** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

** **

**Form 10-K**

** **

| **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, 2007**                                                                  |
| ** ** | ** ** | ** **                                                                                                             |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**               |

** **

**Commission File No. 333-88242**

** **

**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 delinquent filerspursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, 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 definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large accelerated filer |   | o |   | Accelerated filer |   | o |   | Non-accelerated filer |   | x |   | Smaller reporting company |   | o |
|-------------------------|--------|---|--------|-------------------|--------|---|--------|-----------------------|--------|---|--------|---------------------------|--------|---|

 

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 24,2008 all of its outstanding shares of common stock are held by one person.

 

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 24, 2008** |
|---------------------------------------------|--------|-------------------------------------------------------|
| 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.

** **

 

----

 

**JACOBSENTERTAINMENT, INC.**

**2007 ANNUALREPORT ON FORM 10-K**

 

**Table ofContents**

 
| **Item**    | ** ** | **Description**                                                                                                      | ** ** | **Page** |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|----------|
|        |       |                                                                                                                 |       |     |
| Item 1.     |       | Business.                                                                                                            |       | 1        |
| Item  1A.   |       | Risk  Factors.                                                                                                       |       | 23       |
| Item 1B.    |       | Unresolved  Staff Comments.                                                                                          |       | 33       |
| Item  2.    |       | Properties.                                                                                                          |       | 33       |
| Item 3.     |       | Legal Proceedings.                                                                                                   |       | 34       |
| Item 4.     |       | Submission  of Matters to a Vote of Security Holders.                                                                |       | 34       |
| Item 5.     |       | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities. |       | 34       |
| Item 6.     |       | Selected  Financial Data.                                                                                            |       | 35       |
| Item 7.     |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations.                         |       | 36       |
| Item 7A.    |       | Quantitative  and Qualitative Disclosure about Market Risk.                                                          |       | 53       |
| Item 8.     |       | Financial  Statements and Supplementary Data.                                                                        |       | 54       |
| Item 9.     |       | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure.                               |       | 54       |
| Item 9A.    |       | Controls and  Procedures.                                                                                            |       | 54       |
| Item 9A(T). |       | Controls and  Procedures.                                                                                            |       | 54       |
| Item 9B.    |       | Other Information.                                                                                                   |       | 55       |
| Item 10.    |       | Directors,  Executive Officers and Corporate Governance.                                                             |       | 55       |
| Item 11.    |       | Executive  Compensation.                                                                                             |       | 57       |
| Item 12.    |       | Security Ownership  of Certain Beneficial Owners and Management and Related Stockholder Matters.                     |       | 60       |
| Item 13.    |       | Certain  Relationships and Related Transactions and Director Independence.                                           |       | 61       |
| Item 14.    |       | Principal  Accounting Fees and Services.                                                                             |       | 63       |
| Item 15.    |       | Exhibits and  Financial Statement Schedules.                                                                         |       | 63       |

 

i

----

 

**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 offuture results of operations or financial condition;

 

·                                           expectationsfor our casino, truck plaza and horse racing properties; and

 

·                                           expectation ofthe continued availability of capital resources.

 

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 substantialindebtedness could adversely affect our financial health and prevent us fromfulfilling our debt obligations.

 

·                                          We will requirea significant amount of cash to service our indebtedness. Our ability togenerate cash depends on many factors beyond our control.

 

·                                          Our indebtednessimposes restrictive covenants on us.

 

·                                          We may notbe able to successfully integrate the operations of recent, proposed and futureacquisitions into our business.

 

·                                          Wemay experience a loss of market share due to intense competition and thepossible introduction of slot machines at one or more Colorado racetracks.

 

·                                          We faceextensive regulation from gaming and other government authorities and thepossibility that legislative changes may prohibit or limit our gamingactivities.

 

·                                          Changes toapplicable tax laws could have a material adverse effect on our operations andfinancial condition.

 

·                                          Our operationscould be adversely affected due to the adoption of anti-smoking regulations.

 

·                                          We depend uponour key employees and certain members of our management.

 

·                                          Members of ourboard of directors indirectly own 100% of Jacobs Entertainment, Inc. andcould have interests that conflict with yours.

 

·                                          We rely on themaintenance of agreements with horsemen at our horse racing facility.

 

·                                          Our businessrelies heavily on certain markets and an economic downturn in these marketscould have a material adverse effect on our results.

 

ii

----

 

·                                          Seasonality andweather conditions can adversely affect our results of operations.

 

Allsubsequent written and oral forward-looking statements attributable to us orpersons acting on our behalf are expressly qualified in their entirety by thecautionary statements included in this report. We undertake no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise. In light of these risks,uncertainties and assumptions, the forward-looking events discussed in thisreport might not occur.

 

**NON-GAAP FINANCIAL 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 expense, net of capitalized interest, and 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 notreflect our cash expenditures, or future requirements for capital expendituresor contractual commitments;

 

·                                          EBITDA does notreflect changes in, or cash requirements for, our working capital needs;

 

·                                          EBITDA does notreflect the cash requirements necessary to service interest or principalpayments, on our debts;

 

·                                          althoughdepreciation and amortization are non-cash charges, the assets beingdepreciated and amortized will often have to be replaced in the future, andEBITDA does not reflect any cash requirements for such replacements; and

 

·                                          other companiesin our industry may calculate EBITDA differently than we do, limiting itsusefulness as a comparative 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.

 

iii

----

 

**INDUSTRY AND MARKET DATA**

 

Thisreport includes market and industry data that we obtained from our ownresearch, 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 those estimates.

 

iv

----

 

**PART I**

 

**Item 1.                    *Business.***

 

**Introduction**

 

Jacobs Entertainment, Inc. (“Jacobs Entertainment,” “we,” “us” and“our”) was formed as a Delaware corporation on April 17, 2001. We are adeveloper, owner and operator of gaming and pari-mutuel wagering facilitiesthroughout the United States, with properties located in Colorado, Louisiana,Nevada and Virginia. We own and operate five land-based casinos, 18 videogaming truck plazas (three of which are leased) and a horse racing track withnine satellite-wagering facilities (five of which are leased). In addition, weare party to an agreement that entitles us to a portion of the gaming revenuefrom 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 31,2007, our net revenues and EBITDA were approximately $349.8 million and $51.1million, respectively. See Note 17 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:

 
| ** **                                                  | ** ** | ** **                       | ** ** | ** **                            | ** ** | ** **                                      | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | **Year Ended  December 31,** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|-------------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|----------------------------------------|------------|
| ** **                                                  | ** ** | ** **                       | ** ** | ** **                            | ** ** | **As of December 31, 2007** | ** ** | ** 2007** | ** ** |
| ** **                                                  | ** ** | ** **                       | ** ** | ** **                            | ** ** | **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                                          |       | 963            |       | 30         |       | 50         |       | $                                      | 26,692     |   |
| Gilpin Casino                                               |       | Black Hawk, Colorado             |       | Land-based casino                     |       | 16,000                                          |       | 436            |       | 18         |       |       |       | 6,729                                  |       |
| Gold Dust  West-Reno                                        |       | Reno, Nevada                     |       | Land-based casino                     |       | 17,500                                          |       | 507            |       | 0          |       | 27         |       | 7,192                                  |       |
| Gold Dust West -  Carson City                               |       | Carson City, Nevada              |       | Land-based casino                     |       | 12,000                                          |       | 398            |       | 6          |       | 146        |       | (1,231                                 | )          |
| Gold Dust  West-Elko(2)                                     |       | Elko, Nevada                     |       | Land-based casino                     |       | 13,000                                          |       | 354            |       | 7          |       |       |       | (324                                   | )          |
| Louisiana Truck  Plazas                                     |       | Louisiana (19 various locations) |       | Video gaming                          |       | 12,000                                          |       | 917            |       | 0          |       |       |       | 19,299                                 |       |
| Colonial Downs  Racetrack and satellite wagering facilities |       | Virginia (9 various locations)   |       | Horse racing and pari-mutuel wagering |       | N/A                                             |       | N/A            |       | N/A        |       |       |       | 1,401                                  |       |
|                                                        |       |                             |       |                                  |       |                                            |       |           |       |       |       |       |       |                                   |       |
| **Total**                                                   |       |                             |       |                                  |       | 95,500                                          |       | 3,575          |       | 61         |       | 223        |       | $                                      | 59,758     |   |
|                                                             |            |                                  |            |                                       |            |                                                 |            |                |            |            |            |            |            |                                        |            |  |  |

 

----

| (1)    |   | Property Level EBITDA  excludes corporate overhead expense of $8.6 million. |
|--------|--------|-----------------------------------------------------------------------------|
|   |   |                                                                        |
| (2)    |   | Opened March 5, 2007.                                                  |

 

1

----

** **

**Thefollowing is a reconciliation of our property level EBITDA to our propertylevel net income (loss) (in thousands):**

 
| ** **                                           | ** ** | ** ** | ** ** | **Depreciation** | ** ** | ** **   | ** ** | ** **   | ** ** | **Net**    | ** ** |
|------------------------------------------------------|------------|------------|------------|------------------|------------|--------------|------------|--------------|------------|------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **and**          | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Income** | ** ** |
| **Year ended December 31, 2007** | ** ** | **EBITDA** | ** ** | **Amortization** | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **(Loss)** | ** ** |
| The Lodge Casino                                     |       | $          | 26,692     |             | $          | 4,318        |       | $            | 33         |       | $          | 6,917 |   | $ | 15,490 |   |
| Gilpin Casino                                        |       | 6,729      |       | 1,854            |       | 13           |       | 1,904        |       | 2,984      |       |
| Gold Dust  West-Reno                                 |       | 7,192      |       | 1,520            |       | 14           |       | 2,619        |       | 3,067      |       |
| Gold Dust  West-Carson City                          |       | (1,231     | )          | 1,819            |       | 13           |       | 1,534        |       | (4,571     | )          |
| Gold Dust  West-Elko                                 |       | (324       | )          | 1,974            |       | 13           |       | 1,803        |       | (4,088     | )          |
| Louisiana Truck  Plazas                              |       | 19,299     |       | 3,848            |       | 87           |       | 4,861        |       | 10,677     |       |
| Colonial Downs                                       |       | 1,401      |       | 2,065            |       | 113          |       | 599          |       | (1,150     | )          |
| Total Property  Level EBITDA                         |       | 59,758     |       | 17,398           |       | 286          |       | 20,237       |       | 22,409     |       |
| Corporate  overhead                                  |       | (8,625     | )          | 703              |       | 59           |       | 8,175        |       | (17,444    | )          |
| ** **                                           | ** ** | ** ** | ** ** | ** **       | ** ** | ** **   | ** ** | ** **   | ** ** | ** ** | ** ** |
| **Total**                                            |       | $          | 51,133     |             | $          | 18,101       |       | $            | 345        |       | $          | 28,412 |   | $ | 4,965 |   |

 

**Business Strategy 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.

 

Webelieve that there are opportunities for growth and operational efficiencies inthe markets in which we operate. Black Hawk, Colorado was one of the fastestgrowing gaming markets in the country, having experienced a 26.3% compoundannual growth in gaming revenue, from 1998 through 2000. Revenues in 2001through 2003 stabilized at approximately $500 million annually and rose to $524million in 2004, $535 million in 2005, $554 million in 2006, and $581 millionin 2007. We believe that our two Black Hawk properties will continue to becompetitive. In 2006, we remodeled and improved the entrance and access to TheLodge Casino.

 

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 have identified, evaluated and continue to considerseveral other potential small casino opportunities in Nevada.

 

Inthe last three years, we acquired and/or developed 12 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. Our strategy for our horse racing operations is to bea competitive participant in the industry by capitalizing on our unique dirtand turf track facilities for live racing, hosting marquee racing events, andexpanding our off-track wagering facility network under appropriate circumstances.On January 11, 2008, we announced that we intend to sell our racetrack andoffsite wagering facilities in Virginia. At this point a sale is not probable and we are not actively seeking abuyer.

 

Ourcompetitive strategies and strengths include:

 

***GenerateRepeat Business by Catering to Local Gaming Patrons.*** We focus on attracting and fostering repeat business from local gamingpatrons at all of our properties. Our strategy for establishing a strongpresence with local residents or patrons is to provide a user-friendly gamingenvironment featuring convenient locations, high quality food at affordableprices and promotional incentives that reward frequent play. In order tomaximize exposure to the local and surrounding communities in the most cost-effectivemanner, we utilize computerized slot 

 

2

----

 

datatracking systems that allow us to track individual play and payouts and developmailing lists for special events, contest play and promotions. We also participatein busing programs with unaffiliated transportation companies to bring patronsfrom the greater Denver metropolitan area and surrounding communities to ourtwo properties located in Black Hawk, Colorado.

 

***ExpandLouisiana Truck Plaza Business.***During the last 12 months, we have expanded our presence in the Louisiana truckplaza market by acquiring one truck stop gaming plaza and opening another. Ourstrategy of expanding our presence in the Louisiana truck plaza market isdriven by (i) the consistent revenue each facility generates, (ii) thehigh return on investment associated with operating the truck plazas, and (iii) therelatively low capital expenditures necessary to maintain the facilities.

 

***EnterAdditional Locals-Oriented Markets.***Our management team has a proven track record of successfully operating casinosthat cater to local residents or day trip patrons who reside in close proximityto the properties. In an effort to leverage this operating experience and entertwo additional locals-oriented markets, we acquired Piñon Plaza, located inCarson City, Nevada, in June 2006. This facility has 398 slot machines andsix table games on its 12,000 square foot gaming floor. We opened a new casinoin Elko, Nevada on March 5, 2007 that features a 13,000 square-foot casinofloor with 354 ticket in-ticket out (TITO) slot machines and seven table games.

 

***BroadGeographic and Asset Diversification*****.**We believe that because of our geographic and asset diversification, we areless 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 gaming facilities emphasize slot machine or video gamingplay, or both. We believe slot machine play to be the fastest growing, mostconsistently profitable and lowest risk segment of the gaming entertainmentbusiness. We offer a wide variety of games to attract customers and encouragethem to play for longer periods of time, thereby promoting the stability of ourgaming revenue. We intend to maximize slot and video gaming revenue bycontinuing to invest in state-of-the art equipment and systems and replacingolder models with the most current product offerings in appropriate markets.

 

***Significant Barriers to Entry*****.** There are significant regulatory and other barriers to entry in each ofthe markets in which we operate. The gaming industry in each of our markets isgoverned by a state gaming commission. In order to enter the gaming industry inany of our markets, a potential new entrant must work through a costly andlengthy regulatory process, which could last anywhere from 12 to 18 monthsdepending on jurisdiction and type of gaming. Beyond the regulatory barriers,the need for significant investments of time and capital also restrictspotential new entrants. The discussion that follows provides a sample of thespecific barriers 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.

 

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 siteacreage and conduct restaurant operations not fewer than 12 hours per day andto keep a convenience store open 24 hours per day. These restrictions alsoprohibit the operation of more than 50 video gaming machines at any locationand require truck plaza video gaming facilities to be located only in thoseparishes that voted to continue video gaming during a one-time statewidereferendum in 1996.

 

3

----

 

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 nine, leavingonly one 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 30 years of experience in the gamingindustry. Brett A. Kramer, our Chief Financial Officer, has over 13 yearsexperience with us in various financial capacities. Stanley Politano, ourExecutive Vice President, has 14 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 over13 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***. The Lodge Casino in Black Hawk, Colorado, whichcommenced operations in June 1998, is one of 20 casinos located in thegaming district of Black Hawk. The Lodge services the greater Denvermetropolitan area, which is located 40 miles east of Black Hawk and has apopulation of approximately 2.4 million, as well as customers from nearbycommunities such as Boulder and Fort Collins, Colorado and Cheyenne, Wyoming.We believe that most of The Lodge’s customers are primarily day trip patronswho reside in the greater Denver metropolitan area. As of December 31,2007, the Black Hawk market had approximately 10,000 gaming devices (slotmachines, blackjack and poker tables) generating approximately $581 million inrevenues for the year then ended. The Lodge is one of the largest gamingfacilities 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 963****slot machines and30 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 second half of 2009.

 

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.

 

***The Gilpin Casino—Black Hawk,Colorado***. The Gilpin Casino, which commenced operations in October 1992,is located on a one-acre site in the central Black Hawk gaming district. Weexpanded our facility through the acquisition of an adjacent casino in early1994. We were one of the first casinos opened in Colorado following thelegalization of casino gaming in 1991. We offer 436 slot machines and an 18table poker room. 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.

 

4

----

 

 

In November 2004, we began a renovation of the third floor of theGilpin Casino, which was completed in March 2005 at an approximate cost of$1.8 million. This addition was completed to provide live poker with space forup to 20 tables.  We currently offer 18poker tables and provide both tournament and cash poker play.

 

***The Gold Dust West-Reno—Reno, Nevada***. Gold DustWest-Reno, which we acquired in 2001, is located on 4.6 acres in Reno’s centraldowntown gaming district and has been operating since 1978. Gold Dust West-Renocaters to residents of Reno and surrounding areas and has approximately 17,500square feet of gaming space, which offers 507 slot machines. Gold DustWest-Reno also features the Wildwood Restaurant, a 6,600 square foot diningfacility, and has parking for 300 vehicles. The property currently offers 27motel rooms.

 

***Gold Dust West-Carson City******—Carson City, Nevada.***On June 25, 2006, we closed an agreement with Capital City Entertainment, Inc.(“CCI”), an unaffiliated party, under which we acquired all of the assets ofPiñon Plaza, a division of CCI which we have now re-branded as Gold DustWest-Carson City. The assets included all of the personal property, buildingsand improvements used by Piñon Plaza in the operation of its casino, hotel, bowlingalley and RV park in Carson City, Nevada. The purchase price for the assets was$14.5 million.  Additionally, during 2006and 2007, we spent approximately $5.0 million in total for property andequipment 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 398 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 750parking spaces for Gold Dust West-Carson City’s casino patrons and hotelguests.

 

***Gold DustWest-Elko—Elko, Nevada.*** On November 14,2005, we entered into a triple net lease with an unaffiliated party for thelease of a 37,000 square foot building and approximately six acres of land inElko, Nevada. The lease has a five-year term with three five-year renewals atour option. Rent under the lease was $225,000 for the first year, with $50,000of the first year rent abated as an allowance for tenant improvements. Thesecond year’s rent is $375,000 and for years three through five the annual rentis $450,000.

 

We have the right to buy the land and the building anytime after the first 12 months through the 60th month for$5 million and from the 61st month through the 120thmonth for $5.4 million.

 

We renovated and upgraded the building and installed 354slot machines, seven table games and appropriate food and beverage offerings.Pre-opening and gaming device costs totaled approximately $21 million. Wecommenced renovation during the third quarter of 2006 and opened the casino on March 5,2007.

 

***LouisianaGaming Properties.*** Our truck plazaproperties consist of 18 truck plaza video gaming facilities located inLouisiana (of which three are leased). We are also party to an agreement thatentitles us to a portion of the gaming 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.  Our Silver Fox location has 53video gaming devices (50 in the casino and 3 in the standalone bar), our St.Martin and Diamond locations have 48 and 47 devices, respectively, our Euniceand Silver Dollar locations each have 40 video gaming devices, and our Vintonlocation has 39 video gaming devices. All other truck plaza video gaming facilities have 50 video gamingdevices.

 

5

----

 

The Louisiana truck plazas’ revenues comprise (i) revenuefrom video poker 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.

 

TheLouisiana video gaming industry consists of video gaming in 31 of Louisiana’s64 parishes. The industry is highly regulated and video gaming machines canonly be placed in qualifying bars, restaurants, hotels, satellite wageringfacilities and truck plazas. In order to qualify for video gaming, a truckplaza must offer diesel fuel, gasoline, a convenience store, a restaurant and aplace for truck drivers to shower and sleep. Our video gaming machines arelocated in a separate gaming room that is designed to provide a pleasantcasino-like atmosphere. As of December 31, 2007, Louisiana had 172licensed 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***. ColonialDowns, which opened in 1997, is a racetrack in New Kent, Virginia, whichprimarily conducts pari-mutuel wagering on thoroughbred and harness racing. Thetrack facility was designed to provide patrons with a pleasant atmosphere toenjoy quality horse racing. The outside grandstand area, located on the firstfloor of the track facility, has an occupancy capacity of approximately 4,000patrons. Also located on the first floor of the track facility are twosimulcast television amphitheaters, two covered patio-seating areas, two bars,a large concession food court, gift shop, and wagering locations withapproximately 72 tellers. The Jockey Club, which is in the main grandstand arealocated on the third floor of the track facility, includes a full-servicedining area with a seating capacity of 548 patrons, two separate lounge areas,and additional wagering locations with 24 tellers. On the fourth floor is theTurf Club with seating for full service dining for 125 along with 10 luxurysuites with skybox seating and a wagering location with eight tellers. In 2005,we added outdoor seating for additional patrons along the track’s homestretchin an area called “the Green.”

 

The dirt track at Colonial Downs is one and one-quartermiles in length and is one of the largest tracks in the United States. Based onour knowledge of the industry, we believe the 180-foot wide turf track is thewidest turf track in the country, thereby establishing the track as one of themajor turf racing facilities in the Mid-Atlantic region.

 

In addition to our racetrack, we operate nine satellitewagering facilities in Virginia. These facilities provide simulcast pari-mutuelwagering on thoroughbred and harness racing from our racetrack and selectedother racetracks throughout the United States. Our Virginia satellite wageringfacilities are located in Brunswick County, Scott County, Hampton,Martinsville, Vinton, Chesapeake (two facilities) and Richmond, Virginia (twofacilities). These facilities employ state of the art audio/video technologyfor receiving quality import simulcast thoroughbred and harness racing fromnationally known racetracks.

 

In 2005, Colonial Downs created a new stakes race,the Colonial Turf Cup, which together with the Virginia Derby forms the firsttwo legs of the Grand Slam of GrassTM. The Grand Slam of GrassTM consists of fourraces including the two races at Colonial Downs, the Secretariat to be held atArlington Park, and the John Deere Breeders’ Cup Turf at Monmouth Park. Since the inceptionof The Grand Slam of GrassTM, we have guaranteed $5 million to any horse thatsweeps the four race series. Of the $5 million guarantee, approximately $2.6million would be paid as a result of the cumulative purse winnings from thefour races. The remaining approximate $2.4 million would be paid by us as abonus award. Annually, we purchase an insurance policy to cover $2.4 million ofthis bonus payment if that payment were to be required.  Since inception of The Grand Slam of GrassTM,no single horse has won all four legs of the series. The Virginia Derby will be broadcast nationally in 2008 on CBS.

 

***Satellite Wagering Facilities,Virginia***. In addition to our racetrack facility, we operatenine satellite wagering facilities in Virginia (five are leased). Thesefacilities provide simulcast pari-mutuel wagering on thoroughbred and harnessracing from our racetrack and selected other racetracks throughout the UnitedStates. Our satellite wagering facilities are located in Brunswick County, twoin Chesapeake, Hampton, Martinsville, Scott County, Vinton, and two inRichmond. These facilities employ state-of-the-art audio/video technology forreceiving quality import simulcast thoroughbred and harness racing fromnationally known racetracks.

 

6

----

 

The facilities are structured to accommodate the needs of variouspatrons, from the seasoned handicapper to the novice wagerer, and providepatrons with a comfortable, upscale environment including a full bar and arange of restaurant services. In addition, self-serve automated wageringequipment is available to patrons in order to make wagering more user-friendlyto the novice and more efficient for the expert. This equipment, withtouch-screen interactive terminals and personalized portable wageringterminals, provides patrons with current odds information and enables them toplace wagers and credit winning tickets to their accounts without waiting inline.

 

In 2003, the legislature of the Commonwealth 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.

 

In2004, the legislature of the Commonwealth of Virginia passed a statute, signedby the governor of Virginia, authorizing up to ten satellite wageringfacilities in localities that approved such facilities by referenda. On November 2,2004, referenda were passed authorizing the locating of a satellite wageringfacility in the following counties in Virginia: Henry County, Scott County andWestmoreland County. Thereafter, the Virginia Racing Commission grantedColonial licenses to own and operate a satellite wagering facility in HenryCounty and Scott County, Virginia. The Virginia Racing Commission can grantlicenses for one more satellite wagering facility under existing legislation.

 

***The NauticaProperties.*** We have acquired fromaffiliated parties several options to lease and options to purchase land andcertain improvements on the west bank of the Cuyahoga River in Cleveland, Ohio.We refer to these properties, covering an aggregate of approximately 624,000square feet of land (14.4 acres) and a building comprised of 47,380 square feetof net rentable space, as the Nautica Properties. The Nautica Propertiesconsist of six parcels and require aggregate option payments of $500,000 peryear. The option agreements give us the right during the next two and one-halfyears to purchase two parcels and the right to purchase or enter into long termleases on the other four parcels. In general, the purchase price of the parcelswould be based on independent appraisals of the land and improvement values, ifcasino gaming were to become legal in Ohio and the Nautica Properties were alicensed gaming venue. Our Chairman and Chief Executive Officer owns varyinginterests in five of the six parcels.

 

Although we may elect not to exercise all theoptions unless casino gaming opportunities arise, we nonetheless have the rightto acquire all or part of the Nautica Properties for other purposes. If casinogaming is not legalized but we decide to exercise our options, the aggregatepurchase price would be approximately $6.2 million for two parcels and theaggregate annual lease payments on four parcels would be approximately$450,000. If all six parcels are purchased and none rented, the total purchaseprice would be approximately $10 million less the aggregate option payments tothe date of exercise. The purchase price and rent payments would be increasedif, in the future, casino gaming were to become legalized in Ohio and a casinois licensed at Nautica.  During March 2008, the Companyexercised its option to acquire one of these parcels.  We intend to closeon this property prior to the end of March 2008.  The company thatowns this parcel of land is wholly owned by our Chairman and Chief ExecutiveOfficer.

 

**Seasonality and Weather Conditions**

 

Seasonality and weather conditions can affect our results ofoperations. Winter travel conditions can adversely affect patronage andrevenues at our Colorado casinos, which we experienced in late 2006 and early2007. Although casino business is not seasonal, levels of gaming activityincrease significantly during weekends and holidays, especially holidayweekends. Hurricanes Katrina and Rita temporarily affected our truck plazavideo gaming operations in late 2005. 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.

 

7

----

 

**Competition**

 

***General***. We faceintense competition in each of the markets in which we operate. Our existinggaming facilities compete directly with other gaming properties and activitiesin Colorado, Nevada, Louisiana and Virginia. We expect this competition toincrease as new gaming operators enter our markets, existing competitors expandtheir operations, gaming activities expand in existing jurisdictions and gamingis legalized in new jurisdictions. Several of our competitors havesignificantly better name recognition and more marketing and financialresources than we do. We cannot predict with any certainty the effects ofexisting and future competition on our 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 at 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 the primary competitive factors in the Black Hawk, Colorado, marketare location, availability and convenience of parking; number and types of slotmachines and gaming tables; types and pricing of amenities, including food;name recognition; overall atmosphere; and customer service. We believe ourColorado casinos 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 18 other casinos operating in Black Hawk on December 31,2007. There were approximately 10,000 gaming devices (slot machines, blackjackand poker tables) in Black Hawk as of December 31, 2007.

 

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 2,000 gaming devices as of December 31,2007. 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 reachCentral City. In late 2004, Central City constructed a road from I-70 directlyinto Central 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.Since completion of the Central City Parkway, three casinos in that townreopened but only one of the three currently remains in operation.

 

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 thesecond half of 2009), a convention center, and other amenities. Under Ameristar’sownership, this facility has been expanded to approximately 1,900 slot machinesand 24 table games, and a parking garage accommodating 800 vehicles. No othercasinos are currently under construction in Black Hawk. In 2003, the Isle ofCapri Casinos, Inc. purchased Colorado Central Station, directly acrossthe street from its existing facility and subsequently completed a majorrenovation and expansion project 

 

8

----

 

physicallylinking the two properties. The combined casinos are the largest in Black Hawkwith approximately 2,100 gaming devices, 402 hotel rooms and 2,300 parkingspaces. The Isle of Capri is noted for its aggressive marketing programs. TheMardi Gras casino, next to our Lodge casino, was purchased in 2005 and the newowners 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 Louisiana truck plaza operations face competition from land-based andriverboat casinos throughout Louisiana and on the Mississippi Gulf Coast,casinos on Native American lands and other non-casino gaming opportunitieswithin Louisiana. The Louisiana Riverboat Economic Development and GamingControl Act limits the number of gaming casinos in Louisiana to 15 riverboatcasinos statewide and one land-based casino in New Orleans. All 15 availableriverboat licenses are issued.

 

Ourvideo gaming operations also face competition from other truck plaza videogaming facilities located in surrounding areas, as well as competition fromLouisiana horse racing facilities, some of which have been authorized tooperate video gaming machines, and restaurants and bars with video gamingmachines. As of December 31, 2007, there were 172 truck plazas inLouisiana licensed to operate video gaming devices.

