credit Suisse, Cayman Islands Branch as  Collateral Agent under the Credit Agreement, Jacobs Entertainment, Inc.,  as the Borrower under the Credit Agreement and Blackhawk Gaming &  Development Company, Inc.                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.8(12)  |   | Form of Jacobs Entertainment, Inc. 9.75%  Rule 144A Global Note due 2014                                                                                                                                                                                                                                                                                                                           |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.9(12)  |   | Form of Jacobs Entertainment, Inc. 9.75%  Regulation S Global Note due 2014                                                                                                                                                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.10(12) |   | Form of Jacobs Entertainment, Inc. 9.75%  IAI Global Note due 2014                                                                                                                                                                                                                                                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.11(12) |   | Intercompany Note dated as of June 16, 2006 by  and among Jacobs Entertainment, Inc., and Credit Suisse, Cayman Islands  Branch                                                                                                                                                                                                                                                                         |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.12(12) |   | Purchase Agreement dated June 9, 2006 by and  among Jacobs Entertainment, Inc. and Credit Suisse Securities (USA) LLC,  on behalf of the purchasers of the $210,000,000 9.75% Senior Notes                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.13(12) |   | Pledge Agreement dated June 16, 2006 by and  among Jacobs Entertainment, Inc., Black Hawk Gaming &  Development Company, Inc. and Canadian Imperial Bank of Commerce, acting  through its New York Agency                                                                                                                                                                                 |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.1(3)  |   | Deed of Lease dated May 8, 2003 between Haynes  Chippenham Plaza, LLC and Colonial Downs, L.P.                                                                                                                                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.2(10) |   | Asset Purchase Agreement dated November 2, 2005  among Capital City Entertainment, Inc. and Jacobs Piñon Plaza  Entertainment, Inc.                                                                                                                                                                                                                                                           |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.3(12) |   | Piñon Plaza Ground Lease dated June 26, 2006 by  and between Clark G. Russell and Jean M. Russell, Trustees of The Clark and  Jean Russell Family Trust and Jacobs Entertainment, Inc.                                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.4(11) |   | Triple Net Lease dated November 14, 2005 among  Route 225 Investments, LLC and Jacobs Entertainment, Inc.                                                                                                                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.5(13) |   | Ground Lease and Option Purchase Agreement dated  September 12, 2005 between Dakota/Blackhawk, LLC and Jacobs  Entertainment, Inc.                                                                                                                                                                                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.6(13) |   | Thoroughbred Horseman’s Agreement dated  January 1, 2005 between Colonial Downs, L.P., Stansley Racing Corp. and  The Virginia Horsemen’s Benevolent and Protective Association, Inc.                                                                                                                                                                                                         |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.7(13) |   | Shopping Center Lease dated February 28, 2005  between Jay F. Wilks, Trustee under Indenture dated December 20, 1976 by  and between Herbert Cashvan and Marvin Simon, as Settlors, and Jay F. Wilks  as Trustee, and Colonial Downs, L.P.                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.8(12) |   | Standardbred Horsemen’s Contract effective  March 1, 2006 among Colonial Downs L.P., Stansley Racing Corp. and The  Virginia Harness Horse Association                                                                                                                                                                                                                                                  |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.9(12) |   | Membership Interests  Purchase Agreement dated May 16, 2006 by and between Gameco  Holdings, Inc. and Jacobs Entertainment, Inc.                                                                                                                                                                                                                                                                   |

 

