** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Form 10-K**

**ý**                                 ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 (“Act”)

** **

**For the fiscal year ended December 31, 2006**

 

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Commission FileNo. 333-88242**

**JACOBSENTERTAINMENT, INC.**

(Exact name 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 West Colfax, Suite 250,Golden, Colorado 80401**

(Address of principal executive offices) (Zip code)

**(303) 215-5200**

(Registrant’s telephone number, including area code)

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

Securities registered 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   o   No   x

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Act during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such 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 thisForm 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | o |   | Accelerated  filer | o |   | Non-accelerated filer | x |
|-------------------------|---|--------|--------------------|---|--------|-----------------------|---|

 

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 15,2007 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 15, 2007** |
|---------------------------------------------|------------|-------------------------------------------------------|
| 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 theexhibit index which appears on page E-1.

 

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**JACOBS ENTERTAINMENT, INC.**

**2006 ANNUAL REPORT ON FORM 10-K**

**Table of Contents**
| Item      | ** ** | **Description**                                                                                                      | ** ** | ** ** |
|-----------|------------|----------------------------------------------------------------------------------------------------------------------|------------|------------|
|      |       |                                                                                                                 |       |       |
| Item  1.  |       | Business.                                                                                                            |       | 1          |
| Item  1A. |       | Risk  Factors.                                                                                                       |       | 28         |
| Item 1B.  |       | Unresolved Staff  Comments.                                                                                          |       | 39         |
| Item  2.  |       | Properties.                                                                                                          |       | 39         |
| Item 3.   |       | Legal Proceedings.                                                                                                   |       | 39         |
| Item 4.   |       | Submission of  Matters to a Vote of Security Holders.                                                                |       | 39         |
| Item 5.   |       | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities. |       | 40         |
| Item 6.   |       | Selected Financial  Data.                                                                                            |       | 41         |
| Item 7.   |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations.                         |       | 42         |
| Item 7A.  |       | Quantitative  and Qualitative Disclosure about Market Risk.                                                          |       | 63         |
| Item 8.   |       | Financial  Statements and Supplementary Data.                                                                        |       | 63         |
| Item 9.   |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure.                               |       | 63         |
| Item 9A.  |       | Controls and  Procedures.                                                                                            |       | 63         |
| Item 9B.  |       | Other Information.                                                                                                   |       | 64         |
| Item 10.  |       | Directors,  Executive Officers and Corporate Governance.                                                             |       | 64         |
| Item 11.  |       | Executive  Compensation.                                                                                             |       | 66         |
| Item 12.  |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters.                    |       | 70         |
| Item 13.  |       | Certain  Relationships, Related Transactions, and Director Independence.                                             |       | 71         |
| Item 14.  |       | Principal  Accounting Fees and Services.                                                                             |       | 74         |
| Item 15.  |       | Exhibits and  Financial Statement Schedules.                                                                         |       | 74         |

 

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**SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS**

We make statements in thisreport that relate to matters that are not historical facts that we refer to as“forward-looking statements” regarding, among other things, our businessstrategy, our prospects and our financial position. These statementsmay be identified by the use of forward-looking terminology such as “believes,”“estimates, “expects, “intends,” “may,” “should” or “anticipates” or thenegative or other variation of these or similar words, or by discussion ofstrategy or risks and uncertainties. Forward-looking statements in this reportinclude, among other things, statements concerning:

·                                               projections of future results of operationsor financial condition;

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

·                                               expectation of the continued availability ofcapital resources.

Any forward-lookingstatement made by us necessarily is based upon a number of estimates andassumptions that, while considered reasonable by us, are inherently subject tosignificant business, economic, regulatory, and competitive uncertainties andcontingencies, many of which are beyond our control, and are subject to change.Actual results of our operations may vary materially from anyforward-looking statement made by us or on our behalf. Forward-lookingstatements should not be regarded as representations by us or any other personthat the forward-looking statements will be achieved. Undue reliance should notbe placed on any forward-looking statements. The contingencies anduncertainties to which any forward-looking statement contained herein issubject to include, but are not limited to, the following:

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

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

·                                        Our indebtedness imposes restrictivecovenants on us.

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

·                                        We may experience a loss of market sharedue to intense competition.

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

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

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

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

·                                        Members of our board of directors indirectlyown 100% of Jacobs Entertainment, Inc. and could have interests thatconflict with yours.

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

·                                        Our business relies heavily on certainmarkets and an economic downturn in these markets could have a material adverseeffect on our results.

All subsequent written andoral forward-looking statements attributable to us or persons acting on ourbehalf are expressly qualified in their entirety by the cautionary statementsincluded in this report. We undertake no obligation to publicly update orrevise any forward-looking statements, whether as a result of new information,future events or otherwise. In light of these risks, uncertainties andassumptions, the forward-looking events discussed in this report might notoccur.

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**NON-GAAP FINANCIAL MEASURES**

Consolidated and propertylevel EBITDA and the related ratios presented in this report are supplementalmeasures of our performance that are not required by, or presented inaccordance with, generally accepted accounting principles. EBITDA is not ameasurement of our financial performance under generally accepted accountingprinciples and should not be considered as an alternative to net income,operating income or any other performance measures derived in accordance withgenerally accepted accounting principles, or as an alternative to cash flowfrom operating activities as a measure of our liquidity.

EBITDA consists of net income(loss) plus depreciation and amortization, interest expense, net of capitalizedinterest, and taxes. EBITDA is presented because it is used by our managementas a supplemental performance measure to analyze the performance of ourbusiness and because it is frequently used by securities analysts, investorsand others in their evaluation of companies in our industry, substantially allof which present EBITDA when reporting their results.

We use EBITDA, subject tocertain adjustments, as a measure in debt covenants in our debt agreements. Ourbank credit agreement and our indenture use EBITDA, subject to certainadjustments, to measure our compliance with debt covenants. We also use EBITDAto evaluate and price potential acquisition candidates. We believe EBITDAfacilitates operating performance comparisons from period to period and companyto company by removing potential differences caused by variations in capitalstructures (affecting relative interest expense), tax positions (such as theimpact on periods or type of companies of changes in effective tax rates or netoperating losses) and the age and book depreciation of facilities and equipment(affecting relative depreciation expense).

EBITDA has limitations as ananalytical tool, and you should not consider it in isolation, or as asubstitute for analysis of our results as reported under generally acceptedaccounting principles. Some of these limitations are:

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

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

·                                          EBITDA does not reflect the significantinterest expense, or the cash requirements necessary to service interest orprincipal payments, on our debts;

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

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

Because of theselimitations, EBITDA should not be considered as a measure of discretionary cashavailable to us to invest in the growth of our business. We compensate forthese limitations by relying primarily on our generally accepted accountingprinciples’ results and using EBITDA only supplementally. See our consolidatedfinancial statements and the notes to those statements included elsewhere inthis report.

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**INDUSTRY AND MARKET DATA**

This report includes marketand industry data that we obtained from our own research, studies conducted bythird party sources that we believe to be reliable and industry and generalpublications by third parties and, in some cases, management estimates based onindustry and other knowledge. We have not independently verified any of thedata from third party sources, and we make no representation as to the accuracyof such information. While we believe internal company estimates are reliableand market definitions are appropriate, they have not been verified by anyindependent sources, and we make no representations as to the accuracy of suchestimates.

 

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**PART I**

**Item 1.                    *Business.***

**Introduction**

JacobsEntertainment, Inc. (“Jacobs Entertainment”, “we”, “us” and “our”) wasformed as a Delaware corporation on April 17, 2001. We are a developer,owner and operator of gaming and pari-mutuel wagering facilities throughout theUnited States, with properties located in Colorado, Louisiana, Nevada andVirginia. We own and operate five land-based casinos, 16 video gaming truckplazas (three of which are leased) and a horse racing track with ninesatellite-wagering facilities (five of which are leased). In addition, we areparty to an agreement that entitles us to a portion of the gaming revenue froman additional truck plaza video gaming facility.

All of our gaming facilitiestarget local customers and emphasize revenues from slot machine play or videogaming, or both. For the year ended December 31, 2006, our net revenuesand EBITDA were approximately $312.3 million and $34.5 million, respectively.See Note 17 to our consolidated financial statements for information concerningthe operational performance of the segments of our business.