 

***HorseRacing and Pari-Mutuel Wagering Operations*****.** We compete with racetracks located outside Virginia (including severalin Delaware, Maryland, New Jersey, New York, Pennsylvania, and West Virginia,some of which augment their purses with slot machine revenues) and other formsof gaming, such as land-based casinos, including those in Atlantic City, andstatewide lotteries in Virginia and neighboring states. The possiblelegalization of other forms of gaming in Virginia, such as Native American orriverboat casinos, could have an adverse effect on our performance. Althoughbills for the creation of riverboat casinos have failed in the Virginialegislature, proponents of riverboat gaming in Virginia may continue to seeklegislative approval. Additionally, certain Native American tribes areconsidering seeking federal recognition which, if successful, could result inadditional gaming venues.

 

Wehave competed and will compete for wagering dollars and simulcast fees with liveracing and races simulcast from racetracks in other states, particularlyracetracks in neighboring states such as Charles Town in West Virginia, PimlicoRace Course, Laurel Park, and Rosecroft Raceway in Maryland, and Delaware Parkin Delaware. We believe that our existing agreements will continue to promotecoordination of thoroughbred events between Maryland and Virginia. However, ifthe Virginia or Maryland Racing Commissions do not approve either party’sproposed racing days, or if the Virginia-Maryland thoroughbred racing circuitis otherwise unsuccessful, our track may have to compete directly with PimlicoRace Course and Laurel Park in Maryland.

 

Wealso compete for wagering dollars with account wagering companies operatingboth legally and illegally in Virginia. These companies take wagers fromVirginians both over the phone and the internet. We believe our agreements withthree licensed account wagering companies provide us with fair compensation fortheir activities. We recently agreed to settle our lawsuit against Youbet.com, Inc.which should result in an agreement with a fourth licensed account wageringcompany. Unlicensed account wagering companies have lower costs than Colonialand thus are able to attract customers in Virginia with large wagering rebates.

 

**Employees and Labor Relations**

 

As of December 31, 2007, we had approximately 1,200 full-time andpart-time employees at our facilities in Black Hawk, Colorado, and Reno, CarsonCity, and Elko, Nevada, 500 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.

 

9

----

 

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 andregulations adopted thereunder (collectively, the “Colorado Regulations”). TheDivision may inspect, without notice, premises where gaming is beingconducted; may seize, impound or remove any gaming device;may examine and copy all of a licensee’s records; may investigate thebackground and conduct of licensees and their employees; and may bringdisciplinary actions against licensees and their employees. The Divisionmay also conduct detailed background checks of persons who lend money toor 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 19, 2007. There can be no assurancethat the Colorado casinos can successfully renew their licenses in a timelymanner from year to year.

 

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.

 

TheGaming Commission closely regulates the suitability of persons owning orseeking to renew an interest in a gaming license, and the suitability of a licenseecan 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 that investigationin the same manner as an applicant for a license. A background investigationincludes an examination of one’s personal history, financial associations,character, record, and reputation, as well as the people with whom a person hasassociated.

 

10

----

 

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 Colorado Regulationsprohibit a licensee or any affiliate of a licensee from paying dividends,interest or other remuneration to any person found to be unsuitable, orrecognizing 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 onpublicly traded corporations holding gaming licenses in Colorado and on gaminglicenses owned directly or indirectly by a publicly traded corporation, whetherthrough a subsidiary or intermediary company. The term “publicly tradedcorporation” includes corporations, firms, limited liability companies, trusts,partnerships and other forms of business organizations. Such requirementsautomatically apply to any ownership interest held by a publicly tradedcorporation, holding company or intermediary company thereof, when theownership interest directly or indirectly is, or will be upon approval of theGaming Commission, 5% or more of the entire licensee. In any event, if theGaming Commission determines that a publicly traded corporation, or asubsidiary, intermediary company or holding company has the actual ability toexercise influence over a licensee, regardless of the percentage of ownershippossessed by that entity, the Gaming Commission may require the entity tocomply with the disclosure regulations 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 

 

11

----

 

thevoting or securities of the issuer, and the issuer may not pay anyremuneration in any form to the holders of the securities.

 

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

 

·                                               5% or more of any class of voting securities of a publicly tradedcorporation that is required to include in its articles of organization the Rule 4.5charter language provisions; or

 

·                                               5% or more of the beneficial interest in a gaming licensee directly orindirectly through any class of voting securities of any holding companyor intermediary company of 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 ofany class of voting securities or 15% of the beneficial interest in agaming licensee must apply to the Gaming Commission for a finding ofsuitability within 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.

 

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 areprohibited from any beneficial ownership of the voting securities of any suchentities. Licensees, or affiliated entities of licensees, are subject tosanctions for paying dividends or distributions to persons found unsuitable bythe Gaming Commission, or for recognizing voting rights of, or paying a salaryor any remuneration for services to, unsuitable persons. Licensees or theiraffiliated entities also may be sanctioned for failing to pursue effortsto require unsuitable persons to relinquish their interests. The GamingCommission must provide prior approval of any sale, lease, purchase,conveyance, or acquisition of an interest in a casino licensee, except asprovided in Rule 4.5 relating to publicly traded corporations.

 

Coloradocasinos may 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%.

 

12

----

 

**Gaming Regulation andLicensing—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 ControlAct and the regulations promulgated thereunder (the “Nevada Act”) and to thelicensing and regulatory control of the Nevada Gaming Commission (the “NevadaCommission”), the Nevada State Gaming Control Board (the “Nevada Board”), andvarious local ordinances and regulations, including, without limitation, thoseof the cities of Reno, Carson City and Elko, Nevada (collectively, the “NevadaGaming 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.

 

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”), has beenregistered by the Nevada Commission as a holding company and has been foundsuitable to own Jacobs Entertainment’s stock. Black Hawk Gaming has beenregistered by the Nevada Commission as an intermediary company and has beenfound suitable to own the stock of Gold Dust West. Jacobs Entertainment hasbeen registered by the Nevada Commission as a publicly traded corporation (a “RegisteredCorporation”) and has been found suitable as the sole shareholder of Black HawkGaming, Piñon Plaza andElko.  Registered Corporations,registered intermediary companies, and corporate licensees are requiredperiodically to submit detailed financial and operating reports to the NevadaCommission 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 material relationshipto, or material involvement with, Jacobs Investments, Jacobs Entertainment,Black Hawk Gaming, or the Nevada Gaming Subsidiaries in order to determinewhether that individual is suitable or should be licensed as a businessassociate of a gaming licensee. The officers, directors and shareholders ofJacobs Investments and Jacobs Entertainment must file applications with and belicensed or found suitable by the Nevada Gaming Authorities. The officers,directors and certain key employees of the Nevada Gaming Subsidiaries must fileapplications with and may be required to be licensed or found suitable bythe Nevada Gaming Authorities. The officers, directors and key employees ofJacobs Investments, Jacobs Entertainment and Black Hawk Gaming who are activelyand directly involved in the gaming activities of the Nevada  Gaming Subsidiaries may be required tobe licensed or found suitable by the Nevada Gaming Authorities. The NevadaGaming Authorities may deny an application for licensing for any cause thatthey deem reasonable. A finding of suitability is comparable to licensing, andboth require submission of detailed personal and financial information followedby a thorough investigation. The applicant for licensing or a finding ofsuitability must pay all the costs of the investigation. Changes in licensedpositions must be reported to the Nevada Gaming Authorities and, in addition totheir authority to deny an application for a finding of suitability orlicensure, the Nevada Gaming Authorities have jurisdiction to disapprove achange in a corporate position.

 

13

----

 

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 JacobsInvestments, Jacobs Entertainment, Black Hawk Gaming and the Nevada GamingSubsidiaries must be 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, the registrationsor gaming licenses that Jacobs Investments, Jacobs Entertainment, Black HawkGaming Jacobs Investments, Jacobs Entertainment, Black Hawk Gaming and theNevada 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 discretion of the Nevada Commission. Further, a supervisor could beappointed by the Nevada Commission to operate the casinos operated by theNevada Gaming Subsidiaries and, under certain circumstances, earnings generatedduring the supervisor’s appointment (except for reasonable rental value of thecasino) could be forfeited to the State of Nevada. Limitation, conditioning orsuspension of the gaming licenses of the Nevada Gaming Subsidiaries or theappointment of a supervisor could (and revocation of any gaming license would)have a material adverse effect on the gaming operations, financial conditionand results of operations of Jacobs Entertainment.

 

TheNevada Act requires any person who acquires beneficial ownership of more than5% of a Registered Corporation’s voting securities to report the acquisition tothe Nevada Commission. The Nevada Act requires that beneficial owners of morethan 10% of a Registered Corporation’s voting securities apply to the NevadaCommission for a finding of suitability within 30 days after the Chairman ofthe Nevada Board mails the written notice requiring such filing. Under certaincircumstances, an “institutional investor,” as defined in the Nevada Act, thatacquires more than 10%, but not more than 15%, of 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 beneficial owners.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 

 

14

----

 

oftime as may be prescribed by the Nevada Commission may be guilty of acriminal offense. A Registered Corporation is subject to disciplinary actionif, after it receives notice that a person is unsuitable to be a stockholder orto have any other relationship with the Registered Corporation, the RegisteredCorporation (i) pays that person any dividend or interest, (ii) allowsthat person to exercise, directly or indirectly, any voting right conferredthrough securities held by that person, (iii) pays remuneration in anyform to that person for services rendered or otherwise, or (iv) failsto pursue all lawful efforts to require that unsuitable person to relinquishits voting securities including, if necessary, the immediate purchase of thevoting securities for cash at fair market value. Additionally, the Cities ofReno, Carson City and Elko, Nevada have the authority to approve all personsowning or controlling the stock of any corporation controlling a gaminglicensee 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.

 

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 offeringmemorandum or the investment merits of the securities. Any representation tothe contrary is 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, 

 

15

----

 

managementor consulting agreements or any form of takeover whatsoever without theprior approval of the Nevada Gaming Commission. The Nevada Commission hasestablished a regulatory scheme to ameliorate the potentially adverse effectsof these business practices on Nevada’s gaming industry and to further Nevada’spolicy to: (i) assure the financial stability of corporate gaminglicensees and their affiliates; (ii) preserve the beneficial aspects ofconducting business in the corporate form; and (iii) promote a neutralenvironment for the orderly governance of corporate affairs. Approvals are, incertain circumstances, 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 selling orserving of food, refreshments or merchandise.

 

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

 

***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 27:301 etseq. (the “act”) with accompanying regulations being promulgated by the Boardpursuant to the statutory authority contained within the act. The video drawpoker 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 

 

16

----

 

ofinformation. An applicant must also not be delinquent in state or federalincome taxes, penalties or interest or delinquent in the payment of any salestaxes, penalties, or interest to either the state or any local governingauthority of the parish or municipality in which the establishment is located.

 

Thereare several general suitability requirements for licensure. Specifically, thelaw requires that an applicant for a video draw poker license be: (i) 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, or other financialindebtedness of an applicant or licensee must be revealed to the Division forthe purposes of determining significant influence and suitability. Whilesignificant influence is determined on a case-by-case basis, it has generallybeen interpreted to include any person who is an officer or director of anyjuridical entity that is an applicant for a video draw poker license as well asthe spouse of any person having more than a 5% ownership, income, or profitinterest in an applicant as well as the spouse of any officer or director ofany juridical entity applicant. As of the middle of 2007, the Louisiana StatePolice made a policy decision that generally removed spouses from the list ofparties required to file suitability documentation related to video draw pokerestablishment licenses. However, the companion legislation was not approved norsent to the governor for signature during the corresponding legislativesession.

 

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 

 

17

----

 

license,a condition naming the person who failed to provide all or part of thedocuments or information required by the Board or the Division, and declaringthat such person may not: (i) receive dividends or interest onsecurities of a corporation holding a license, if the person has or controlsdirectly or indirectly more than a 5% ownership, income, or profit interest insuch corporation; (ii) exercise directly, or through a trustee or nominee,a right conferred by securities of a corporation holding a license, if theperson has or controls directly or indirectly more than a five percentownership, income, or profit interest in such corporation; (iii) receiveremuneration or other economic benefit from any person holding a license issuedpursuant to the provisions of the act; (iv) exercise significant influenceover the activities of a person holding a license issued pursuant to theprovisions of the act; or (v) continue owning or holding a security of acorporation holding a license if the person has or controls directly orindirectly more than a 5% ownership, income, or profit interest in suchcorporation.

 

Operatingvideo draw poker devices at truck plazas in Louisiana requires both an establishmentlicense and a device owner license. The establishment license permits theplacement by a licensed device owner of video draw poker devices on thelicensed premises. A device owner license permits the licensed entity to placeand operate video draw poker devices at licensed establishments. In many cases,an establishment licensed for the placement of video draw poker devices willcontract with a licensed device owner for video draw poker device placementservices for a percentage of the video draw poker revenues. A licensedestablishment may also, however, be a licensed device owner. A licenseddevice owner entity must be majority-owned by a person who has resided withinthe State of Louisiana for a period of two years.

 

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

 

Restaurantsand bars may contain up to three video draw poker devices and a hotel 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 pokerdevices. A truck stop facility may have up to fifty video draw pokerdevices, with the number being determined by the amount of fuel sales of thetruck stop facility.

 

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 satellite wageringfacility is $200. The non-refundable annual renewal and processing fee for atruck 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 of licensedestablishment authorized by the Board for the placement of video draw pokerdevices, as follows: (i) a restaurant, bar, tavern, cocktail lounge, club,motel, or hotel—26%; (ii) a qualified truck stop facility—32.5%; and (iii) apari-mutuel wagering facility or satellite wagering facility—22.5%.

 

Thenumber of video draw poker devices permissible in a qualified truck stopfacility is based on average monthly fuel sales, as follows: (i) 100,000gallons of fuel, of which at least 40,000 gallons are diesel—not more than 50devices; (ii) 75,000 gallons of fuel, of which at least 30,000 gallons arediesel—not more than 40 devices; and (iii) 50,000 gallons of fuel, ofwhich at least 10,000 are diesel—not more than 35 devices. Once licensed, if atruck stop facility sells less than an average of 50,000 gallons per month butmore than 25,000 gallons per month in any calendar quarter, the truck stopfacility will not be permitted to operate any video draw poker devices in thefollowing calendar quarter. A qualified truck stop facility that sells lessthan an average of 25,000 gallons per month in any calendar quarter will besubject to revocation of its video draw poker license. Bulk sales or transfersmay not be used to calculate monthly averages. The fuel facility isgenerally required to offer fuel for sale in the regular 

 

18

----

 

courseof business at retail, at a price at least 6% above the delivered cost of thefuel plus taxes, applicable fees and transportation charges. Fuel facilitiesmay, however, offer fuel for sale at a lower price (a) when motor fuel issold upon the final liquidation of a business; (b) when motor fuel isadvertised, offered for sale, or sold by any fiduciary or other officer underthe order or direction of any court; (c) when motor fuel is sold forpromotional purposes limited to a grand opening, an annual anniversary, or anannual customer appreciation day sale, each of which does not exceed threeconsecutive days; and (d) when motor fuel is sold in a good faith effortto meet the legal price of a competitor. Louisiana law creates a presumptionthat fuel facility will not violate the price requirement when it sells fuelbelow the required price to meet the price of a competitor if it makes a bonafide effort to determine the legality of the price of such competitor anddetermines in good faith that the competitor’s price is a legal price.

 

In addition, under the act, a qualified truckstop facility is required to have at least five developed contiguous acres andsell fuel, lubricating oil, and other vehicular merchandise, such as batteries,tires, or vehicle parts for eighteen-wheel tractor-trailers, and also meet allof the following criteria: (i) it must be located adjacent to a majorstate or interstate highway, as defined by the Board (within 2,000 feet of amajor state highway or U.S. interstate highway); (ii) it must have anon-site restaurant with all of the following features: (a) providesseating for at least 50 patrons; (b) provides full table service forsit-down meals; (c) is open 12 hours a day; (d) offers a varied menu;and (e) operates a fully equipped kitchen which includes, but is notlimited to, a range oven and refrigerated storage appliances used for thepreparation of foods for on-premises or immediate consumption; (iii) 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. An owner or lessor of a qualified truck stopfacility may lease or sublease any restaurant, convenience store, fuelfacility, or any other business operation located on the premises of thequalified truck stop facility to another person, provided that such personexecutes a written lease which contains a requirement that the lessee orsublessee comply with the laws and regulations which govern the operation ofvideo draw poker devices. If such lease or sublease is granted, the owner orlessor of such qualified truck stop facility shall maintain ultimatesupervision and control of that entire truck stop premises.

 

Additionally,no license can be granted to any truck stop facility located, at the timeapplication is made for a license to operate video draw poker devices, withinfive hundred feet of any property that is on the National Historic Registry,any public playground, or a building used exclusively as a church, synagogue,public library, or school. In addition, no license shall be issued for anytruck stop facility unless previously applied for or licensed as of January 1,2008, located, at the time application is made for a license to operate videodraw poker devices, within two thousand five hundred feet of any property thatis on the 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 thelocal governing 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 have been submitted tothe Board and the Division. All applications submitted have been approved andnone are currently pending.  However,because the Board and the Division conduct a new suitability investigation inconnection with each acquisition of a facility at which video gaming devicesare to be 

 

19

----

 

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.

 

***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 the Colonial’s track andsatellite wagering facility licenses, (ii) annually approving Colonial’sproposed schedule of racing days, (iii) approving new or modifiedtypes of pari-mutuel wagering pools requested by Colonial, (iv) issuingpermits to all officers, directors, racing officials, and other employees ofColonial, and (v) approving simulcast schedules at the track and at thesatellite wagering facilities. The Virginia Racing Commission also has theauthority to promulgate regulations pertaining to Colonial’s track facilities,equipment, safety and security measures, and controls the issuing of licensesand permits for participants in pari-mutuel racing, including Colonialemployees at the track and at the satellite wagering facilities. In addition,the Virginia Racing Commission must approve any acquisition or continuingownership of a 5% or greater interest in Colonial. Action by the VirginiaRacing Commission that is inconsistent with the Colonial’s business plan couldhave a material adverse effect 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 license expires December 31, 2008.

 

Wehave entered into an agreement with the VaHBPA that expires December 31,2008.  The agreement is pending theapproval of the Virginia Racing Commission, which is expected to act at itsnext meeting on April 16, 2008, and our current agreement with the VaHBPAextends through such date. ** **Our agreement with the VHHA expiresDecember 31, 2008. In the event our VaHBPA agreement is not approved orextended or we cannot continue to renew these agreements in the future, theVirginia Racing Commission has the right to suspend our licenses to operate ourracetrack and the satellite wagering facilities until agreements are in placealthough it has not indicated that it will do so. Although it is difficult topredict the likelihood of such an event, closure of the satellite wageringfacilities would be detrimental to the horsemen’s groups as well as us sinceeach horsemen’s group’s primary source of purse funds is its percentage ofwagering at the satellite facilities.

 

 

20

----

 

 

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 and diversificationopportunities in Colorado are limited by these licensing restrictions.

 

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 

 

21

----

 

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 of alcoholicbeverages altogether by referendum vote of the people within the municipality.A local municipality may also regulate via zoning designations thepermissibility or prohibition of the permitting of businesses that sellalcoholic beverages within that municipality. All of our video gaming truckplaza 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.

 

Before receiving a Virginia ABC license, anapplicant must satisfy several requirements. The Virginia ABC Board conducts anextensive background investigation (to include a criminal history review aswell as contacts with the local governing body of each license application) andcontacts local officials, residents and business people in the vicinity of theestablishment to ascertain if any objections exist. The backgroundinvestigation is completed for all principal owners of the proposed licensee.Administrative hearings are available to afford all interested parties theopportunity to present any concerns with respect to an application.

 

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

 

IfVirginia ABC agents discover license violations, a disciplinary hearing willtypically be conducted with a Virginia ABC hearing officer. Any aggrievedlocalities and members of the community may attend the hearing and presentany additional 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. Currently, gaming tax rates are as follows:

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

 

Bothof Black Hawk Gaming’s Colorado casinos are subject to the maximum rate.Neither the Colorado constitution nor the gaming statutes require that gamingtax rates be graduated, as they currently are. Under the Colorado constitution,the Colorado Gaming Commission could increase the top rate to as much as 40%. Amore 

 

22

----

 

recenttax limitation amendment to the Colorado constitution, however, states thatneither the state nor any local government may increase a tax rate without anaffirmative vote of the people; therefore, there is a question as to whetherthe Colorado Gaming Commission could constitutionally increase the state taxlevied on gross gaming revenues without such a vote. The Colorado legislaturerejected this argument after the top tax rate was increased to 20% in 1996, andno court was asked to rule on the applicability of the tax limitationamendment to gaming tax rates.

 

InNevada, license fees and taxes, computed in various ways depending on the typeof gaming or activity involved, are payable to the State of Nevada, 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 31,2007, we had total indebtedness excluding accounts payable and accrued expensesof approximately $299.3 million and total stockholder’s equity of approximately$28.3 million. Our substantial indebtedness could have important consequences.For example, it could:

 

23

----

 

·                                          increase ourvulnerability to general adverse economic and industry conditions;

 

·                                          require us todedicate a substantial portion of our cash flow from operations to debtservice, thereby reducing the availability of our cash flow to fund workingcapital, capital expenditures, and other general corporate purposes;

 

·                                          limit ourflexibility in planning for, or reacting to, changes in our business and theindustry in which we operate;

 

·                                          limit ourability to fund a required regulatory redemption or a change of control offer;

 

·                                          place us at acompetitive disadvantage to our competitors that have less debt; and

 

·                                          limit, alongwith the financial and other restrictive covenants in our debt agreements,among other things, our ability to borrow additional funds. A failure to complywith those covenants could result in an event of default which, if not cured orwaived, could have a significant 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 many restrictivecovenants on us.***

 

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

 

·                                          incur moredebt;

 

·                                          issue stock ofsubsidiaries;

 

·                                          makeinvestments;

 

·                                          repurchasestock;

 

·                                          create liens;

 

·                                          enter intotransactions with affiliates;

 

·                                          enter intosale-leaseback transactions;

 

·                                          merge orconsolidate; and

 

·                                          transfer andsell 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 creditfacility also requires us to maintain specified consolidated financial ratiosand satisfy certain consolidated financial tests. Our ability to meet those financialratios and financial tests may be affected by events beyond our control, and wemay not be able to continue to meet those tests. If we fail to meet those testsor breach any of the covenants, the lenders under our senior credit facilitycould declare all amounts outstanding thereunder, together with the accruedinterest, to be immediately due and payable. Our assets may not be sufficientto repay in full such indebtedness or any other indebtedness, including $210million of our senior unsecured notes issued under our indenture. Further, anyother agreements we may enter into in the future governing our indebtedness mayimpose additional restrictions on us, any of which may adversely affect ourability to finance our future operations or capital needs or to pursueavailable business opportunities.

 

24

----

 

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 delayplanned expansion and capital expenditures;

 

·                                          sell assets;

 

·                                          restructuredebt; or

 

·                                          raiseadditional 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 ofour assets and senior noteholders’ rights to enforce remedies will be limitedto the rights of holders 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 underapplicable law and our senior credit facility. Accordingly, such lenders willhave a prior claim with respect to our assets and there may not be sufficientassets remaining to pay amounts due on our senior unsecured notes thenoutstanding.

 

***We are a holding company and will depend onthe business of our subsidiaries to satisfy our obligations under ourindebtedness.***

 

We are a holding company. Substantially all of theoperations necessary to fund payment on our indebtedness are conducted by oursubsidiaries. Our ability to make payments on our indebtedness will depend onour subsidiaries’ cash flow and their payment of funds to us. Our subsidiaries’ability to make payments to us will depend on their earnings, the terms oftheir indebtedness, business and tax considerations, legal and regulatoryrestrictions and economic conditions.

 

25

----

 

***We may not have the ability to raise thefunds necessary to finance the change of control offer required by ourindebtedness.***

 

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 respectof indebtedness and require debt holders to return payments received fromguarantors.***

 

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 lessthan reasonably equivalent value or fair consideration for the incurrence ofthat indebtedness; and

 

·                                          we were or theguarantor was insolvent or rendered insolvent by reason of that incurrence;

 

·                                          we were or theguarantor was engaged in a business or transaction for which our or theguarantor’s remaining assets constituted unreasonably small capital; or

 

·                                          we or theguarantor intended to incur, or believed that we or it would incur, debts beyondour or its ability to pay those debts as they mature.

 

In addition, a court could void any payment by us or theguarantor pursuant to our senior unsecured notes or a guarantee and requirethat payment to be returned to us or the guarantor, or to a fund for thebenefit of our creditors or the creditors of the guarantor.

 

The measures of insolvency for purposes of thesefraudulent transfer laws will vary depending upon the law applied in anyproceeding to determine whether a fraudulent transfer has occurred. Generally,however, a guarantor would be considered insolvent if:

 

·                                          the sum of itsdebts, including contingent liabilities, were greater than the fair saleablevalue of all of its assets,

 

·                                          the presentfair saleable value of its assets were less than the amount that would berequired to pay its probable liability on its existing debts, includingcontingent liabilities, as they become absolute and mature, or

 

·                                          it could notpay its debts as they become due.

 

We believe that we and the guarantors have receivedreasonably equivalent value and fair consideration for the incurrence of theindebtedness and obligations represented by our senior unsecured notes and theguarantees. On the basis of historical financial information, recent operatinghistory and other factors, we believe that we and each subsidiary guarantor,after giving effect to its guarantee of our senior unsecured notes, are notinsolvent, do not have unreasonably small capital for the business in which weare or it is engaged and have not incurred debts beyond our or its ability topay such debts as they mature. However, a court might disagree with any or allof our conclusions in this regard and it could apply different legal standards.

 

26

----

 

***Holders of our senior unsecured notes may berequired to comply with registration, licensing, qualification or otherrequirements under gaming laws or dispose of their securities.***

 

The gaming authorities of any jurisdiction in which wecurrently or in the future conduct or propose to conduct gaming, either throughour subsidiaries or a joint venture, may require that a holder or beneficialowner of our senior unsecured notes be registered, licensed, qualified or foundsuitable, or comply with any other requirement under applicable gaming laws. Ifyou have an interest in our senior unsecured notes, by the terms of theindenture, you will be deemed to agree to comply with all of theserequirements, including your agreement to register or apply for and maintain infull force and effect a license, qualification or a finding or suitability, orcomply with any other requirement, within the required time period, as providedby the relevant gaming authority. If you fail to apply to be, or fail tobecome, registered, licensed or qualified or such registration, license orqualification is suspended or revoked or not maintained, or you are foundunsuitable or fail to comply with any other requirement of a gaming authority,then we will have the right, at our option, to:

 

·                                          require you tosell your senior unsecured notes or beneficial interest in the senior unsecurednotes in accordance with applicable gaming requirements within 30 daysafter you receive notice of our election, or by any earlier date that therelevant gaming authority may request or prescribe; or

 

·                                          redeem yoursenior unsecured notes (possibly within less than 30 days following thenotice of redemption if requested or prescribed by the gaming authority) at aredemption price equal to the lesser of:

 

·                                          your cost;

 

·                                          100% of theprincipal amount of the senior unsecured notes, plus accrued and unpaidinterest, if any, to the redemption date or the date of the first to occur ofany (i) failure to become or continue to be registered, licensed orqualified, (ii) failure to be found or continue to be suitable, (iii) failureto comply with relevant gaming authority requirements or (iv) receipt ofnotice from the relevant gaming authority that you will not be registered,licensed or qualified; and

 

·                                          any otheramount required by applicable law or by order of any gaming authority.

 

If we elect, in our sole discretion, to redeem your seniorunsecured notes, we will notify theindenture trustee in writing of any redemption as soon as practicable. We willnot be responsible for any costs or expenses you may incur in connection withyour registration, application for a license, qualification or a finding ofsuitability, or your renewal or continuation of the foregoing or compliancewith any other requirement of a gaming authority. The indenture also providesthat as soon as you are required to sell your senior unsecured notes as a result of a gaming authority action, youwill, to the extent required by the applicable gaming authority, have nofurther right:

 

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

 

·                                          to receive fromus any interest or any other distributions or payments, or any remuneration inany form, relating to the senior unsecured notes, except the redemption pricewe refer to above.

 

27

----

 

**Risks Related to Our Business**

 

***We facesignificant 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 operations are conducted in Black Hawk, Colorado, and Reno,Carson City, and Elko, Nevada. Competition in the Black Hawk gaming market,which is the primary gaming market in Colorado, is intense. In addition, large,well-financed companies have entered the Black Hawk and other Colorado marketsthrough the purchase or expansion of existing facilities and others maycontinue to do so, all of which could materially harm our business, financialcondition and results of operations. For example:

 

·                                          AmeristarCasinos, Inc. (“Ameristar”) purchased Mountain High Casino (formerly theBlack Hawk Casino by Hyatt) in a bankruptcy sale. That casino is directlyacross highway 119 from The Lodge and Ameristar has expanded the casino area toaccommodate 1,800 gaming devices with new slot product, expanded the parkinggarage and refurbished 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 CapriCasinos, Inc. owns Colorado Central Station, across the street from itsexisting facility and in 2005 completed a major renovation and expansionproject physically linking the two properties. The combined casinos are thelargest in Black Hawk with approximately 2,100 gaming devices, 402 hotel roomsand 2,300 parking spaces;

 

·                                          the 2005acquisition of four Colorado racetracks (two of which are in the Denvermetropolitan area) that are owned and operated by BLB Investors, L.L.C., ajoint venture including Kerzner International Limited, Starwood Capital GroupGlobal, L.L.C., and Waterford Group, L.L.C., may reinvigorate efforts toauthorize video lottery terminals, slot machines or other types of gaming atthe state’s racetracks. BLB has publicly discussed a statewide initiative toexpand slot machine gaming to both of its Denver area facilities andpotentially to one or both of its other tracks in the southern part of thestate. To the extent this measure qualifies for the ballot, it would beconsidered by the voters at the November 2008 general election. If thisauthorization is granted by the Colorado Lottery Division, the Colorado statelegislature, or the voters, it would have a material adverse effect on gamingrevenues in Black Hawk and at The Lodge and Gilpin casinos.