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Tableof Contents

 
| 10.10A(12) |   | Asset Purchase Agreement dated  May 17, 2006 between Feliciana Ventures, Inc., Forest Gold Truck  Plaza and Casino, L.L.C., St. Helena Express & Casino, L.L.C.,  Seabuckle Gaming, Inc., Janice M. Penn and Minnie L. Hughes, as Sellers,  Claude M. Penn, Jr., and Gameco Holdings, Inc. as Purchaser.  (Assigned as to St. Helena to Jacobs Entertainment, Inc.)                                                                                                                        |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.10B(12) |   | First Amendment to Asset Purchase  Agreement dated July 12, 2006 between Feliciana Ventures, Inc., Forest  Gold Truck Plaza and Casino, L.L.C., St. Helena Express & Casino,  L.L.C., Seabuckle Gaming, Inc., Janice M. Penn and Minnie L. Hughes, as  Sellers, Claude M. Penn, Jr., and Gameco Holdings, Inc. as  Purchaser. (Assigned as to St. Helena to Jacobs Entertainment, Inc.)                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.11(14)  |   | Credit Agreement by and between Jacobs  Entertainment, Inc., Credit Suisse Securities (USA) LLC and CIBC World  Markets Corp., as Joint Lead Arrangers and Joint Bookrunners, and CIBC World  Markets Corp., as Syndication Agent, and Wells Fargo Bank, National  Association, as Documentation Agent and Swingline Lender, and CIT Lending  Services Corporation, as Documentation Agent, and Credit Suisse, Cayman  Islands Branch, as Issuing Bank, Administrative Agent and Collateral Agent,  dated June 16, 2006 |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.12(12)  |   | Consulting Agreement dated January 1, 2006 and  amended June 16, 2006, by and among Jacobs Entertainment, Inc. and  Jacobs Investments Management Co., Inc.                                                                                                                                                                                                                                                                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.13(12)  |   | Fourth Amendment to Option  Purchase Agreement dated May 15, 2006 between Dakota/Blackhawk, LLC and  Jacobs Entertainment, Inc.                                                                                                                                                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.14(12)  |   | Option Agreement dated  July 11, 2006 between Jacobs Entertainment, Inc. and Nautica Phase  2 Limited Partnership                                                                                                                                                                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.15(12)  |   | Option Agreement dated July 11, 2006 between  Jacobs Entertainment, Inc. and Jacobs Lot D, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.16(12)  |   | Option Agreement dated April 18, 2006 between  Jacobs Entertainment, Inc. and Flats Development, Inc.                                                                                                                                                                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17(12)  |   | Option Agreement dated July 11, 2006 between  Jacobs Entertainment, Inc. and Sycamore & Main, Inc.                                                                                                                                                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.18(12)  |   | Option Agreement dated  July 11, 2006 between Jacobs Entertainment, Inc. and Nautica  Peninsula Land Limited Partnership                                                                                                                                                                                                                                                                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.19(12)  |   | Option Agreement dated July 11, 2006 between  Jacobs Entertainment, Inc. and Sugar Warehouse Limited Partnership                                                                                                                                                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.20(12)  |   | Lease and Option to Purchase Agreement dated  June 21, 2006 by and between Curray Corporation, Texas Pelican, LLC and  Jalou of Vinton, LLC                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.21(12)  |   | Amendments to Thoroughbred Horsemen’s Agreements, dated  May 11, 2006, by and between Colonial Downs, L.P. and The Virginia  Horsemen’s Benevolent and Protective Association, Inc.                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.22(12)  |   | Amendment to Standard Horsemen’s Agreements, dated  May 26, 2006, by and between Colonial Downs, L.P. and The Virginia  Harness Horse Association                                                                                                                                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.23(16)  |   | Executive Employment Agreement dated  December 5, 2006 between Jacobs Entertainment, Inc. and Stephen R.  Roark                                                                                                                                                                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.24(16)  |   | Executive Employment Agreement effective  July 1, 2006 between Jacobs Entertainment, Inc. and Michael T.  Shubic                                                                                                                                                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.25(16)  |   | Executive Employment Agreement effective  August 1, 2006 between Jacobs Entertainment, Inc. and Ian M.  Stewart                                                                                                                                                                                                                                                                                                                                                                                                         |

 

