**Exhibit 99.5**

 

***Black Hawk Gaming & Development Company, Inc.***

*** ***

***(A Wholly Owned SubsidiaryofJacobs Entertainment, Inc.)***

*** ***

*Financial Statements for the YearsEnded December 31, 2004, 2003 and 2002and Independent Auditors’ Report*

 

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

Board of Directors and Stockholder Black Hawk Gaming & Development Company, Inc.Black Hawk, Colorado

 

We have audited the accompanying consolidatedbalance sheets of Black Hawk Gaming & Development Company, Inc. and subsidiaries(a wholly owned subsidiary of Jacobs Entertainment, Inc.) as ofDecember 31, 2004 and 2003, and the related consolidated statements ofincome, stockholder’s equity, and cash flows for each of the three years in theperiod ended December 31, 2004. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conducted our audits in accordance withgenerally accepted auditing standards as established by the Auditing StandardsBoard (United States) and in accordance with the auditing standards of thePublic Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. The Companyis not required to have, nor were we engaged to perform, an audit of itsinternal control over financial reporting. An audit includes consideration ofinternal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofBlack Hawk Gaming & Development Company, Inc. and subsidiaries (a whollyowned subsidiary of Jacobs Entertainment, Inc.) as of December 31, 2004and 2003, and the results of their operations and their cash flows for each ofthe three years in the period ended December 31, 2004, in conformity withaccounting principles generally accepted in the United States of America.

 

As discussed in Note 1 to theconsolidated financial statements, on February 22, 2002, Black Hawk Gaming& Development Company, Inc. was acquired by an entity formed by itsprincipal stockholder.

 

 

Deloitte & Touche LLP

Denver, Colorado

March 25, 2005

 

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**BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.**

**(A Wholly Owned Subsidiary of JacobsEntertainment, Inc.)**

 

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2004 AND 2003**

**(Dollars in thousands)**

 
| ** **                | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| **ASSETS**                |       |     |       |     |       |
|                      |       |     |       |     |       |
| CURRENT ASSETS:           |       |     |       |     |       |
| Cash and cash equivalents |       | $        | 15,926     |     | $          | 11,550 |   |
| Accounts receivable       |       | 257      |       | 147      |       |
| Inventories               |       | 562      |       | 576      |       |
| Prepaid expenses          |       | 1,416    |       | 1,153    |       |
| Due from parent           |       |     |       | 6,322    |       |
|                      |       |     |       |     |       |
| Total current assets      |       | 18,161   |       | 19,748   |       |
|                      |       |     |       |     |       |
| LAND                      |       | 26,221   |       | 26,221   |       |
|                      |       |     |       |     |       |
| GAMING FACILITIES:        |       |     |       |     |       |
| Building and improvements |       | 68,288   |       | 67,951   |       |
| Equipment                 |       | 27,598   |       | 23,098   |       |
| Accumulated depreciation  |       | (23,218  | )          | (18,921  | )          |
|                      |       |     |       |     |       |
| Total gaming facilities   |       | 72,668   |       | 72,128   |       |
|                      |       |     |       |     |       |
| OTHER ASSETS:             |       |     |       |     |       |
| Goodwill                  |       | 15,547   |       | 15,547   |       |
| Debt issue costs          |       | 4,329    |       | 5,417    |       |
| Other assets              |       | 672      |       | 779      |       |
|                      |       |     |       |     |       |
| Total other assets        |       | 20,548   |       | 21,743   |       |
|                      |       |     |       |     |       |
| TOTAL                     |       | $        | 137,598    |     | $          | 139,840 |   |

 
| See notes to financial  statements. |   | (Continued) |
|-------------------------------------|--------|-------------|

 

2

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**BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.**

**(AWholly Owned Subsidiary of Jacobs Entertainment, Inc.)**

 

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2004 AND 2003**

**(Dollars in thousands)**

 
| ** **                                                                                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                                        |       |     |       |     |       |
|                                                                                                 |       |     |       |     |       |
| CURRENT LIABILITIES:                                                                                 |       |     |       |     |       |
| Accounts payable and accrued expenses                                                                |       | $        | 5,344      |     | $          | 4,676 |   |
| Accrued payroll                                                                                      |       | 711      |       | 591      |       |
| Gaming taxes payable                                                                                 |       | 2,752    |       | 2,619    |       |
| Property taxes payable                                                                               |       | 763      |       | 648      |       |
| Slot club liability                                                                                  |       | 982      |       | 872      |       |
| Interest payable                                                                                     |       | 4,958    |       | 4,960    |       |
| Current portion of long-term debt                                                                    |       | 471      |       | 441      |       |
|                                                                                                 |       |     |       |     |       |
| Total current liabilities                                                                            |       | 15,981   |       | 14,807   |       |
|                                                                                                 |       |     |       |     |       |
| LONG-TERM DEBT AND OTHER LIABILITIES:                                                                |       |     |       |     |       |
| Long term debt                                                                                       |       | 97,421   |       | 96,854   |       |
| BID bonds payable                                                                                    |       | 3,526    |       | 3,997    |       |
|                                                                                                 |       |     |       |     |       |
| Total long-term debt                                                                                 |       | 100,947  |       | 100,851  |       |
|                                                                                                 |       |     |       |     |       |
| Total liabilities                                                                                    |       | 116,928  |       | 115,658  |       |
|                                                                                                 |       |     |       |     |       |
| COMMITMENTS AND CONTINGENCIES                                                                        |       |     |       |     |       |
|                                                                                                 |       |     |       |     |       |
| STOCKHOLDER’S EQUITY:                                                                           |       |     |       |     |       |
| Preferred stock; $.001 par value—10,000,000  shares authorized;  none issued and outstanding    |       |     |       |     |       |
| Common stock; $.001 par value—40,000,000  shares authorized;  100 shares issued and outstanding |       |     |       |     |       |
| Additional paid-in capital                                                                           |       | 11,396   |       | 11,396   |       |
| Retained earnings                                                                                    |       | 9,274    |       | 12,786   |       |
|                                                                                                 |       |     |       |     |       |
| Total stockholder’s equity                                                                      |       | 20,670   |       | 24,182   |       |
|                                                                                                 |       |     |       |     |       |
| TOTAL                                                                                                |       | $        | 137,598    |     | $          | 139,840 |   |

 
| See notes to consolidated  financial statements. |   | (Concluded) |
|--------------------------------------------------|--------|-------------|