The following table sets forth certain informationand property level EBITDA (excluding corporate overhead) of our properties:
| ** **                                                     | ** ** | ** **                         | ** ** | ** **                               | ** ** | ** **                                      | ** ** | ** **                      | ** ** | ** ** | ** ** | **Year Ended** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                                     | ** ** | ** **                         | ** ** | ** **                               | ** ** | **As of December 31, 2006** | ** ** | **December 31, 2006** | ** ** |
| ** **                                                     | ** ** | ** **                         | ** ** | ** **                               | ** ** | **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                                          |       | 1,020                           |       | 30         |       | 50                  |       | $ | 21,029 |   |
| Gilpin Casino                                                  |       | Black  Hawk,  Colorado             |       | Land-based  casino                       |       | 16,000                                          |       | 457                             |       | 16         |       |                |       | 6,087 |   |
| Gold Dust West-  Reno                                          |       | Reno,  Nevada                      |       | Land-based  casino                       |       | 17,500                                          |       | 492                             |       | 0          |       | 40                  |       | 8,218 |   |
| Gold Dust West -  Carson City                                  |       | Carson  City,  Nevada              |       | Land-based  casino                       |       | 12,000                                          |       | 368                             |       | 8          |       | 148                 |       | (1,147 | ) |
| Gold Dust West-  Elko(2)                                       |       | Elko,  Nevada                      |       | Land-based  casino                       |       | 13,000                                          |       | 350                             |       | 6          |       |                |       | (499 | ) |
| Louisiana Truck  Plazas                                        |       | Louisiana  (17 various  locations) |       | Video  gaming                            |       | 12,000                                          |       | 825                             |       | 0          |       |                |       | 21,016 |   |
| Colonial Downs  Racetrack and  satellite  wagering  facilities |       | Virginia  (9  various  locations)  |       | Horse  racing and  pari-mutuel  wagering |       | N/A                                             |       | N/A                             |       | N/A        |       |                |       | 863 |   |
|                                                           |       |                               |       |                                     |       |                                            |       |                            |       |       |       |                |       |   |   |
| **Total**                                                      |       |                               |       |                                     |       | 95,500                                          |       | 3,512                           |       | 60         |       | 238                 |       | $ | 55,567 |   |

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(1)                    Property Level EBITDA excludes corporateoverhead expense of $21.2 million in the aggregate for all of our properties.

(2)                    Underconstruction at December 31, 2006. Opened March 5, 2007.

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**Thefollowing is a reconciliation of our property level EBITDA to our propertylevel net income (loss) (in thousands):**
| ** **                                           | ** ** | ** ** | ** ** | **Depreciation** | ** ** | ** **   | ** ** | ** **   | ** ** | **Income**  | ** ** | **Net**    | ** ** |
|------------------------------------------------------|------------|------------|------------|------------------|------------|--------------|------------|--------------|------------|-------------|------------|------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **and**          | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Tax**     | ** ** | **Income** | ** ** |
| **Year ended December 31, 2006** | ** ** | **EBITDA** | ** ** | **Amortization** | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Benefit** | ** ** | **(Loss)** | ** ** |
| The Lodge Casino                                     |       | $          | 21,029     |             | $          | 3,810        |       | $            | 35         |        | $          | 10,084     |       |   |   | $ | 7,170 |   |
| Gilpin Casino                                        |       | 6,087      |       | 1,725            |       | 12           |       | 3,057        |       |        |       | 1,317      |       |
| Gold Dust West-Reno                                  |       | 8,218      |       | 1,539            |       | 32           |       | 3,854        |       |        |       | 2,857      |       |
| Gold Dust West-Carson  City                          |       | (1,147     | )          | 727              |       | 13           |       | 827          |       |        |       | (2,688     | )          |
| Gold Dust West-Elko                                  |       | (499       | )          | —           |       | 4            |       | 90           |       |        |       | (585       | )          |
| Louisiana Truck Plazas                               |       | 21,016     |       | 3,302            |       | 91           |       | 3,736        |       |        |       | 14,069     |       |
| Colonial Downs                                       |       | 863        |       | 2,069            |       | 78           |       | 627          |       |        |       | (1,755     | )          |
| Total Property Level  EBITDA                         |       | 55,567     |       | 13,172           |       | 265          |       | 22,275       |       |        |       | 20,385     |       |
| Corporate overhead                                   |       | (21,241    | )          | 520              |       | 87           |       | 9,630        |       | $           | 103        |       | (31,201    | ) |
| ** **                                           | ** ** | ** ** | ** ** | ** **       | ** ** | ** **   | ** ** | ** **   | ** ** | ** **  | ** ** | ** ** | ** ** |
| **Total**                                            |       | $          | 34,326     |             | $          | 13,692       |       | $            | 352        |        | $          | 31,905     |       | $ | 103 |   | $ | (10,816 | ) |

 

**Business Strategy and Competitive Strengths**

Ourbusiness strategy is to continue to develop a broad, geographically diversifiedbase of gaming and pari-mutuel wagering properties that seek to provide ourcustomers with an enjoyable entertainment experience, and in turn to generatesignificant customer loyalty, and, in turn, repeat business.

We believe that there are opportunities for growthand operational efficiencies in the markets in which we operate. Black Hawk,Colorado was one of the fastest growing gaming markets in the country, havingexperienced a 26.3% compound annual growth in gaming revenue, from 1998 through2000. Revenues in 2001 through 2003 stabilized at approximately $500 million annuallyand rose to $524 million in 2004, $535 million in 2005 and $554 million in2006. We believe that our two Black Hawk properties will continue to becompetitive, and in 2003 we renovated our Gilpin Hotel Casino property in BlackHawk to enhance our competitive position. In 2006, we remodeled and improvedthe entrance and access to The Lodge Casino.

In 2006, we acquired an operating casino in CarsonCity, Nevada, and we entered into a land and building lease to develop a casinoin Elko, Nevada. We have identified, evaluated and continue to consider severalother potential small casino opportunities in Nevada.

In the last three years, we acquired and/ordeveloped 10 additional Louisiana truck plaza video gaming facilities and webelieve that there are other Louisiana truck plaza video gaming properties thatmay be available for acquisition.

In November 2003 and 2004, referendums werepassed in four localities in Virginia that allowed us to expand our off-trackwagering facilities from four to nine such facilities in the last three years.In addition, we may acquire or develop additional gaming properties indifferent jurisdictions catering to local gaming patrons in the future, furtherexpanding our geographic diversity. Our strategy for our horse racing operationsis to be a competitive participant in the industry by capitalizing on ourunique dirt and turf track facilities for live racing, hosting marquee racingevents, and expanding our off-track wagering facility network under appropriatecircumstances.

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Our competitive strategies and strengths include:

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

***Expand Louisiana Truck Plaza Business.*** During the last 12months, we have expanded our presence in the Louisiana truck plaza market byeither acquiring or opening five truck stop gaming plazas. Our strategy ofexpanding our presence in the Louisiana truck plaza market is driven by (i) theconsistent revenue each facility generates, (ii) the high return on investmentassociated with operating the truck plazas, and (iii) the relatively lowcapital expenditures necessary to maintain the facilities.

***Enter Additional Locals-Oriented Markets.*** Our managementteam has a proven track record of successfully operating casinos that cater tolocal residents or day trip patrons who reside in close proximity to theproperties. In an effort to leverage this operating experience and enter twoadditional locals-oriented markets, we acquired Piñon Plaza, located in CarsonCity, Nevada, in June 2006. This facility has 368 slot machines and eight tablegames on its 12,000 square foot gaming floor. We opened a new casino in Elko,Nevada on March 5, 2007 that features a 13,000 square-foot casino floor with350 ticket in-ticket out (TITO) slot machines and eight table games.

***Broad Geographic and Asset Diversification*****.** We believe thatbecause of our geographic and asset diversification, we are less dependent onresults at a specific property or in a specific market to generate our cashflow. This geographic diversity helps mitigate our susceptibility to regionaleconomic downturns or weather conditions.

***Strong Emphasis on Slot and Video Gaming Revenues*****.** All of our gamingfacilities emphasize slot machine or video gaming play, or both. We believeslot machine play to be the fastest growing, most consistently profitable andlowest risk segment of the gaming entertainment business. We offer a widevariety of games to attract customers and encourage them to play for longerperiods of time, thereby promoting the stability of our gaming revenue. Weintend to maximize slot and video gaming revenue by continuing to invest instate-of-the art equipment and systems and replacing older models with the mostcurrent product offerings in appropriate markets. Approximately 95% of our slotmachines and video poker machines feature TITO technology at March 1, 2007.