 

·                                          the Mardi Grascasino, next to our casino, The Lodge, was purchased in 2005 and the new ownershave developed and implemented new marketing programs, expanded the poker roomand added new slot product;

 

·                                          late in 2004,Central City, a gaming area about one mile from Black Hawk, completed the “SouthernAccess,” a road which directly connects Central City to Interstate 70. The newaccess road to Central City enables existing casinos and possible new casinosto pose a significant competitive threat to gaming activities in Black Hawk; and

 

·                                          the Cheyenneand Arapahoe Indian tribes claiming significant treaty rights to land inColorado have pursued a plan to exchange those rights for land east of theDenver metropolitan area on which to build and operate a large casino gamingfacility. Although this project appears to be dormant at present, if it isrenewed and survives political and other challenges, it could have a materialadverse effect on gaming revenues in Black Hawk and at The Lodge and Gilpincasinos.

 

28

----

 

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 Louisiana truck plaza operations compete with other truck plazaslocated in Louisiana and other forms of gaming, such as land-based, riverboatand Native American casinos, as well as slot machines located at horseracingtracks and video poker machines located in bars, restaurants, hotels, off-trackwagering facilities and bingo parlors. There were 172 licensed video pokertruck plazas in Louisiana at December 31, 2007.

 

*Pari-Mutuel Wagering Operations*. We operate a racetrack in New Kent, Virginia, and off-track wageringfacilities in Brunswick County, Chesapeake (two), Hampton, Martinsville, ScottCounty, Vinton, and Richmond (two), Virginia.

 

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, Laurel Park, and Rosecroft Raceway in Maryland,and Delaware Park in Delaware. We also compete for wagering dollars withaccount wagering companies operating both legally and illegally in Virginia.These companies take wagers from Virginians both over the phone and theinternet. We believe our agreements with three licensed account wageringcompanies provide us with fair compensation for their activities. We recentlyagreed to settle our lawsuit against Youbet.com, Inc. which should resultin an agreement with a fourth licensed account wagering company. Unlicensedaccount wagering companies have lower costs than Colonial Downs and thus areable to attract customers in Virginia with large wagering rebates.

 

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

 

*Licensing Requirements.*As owners and operators of gaming and pari-mutuel wagering facilities, weare subject to extensive state and local and some federal regulation. State andlocal authorities 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 ControlCommission, the Nevada Gaming Commission, the Nevada State Gaming ControlBoard, the Louisiana Gaming Control Board and the Virginia Racing Commissionmay, for any reason set forth in the applicable legislation, limit, condition,suspend or revoke a license or registration to conduct gaming or wageringoperations or prevent us from owning the securities of any of our gaming orwagering subsidiaries. Like all gaming and wagering operators in thejurisdictions in which we operate, we will need to apply periodically to renewour licenses or registrations. We cannot assure you that we will be able toobtain such renewals. Regulatory 

 

29

----

 

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 proposedlegislation that would expand, restrict or prevent gaming or wageringoperations in the jurisdictions in which we operate. Any expansion of gaming orwagering or restriction on or prohibition of our gaming or wagering operationscould materially harm our business, financial condition and results ofoperations. In particular in Colorado, there have been repeated attempts toexpand gambling beyond Black Hawk, Central City and Cripple Creek to othertowns, racetracks, bingo halls, and tribal gaming through legislation, ballotinitiatives, and administrative action by state or local agencies and this is acontinued competitive threat to us.

 

*Taxation.*Webelieve that the prospect of significant additional revenue is one of theprimary reasons that jurisdictions permit legalized gaming and wagering. As aresult, gaming and wagering companies are typically subject to significanttaxes and fees in addition to normal federal, state, local and provincialincome taxes, and such taxes and fees are subject to increase at any time. Wepay substantial taxes and fees with respect to all of our operations. From timeto time, federal, state and local legislators and officials have proposedchanges in tax laws, or in the administration of such laws, affecting thegaming and wagering industry. It is not possible to predict the likelihood ofchanges in tax laws or in the administration of such laws. Similarly, specialimprovement districts, now in existence or those that may be formed in thefuture, may impose assessments in the form of additional taxes or fees thatwill finance infrastructure improvements that enhance the attractiveness oraccessibility of casinos with which we compete and/or add to our costs of doingbusiness, either of which can negatively affect the competitive position of ourLodge and Gilpin casinos. Such changes, if adopted, could materially harm ourbusiness, financial condition and results of operations.

 

*Compliance with Other Laws.*Weare also subject to a variety of other rules and regulations, includingzoning, environmental, construction and land-use laws and regulations governingthe serving 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 principal indirect owners and ourChief Executive Officer) and other officers and key employees. The loss of theservices of any of these individuals could materially harm our business,financial condition and results of operations. The loss of their experience andfamiliarity with our operations could have negative effects on management’sefficiency and could cause us to incur costs to find qualified replacements.

 

***Members of the Jacobs family own acontrolling beneficial interest in our capital stock and may significantlyinfluence our affairs 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 own 50%of JII’s equity securities and trusts created by Richard E. Jacobs, his father,own the remaining 50%. JII has the ability significantly to influence ouraffairs, including the election of our directors and transactions includingmergers, consolidations or sales of assets. Although Messrs. Jacobs haveagreed not to pursue any U.S. casino or gaming activities except through us,they are allowed to purchase and own additional truck plazas in Louisiana whichwe have the right to buy. Any such activities by them could be competitive withour operations in that state.

 

***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 industrymarket is very competitive and is expected to become more competitive in thefuture. If cash from our operations is insufficient to provide for neededlevels of capital expenditures, our competitive position could deteriorate ifwe are unable to borrow funds for such purposes.

 

30

----

 

***Economicconditions, seasonality and weather 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 casinos,which we experienced in late 2006 and early 2007. Although casino business isnot seasonal, levels of gaming activity increase significantly during weekendsand holidays, especially holiday weekends. Hurricanes Katrina and Ritatemporarily affected our truck plaza video gaming operations in late 2005.Similar hurricanes could have a material adverse effect on our Louisianaoperations in future years. Our pari-mutuel wagering revenues are higher duringscheduled live racing than at other times of the year. Adverse weatherconditions can cause cancellation of or curtail attendance at outdoor races,thereby reducing wagering and our revenues. Attendance and wagering at bothoutdoor races and satellite wagering facilities can be harmed by holidays andother competing seasonal activities.

 

***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 VaHBPA that expires December 31,2008.  The agreement is pending theapproval of the Virginia Racing Commission, which is expected to act at itsnext meeting on April 16, 2008, and our current agreement with the VaHBPAextends through such date. ** **Our agreement with the VHHA expiresDecember 31, 2008. In the event our VaHBPA agreement is not approved orextended or we cannot continue to renew these agreements in the future, theVirginia Racing Commission has the right to suspend our licenses to operate ourracetrack and the satellite wagering facilities until agreements are in placealthough it has not indicated that it will do so. Although it is difficult topredict the likelihood of such an event, closure of the satellite wageringfacilities would be detrimental to the horsemen’s groups as well as us sinceeach horsemen’s group’s primary source of purse funds is its percentage ofwagering at the satellite facilities.

 

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

 

Our casino and horse racing and pari-mutuel wageringoperations use significant amounts of electricity and other forms of energy.Any substantial increase in the cost of the forms of energy we use may negativelyaffect our results of operations. In addition, consumer energy or gasolineprice increases may reduce the disposable income of our potential customers ortheir willingness to patronize our operations and correspondingly reduce ourpatronage and revenues. Furthermore, a fuel price increase may impact fuelsales in Louisiana, making it more difficult to meet minimum fuel salerequirements which in turn could limit (or eliminate entirely) the number ofvideo gaming devices we can operate at any given truck plaza.

 

31

----

 

***Our business, financial condition, andresults of operations may be harmed by union efforts to organize our employees.***

 

Ouremployees are not covered by collective bargaining agreements. However, in January and February 2007,the United Food and Commercial Workers local union #7 conducted some initialorganizing activities in Black Hawk by direct mail to casino employees,handouts at bus stops and personal solicitations. These efforts were directedto employees of all major casinos in Black Hawk. A small number of ouremployees, which we estimate to be about 22, signed up with the local asinternal 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 orany other union seeks to organize any of our employees, we could experiencedisruption in our business and incur significant costs, both of which couldhave a material adverse effect on our results of operation and financialcondition. If a union were successful in organizing any of our employees, wecould experience significant increases in our labor costs which could also havea material adverse effect on our business, financial condition, and results ofoperations.

 

***Failure to complete any future constructionor development projects on budget and on time could adversely affect ourfinancial condition.***

 

Any future construction or expansion projects will besubject to significant risks, any of which could cause unanticipated costincreases and delays. These include, 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.

 

Our expansion projects may not be completed within ourbudget, our construction activities may disrupt our operations and our newoperations may not open on schedule. We have limited experience in developingproperties and cannot predict all of the risks that any particular constructionor remodeling project might face. In addition, we have experienced delays thatadversely affected our business during similar remodeling and expansionprojects. Failure to complete a construction or expansion project on time orwithin our budget may cause us to devote additional resources to the project,which could divert our time and attention away from the operation of our otherbusinesses and could cause our business to suffer.

 

***If we are unable to finance our expansionand renovation projects as well as capital expenditures through cash flow,borrowings under our senior credit facility and additional financings, ourexpansion and renovation efforts will be jeopardized.***

 

We intend to finance our current and future expansion andrenovation projects primarily with cash flow from operations and borrowingsunder our senior credit facility. If we are unable to finance our current orfuture expansion projects, we will have to adopt one or more alternatives, suchas reducing or delaying planned expansion, development and renovation projectsas well as capital expenditures, selling assets, restructuring debt, orobtaining additional equity 

 

32

----

 

financing or joint venture partners, or modifying oursenior credit facility. These sources of funds may not be sufficient to financeour expansion, and other financing may not be available on acceptable terms ina timely 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 slotmachine manufacturing industry could impose additional costs on us.***

 

A majority of our revenues are attributable to slotmachines operated by us at our gaming facilities. It is important, forcompetitive reasons, that we offer the most popular and up to date slot machinegames with the latest technology to our customers.

 

We believe that a substantial majority of the slotmachines sold in the U.S. in 2007 were manufactured by a few select companies.In addition, we believe that one company in particular provided a majority ofall slot machines sold in the U.S. in 2007.

 

In recent years, the prices of new slot machines haveescalated faster than the rate of inflation. Furthermore, in recent years, slotmachine manufacturers have frequently refused to sell slot machines featuringthe most popular games, instead requiring participation lease arrangements inorder to acquire the machines. Participation slot machine leasing arrangementstypically require the payment of a fixed daily rental. Such agreements may alsoinclude a percentage payment of coin-in or net win. Generally, a participationlease is substantially more expensive over the long term than the cost topurchase a new machine.

 

For competitive reasons, we may be forced to purchase newslot machines or enter into participation lease arrangements that are moreexpensive than our current costs associated with the continued operation of ourexisting slot machines. If the new slot machines do not result in sufficientincremental revenues to offset the increased investment and participation leasecosts, it could hurt our profitability.

 

***Our operations could be adversely affecteddue to the adoption of certain anti-smoking regulations.***

 

In November 2006, aballot initiative listed as Question 5 and entitled the “Nevada Clean IndoorAir Act” (the “Question 5”) was approved by a majority of Nevada voters.Question 5 restricts smoking in all indoor public places of employment with certainexceptions. Among the exceptions are the gaming areas of casinos and “standalone” bars, taverns and saloons that do not serve meals. If future ballotinitiatives 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.

 

The “Colorado Clean Indoor Act” (the “Indoor Act”)was adopted in the Colorado legislature in March 2006. It bans smoking invirtually all public places although certain portions of gaming casinos,including gaming areas, were exempt from the Indoor Act until January 1,2008. Compliance with the Indoor Act which now bans smoking in casinos couldhave a material adverse effect on our business.

 

**Item 1B.                 *Unresolved Staff 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.

 

33

----

 

**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. None of the claims is expected to have amaterial impact on our financial position, results of operations or cash flows.We believe these matters are covered by appropriate insurance policies.

 

**Item 4.****                   *****Submission of Matters to a Vote ofSecurity 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 have made no repurchases of our equity securities since ourinception in 2001.

 

34

----

 

**Item 6.**                    ***Selected Financial Data.***

 

The following selected consolidated financial data should be read inconjunction with our management’s discussion and analysis of financialcondition and results of operations and our consolidated financial statementsand related notes thereto appearing elsewhere in this report. The consolidatedstatements of operations data and the consolidated balance sheet data arederived from our consolidated financial statements. The selected financial dataprovided below is not necessarily indicative of our future results ofoperations or financial performance.

 
| ** **                                                            | ** ** | **As of and for the Year Ended December 31,**                | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2003**                                                                                             | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                                            | ** ** | **(Dollars In Thousands, except Distributions per Common Share)** | ** ** |
|                                                                  |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| **Statements  of Operations Data:(1)**                                |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Net revenues                                                          |       | $                                                                                                    | 184,650    |   | $ | 206,346 |   | $ | 252,247 |   | $ | 322,378 |   | $ | 349,828 |   |
| Total costs and  expenses                                             |       | 164,571                                                                                              |       | 182,349 |   | 233,062 |   | 290,737 |   | 316,796 |   |
| Operating income                                                      |       | 20,079                                                                                               |       | 23,997 |   | 19,185 |   | 31,641 |   | 33,032 |   |
| Interest  expense, net                                                |       | (20,057                                                                                              | )          | (20,008 | ) | (22,660 | ) | (32,271 | ) | (28,067 | ) |
| Pre-payment  penalties, tender and consent costs                      |       | —                                                                                               |       | — |   | — |   | (9,321 | ) | — |   |
| Income tax  (expense) benefit                                         |       | —                                                                                               |       | — |   | (423 | ) | 103 |   | — |   |
| Net income  (loss)                                                    |       | $                                                                                                    | 22         |   | $ | 3,989 |   | $ | (3,898 | ) | $ | (9,848 | ) | $ | 4,965 |   |
| **Balance  Sheet Data (end of period):(1)**                           |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Current assets                                                        |       | $                                                                                                    | 24,254     |   | $ | 29,454 |   | $ | 32,705 |   | $ | 37,065 |   | $ | 35,542 |   |
| Total assets                                                          |       | 247,350                                                                                              |       | 259,179 |   | 298,250 |   | 350,709 |   | 355,798 |   |
| Current  liabilities                                                  |       | 26,666                                                                                               |       | 26,589 |   | 32,260 |   | 30,526 |   | 28,755 |   |
| Long-term debt,  capital lease obligations and other liabilities |       | 152,137                                                                                              |       | 158,202 |   | 194,969 |   | 284,940 |   | 298,735 |   |
| Stockholder’s  equity                                            |       | 68,547                                                                                               |       | 74,388 |   | 71,021 |   | 35,243 |   | 28,308 |   |
| **Financial  Data**                                                   |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Ratio of  earnings to fixed charges(2)                                |       | 1.00                                                                                                 | x     | 1.19 | x  | 0.85 | x  | 0.71 | x  | 1.16 | x |
| **Distributions  per Common Share**                                   |       | —                                                                                               |       | — |   | $ | 15,000 |   | $ | 22,803 |   | $ | 10,928 |   |

 

----

| (1)    |   | See  a discussion of our recent acquisition activities in Note 4 and our debt  issuances in Note 5 to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (2)    |   | The  ratio of earnings to fixed charges is computed by dividing earnings by fixed  charges. Earnings consist of income (loss) before income taxes, plus fixed  charges and amortization of capitalized interest, less interest capitalized  during the period. Fixed charges consist of interest on indebtedness (whether  expensed or capitalized), amortization of deferred financing costs, discounts  and premiums and that portion of rental expense that we believe is  representative of interest. For the years ended December 31, 2005 and  2006, we had a deficiency of $3,514 and $10,034, respectively, in earnings to  fixed charges. |

 

 

35

----

 

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

 

*Thissection discusses the results of our operations on a historical basis for theyears indicated. You should read the following discussion and analysis inconjunction with the audited consolidated financial statements that areincluded elsewhere in this Form 10-K. Certain statements contained in thisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations constitute “forward-looking statements,” which statements involverisks and uncertainties 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 TO MANAGEMENT’S DISCUSSION ANDANALYSIS (MD&A)**

 

**Description of item**

 
| A. |   | Company background                                                                                                |   | 36 |   |
|----|--------|-------------------------------------------------------------------------------------------------------------------|--------|----|--------|
| B. |   | Significant  transactions occurring during the year ended December 31, 2007                                  |   | 36 |   |
| C. |   | Overview  and discussion of our operations                                                                        |   | 37 |   |
| D. |   | Comparison  of our operations for the year ended December 31, 2007 to the year ended  December 31, 2006 |   | 41 |   |
| E. |   | Comparison  of our operations for the year ended December 31, 2006 to the year ended  December 31, 2005 |   | 44 |   |
| F. |   | Segment  information for the three years ended December 31, 2007                                             |   | 48 |   |
| G. |   | Liquidity  and capital resources—December 31, 2007                                                      |   | 51 |   |
| H. |   | Critical  accounting policies and estimates                                                                       |   | 52 |   |

 

**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 31,2007, 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 ninesatellite 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 a wholly-owned subsidiary of Jacobs Investments, Inc. (“JII”),which in turn is 50% owned by Jeffrey P. Jacobs, our Chief Executive Officer,and two of his family trusts, and 50% owned by a revocable trust and anirrevocable trust established by his father, Richard E. Jacobs.  This change in ownership had no impact on ourfinancial position or results of operations.

 

**B.****                                   ****Significant transactionsoccurring during the year ended December 31, 2007**

 

***Rebranding of Piñon Plaza in Carson City, Nevada***

 

On June 25, 2006, weacquired the Piñon Plaza Hotel and Casino in Carson City, Nevada.  We have made numerous modifications to theproperty and on January 24, 2007 we rebranded Piñon Plaza to “Gold DustWest-Carson City.”

 

36

----

 

***Developmentand Opening of Gold Dust West-Elko in Elko, Nevada***

 

In 2006, we entered into a land and building lease todevelop a new casino in Elko, Nevada (“Gold Dust West-Elko”) that features a13,000 square-foot casino with approximately 354 Ticket-In Ticket-Out (“TITO”)slot machines and seven table games, as well as a restaurant, sports bar andsports book.  During December 2006,we borrowed $20 million on our delayed draw term loan facility which wasutilized to complete this development. The casino opened on March 5, 2007.

 

***Acquisitionof Silver Dollar Truck Plaza***

 

On October 4, 2006,we entered into an asset purchase agreement with an unaffiliated party toacquire the Silver Dollar truck plaza in Shreveport, Caddo Parish, Louisiana (“SilverDollar”), which was under construction. On January 15, 2007, we agreed with the seller to operate thebusiness and simultaneously assume the terms of its land lease.  On February 9, 2007, we began operatingthe convenience store and fuel operations and on March 29, 2007, weacquired Silver Dollar for $4.0 million plus acquisition costs of $0.2million.  On September 18, 2007,Silver Dollar received approval from Louisiana gaming regulators to offer up to50 video poker devices, and on September 28, 2007, we began operating 40video poker devices. Thepurchase of this truck plaza video gaming facility was recorded using thepurchase method of accounting.  See Note4 of the consolidated financial statements.

 

***Acquisitionof Silver Fox Truck Plaza***

 

On September 4, 2007, with funds available on ourrevolving credit facility, we acquired from an affiliated party, the Silver Foxtruck plaza video gaming facility (“Silver Fox”) for $13.8 million.  Silver Fox is located in Denham Springs,Louisiana, and includes a restaurant, a convenience store with fuel pumps, avideo poker casino and a bar.  Based onthe level of fuel sales, Silver Fox can operate up to 53 video poker devices,consisting of 50 video poker devices in the truck stop casino and 3 video pokerdevices in the standalone bar, as allowed by Louisiana gaming regulations.

 

Due to the related party nature of this transaction,this truck plaza acquisition has been accounted for as a combination ofentities under common control, which is similar to the pooling of interestsmethod of accounting for business combinations. Under this method of accounting, the acquisition has been recorded atthe related party’s historical identifiable basis in the net assets acquiredtotaling $11.5 million.  The differencebetween the purchase price of $13.8 million and the net assets acquired of$11.5 million has been recorded for accounting and financial reporting purposesas a net distribution to our stockholder totaling $2.3 million and accordinglyhas reduced our stockholder’s equity by that net amount.  The consolidated financial statements and theaccompanying management’s discussion and analysis of financial condition andresults of operations presented in this Form 10-K have been retroactivelyadjusted to include the operations of the acquired truck plaza from December 22,2005, which is the date the truck stop was initially acquired by the affiliatedparty from a third party.  See Note 4 of the consolidated financialstatements.

 

**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 each managed bya Regional Vice President who reports to our Chief Operating Officer (“COO”)who is located in our Golden, Colorado corporate offices. Further, our 19 videopoker truck plaza operations are managed by our Regional Vice President ofLouisiana Operations who also reports to our COO. 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. Through the centralization of ouroperations in Golden, Colorado, we 

 

37

----

 

believe we are achieving economies of scale in accounting, humanresources, centralized purchasing and other areas.

 

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 generally acceptedaccounting principle (i.e. it is a non-GAAP financial measure), we nonethelessbelieve it is useful because it allows holders of our debt and management toevaluate and compare operating results from continuing operations from periodto period in a meaningful and consistent manner in addition to standard GAAPfinancial measures. Additionally, most financial analysts following the gamingindustry utilize EBITDA as a financial measurement, and when our debt holders(both secured and unsecured) inquire and discuss our operational performancewith us, they consistently inquire about our EBITDA performance levels versusthe prior year as well as our EBITDA margins versus our competitors. Finally,EBITDA is a key component of certain financial covenants contained in our debtagreements, among other things, and as such it is a critical ingredient that wemust watch in order to ensure compliance with our bank credit agreement and ournote indenture covenants, measure our historical operating performance, anddetermine our ability to achieve future growth.

 

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***

 

Our Colorado operationsconsist of The Lodge Casino at Black Hawk (“The Lodge”) and the Gilpin Casino (“Gilpin”),both of which are located in Black Hawk, Colorado. The competitive aspects ofthe market in Black Hawk continue to be a significant factor in our operations.As a result of the increased level of development activity in Black Hawk overthe last few years, there were approximately 10,000 gaming devices in the cityat December 31, 2007. At December 31, 2007, we had 1,447 devices inthis market (993 at The Lodge and 454 at the Gilpin), which representedapproximately 15% of the total devices in the Black Hawk market.

 

For the year ended December 31, 2007, our gross gaming revenues atThe Lodge and the Gilpin totaled $106.7 million, which represented 18% of thetotal gaming revenues in Black Hawk. While the overall Black Hawk market in2007 grew by 5% in gross gaming revenues, total gaming devices decreased by 1%.We managed to generate 125% efficiencies (our percentage of the gross gamingrevenues divided by our percentage of the gaming devices) within the market for2007. We follow our efficiency level very closely as we believe this is auseful 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.

 

38

----

 

***Nevada***

 

Our Nevada operationsconsist of Gold Dust West-Reno, located in Reno, Nevada, which was acquired on January 5,2001; Gold Dust West-Carson City, located in Carson City, Nevada, which wasacquired on June 25, 2006; and our newly-developed casino, Gold DustWest-Elko, located in Elko, Nevada, which opened on March 5, 2007.

 

Asin Colorado, our Nevada casinos operate in highly competitive markets. With theadded competition from Indian Gaming in California, Northern Nevada casinosadvertise themselves as “locals’ casinos.” At December 31, 2007, Reno hadover 13,700 gaming devices, of which Gold Dust West-Reno had 507 devices, or 4%of the market. For the year ended December 31, 2007, our gross gamingrevenues were 4% of the Reno market, with an efficiency rate of 99%.

 

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 4,300 gaming devices of which Gold Dust West-Carson City has 404(9% of total devices).  For the yearended December 31, 2007, our efficiency rate was 89%. This property isexpected to substantially improve its efficiency through enhanced utilizationof its many unique amenities.

 

AtDecember 31, 2007, Gold Dust West-Elko has 361 gaming devices,representing 11% of the total devices in the market.  For the year ended December 31, 2007,our gross gaming revenues were 8% of the Elko market, with an efficiency rateof 94%.

 

***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. Our Silver Fox location has 53 video gaming devices (50 in the casinoand 3 in the standalone bar), our St. Martin and Diamond locations have 48 and47 devices, respectively, our Eunice and Silver Dollar locations each have 40video gaming devices, and our Vinton location has 39 video gaming devices.  All other truck plaza video gaming facilitieshave 50 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.

 

All video poker activity is reported via acomputer phone line directly to the Louisiana State Police. The Louisiana truckplazas’ revenues are dependent on meeting the minimum gallons of fuel salesrequirements necessary to operate video poker gaming machines in Louisiana. Thefuel sale requirements must be complied with on a quarterly basis and in theevent of noncompliance, the Louisiana State Police will turn off a portion ofthe video poker machines until the minimum fuel sale requirements are met.Management of the Louisiana truck plazas believes that they will continue tomeet the fuel sales requirements necessary to operate video poker gamingmachines in Louisiana at current levels, however, we can give no assurance inthis regard.

 

39

----

 

***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.

 

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

 

On September 30, 2005,Colonial acquired the management contract from an unaffiliated party and now isable to manage the track’s operations on its own. This enabled us toimmediately influence the operational aspects of Colonial. The EBITDA for 2005reflects a charge of $10.4 million representing the purchase price of thecontract plus $0.4 million in legal and professional fees associated with thetransaction.

 

On November 2, 2004,referenda were passed in the following counties in Virginia: Henry County;Scott County and Westmoreland County. OnMarch 16, 2005, Colonial received a license to own and operate aseventh satellite wagering facility in Henry County, Virginia. We opened the HenryCounty facility in the third quarter of 2005. On April 27, 2005, Colonialreceived a license to own and operate its eighth satellite wagering facility ata second location in Chesapeake, Virginia. We opened the second Chesapeakefacility in the fourth quarter of 2005. On May 25, 2005, Colonial wasgranted a license to own and operate a ninth satellite wagering facility inScott County, Virginia. We opened the Scott County facility in the firstquarter of 2006.

 

40

----

 

Our results of operationsreflect the consolidated operations of all our subsidiaries. A summary of ourconsolidated operating results for the years ended December 31, 2007, 2006and 2005 is as follows:

 
| ** **                                       | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                       | ** ** | **(Dollars in Thousands)**       | ** ** |
| **Revenues**                                     |       |                                       |       |   |   |   |   |
| Gaming:                                          |       |                                       |       |   |   |   |   |
| Casino                                           |       | $                                          | 144,656    |   | $ | 121,483 |   | $ | 115,607 |   |
| Truck stop                                       |       | 64,322                                     |       | 66,418 |   | 44,760 |   |
| Pari-mutuel                                      |       | 41,309                                     |       | 39,787 |   | 35,988 |   |
| Food and  beverage                               |       | 29,260                                     |       | 25,069 |   | 20,400 |   |
| Convenience  store—fuel                     |       | 81,329                                     |       | 77,520 |   | 47,511 |   |
| Other                                            |       | 20,905                                     |       | 18,539 |   | 11,816 |   |
| Less:  promotional allowances                    |       | (31,953                                    | )          | (26,438 | ) | (23,835 | ) |
|                                             |       |                                       |       |   |   |   |   |
| Total net  revenues                              |       | 349,828                                    |       | 322,378 |   | 252,247 |   |
|                                             |       |                                       |       |   |   |   |   |
| **Costs  and expenses**                          |       |                                       |       |   |   |   |   |
| Gaming:                                          |       |                                       |       |   |   |   |   |
| Casino                                           |       | 48,427                                     |       | 43,567 |   | 41,804 |   |
| Truck stop                                       |       | 37,954                                     |       | 37,621 |   | 24,396 |   |
| Pari-mutuel                                      |       | 32,977                                     |       | 32,559 |   | 31,356 |   |
| Food and  beverage                               |       | 16,416                                     |       | 13,704 |   | 10,472 |   |
| Convenience  store—fuel                     |       | 77,269                                     |       | 73,389 |   | 44,436 |   |
| Other                                            |       | 16,290                                     |       | 15,017 |   | 8,952 |   |
| Marketing,  general and administrative           |       | 69,362                                     |       | 60,778 |   | 48,279 |   |
| Abandonment  costs                               |       |                                       |       |   |   | 1,424 |   |
| Termination of  contract                         |       |                                       |       |   |   | 10,367 |   |
| Depreciation and  amortization                   |       | 18,101                                     |       | 14,102 |   | 11,576 |   |
|                                             |       |                                       |       |   |   |   |   |
| Total costs and  expenses                        |       | 316,796                                    |       | 290,737 |   | 233,062 |   |
|                                             |       |                                       |       |   |   |   |   |
| Operating income                                 |       | 33,032                                     |       | 31,641 |   | 19,185 |   |
| Interest  expense, net                           |       | (28,067                                    | )          | (32,271 | ) | (22,660 | ) |
| Pre-payment  penalties, tender and consent costs |       |                                       |       | (9,321 | ) |   |   |
| Income tax  benefit (expense)                    |       |                                       |       | 103 |   | (423 | ) |
|                                             |       |                                       |       |   |   |   |   |
| Net income  (loss)                               |       | $                                          | 4,965      |   | $ | (9,848 | ) | $ | (3,898 | ) |

 

**D.****                                  ****Comparisonof our operations for the year ended December 31, 2007 to the year ended December 31,2006**

 

*All comparisons below state the2007 results first and the 2006 results second**.*

 

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 several factors.  We have expanded capital investments in ourslot product over the last year, and the completion of the south entrance ofThe Lodge enabled us to add 60 devices and has generated increased walk-intraffic into the casino. Additionally, City of Black Hawk casino win grew 5%during 2007 compared to 2006.