 

3

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**BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.**

**(AWholly Owned Subsidiary of Jacobs Entertainment, Inc.)**

 

**CONSOLIDATED STATEMENTS OF INCOME**

**YEARS ENDED DECEMBER 31 2004, AND 2003, AND FOR THE THEPERIODS FROM JANUARY 1, 2002 THROUGH**

**FEBRUARY 22, 2002 AND FEBRUARY 23, 2002 THROUGH DECEMBER 31,2002**

**(Dollars in thousands)**

 
| ** **                                               | ** ** | **Years Ended  December 31** | ** ** | **February 23, 2002  Through** | ** ** | **January 1, 2002  Through** | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                                               | ** ** | **2004**                     | ** ** | **2003**                       | ** ** | **December 31, 2002**        | ** ** | **February 22, 2002** | ** ** |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| REVENUES:                                                |       |                         |       |                           |       |                         |       |   |   |
| Casino revenue                                           |       | $                            | 108,347    |                           | $          | 96,816                       |       | $ | 83,515 |   | $ | 14,523 |   |
| Food and beverage revenue                                |       | 13,145                       |       | 12,092                         |       | 8,801                        |       | 1,624 |   |
| Hotel revenue                                            |       | 1,382                        |       | 1,370                          |       | 1,271                        |       | 189 |   |
| Other                                                    |       | 907                          |       | 854                            |       | 587                          |       | 96 |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| Total revenues                                           |       | 123,781                      |       | 111,132                        |       | 94,174                       |       | 16,432 |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| Promotional allowances                                   |       | (19,035                      | )          | (18,791                        | )          | (13,310                      | )          | (2,462 | ) |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| Net revenues                                             |       | 104,746                      |       | 92,341                         |       | 80,864                       |       | 13,970 |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| COSTS AND EXPENSES:                                      |       |                         |       |                           |       |                         |       |   |   |
| Casino operations                                        |       | 38,586                       |       | 36,209                         |       | 30,829                       |       | 5,361 |   |
| Food and beverage operations                             |       | 5,413                        |       | 4,501                          |       | 3,989                        |       | 721 |   |
| Hotel operations                                         |       | 747                          |       | 743                            |       | 518                          |       | 133 |   |
| Marketing, general and administrative                    |       | 30,596                       |       | 28,548                         |       | 24,838                       |       | 4,538 |   |
| Privatization and other non- recurring  costs            |       |                         |       |                           |       |                         |       | 3,882 |   |
| Depreciation and amortization                            |       | 6,324                        |       | 6,052                          |       | 5,385                        |       | 2,510 |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| Total costs and expenses                                 |       | 81,667                       |       | 76,053                         |       | 65,559                       |       | 17,145 |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| OPERATING INCOME (LOSS)                                  |       | 23,079                       |       | 16,288                         |       | 15,305                       |       | (3,175 | ) |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| INTEREST INCOME                                          |       | 22                           |       | 5                              |       | 27                           |       | 13 |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| OTHER INCOME                                             |       |                         |       | 10                             |       |                         |       | 119 |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| INTEREST EXPENSE                                         |       | (13,949                      | )          | (13,897                        | )          | (11,931                      | )          | (2,881 | ) |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME  TAXES |       | 9,152                        |       | 2,406                          |       | 3,401                        |       | (5,924 | ) |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| MINORITY INTEREST                                        |       |                         |       |                           |       |                         |       | 127 |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| INCOME (LOSS) BEFORE INCOME TAXES                        |       | 9,152                        |       | 2,406                          |       | 3,401                        |       | (5,797 | ) |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| INCOME TAXES                                             |       |                         |       |                           |       |                         |       |   |   |
|                                                     |       |                         |       |                           |       |                         |       |   |   |
| NET INCOME (LOSS)                                        |       | $                            | 9,152      |                           | $          | 2,406                        |       | $ | 3,401 |   | $ | (5,797 | ) |

 

Seenotes to consolidated financial statements.

 

4

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**BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.**

**(A Wholly Owned Subsidiary of JacobsEntertainment, Inc.)**

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY**

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

**(Dollars in thousands)**

 
| ** **                                                                              | ** ** | **Common Stock *** | ** ** | **Additional  Paid-in** | ** ** | **Retained** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------|------------|-------------------------|------------|--------------|------------|---------------------------------------|------------|------------|------------|
| ** **                                                                              | ** ** | **Shares**         | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Earnings**                          | ** ** | **Loss**   | ** ** | **Total** | ** ** |
| ** **                                                                              | ** ** | ** **         | ** ** | ** **              | ** ** | ** **   | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| BALANCES—January 1, 2002                                                           |       | 4,154              |       | $                       | 4          |         | $          | 18,753                                |       | $          | 27,658     |   | $ | (1,173 | ) | $ | 45,242 |   |
| Exercise of stock options                                                               |       |               |       |                    |       | 6            |       |                                  |       |       |       | 6 |   |
| Privatization merger                                                                    |       | (4,054             | )          | (4                      | )          | 4            |       |                                  |       |       |       |   |   |
| Push down of JEI basis:                                                                 |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| Elimination of retained earnings applicable  to shares acquired on February 22, 2002    |       |               |       |                    |       | 14,882       |       | (14,882                               | )          |       |       |   |   |
| Effect of recording goodwill and debt resulting  from the February 22, 2002 acquisition |       |               |       |                    |       | (29,471      | )          |                                  |       |       |       | (29,471 | ) |
| Capital contribution-acquisition of  minority interest                                  |       |               |       |                    |       | 7,222        |       |                                  |       |       |       | 7,222 |   |
| Comprehensive loss—                                                                |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| Realized loss on interest rate swap— net of  income taxes                          |       |               |       |                    |       |         |       |                                  |       | 1,173      |       | 1,173 |   |
| Net loss                                                                                |       |               |       |                    |       |         |       | (2,396                                | )          |       |       | (2,396 | ) |
|                                                                                    |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| Total comprehensive loss                                                                |       |               |       | —                  |       |         |       |                                  |       | —     |       | (1,223 | ) |
|                                                                                    |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| BALANCES—December 31, 2002                                                         |       | 100                |       |                    |       | 11,396       |       | 10,380                                |       |       |       | 21,776 |   |
|                                                                                    |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| Net income                                                                              |       |               |       |                    |       |         |       | 2,406                                 |       |       |       | 2,406 |   |
|                                                                                    |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| BALANCES—December 31, 2003                                                         |       | 100                |       | —                  |       | 11,396       |       | 12,786                                |       | —     |       | 24,182 |   |
|                                                                                    |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| Distribution                                                                            |       |               |       |                    |       |         |       | (12,664                               | )          |       |       | (12,664 | ) |
|                                                                                    |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| Net income                                                                              |       |               |       |                    |       |         |       | 9,152                                 |       |       |       | 9,152 |   |
|                                                                                    |       |               |       |                    |       |         |       |                                  |       |       |       |   |   |
| BALANCES—December 31, 2004                                                         |       | 100                |       | $                       | —     |         | $          | 11,396                                |       | $          | 9,274      |   | $ | — |   | $ | 20,670 |   |