E-6

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Tableof Contents

 
| 10.26(16)  |   | Executive Employment Agreement dated  December 5, 2006 between Jacobs Entertainment, Inc. and Brett  Kramer                              |
|------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                               |
| 10.27(16)  |   | Executive Employment Agreement dated  December 5, 2006 between Jacobs Entertainment, Inc. and Stanley  Politano                          |
|       |   |                                                                                                                                               |
| 10.28(17)  |   | Membership Interests Purchase Agreement dated  August 20, 2007 by and between Gameco Holdings, Inc. and Jacobs  Entertainment, Inc. |
|       |   |                                                                                                                                               |
| 10.28A(18) |   | Amendment No. 1 dated May 4, 2007 to  Credit Agreement among Jacobs Entertainment, Inc. and various lenders                         |
|       |   |                                                                                                                                               |
| 10.29(19)  |   | Asset Purchase Agreement dated October 4, 2006  regarding the Silver Dollar Truck Plaza.                                                      |
|       |   |                                                                                                                                               |
| 10.30(20)  |   | Purchase Agreement dated March 14, 2008  regarding Jacobs Lot D, Inc.                                                                    |
|       |   |                                                                                                                                               |
| 10.31(21)  |   | Amendment No. 2 dated February 5, 2009 to  Credit Agreement among Jacobs Entertainment, Inc. and various lenders                    |
|       |   |                                                                                                                                               |
| 12(22)     |   | Computation of Ratio of Earnings to Fixed Charges.                                                                                                 |
|       |   |                                                                                                                                               |
| 14.1(19)   |   | Code of Ethics (as revised).                                                                                                                       |
|       |   |                                                                                                                                               |
| 21.2(22)   |   | Subsidiaries of Jacobs Entertainment, Inc.                                                                                                    |
|       |   |                                                                                                                                               |
| 25.1(12)   |   | Statement of Eligibility of Trustee on Form T-1                                                                                               |
|       |   |                                                                                                                                               |
| 31.1(22)   |   | Chief Executive Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002                                                    |
|       |   |                                                                                                                                               |
| 31.2(22)   |   | Chief Financial Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002                                                    |
|       |   |                                                                                                                                               |
| 32.1(22)   |   | Chief Executive Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002                                                    |
|       |   |                                                                                                                                               |
| 32.2(22)   |   | Chief Financial Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002                                                    |
|       |   |                                                                                                                                               |

 

E-7

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Tableof Contents

 

----

| (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)  |   | Incorporated hereby by reference from our  Form 10-K filed March 28, 2005.                                                                                            |
| (9)  |   | Incorporated hereby by reference from our Report on  Form 8-K filed on March 4, 2005.                                                                                 |
| (10) |   | Incorporated by reference from our Form 10-Q  filed November 14, 2005.                                                                                                |
| (11) |   | Incorporated hereby by reference from our Report on  Form 8-K filed on November 15, 2005.                                                                             |
| (12) |   | Incorporated hereby by reference from our  registration statement on Form S-4 (SEC Registration  No. 333-136066) filed on July 27, 2006.                         |
| (13) |   | Incorporated hereby by reference from our  Form 8-K filed on March 23, 2006.                                                                                          |
| (14) |   | Incorporated hereby by reference from our  Form 8-K filed on June 22, 2006.                                                                                           |
| (15) |   | Incorporated hereby by reference from our  Form 10-K filed on March 29, 2006.                                                                                         |
| (16) |   | Incorporated hereby by reference from our  Form 8-K filed on December 8, 2006.                                                                                        |
| (17) |   | Incorporated hereby by reference from our  Form 8-K filed on September 6, 2007.                                                                                       |
| (18) |   | Incorporated hereby by reference from our  Form 8-K filed on May 10, 2007.                                                                                            |
| (19) |   | Incorporated hereby by reference from our  Form 10-K filed on March 26, 2008.                                                                                         |
| (20) |   | Incorporated hereby by reference from our  Form 10-Q filed on May 13, 2008.                                                                                           |
| (21) |   | Incorporated hereby by reference from our  Form 8-K filed on February 6, 2009.                                                                                        |
| (22) |   | Filed herewith.                                                                                                                                                                 |

 

E-8

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