 

41

----

 

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 to theacquisitions 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 and Texas Gulf Coast in August and September 2005,respectively, disrupting riverboat and other competition in the region.  No such increased business levels wereexperienced in 2007.

 

42

----

 

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 with increasedpari-mutuel revenues, somewhat offset by a decrease in track materials costsresulting 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,Gilpin of $1.1 million, Colonial of $0.8 million, and the truck stops of $0.8million, offset by decreases of $3.3 million in corporate overhead expenses and$0.5 million 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 accommodateexpansion.  The $3.3 million net decreasein our corporate overhead was primarily the result of 2006 political campaigncosts incurred in Ohio to support a constitutional amendment that would haveallowed slot machines at the state’s existing racetracks and two locations indowntown Cleveland.

 

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, 2007 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.

 

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.

 

43

----

 

For the year ended December 31, 2006, we receiveda tax refund for a portion of an income tax charge incurred during 2005,resulting in an income tax benefit of $0.1 million.  Nocomparable transaction occurred during 2007.

 

**E.****           ****Comparison****of our operations for theyear ended December 31, 2006 to the year ended December 31, 2005**

 

Casino revenues in ourColorado and Nevada segments increased $5.9 million or 5% from $115.6 millionfor the year ended December 31, 2005 to $121.5 million for the year ended December 31,2006. The increase in casino revenues is a result of increased casino revenuesat The Lodge of $0.1 million, the Gilpin of $1.4 million or 6%, Gold DustWest-Reno of $0.7 million or 3% while Gold Dust West-Carson City (which wasacquired on June 25, 2006) contributed $3.7 million. The increase in thecasino revenues at our properties is a result of several factors. We haveexpanded capital investments in our slot product over the last year includingthe implementation of a TITO system at the Gilpin and a remodeled valetpavilion. Casino revenues at our two Colorado properties continued to bepositively affected due to construction disruption at a competing casino whichended early in the second quarter of 2006. Additionally, in 2006, the City ofBlack Hawk casino win grew 4% compared to 2005. The Gold Dust West-Reno casinorevenue increase reflects the effect of severe snow storms that hit the Renomarket in the first quarter of 2005 but with no such occurrence in 2006, andduring the third quarter of 2006 we completed the L-wing demolition (a portionof our motel) which enabled us to provide approximately 75 additional surfaceparking spaces for our customers.

 

Truckplaza gaming revenues in our Louisiana segment increased $21.7 million or 48%for the year ended December 31, 2006 compared to the year ended December 31,2005. Approximately $5.2million of the increase is from the two new truck stop video gaming locationsin Eunice and Jefferson parish where video gaming operations commenced thefirst and third quarters of 2005, respectively and therefore reflects only apartial year’s operations. The 2006 video gaming revenues from the Silver Fox,Fuel Stop 36 and Larose truck stops, all purchased in December 2005,account for $10.4 million of the increase. Hurricane Rita, which hit theLouisiana/Texas Gulf Coast on September 24, 2005, caused the permanentclosure of two of four competing truck stop video gaming facilities near theCash Magic Vinton location resulting in increased revenues at that location of$1.3 million. The Vinton and St. Helena locations, purchased in June and July 2006,respectively, account for $2.8 million of the increase. The remaining increaseof $2.0 million is the result of increased business levels due to thepopulation relocation after Hurricane Katrina devastated the New Orleans areain August 2005.

 

Pari-mutuel revenues in our Virginia segmentincreased $3.8 million or 11% from $36.0 million to $39.8 million for the yearended December 31, 2005 compared to the year ended December 31, 2006,respectively. Of theincrease in revenues, $7.1 million is attributable to the new off trackwagering facilities opened in Martinsville, Chesapeake and Scott County,Virginia in August 2005, October 2005 and January 2006,respectively, and an increase of $1.0 million in account wagering revenues,offset by decreases totaling $4.3 million in wagering revenues at the racetrackand remaining off track wagering facilities.

 

Food and beverage revenues increased $4.7million or 23% from $20.4 million to $25.1 million for the year ended December 31,2005 as compared to the year ended December 31, 2006, respectively. This increase is attributable to $1.8 milliongenerated by Gold Dust West-Carson City and increases of $0.3 million atColonial and $3.1 million at the truck stop facilities, partially offset bydecreases of $0.3 million at Gold Dust West-Reno, $0.1 million at The Lodge and$0.1 million at the Gilpin. The decreases at the Gold Dust West-Reno, The Lodgeand the Gilpin are attributable to a decrease in complimentary food offers toour customers. The increase at Colonial is primarily attributable to the newoff track wagering facilities opened in Martinsville, Chesapeake and ScottCounty, Virginia in August 2005, October 2005 and January 2006,respectively. Of the increase at the truck stops, $2.6 million is attributableto the purchases of Silver Fox, Fuel Stop 36 and Larose in December 2005and the purchases of the Vinton and St. Helena locations in June and July 2006,respectively. The remaining increase is the result of increased business levelsdue to the population relocation after Hurricane Katrina devastated the NewOrleans area in August 2005.

 

44

----

 

Convenience store fuel revenues increased $30.0million or 63% from $47.5 million to $77.5 million for the year ended December 31,2005 compared to the year ended December 31, 2006. The December 2005 acquisitions of theSilver Fox, Fuel Stop 36 and Larose truck stops account for $16.1 million ofthe increase. Fuel sales from the St. Helena location purchased in July 2006resulted in $1.6 million of the increase. Hurricane Rita, which hit theLouisiana/Texas Gulf Coast on September 24, 2005, caused the permanentclosure of two of four competing truck stop video gaming facilities near theCash Magic Vinton location resulting in increased revenues at that location of$2.5 million. The remaining increase of $9.8 million is the result of increasedbusiness levels due to the population relocation after Hurricane Katrinadevastated the New Orleans area in August 2005 and an increase in the averageselling price of fuel from $2.24 per gallon to $2.57 per gallon.

 

Other revenues, whichare comprised of our convenience store and hotel operations, increased $6.7 million or 57% from $11.8million for the year ended December 31, 2005 to $18.5 million for the yearended December 31, 2006. Convenience store-other revenues increased $4.5million or 73% for the year ended December 31, 2006 compared to the yearended December 31, 2005. The 2006 revenues from the Silver Fox, Fuel Stop36 and Larose truck stops all purchased in December 2005 account for $3.4million of the increase, and the St. Helena location purchased in July 2006provided an additional $0.3 million. The remaining increase totaling $0.8million is the result of increased business levels due to the populationrelocation after Hurricane Katrina devastated the New Orleans area in August 2005.Hotel and other revenues increased $2.2 million or 39% for the year ended December 31,2006 compared to the year ended December 31, 2005. The increase is primarilyattributable to Gold Dust West-Carson City which was acquired on June 25,2006 and contributed $2.0 million, and a $0.3 million increase at The Lodge,somewhat offset by a decrease of $0.1 million at Gold Dust West-Reno. Theincrease at The Lodge is attributable to an increase in the average number ofrooms available to our customers as our rooms were closed for approximately 20days for remodeling in 2005 and we have increased our complimentary hotel roomsprovided to customers.

 

Promotional allowancesincreased $2.6 million or 11% from $23.8 million for the year ended December 31,2005 to $26.4 million for the year ended December 31, 2006. The increaseis primarily associated with an increase in promotional allowances at The Lodgeof $0.5 million, anincrease at the truck stops of $1.4 million and an increase at Gold DustWest-Carson City of $0.9 million, somewhat offset by a decrease of $0.2 millionat Gold Dust West-Reno. The increase at The Lodge is attributable to increasedhotel and beverage complimentaries and an increase in cash back incentives toplayers.  The decrease at Gold DustWest-Reno is attributable to a decrease in complimentary food provided to ourcustomers. Of the increase at the truck stops, $0.6 million is due tocomplimentary food and beverage sales at Jefferson which opened third quarter2005; Silver Fox, Fuel Stop 36 and Larose which were all purchased in December 2005;and the Vinton and St. Helena locations which were purchased in June and July 2006,respectively. The remaining $0.8 million is the result of increased businesslevels due to the population relocation after Hurricane Katrina devastated theNew Orleans area in August 2005.

 

Casino expenses increased$1.8 million or 4% from $41.8 million to $43.6 million for the year ended December 31,2005 compared to the year ended December 31, 2006. This increase is aresult of the addition of Gold Dust West-Carson City which had $1.9 million ofcasino expense and an increase at The Lodge of $0.3 million, offset bydecreases at Gold Dust West-Reno of $0.3 million and the Gilpin of $0.1million. The increase in The Lodge’s casino expense is due to increased gamingtaxes (due to increased gaming revenues) and an increase in food and beveragecharged to casino expenses for promotions. The decreases in casino expenses atthe Gold Dust West-Reno and the Gilpin are primarily due to a decrease incomplimentary costs associated with the food and beverage complimentary salesprovided to our guests during the year ended December 31, 2006 compared tosame period of 2005.

 

Truckstop gaming expenses increased $13.2 million or 54% for the year ended December 31,2006 compared to the year ended December 31, 2005. Of the increase, $3.1million is from the two new truck stop video gaming locations in Eunice andJefferson parish where video gaming operations commenced the first and thirdquarters of 2005, respectively. The 2006 video gaming expenses from the SilverFox, Fuel Stop 36 and Larose truck stops, all purchased in December 2005,account for $5.7 million of the increase and an additional increase of $1.9million is from the Vinton and St. Helena truck stops purchased in June andJuly 2006, respectively. Hurricane Rita, which hit the Louisiana/TexasGulf Coast on September 24, 2005, caused the permanent closure of two offour competing truck stop video gaming facilities near the Cash Magic Vintonlocation resulting in increased expenses at 

 

45

----

 

thatlocation of $0.6 million. The remaining $1.9 million increase is the result ofincreased business levels due to the population relocation after HurricaneKatrina devastated the New Orleans area in August 2005.

 

Pari-mutuel costs and expenses increased $1.2 million or 4% from $31.4million to $32.6 million for the year ended December 31, 2005 compared tothe year ended December 31, 2006. The increase is primarily attributableto the new off track wagering facilities opened in Martinsville, Chesapeake andScott County, Virginia in August 2005, October 2005 and January 2006,respectively, combined with increased live racing expenses resulting from theMaryland Jockey Club (“MJC”) management contract buyout, offset by a decreaseresulting from the elimination of the MJC management fees.

 

Food and beverage costs andexpenses increased $3.2 million or 31% for the year ended December 31,2006 compared to the year ended December 31, 2005. The increase isattributable to $1.6 million at Gold Dust West-Carson City, a $0.3 millionincrease at Colonial and a $1.7 million increase at the truck stop facilities.The food and beverage costs for the new Silver Fox, Fuel Stop 36 and Larosetruck stops, all purchased in December 2005, account for the truck stopincrease. These increases were partially offset by decreases at The Lodge of$0.3 million and the Gilpin of $0.1 million. The decreases at The Lodge andGilpin are associated to an increase in complimentary costs associated to foodand beverage promotions charged to casino operations.

 

Conveniencestore-fuel expenses increased $29.0 million or 65% for the year ended December 31,2006 compared to the year ended December 31, 2005. The 2006 fuel expensesfrom the Silver Fox, Fuel Stop 36 and Larose truck stops purchased in December 2005account for $15.4 million of the increase, and $1.6 million of the increase isthe result of the St. Helena truck stop which was purchased in July 2006.Hurricane Rita, which hit the Louisiana/Texas Gulf Coast on September 24,2005, caused the permanent closure of two of four competing truck stop videogaming facilities near the Cash Magic Vinton location resulting in increasedexpenses at that location of $2.5 million. The remaining increase of $9.5million is the result of increased business levels due to the populationrelocation after Hurricane Katrina devastated the New Orleans area in August 2005and an increase in the average cost of fuel from $2.08 per gallon to $2.43 pergallon.

 

Other costs and expenses increased $6.1million or 68% for the year ended December 31, 2006 compared to the yearended December 31, 2005. The 2006 convenience store expenses from theSilver Fox, Fuel Stop 36 and Larose truck stops purchased in December 2005account for $3.8 million of the increase, and the addition of the St. Helenalocation in July 2006 accounts for $0.4 million of the increase. Theremaining increase of $1.5 million is the result of increased business levelsdue to the population relocation after Hurricane Katrina devastated the NewOrleans area in August 2005. Hotel expenses increased $0.4 million for theyear ended December 31, 2006 compared to the year ended December 31,2005 and were primarily attributable to the addition of hotel operations atGold Dust West-Carson City, which was acquired on June 25, 2006.

 

Marketing, general and administrative expenses increased $12.5 millionor 26% for the year ended December 31, 2006 compared to the year ended December 31,2005. This increase is the result of the addition of our Gold Dust West-CarsonCity casino which accounted for $3.8 million of the increase, as well asincreases at The Lodge of $0.1 million, Gold Dust West-Reno of $0.2 million,Gold Dust West-Elko of $0.5 million, Colonial of $0.4 million, truck stops of$3.2 million and corporate overhead expenses of $4.4 million. These increases wereoffset by a decrease at the Gilpin of $0.1 million.  The increased marketing costs at ouroperating units drove increased revenues for all segments. The decrease at theGilpin is primarily related to a reduction in bussing costs. The increase atthe truck stops was primarily due to the addition of corporate office space andadditional corporate staff to accommodate expansion. The increase in ourcorporate overhead was the result of political campaign costs of $3.3 million,the write off of feasibility costs associated to the Dakota Works project of$0.4 million, an increase in professional accounting fees of $0.2 million,consulting fees of $0.5 million, travel expenses of $0.4 million and other netoperating costs of $0.1 million, offset by a reduction in labor costs of $0.5million.

 

Abandonmentcosts totaling $1.4 million were recorded during the year ended 2005 whichrepresented the allocated net book value of a stand-alone portion of the GoldDust West-Reno’s motel building (the “L-wing”) containing 66 of the property’s106 motel rooms. After considering alternative plans for this stand-aloneportion of the motel including a refurbishing, we decided that the propertywould be better served with improved access and expanded parking. We begandemolition of the L-wing during the first quarter of 2006 and substantiallycompleted the project late in the second quarter at a cost of $1.2 million. Weadded approximately 75 parking spaces as a result 

 

46

----

 

ofthe demolition.  We continue to operatethe remaining 40 hotel rooms. Nocomparable transaction occurred during 2006.

 

Terminationof contract expenses of $10.4 million were incurred during 2005.  On September 30, 2005, Colonialcompleted a transaction with Magna Entertainment Corp. (“MEC”), an unaffiliatedparty, under which Colonial acquired all of the outstanding shares of theMaryland-Virginia Racing Circuit, Inc. (the “Circuit”), a wholly-ownedsubsidiary of MEC, for $10 million. Under the terms of the agreement, Colonialpaid $7 million in cash at closing of the transaction and issued a one-yearnote, bearing interest at the prime rate plus 1%, in the amount of $3 million.This note was paid in full on June 16, 2006. The stock acquisition hasbeen characterized as a termination of a contract for accounting purposes. Assuch, $10.4 million, including the $10 million purchase price and $0.4 millionin legal and professional fees associated with this transaction, was expensedin 2005. No comparable transaction occurred during 2006.

 

Depreciation andamortization expense increased $2.5 million from $11.6 million to $14.1 millionfor the year ended December 31, 2005 compared to the year ended December 31,2006, respectively. Approximately $1.6 million of the increase is attributableto the acquisitions of Gold Dust West-Carson City, Silver Fox, Fuel Stop 36,Larose, Vinton and St. Helena. The balance of the increase is attributable topurchases of assets at all other locations.

 

Net interest expenseincreased $9.6 million for the year ended December 31, 2006 as compared tothe year ended December 31, 2005. The increase is primarily attributableto the issuance of $23 million in additional senior secured notes in conjunction with the acquisition ofthree video gaming truck plaza facilities in March 2005, additionalborrowings for acquisitions made in June and July 2006, the write offof $5.7 million and $1.9 million in financing fees and note issue discount onthe debt refinanced, as previously discussed. These increases were partiallyoffset by the write off of note issue premium of $1.5 million in conjunctionwith the debt refinancing.

 

Prepaymentpenalties, tender and consent costs in the amount of $9.3 million were incurredduring 2006.  These costs represent the premiumrequired to redeem our senior secured notes in 2006 prior to their maturity in2009 and consent solicitation fees and expenses as part of the redemption ofsuch notes.  No comparable transactionoccurred during 2005.

 

Income tax benefit (expense) increased by $0.5 million for the yearended December 31, 2006 as compared to the year ended December 31,2005. On March 11, 2002, we received notice from the Internal RevenueService asserting deficiencies in federal corporate income taxes for asubsidiary for the 1998 tax year.  Theproposed adjustment related to the deductibility of depreciation taken againstcertain costs incurred by The Lodge to build and improve public assets. Wesettled this issue with the Internal Revenue Service and recorded a charge toearnings of $0.4 million, including $0.1 million in interest, during 2005.During 2006, we received a tax refund of a portion of this charge totaling $0.1million.

 

47

----

 

F.             **Segment information for the threeyears ended December 31, 2007**

 

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.

 

48

----

 

The following is a summaryof the net revenues, costs and expenses and EBITDA, for the three years ended December 31,2007, 2006 and 2005 (dollars in thousands):

 
| ** **                                                                                                | ** ** | **For the Years Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2007**                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| **NET  REVENUES**                                                                                         |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                 |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                 |       | $                                                             | 76,051     |   | $ | 67,315 |   | $ | 67,428 |   |
| Gilpin                                                                                                    |       | 23,323                                                        |       | 22,245 |   | 20,986 |   |
| Total Colorado                                                                                            |       | 99,374                                                        |       | 89,560 |   | 88,414 |   |
| Nevada:                                                                                                   |       |                                                          |       |   |   |   |   |
| Gold Dust  West-Reno                                                                                      |       | 20,986                                                        |       | 22,893 |   | 22,331 |   |
| Gold Dust  West-Carson City                                                                               |       | 13,833                                                        |       | 6,517 |   |   |   |
| Gold Dust  West-Elko                                                                                      |       | 8,243                                                         |       |   |   |   |   |
| Total Nevada                                                                                              |       | 43,062                                                        |       | 29,410 |   | 22,331 |   |
| Louisiana                                                                                                 |       | 161,070                                                       |       | 158,859 |   | 100,535 |   |
| Virginia                                                                                                  |       | 46,322                                                        |       | 44,549 |   | 40,967 |   |
| **Total  Net Revenues**                                                                                   |       | 349,828                                                       |       | 322,378 |   | 252,247 |   |
|                                                                                                      |       |                                                          |       |   |   |   |   |
| **COSTS  AND EXPENSES (excluding depreciation and amortization, net interest expense  and income taxes)** |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                 |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                 |       | 49,359                                                        |       | 46,286 |   | 46,166 |   |
| Gilpin                                                                                                    |       | 16,594                                                        |       | 16,158 |   | 16,497 |   |
| Total Colorado                                                                                            |       | 65,953                                                        |       | 62,444 |   | 62,663 |   |
| Nevada:                                                                                                   |       |                                                          |       |   |   |   |   |
| Gold Dust  West-Reno                                                                                      |       | 13,794                                                        |       | 14,675 |   | 16,228 |   |
| Gold Dust  West-Carson City                                                                               |       | 15,064                                                        |       | 7,664 |   |   |   |
| Gold Dust  West-Elko                                                                                      |       | 8,567                                                         |       | 499 |   |   |   |
| Total Nevada                                                                                              |       | 37,425                                                        |       | 22,838 |   | 16,228 |   |
| Louisiana                                                                                                 |       | 141,771                                                       |       | 135,747 |   | 82,956 |   |
| Virginia                                                                                                  |       | 44,921                                                        |       | 43,686 |   | 51,993 |   |
| Net corporate  overhead                                                                                   |       | 8,625                                                         |       | 21,241 |   | 7,646 |   |
| **Total  Costs and Expenses**                                                                             |       | 298,695                                                       |       | 285,956 |   | 221,486 |   |
|                                                                                                      |       |                                                          |       |   |   |   |   |
| **EBITDA**                                                                                                |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                 |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                 |       | 26,692                                                        |       | 21,029 |   | 21,262 |   |
| Gilpin                                                                                                    |       | 6,729                                                         |       | 6,087 |   | 4,489 |   |
| Total Colorado                                                                                            |       | 33,421                                                        |       | 27,116 |   | 25,751 |   |
| Nevada:                                                                                                   |       |                                                          |       |   |   |   |   |
| Gold Dust West-Reno                                                                                       |       | 7,192                                                         |       | 8,218 |   | 6,103 |   |
| Gold Dust  West-Carson City                                                                               |       | (1,231                                                        | )          | (1,147 | ) |   |   |
| Gold Dust  West-Elko                                                                                      |       | (324                                                          | )          | (499 | ) |   |   |
| Total Nevada                                                                                              |       | 5,637                                                         |       | 6,572 |   | 6,103 |   |
| Louisiana                                                                                                 |       | 19,299                                                        |       | 23,112 |   | 17,579 |   |
| Virginia                                                                                                  |       | 1,401                                                         |       | 863 |   | (11,026 | ) |
| Net corporate  overhead                                                                                   |       | (8,625                                                        | )          | (21,241 | ) | (7,646 | ) |
|                                                                                                      |       |                                                          |       |   |   |   |   |
| **Total  EBITDA**                                                                                         |       | $                                                             | 51,133     |   | $ | 36,422 |   | $ | 30,761 |   |

 

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

 

49

----

 

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, 2007** | ** ** | **EBITDA** | ** ** | **Depreciation and  Amortization** | ** ** | **Interest  Expense, net** | ** ** | **Income Tax  Expense** | ** ** | **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                                  |       | (8,625     | )          | 703                                     |       | 8,116                           |       |                         |       | (17,444                     | )          |
| TOTAL                                                |       | $          | 51,133     |                                    | $          | 18,101                          |       | $                            | 28,067     |                        |       |   | $ | 4,965 |   |

 
| **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 (1)                              |       | (21,241    | )          | 520                                     |       | 9,543                           |       | $                            | 103        |                        | (31,201    | ) |
| TOTAL                                                |       | $          | 36,422     |                                    | $          | 14,102                          |       | $                            | 32,271     |                        | $          | 103 |   | $ | (9,848 | ) |

 
| **Year Ended December 31, 2005** | ** ** | **EBITDA** | ** ** | **Depreciation and  Amortization** | ** ** | **Interest   Expense, net** | ** ** | **Income Tax  Expense** | ** ** | **Net  Income (Loss)** | ** ** |
|------------------------------------------------------|------------|------------|------------|-----------------------------------------|------------|---------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Colorado:                                            |       |       |       |                                    |       |                                  |       |                         |       |                        |       |
| The Lodge                                            |       | $          | 21,262     |                                    | $          | 3,372                                 |       | $                            | 8,310      |                        |       |   | $ | 9,580 |   |
| Gilpin                                               |       | 4,489      |       | 1,645                                   |       | 2,580                                 |       |                         |       | 264                         |       |
| Total Colorado                                       |       | 25,751     |       | 5,017                                   |       | 10,890                                |       |                         |       | 9,844                       |       |
| Gold Dust West-Reno  (2)                             |       | 6,103      |       | 1,691                                   |       | 3,126                                 |       |                         |       | 1,286                       |       |
| Louisiana                                            |       | 17,579     |       | 2,958                                   |       | 3,202                                 |       |                         |       | 11,419                      |       |
| Virginia (3)                                         |       | (11,026    | )          | 1,685                                   |       | 236                                   |       |                         |       | (12,947                     | )          |
| Corporate  overhead                                  |       | (7,646     | )          | 225                                     |       | 5,206                                 |       | $                            | 423        |                        | (13,500    | ) |
| TOTAL                                                |       | $          | 30,761     |                                    | $          | 11,576                                |       | $                            | 22,660     |                        | $          | 423 |   | $ | (3,898 | ) |

 

----

| (1)    | Included  in corporate overhead for 2006 are $9.3 million in pre-payment penalties,  tender and consent costs for our debt refinancing and $3.3 million we  expended to pursue a constitutional amendment in Ohio to allow slot machines  at the seven existing racetracks and two locations in downtown Cleveland. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                |
| (2)    | Included  in Gold Dust West-Reno for 2005 is a $1.4 million non-cash abandonment charge  which represented the allocated net book value of a stand-alone portion of  its L-wing.                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                |
| (3)    | Included  in Virginia for 2005 is $10.4 million that was expensed related to the  management contract termination.                                                                                                                                                                                                  |

 

50

----

 

**G.****                                   ****Liquidityand capital resources—December 31, 2007**

 

As of December 31, 2007, we had cash and cash equivalents of $24.4million compared to $24.3 million in cash and cash equivalents as of December 31,2006. The increase is the result of $29.1 million cash provided by operatingactivities, $33.3 million cash used in investing activities, and $4.3 millionprovided by 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 capitalimprovements, development and acquisitions.

 

Thecash used in investing activities during 2007 was primarily the result ofproperty and equipment additions totaling $29.3 million, which is comprised of$12.2 million for the development of Gold Dust West-Elko, $1.0 million for thesouth entrance of The Lodge and $2.8 million for acquisition relatedimprovements at Gold Dust West-Carson City.   Additionally, ongoing capital investments atour existing properties totaled $13.3 million for the year ended December 31,2007.  Finally, on March 29, 2007,we acquired the Silver Dollar truck plaza facility from an unrelated thirdparty for $4.2 million.

 

Thecash provided by financing activities during 2007 was primarily the result ofnet borrowings on the revolving senior credit facility totaling $23.5 million,offset by distributions to stockholders totaling $17.4 million.  The distributions to stockholders wereprimarily the result of the acquisition of the Silver Fox truck plaza facilityfrom a related party.

 

As of December 31, 2007, we have $16.5 million available on our$40 million revolving senior credit facility for acquisitions, capitalexpenditure programs and working capital. The revolving senior credit facilitycarries an interest rate of 3.00% above LIBOR and expires in June 2011. Asof December 31, 2007, our total debt approximates $299.3 million. Ourfuture liquidity, which includes our ability to make semi-annual interestpayments on June 15 and December 15 of each year, depends upon ourfuture operational success.

 

While our owners have made capital contributions to facilitate variousacquisitions of the Company from time to time, we can give no assurance thatthey will continue to do so in the future. Additionally, as we are a SubchapterS Corporation, 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. Capital expenditures for 2008, excluding development projects,are projected to be approximately $13 million. While we believe these sourceswill provide us sufficient liquidity over the next twelve months, we can giveno assurance that these sources of cash will be sufficient to enable us to doso. Further, in addition to our normal capital expenditure requirements, weanticipate that we will pursue the acquisition of other properties and continueto engage in the pursuit of new development opportunities. It is possible thatwe may need to enter into new financing arrangements and raise additionalcapital in the future if we are unable to generate sufficient cash to sustainexpansion. Our ability to incur additional debt is further restricted by theterms and covenants of our senior secured bank credit facility 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 a decline in the demand forour products and services, which would reduce our ability to generate fundsfrom operations.  While we believe ourcash flows are geographically diverse, at present we do have a significantconcentration of cash flows generated in the Black Hawk, Colorado and Louisianamarkets.  Should the Black Hawk orLouisiana markets decline or become saturated or should competition erode ourmarket share, we would suffer a decline in available funds generated fromoperations.  If this were to occur, thereexists the possibility that our credit rating could be downgraded, which wouldfurther reduce our ability to access the capital markets and obtain additionalor alternative financing.  See thesection “Risk Factors” in Item 1A above.