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

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Inthe Black Hawk, Colorado market, barriers to entry include (i) the scarcity ofland available for development within the approved gaming district, which is definedin the state constitution, the Gaming Commission’s regulations and the City ofBlack Hawk’s ordinances, and (ii) the high cost of acquiring land andconstructing new gaming facilities. There are stringent licensing requirementsand substantial licensing and compliance expenses attendant to commencing andconducting gaming operations in Nevada. In Louisiana, the barriers to entryinclude restrictions that require truck plaza video gaming facilities to meetspecified minimum levels of diesel and total fuel sales, have a specifiedminimum site acreage and conduct restaurant operations not fewer than 12 hoursper day and to keep a convenience store open 24 hours per day. Theserestrictions also prohibit the operation of more than 50 video gaming machines atany location and require truck plaza video gaming facilities to be located onlyin those parishes that voted to continue video gaming during a one-timestatewide referendum in 1996. In Virginia, in all but the county in which weoperate and one additional county, any potential operator of any competinghorse racing track would need to secure passage of a referendum in the localein which the track is to be operated. In addition, an unlimited racetrack owner’sand operator’s license is required in order to have off-track wageringfacilities. Off-track wagering facilities can be opened only in the currentjurisdictions in which we operate plus one other county without passage ofadditional referendums. The number of off-track wagering facilities is limited bystatute to a statewide total of 10 and we currently operate nine, leaving onlyone 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 owned subsidiary,since March 1997. Stephen R. Roark, our President, has been Black HawkGaming’s President since September 1995 and its Chief Financial Officerfrom 1993 to 2006. Ian M. Stewart, our President of Pari-Mutuel Wagering, hasbeen President of Colonial since November 1998 and its Chief FinancialOfficer since June 1997. Michael Shubic, our Chief Operating Officer, hasover 30 years of experience in the gaming industry. Brett Kramer, our ChiefFinancial Officer, has over 12 years experience with us in various financialcapacities. The four general managers of our casinos, who have a combined totalof over 60 years of casino management experience, report directly toMr. Shubic. Stan Guidroz is Vice President of Operations and oversees ourtruck plaza video gaming operations and has over 12 years of experience in thetruck plaza video gaming business. Mr. Guidroz reports directly toMr. Shubic. Further, Mr. Guidroz is supported by Reid Smith, JohnJurewicz and J. Richard Gottardi, who oversee the day-to-day operations of ourtruck plaza video gaming operations and who have over 25 years of combinedexperience in the gaming industry. 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.

**OurProperties and Operations**

***The Lodge Casino—Black Hawk, Colorado***. The Lodge Casino in Black Hawk, Colorado,which commenced operations in June 1998, is one of 21 casinos located inthe gaming 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 31,2006, the Black Hawk market had approximately 10,000 gaming devices (slotmachines, blackjack and poker tables) generating approximately $554 million inrevenues for the year then ended. The Lodge is one of the largest gamingfacilities in the market.

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The Lodge is located on a2.5 acre site that abuts State Highway 119, with approximately 25,000 squarefeet of gaming space on two floors containing 1,020****slot machines and 30 table games, 50 hotel rooms, threerestaurants, four bars and on-site parking for 600 vehicles. Our propertyincludes The White Buffalo Grille, an upscale dining facility, and a buffetthat was completely remodeled in 2002 at a cost of $1 million. Black Hawk hasno significant lodging facilities other than our facility and the Isle ofCapri, which has a 397-room hotel at its Black Hawk casino. Anothercompetitor has announced plans to construct a 537-room hotel directlyacross from The Lodge Casino, which is expected to be completed in the springof 2008.

We utilize computerized slotdata tracking systems that allow us to track individual play and payouts anddevelop mailing lists for special events, contest play and promotions. TheLodge participates in busing programs with unaffiliated transportationcompanies who transport patrons to Black Hawk/Central City from the marketareas described above. Black Hawk Gaming has obtained an exemption as a commoncarrier from the Colorado Public Utilities Commission and may elect tooperate its own busing program in the future.

***The Gilpin Casino—Black Hawk, Colorado***. The Gilpin Casino, which commencedoperations in October 1992, is located on a one-acre site in the centralBlack Hawk gaming district. We expanded our facility through the acquisition ofan adjacent casino in early 1994. We were one of the first casinos opened inColorado following the legalization of casino gaming in 1991. We offer 457 slotmachines and a 16 table poker room. The Gilpin has a restaurant and two barsand a slot club and utilizes busing and other promotional programs, similar tothose of The Lodge. We have available to our customers 200 surface parkingspots in the heart of historic Black Hawk.

In November 2004, webegan a renovation of the third floor of the Gilpin Casino, which was completedin March 2005 at an approximate cost of $1.8 million. This addition,called the Gilpin Poker Room, initially added 16 live action poker tables withthe space to add an additional 4 tables.

***The Gold Dust West-Reno—Reno, Nevada***. Gold Dust West-Reno, which we acquired in2001, is located on 4.6 acres in Reno’s central downtown gaming district andhas been operating since 1978. Gold Dust West-Reno caters to residents of Renoand surrounding areas and has approximately 17,500 square feet of gaming space,which offers 492 slot machines. Gold Dust West-Reno also features the WildwoodRestaurant, a 6,600 square foot dining facility, and has parking for 300vehicles. The property currently offers 40 motel rooms. We implemented a slotplayer tracking system in September 2002, which has facilitated improvement ofthe casino’s operating results. During 2002, we also made several additionalimprovements to the property, including a significant remodeling of theWildwood Restaurant’s kitchen and serving line, the addition of outdoorsignage, and general landscaping improvements.

***Gold Dust West-Carson City******—Carson City,Nevada.*** On June 25, 2006, we closed an agreement with Capital CityEntertainment, Inc. (“CCI”), an unaffiliated party, under which we acquired allof the assets of Piñon Plaza, a division of CCI which we have now re-branded asGold Dust West-Carson City. The assets included all of the personal property,buildings and improvements used by Piñon Plaza in the operation of its casino,hotel, bowling alley and RV park in Carson City, Nevada. The purchase price forthe assets was $14.5 million.

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Contemporaneously,we entered into a triple net ground lease covering land underlying the assetswhich began upon closing of the asset purchase agreement discussed above. Thelessor is a family trust affiliated with CCI. The lease has a ten year termwith two ten year extensions at our option. Rentals under the lease are$250,000 per year for years one through five, $300,000 per year for years sixthrough ten, and a rate based on an MAI (Member of the Appraisal Institute)appraisal of the property during the first and second extension terms. We havethe right to purchase the leased land at an MAI appraised value at the end ofthe first ten year term. We also have a right of first refusal should thelessor seek to sell the leased land to a third party.

GoldDust West-Carson City, which commenced operations in 1995, is a 140,000 squarefoot facility located on approximately 18 acres covered by the land leasedescribed above. Gold Dust West-Carson City offers 368 slot machines and eighttable games, four restaurants and two bars. It has a slot club and offersvarious promotional packages, many associated with its 32 lane bowling alley.Gold Dust West-Carson City has 148 hotel rooms. It also owns and operates a 48space RV park as part of the resort. There are 750 parking spaces for Gold DustWest-Carson City’s casino patrons and hotel guests.

***Gold Dust West-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 is $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 theland and the building any time after the first 12 months through the 60th month for $5 million and from the 61st month through the 120th month for $5.4 million.

We renovated and upgraded thebuilding and installed approximately 350 slot machines, six table games andappropriate food and beverage offerings. We estimate total pre-opening andgaming device costs to be approximately $25 million. We commencedrenovation during the third quarter of 2006 and opened the casino on March 5,2007.

***Louisiana Gaming Properties.*** Our truck plazaproperties consist of 16 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 17th truck plaza (Cash’s Truck Plaza and Casino inLobdell). Each truck plaza features a 24 hour per day convenience store,fueling operations, a restaurant operating not fewer than 12 hours perday, and 50 video poker devices (except for two of our truck plazas which have40 devices, one which has 47 devices and one which has 48 devices).

The Louisiana truck plazas’revenues comprise (i) revenue from video poker gaming machines;(ii) sales of gasoline and diesel fuel; (iii) sales of groceries,trucker supplies and various items through their convenience stores;(iv) sales of food and beverages in their restaurants and bars; and (v) miscellaneouscommissions on ATMs, pay phones and lottery sales.

The Louisiana video gamingindustry consists of video gaming in 31 of Louisiana’s 64 parishes. Theindustry is highly regulated and video gaming machines can only be placed inqualifying bars, restaurants, hotels, satellite wagering facilities and truckplazas. In order to qualify for video gaming, a truck plaza must offer dieselfuel, gasoline, a convenience store, a restaurant and a place for truck driversto shower and sleep. Our video gaming machines are located in a separate gamingroom that is designed to provide a pleasant casino-like atmosphere. As ofDecember 31, 2006, Louisiana had 162 licensed truck plazas.

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The Louisiana truck plazavideo gaming market caters primarily to local residents, whom we believecontribute to the vast majority of truck plaza gaming revenue. We believe thatmost of our video gaming customers live within a five-mile radius of ourproperties.

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

The dirt track at ColonialDowns is one and one-quarter miles in length and is one of the largest tracksin the United States. Based on our knowledge of the industry, we believe the180-foot wide turf track is the widest turf track in the country, therebyestablishing the track as one of the major turf racing facilities in theMid-Atlantic region.