 

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*The par value amount of Black Hawk Gaming & Development Company, Inc. commonstock outstanding for the periods presented is less than $500 and is thereforepresented as $0 above due to rounding.

 

Seenotes to consolidated financial statements.

 

5

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**BLACK HAWK GAMING & DEVELOPMENT COMPANY, INC.**

**(AWholly Owned Subsidiary of Jacobs Entertainment, Inc.)**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2004 AND 2003, AND FOR THE PERIODSFROM JANUARY 1, 2002 THROUGH**

**FEBRUARY 22, 2002 AND FEBRUARY 23, 2002 THROUGH DECEMBER 31,2002**

**(Dollars in thousands)**

 
| ** **                                                                                          | ** ** | **Years Ended  December 31** | ** ** | **February 23, 2002  Through** | ** ** | **January 1, 2002  Through** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| ** **                                                                                          | ** ** | **2004**                     | ** ** | **2003**                       | ** ** | **December 31, 2002**        | ** ** | **February 22, 2002** | ** ** |
| ** **                                                                                          | ** ** | ** **                   | ** ** | ** **                     | ** ** | ** **                   | ** ** | ** ** | ** ** |
| OPERATING ACTIVITIES:                                                                               |       |                         |       |                           |       |                         |       |   |   |
| Net income (loss)                                                                                   |       | $                            | 9,152      |                           | $          | 2,406                        |       | $ | 3,401 |   | $ | (5,797 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities: |       |                         |       |                           |       |                         |       |   |   |
| Depreciation and amortization                                                                       |       | 6,324                        |       | 6,052                          |       | 5,385                        |       | 2,510 |   |
| Bond issue discount amortization                                                                    |       | 567                          |       | 565                            |       | 506                          |       |   |   |
| Deferred financing cost amortization                                                                |       | 1,088                        |       | 1,086                          |       | 823                          |       |   |   |
| Minority interest                                                                                   |       |                         |       |                           |       |                         |       | (127 | ) |
| Loss (gain) on sale of equipment                                                                    |       | 97                           |       | 61                             |       | 42                           |       | (194 | ) |
| Due (to) from parent                                                                                |       |                         |       | (5,365                         | )          | 3,155                        |       |   |   |
| Changes in operating assets and  liabilities:                                                       |       |                         |       |                           |       |                         |       |   |   |
| Accounts receivable, inventories, prepaid  expenses and other assets                                |       | (306                         | )          | 32                             |       | (4,553                       | )          | 1,805 |   |
| Accounts payable, accrued expenses and  other current liabilities                                   |       | 1,143                        |       | (305                           | )          | 944                          |       | (1,339 | ) |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| Net cash provided by (used in) operating activities                                                 |       | 18,065                       |       | 4,532                          |       | 9,703                        |       | (3,142 | ) |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| INVESTING ACTIVITIES:                                                                               |       |                         |       |                           |       |                         |       |   |   |
| Construction and equipping of gaming  facility                                                      |       | (7,202                       | )          | (9,318                         | )          | (5,081                       | )          | (340 | ) |
| Proceeds from the sale of land                                                                      |       |                         |       |                           |       |                         |       | 142 |   |
| Proceeds from the sale of equipment                                                                 |       | 295                          |       | 66                             |       | 229                          |       |   |   |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| Net cash used in investing activities                                                               |       | (6,907                       | )          | (9,252                         | )          | (4,852                       | )          | (198 | ) |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| FINANCING ACTIVITIES:                                                                               |       |                         |       |                           |       |                         |       |   |   |
| Proceeds from revolving line of credit                                                              |       | 4,265                        |       | 11,210                         |       | 4,131                        |       |   |   |
| Payments on revolving line of facility                                                              |       | (4,265                       | )          | (11,210                        | )          | (4,131                       | )          |   |   |
| Payments on BID bonds                                                                               |       | (441                         | )          | (473                           | )          | (387                         | )          |   |   |
| Distribution to parent                                                                              |       | (6,341                       | )          |                           |       | (64                          | )          |   |   |
| Exercise of stock options                                                                           |       |                         |       |                           |       |                         |       | 6 |   |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| Net cash (used in) provided by financing activities                                                 |       | (6,782                       | )          | (473                           | )          | (451                         | )          | 6 |   |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                               |       | $                            | 4,376      |                           | $          | (5,193                       | )          | $ | 4,400 |   | $ | (3,334 | ) |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| CASH AND CASH EQUIVALENTS—Beginning of  period                                                 |       | 11,550                       |       | 16,743                         |       | 12,343                       |       | 15,677 |   |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| CASH AND CASH EQUIVALENTS—End of period                                                        |       | $                            | 15,926     |                           | $          | 11,550                       |       | $ | 16,743 |   | $ | 12,343 |   |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| SUPPLEMENTAL CASH FLOW INFORMATION—                                                            |       |                         |       |                           |       |                         |       |   |   |
| Cash paid for interest, net of amounts  capitalized in 2003 of $140                                 |       | $                            | 12,281     |                           | $          | 12,259                       |       | $ | 6,312 |   | $ | 524 |   |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| CASH PAID FOR INCOME TAXES                                                                          |       |                         |       |                           |       |                         |       | $ | 470 |   |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| NONCASH FINANCING                                                                                   |       |                         |       |                           |       |                         |       | $ | 95,783 |   |
|                                                                                                |       |                         |       |                           |       |                         |       |   |   |
| NONCASH DISTRIBUTION TO PARENT                                                                      |       | $                            | 6,322      |                           |       |                         |       |   |   |   |

 
| See notes to consolidated financial  statements. |   |   |
|--------------------------------------------------|--------|--------|