 

51

----

 

The following table provides disclosure concerningour obligations and commitments to make future payments under contracts, suchas debt and lease agreements, and purchase and other long-term obligations asof December 31, 2007.

 
| ** **                          | ** ** | ** **                           | ** ** | **Less than 1** | ** ** | **1-3**   | ** ** | **4-5**   | ** ** | **After 5** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|-----------|------------|-----------|------------|------------------|------------|
| ** **                          | ** ** | **Total**                            | ** ** | **Year**                  | ** ** | **Years** | ** ** | **Years** | ** ** | **Years**        | ** ** |
| ** **                          | ** ** | **(Dollars in Thousands)** | ** ** |
| Long-term  debt(1)                  |       | $                                    | 454,279    |                      | $          | 28,080    |       | $         | 55,948     |             | $          | 129,538 |   | $ | 240,713 |   |
| Capital lease  obligations          |       | 9,756                                |       | 619                       |       | 1,921     |       | 994       |       | 6,222            |       |
| Operating  leases(2)                |       | 37,651                               |       | 2,615                     |       | 4,878     |       | 3,177     |       | 26,981           |       |
| Other long-term  obligations(3)     |       | 24,309                               |       | 1,845                     |       | 3,539     |       | 2,675     |       | 16,250           |       |
| Total  contractual cash obligations |       | $                                    | 525,995    |                      | $          | 33,159    |       | $         | 66,286     |             | $          | 136,384 |   | $ | 290,166 |   |

 

----

| (1)    |   | Long-term debt includes  principal and interest owing under the terms of our senior unsecured notes,  our senior secured credit facility, the Black Hawk special assessment bonds  and indebtedness of Colonial.                                                                                                                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (2)    |   | Operating leases  include various land and building leases for certain properties in Nevada,  Louisiana and Virginia, office space in Colorado, Louisiana, Virginia and  Florida, and other equipment leases at all locations.                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (3)    |   | Other long-term  obligations include a 20-year, $1.25 million per year management agreement  with Jacobs Investments Management Co. Inc., an affiliated company, and our  obligation to pay $1 per operating video poker machine per day to the third  party owner of the machines in order to maintain the machines used in our  truck plaza operations, plus $1,050 per machine annually for the owner’s  licensing costs. |

 

Inaddition, we have the following commitments and obligations:

 
| · |   | JEI,  through its subsidiary Colonial, has entered into an agreement with a  totalisator company, which provides wagering services and designs, programs,  and manufactures totalisator systems for use in wagering applications. On  March 16, 2005, Colonial entered into an amendment with the totalisator  company that extends the term of the agreement to 2012, provides replacement  equipment for the existing equipment, and increases the rate to .385% of  handle up to $270 million in handle. Handle above $270 million is charged a  rate of .345%. The amendment also provides for a minimum charge per calendar  year of $210,000. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · |   | JEI,  through the Lucky Magnolia truck plaza, has an obligation to pay to an  individual 4.9% of its net video poker revenue, after associated state taxes,  for as long as video poker machines are operated on the property.                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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.

 

**H.****           ****Criticalaccounting policies and 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 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 

 

52

----

 

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.

 

***Propertyand equipment***

 

Wehave a significant investment in long-lived property and equipment,representing approximately 70% 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 the carrying value of our property and equipmentwhen events and circumstances indicate that the carrying value of an asset maynot be recoverable from the estimated future cash flows expected to result fromits use. Further, we assign lives to our assets based on our standard policy,which is established by management as representative of the useful life of eachclass of assets. Should the actual useful life of a class of assets differ fromthe estimated useful life, we would record an impairment charge. We reviewuseful lives and obsolescence and assess the commercial viability of our assetsperiodically.

 

***Goodwill andother intangible assets***

 

Wehave $46.7 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.

 

Ourthree reporting units with goodwill balances at December 31, 2007 areColorado ($6.7 million), Nevada ($9.0 million) and Louisiana($31.0 million). There is no goodwill recorded in our Virginia reportingunit. We performed our most recent annual impairment test for these reportingunits as of September 30, 2007. Our annual impairment test included ananalysis of the gaming industry overall as well as an analysis of the specificlocations in which we operate. We determined the fair values for each of thesereporting units using both the market approach (recent comparable transactionsfrom which we derived an applicable valuation multiple) and the income approach(net present value of our anticipated future cash flows). These fair valueswere then compared to the carrying values for the respective reporting unit andwe determined that goodwill is not impaired at any of our reporting units.Furthermore, if the fair value of these reporting units declined by 10%, nogoodwill impairment would exist.

 

Wehave reassessed the useful lives of our identifiable intangible assets withoutany change to the previously established amortization periods of such assets.

 

**Item 7A.****               *****Quantitative and 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.

 

On June 16, 2006, we issued $210 million of 93⁄4% senior unsecurednotes due in 2014 and we issued $40 million in a secured, term loanfinancing.  The proceeds of these twoissuances were used to finance acquisitions, refinance existing debt and forworking capital purposes. Additionally, during December 2006, we borrowed$20 million on the secured, delayed draw term loan facility which was used tocomplete the development of our new casino in Elko, Nevada. We have available asecured revolving facility of $40 million, of which $23.5 million isoutstanding as of December 31, 2007, and our senior secured term loandebt, of which $59.2 million is outstanding 

 

53

----

 

asof December 31, 2007, bearing interest at a blended rate approximating7.56% at December 31, 2007. The senior unsecured notes bear interest at afixed rate of 93⁄4%.

 

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 $0.6 million annually forinterest should market rates increase or decrease by 10% compared to interestrate levels at December 31, 2007.

 

We currently do not invest in derivative financial instruments,interest rate swaps or other similar investments to alter interest rateexposure.

 

**Item 8.****                  *****Financial Statements 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.

 

**Item 9.**                   ***Changes in and Disagreements with Accountants onAccounting and Financial Disclosure.***

 

None.

 

**Item 9A.****               *****Controls and Procedures.***

 

Not applicable.

 

**Item 9A(T).****          *****Controls and 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 31,2007. 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*

 

Management of the Companyis responsible for establishing and maintaining adequate internal control overfinancial reporting 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 records that, in reasonable detail, accurately and fairly  reflect the transactions and dispositions of the assets of the Company;                                                                                                                                                                                |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                             |
| · |   | Provide reasonable  assurance that transactions are recorded as necessary to permit preparation  of financial statements in accordance with generally accepted accounting  principles, and that receipts and expenditures of the Company are being made  only in accordance with authorizations of management and directors of the  Company; and |

 

54

----

 
| · |   | Provide reasonable  assurance regarding prevention or timely detection of unauthorized  acquisitions, use or disposition of the Company’s assets that could have a  material effect on the 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 theeffectiveness of the Company’s internal control over financial reporting as of December 31,2007. In making this assessment, the Company’s management used the criteria establishedin *Internal Control-Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). Based on our assessment, we believe that, as of December 31, 2007,the Company’s internal control over financial reporting is effective based onthose criteria.

 

This annual report doesnot include an attestation report of the Company’s registered public accountingfirm regarding internal control over financial reporting.  Management’s report was not subject toattestation by the Company’s registered public accounting firm pursuant totemporary rules of the Securities and Exchange Commission that permit theCompany to provide only management’s report in this annual report.

 

*Changesin Internal Control Over Financial Reporting*

 

There have been no changes in our internal control over financialreporting during the most recent fiscal quarter that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

**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, 2007 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 of Black Hawk Gaming, Colonial and theLouisiana properties as of March 1, 2008:

 
| **Name**          | ** ** | **Age** | ** ** | **Position**                                                             |
|-------------------|------------|---------|------------|--------------------------------------------------------------------------|
| Jeffrey P. Jacobs |       | 54      |       | Chief Executive Officer, Secretary, Treasurer and  Chairman of the Board |
| Richard E. Jacobs |       | 82      |       | Director                                                                 |
| Stephen R. Roark  |       | 60      |       | President                                                                |
| Ian M. Stewart    |       | 53      |       | President of Pari-Mutuel Wagering Operations                             |
| Michael T. Shubic |       | 54      |       | Chief Operating Officer                                                  |
| Brett A. Kramer   |       | 39      |       | Chief Financial Officer                                                  |
| Stanley Politano  |       | 58      |       | Executive Vice President                                                 |

 

Jeffrey P. Jacobs is our Chairman, Chief Executive Officer, Secretaryand Treasurer and a director. 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 andventures. Jacobs Entertainment, Inc. acquired Diversified on February 22,2002 and it was dissolved in 2007. From 1975 to present, Mr. Jacobs hasalso served as Chairman and Chief Executive Officer of Jacobs Investments, Inc.,a company which owns all of our equity securities and which is also engaged inthe development, construction and operation of residential and commercial realestate projects in Ohio. He is also involved in a variety of private equitytransactions and investments. Mr. Jacobs served in the Ohio House ofRepresentatives from 1982 until 1986. He is also Chairman and Chief ExecutiveOfficer of Colonial, and Chairman and Chief Executive Officer of Black HawkGaming.

 

55

----

 

Richard E. Jacobs is our other Director. Mr. Jacobs was Chairmanof the Board, President and Chief Executive Officer of Cleveland IndiansBaseball Company, Inc. from its inception in 1998 to February 2000.From 1986 to 1998, Mr. Jacobs was Chairman of the Board, President andChief Executive Officer of Cleveland Baseball Corporation, which previouslyserved as the general partner of the partnership that now owns the ClevelandIndians Baseball team. Mr. Jacobs is also Chairman of the Board and ChiefExecutive Officer of The Richard E. Jacobs Group Inc., a real estate managementand development company.

 

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.

 

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 the Isleof Capri Black Hawk Casino in Black Hawk, Colorado. From 1997 to 2000, as aprivate individual, he explored and participated in various aspects of the golfindustry, including education, sales and management. From 1984 to 1997, Mr. 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 13 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 and is a Certified Public Accountant inColorado.

 

StanleyPolitano is our Executive Vice President and has been with the Company and itspredecessor, Black Hawk Gaming & Development Company, Inc. since1994. 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. which inturn is 50% owned by Jeffrey P. Jacobs and two family trusts created by him,and 50% owned by a revocable trust and an irrevocable trust established by hisfather, Richard E. Jacobs. Our board of directors, consisting of Messrs. JeffreyP. Jacobs and Richard E. Jacobs, has no nominating, audit, compensation orother committees. These two persons have served as our directors since ourformation in 2001. They are elected each year. The board has adopted a code ofethics policy which is applicable to our CEO, CFO and our employees. We rely onour employment procedures and system of 

 

56

----

 

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.

 

**Item 11.****                *****Executive Compensation.***

 

**Compensation Discussion andAnalysis**

 

The following discussion of our executive compensation policies andpractices include:

 

·                                          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***

 

As described in Item 12 immediately below, we are a wholly ownedsubsidiary of a privately-held company, hence we have no publicly tradedsecurities, nor any option or other equity based incentive programs for ourexecutives or employees. Our Chairman and Chief Executive Officer, Jeffrey P.Jacobs, and his father, Richard E. Jacobs, a director, and trusts that theyhave established, own the equity securities of Jacobs Investments, Inc.,the company that owns all of our equity securities.

 

The total cash compensation to Messrs. Jeffrey P. Jacobs andRichard E. Jacobs is limited to an aggregate of $1 million per year under ourcredit agreements. As a result, most elements of our compensation plansdiscussed below do not include our CEO, Jeffrey P. Jacobs. However, as alsodiscussed below, our sole shareholder nonetheless is entitled under our creditagreements to certain tax distributions since, as a Subchapter S corporation,our taxable income flows through and is taxed to it. Finally and also asdiscussed in detail in Item 13 below, Messrs. Jeffrey P. Jacobs andRichard E. Jacobs have received certain direct dividends from us andconstructive dividends resulting from the accounting treatment required ofcertain related party transactions.

 

Our Executive Compensation Program (Program) is designed to attract,motivate and retain high performing executives who are critical to ourlong-term success. The Program is structured to link executive compensation tohow successfully we execute our business plans and meet a number of corporate,financial and operational goals. This design is intended to provide executivesincreased compensation when we do well and to provide less compensation when wedo 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.

 

As a result of our corporate structure, the base compensation structureand amounts paid to all of our executive officers, except Jeffrey P. Jacobs,are determined after individual negotiations with each executive and approvedby him. We formulate an annual cash incentive compensation plan for our namedexecutive officers and 

 

57

----

 

selectedmiddle management personnel based on our achievement of multi-year financialand growth objectives. Our discretionary annual bonus is paid in cash in anamount reviewed and approved by our CEO and traditionally has been paid in asingle installment in the first quarter following the completion of a givenfiscal year. Pursuant to current employment agreements, each named executiveofficer is eligible for a discretionary annual bonus up to an amount equal to35% of such executive’s base salary. The actual amount of discretionary bonus,which varies by individual, is determined by our CEO following a review of eachexecutive’s individual performance and contribution to our strategic andfinancial goals. In support of his recommendations, Mr. Jacobs considersthe desirability of maintaining a cohesive, long standing management andoperating group and keeps himself informed of the salaries and benefits offeredby competitors although he does not adhere to specific benchmarks, medianplacements, percentages or ranges of compensation paid by competitors orothers.

 

The following table sets forth information regarding the compensationpaid by us to each of the following individuals for services rendered in allcapacities for the 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                             |       | 2007 2006 2005 |       | 500,000 500,000 500,000 |       | 167,000 250,000 250,000 |       |              |       |               |       |                                              |       |                                                                                               |       | 1,609,000

1,513,000

450,000            |       | 2,276,000  2,263,000  1,200,000 |       |
|                                          |       |           |       |                    |       |                    |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       |                            |       |
| Stephen R. Roark                              |       | 2007 2006 2005 |       | 406,134 370,529 350,000 |       | 129,188 140,000 107,000 |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       | 535,322  510,529  457,000       |       |
|                                          |       |           |       |                    |       |                    |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       |                            |       |
| Ian M. Stewart                                |       | 2007 2006 2005 |       | 282,392 264,769 250,000 |       | 75,000 50,000 75,000    |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       | 357,392  314,769  325,000       |       |
|                                          |       |           |       |                    |       |                    |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       |                            |       |
| Michael T. Shubic                             |       | 2007 2006 2005 |       | 314,192 272,445 242,000 |       | 93,303 105,000 73,000   |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       | 407,495  377,445  315,000       |       |
|                                          |       |           |       |                    |       |                    |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       |                            |       |
| Brett A. Kramer                               |       | 2007 2006 2005 |       | 205,320 166,921 137,845 |       | 64,594 70,000 30,000    |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       | 269,914  236,921  167,845       |       |
|                                          |       |           |       |                    |       |                    |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       |                            |       |
| Stanley Politano                              |       | 2007 2006 2005 |       | 159,239 150,951 125,267 |       | 47,369 54,250 25,891    |       |              |       |               |       |                                              |       |                                                                                               |       |                                     |       | 206,608  205,201  151,158       |       |

 

----

| (1)    | See  Item 10 above which describes the principal positions of the named  executives.                                                                                                                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                  |
| (2)    | See  Item 13 below which describes consulting fees paid to Jacobs Investment  Management Co., Inc., an affiliate of Mr. Jacobs.                                                                                             |
|   |                                                                                                                                                                                                                                  |
| (3)    | Also  see Item 13 below that describes distributions to our owners totaling  $16,392,000 during 2007, $34,205,000 during 2006 and $22,500,000 during 2005,  which directly and indirectly benefited our Chief Executive Officer. |

 

58

----

 

***Employment Agreements***

 

Each of our five executive officers, except our CEO, Jeffrey P. Jacobs,is a party to 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 |   |
|                    |            |                                              |            |                         |            |                      |            |  |  |  |  |  |  |  |

 

All employment agreements are substantially identical except withrespect to the amount of the executives’ respective salaries. Among the moreimportant provisions of the agreements are the following:

 

(a)           the term of eachagreement is three years from its effective date;

 

(b)           the base salariesare set forth above; in addition, each executive is entitled to receive anannual bonus of up to 35% of his base salary if certain performance criteria(established each year) are met;

 

(c)           the agreementsprovide that if the executive is terminated without cause or dies, he or hisestate is entitled to a lump sum payment equal to six month’s salary and a prorated portion of his bonus. If there is a change in our control and theexecutive is not offered employment satisfactory to him, he is entitled to alump sum payment equal to one year’s salary except in the case of Mr. Roarkwho is entitled to a lump sum payment equal to three year’s salary; and

 

(d)           each agreementcontains customary provisions regarding vacations, automobile benefits,insurance and expense reimbursements.

 

***Director Compensation***

 

We have two directors, Jeffrey P. Jacobs, who is also our CEO, andRichard E. Jacobs, his father. In 2007, Richard E. Jacobs was paid $250,000 forhis service as a director. Our directors receive no other compensation fortheir services as directors.

 

Asexplained in Item 13 below, our stockholders received compensation from us in2007 as a result of amounts accounted for as distributions under generallyaccepted accounting principles resulting from the sale of a certain Louisianatruck stop to us for an amount greater than the stockholder’s identifiable cashcost therein.Distributionsto our stockholders totaled $16,392,000 in 2007.

 

Finally, under the terms of our bank credit agreementand note indenture, we are allowed to make a tax distribution to ourstockholder to cover the tax on our income which is taxable to our stockholderbecause of our Subchapter S status.

 

The board of directors has reviewed and discussed the foregoingCompensation Discussion and Analysis with management and based thereon, theboard of directors has recommended that it be included in this Annual Report onForm 10-K.

 

59

----

 

During 2007, there were no interlocking relationships between anymember of our board of directors and any of our executive officers that wouldbe required to be disclosed under Item 407(e)(4) of Regulation S-K.

 

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

 

As of March 1, 2008, there were 1,500 shares of our common stockoutstanding divided into 1,320 Class A shares and 180 Class B shares.The shares are equal in all respects except that each Class B shareentitles the holder to 50,000 votes on each matter required to be voted upon byour shareholders. 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”).

 

The following table sets forth certain information regarding thebeneficial ownership of JII’s common stock as of March 1, 2008, for eachstockholder who is known by us to own beneficially more than 5% of JII’s commonstock.

 
| ** **                                                                                                                                | ** ** | **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                            |       | —           |       | 20 | % | — |   |
|                                                                                                                                      |       |                           |       |             |       |   |   |   |   |
| Jacobs Family Economic and Control Trusts(2)  Hahn Loeser & Parks LLP  200 Public Square, Suite 3300  Cleveland, Ohio 44114 |       | 792                            |       | 180              |       | 30 | % | 50 | % |
|                                                                                                                                      |       |                           |       |             |       |   |   |   |   |
| Richard E. Jacobs(3)  25425 Center Ridge Road  Cleveland, Ohio 41445                                                                      |       | 1,320                          |       | 180              |       | 50 | % | 50 | % |
|                                                                                                                                      |       |                           |       |             |       |   |   |   |   |
| All executive  officers and directors as a group                                                                                          |       | 1,848                          |       | 180              |       | 70 | % | 50 | % |

 

----

| (1)    | Jeffrey P. Jacobs is our  Chief Executive Officer, Secretary, Treasurer and Chairman of the Board.                                                                                                                                                                                                                                                                                                                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (2)    | The Jacobs Family Economic  Trust owns 792 Class A shares and the Jacobs Family Control Trust owns  180 Class B shares. Both trusts are dynasty trusts established by  Jeffrey P. Jacobs for the benefit of his current and future heirs and place  certain restrictions on the transfer of the 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)    | All shares shown as  beneficially owned by Richard E. Jacobs are owned by The Richard E. Jacobs  Revocable Trust, and the Richard E. Jacobs Irrevocable Trust. Richard E.  Jacobs is the trustee of the Revocable Trust and Jeffrey P. Jacobs is the  trustee of the Irrevocable Trust, which owns 12.4% of JII’s Class A  shares.                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (4)    | The trusts referred to in  the two preceding notes are referred to herein collectively as the “Trusts.”                                                                                                                                                                                                                                                                                                                                                             |

 

60

----

 

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

 

In order to assist us in our efforts to research, develop, perform duediligence on and possibly acquire new gaming opportunities, we entered into anagreement with Premier One Development Company effective October 1, 1997.On May 9, 2000, Premier merged into 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. Theagreement was renewed on January 2, 2003 for a period of nine years, at$450,000 per year, payable on January 15 of each year. On June 16,2006, the agreement was amended and restated retroactive to January 1,2006 for a period of 20 years, at $1.25 million per year payable in two equalinstallments of $625,000 on January 1st and July 1steach year plus two and one-half percent (2.5%) of budgeted development costsfor projects undertaken by us, if certain debt covenant ratios are met. Totalincurred under this agreement with JIMCO was $1,609,000, $1,513,000 and$450,000 for the years ended December 31, 2007, 2006 and 2005,respectively.

 

Weprovide monthly management and accounting services for various truck stopsowned by an affiliate of Jeffrey P. Jacobs and the Trusts. Total charges to theaffiliate for these management services totaled $1,035,000, $302,000, and$64,000 for the years ended December 31, 2007, 2006, and 2005,respectively. Additionally, we provide shared services such as a branded fuelcard that can be used at the truck stops owned both by us and the affiliate,and repair parts purchased by the affiliate from us. These transactions resultin receivables from and payables to our affiliate. As of December 31,2007, these transactions resulted in net payables to affiliate totaling$435,000, and as of December 31, 2006, these transactions resulted in netreceivables from affiliate totaling $1,491,000. We expect to continue to rendermanagement and accounting services to the affiliate in the future. We believethe fees paid to us are no less favorable to us than those that would be paidto unaffiliated vendors.

 

Jacobs Entertainment was the obligor on notes to Jeffrey P. Jacobs andthe Richard E. Jacobs Revocable Trust totaling $9.0 million, with interest onlypayable semi-annually at 12% per annum, and the principal amount due andpayable on January 31, 2010. These notes were issued in connection withour acquisition of Louisiana truck stops. We were also an obligor on $10.5million of notes issued in connection with our acquisition of additional truckstops from an unaffiliated party. These notes were purchased from the seller inFebruary 2003 for $7 million by Jeffrey P. Jacobs and the Richard E.Jacobs Revocable Trust. All of these notes were paid on June 16, 2006.

 

In March 2005, we issued an additional$23 million in principal amount of our 117/8 SeniorSecured Notes due 2009. We used proceeds derived from the sale of the notes tocomplete a purchase and sale agreement with Gameco Holdings, Inc. (“Gameco”),a company owned and controlled by our two directors and then sole owners. Wepurchased from Gameco all of the membership interests of three limitedliability companies, each of which owned or leased a video gaming truck plazain Louisiana. The aggregate purchase price of the entire membership interestsin the three LLCs was $22.5 million. The assets of each LLC were purchased freeand clear of liens and encumbrances and were pledged as additional collateralunder our indenture. The acquisition of the three video gaming truck plazas wasa combination of entities under common control and, as a result, thetransaction was treated for accounting and financial reporting purposes similarto a pooling of interests. Under this method of accounting, the acquisitionswere recorded at the transferor’s (Gameco’s) book value (rather than fairvalue), which is primarily represented by the historical identifiable cash costin the assets transferred. This amount is approximately $10.1 million. Thedifference between this amount and the purchase price of $22.5 million wasregarded for accounting and financial reporting purposes as a distribution toour then two owners and our stockholders’ equity was reduced by that amount. Aspart of the acquisition of these three truck plazas, the affiliated partyseller provided capital to us. Amounts payable to this affiliated party totaled$386,000 as of December 31, 2005.

 

In December 2005, we acquired two of our 19Louisiana truck plaza video gaming facilities from two unaffiliated companiesfor an aggregate consideration of $12.3 million. Our stockholders made an$8.8 million capital contribution to us which we used along with$3.5 million of other funds to pay the purchase price. We made adistribution to these stockholders of $8.8 million on June 16, 2006.

 

In May 2006, weentered into agreements with Gameco, an affiliated company, to purchase threeLouisiana truck plaza video gaming facilities and raw land and equipmentsuitable for a fourth facility. We closed these agreements on June 16,2006. The total purchase price was $15.0 million (with $620,000 allocatedto the raw land). Gameco’s net book value in the interests acquired was$8.0 million resulting, for accounting purposes, in a net distribution toit of $7.0 million.

 

61

----

 

OnJune 16, 2006, we used proceeds from our refinancing to pay ourstockholders a special distribution of $10 million.

 

In September 2007, we acquired from Gameco, the Silver Fox truckplaza video gaming facility for $13.8 million. Gameco’s net book valuein the interests acquired was $11.5 million resulting, for accountingpurposes, in a net distribution to it of $2.3 million.

 

We mayinvest up to $3 million per year in private or publicly traded securitiesof unaffiliated companies. These investments may be selected and managed byJacobs Investments, Inc., a company wholly owned and controlled by ourChairman and Chief Executive Officer, Jeffrey P. Jacobs, certain of his familytrusts and trusts created by Richard E. Jacobs, a director, provided that underour senior credit agreement our pro forma consolidated leverage ratio (ratio ofour total pro forma debt to our pro forma EBITDA) must be 5.0 to 1.0 or lessafter giving effect to any such investment and provided that under our noteindenture our fixed charge coverage ratio (ratio of our Consolidated EBITDA toour fixed charges, primarily interest) was at least 2.0 to 1.0 for thepreceding four quarter period; and provided further that to the extent thatless than $3.0 million in the aggregate of such investments are made inany fiscal year, the unused amount may be used in the succeeding fiscal year,subject to the pro forma leverage condition just discussed. Furthermore, we mayinvest an aggregate amount not to exceed $5.0 million at any time outstanding.  At December 31, 2007, we had invested$7,943,000 (cost) in the securities of an unaffiliated public company; themarket value of such securities at December 31, 2007 was $5,524,000.

 

Gameco, an affiliated company, owns and has the right toacquire additional video gaming truck plazas in Louisiana. We have the right topurchase any existing or future video gaming facilities acquired by thatcompany at a price equal to (i) the lesser of (a) seven timestrailing 12 months EBITDA, and (b) the sum of the consideration paidby the affiliated company plus or minus an adjustment for working capital andplus an amount equal to the trailing 12 months EBITDA, or (ii) anamount supported 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.

 

We have acquired from an affiliated party several optionsto lease and options to purchase land and certain improvements on the west bankof 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 consist of six parcels and requireaggregate option payments of $500,000 per year. The option agreements give usthe right during the next two and one-half years to purchase two parcels andthe right to purchase or enter into long term leases on the other four parcels.In general, the purchase price of the parcels would be based on independentappraisals of the land and improvement values, if casino gaming were to becomelegal in Ohio and the Nautica Properties were a licensed gaming venue. JeffreyP. Jacobs, our Chairman and Chief Executive Officer, owns varying interests infive of the six parcels.

 

Although we may elect not to exercise all the optionsunless casino gaming opportunities arise, we nonetheless have the right toacquire all or part of the Nautica Properties for other purposes. If we decideto exercise our options, the aggregate purchase price would be approximately$6.2 million for two parcels and the aggregate annual lease payments onfour parcels would be approximately $450,000. If all six parcels are purchasedand none rented, the total purchase price would be approximately $10 millionless the aggregate option payments to the date of exercise. The purchase priceand rent payments would be increased if, in the future, casino gaming were tobecome legalized in Ohio and a casino is licensed at Nautica. DuringMarch 2008, the Company exercised its option to acquire one of theseparcels.  We intend to close on this property prior to the end ofMarch 2008.  The company that owns this parcel of land is whollyowned by our Chairman and Chief Executive Officer.

 

62

----

 

**Director Independence**

 

We are a privately heldcompany wholly owned by Jacobs Investments, Inc. which in turn is ownedbeneficially by our two directors, Jeffrey P. Jacobs, who is also our ChiefExecutive Officer, and his father, Richard E. Jacobs and several trusts createdby them. Therefore, neither member of our board of directors is independent,nor are any independence standards applicable to us as a result of stockexchange or any other self regulatory organization’s requirements.

 

**Item 14.****                *****Principal Accountant Fees andServices.***

 

Fees paid to our registered public accounting firm for the last twoyears were as follows:

 
| ** **           | ** ** | **Year Ended**   | ** ** |
|----------------------|------------|-----------------------|------------|
| ** **           | ** ** | **December 31,** | ** ** |
| ** **           | ** ** | **2007**              | ** ** | **2006** | ** ** |
| Audit fees           |       | $                     | 992,000    |   | $ | 920,000 |   |
| Audit related  fees* |       | 21,000                |       | 29,000 |   |
| Tax fees**           |       | 271,000               |       | 270,000 |   |
| All other  fees***   |       | 258,000               |       | 988,000 |   |
|                      |            |                       |            |  |  |  |  |

 

----

*                                         Audit-related fees are principally comprisedof our 401(k) audits and fees related to the internal control consultingservices associated with our Sarbanes-Oxley implementation project.

 

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

 

***                           2006 includes $938,000 in fees attributableto our June 16, 2006 debt refinancing.

 

We have no audit committee. Our board of directors has considered andhas determined that provision of the services described above and amounts paidfor those services are compatible with maintaining our principal accountant’sindependence.