In addition to our racetrack,we operate nine satellite wagering facilities in Virginia. These facilitiesprovide simulcast pari-mutuel wagering on thoroughbred and harness racing fromour racetrack and selected other racetracks throughout the United States. OurVirginia satellite wagering facilities are located in Brunswick County, ScottCounty, Hampton, Martinsville, Vinton, Chesapeake (two facilities) andRichmond, Virginia (two facilities). These facilities employ state of the artaudio/video technology for receiving quality import simulcast thoroughbred andharness racing from nationally known racetracks.

In2005, Colonial Downs created a new stakes race, the Colonial Turf Cup, whichtogether with the Virginia Derby forms the first two legs of the Grand Slam ofGrassTM. The Grand Slam of GrassTM consists of four races including the two racesat Colonial Downs, the Secretariat to be held at Arlington Park, and the JohnDeere Breeders’ Cup Turf at Monmouth Park in 2007.  Since the inception of The Grand Slam of GrassTM, we have guaranteed $5million to any horse that sweeps the four race series.  Of the $5 million guarantee, approximately $3million would be paid as a result of the cumulative purse winnings from thefour races. The remaining approximate $2 million would be paid by us as a bonusaward.  Annually, we purchase aninsurance policy to cover $2 million of this bonus payment if that payment wereto be required.  Since inception of TheGrand Slam of GrassTM, no single horse has won all four legs of the series.  TheColonial Turf Cup and the Virginia Derby will be broadcast nationally in 2007on CBS.

***Satellite Wagering Facilities, Virginia***. In addition to our racetrack facility, weoperate nine 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.

 

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The facilities arestructured to accommodate the needs of various patrons, from the seasonedhandicapper to the novice wagerer, and provide patrons with a comfortable,upscale environment including a full bar and a range of restaurant services. Inaddition, self-serve automated wagering equipment is available to patrons inorder to make wagering more user-friendly to the novice and more efficient forthe expert. This equipment, with touch-screen interactive terminals andpersonalized portable wagering terminals, provides patrons with current oddsinformation and enables them to place wagers and credit winning tickets totheir accounts without waiting in line.

In 2003, the legislature ofthe Commonwealth of Virginia passed a statute authorizing the Virginia RacingCommission to grant licenses and thereafter regulate account wagering inVirginia. On April 28, 2004, the Virginia Racing Commission grantedColonial a license to accept wagers over the telephone or through the internetvia its advanced deposit wagering system. The advanced deposit wagering systembecame fully operational late in the third quarter of 2004. In addition,Colonial has entered into agreements with other licensed account wageringproviders in Virginia. Pursuant to these agreements, Colonial receives a shareof source market fees for wagers placed by Virginians through these accountwagering service providers.

In 2004, the legislature ofthe Commonwealth of Virginia passed a statute, signed by the governor ofVirginia, authorizing up to ten satellite wagering facilities in localitiesthat approved such facilities by referenda. On November 2, 2004, referendawere passed authorizing the locating of a satellite wagering facility in thefollowing counties in Virginia: Henry County, Scott County and WestmorelandCounty. Thereafter, the Virginia Racing Commission granted Colonial licenses toown and operate a satellite wagering facility in Henry County and Scott County,Virginia. The Virginia Racing Commission can grant licenses for one more satellitewagering facility under existing legislation.

***The Nautica Properties.*** We have acquired from affiliated parties severaloptions to lease and options to purchase land and certain improvements on thewest bank of the Cuyahoga River in Cleveland, Ohio. We refer to theseproperties, 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 rentablespace, as the Nautica Properties. The Nautica Properties consist of six parcelsand require aggregate option payments of $500,000 per year. The optionagreements give us the right during the next three and one-half years topurchase two parcels and the right to purchase or enter into long term leaseson the other four parcels. In general, the purchase price of the parcels wouldbe 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.

Althoughwe may elect not to exercise 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 legal but we decide toexercise 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. The purchase price and rentpayments would be increased if, in the future, casino gaming became legal inOhio and a casino is licensed at Nautica.

**Seasonalityand Weather Conditions**

Seasonality and weatherconditions can affect our results of operations. Winter travel conditions canadversely affect patronage and revenues at our Colorado casinos, which weexperienced in late 2006 and early 2007. Although casino business is notseasonal, levels of gaming activity increase significantly during weekends andholidays, especially holiday weekends. Hurricanes Katrina and Rita temporarilyaffected our truck plaza video gaming operations in late 2005. Similar  hurricanes could have a material adverseeffect on our Louisiana operations in future years. Our pari-mutuel wageringrevenues are higher 

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during scheduled live racingthan at other times of the year. Adverse weather conditions can causecancellation of or curtail attendance at outdoor races, thereby reducingwagering and our revenues. Attendance and wagering at both outdoor races andsatellite wagering facilities can be harmed by holidays and other competingseasonal activities.

**Competition**

***General***. Weface intense competition in each of the markets in which we operate. Ourexisting gaming facilities compete directly with other gaming properties andactivities in Colorado, Nevada, Louisiana and Virginia. We expect thiscompetition to increase as new gaming operators enter our markets, existingcompetitors expand their operations, gaming activities expand in existingjurisdictions and gaming is legalized in new jurisdictions. Several of ourcompetitors have significantly better name recognition and more marketing andfinancial resources than we do. We cannot predict with any certainty theeffects of existing and future competition on our operating results.

We compete with other forms of gaming andentertainment such as online computer gaming, bingo, pull-tab games, cardparlors, sports books, pari-mutuel or telephonic betting on horse racing anddog racing, state-sponsored lotteries, video lottery terminals, and video pokerterminals. We may compete with gaming at other venues including internetgaming, although its legality is presently unclear.

We also compete with gaming operators in othergaming jurisdictions such as Las Vegas, Nevada, and Atlantic City, New Jersey.Our competition includes casinos located on Native American reservationsthroughout the United States, which have the advantage of being exempt fromcertain state and federal taxes. Some Native American tribes are eitherestablishing or are considering the establishment of gaming at additionallocations. Expansion of existing gaming jurisdictions and the development ofnew gaming jurisdictions and casinos on Native American-owned lands wouldincrease competition for our existing and future operations. In addition,increased competition could limit new opportunities for us or result in thesaturation of certain gaming markets. See Item 1A “Risk Factors—Competition”below.

***Casino Properties*****.** We believe the primary competitive factors in the Black Hawk, Colorado,market are location, availability and convenience of parking; number and typesof slot machines and gaming tables; types and pricing of amenities, includingfood; name recognition; overall atmosphere; and customer service. We believeour Colorado casinos generally compete favorably based on these factors.

Our Colorado casinos are on opposite sides of MainStreet in Black Hawk. Because of their proximity, our Black Hawk casinoscompete for some of the same customers. Further, there were 20 other casinosoperating in Black Hawk on December 31, 2006. There were approximately10,000 gaming devices (slot machines, blackjack and poker tables) in Black Hawkas of December 31, 2006.

Central City is located adjacent to Black Hawk andprovides the most direct competition to the gaming establishments in BlackHawk. There were six casinos operating in Central City with approximately 2,000gaming devices as of December 31, 2006. Black Hawk has historicallyenjoyed a competitive advantage over Central City in large part becauseaccess by State Highway 119 (formerly the only major access to Black Hawk fromthe Denver metropolitan area and Interstate 70) requires customers to drive byand, in part, through Black Hawk to reach Central City. Central City acquired aright-of-way and formed an entity to construct a road from I-70 directly intoCentral City, commonly referred to as the Central City Parkway. Financing wasobtained and road construction was completed in late 2004. It is now possiblefor certain traffic that passed through Black Hawk to proceed directly toCentral City from Interstate 70. Nonetheless, motorists driving from the Denvermetropolitan area still have the option of choosing to go either to Black Hawkor Central City without having to drive through the other 

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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 theBlack Hawk and other Colorado markets and others may enter through thepurchase or expansion of existing facilities, which could have a materialadverse effect on our results of operations and financial position. Forexample, the Mountain High Casino (formerly the Black Hawk Casino by Hyatt)opened in December 2001. The Mountain High Casino is directly across thestreet from The Lodge Casino. On January 1, 2005, AmeristarCasinos, Inc. purchased this facility and has since commenced constructionof a 537 hotel room tower, a convention center, and other amenities. UnderAmeristar’s ownership, this facility has been expanded to approximately 1,900slot machines and 24 table games, and a parking garage accommodating 800vehicles. No other casinos are currently under construction in Black Hawk. In2003, the Isle of Capri Casinos, Inc. purchased Colorado Central Station,directly across the street from its existing facility and subsequentlycompleted a major renovation and expansion project physically linking the twoproperties. The combined casinos are the largest in Black Hawk withapproximately 2,025 gaming devices, 258 hotel rooms and 1,700 parking spaces.The Isle of Capri is noted for its aggressive marketing programs. The MardiGras casino, next to our Lodge casino, was purchased in 2005 and the new ownerscan be expected to develop and implement 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 a significant Native American gaming facility located near Sacramento,California. Our Gold Dust West-Carson City and Gold Dust West-Elko, Nevadacasinos face competition from several casinos in those cities and many othervenues in Nevada.