 

 

6

----

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**YEARSENDED DECEMBER 31, 2004, 2003 AND 2002**

**(Dollars in thousands, except share amounts)**

 

**1.**                                      BUSINESS

 

Black Hawk Gaming & Development Company, Inc. and subsidiaries (awholly-owned subsidiary of Jacobs Entertainment, Inc.) (the “Company” or “BHWK”)is an owner, developer and operator of gaming properties in Black Hawk,Colorado and Reno, Nevada. Through April 23, 1998, the Company owned a 50%interest in the Gilpin Hotel Venture (“GHV”), which owned the Gilpin HotelCasino, which the Company developed and has managed since 1992. OnApril 24, 1998, the Company acquired the other 50% interest in GHV andrelated land for $10 million.

 

In November 1996, the Company entered into an Amended and RestatedPurchase Agreement and an Operating Agreement to form Black Hawk/JacobsEntertainment LLC (the ”LLC”) for the purpose of developing andmanaging a casino/hotel/parking complex in Black Hawk, Colorado, The LodgeCasino at Black Hawk (The Lodge). During the second quarter of 1998, theCompany completed the development of the casino portion of The Lodge, whichopened for business on June 24, 1998. On August 17, 1998, the hotelportion of the project opened, and on November 6, 1998, the parking garageopened. The total cost of the casino/hotel/parking complex was approximately$74 million.

 

On January 4, 2001, the Company purchased the assets and operatingbusiness of the Gold Dust Motel, Inc. d/b/a Gold Dust West (the “GDW”), locatedin Reno, Nevada, for $26.5 million.

 

In addition, included within the Company is BHWK corporate (“Corporate”).Generally, Corporate operations are not a profit center, but rather amanagerial entity which directs the overall operations of the Company.

 

On February 22, 2002, Jacobs Entertainment, Inc. (“JEI”), anentity formed by the Company’s principal stockholders, Chairman of the Boardand Chief Executive Officer, Jeffrey P. Jacobs and the Richard E. JacobsRevocable Trust, acquired all of the outstanding shares of the Company thatthey did not already own, for $12.00 per share resulting in a total aggregatepurchase price of $36,980. The Company’s stockholders approved this transactionon January 4, 2002 (see Note 3).

 

**2.**                                      SIGNIFICANT ACCOUNTING POLICIES

 

***Consolidation—***Theaccompanying consolidated financial statements include the accounts of theCompany, GHV, and beginning on January 4, 2001, the Company’s 100%ownership interest in GDW. All inter-company transactions and balances havebeen eliminated in consolidation. Through February 22, 2002, the Companyalso recorded minority a interest, which reflects the portion of the equity inearnings of the LLC applicable to the 25% minority interest owner of the LLC(see Note 3).

 

***Cash Equivalents—***TheCompany considers all highly liquid investments purchased with a maturity ofthree months or less to be cash equivalents.

 

7

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***Inventory—***Inventoryconsists of food and beverages, chips and tokens and uniforms and are recordedat the lower of cost (first–in, first–out method) or market.

 

***Gaming Facilities—***Buildingand improvements and equipment are depreciated using the straight-line methodover the estimated useful lives of the assets (39 years for building andimprovements, and 5 to 7 years for equipment). Costs of major improvementsare capitalized, while costs of normal repairs and maintenance are charged toexpense as incurred. Gains or losses on disposal of assets are recognized asincurred.

 

***Debt Issue Costs—***Debtissue costs are capitalized and amortized, using the straight-line method(which approximates the effective interest method), over the life of therelated loan.

 

***Goodwill—***Goodwillrepresents the excess purchase price over the fair value of the netidentifiable assets acquired related to the acquisition described in Notes 3.

 

***Slot Club Liability—***TheCompany’s casinos offer customers the ability to become members in theirrespective slot clubs. Once a member, the customer can insert a special cardinto slot and video poker machines while playing in the Company’s casinos toearn “points.” Based on their point totals, members receive various cashrewards and gift prizes. The Company accrues the cost of points as they areearned by the members of the slot clubs.

 

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

 

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

 

***Hotel, Food and Beverage, and Other Revenue—***TheCompany recognizes hotel, food and beverage and other revenue at the time thatgoods or services are provided.

 

***Promotional Allowances—***Grossrevenues include the retail amount of rooms, food and beverages providedgratuitously to customers. When computing net revenues, the retail amount ofrooms, food and beverages and coupons, gratuitously provided to customers, aswell as slot club player point redemptions, is deducted from gross revenues aspromotional allowances. The estimated cost of such complimentary services forrooms, food, and beverages is charged to casino operations and was $9,191,$9,388 and $8,744 for the years ended December 31, 2004, 2003 and 2002,respectively.

 

***Privatization and Other Nonrecurring Costs—***Duringthe year ended December 31, 2002 the Company incurred $3,882, in theacquisition of its remaining shares on February 22, 2002 described inNotes 1 and 3, primarily consisting of legal and accounting fees. Such costswere expensed in the accompanying 2002 consolidated statement of income.

 

***Income Taxes—***TheCompany accounts for income taxes in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 109, *Accounting for IncomeTaxes.*SFAS No. 109 requires recognition of deferred tax assetsand liabilities for the expected future tax consequences of events that havebeen included in the financial statements or tax returns. Deferred income taxesreflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial

 

8

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reporting purposes and the amounts used for income tax purposes. During2002, the Company changed its tax status from a C-Corporation to anS-Corporation. Accordingly, no provision for income taxes has been recorded inthe accompanying consolidated financial statements subsequent to the effectivedate of this election. See Note 9.

 

***Minority Interest—***TheCompany recorded minority interest through February 22, 2002, whichreflects the portion of the equity in earnings of the LLC applicable to the 25%minority interest owners of the LLC.