 

**Item 15.****                *****Exhibits and Financial StatementSchedules.***

 

(a)                                  *Financial Statements andFinancial Statement Schedules*

 

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

 

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

 

63

----

 

(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.                                                                                                                                                        |
|             |       |                                                                                                                                                                                              |
| 3.13(1)          |       | By-Laws of Jalou II Inc.                                                                                                                                                                          |
|             |       |                                                                                                                                                                                              |
| 3.14(1)          |       | Articles of Incorporation of Winner’s Choice Casino, Inc.                                                                                                                               |
|             |       |                                                                                                                                                                                              |
| 3.15(1)          |       | By-Laws of Winner’s Choice Casino, Inc.                                                                                                                                                 |
|             |       |                                                                                                                                                                                              |
| 3.16(1)          |       | Articles of Organization of Diversified  Opportunities Group Ltd.                                                                                                                                 |
|             |       |                                                                                                                                                                                              |
| 3.17(1)          |       | Articles of Organization of Jalou L.L.C.                                                                                                                                                          |
|             |       |                                                                                                                                                                                              |
| 3.18(1)          |       | Articles of Organization of Houma Truck Plaza &  Casino, L.L.C.                                                                                                                          |

 

64

----

 
| 3.19(1)   |   | Articles of Organization of Jalou-Cash’s L.L.C.                                                                         |
|-----------|--------|------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                         |
| 3.20(1)   |   | Articles of Incorporation of JACE, Inc.                                                                                 |
|      |   |                                                                                                                         |
| 3.21(1)   |   | Articles of Organization of Lucky Magnolia Truck  Stop and Casino, L.L.C.                                                    |
|      |   |                                                                                                                         |
| 3.22(1)   |   | Articles of Organization of Bayou Vista Truck Plaza  and Casino, L.L.C.                                                      |
|      |   |                                                                                                                         |
| 3.23(1)   |   | Articles of Organization of Raceland Truck Plaza and  Casino, L.L.C.                                                         |
|      |   |                                                                                                                         |
| 3.24(1)   |   | Articles of Incorporation of JACE, Inc.  (duplicate of Exhibit 3.20).                                              |
|      |   |                                                                                                                         |
| 3.25(2)   |   | Certificate of Amendment of Certificate of  Incorporation of Gameco, Inc.                                               |
|      |   |                                                                                                                         |
| 3.26(2)   |   | Amended and Restated Certificate of Limited  Partnership of Colonial Downs, L.P.                                             |
|      |   |                                                                                                                         |
| 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 Incorporation of Fuel Stop 36, Inc.  dated August 24, 1989.                                            |
|      |   |                                                                                                                         |
| 3.43(12)  |   | Articles of Organization of Jalou of Larose, LLC  dated November 3, 2005.                                               |
|      |   |                                                                                                                         |
| 3.44(12)  |   | Articles of Incorporation of Jacobs Elko  Entertainment, Inc.                                                           |
|      |   |                                                                                                                         |
| 3.45(12)  |   | Bylaws of Jacobs Elko Entertainment, Inc.                                                                               |

 

65

----

 
| 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.                                                      |
|     |   |                                                                                                |
| 3.51(12) |   | Limited Liability Company Agreement of Jalou Magic  L.L.C.                                          |
|     |   |                                                                                                |
| 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.                                              |
|     |   |                                                                                                |
| 3.57(12) |   | Limited Liability Company Agreement of Jalou of 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.                                                 |
|     |   |                                                                                                |
| 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.                                       |
|     |   |                                                                                                |
| 3.71(12) |   | Articles of Organization of Colonial Downs, LLC.                                                    |
|     |   |                                                                                                |
| 3.72(12) |   | Operating Agreement of Colonial Downs, LLC.                                                         |
|     |   |                                                                                                |
| 3.73(12) |   | Articles of Organization of JRJ Properties, LLC.                                                    |

 

66

----

 
| 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.                                                                                                                                                                                                                                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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.                                                                                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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.                                                                                                                                                                                                                                                                                                                                      |

 

67

----

 
| 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.                                                                                                                                                                                                                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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.                                                                                                                                                                                                                                                                                                                                                    |

 

68

----

 
| 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.                                                                               |
|       |   |                                                                                                                                                                                                    |
| 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.                                                                                                           |
|       |   |                                                                                                                                                                                                    |
| 12(19)     |   | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                      |
|       |   |                                                                                                                                                                                                    |
| 14.1(19)   |   | Code of Ethics (as revised).                                                                                                                                                                            |
|       |   |                                                                                                                                                                                                    |
| 21.2(19)   |   | Subsidiaries of Jacobs Entertainment, Inc.                                                                                                                                                         |

 

69

----

 
| 25.1(12) |   | Statement of Eligibility of Trustee on Form T-1.                                            |
|----------|--------|--------------------------------------------------------------------------------------------------|
|     |   |                                                                                             |
| 31.1(19) |   | Chief Executive Officer Certification under Section 302  of the Sarbanes-Oxley Act of 2002. |
|     |   |                                                                                             |
| 31.2(19) |   | Chief Financial Officer Certification under Section 302  of the Sarbanes-Oxley Act of 2002. |
|     |   |                                                                                             |
| 32.1(19) |   | Chief Executive Officer Certification under Section 906  of the Sarbanes-Oxley Act of 2002. |
|     |   |                                                                                             |
| 32.2(19) |   | Chief Financial Officer Certification under Section 906  of the Sarbanes-Oxley Act of 2002. |

 

----

| (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) |   | Filed herewith.                                                                                                                                                                 |

 

70

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf 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 25, 2008

 

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

 
| Signature              | ** ** | **Title**                                       | ** ** | **Date**            |
|------------------------|------------|-------------------------------------------------|------------|---------------------|
|                   |       |                                            |       |                |
| /s/ JEFFREY P.  JACOBS |       | Chairman of the Board of Directors and Chief    |       | March 25, 2008 |
| **Jeffrey  P. Jacobs** |       | Executive Officer (Principal Executive Officer) |       |                |
| ** **             | ** ** | ** **                                      | ** ** | ** **          |
| /s/ BRETT A.  KRAMER   |       | Chief Financial Officer                         |       | March 25, 2008 |
| **Brett  A. Kramer**   |       | (Principal Financial and Accounting Officer)    |       |                |
| ** **             | ** ** | ** **                                      | ** ** | ** **          |
| /s/ RICHARD E.  JACOBS |       | Director                                        |       | March 25, 2008 |
| **Richard  E. Jacobs** | ** ** | ** **                                      | ** ** | ** **          |

 

71

----

 

***JacobsEntertainment, Inc.***

 

*Consolidated Financial Statementsas of December 31, 2007 and 2006, and for the Years Ended December 31,2007, 2006, and 2005, and Report of Independent Registered Public AccountingFirm*

* *

----

** **

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board ofDirectors and Stockholder ofJacobs Entertainment, Inc.Golden, Colorado

 

We have auditedthe accompanying consolidated balance sheets of Jacobs Entertainment, Inc.and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and therelated consolidated statements of operations, stockholder’s equity, and cashflows for each of the three years in the period ended December 31, 2007.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 ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control overfinancial reporting. Our audits included consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion,such consolidated financial statements present fairly, in all materialrespects, the financial position of Jacobs Entertainment, Inc. andsubsidiaries as of December 31, 2007 and 2006, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2007, in conformity with accounting principles generallyaccepted in the United States of America.

 
| /s/ Deloitte & Touche LLP |   |
|------------------------------------|--------|
|                               |   |
| Denver, Colorado                   |   |
| March 25, 2008                |   |

 

F-1

----

 

**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**AS OF DECEMBER 31, 2007 AND 2006**

**(Dollars in thousands)**

 
| ** **                                                                                                                                      | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **ASSETS**                                                                                                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT ASSETS:                                                                                                                                 |       |       |       |       |       |
| Cash and cash  equivalents                                                                                                                      |       | $          | 24,397     |       | $          | 24,295 |   |
| Restricted cash                                                                                                                                 |       | 1,398      |       | 951        |       |
| Accounts  receivable, net of allowance for doubtful accounts of $521 and $263,  respectively                                                    |       | 3,609      |       | 4,746      |       |
| Due from  affiliate                                                                                                                             |       |       |       | 1,491      |       |
| Inventory                                                                                                                                       |       | 3,328      |       | 2,720      |       |
| Prepaid expenses  and other current assets                                                                                                      |       | 2,810      |       | 2,862      |       |
| Total current  assets                                                                                                                           |       | 35,542     |       | 37,065     |       |
| PROPERTY, PLANT  AND EQUIPMENT:                                                                                                                 |       |       |       |       |       |
| Land and  improvements                                                                                                                          |       | 56,145     |       | 55,972     |       |
| Buildings and  improvements                                                                                                                     |       | 177,716    |       | 163,883    |       |
| Equipment,  furniture and fixtures                                                                                                              |       | 80,999     |       | 61,445     |       |
| Leasehold  improvements                                                                                                                         |       | 2,460      |       | 2,426      |       |
| Construction in  progress                                                                                                                       |       | 837        |       | 10,269     |       |
|                                                                                                                                            |       | 318,157    |       | 293,995    |       |
| Less accumulated  depreciation                                                                                                                  |       | (69,598    | )          | (55,262    | )          |
| Property, plant  and equipment, net                                                                                                             |       | 248,559    |       | 238,733    |       |
| OTHER NONCURRENT  ASSETS:                                                                                                                       |       |       |       |       |       |
| Goodwill                                                                                                                                        |       | 46,670     |       | 44,016     |       |
| Identifiable  intangible assets, net                                                                                                            |       | 9,491      |       | 9,653      |       |
| Debt issue  costs, net                                                                                                                          |       | 8,276      |       | 9,444      |       |
| Investment in  equity securities                                                                                                                |       | 5,524      |       | 9,942      |       |
| Other assets                                                                                                                                    |       | 1,736      |       | 1,856      |       |
| Total other  noncurrent assets                                                                                                                  |       | 71,697     |       | 74,911     |       |
| TOTAL                                                                                                                                           |       | $          | 355,798    |       | $          | 350,709 |   |
|                                                                                                                                            |       |       |       |       |       |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT  LIABILITIES:                                                                                                                           |       |       |       |       |       |
| Accounts payable  and accrued expenses                                                                                                          |       | $          | 22,713     |       | $          | 23,335 |   |
| Gaming taxes  payable                                                                                                                           |       | 3,279      |       | 3,205      |       |
| Interest payable                                                                                                                                |       | 1,027      |       | 1,368      |       |
| Distributions  payable                                                                                                                          |       |       |       | 1,000      |       |
| Due to affiliate                                                                                                                                |       | 435        |       |       |       |
| Current portion  of long-term debt and capital lease obligations                                                                                |       | 1,301      |       | 1,618      |       |
| Total current  liabilities                                                                                                                      |       | 28,755     |       | 30,526     |       |
|                                                                                                                                            |       |       |       |       |       |
| Long-term debt  and capital lease obligations                                                                                                   |       | 298,045    |       | 284,467    |       |
| Other noncurrent  liabilities                                                                                                                   |       | 690        |       | 473        |       |
| Total  liabilities                                                                                                                              |       | 327,490    |       | 315,466    |       |
| COMMITMENTS AND  CONTINGENCIES (Note 9)                                                                                                         |       |       |       |       |       |
| STOCKHOLDER’S  EQUITY:                                                                                                                     |       |       |       |       |       |
| Class A  Common stock, $.01 par value; 1,800 shares authorized, 1,320 shares issued  and outstanding as of December 31, 2007 and 2006 |       | —     |       | —     |       |
| Class B  Common stock, $.01 par value; 200 shares authorized, 180 shares issued and  outstanding as of December 31, 2007 and 2006     |       | —     |       | —     |       |
| Additional  paid-in capital                                                                                                                     |       | 31,917     |       | 35,426     |       |
| Accumulated  deficit                                                                                                                            |       | (1,190     | )          | (2,182     | )          |
| Accumulated  other comprehensive (loss) income                                                                                                  |       | (2,419     | )          | 1,999      |       |
| Total  stockholder’s equity                                                                                                                |       | 28,308     |       | 35,243     |       |
| TOTAL                                                                                                                                           |       | $          | 355,798    |       | $          | 350,709 |   |

 

Seenotes to consolidated financial statements.

 

F-2

----

 

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005**

**(Dollars in thousands)**

 
| ** **                                       | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **REVENUES**                                     |       |     |       |     |       |     |       |
| Gaming:                                          |       |     |       |     |       |     |       |
| Casino                                           |       | $        | 144,656    |     | $          | 121,483  |       | $ | 115,607 |   |
| Truck stop                                       |       | 64,322   |       | 66,418   |       | 44,760   |       |
| Pari-mutuel                                      |       | 41,309   |       | 39,787   |       | 35,988   |       |
| Food and  beverage                               |       | 29,260   |       | 25,069   |       | 20,400   |       |
| Convenience  store—fuel                     |       | 81,329   |       | 77,520   |       | 47,511   |       |
| Convenience  store—other                    |       | 11,133   |       | 10,611   |       | 6,139    |       |
| Hotel                                            |       | 4,415    |       | 3,509    |       | 1,982    |       |
| Other                                            |       | 5,357    |       | 4,419    |       | 3,695    |       |
| Total revenues                                   |       | 381,781  |       | 348,816  |       | 276,082  |       |
| Less:  Promotional allowances                    |       | (31,953  | )          | (26,438  | )          | (23,835  | )          |
| Net revenues                                     |       | 349,828  |       | 322,378  |       | 252,247  |       |
|                                             |       |     |       |     |       |     |       |
| **COSTS  AND EXPENSES**                          |       |     |       |     |       |     |       |
| Gaming:                                          |       |     |       |     |       |     |       |
| Casino                                           |       | 48,427   |       | 43,567   |       | 41,804   |       |
| Truck stop                                       |       | 37,954   |       | 37,621   |       | 24,396   |       |
| Pari-mutuel                                      |       | 32,977   |       | 32,559   |       | 31,356   |       |
| Food and  beverage                               |       | 16,416   |       | 13,704   |       | 10,472   |       |
| Convenience  store—fuel                     |       | 77,269   |       | 73,389   |       | 44,436   |       |
| Convenience  store—other                    |       | 15,175   |       | 14,283   |       | 8,597    |       |
| Hotel                                            |       | 1,115    |       | 734      |       | 355      |       |
| Marketing,  general and administrative           |       | 69,362   |       | 60,778   |       | 48,279   |       |
| Abandonment  costs                               |       |     |       |     |       | 1,424    |       |
| Termination of  contract                         |       |     |       |     |       | 10,367   |       |
| Depreciation and  amortization                   |       | 18,101   |       | 14,102   |       | 11,576   |       |
|                                             |       |     |       |     |       |     |       |
| Total costs and  expenses                        |       | 316,796  |       | 290,737  |       | 233,062  |       |
|                                             |       |     |       |     |       |     |       |
| OPERATING INCOME                                 |       | 33,032   |       | 31,641   |       | 19,185   |       |
|                                             |       |     |       |     |       |     |       |
| Interest income                                  |       | 345      |       | 382      |       | 178      |       |
| Interest  expense, net of amounts capitalized    |       | (28,412  | )          | (32,653  | )          | (22,838  | )          |
| Pre-payment  penalties, tender and consent costs |       |     |       | (9,321   | )          |     |       |
|                                             |       |     |       |     |       |     |       |
| INCOME (LOSS)  BEFORE INCOME TAXES               |       | 4,965    |       | (9,951   | )          | (3,475   | )          |
|                                             |       |     |       |     |       |     |       |
| Income tax  benefit (expense)                    |       |     |       | 103      |       | (423     | )          |
|                                             |       |     |       |     |       |     |       |
| NET INCOME  (LOSS)                               |       | $        | 4,965      |     | $          | (9,848   | )          | $ | (3,898 | ) |

 

Seenotes to consolidated financial statements.

 

F-3

----

 

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

**CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY**

**FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005**

**(Dollars in thousands)**

 
| ** **                                                        | ** ** | ** **            | ** ** | ** **       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **  | ** ** | **Retained**     | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|------------|------------------|------------|------------------|------------|-------------|------------|-------------|------------|------------------|------------|------------------------|------------|------------|------------|
| ** **                                                        | ** ** | **Common Stock** | ** ** | **Additional**   | ** ** | **Earnings**     | ** ** | **Other**   | ** ** | ** **  | ** ** |
| ** **                                                        | ** ** | ** **            | ** ** | **Class A** | ** ** | **Class B** | ** ** | ** **  | ** ** | **Paid-in** | ** ** | **(Accumulated** | ** ** | **Comprehensive**      | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Shares**            | ** ** | **Shares**       | ** ** | **Shares**       | ** ** | **Amount*** | ** ** | **Capital** | ** ** | **Deficit)**     | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
| BALANCES,  JANUARY 1, 2005                              |       | 1,500                 |       |             |       |             |       | $           |       | $           | 33,823     |             | $          | 40,565                 |       |       |       | $ | 74,388 |   |
| Capital contribution                                              |       |                  |       |             |       |             |       |        |       | 23,031      |       |             |       |                   |       | 23,031     |       |
| Distributions                                                     |       |                  |       |             |       |             |       | ** **  |       |        |       | (22,500          | )          |                   |       | (22,500    | )          |
| Common stock  exchange                                            |       | (1,500                | )          | 1,320            |       | 180              |       |        |       |        |       |             |       |                   |       |       |       |
| Net loss                                                          |       |                  |       |             |       |             |       |        |       |        |       | (3,898           | )          |                   |       | (3,898     | )          |
| BALANCES,   DECEMBER 31, 2005                                     |       |                  |       | 1,320            |       | 180              |       | $           |       | $           | 56,854     |             | $          | 14,167                 |       |       |       | $ | 71,021 |   |
| Capital  contribution                                             |       |                  |       |             |       |             |       |        |       | 6,276       |       |             |       |                   |       | 6,276      |       |
| Distributions                                                     |       |                  |       |             |       |             |       |        |       | (27,704     | )          | (6,501           | )          |                   |       | (34,205    | )          |
| Comprehensive  income (loss):                                     |       |                  |       |             |       |             |       |        |       |        |       |             |       |                   |       |       |       |
| Net change in  fair value of equity securities available-for-sale |       |                  |       |             |       |             |       |        |       |        |       |             |       | $                      | 1,999      |       | 1,999      |   |
| Net loss                                                          |       |                  |       |             |       |             |       |        |       |        |       | (9,848           | )          |                   |       | (9,848     | )          |
| Total  comprehensive loss                                         |       |                  |       |             |       |             |       |        |       |        |       |             |       |                   |       | (7,849     | )          |
| BALANCES,   DECEMBER 31, 2006                                     |       |                  |       | 1,320            |       | 180              |       | $           |       | $           | 35,426     |             | $          | (2,182                 | )          | $          | 1,999      |   | $ | 35,243 |   |
| Capital  contribution                                             |       |                  |       |             |       |             |       |        |       | 8,910       |       |             |       |                   |       | 8,910      |       |
| Distributions                                                     |       |                  |       |             |       |             |       |        |       | (12,419     | )          | (3,973           | )          |                   |       | (16,392    | )          |
| Comprehensive  income (loss):                                     |       |                  |       |             |       |             |       |        |       |        |       |             |       |                   |       |       |       |
| Net change in  fair value of equity securities available-for-sale |       |                  |       |             |       |             |       |        |       |        |       |             |       | (4,418                 | )          | (4,418     | )          |
| Net income                                                        |       |                  |       |             |       |             |       |        |       |        |       | 4,965            |       |                   |       | 4,965      |       |
| Total  comprehensive income                                       |       |                  |       |             |       |             |       |        |       |        |       |             |       |                   |       | 547        |       |
| BALANCES,   DECEMBER 31, 2007                                     |       |                  |       | 1,320            |       | 180              |       | $           |       | $           | 31,917     |             | $          | (1,190                 | )          | $          | (2,419     | ) | $ | 28,308 |   |

 

----

*                                        The par value amount of JacobsEntertainment, Inc. common stock outstanding for the periods presented isless than $500 and is therefore presented as $0 above due to rounding.

 

See notes toconsolidated financial statements.

 

F-4

----

 

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005**

**(Dollars in thousands)**

 
| ** **                                                                                            | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**     | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|--------------|------------|
| **OPERATING  ACTIVITIES:**                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** |
| Net income  (loss)                                                                                    |       | $          | 4,965      |       | $          | (9,848       | )          | $ | (3,898 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities:             |       |       |       |       |       |         |       |
| Depreciation and  amortization                                                                        |       | 18,101     |       | 14,102     |       | 11,576       |       |
| (Gain)/Loss on  sale of equipment                                                                     |       | (115       | )          | 201        |       | 89           |       |
| Deferred  financing cost amortization and write-off                                                   |       | 1,510      |       | 7,508      |       | 2,076        |       |
| Note issue  discount amortization and write-off                                                       |       |       |       | 2,189      |       | 708          |       |
| Note issue  premium amortization and write-off                                                        |       |       |       | (1,811     | )          | (489         | )          |
| Noncash charge  related to termination of contract                                                    |       |       |       |       |       | 3,000        |       |
| Noncash  abandonment costs                                                                            |       |       |       |       |       | 1,424        |       |
| Other                                                                                                 |       | 55         |       | 385        |       |         |       |
| Changes in  operating assets and liabilities, net of acquisitions:                                    |       |       |       |       |       |         |       |
| Restricted cash                                                                                       |       | (447       | )          | 564        |       | 400          |       |
| Accounts  receivable                                                                                  |       | 1,137      |       | (1,737     | )          | (1,149       | )          |
| Inventory                                                                                             |       | (608       | )          | (250       | )          | (315         | )          |
| Prepaid expenses  and other assets                                                                    |       | 172        |       | (233       | )          | (1,112       | )          |
| Accounts payable  and accrued expenses                                                                |       | 2,583      |       | 2,909      |       | 2,258        |       |
| Gaming taxes  payable                                                                                 |       | 74         |       | 39         |       | 309          |       |
| Interest payable                                                                                      |       | (271       | )          | (6,817     | )          | 1,225        |       |
| Due from/to  affiliate                                                                                |       | 1,926      |       | (2,589     | )          | (1,149       | )          |
| Net cash  provided by operating activities                                                            |       | 29,082     |       | 4,612      |       | 14,953       |       |
| **INVESTING  ACTIVITIES:**                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** |
| Additions to  property, plant and equipment                                                           |       | (28,296    | )          | (24,357    | )          | (19,119      | )          |
| Proceeds from  sale of equipment                                                                      |       | 280        |       | 72         |       | 159          |       |
| Purchase of  device rights                                                                            |       | (1,002     | )          | (868       | )          | (732         | )          |
| Purchase of  available-for-sale securities                                                            |       |       |       | (7,943     | )          |         |       |
| Acquisitions,  net of cash acquired:                                                                  |       |       |       |       |       |         |       |
| Casino                                                                                                |       |       |       | (14,702    | )          |         |       |
| Truck stops                                                                                           |       | (4,234     | )          | (6,250     | )          | (23,291      | )          |
| Net cash used in  investing activities                                                                |       | (33,252    | )          | (54,048    | )          | (42,983      | )          |
| **FINANCING  ACTIVITIES:**                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** **   | ** ** |
| Proceeds from  note issuance                                                                          |       |       |       | 210,000    |       | 25,300       |       |
| Payments to  obtain financing                                                                         |       | (342       | )          | (10,415    | )          | (3,414       | )          |
| Proceeds from  long-term debt                                                                         |       |       |       | 60,000     |       | 10,438       |       |
| Proceeds from  revolving line of credit                                                               |       | 38,500     |       | 26,461     |       | 17,821       |       |
| Capital  contributions from stockholders                                                              |       |       |       | 591        |       |  16,701 |       |
| Payments on  long-term debt (including $19,489 paid to related parties in 2006)                       |       | (1,494     | )          | (172,480   | )          | (1,269       | )          |
| Payments on  revolving line of credit                                                                 |       | (15,000    | )          | (31,051    | )          | (13,231      | )          |
| Distributions to  stockholders                                                                        |       | (17,392    | )          | (33,205    | )          | (22,500      | )          |
| Net cash  provided by financing activities                                                            |       | 4,272      |       | 49,901     |       | 29,846       |       |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                                            |       | 102        |       | 465        |       | 1,816        |       |
| CASH AND CASH  EQUIVALENTS—Beginning of year                                                     |       | 24,295     |       | 23,830     |       | 22,014       |       |
| CASH AND CASH  EQUIVALENTS—End of year                                                           |       | $          | 24,397     |       | $          | 24,295       |       | $ | 23,830 |   |
| SUPPLEMENTAL  CASH FLOW INFORMATION:                                                                  |       |       |       |       |       |         |       |
| Cash paid for  interest (including $768 paid to related parties in 2006), net of amounts  capitalized |       | $          | 27,613     |       | $          | 31,085       |       | $ | 19,231 |   |
| Non-cash  investing and financing activities:                                                         |       |       |       |       |       |         |       |
| Capital  contribution exchanged for retirement of note paid by affiliate                              |       | $          | 8,910      |       | $          | 5,685        |       | $ | 6,330 |   |
| Acquisition of  property for payables incurred                                                        |       | $          | 2,386      |       | $          | 5,374        |       | $ | 800 |   |
| Acquisition of  property under capital lease agreements                                               |       | $          | 40         |       | $          | 287          |       | $ | 3,288 |   |
| Distributions  payable                                                                                |       | $          |       | $          | 1,000      |         | $          |   |
| Notes payable  incurred on termination of contract                                                    |       | $          |       | $          |       | $            | 3,000      |   |

 

See notes to consolidatedfinancial statements.

 

F-5

----

** **

**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

** **

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTSAS OF DECEMBER 31, 2007 AND 2006, AND FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005(Dollars in thousands)**

** **

**1.**                   BUSINESSAND ORGANIZATION

** **

Jacobs Entertainment, Inc.(“JEI,” the “Company,” “us,” “our,” or “we”) was formed on April 17,2001, as a Subchapter S Corporation under the Internal Revenue Code of 1986, asamended, to become a geographically diversified gaming and pari-mutuel wageringcompany with properties in Colorado, Nevada, Louisiana, and Virginia.  Effective January 31, 2007, we became awholly-owned subsidiary of Jacobs Investments, Inc. (“JII”), which in turnis 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 Richard E. Jacobs.  Thesepersons and their affiliates are referred to herein as “Jacobs.”  As of December 31, 2007, 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 andthe Gold Dust West-Carson City (formerly Piñon Plaza Resort) in Carson City,Nevada, which we acquired on June 25, 2006.  Additionally, we developed a new casino inElko, Nevada (“Gold Dust West-Elko”), which opened on March 5, 2007.  JEI also owns and operates 18 truck plazavideo gaming facilities in Louisiana, which are collectively referred to as “Jalou,”“truck stops” or “truck plazas.”  We alsoreceive a percentage of gaming revenue from an additional truck plaza videogaming facility.  Finally, JEI owns andoperates a horse racing track with nine satellite wagering facilities inVirginia through a wholly-owned subsidiary, Colonial Holdings, Inc. (“Colonial”).

 

On March 2, 2005, weacquired three truck plaza video gaming facilities in Louisiana; on June 16,2006, we acquired three additional truck plaza video gaming facilities, landand equipment in Louisiana; and on September 4, 2007, we acquired oneadditional truck plaza video gaming facility in Louisiana, all of which werepreviously owned by Jacobs.  Thepurchases of these truck plaza video gaming facilities were accounted for ascombinations of entities under common control, which is similar to the poolingof interests method of accounting for business combinations.  The Company’s 2006 and 2005 financialstatements were previously adjusted to include the operations of the first sixtruck plaza acquisitions from January 1, 2005 to their respectiveacquisition dates.  The accompanyingconsolidated financial statements have been retroactively adjusted from December 22,2005 (the date the truck stop was initially acquired by Jacobs from a thirdparty) through September 4, 2007 to include the operations of the truckplaza acquired in 2007 as though JEI had acquired it directly from the thirdparty on December 22, 2005.  SeeNote 4 below.

 

**2.**                   SIGNIFICANTACCOUNTING POLICIES

** **

***Consolidation***—The accompanying consolidated financialstatements include the accounts of JEI and its wholly-owned subsidiaries.  All intercompany transactions and balanceshave been eliminated in consolidation.

 

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

 

***Restricted Cash***—Amounts due under agreements with theVirginia Horsemen’s Benevolent and Protective Association, Inc. and theVirginia 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***—Ouraccounts receivable balances primarily consist of receivables from conveniencestore fuel sales on account.  Generally,our receivables are collected within two months, and we have had minimal baddebts.  We routinely assess therecoverability of all material receivables to determine their collectibility.

 

F-6

----

 

***Inventory***—Inventory consists of food and beveragesand uniforms at the casinos and of fuel, convenience store, and restaurantitems at Jalou’s truck stop operations, and is 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 thestraight-line method over the estimated useful lives of the relatedassets.  Leasehold improvements aredepreciated, using the straight-line method, over the shorter of the lease termor 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 majorimprovements are capitalized, while costs of normal repairs and maintenance arecharged to expense as incurred.  Gains orlosses on disposal of assets are recognized as incurred.

 

***Goodwill***—Goodwill represents the excess purchaseprice over the fair value of the net identifiable assets acquired related tothird party acquisitions.  See Notes 3and 4.