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

Our video gaming operations also face competitionfrom other truck plaza video gaming facilities located in surrounding areas, aswell as competition from Louisiana horse racing facilities, some of which havebeen authorized to operate video gaming machines, and restaurants and bars withvideo gaming machines. As of December 31, 2006, there were 162 truckplazas in Louisiana licensed to operate video gaming devices.

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

We have competed and will compete for wageringdollars and simulcast fees with live racing and races simulcast from racetracksin other states, particularly racetracks in neighboring states such as 

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CharlesTown in West Virginia, Pimlico Race Course, Laurel Park, and Rosecroft Racewayin Maryland, and Delaware Park in Delaware. We believe that our existingagreements will continue to promote coordination of thoroughbred events betweenMaryland and Virginia. However, if the Virginia or Maryland Racing Commissionsdo not approve either party’s proposed racing days, or if the Virginia-Marylandthoroughbred racing circuit is otherwise unsuccessful, our track may have tocompete directly with Pimlico Race Course and Laurel Park in Maryland.

We also compete for wagering dollars with accountwagering companies operating both legally and illegally in Virginia. Thesecompanies take wagers from Virginians both over the phone and the internet. Webelieve our agreements with two licensed account wagering companies provide uswith fair compensation for their activities. Unlicensed account wageringcompanies have lower costs than Colonial and thus are able to attract customersin Virginia with large wagering rebates.

**Employeesand Labor Relations**

As of December 31, 2006, wehad approximately 1,100 full-time and part-time employees at our facilities inBlack Hawk, Colorado, and Reno and Carson City, Nevada, 400 employees at ourfacilities in Virginia and 700 employees at our facilities in Louisiana.Employees include cashiers, dealers, food and beverage service personnel,facilities maintenance, security, valet, accounting, marketing, and personnelservices. We consider relations with our employees to be good.

None of our employees arepresently represented by any union or other labor organization. See “RiskFactors” under Item 1A below.

**Regulation**

***GamingRegulation and Licensing—Colorado***

The State of Colorado created the Colorado Divisionof Gaming within the Department of Revenue to license, implement, regulate andsupervise the conduct of limited stakes gaming. The Division, under thesupervision of the Gaming Commission, has been granted broad power to ensurecompliance with Colorado law and regulations adopted thereunder (collectively,the “Colorado Regulations”). The Division may inspect, without notice,premises where gaming is being conducted; may seize, impound or remove anygaming device; may examine and copy all of a licensee’s records;may investigate the background and conduct of licensees and theiremployees; and may bring disciplinary actions against licensees and theiremployees. The Division may also conduct detailed background checks ofpersons who lend money to or invest money in a licensee.

It is illegal to operate a gaming facility without alicense issued by the Gaming Commission. The Gaming Commission is empowered toissue five types of gaming and gaming-related licenses. The licenses arerevocable and nontransferable. Our failure or inability to obtain and maintainnecessary gaming licenses would have a material adverse effect on its gamingoperations.

The Colorado casinos were granted retail/operatorlicenses concurrently with their openings. The licenses are subject tocontinued satisfaction of suitability requirements and must be renewedannually. The current licenses for both Colorado casinos were renewed onApril 21, 2006. There can be no assurance that the Colorado casinos cansuccessfully renew their licenses in a timely manner from year to year.

All persons employed by us in Colorado who areinvolved, directly or indirectly, in gaming operations in Colorado also arerequired to obtain various forms of gaming licenses. Key licenses are 

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issuedto “key employees,” which include any executive, employee or agent of alicensee having the power to exercise a significant influence over decisionsconcerning any part of the operations of a licensee. At least one keylicense holder must be on the premises of each Colorado casino at all timesthat a casino is open for business. Messrs. Jacobs and Roark and StanleyPolitano (our Chief Executive Officer, President and Executive Vice President,respectively), among others, hold key licenses.

The Gaming Commission closely regulates thesuitability of persons owning or seeking to renew an interest in a gaminglicense, and the suitability of a licensee can be adversely affected by personsassociated with the licensee. Additionally, any person or entity having anydirect interest in our subsidiary Black Hawk Gaming & Development Company,Inc. (“Black Hawk Gaming”) or any casino directly or indirectly owned by BlackHawk Gaming may be subject to administrative action, including personalhistory and background investigations. The actions of persons associated withJacobs Entertainment, Inc., such as its shareholders, its officers,directors, management or employees, could jeopardize any licenses held by BlackHawk Gaming. All of Black Hawk Gaming’s directors are required to be foundsuitable as associated persons.

As a general rule, under the Colorado Regulations,it is a criminal violation for any person to have a legal, beneficial, votingor equitable interest, or right to receive profits in more than threeretail/operator gaming licenses in Colorado. Black Hawk Gaming has an interestin two such licenses. Any expansion opportunities that we may have inColorado are limited to one more license.

The Colorado Division of Gamingmay require any person having an interest in a licensee or an applicantfor a license to provide background information, information on sources offunding, and a sworn statement that the interested person or applicant is notholding that interest for another party. The Gaming Commission may, at itsdiscretion, require any person having an interest in a licensee to undergo afull background investigation and to pay for that investigation in the samemanner as an applicant for a license. A background investigation includes anexamination of one’s personal history, financial associations, character,record, and reputation, as well as the people with whom a person hasassociated.

The Gaming Commission has the right to requestinformation from any person directly or indirectly interested in, or employedby, a licensee, and to investigate the moral character, honesty, integrity,prior activities, criminal record, reputation, habits and associations of(i) all persons licensed pursuant to the Colorado Limited Gaming Act,(ii) all officers, directors and stockholders of a licensed privately heldcorporation, (iii) all officers, directors and stockholders holding eithera 5% or greater interest or a controlling interest in a licensed publiclytraded corporation, (iv) any person who as agent, consultant, advisor orotherwise, exercises a significant influence upon the management or affairs ofa publicly traded corporation, (v) all general partners and all limitedpartners of a licensed partnership, (vi) all persons that have arelationship similar to that of an officer, director or stockholder of acorporation (such as members and managers of a limited liability company),(vii) all persons supplying financing or lending money to any licenseeconnected with the establishment or operation of limited gaming, and(viii) all persons having a contract, lease or ongoing financial orbusiness arrangement with any licensee, if such contract, lease or arrangementrelates to limited gaming operations, equipment, devices or premises.

If the Gaming Commission determines that a person orentity is not suitable to own a direct or indirect voting interest in BlackHawk Gaming or Jacobs Entertainment, Black Hawk Gaming or Jacobs Entertainmentmay be sanctioned unless the person or entity disposes of its votinginterest. Sanctions may include the loss of the casino licenses. In addition,the Colorado Regulations prohibit a licensee or any affiliate of a licenseefrom paying dividends, interest or other remuneration to any person found to beunsuitable, or recognizing the exercise of any voting rights by any personfound to be unsuitable. The Colorado Regulations require an operating casinolicensee to include in its corporate charter provisions 

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thatpermit the repurchase of the voting interests of any person found to beunsuitable. Black Hawk Gaming’s Articles of Incorporation include the requiredprovisions.

The Gaming Commission also has the power to requireBlack Hawk Gaming to suspend or dismiss its officers, directors and other keyemployees or sever relationships with other persons who refuse to fileappropriate applications or who are found to be unsuitable to act in suchcapacities. The Commission or the Director of the Division of Gamingmay review a licensee’s gaming contracts, require changes in the contractbefore the licensee’s application is approved or participation in the contractis allowed, and require a licensee to terminate its participation in any gamingcontract.

The Gaming Commission has enacted Rule 4.5,which imposes requirements on publicly traded corporations holding gaminglicenses in Colorado and on gaming licenses owned directly or indirectly by apublicly traded corporation, whether through a subsidiary or intermediarycompany. The term “publicly traded corporation” includes corporations, firms,limited liability companies, trusts, partnerships and other forms of businessorganizations. Such requirements automatically apply to any ownership interestheld by a publicly traded corporation, holding company or intermediary companythereof, when the ownership interest directly or indirectly is, or will be uponapproval of the Gaming Commission, 5% or more of the entire licensee. In anyevent, if the Gaming Commission determines that a publicly traded corporation,or a subsidiary, intermediary company or holding company has the actual abilityto exercise influence over a licensee, regardless of the percentage ofownership possessed by that entity, the Gaming Commission may require theentity to comply with the disclosure regulations contained in Rule 4.5.