 

***Operating Segments—***TheCompany has two reportable segments (Colorado and Nevada) as defined by SFASNo. 131, *Disclosures about Segments of an**Enterprise and Related Information*(“SFAS No. 131”).See Note 12.

 

***Derivative Financial Instruments—***TheCompany has used derivative instruments to manage exposures to interest raterisk. The Company’s primary objective for holding derivatives is to minimizethe risks associated with the impact of interest rate exposure. Specifically,the Company has used interest rate swaps, as cash flow hedging instruments, tomanage its exposure to interest rate risk on its variable-rate debt. TheCompany does not enter into derivative transactions for trading purposes, orfor fixed rate debt.

 

Derivative financial instruments taken alone may expose the Company tovarying degrees of market and credit risk in excess of amounts recognized inthe financial statements. However, when used for hedging purposes, theseinstruments typically reduce overall interest rate risk. The Company controlsthe credit risk of its financial contracts through credit approvals, limits,and monitoring procedures. As the Company enters into derivative transactionsonly with high quality institutions, no losses associated with non-performanceon its derivative financial instrument have occurred or are expected to occur.See Note 6.

 

***Use of Estimates—***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 amounts 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. Significant estimates used by the Company includethe estimated useful lives for depreciable and amortizable assets and estimatedcash flows in assessing the recoverability of long-lived assets. Actual resultscould differ from those estimates.

 

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

 

**3.**                                      ACQUISITION OF THE COMPANY

 

Prior to February 22, 2002, JEI owned 32% of the outstandingshares of the Company. On February 22, 2002, JEI acquired the remainingshares of the Company through a cash merger for $36 million using proceeds fromthe issuance of debt on that date. As a result of becoming a wholly-ownedsubsidiary of JEI and collateralizing this debt with Company assets, theCompany has applied the principles of push down accounting and, accordingly,has recorded goodwill, debt, and the elimination of minority interests in theLLC in the accompanying consolidated financial statements. Furthermore, theprinciples of push down accounting were applied to the separate reporting unitsof the Company, consisting of the separate casino operations of the GHV, TheLodge Casino, and GDW. The Company allocated the $36 million acquisition priceto the respective reporting units based upon their individual pro-ratacontribution to

 

9

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operating income less depreciation, and recorded the goodwillassociated with each reporting unit reflecting the difference between theallocated purchase price and the proportionate share of the fair market valueof net assets acquired which was based upon an independent valuation. The debtissued to acquire the Company has also been pushed down to these reportingunits using similar allocation methods.

 

**4.**                                      GOODWILL AND OTHER INTANGIBLE ASSETS

 

SFAS No. 142 applies to intangibles and goodwill acquired afterJune 30, 2001, as well as goodwill and intangibles previously acquired.Under SFAS No. 142, goodwill as well as other intangibles determined tohave an indefinite life will no longer be amortized; however, these assets willbe reviewed for impairment on a periodic basis. The Company adopted SFASNo. 142 on January 1, 2002, completed its transitional impairmenttest at January 1, 2002, and determined that no impairment of its goodwillbalances exited. The Company reassessed the useful lives of its identifiableintangible assets without any change to the previously established amortizationperiods of such assets. The Company performed its annual impairment test as ofSeptember 30, 2004 and determined that goodwill was not impaired.

 

**5.**                                      LONG-TERM DEBT

 

Long-term debt consists of the following at December 31:

 
| ** **                                                                                                                                                                                                                                                                                             | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                                                                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Senior secured notes due 2009, with  interest only payable each February 1, and August 1, beginning August 1, 2002  at a fixed interest rate of 11 7/8%. The notes were issued at a 3.96%  discount which is being amortized using the effective interest method over the  expected life of the notes. |       | $          | 97,421     |       | $          | 96,854 |   |
|                                                                                                                                                                                                                                                                                                   |       |       |       |       |       |
| Bonds payable; issued in two series with  interest payments varying between 6.25% and 6.50%; principal and interest  payments approximating $360 are due semi-annually beginning in June 2000  continuing until December 2011; secured by the infrastructure improvements  made by The Lodge           |       | 3,997      |       | 4,438      |       |
|                                                                                                                                                                                                                                                                                                   |       |       |       |       |       |
|                                                                                                                                                                                                                                                                                                   |       | 101,418    |       | 101,292    |       |
|                                                                                                                                                                                                                                                                                                   |       |       |       |       |       |
| Less current portion                                                                                                                                                                                                                                                                                   |       | 471        |       | 441        |       |
|                                                                                                                                                                                                                                                                                                   |       |       |       |       |       |
| Total                                                                                                                                                                                                                                                                                                  |       | $          | 100,947    |       | $          | 100,851 |   |

 

On February 8, 2002, JEI completed a $125,000 private placement of11 7/8% Senior Secured Notes (the “Notes”) due 2009, with interest payableon each February 1, and August 1, with payments beginningAugust 1, 2002. The Notes were issued at 3.96% discount from theirprincipal amount, resulting in a discount of $4,950, which is being amortizedusing the effective interest method over the expected life of the Notes. TheNotes are secured by the assets and stock of the Company and the Company is aguarantor of the Notes. As of December 31, 2002, debt issue costs of$8,681 have been incurred related to the issuance of the Notes. These costs arebeing amortized over the life of the related debt, using the effective interestmethod. As discussed in Note 3, the Company has applied the principles of pushdown accounting, and accordingly has recognized its pro-rata allocation of theNotes of $96,854 and $97,421 in 2003 and 2004, respectively and the debt issuecosts of $5,417 and $4,329 in 2003 and 2004, respectively in the accompanyingconsolidated financial statements. The Notes contain a number of affirmativeand negative covenants which among other things require JEI to maintain certainfinancial ratios and refrain from certain actions without prior approval fromthe Trustee of the Notes. As of December 31, 2004, JEI is in compliancewith all such debt covenants.

 

10

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Effective July 12, 2002, JEI entered into a $10,000 line of credit(“LOC”) agreement with Wells Fargo Foothill, Inc., expiring July 12, 2007.The LOC bears interest at the prime rate published by Wells Fargo Bank, plus1.75% (7.00% as of December 31, 2004). The LOC is collateralized by the land,buildings and related improvements of The Lodge and the Gilpin Hotel andCasino. The security interests under the terms of the LOC are senior to theNotes discussed above. There were no amounts outstanding under the LOC as ofDecember 31, 2004 and 2003.