 

***IdentifiableIntangible Assets***—Identifiable intangible assets are comprised of revenue rights, deviceuse rights associated with video poker machines used at each truck stop, andrestriction agreements associated with certain Jalou truck stopacquisitions.  Revenue rights are amortizedon a straight line basis over 50 years, representing the initial term of therelated agreement.  Device use rights areamortized on a straight line basis over five years, representing the initialterms of the related agreements. Restriction agreements are amortized on a straight line basis over fiveor ten years, representing the initial terms of the related agreements.

 

***CapitalizedInterest***—Interestcosts associated with major construction projects are capitalized.  When no debt is incurred specifically for aproject, interest is capitalized on amounts expended for the project using ourweighted average cost of borrowing. Capitalization of interest ceases when the project or discernibleportions of the project are substantially complete.  We amortize capitalized interest over theestimated useful life of the related asset. Capitalized interest for the years ended December 31, 2007, 2006and 2005 was $159, $154 and $106, respectively.

 

***DebtIssue Costs***—Debtissue costs that are incurred by us in connection with the issuance of debt arecapitalized and amortized to interest expense, using the effective interestmethod, over the expected terms of the related debt agreements.

 

***Investmentsin Equity Securities***—Investments in available-for-sale equity securities are recorded atfair value and included in other noncurrent assets, with unrealized gains andlosses recognized as accumulated other comprehensive income (loss).

 

***SlotClub Liability***—Ourcasinos offer customers the ability to become members in their respective slotclubs.  Once a member, the customer caninsert a special card into slot and video poker machines while playing in ourcasinos to earn “points.”  Based on theirpoint totals, members receive various cash rewards and gift prizes.  We accrue the cost of points as they areearned by the members of the slot clubs as a component of accounts payable andaccrued expenses in the accompanying consolidated balance sheets.

 

***Outstanding Gaming Chip and Token Liability***—When customers exchange cash for gamingchips and tokens, we have a liability as long as those chips and tokens are notredeemed or won by the house.  Thatliability is established by determining the difference between the total chipsand tokens placed in service and the actual inventory of chips and tokens incustody or under the control of the casinos. The chip and token liability is adjusted periodically to reflect anestimate of chips and tokens that will never be redeemed, such as chips andtokens that have been lost or taken as souvenirs and is reflected as acomponent of accounts payable and accrued expenses in the accompanyingconsolidated balance sheets.

 

F-7

----

 

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

 

***R******evenue***—***Truck Stop***—Videopoker revenue is the net winnings from gaming activities of our truck stops,which is the difference 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 the retail amountof rooms, food and beverages, and other goods and services providedgratuitously to customers.  Whencomputing net revenues, the retail amount of rooms, food and beverages and coupons,as well as slot club player point redemptions, is deducted from gross revenuesas promotional allowances.  The estimatedcost of such complimentary services in our casino operations for rooms, food,and beverages is charged to casino operations. The estimated cost of such complimentary services in our truck stopsrelated to video poker operations for food and beverages is charged to truckstop operations.  The estimated cost ofsuch complimentary services in our truck stops related to fuel operations forfood and beverages is charged to convenience store operations.  The estimated cost of complimentary servicescharged to casino operations, truck stop operations and convenience storeoperations, respectively, are as follows:

 
| ** **                    | ** ** | **Years Ended December 31** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                          |       |                                       |       |   |   |   |   |
| Casino  operations            |       | $                                          | 11,012     |   | $ | 10,445 |   | $ | 9,811 |   |
| Truck stop  operations        |       | 2,005                                      |       | 1,738 |   | 1,142 |   |
| Convenience  store operations |       | 599                                        |       | 507 |   | 364 |   |
|                               |            |                                            |            |  |  |  |  |  |  |  |

 

***ComprehensiveIncome (Loss)***—The Company accounts for comprehensive income (loss) in accordance withSFAS No. 130, *Reporting ComprehensiveIncome*, which established standards for the reporting andpresentation of comprehensive income in the consolidated financialstatements.  We present comprehensiveincome (loss) in our consolidated statements of stockholder’s equity.

 

***Income Taxes***—The Company has 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 15 for information relating toincome tax benefit (expense) for the years ended December 31, 2006 and2005.

 

***Long-Lived Assets***—We periodically evaluate the value oflong-lived assets, including property, plant and equipment, goodwill andidentifiable intangibles, for potential impairment.  If an impairment is indicated, such impairedassets are written down to their estimated fair value.  As of December 31, 2007 and 2006, wedetermined that there was no impairment of our long-lived assets other thanthose discussed in Note 13.

 

F-8

----

 

***Operating Segments***—We have four reportable segments(Colorado, Nevada, Virginia, and Louisiana), as defined by SFAS No. 131, *Disclosures about Segments of an Enterprise andRelated Information.*  See Note 17.

 

***Use of Estimates***—The preparation of financial statementsin accordance with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions thataffect 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.

 

We periodically evaluate our policies, and theestimates and assumptions related to such policies.  All of our subsidiary companies operate in ahighly regulated industry.  Ouroperations are subject to regulations that describe and regulate operating andinternal control procedures.  Themajority of gaming revenue is in the form of cash which by nature does notrequire complex estimations.  We estimatecertain liabilities with payment periods that extend for longer than severalmonths.  Such estimates include theself-insured medical and workers compensation liabilities and litigationcosts.  Furthermore, we believe thatthese estimates are reasonable based on past experience with the business andbased upon assumptions related to possible outcomes in the future.  Actual results could differ from thoseestimates.

 

Furthermore, we have determined that the policyassociated with our long-lived assets, goodwill and identifiable intangibleassets, and related estimates are critical to the preparation of ourconsolidated financial statements.  Wehave a significant investment in long-lived property and equipment.  We estimate that the undiscounted future cashflows expected to result from the use of these assets exceeds the currentcarrying value of these assets.  Anyadverse change to the estimate of these undiscounted cash flows couldnecessitate an impairment charge that would adversely affect operatingresults.  We estimate the useful livesfor our assets based on historical experience, estimates of assets’ commerciallives, and the likelihood of obsolescence. Should the actual useful life of a class of assets differ from theestimated useful life, we would record an impairment charge.  We review useful lives and obsolescence andassess commercial viability of our assets periodically.

 

***New Accounting Pronouncements***—In September 2006, the FASB issuedStatement No. 157, *Fair Value Measurements*(“SFAS157”).  SFAS 157 establishes a single definition of fair value and aframework for measuring fair value, sets out a fair value hierarchy to be usedto classify the source of information used in fair value measurements, andrequires new disclosures of assets and liabilities measured at fair value basedon their level in the hierarchy. SFAS 157 is effective for us on January 1,2008. We do not expect that the adoption of SFAS 157 will have a materialimpact on our consolidated results of operations, cash flows or financial position,but it will require additional disclosures.

 

In February 2007,the FASB issued Statement No. 159,*TheFair Value Option for Financial Assets and Financial Liabilities* –Including an amendment of FAS 115 (“SFAS 159”), which allows entities to chooseat specified election dates, to measure eligible financial assets andliabilities at fair value that are not otherwise required to be measured atfair value. If a company elects the fair value option for an eligible item,changes in that item’s fair value in subsequent reporting periods must berecognized in current earnings.  SFAS 159also establishes presentation disclosure requirements designed to drawcomparison between entities that elect different measurement attributes forsimilar assets and liabilities.  SFAS 159is effective for us on January 1, 2008. We have not assessed the impact ofSFAS 159 on our consolidated results of operations, cash flows or financialposition.

 

In December 2007,the FASB issued Statement No. 141R, *Business Combinations*(“SFAS141(R)”).  SFAS 141(R) establishes principles and requirements forhow an acquirer in a business combination: (a) recognizes and measures inits financial statements the identifiable assets acquired, the liabilitiesassumed, and any noncontrolling interest in the acquiree; (b) recognizesand measures the goodwill acquired in the business combination or a gain from abargain purchase option; and (c) determines what information to discloseto enable users of the financial statements to evaluate the nature andfinancial effects of the business combination.  SFAS 141(R) iseffective for all fiscal years beginning on or after December 15, 2008 andis to be applied prospectively.  Accordingly, any business combinationsthe Company engages in will be recorded and disclosed following existingaccounting pronouncements until January 1, 2009. The Company expects 

 

F-9

----

 

SFAS 141(R) willhave an impact on our consolidated results of operations, cash flows andfinancial position when effective, but the nature and magnitude of the specificeffects will depend upon the nature, terms and size of the acquisitions weconsummate after the effective date.

 

**3.**                   GOODWILLAND IDENTIFIABLE INTANGIBLE ASSETS

** **

We test goodwill forimpairment as of September 30th each year or when circumstancesindicate it is necessary.  Testingcompares the estimated fair values of our reporting units to the reportingunits’ carrying value.  We consider avariety of factors when estimating the fair value of our reporting units,including estimates about the future operating results of each reporting unit,multiples of EBITDA, investment banker market analyses, and recent sales ofcomparable business units if such information is available to us.  A variety of estimates and judgments aboutthe relevance and comparability of these factors to the reporting units aremade.  As of September 30, 2007, webelieve the goodwill held in our reporting units is not impaired.  In addition, we have reassessed the useful livesof our identifiable intangible assets without any change to the previouslyestablished amortization periods of such assets.

 

The changes in thecarrying amount of goodwill for the years ended December 31, 2007 and 2006are as follows:

 
| ** **                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |
| Balance as of  beginning of year |       | $        | 44,016     |     | $          | 40,458 |   |
| Goodwill  acquired during year   |       | 2,654    |       | 3,558    |       |
|                             |       |     |       |     |       |
| Balance as of  end of year       |       | $        | 46,670     |     | $          | 44,016 |   |

 

Acquired intangibleassets as of December 31, 2007 and 2006, consist of the following:

 
| ** **                      | ** ** | **Weighted**  | ** ** | **2007**     | ** ** | **2006**         | ** ** |
|---------------------------------|------------|---------------|------------|--------------|------------|------------------|------------|
| ** **                      | ** ** | **Average**   | ** ** | **Gross**    | ** ** | ** **       | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                      | ** ** | **Remaining** | ** ** | **Carrying** | ** ** | **Accumulated**  | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                      | ** ** | **Life**      | ** ** | **Amount**   | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
|                            |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Amortizable intangible  assets: |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Revenue rights                  |       | 44.00         |       | $            | 6,000      |             | $          | 720 |   | $ | 5,280 |   | $ | 6,000 |   | $ | 600 |   | $ | 5,400 |   |
| Device use  rights              |       | 2.79          |       | 7,982        |       | 4,638            |       | 3,344 |   | 6,982 |   | 3,764 |   | 3,218 |   |
| Noncompete  agreements          |       | 3.77          |       | 1,779        |       | 912              |       | 867 |   | 1,660 |   | 625 |   | 1,035 |   |
|                            |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Total                           |       |          |       | $            | 15,761     |             | $          | 6,270 |   | $ | 9,491 |   | $ | 14,642 |   | $ | 4,989 |   | $ | 9,653 |   |

 

Aggregate amortization expense of identifiableintangible assets was $1,281, $1,680, and $1,025 for the years ended December 31,2007, 2006 and 2005, respectively.

 

F-10

----

 

Estimated amortizationexpense for the years ending December 31 (in thousands):

 
| 2008       |   | $      | 1,385  |   |
|------------|--------|--------|--------|--------|
| 2009       |   | 1,342  |   |
| 2010       |   | 1,121  |   |
| 2011       |   | 540    |   |
| 2012       |   | 377    |   |
| Thereafter |   | 4,726  |   |
|       |   |   |   |
| Total      |   | $      | 9,491  |   |

 

**4.**                   RECENTACQUISITION ACTIVITY

** **

On February 25,2005, we filed an application for gaming licenses to open a Jefferson Parish,Louisiana truck plaza location.  Thelicense was approved on August 16, 2005, and the location opened on September 22,2005.

 

On March 2, 2005,with $23,000 proceeds from a financing occurring on the same date, we acquiredfrom Jacobs, three truck plaza video gaming facilities in Louisiana known asBreaux Bridge, Eunice and Jefferson Parish for $22,500.  The acquisitions of the three truck plaza facilitieswere accounted for as a combination of entities under common control, and assuch are reflected for accounting and financial reporting purposes similar to apooling of interests.  Therefore, theacquisitions have been recorded at Jacobs’ historical cost basis in the assetstransferred.

 

A distribution of $22,500was recorded on the acquisition date as the assets of the entities acquiredhave been retroactively accounted for in JEI’s financial statements.  Therefore a net distribution of $12,379 (the$22,500 distribution reduced by the $10,121 of net assets acquired) resultsfrom the transactions.

 

The following tablesummarizes the net assets acquired and liabilities assumed as of March 2,2005, for the transactions occurring on that date:

 
| ** **                      | ** ** | **Breaux Bridge** | ** ** | **Eunice** | ** ** | **Jefferson** | ** ** | **Total** | ** ** |
|---------------------------------|------------|------------------------|------------|------------|------------|---------------|------------|-----------|------------|
|                            |       |                   |       |       |       |          |       |      |       |
| Current assets                  |       | $                      | 402        |       | $          | 285           |       | $         | 309        |   | $ | 996 |   |
| Property and  equipment, net    |       | 3,089                  |       | 2,461      |       |          |       | 5,550     |       |
| Construction in  progress       |       |                   |       |       |       | 2,545         |       | 2,545     |       |
| Other assets                    |       | 14                     |       | 20         |       | 331           |       | 365       |       |
| Identifiable  intangible assets |       | 463                    |       | 329        |       | 390           |       | 1,182     |       |
|                            |       |                   |       |       |       |          |       |      |       |
| Total assets  acquired          |       | 3,968                  |       | 3,095      |       | 3,575         |       | 10,638    |       |
|                            |       |                   |       |       |       |          |       |      |       |
| Current  liabilities assumed    |       | 217                    |       | 184        |       | 22            |       | 423       |       |
| Noncurrent  liabilities assumed |       |                   |       |       |       | 94            |       | 94        |       |
|                            |       |                   |       |       |       |          |       |      |       |
| Total  liabilities assumed      |       | 217                    |       | 184        |       | 116           |       | 517       |       |
|                            |       |                   |       |       |       |          |       |      |       |
| Net assets  acquired            |       | $                      | 3,751      |       | $          | 2,911         |       | $         | 3,459      |   | $ | 10,121 |   |

 

On March 16, 2005, we received a license to ownand operate a seventh satellite wagering facility in Martinsville,Virginia.  This facility was opened on August 15,2005.  On April 27, 2005, wereceived a license to own and operate an eighth satellite wagering facility andsecond location in Chesapeake, Virginia. We opened this facility on October 12, 2005.  On May 25, 2005, we received a licenseto own and operate a ninth satellite wagering facility in Scott County,Virginia.  We opened this facility on January 18,2006.

 

F-11

----

 

On September 12,2005, we entered into an agreement with Dakota/Blackhawk, LLC, an unaffiliatedColorado limited liability company (“Dakota”), granting us the option topurchase 2.2 acres of undeveloped land (approximately one acre of which islocated within the Black Hawk Gaming District) directly across the street fromThe Lodge.  Under the terms of the optionagreement, we had the exclusive right to purchase the property for$13,000.  The option had an initial termof one year, with a right in our favor to extend the option for an additionalone year period upon the payment of a nonrefundable extension fee of $500.  The option agreement provided for an initialoption fee of $500.  On September 12,2006, we chose not to extend the option period largely because the perceivedeconomic benefits to us did not justify the purchase price in light of significantadditional unanticipated development costs.

 

***On December 16, 2005, we acquired from an unaffiliatedparty Fuel Stop 36 in Lake Charles, Louisiana (“Fuel Stop 36”) for $5,900 plusacquisition costs of $178, and on December 20, 2005, we acquired from anunaffiliated party Larose Truck Plaza in Lockport, Louisiana (“Larose”) for$6,000 plus acquisition costs of $248. Under the purchase method of accounting, the total purchase price isallocated to Fuel Stop 36’s and Larose’s net tangible and intangible assets andliabilities based on their estimated fair value as of the acquisitiondate.  Fair values for property andequipment were based upon a valuation performed.  Goodwill resulting from the Fuel Stop 36 andLarose transactions is attributable to anticipated future cash flows associatedwith the acquired entities.***

*** ***

***The***following tablesummarizes the assets acquired and the liabilities assumed and recorded as ofthe acquisition dates:

 
| ** **                      | ** ** | **Fuel Stop  36** | ** ** | **Larose** | ** ** | **Total** | ** ** |
|---------------------------------|------------|------------------------|------------|------------|------------|-----------|------------|
|                            |       |                   |       |       |       |      |       |
| Current assets                  |       | $                      | 176        |       | $          | 122       |       | $ | 298 |   |
| Property and  equipment         |       | 2,748                  |       | 2,729      |       | 5,477     |       |
| Goodwill                        |       | 2,876                  |       | 3,342      |       | 6,218     |       |
| Identifiable  intangible assets |       | 278                    |       | 71         |       | 349       |       |
|                            |       |                   |       |       |       |      |       |
| Total assets  acquired          |       | 6,078                  |       | 6,264      |       | 12,342    |       |
|                            |       |                   |       |       |       |      |       |
| Total  liabilities assumed      |       |                   |       | 16         |       | 16        |       |
|                            |       |                   |       |       |       |      |       |
| Net assets  acquired            |       | $                      | 6,078      |       | $          | 6,248     |       | $ | 12,326 |   |

 

On June 16, 2006,with the proceeds of the refinancing occurring on the same date (see Note 5),we acquired from Jacobs, three truck plaza video gaming facilities for $14,380and raw land and equipment for $620 to possibly develop a fourth truck plazavideo gaming facility.  Two of the threetruck plaza video gaming facilities acquired, Jalou Diamond and Jalou of St.Martin are located in Broussard, Louisiana, and the third facility, JalouMagic, is located in Vinton, Louisiana. The land and equipment on which we may develop a fourth truck plazavideo gaming and/or hotel 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 assets transferred.

 

A distribution of $14,380was recorded on the acquisition date as the assets of the entities acquiredhave been retroactively accounted for in JEI’s financial statements.  Therefore a net distribution of $6,987 (the$14,380 distribution reduced by the $7,393 of net assets acquired) results fromthe transactions.

 

F-12

----

 

Thefollowing table summarizes the net assets acquired and liabilities assumed asof 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 |   |

 

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.

 

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 thepurchase price 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      |   |

 

On June25, 2006, we acquired the assets of the Piñon Plaza Resort (“Piñon Plaza”), adivision of Capital City Entertainment, Inc. (“CCI”), an unaffiliatedparty.  In January 2007 we rebrandedPiñon Plaza to Gold Dust West-Carson City. Under the purchase method ofaccounting, the total purchase price is allocated to Gold Dust West-Carson City’stangible and intangible assets and liabilities based on their estimated fairvalue as of the acquisition date.  Avaluation was completed to determine the fair values for property and equipment

 

F-13

----

 

acquired.  Goodwill resulting from the Gold DustWest-Carson City transaction is attributable to anticipated future cash flowsassociated 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     |   |

 

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.

 

Under the purchase method of accounting, the totalpurchase price is allocated to St. Helena’s tangible and intangible assets andliabilities based on their estimated fair value as of the acquisitiondate.  A valuation was completed todetermine the fair 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      |   |

 

F-14

----

 

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.  Additionally, the purchase agreement includesan “earn-out payment” (additional purchase price) to be determined and paid 19calendar months 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.

 

The following table summarizes the preliminaryallocation 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      |   |

 

Goodwill resulting fromthe Silver Dollar transaction is attributable to anticipated future cash flowsassociated with the acquired entity.  Anychange in the fair value of the net assets of Silver Dollar during the purchaseprice allocation period (generally within one year of the acquisition date)will change the amount of the purchase price allocated to goodwill. The finalallocation of the purchase price and its effect on the results of operationsmay differ significantly from the proforma operating results included herein.

 

On September 4,2007, with funds available on the revolving credit facility described above, weacquired from Jacobs, the Silver Fox truck plaza video gaming facility for$13,794.  Silver Fox is located in DenhamSprings, Louisiana.  The acquisition ofthe truck plaza facility was accounted for as a combination of entities undercommon control, and as such is reflected for accounting and financial reportingpurposes similar to a pooling of interests. Therefore, the acquisition has been recorded at Jacobs’ historical costbasis in the assets transferred. Accordingly, the accompanying consolidated financial statements havebeen retroactively adjusted from December 22, 2005 (the date the truckstop was initially acquired by Jacobs from a third party) through September 4,2007 to include the operations of the acquired truck plaza as though JEI hadacquired it directly from the third party on December 22, 2005.

 

At December 31,2006, Silver Fox’s debt outstanding totaled $9,021 and has been included in therestated consolidated balance sheet.  On September 4,2007, with proceeds from the sale of Silver Fox, Jacobs repaid the outstandingprincipal and interest of $8,910.  Thedebt was not assumed by JEI and is reflected as a capital contribution in thestatement of stockholder’s equity.

 

A distribution of $13,794was recorded on the acquisition date as the assets of the entity acquired havebeen retroactively accounted for in JEI’s financial statements.  Therefore a net distribution of $2,339 (the$13,794 distribution reduced by the $11,455 of net assets acquired) resultsfrom the transaction.

 

F-15

----

 

Thefollowing table summarizes the net assets acquired and liabilities assumed asof September 4, 2007, for the transaction occurring on that date:

 
| ** **                      | ** ** | **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     |   |

*** ***

***Assuming the acquisitions of Fuel Stop 36, Larose, Vinton,Gold Dust West-Carson City, St. Helena and Silver Dollar had occurred as of January 1,2005, combined unaudited proforma net revenues, costs and expenses, and netincome (loss) would have been as follows:***

 
| ** **          | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------|------------|----------|------------|----------|------------|----------|------------|
|                |       |     |       |     |       |     |       |
| Net revenues        |       | $        | 349,828    |     | $          | 334,389  |       | $ | 292,179 |   |
| Costs and  expenses |       | 344,863  |       | 344,668  |       | 294,074  |       |
|                |       |     |       |     |       |     |       |
| Net income  (loss)  |       | $        | 4,965      |     | $          | (10,279  | )          | $ | (1,895 | ) |

 

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 is not necessarily indicativeof the results of operations that would have occurred had the acquisitionsoccurred at the beginning of each period presented, nor are they indicative offuture operating results.

 

**5.**                   LONG-TERMDEBT

** **

Long-term debt and capital lease obligations as of December 31,2007 and 2006 consist of the following:

 
| ** **                                               | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |     |       |
| 93⁄4% Senior  Unsecured Notes due 2014                |       | $        | 210,000    |     | $          | 210,000 |   |
| Senior Secured  Term Loan Facility due 2012              |       | 39,400   |       | 39,800   |       |
| Senior Secured  Delayed Draw Term Loan Facility due 2012 |       | 19,750   |       | 20,000   |       |
| Senior Secured  Revolving Credit Facility expiring 2011  |       | 23,500   |       |     |       |
| Black Hawk Bonds  Payable due 2011                       |       | 2,484    |       | 3,022    |       |
| Other Notes  Payable — Colonial                     |       | 40       |       | 87       |       |
| Other Notes  Payable — Jalou                        |       |     |       | 9,021    |       |
| Capital Leases                                           |       | 4,172    |       | 4,155    |       |
|                                                     |       |     |       |     |       |
| Total  indebtedness                                      |       | 299,346  |       | 286,085  |       |
|                                                     |       |     |       |     |       |
| Less current  indebtedness                               |       | (1,301   | )          | (1,618   | )          |
|                                                     |       |     |       |     |       |
| Total long-term  indebtedness                            |       | $        | 298,045    |     | $          | 284,467 |   |

 

F-16

----

 

***93⁄4% Senior Unsecured Notes due2014 and Senior Secured Credit Facility***

 

On June 16, 2006, wecompleted the issuance of senior unsecured notes in the amount of $210,000bearing interest at 93⁄4% due June 15, 2014 with interest only payments dueeach June 15 and December 15, beginning on December 15,2006.  In conjunction with the closing ofthese notes, we entered into a new $100,000 senior secured credit facilityconsisting of: (i) a $40,000 five-year revolving credit facility; (ii) a$40,000 six-year term loan facility; and (iii) a $20,000 six-year delayeddraw term loan.  Borrowings under oursenior secured credit facility bear interest at a rate equal to an applicablemargin plus, at our option, either (a) a base rate determined by referenceto the higher of (1) the prime rate, as defined, and (2) the federalfunds rate plus 1⁄2 of 1% or (b) a LIBOR rate for the interest periodrelevant to such borrowing adjusted for certain costs.  At December 31, 2007,the blended interest rate on our senior secured credit facility wasapproximately 7.56%. Asof December 31, 2007, $16,500 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.  The unsecuredportion of our debt is in the form of $210,000 of 93⁄4% unsecured senior notesthat rank equally in right of payment with all of our existing and futureunsecured senior indebtedness and senior to any existing and futuresubordinated indebtedness.  The notes areeffectively subordinated to any secured indebtedness (including indebtednessunder our senior credit facility) up to the value of the collateral securingsuch indebtedness.  The notes areguaranteed by our current and future restricted subsidiaries that alsoguarantee our senior secured credit facility. JEI has no independent assets or operations and the subsidiaries’guarantees on the notes are full and unconditional and joint and several withinthe meaning of Rule 3-10(h) of Regulation S-X of the SecuritiesExchange Act of 1934, as amended.

 

We filed a registrationstatement (the “Exchange Offer Registration Statement”) with the Securities andExchange Commission (“SEC”) with respect to the offer to exchange (the “ExchangeOffer”) our privately placed senior unsecured notes for identical registerednotes.  The Exchange Offer RegistrationStatement was declared effective by the SEC on October 3, 2006.  The Exchange Offer was concluded on November 21,2006.

 

Thereare many restrictions and covenants placed upon us under both our secured andunsecured indebtedness. For example, among other things, we are required tomaintain certain operating performance ratios, our covenants impose variousrestrictions on us as to the timing of redemptions of our notes, there arevarious change of control covenants, and there are many other restrictive andoperational limitations on us that would be difficult or impossible for us tochange. The occurrence of any one of these events and/or covenant violations toour debt agreements could have a material adverse effect on our business,financial condition, results of operations, prospects and ability to satisfyour obligations under our debt agreements. We entered into an amendment to our credit agreement which revisedcertain debt covenant ratios and became effective May 4, 2007.  Essentially, the amendment increased themaximum permitted total leverage ratio, increased the maximum permitted seniorsecured leverage ratio, decreased the minimum interest coverage ratio andadjusted the test periods. At December 31, 2007, we are in compliance withthe revised financial covenants.

 

***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.

 

F-17

----

 

***Other Notes Payable — Colonial***

 

·                  A note payable to John Deere Credit,maturing October 2008, bearing interest at a rate of 2.25% payable monthlyin equal installments of interest and principal beginning November 2003,is secured by the equipment purchased with the note.

 

***OtherNotes Payable — Jalou***

 

·                  A note payable was issued to CameronState Bank, maturing December 2009, bearing interest at a fixed rate of8.11%. During 2006, monthly payments were interest only.  From January 2007 to November 2009,monthly principal and interest payments total $66, with remaining principal andinterest due at maturity.  The note wassecured by substantially all of Silver Fox’s assets and was paid in full in2007.

 

·                  A note payable was issued to the sellerof Silver Fox, maturing June 2009, bearing interest at a fixed rate of 7%,with quarterly interest only payments totaling $44, with a final payment forall unpaid principal and interest due at maturity.  The note was paid in full in 2007.

 

***Capital Leases***

 

Gold Dust West-Elko has a capital lease with interestand principal payments of $3 per month until October 2006, increasing to$15 per month through October 2007, increasing to $21 per monththereafter, maturing October 2010, with the right to extend the leasethree times for five year intervals, or to purchase the land and building for$5,000 any time commencing with the day after the last day of the first year ofthe initial 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 payment based on a base index rate established with the August 2005Consumer Price Index (“CPI”) as published.

 

Colonial has a capitallease with interest 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.

 

Colonial has a capital leasewith interest and principal payments of $4 per month, until the earlier ofoccupancy or June 1, 2005, then interest and principal payments of $8 permonth, maturing June 1, 2010, with the right to extend the term of thelease four times for five year intervals, or to purchase the land and buildingfor $700 at any time after the initial term of the lease (after June 1,2010), with the purchase price increasing 8% with any successive renewal term.The effective interest rate is 10.3%. Each lease renewal if elected will result in an increase in annualpayments by $8 over the lease term.

 

Colonial has a capitallease with interest and principal payments of $6 per month until October 2010,then interest and principal payments of $7 per month until October 2015,with three renewal periods of five years each with monthly payments starting at$8 per month increasing to $11 per month. The effective interest rate is 10.5% per annum.

 

Jalou has a capital leasewith interest and principal payments of $5 per month until May 2011, withtwo renewal periods of five years each with monthly payments starting at $6 permonth increasing 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.