Under Rule 4.5, gaming licensees,affiliated companies and controlling persons commencing a public offering ofvoting securities must notify the Gaming Commission no later than ten businessdays after the initial filing of a registration statement with the Securitiesand Exchange Commission. Licensed publicly traded corporations are alsorequired to send proxy statements to the Division of Gaming within five daysafter their distribution. Licensees to whom Rule 4.5 applies must includein their charter documents provisions that: restrict the rights of thelicensees to issue voting interests or securities except in accordance with theColorado Gaming Act and the Colorado Regulations; void the transfer of votingsecurities or other voting interests issued in violation of the Colorado GamingAct and the Colorado Regulations until the issuer ceases to be subject to thejurisdiction of the Gaming Commission or until the Gaming Commission, byaffirmative act, validates the transfer; and provide that holders of votinginterests or securities of licensees found unsuitable by the Gaming Commissionmay, within 60 days of such finding of unsuitability, be required to sell theirinterests or securities back to the issuer at the lesser of the cash equivalentof the holders’ investment or the market price as of the date of the finding ofunsuitability. Alternatively, the holders may, within 60 days after the findingof unsuitability, transfer the voting interests or securities to a personsuitable to the Gaming Commission. Until the voting interests or securities areheld by suitable persons, the issuer may not pay dividends or interest,the securities may not be voted, they may not be included in thevoting or securities of the issuer, and the issuer may not pay anyremuneration in any form to the holders of the securities.

Notification must be given to the Division of Gamingof the acquisition of direct or indirect beneficial ownership of:

·                                        5% or more of anyclass of voting securities of a publicly traded corporation that isrequired to include in its articles of organization the Rule 4.5 charterlanguage provisions; or

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

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Owners of any such interests, whether ownedindividually or in association with others, are subject to all finding ofsuitability. Notification must be made by persons acquiring these interests.Such persons must submit all requested information to the Division of Gaming,are subject to a finding of suitability as required by the Division of Gamingor the Gaming Commission, and must be informed of these requirements by thelicensee. A person other than an institutional investor whose interest equals10% or more of a publicly traded corporation or a 10% beneficial interest in agaming licensee must apply to the Gaming Commission for a finding ofsuitability within 45 days after acquiring such securities.

An institutional investor who, individuallyor in association with others, acquires, directly or indirectly, the beneficialownership of 15% or more of any class of voting securities or 15% of thebeneficial interest in a gaming licensee must apply to the Gaming Commissionfor a finding of suitability within 45 days after acquiring such interests.

Licensees must also notify any qualifying persons ofthese requirements. Whether or not so notified, qualifying persons areresponsible for complying with these requirements.

The Colorado Regulations also provide for exemptionfrom the requirements for a finding of suitability when the Gaming Commissionfinds such action to be consistent with the purposes of the Colorado GamingControl Act. The Gaming Commission may determine that anyone with amaterial relationship to, or material involvement with, a licensee or anaffiliated company must apply for a finding of suitability or must apply for akey employee license.

Pursuant to Rule 4.5, persons found unsuitableby the Gaming Commission must be removed from any position as an officer,director, or employee of a licensee, or of a holding or intermediary company.Such unsuitable persons also are prohibited from any beneficial ownership ofthe voting securities of any such entities. Licensees, or affiliated entitiesof licensees, are subject to sanctions for paying dividends or distributions topersons found unsuitable by the Gaming Commission, or for recognizing votingrights of, or paying a salary or any remuneration for services to, unsuitablepersons. Licensees or their affiliated entities also may be sanctioned forfailing to pursue efforts to require unsuitable persons to relinquish theirinterests. The Gaming Commission must provide prior approval of any sale,lease, purchase, conveyance, or acquisition of an interest in a casinolicensee, except as provided in Rule 4.5 relating to publicly tradedcorporations.

Colorado casinos may operate only between8:00 a.m. and 2:00 a.m., and may permit only individuals 21years or older to gamble or consume alcohol in the casino. Slot machines,black jack, poker and other approved variations of those games and video pokerare the only permitted games, with a maximum single wager of $5.00. Coloradocasinos may not extend credit to gaming patrons. The Colorado Constitutionand Regulations restrict the percentage of space a casino may use forgaming to 50% of any floor and 35% of the overall square footage of thebuilding in which the casino is located. Effective July 1 of each year,Colorado establishes the gross gaming revenue tax rate for the ensuing 12months. Under the Colorado Constitution, the rate can be increased to as muchas 40% of adjusted gross proceeds. Colorado has both raised and lowered gamingtax rates since they were initially set in 1991. Currently, the maximum gamingtax rate is 20%.

***GamingRegulation and Licensing—Nevada***

The ownership and operation of casino gamingfacilities in Nevada, including the Nevada casino operated by JacobsEntertainment’s direct and indirect subsidiaries Gold Dust WestCasino, Inc. (“Gold Dust West”), Jacobs Piñon Plaza Entertainment, Inc. (“Piñon Plaza”) and JacobsElko Entertainment, Inc. (“Elko”) (collectively, the “Nevada GamingSubsidiaries”), are subject to theNevada Gaming 

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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”).

The laws, regulations and supervisory procedures ofthe Nevada Gaming Authorities are based upon declarations of public policywhich are concerned with, among other things: (i) the prevention ofunsavory or unsuitable persons from having a direct or indirect involvementwith gaming at any time or in any capacity; (ii) the establishment andmaintenance of responsible accounting practices and procedures; (iii) themaintenance of effective controls over the financial practices of licensees,including the establishment of minimum procedures for internal fiscal affairsand the safeguarding of assets and revenues, providing reliable record keepingand filing periodic reports with the Nevada Gaming Authorities; (iv) theprevention of cheating and fraudulent practices; and (v) providing asource of state and local revenues through taxation and licensing fees. Changein such laws, regulations and procedures could have an adverse effect on JacobsEntertainment’s Nevada gaming operations.

The Nevada GamingSubsidiaries have been licensed by the Nevada Gaming Authorities as corporatelicensees. Gaming licenses require the periodic payment of fees and taxes andare not transferable. Jacobs Entertainment’s parent company, JacobsInvestments, Inc. (Jacobs Investments”), has been registered by the NevadaCommission as a holding company and has been found suitable to own JacobsEntertainment’s stock. Black Hawk Gaming has been registered by the NevadaCommission as an intermediary company and has been found suitable to own thestock of Gold Dust West. Jacobs Entertainment has been registered by the NevadaCommission as a publicly traded corporation (a “Registered Corporation”) andhas been found suitable as the sole shareholder of Black Hawk Gaming, Piñon Plaza and Elko.  Registered Corporations, registeredintermediary companies, and corporate licensees are required periodically tosubmit detailed financial and operating reports to the Nevada Commission andfurnish any other information that the Nevada Commission may require.Substantially all material loans, leases, sales of securities and similarfinancing transactions by Jacobs Investments, Jacobs Entertainment, Black HawkGaming, and the Nevada Gaming Subsidiaries must be reported to or approved bythe Nevada Commission. No person may become a stockholder of, or holder ofan interest in, or receive any percentage of profits from a corporate licenseewithout first obtaining licenses and approvals from the Nevada GamingAuthorities. The controlling shareholders, directors and certain officers ofJacobs Investments, Jacobs Entertainment, Black Hawk Gaming, and the NevadaGaming Subsidiaries have obtained from the Nevada Gaming Authorities thevarious registrations, findings of suitability, approvals, permits and licensesthat are required in order to engage in gaming activities in Reno, Carson Cityand Elko,****Nevada.

The Nevada Gaming Authorities may investigateany person who has a material relationship to, or material involvement with,Jacobs Investments, Jacobs Entertainment, Black Hawk Gaming, or the NevadaGaming Subsidiaries in order to determine whether that individual is suitableor should be licensed as a business associate of a gaming licensee. Theofficers, directors and shareholders of Jacobs Investments and JacobsEntertainment must file applications with and be licensed or found suitable bythe Nevada Gaming Authorities. The officers, directors and certain keyemployees of the Nevada Gaming Subsidiaries must file applications with andmay be required to be licensed or found suitable by the Nevada GamingAuthorities. The officers, directors and key employees of Jacobs Investments,Jacobs Entertainment and Black Hawk Gaming who are actively and directlyinvolved in the gaming activities of the Nevada Gaming Subsidiaries may be required to be licensed or foundsuitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may denyan application for licensing for any cause that they deem reasonable. A findingof suitability is comparable to licensing, and both require submission ofdetailed personal and financial information followed by a thoroughinvestigation. The applicant for 

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licensingor a finding of suitability must pay all the costs of the investigation.Changes in licensed positions must be reported to the Nevada Gaming Authoritiesand, in addition to their authority to deny an application for a finding ofsuitability or licensure, the Nevada Gaming Authorities have jurisdiction todisapprove a change in a corporate position.