 

In conjunction with the Company’s acquisition on February 22,2002, discussed in Note 1, $1,543 in capitalized debt issue costs relatedto the Company’s senior credit facility were charged to operations during thefirst quarter of 2002.

 

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

 
| 2005       |   | $       | 471     |   |
|------------|--------|---------|---------|--------|
| 2006       |   | 504     |    |
| 2007       |   | 538     |    |
| 2008       |   | 575     |    |
| 2009       |   | 100,346 |    |
| Thereafter |   | 1,295   |    |
|       |   |    |    |
| Total      |   | $       | 103,729 |   |
|            |        |         |         |        |  |

 

**6.**                                      DERIVATIVE FINANCIAL INSTRUMENT

** **

As discussed in Note 2, the Company has used derivative financialinstruments to manage exposure to interest rate risk. In conjunction with theacquisition on February 22, 2002, discussed in Note 1, the Company terminatedits only derivative financial instrument (a $50,000 interest rate swap) with acharge to operations of $2,655. The Company has not entered into any furtherderivative financial instruments since the February 22, 2002 acquisition.

 

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

 

The following disclosure of estimated fair value of the Company’sfinancial instruments has been determined by the Company using available marketinformation and generally accepted valuation methodologies. However,considerable judgment is required to interpret market data in order to developthe estimates of fair value. Accordingly, the estimates herein are notnecessarily indicative of the amounts the Company could realize in a currentmarket exchange. The use of different market assumptions and/or estimationmethodologies may have a material effect on the estimated fair value amounts.The asset (liability) amounts for the Company’s financial instruments are asfollows:

 
| ** **       | ** ** | **2004**             | ** ** | **2003**                   | ** ** |
|------------------|------------|----------------------|------------|----------------------------|------------|
| ** **       | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair  Value** | ** ** | **Carrying  Amount** | ** ** | **Estimated  Fair  Value** | ** ** |
| ** **       | ** ** | ** **           | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Liabilities-debt |       | $                    | 101,418    |                       | $          | 116,264 |   | $ | 101,292 |   | $ | 107,357 |   |
|                  |            |                      |            |                            |            |  |  |  |  |  |  |  |  |

 

The estimation methodologies utilized by the Company are summarized asfollows:

 

***Debt—***The fairvalue of variable-rate debt at December 31, 2001 is estimated to be equalto its carrying amount. The fair value of senior secured notes issued in 2002is based upon quoted market rates. The

 

11

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fair value of other fixed rate debt is estimated to be equal to itscarrying amount, based on the prevailing market interest rates for debt ofsimilar dollar amount, maturity and risk.

 

The estimated fair value of the Company’s other financial instruments,such as cash and cash equivalents, accounts receivable and accounts payable,have been determined to approximate carrying value based on the short-termnature of those financial instruments.

 

**8.**                                      STOCK OPTIONS

 

In conjunction with the Company’s acquisition discussed in Note 1,514,000 options outstanding on that date became 100% vested, and the Companyrecognized a $3,121 charge to operations on February 22, 2002 representing thedifference between the respective options’ exercise price (ranging from $5.63to $8.38 per share) and the per share acquisition price of $12.00. Alloutstanding options were terminated upon the Company’s acquisition by JEI.

 

The Company had two stock option plans: the 1994 Employees’ IncentiveStock Option Plan (“1994 Plan”) and the 1996 Incentive Stock Option Plan (“1996Plan”). The 1994 Plan provided for the grant of incentive stock options toofficers, directors and employees of the Company for 300,000 shares of commonstock. The 1996 Plan provided for the grant of stock options, includingincentive stock options and non-qualified stock options for 500,000 shares ofcommon stock.

 

Options granted under the 1994 Plan generally vested proportionatelyover three years on June 30 following the grant date. Options grantedunder the 1996 Plan generally vested proportionately over three years on eachof the first, second, and third anniversary dates of the grant.

 

**9.**                                      INCOME TAXES

 

The Company’s income tax expense varies from the amount expected byapplying the federal tax rate due to the following items:

 
| ** **                                     | ** ** | **January 1, 2002  Through  February 22, 2002** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                     | ** ** | ** **                                      | ** ** |
| Expected federal income tax expense  (benefit) |       | $                                               | (1,970     | ) |
| Valuation allowance                            |       | 1,791                                           |       |
| Nondeductible privatization costs              |       | 251                                             |       |
| Other—net                                 |       | (72                                             | )          |
|                                           |       |                                            |       |
| Total                                          |       | $                                               | —     |   |

 

Net deferred income tax expense allocated to stockholders’ equity was$672 for the year ended December 31, 2002.

 

In conjunction with the Company’s acquisition on February 22, 2002,discussed in Note 1, the Company filed an election to change its tax status asa C-Corporation to an S-Corporation. Subsequent to the conversion to anS-Corporation, no provision for federal income taxes has been reflected in theCompany’s financial statements as the stockholders will report any taxableincome or loss of the Company on their personal tax returns. Furthermore, theCompany has provided a valuation allowance against its net income tax benefitat February 22, 2002 due to uncertainties surrounding its ultimatecollectibility.

 

12

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On March 11, 2002, the Company and the LLC received notice fromthe Internal Revenue Service asserting deficiencies in federal corporate incometaxes for the Company’s 1998 tax year. The proposed adjustment asserts anincrease to taxable income for the 1998 tax year of $1,193, and relates to thedeductibility of depreciation taken against certain costs incurred by the LLCto build and improve public assets. The Company and the LLC are contesting theasserted deficiencies through the administrative appeals process. The Companyand the LLC believe that any amounts assessed for the 1998 and future tax yearswill not have a material effect on the Company’s financial position or resultsof operations. Due to the preliminary nature of this proceeding, management isunable to reasonably estimate the amount, or range of amounts, of any potentialincome tax liability associated with the notice.