 

F-18

----

 

Scheduled maturities oflong-term debt as of December 31, 2007, are as follows:

 
| 2008       |   | $       | 1,301   |   |
|------------|--------|---------|---------|--------|
| 2009       |   | 1,313   |    |
| 2010       |   | 2,081   |    |
| 2011       |   | 24,835  |    |
| 2012       |   | 56,808  |    |
| Thereafter |   | 213,008 |    |
|       |   |    |    |
| Total      |   | $       | 299,346 |   |

 

**6**.                   **INVESTMENT IN EQUITY SECURITIES**

 

During 2006, we acquired approximately three percent of the outstandingshares of a publicly-traded gaming company. Our two directors also invested inthe company as well as other entities affiliated with our two directors,increasing the combined ownership to approximately 13% of its outstandingcommon shares. Our investment is accounted for as available-for-sale equitysecurities and has been recorded at fair value and included in other noncurrentassets, with unrealized gains and losses recognized as accumulated othercomprehensive income (loss).  As of December 31,2007, the fair value of our investment in this company is $5,524 and unrealizedlosses included in accumulated other comprehensive loss total $2,419.  This decline in fair value, which is lessthan 12 months in duration, is deemed to be temporary due to stock pricevolatility.  As of December 31,2006, the fair value was $9,942 and unrealized gains included in accumulatedother comprehensive income totaled $1,999.

 

**7.**                   ESTIMATEDFAIR VALUE OF FINANCIAL INSTRUMENTS

** **

The following disclosure of estimated fair value of ourfinancial instruments has been determined using available market informationand generally accepted valuation methodologies. However, considerable judgment is required to interpret market data inorder to develop the estimates of fair value. Accordingly, the estimates herein are not necessarily indicative of theamounts we could realize in a current market exchange.  The use of different market assumptionsand/or estimation methodologies may have a material effect on the estimatedfair value amounts.

 

The estimated fair value of our financial instrumentsis as follows:

 
| ** **                                           | ** ** | **2007**     | ** ** | **2006**      | ** ** |
|------------------------------------------------------|------------|--------------|------------|---------------|------------|
| ** **                                           | ** ** | ** **   | ** ** | **Estimated** | ** ** | ** ** | ** ** | **Estimated** | ** ** |
| ** **                                           | ** ** | **Carrying** | ** ** | **Fair**      | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                                           | ** ** | **Amount**   | ** ** | **Value**     | ** ** | **Amount** | ** ** | **Value** | ** ** |
|                                                 |       |         |       |          |       |   |   |   |   |
| Liabilities—Debt  and capital lease obligations |       | $            | 299,346    |          | $          | 285,965 |   | $ | 286,085 |   | $ | 290,077 |   |
|                                                      |            |              |            |               |            |  |  |  |  |  |  |  |  |

 

The estimation methodologies utilized are summarizedas follows:

 

***Debt***—The fair value of variable-rate debt isestimated to be equal to its carrying amount. The fair value of senior unsecured notes issued in 2006 is based uponquoted market rates.  The fair value ofother fixed rate debt is estimated based on a discounted cash flow analysis,using the prevailing market interest 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.  The estimated fair value of our investment inequity securities (see Note 6) is based upon quoted market prices.

 

F-19

----

 

**8.**                   RELATED-PARTYTRANSACTIONS

** **

In order to assist us in our efforts to research,develop, perform due diligence on and possibly acquire new gamingopportunities, we entered into an agreement with Premier One DevelopmentCompany effective October 1, 1997. On May 9, 2000, Premier merged into Jacobs Investments ManagementCo. Inc. (“JIMCO”), 82% of which is owned by Jeffrey P. Jacobs and theremaining 18% of which is owned in equal portions by two former directors ofColonial.  The agreement was renewed on January 2,2003 for a period of nine years, at $450 per year, payable on January 15of each year.  On June 16, 2006, theagreement was amended and restated retroactive to January 1, 2006 for aperiod of 20 years, at $1,250 per year payable in two equal installments of$625 on January 1st and July 1st each year plustwo and one-half percent (2.5%) of budgeted development costs for projectsundertaken by us, if certain debt covenant ratios are met.  Total incurred under this agreement withJIMCO was $1,609, $1,513 and $450 for the years ended December 31, 2007,2006 and 2005, respectively.

 

We provide monthly management and accounting servicesfor various truck stops owned by Jacobs. Total charges for these management services totaled $1,035, $302 and $64for the years ended December 31, 2007, 2006 and 2005, 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 31,2007, these transactions resulted in net payables to affiliate totaling $435,and as of December 31, 2006, these transactions resulted in netreceivables from affiliate totaling $1,491.

 

Wehave acquired from affiliated parties several options to lease and options topurchase land and certain improvements on the west bank of the Cuyahoga Riverin Cleveland, Ohio. We refer to these properties, covering an aggregate ofapproximately 624,000 square feet of land (14.4 acres) and a building comprisedof 47,380 square feet of net rentable space, as the Nautica Properties. TheNautica Properties consist of six parcels and require aggregate option paymentsof $500 per year. The option agreements give us the right during the next twoand one-half years to purchase two parcels and the right to purchase or enterinto long term leases on the other four parcels.  In general, the purchase price of the parcelswould be based on independent appraisals of the land and improvement values, ifcasino gaming were to become legal in Ohio and the Nautica Properties were alicensed gaming venue.  Our Chairman andChief Executive Officer owns varying interests in five of the six parcels.

 

Althoughwe may elect not to exercise all the options unless casino gaming opportunitiesarise, we nonetheless have the right to acquire all or part of the NauticaProperties for other purposes. If casino gaming is not legalized but we decideto exercise our options, the aggregate purchase price would be approximately$6,200 for two parcels and the aggregate annual lease payments on four parcelswould be approximately $450. The purchase price and rent payments would beincreased if, in the future, casino gaming were to become legalized in Ohio anda casino is licensed at Nautica. During March 2008, the Company exercised itsoption to acquire one of these parcels.  We intend to close on thisproperty prior to the end of March 2008.  The company that owns thisparcel of land is wholly owned by our Chairman and Chief Executive Officer.

 

**9.**                   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 toprovide replacement equipment for existing equipment, at a rate of .385% ofhandle up to $270,000 in handle.  Handleabove $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 off track wagering facilities expiredDecember 31, 2007.  We purchased theleased equipment at the two off track wagering facilities and extended the agreementfor live race broadcasting and simulcasting services for one year through December31, 2008.  Total expense incurred fortotalisator and broadcasting and simulcasting equipment was $1,145, $1,146, and$1,094 for the years ended December 31, 2007, 2006, and 2005,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 ofraces.  These consents are usuallycontained in the agreement between each group and us.  We have entered into an agreement with theVaHBPA that expires December 31, 2008. The agreement is pending the approval of the Virginia Racing Commission,which is expected to act at its next meeting on April 16, 2008, and ourcurrent agreement with the VaHBPA extends through such date. ** **Ouragreement with the VHHA expires December 31, 2008. In the event our VaHBPAagreement is not approved or extended or we cannot continue to renew theseagreements in the future, the Virginia Racing Commission has the right tosuspend our licenses to operate our racetrack and the satellite wagering facilitiesuntil agreements are in place although it has not indicated that it will do so.Although it is difficult to predict the likelihood of such an event, closure ofthe satellite wagering facilities would be detrimental to the horsemen’s groupsas well as us since each horsemen’s group’s primary source of purse funds isits percentage of wagering at the satellite facilities.

 

F-20

----

 

The Company’s operating leases include various landand building leases for certain properties in Nevada, Louisiana and Virginia,leases for office space in Colorado, Louisiana, Virginia and Florida, as wellas leases for automobiles and other property and equipment at all locations,expiring at various dates.  Total expenseunder these non-cancelable operating leases was $2,948, $2,359 and $1,554 for the years ended December 31, 2007,2006, and 2005, respectively.

 

Additionally, under Louisianalaw, video poker machines must be owned by Louisiana residents. The Jalou truck plaza video gamingfacilities pay one dollar per operating video poker machine per day to thethird party owner of the machines in order to maintain the machines used in ourtruck plaza operations, plus $1 per machine annually for the owner’s licensingcosts.  Total expense under theseobligations was $1,268, $1,180 and $833 forthe years ended December 31, 2007, 2006, and 2005, respectively.

 

The future minimumcommitments relating to JEI’s non-cancelable operating agreements and leasesare as follows:

 
| **Years Ending December 31** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| ** **                                  | ** ** | ** ** | ** ** |
| 2008                                        |       | $          | 2,615      |   |
| 2009                                        |       | 2,587      |       |
| 2010                                        |       | 2,291      |       |
| 2011                                        |       | 1,676      |       |
| 2012                                        |       | 1,501      |       |
| Thereafter                                  |       | 26,981     |       |
|                                        |       |       |       |
| Total                                       |       | $          | 37,651     |   |
|                                             |            |            |            |  |  |

 

The following is ananalysis of the leased property under capital leases:

 
| **Class of Property**             | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land                                        |       | $          | 1,523      |       | $          | 1,523 |   |
| Buildings                                   |       | 2,095      |       | 895        |       |
| Equipment and  furniture and fixtures       |       | 255        |       | 255        |       |
| Construction in  progress                   |       |       |       | 1,200      |       |
| Other                                       |       | 72         |       | 32         |       |
| Less: accumulated  depreciation             |       | (235       | )          | (70        | )          |
|                                        |       |       |       |       |       |
| Total leased  property under capital leases |       | $          | 3,710      |       | $          | 3,835 |   |

 

F-21

----

 

As of December 31,2007, the following is a schedule by years of future minimum lease paymentsunder capital leases together with the net present value of the net minimumlease payments:

 
| **Years Ending December 31**                             | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|
| ** **                                                              | ** ** | ** ** | ** ** |
| 2008                                                                    |       | $          | 619        |   |
| 2009                                                                    |       | 622        |       |
| 2010                                                                    |       | 1,299      |       |
| 2011                                                                    |       | 520        |       |
| 2012                                                                    |       | 474        |       |
| Thereafter                                                              |       | 6,223      |       |
|                                                                    |       |       |       |
| Total future  minimum lease payments                                    |       | 9,757      |       |
|                                                                    |       |       |       |
| Less amount  representing interest ranging from 6.3% to 16.9% per annum |       | 5,585      |       |
|                                                                    |       |       |       |
| Net present  value of net minimum lease payments                        |       | $          | 4,172      |   |

 

***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.

 

During the second quarterof 2007, the Colorado legislature approved a bill banning smoking at Coloradocasinos starting January 1, 2008. We constructed climate tempered outdoor sheltered smoking areas at TheLodge and Gilpin as allowed by the new legislation.

 

**10.**            COMMONSTOCK

** **

Inconnection with estate planning activities by our two former shareholders,effective September 27, 2005, all 1,500 shares of our common stock, $.01par value, were converted into a total of 1,320 Class A Common Shares,$.01 par value, and 180 Class B Common Shares, $.01 par value. The sharesare identical in all respects except that the Class A Common Shares areentitled to one vote per share and the Class B Common Shares are entitledto 50,000 votes per share.  The Class Aand Class B Shares were owned equally by Richard E. Jacobs and Jeffrey P.Jacobs and their family trusts.  Wereceived no proceeds in connection with the stock conversion and nounderwriters were involved. The conversion was deemed exempt from theregistration requirements of the Securities Act of 1933, as amended, as atransaction not involving a public offering.

 

Effective January 31, 2007, we became awholly-owned subsidiary of JII, which in turn is 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.

 

F-22

----

 

**11.**            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 (after July 9, 2004).  The Plan allows eligible employees to maketax-deferred contributions that are matched by us up to a specified level.  We contributed approximately $412, $357, and$307 to the Plan for the years ended December 31, 2007, 2006, and 2005,respectively.

 

**12.**            PROPOSED OHIOCONSTITUTIONAL AMENDMENT

** **

During 2006, we providedsupport for a proposed constitutional amendment in Ohio that would haveestablished a tuition grant program for Ohio students to attend public orprivate colleges in the state and allowed slot machines at the state’s sevenexisting 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.

 

**13.**            ABANDONMENTCOSTS

** **

In December 2005, we recorded an abandonmentcharge of $1,424 representing the net book value of a stand-alone portion ofthe Gold Dust West-Reno’s motel building (the “L-wing”) containing 66 ofthe properties 106 motel rooms. After considering alternative plans for thisstand-alone portion of the motel including a possible refurbish, it was decidedthat the property would be better served with improved access and expandedparking.  We began demolition of theL-wing during the first quarter of 2006 and completed the project late in thesecond quarter at a total cost of $1,230. We added approximately 75 parking spaces as a result of thedemolition.  We will continue to operatethe remaining hotel rooms.

 

**14.**            TERMINATIONOF CONTRACT

** **

In1996, Colonial entered into a Management and Consulting Agreement, as amended(the “Management Agreement”), with Maryland-Virginia Racing Circuit, Inc.(the “Circuit”), a wholly-owned subsidiary of Magna Entertainment Corp. (“MEC”),which is an affiliate of the Maryland Jockey Club (“MJC”).  The Management Agreement provided formanagement services for Colonial’s racetrack and its satellite facilities andcreated a Virginia-Maryland thoroughbred racing circuit. Under the ManagementAgreement, MJC agreed to suspend live racing at its racetracks, Laurel Park andPimlico Race Course, during Colonial’s live thoroughbred meets.  Parties to the Management Agreement alsoexchanged simulcast signals for their live thoroughbred meets at no cost toeither party.  The effect of the exchangeof signals is immaterial to the consolidated financial statements of JEI.  The Circuit managed Colonial’s satellitefacilities, as well as, the live standardbred and thoroughbred meets andprovided certain personnel, at its expense, for the live thoroughbred meet. Forits services, the Circuit received a management fee of 1.0% of the first$75 million of the aggregate gross amounts wagered in any calendar year inthe Commonwealth of Virginia, excluding certain amounts specified in theManagement Agreement (“Handle”), 2.0% of all Handle of $75 million to $125million per calendar year, 1.5% of all Handle in excess of $125 million, and3.25% of any Handle for satellite wagering facilities located in the countiesof Loudoun, Fairfax, Prince William, and Arlington and the Virginia cities ofManassas, Manassas Park, Fairfax City, Falls Church, and Alexandria.  TheManagement Agreement was to remain in effect until 2036 provided Colonialowned, controlled, or operated its racetrack under its existing licenses.  At Colonial’s option, Colonial couldterminate the Management Agreement any time after 2021 upon payment of a feeequal to 17 times the average management fee paid during the three yearsimmediately preceding such termination. Management fees incurred under the Management Agreement were $0, $0, and$1,787 during each of the years ended December 31, 2007, 2006, and 2005,respectively.

 

F-23

----

 

On September 30,2005, Colonial completed a transaction with MEC under which Colonial acquiredall of the outstanding shares of the Circuit for a purchase price of$10,000.  The sale was subject to theapproval of the Virginia Racing Commission which was granted on September 28,2005.  Under the terms of the purchaseagreement, Colonial paid $7,000 in cash at closing of the transaction andissued a one-year $3,000 note bearing interest at the prime rate plus 1% (7.75%at September 30, 2005).  The notewas guaranteed by JEI and was paid in full in 2006.  The stock acquisition has been characterizedas a termination of a contract because the primary asset owned by the Circuitwas a Management Agreement with Colonial. Statement of Financial AccountingStandards No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities*, prescribes expensing ofthe costs associated with the termination of a contract.  As such, $10,367, including the$10,000 purchase price and $367 in legal and professional fees associatedwith this transaction, was expensed during 2005.  As part of the transaction, Colonial paid offan existing promissory note to MJC in the amount of $73, plus accruedinterest.  Colonial also paid the Circuit’sprorated 2005 management fees of $1,787. Also under the purchase agreement, a Maryland-Virginia thoroughbredracing circuit will continue for ten years with live thoroughbred racing inMaryland concluding on the latter of the Monday following the running of thePreakness Stakes or June 17 of each year and beginning at Colonial Downsthereafter.  No live thoroughbred racingwill resume in Maryland before August 1 each year under the agreement.

 

**15.**            INCOMETAXES

** **

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 of $423, including $149 in interest.  No penalties were assessed on thissettlement. During 2006, we received a tax refund of a portion of this chargetotaling $103.

 

**16.**            HURRICANE

** **

On August 29, 2005 and September 24, 2005,hurricanes Katrina and Rita struck Louisiana causing severe damage to theregion. Our Louisiana operations sustained minimal damage.  After consideration of insurance proceeds,damages totaled $153.

 

F-24

----

 

**17.**            SEGMENTINFORMATION

** **

Our Chief Executive Officer (“CEO”) is the 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 each managed by a Regional Vice Presidentwho reports to our Chief Operating Officer (“COO”) who is located in ourGolden, Colorado corporate offices. Further, our 19 video poker truck plazaoperations are managed by our Regional Vice President of Louisiana Operationswho also reports to our COO. Our COO reports to our President, who is alsolocated 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, 2007, 2006, and 2005, we havefour segments representing the geographic regions of our operations. Eachsegment is managed separately because of the unique characteristics of itsrevenue stream and 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 its 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 and eliminations represent all other income and expenses,and are also presented.  The followingsegment information is presented after elimination of inter-segmenttransactions.

 

F-25

----

 

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

 
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Corporate**    | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|---------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Adjustments**  | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **and**          | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Louisiana** | ** ** | **Virginia** | ** ** | **Eliminations** | ** ** | **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        |       |             |       | 5,357      |       |
| Total revenues                                |       | 119,140      |       | 50,472     |       | 165,847       |       | 46,322       |       |             |       | 381,781    |       |
| Less:  Promotional allowances                 |       | (19,766      | )          | (7,410     | )          | (4,777        | )          |         |       |             |       | (31,953    | )          |
| Net revenues                                  |       | $            | 99,374     |       | $          | 43,062        |       | $            | 161,070    |             | $          | 46,322     |       |   |   | $ | 349,828 |   |
|                                          |       |         |       |       |       |          |       |         |       |             |       |       |       |
| Depreciation and  amortization                |       | $            | 6,172      |       | $          | 5,313         |       | $            | 3,848      |             | $          | 2,065      |       | $ | 703 |   | $ | 18,101 |   |
| 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     | )          | $ | (17,444 | ) | $ | 4,965 |   |
| EBITDA(1)                                     |       | $            | 33,421     |       | $          | 5,637         |       | $            | 19,299     |             | $          | 1,401      |       | $ | (8,625 | ) | $ | 51,133 |   |
|                                          |       |         |       |       |       |          |       |         |       |             |       |       |       |
| 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     |       | $ | 2,400 |   | $ | 248,559 |   |
| Total assets                                  |       | $            | 114,615    |       | $          | 64,430        |       | $            | 92,650     |             | $          | 71,991     |       | $ | 12,112 |   | $ | 355,798 |   |
| 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 |   |

 

F-26

----

 

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

 
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Corporate**    | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|---------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Adjustments**  | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **and**          | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Louisiana** | ** ** | **Virginia** | ** ** | **Eliminations** | ** ** | **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        |       |             |       | 4,419      |       |
| Total revenues                                |       | 107,258      |       | 34,216     |       | 162,793       |       | 44,549       |       |             |       | 348,816    |       |
| Less:  Promotional allowances                 |       | (17,698      | )          | (4,806     | )          | (3,934        | )          |         |       |             |       | (26,438    | )          |
| Net revenues                                  |       | $            | 89,560     |       | $          | 29,410        |       | $            | 158,859    |             | $          | 44,549     |       |   |   | $ | 322,378 |   |
|                                          |       |         |       |       |       |          |       |         |       |             |       |       |       |
| Depreciation and  amortization                |       | $            | 5,535      |       | $          | 2,266         |       | $            | 3,712      |             | $          | 2,069      |       | $ | 520 |   | $ | 14,102 |   |
| 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     | )          | $ | (31,201 | ) | $ | (9,848 | ) |
| EBITDA(1)                                     |       | $            | 27,116     |       | $          | 6,572         |       | $            | 23,112     |             | $          | 863        |       | $ | (21,241 | ) | $ | 36,422 |   |
|                                          |       |         |       |       |       |          |       |         |       |             |       |       |       |
| 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     |       | $ | 2,747 |   | $ | 238,733 |   |
| Total assets                                  |       | $            | 111,909    |       | $          | 53,551        |       | $            | 92,153     |             | $          | 73,785     |       | $ | 19,311 |   | $ | 350,709 |   |
| 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 |   |

 

F-27

----

 

**As of andfor the****Year Ended December 31, 2005**

 
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Corporate**    | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|---------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **Adjustments**  | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | **and**          | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Louisiana** | ** ** | **Virginia** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
| Revenues                                      |       |         |       |       |       |          |       |         |       |             |       |       |       |
| Gaming                                        |       |         |       |       |       |          |       |         |       |             |       |       |       |
| Casino                                        |       | $            | 93,088     |       | $          | 22,519        |       |         |       |             |       |       |       | $ | 115,607 |   |
| Truck stop                                    |       |         |       |       |       | $             | 44,760     |         |       |             |       |       | 44,760     |   |
| Pari-mutuel                                   |       |         |       |       |       |          |       | $            | 35,988     |             |       |       | 35,988     |   |
| Food and  beverage                            |       | 10,177       |       | 3,459      |       | 4,204         |       | 2,560        |       |             |       | 20,400     |       |
| Convenience  store — fuel                |       |         |       |       |       | 47,511        |       |         |       |             |       | 47,511     |       |
| Convenience  store — other               |       |         |       |       |       | 6,139         |       |         |       |             |       | 6,139      |       |
| Hotel                                         |       | 1,662        |       | 320        |       |          |       |         |       |             |       | 1,982      |       |
| Other                                         |       | 742          |       | 141        |       | 393           |       | 2,419        |       |             |       | 3,695      |       |
| Total revenues                                |       | 105,669      |       | 26,439     |       | 103,007       |       | 40,967       |       |             |       | 276,082    |       |
| Less:  Promotional allowances                 |       | (17,255      | )          | (4,108     | )          | (2,472        | )          |         |       |             |       | (23,835    | )          |
| Net revenues                                  |       | $            | 88,414     |       | $          | 22,331        |       | $            | 100,535    |             | $          | 40,967     |       |   |   | $ | 252,247 |   |
|                                          |       |         |       |       |       |          |       |         |       |             |       |       |       |
| Depreciation and  amortization                |       | $            | 5,017      |       | $          | 1,691         |       | $            | 2,958      |             | $          | 1,685      |       | $ | 225 |   | $ | 11,576 |   |
| Interest income                               |       | $            | 44         |       | $          | 15            |       | $            | 26         |             | $          | 86         |       | $ | 7 |   | $ | 178 |   |
| Interest  expense, net of amounts capitalized |       | $            | 10,934     |       | $          | 3,141         |       | $            | 3,228      |             | $          | 322        |       | $ | 5,213 |   | $ | 22,838 |   |
| Income tax  expense                           |       |         |       |       |       |          |       |         |       | $                | 423        |       | $          | 423 |   |
| Net income  (loss)                            |       | $            | 9,844      |       | $          | 1,286         |       | $            | 11,419     |             | $          | (12,947    | )          | $ | (13,500 | ) | $ | (3,898 | ) |
| EBITDA(1)                                     |       | $            | 25,751     |       | $          | 6,103         |       | $            | 17,579     |             | $          | (11,026    | )          | $ | (7,646 | ) | $ | 30,761 |   |
|                                          |       |         |       |       |       |          |       |         |       |             |       |       |       |
| Goodwill                                      |       | $            | 6,710      |       | $          | 8,836         |       | $            | 24,912     |             |       |       |       |   | $ | 40,458 |   |
| Identifiable  intangible assets, net          |       |         |       |       |       | $             | 9,683      |         |       |             |       |       | $          | 9,683 |   |
| Property, plant  and equipment, net           |       | $            | 88,597     |       | $          | 9,734         |       | $            | 37,227     |             | $          | 68,640     |       | $ | 2,038 |   | $ | 206,236 |   |
| Total assets                                  |       | $            | 110,211    |       | $          | 23,711        |       | $            | 84,971     |             | $          | 73,313     |       | $ | 6,044 |   | $ | 298,250 |   |
| Long-term debt                                |       | $            | 82,802     |       | $          | 22,813        |       | $            | 40,907     |             | $          | 3,940      |       | $ | 44,035 |   | $ | 194,497 |   |
| Capital  expenditures                         |       | $            | 5,844      |       | $          | 1,212         |       | $            | 9,193      |             | $          | 2,316      |       | $ | 554 |   | $ | 19,119 |   |

 

----

|   | (1) |   | EBITDA (earnings before interest, income taxes,  depreciation and amortization) is presented as supplemental information in  the tables above and in the discussion of our operating results. EBITDA can  be reconciled directly to our consolidated net income (loss) by adding the  amounts shown for depreciation, amortization, income taxes and interest to  net income (loss). This information should not be considered as an  alternative to any measure of performance as promulgated under accounting  principles generally accepted in the United States of America, such as net income  (loss), nor should it be considered as an indicator of our overall financial  performance. Our calculation of EBITDA may be different from the calculation  used by other companies and comparability may be limited. Management believes  that presentation of a non-GAAP financial measure such as EBITDA is useful  because it allows holders of our debt and management to evaluate and compare  our operating results from continuing operations from period to period in a  meaningful and consistent manner in addition to standard GAAP financial  measures. Management internally evaluates the performance of our segments  using EBITDA measures as do most analysts following the gaming industry.  EBITDA is also a key component of certain financial covenants in our debt  agreements. |
|--------|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

******

 

F-28

----

 

**EXHIBITINDEX**

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

 

E-1

----

 
| 3.19(1)   |   | Articles of Organization of Jalou-Cash’s L.L.C.                                                                       |
|-----------|--------|----------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                       |
| 3.20(1)   |   | Articles of Incorporation of JACE, Inc.                                                                               |
|      |   |                                                                                                                       |
| 3.21(1)   |   | Articles of Organization of Lucky Magnolia Truck  Stop and Casino, L.L.C.                                                  |
|      |   |                                                                                                                       |
| 3.22(1)   |   | Articles of Organization of Bayou Vista Truck Plaza  and Casino, L.L.C.                                                    |
|      |   |                                                                                                                       |
| 3.23(1)   |   | Articles of Organization of Raceland Truck Plaza and  Casino, L.L.C.                                                       |
|      |   |                                                                                                                       |
| 3.24(1)   |   | Articles of Incorporation of JACE, Inc.  (duplicate of Exhibit 3.20).                                            |
|      |   |                                                                                                                       |
| 3.25(2)   |   | Certificate of Amendment of Certificate of  Incorporation of Gameco, Inc.                                             |
|      |   |                                                                                                                       |
| 3.26(2)   |   | Amended and Restated Certificate of Limited  Partnership of Colonial Downs, L.P.                                           |
|      |   |                                                                                                                       |
| 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 Incorporation of Fuel Stop 36, Inc.  dated August 24, 1989                                           |
|      |   |                                                                                                                       |
| 3.43(12)  |   | Articles of Organization of Jalou of Larose, LLC  dated November 3, 2005                                              |
|      |   |                                                                                                                       |
| 3.44(12)  |   | Articles of Incorporation of Jacobs Elko  Entertainment, Inc.                                                         |

 

E-2

----

 
| 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.                                                      |
|     |   |                                                                                                |
| 3.51(12) |   | Limited Liability Company Agreement of Jalou Magic  L.L.C.                                          |
|     |   |                                                                                                |
| 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                                                |
|     |   |                                                                                                |
| 3.57(12) |   | Limited Liability Company Agreement of Jalou of 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.                                                 |
|     |   |                                                                                                |
| 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                                        |
|     |   |                                                                                                |
| 3.71(12) |   | Articles of Organization of Colonial Downs, LLC                                                     |
|     |   |                                                                                                |
| 3.72(12) |   | Operating Agreement of Colonial Downs, LLC                                                          |

 

E-3

----

 
| 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.                                                                                                                                                                                                                                                                                                                                                 |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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                                                                                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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                                                                                                                                                                                                                                                                                                                                      |

 

E-4

----

 
| 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.                                                                                                                                                                                                                                                                                                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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.                                                                                                                                                                                                                                                                                                                                                   |

 

E-5

----

 
| 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                                                                               |
|       |   |                                                                                                                                                                                                    |
| 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.                                                                                                           |
|       |   |                                                                                                                                                                                                    |
| 12(19)     |   | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                      |
|       |   |                                                                                                                                                                                                    |
| 14.1(19)   |   | Code of Ethics (as revised).                                                                                                                                                                            |
|       |   |                                                                                                                                                                                                    |
| 21.2(19)   |   | Subsidiaries of Jacobs Entertainment, Inc.                                                                                                                                                         |

 

E-6

----

 
| 25.1(12) |   | Statement of Eligibility of Trustee on Form T-1                                            |
|----------|--------|-------------------------------------------------------------------------------------------------|
|     |   |                                                                                            |
| 31.1(19) |   | Chief Executive Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002 |
|     |   |                                                                                            |
| 31.2(19) |   | Chief Financial Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002 |
|     |   |                                                                                            |
| 32.1(19) |   | Chief Executive Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002 |
|     |   |                                                                                            |
| 32.2(19) |   | Chief Financial Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002 |
|     |   |                                                                                            |

----

| (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) |   | Filed herewith.                                                                                                                                                                 |

 

E-7

----