If the Nevada Gaming Authorities were to find anofficer, director or key employee unsuitable for licensing or unsuitable tocontinue having a relationship with Jacobs Investments, Jacobs Entertainment,Black Hawk Gaming or the Nevada Gaming Subsidiaries, the companies involvedwould have to sever all relationships with that person. In addition, the NevadaCommission may require Jacobs Investments, Jacobs Entertainment, BlackHawk Gaming or the Nevada Gaming Subsidiaries to terminate the employment ofany person who refuses to file appropriate applications. Determinations ofsuitability or of questions pertaining to licensing are not subject to judicialreview in Nevada.

Jacobs Investments, Jacobs Entertainment, Black HawkGaming and the Nevada Gaming Subsidiaries are required periodically to submitdetailed financial and operating reports to the Nevada Commission and furnishany other information that the Nevada Commission may require. Substantiallymaterial loans, leases, sales of securities and similar financing transactionsof Jacobs Investments, Jacobs Entertainment, Black Hawk Gaming and the NevadaGaming Subsidiaries must be reported to or approved by the Nevada Commission.

If it were determined that the Nevada Act wasviolated by Jacobs Investments, Jacobs Entertainment, Black Hawk Gaming JacobsInvestments, Jacobs Entertainment, Black Hawk Gaming or the Nevada GamingSubsidiaries, the registrations or gaming licenses that Jacobs Investments,Jacobs Entertainment, Black Hawk Gaming Jacobs Investments, JacobsEntertainment, Black Hawk Gaming and the Nevada Gaming Subsidiaries hold couldbe limited, conditioned, suspended or revoked, subject to compliance withcertain statutory and regulatory procedures. In addition, Jacobs Investments,Jacobs Entertainment, Black Hawk Gaming, or the Nevada Gaming Subsidiaries andthe persons involved could be subject to substantial fines for each separateviolation of the Nevada Act at the discretion of the Nevada Commission.Further, a supervisor could be appointed by the Nevada Commission to operatethe casinos operated by the Nevada Gaming Subsidiaries and, under certaincircumstances, earnings generated during the supervisor’s appointment (exceptfor reasonable rental value of the casino) could be forfeited to the State ofNevada. Limitation, conditioning or suspension of the gaming licenses of theNevada Gaming Subsidiaries or the appointment of a supervisor could (andrevocation of any gaming license would) have a material adverse effect on thegaming operations, financial condition and results of operations of JacobsEntertainment.

The Nevada Act requires any person who acquiresbeneficial ownership of more than 5% of a Registered Corporation’s votingsecurities to report the acquisition to the Nevada Commission. The Nevada Actrequires that beneficial owners of more than 10% of a Registered Corporation’svoting securities apply to the Nevada Commission for a finding of suitabilitywithin 30 days after the Chairman of the Nevada Board mails the written noticerequiring such filing. Under certain circumstances, an “institutional investor,”as defined in the Nevada Act, that acquires more than 10%, but not more than15%, of a Registered Corporation’s voting securities may apply to theNevada Commission for a waiver of a finding of suitability if thatinstitutional investor holds the voting securities for investment purposesonly. In certain circumstances, an institutional investor that has obtained awaiver may hold up to 19% of a Registered Corporation’s voting securitiesfor a limited period of time and maintain the waiver. An institutional investorwill not be deemed to hold voting securities for investment purposes unless thevoting securities were acquired and are held in the ordinary course of businessas an institutional investor and not for the purpose of causing, directly orindirectly, the election of a majority of the members of the RegisteredCorporation’s board of directors, any change in the Registered Corporation’scorporate charter, bylaws, management, policies or operations, or of any of itsgaming affiliates, or any other action 

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thatthe Nevada Commission finds to be inconsistent with holding the RegisteredCorporation’s voting securities for investment purposes only. Activities whichare not deemed to be inconsistent with holding voting securities for investmentpurposes only include: (i) voting on all matters voted on by stockholders;(ii) making financial and other inquiries of management of the typenormally made by securities analysts for informational purposes and not tocause a change in management, policies or operations; and (iii) such otheractivities as the Nevada Commission may determine to be consistent withsuch investment intent. If the beneficial holder of voting securities who mustbe found suitable is a corporation, partnership or trust, it must submitdetailed business and financial information, including a list of beneficialowners. The applicant is required to pay all costs of investigation.

Any officer, director or stockholder of a licensedor registered company who fails or refuses to apply for a finding ofsuitability or a license within 30 days after being directed to do so by theNevada Commission or the Chairman of the Nevada Board may be foundunsuitable. The same restrictions apply to a record owner of stock if therecord owner, after request, fails to identify the beneficial owner. Anystockholder found unsuitable who holds, directly or indirectly, any beneficialownership of the stock of a licensed or registered company beyond such periodof time as may be prescribed by the Nevada Commission may be guiltyof a criminal offense. A Registered Corporation is subject to disciplinaryaction if, after it receives notice that a person is unsuitable to be astockholder or to have any other relationship with the Registered Corporation,the Registered Corporation (i) pays that person any dividend or interest,(ii) allows that person to exercise, directly or indirectly, any votingright conferred through securities held by that person, (iii) paysremuneration in any form to that person for services rendered orotherwise, or (iv) fails to pursue all lawful efforts to require thatunsuitable person to relinquish its voting securities including, if necessary,the immediate purchase of the voting securities for cash at fair market value.Additionally, the Cities of Reno, Carson City and Elko, Nevada have theauthority to approve all persons owning or controlling the stock of any corporationcontrolling a gaming licensee operating in those cities.

The Nevada Commission may, in its discretion,require the holder of any of the debt or similar securities of a RegisteredCorporation to file applications, be investigated and be found suitable to ownsuch debt securities if the Nevada Commission has reason to believe that suchownership would otherwise be inconsistent with the declared policies of theState of Nevada. If the Nevada Commission determines that a person isunsuitable to own those securities, then pursuant to the Nevada Act, aRegistered Corporation can be sanctioned, including by revocation of itsapprovals and those of its affiliates, if without the prior approval of theNevada Commission, the Registered Corporation (i) pays to the unsuitableperson any dividend, interest, or any distribution whatsoever;(ii) recognizes any voting right by the unsuitable person in connectionwith the Registered Corporation’s securities; (iii) pays the unsuitableperson remuneration in any form; or (iv) makes any payment to theunsuitable person by way of principal, redemption, conversion, exchange,liquidation, or similar transaction.

Jacobs Investments,Jacobs Entertainment, Black Hawk Gaming and the Nevada Gaming Subsidiaries arerequired to maintain current stock ledgers in Nevada that may be examinedby the Nevada Gaming Authorities at any time. If any securities are held intrust by an agent or by a nominee, the record holder may be required todisclose the identity of the beneficial owner to the Nevada Gaming Authorities.A failure to make the required disclosure may be grounds for finding therecord holder unsuitable. Licensed and registered companies are also requiredto render maximum assistance in determining the identity of beneficial ownersof their securities. The Nevada Commission has the power to require JacobsEntertainment’s stock certificates to bear a legend indicating that thesecurities are subject to the Nevada Act. To date, the Nevada Commission hasnot imposed such a requirement.

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JacobsInvestments, Jacobs Entertainment and Black Hawk Gaming may not make apublic offering without the prior approval of the Nevada Commission if theproceeds from the offering are intended to be used to construct, acquire orfinance gaming facilities in Nevada, or to retire or extend obligationsincurred for those purposes or for similar transactions. On September 27,2005, the Nevada Commission granted Jacobs Entertainment prior approval to makepublic offerings for a period of two years, subject to certain conditions (the “ShelfApproval”). The Shelf Approval also applies to any affiliated company whollyowned by Jacobs Entertainment which is a publicly traded corporation or wouldbecome a publicly traded corporation pursuant to a public offering. The ShelfApproval may be rescinded for good cause without prior notice upon theissuance of an interlocutory stop order by the Chairman of the Nevada Board.The Shelf Approval does not constitute a finding, recommendation or approval byany of the Nevada Gaming Authorities as to the accuracy or adequacy of theoffering memorandum or the investment merits of the securities. Anyrepresentation to the contrary is unlawful.

Changesin control of a Registered Corporation through merger, consolidation, stock orasset acquisitions, management or consulting agreements, or any act or conductby a person by which it obtains control of a Registered Corporation,may not occur without the prior approval of the Nevada Commission.Entities seeking to acquire control of a Registered Corporation must satisfythe Nevada Board and Nevada Commission on a variety of stringent standardsprior to assuming such control. The Nevada Commission may also requirecontrolling stockholders, officers, directors and other persons having a materialrelationship or involvement with the entity proposing to acquire control, to beinvestigated and licensed as part of the approval process relating to thetransaction.