 

**10.**                               RELATED PARTIES

 

The Company and JEI shared a management fee of 5% of adjusted grossgaming proceeds for the gaming operations of the LLC. For the first year ofoperations, the sharing ratio of this management fee was disbursed 60% to theCompany and 40% to JEI. For subsequent periods of operations through 2002, themanagement fee was disbursed 50% to the Company and 50% to Diversified. Duringthe periods ended December 31, 2002, JEI was paid $228, for managementfees from the LLC. On February 22, 2002 in conjunction with the Company’sacquisition discussed in Note 1, the above management fee was terminated.

 

Effective October 1, 1997, the Company entered into an agreementwith an affiliate of an officer, director and significant stockholder of theCompany to assist the Company in its efforts to research, develop, perform duediligence and possibly acquire new gaming opportunities. The agreement, asamended, expired December 31, 2002. The annual cost to the Company underthe agreement was $450 in 2002.

 

**11.**                               COMMITMENTS AND CONTINGENCIES

 

On May 25, 2001, a lawsuit was filed in the United States DistrictCourt for the District of Colorado (Case No. 01-D-0964) by Central City,several casino operators located in Central City and others against the City ofBlack Hawk, the Black Hawk Gaming Association (formerly the Black Hawk CasinoOwners Association) and several casino operators located in the City of BlackHawk, including Black Hawk Gaming. The suit alleges that the defendants causedeconomic harm to the plaintiffs by engaging in a conspiracy and scheme to harmcompetition, restrain trade and monopolize the gaming industry in the GilpinCounty, Colorado market in violation of federal and state constitutional,statutory and common law. Also, the complaint alleges that starting in 1996,the City of Black Hawk began interfering with Central City’s plans to constructa road directly from Interstate 70 to Central City. The plaintiffs seekcompensatory, treble and exemplary damages against the defendants in amounts tobe proven at trial along with interest, costs and attorneys’ fees. In March2003, Central City’s city council voted to withdraw from the lawsuit. CentralCity has since been dismissed from the lawsuit. The remaining plaintiffs havecontinued to pursue the lawsuit. On March 26, 2003, the district courtentered an order dismissing with prejudice the plaintiffs’ seventh, eighth,eleventh, twelfth and thirteenth claims for relief (i.e., the state common lawclaims and the claims under RICO and its Colorado statutory counterpart(COCCA)). On March 31, 2004, the district court dismissed with prejudicethe federal antitrust claims. The court declined to retain supplementaljurisdiction over the state antitrust claims, and dismissed them withoutprejudice. On April 30, 2004, the plaintiffs filed a notice of appeal inthe district court, appealing the dismissals of their claims to the UnitedStates Court of Appeals for the Tenth Circuit. The appeal has been briefed andwas argued to a panel of the Tenth Circuit on January 13, 2005. We areawaiting the decision of the Tenth Circuit. Although plaintiffs have appealed,we continue to believe that this lawsuit is without merit and we intend tocontest it vigorously. We are unable to reasonably estimate

 

13

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the amount or range of amounts, if any associated with this litigation.But we do not believe the suit will result in any material liability.

 

In March 2003, Galactic Gaming, Inc., one of the plaintiffs in Case No.01-D-0964 (MJW), filed an action in District Court in Jefferson County,Colorado, Case No. 03CV0793, Division 7, against many of the same defendants asin Case No. 01-D-0964 (MJW), including Black Hawk Gaming. This action assertedstate common law claims identical or virtually identical to those that wereasserted and dismissed with prejudice in the federal action. Plaintiff movedfor voluntary dismissal and on July 16, 2003, the Jefferson County districtcourt dismissed the action without prejudice. Given the passage of time, we donot believe that plaintiff will attempt to reassert this action after the TenthCircuit appeal is decided. We are unable to reasonably estimate the amount orrange of amounts, if any associated with this litigation. But even if the plaintiffin the future attempts to reassert this action, we do not believe it willresult in any material liability.

 

The Company is also involved in routine litigation arising in theordinary course of business. These matters are believed by the Company to be coveredby appropriate insurance policies.

 

On January 1, 1997, the Gilpin Hotel Casino Employees’ 401(k) Plan(re-named Black Hawk Gaming & Development Company’s 401(k) Plan onMarch 31, 1999) (the “Plan”) was organized and began acceptingcontributions on September 1, 1997. The Plan is a defined contributionplan covering eligible employees of the Company. The Plan allows eligibleemployees to make tax-deferred contributions that are matched by the Company upto a specified level. The Company contributed approximately $257, $249 and $263to the Plan for the years ended December 31, 2004, 2003 and 2002,respectively.

 

The Company leases land and warehouse space for the Gold Dust in Reno,Nevada as well as automobiles, and other property and equipment under operatingleases expiring at various dates. Total rental expense under thesenon-cancelable leases was approximately $357, $352, and $351 for the yearsended December 31, 2004, 2003, and 2002 respectively.

 

The following are the future estimated minimum commitments relating toBHWK’S non-cancelable operating agreements and leases: 

 
| **Year Ended  December 31** | ** ** | ** ** | ** ** |
|-----------------------------|------------|------------|------------|
| ** **                  | ** ** | ** ** | ** ** |
| 2005                        |       | $          | 368        |   |
| 2006                        |       | 345        |       |
| 2007                        |       | 344        |       |
| 2008                        |       | 304        |       |
| 2009                        |       | 298        |       |
| Thereafter                  |       | 8,844      |       |
|                        |       |       |       |
| Total                       |       | $          | 10,503     |   |
|                             |            |            |            |  |  |

 

**12.**                               SEGMENT INFORMATION

 

As defined by SFAS No. 131, the Company has two geographically definedreportable segments comprised of (1) the Gilpin and The Lodge, in Black Hawk,Colorado and (2) the GDW, in Reno, Nevada. The Corporate operations representall other revenues and expenses, and they are also shown. All inter-segment andinter-company transactions and balances have been eliminated.

 

14

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The casinos in Black Hawk, Colorado, primarily serve the residents ofmetropolitan Denver, Colorado. As such, the Company believes that significantlyall revenues are derived from within 150 miles of that geographic area.

 

The casino in Reno, Nevada, caters to the locals market. The Companybelieves that significantly all revenues are derived from Reno, Nevada andsurrounding areas.

 

The accounting policies of these segments are the same as thosedescribed in Note 2.

 

Segment financial information as of and for the years endedDecember 31, 2004, 2003 and 2002 is presented as follows (dollars in thousands):

 

15

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| ** **                                              | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net revenues:                                           |       |       |       |       |       |       |       |
| Black Hawk, Colorado                                    |       | $          | 82,281     |       | $          | 72,477     |       | $ | 75,960 |   |
| Reno, Nevada                                            |       | 22,465     |       | 19,864     |       | 18,874     |       |
|                                                    |       |       |       |       |       |       |       |
| Total net revenues                                      |       | $          | 104,746    |       | $          | 92,341     |       | $ | 94,834 |   |
|                                                    |       |       |       |       |       |       |       |
| Depreciation and amortization:                          |       |       |       |       |       |       |       |
| Black Hawk, Colorado                                    |       | $          | 4,838      |       | $          | 4,759      |       | $ | 6,454 |   |
| Reno, Nevada                                            |       | 1,436      |       | 1,241      |       | 1,404      |       |
| Corporate                                               |       | 50         |       | 52         |       | 37         |       |
|                                                    |       |       |       |       |       |       |       |
| Total depreciation and amortization                     |       | $          | 6,324      |       | $          | 6,052      |       | $ | 7,895 |   |
|                                                    |       |       |       |       |       |       |       |
| EBITDA (1):                                             |       |       |       |       |       |       |       |
| Black Hawk, Colorado                                    |       | $          | 24,214     |       | $          | 18,708     |       | $ | 21,366 |   |
| Reno, Nevada                                            |       | 7,535      |       | 5,742      |       | 5,193      |       |
| Corporate overhead                                      |       | (2,346     | )          | (2,110     | )          | (6,534     | )          |
|                                                    |       |       |       |       |       |       |       |
| Total EBITDA                                            |       | $          | 29,403     |       | $          | 22,340     |       | $ | 20,025 |   |
|                                                    |       |       |       |       |       |       |       |
| Interest income:                                        |       |       |       |       |       |       |       |
| Black Hawk, Colorado                                    |       | $          | 13         |       | $          | 3          |       | $ | 29 |   |
| Reno, Nevada                                            |       | 3          |       |       |       | 2          |       |
| Corporate                                               |       | 6          |       | 2          |       | 9          |       |
|                                                    |       |       |       |       |       |       |       |
| Total interest income                                   |       | $          | 22         |       | $          | 5          |       | $ | 40 |   |
|                                                    |       |       |       |       |       |       |       |
| Interest expense:                                       |       |       |       |       |       |       |       |
| Black Hawk, Colorado                                    |       | $          | (10,807    | )          | $          | (10,774    | )          | $ | (10,933 | ) |
| Reno, Nevada                                            |       | (3,142     | )          | (3,123     | )          | (3,879     | )          |
|                                                    |       |       |       |       |       |       |       |
| Total interest expense                                  |       | $          | (13,949    | )          | $          | (13,897    | )          | $ | (14,812 | ) |
|                                                    |       |       |       |       |       |       |       |
| Other income—                                      |       |       |       |       |       |       |       |
| Corporate                                               |       |       |       | $          | 10         |       | $          | 119 |   |
|                                                    |       |       |       |       |       |       |       |
| Total other income                                      |       |       |       | $          | 10         |       | $          | 119 |   |
|                                                    |       |       |       |       |       |       |       |
| Income before minority interest and income  taxes:      |       |       |       |       |       |       |       |
| Black Hawk, Colorado                                    |       | $          | 8,582      |       | $          | 3,178      |       | $ | 4,008 |   |
| Reno, Nevada                                            |       | 2,960      |       | 1,378      |       | (88        | )          |
| Corporate                                               |       | (2,390     | )          | (2,150     | )          | (6,443     | )          |
|                                                    |       |       |       |       |       |       |       |
| Total income before minority interest and  income taxes |       | $          | 9,152      |       | $          | 2,406      |       | $ | (2,523 | ) |

 

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| ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|------------------|------------|
| ** **                           | ** ** | **2004**         | ** ** | **2003** | ** ** |
|                                 |       |             |       |   |   |
| Total assets:                        |       |             |       |   |   |
| Black Hawk, Colorado                 |       | $                | 111,277    |   | $ | 113,384 |   |
| Reno, Nevada                         |       | 24,577           |       | 25,469 |   |
| Corporate                            |       | 1,744            |       | 987 |   |
|                                 |       |             |       |   |   |
| Consolidated total assets            |       | $                | 137,598    |   | $ | 139,840 |   |
|                                 |       |             |       |   |   |
| Additions to long lived assets:      |       |             |       |   |   |
| Black Hawk, Colorado                 |       | $                | 5,585      |   | $ | 8,226 |   |
| Reno, Nevada                         |       | 1,619            |       | 1,080 |   |
| Corporate                            |       |             |       | 12 |   |
|                                 |       |             |       |   |   |
| Total additions to long lived assets |       | $                | 7,204      |   | $ | 9,318 |   |
|                                 |       |             |       |   |   |
| Long-term debt:                      |       |             |       |   |   |
| Black Hawk, Colorado                 |       | $                | 78,265     |   | $ | 78,302 |   |
| Reno, Nevada                         |       | 22,682           |       | 22,549 |   |
|                                 |       |             |       |   |   |
| Total long-term debt                 |       | $                | 100,947    |   | $ | 100,851 |   |
|                                      |            |                  |            |  |  |  |  |  |  |  |

 

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(1)     EBITDA (earnings before interest, taxes,depreciation and amortization) is presented as supplemental information in thetables above and in the discussion of our operating results. EBITDA can bereconciled directly to our consolidated net income by adding the amounts shownfor depreciation, amortization, and interest. This information should not beconsidered as an alternative to any measure of performance as promulgated underaccounting principles generally accepted in the United States of America, suchas net (loss) income, nor should it be considered as an indicator of ouroverall financial performance. Our calculation of EBITDA may be different fromthe calculation used by other companies and comparability may be limited.Management believes that presentation of a non-GAAP financial measure such asEBITDA is useful because it allows investors and management to evaluate andcompare the Company’s operating results from continuing operations from periodto period in a meaningful and consistent manner in addition to standard GAAPfinancial measures. Management internally evaluates the performance of itsproperties using EBITDA measures as do most analysts following the gamingindustry. EBITDA is also a component of certain financial covenants in theCompany’s debt agreements.

 

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