The Nevada legislature has declared that somecorporate acquisitions opposed by management, repurchases of voting securities,and corporate defense tactics affecting Nevada corporate gaming licenseesmay be injurious to stable and productive corporate gaming. Regulations ofthe Nevada Gaming Commission provide that control of a Registered Corporationcannot be acquired through a tender offer, merger, consolidation, acquisitionof assets, management or consulting agreements or any form of takeoverwhatsoever without the prior approval of the Nevada Gaming Commission. TheNevada Commission has established a regulatory scheme to ameliorate thepotentially adverse effects of these business practices on Nevada’s gamingindustry and to further Nevada’s policy to: (i) assure the financialstability of corporate gaming licensees and their affiliates;(ii) preserve the beneficial aspects of conducting business in thecorporate form; and (iii) promote a neutral environment for the orderlygovernance of corporate affairs. Approvals are, in certain circumstances,required from the Nevada Commission before a Registered Corporation can makeexceptional repurchases of voting securities above the current market pricethereof and before a corporate acquisition opposed by management can beconsummated. The Nevada Act also requires prior approval of a plan of recapitalizationproposed by a Registered Corporation in response to a tender offer madedirectly to its stockholders for the purposes of acquiring control of theRegistered Corporation.

License fees and taxes, computed in various waysdepending on the type of gaming or activity involved, are payable to the Stateof Nevada and to the counties and cities in which the Nevada GamingSubsidiaries’ operations are conducted. Depending on the particular fee or taxinvolved, these fees and taxes are payable either monthly, quarterly orannually and are based on either (i) a percentage of the gross revenuesreceived; (ii) the number of gaming devices operated; or (iii) thenumber of table games operated. A live entertainment tax is also paid by gamingestablishments where live entertainment is furnished in connection with anadmission fee or the selling or serving of food, refreshments or merchandise.

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Any person who is licensed, required to be licensed,registered, or required to be registered, or is under common control with anysuch person (collectively, “Licensees”), and who is or proposes to becomeinvolved in a gaming venture outside of Nevada, is required to deposit with theNevada Board, and thereafter maintain, a revolving fund in the amount of$10,000 to pay the expenses of investigation by the Nevada Board for itsparticipation in that foreign gaming. The revolving fund is subject to increaseor decrease in the discretion of the Nevada Commission. Thereafter, foreignLicensees are required to comply with certain reporting requirements imposed bythe Nevada Act. The Licensees are also subject to disciplinary action by theNevada Commission if they knowingly violate any laws of the foreignjurisdiction pertaining to the foreign gaming operation, fail to conduct theforeign gaming operation in accordance with the standards of honesty andintegrity required of Nevada gaming operations, engage in activities or enterinto associations that are harmful to the State of Nevada or its ability tocollect gaming taxes and fees, or employ, contract with or associate with aperson in the foreign operation who has been denied a license or finding ofsuitability in Nevada on the grounds of personal unsuitability.

***GamingRegulation and Licensing—Louisiana***

Video gaming in Louisiana is regulated by theLouisiana Gaming Control Board, which is part of the Department of PublicSafety and Corrections. The enforcement arm thereof in charge of licensing andcriminal investigations is the Video Gaming Division of the Louisiana StatePolice, likewise a part of the Department of Public Safety andCorrections. The Gaming Section of the Attorney General’s Office providesall legal counsel and representation with respect to all matters involvinglicensing actions and any other litigation issue relative to gaming andinvolving either the Louisiana Gaming Control Board (hereinafter the “Board”)or the Video Gaming Division of the Louisiana State Police (hereinafter the “Division”).

The Video Draw Poker Devices Control Law, whichgoverns our operations in Louisiana, is contained within the Louisiana RevisedStatutes at Title 27:301 et seq. (the “act”) with accompanying regulationsbeing promulgated by the Board pursuant to the statutory authority containedwithin the act. The video draw poker regulations are in Title 42 of theLouisiana Administrative Code at Sections 2401 et seq.

The act gives the Board broad authority anddiscretion in the licensing of persons for video draw poker operations withinthe State of Louisiana. Generally, a person may not be licensed for videodraw poker if he has been convicted in any jurisdiction of any of the followingoffenses within ten years prior to the date of the application for a video drawpoker license or less than ten years has elapsed between the date of applicationfor a video draw poker license and the successful completion or service of anysentence, deferred adjudication, or period of probation or parole for any suchoffense: (i) any offense punishable by imprisonment for more than oneyear; (ii) theft or any crime involving false statements or declarations;or (iii) gambling, as defined by the laws or ordinances of anymunicipality, any parish, any state, or the United States. The act and itscorresponding regulations further provide that an application for a video drawpoker license may be denied if it contains any material omission 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.

There are several general suitability requirementsfor licensure. Specifically, the law requires that an applicant for a videodraw poker license be: (i) a person of good character, honesty, andintegrity; (ii) a person whose prior activities, arrest or criminal recordif any, reputation, habits, and associations do not pose a threat to the publicinterest of Louisiana or to the effective regulation of video draw poker, anddo not create or enhance the dangers of unsuitable, unfair, or illegalpractices, methods, and operations in the 

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activitiesauthorized by the act and financial arrangements incidental thereto; and(iii) a person who is likely to conduct business as authorized by the actin complete compliance with the act.

The suitability standards must be met by everyperson who has or controls directly or indirectly more than a 5% ownership,income, or profit interest in an entity that has or applies for a license inaccordance with the act, or who receives more than a 5% revenue interest in theform of a commission, finder’s fee, loan repayment, or any other businessexpense related to the gaming operation, or who has the ability, in the opinionof the Division, to exercise a significant influence over the activities of alicensee authorized or to be authorized by the act. For the purposes of theact, all gaming-related associations, outstanding loans, promissory notes, or otherfinancial indebtedness of an applicant or licensee must be revealed to theDivision for the purposes of determining significant influence and suitability.While significant influence is determined on a case-by-case basis, it hasgenerally been interpreted to include any person who is an officer or directorof any juridical entity that is an applicant for a video draw poker license aswell as the spouse of any person having more than a 5% ownership, income, orprofit interest in an applicant as well as the spouse of any officer ordirector of any juridical entity applicant.

The suitability criteria law makes an exception forinstitutional investors. An institutional investor of any applicant otherwiserequired to be found suitable or qualified pursuant to the act is presumedsuitable or qualified upon submitting documentation to the Board and theDivision sufficient to establish qualifications as an institutional investor asdescribed below, and upon certifying that: (i) it owns, holds, or controlspublicly traded securities issued by a licensee or permittee or a holding,intermediate, or parent company of a licensee or permittee in the ordinarycourse of business for investment purposes only; (ii) it does not exerciseinfluence over the affairs of the issuer of the securities or over any licensedor permitted subsidiary of the issuer of the securities; and (iii) it doesnot intend to exercise influence over the affairs of the issuer of thesecurities, or over any licensed or permitted subsidiary of the issuer of thesecurities, in the future, and that it agrees to notify the Board in writingwithin 30 days if that intent should change.

The exercise of voting privileges with regard topublicly traded securities is not deemed to constitute the exercise of influenceover the affairs of a licensee. The act also provides that this exception isnot to be construed to preclude the Board or the Division from investigatingthe suitability or qualifications of an institutional investor should the Boardor Division become aware of facts or information which may result in suchinstitutional investor being found unsuitable or disqualified.

An institutional investor is defined in the act as:(i) a plan or trust established and maintained by the United StatesGovernment, a state, or a political subdivision of a state for the benefit oftheir respective employees; (ii) an investment company that is registeredunder the Investment Company Act of 1940; (iii) a collective investmenttrust organized by a bank under Part Nine of the Rules of theComptroller of the Currency; (iv) a closed end investment trust that isregistered with the United States Securities and Exchange Commission;(v) a mutual fund; (vi) a life insurance company or property andcasualty company; (vii) a federal or state bank; or (viii) aninvestment advisor registered under the Investment Advisers Act of 1940.

If any person required to be found qualified orsuitable fails to provide all or part of the documents or informationrequired by the Board or the Division, and if, as a result, any person holdinga license issued pursuant to the act is not or may no longer be qualifiedor suitable, the Board will issue, under penalty of revocation of the 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 

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corporationholding a license, if the person has or controls directly or indirectly more thana five percent ownership, income, or profit interest in such corporation;(iii) receive remuneration or other economic benefit from any personholding a license issued pursuant to the provisions of the act;(iv) exercise significant influence over the activities of a personholding a license issued pursuant to the provisions of the act; or(v) continue owning or holding a security of a corporation holding alicense if the person has or controls directly or indirectly more than a 5%ownership, income, or profit interest in such corporation.

Operating video draw poker devices at truckplazas in Louisiana requires both an establishment license and a device ownerlicense. The establishment license permits the placement by a licensed deviceowner of video draw poker devices on the licensed premises. A device ownerlicense permits the licensed entity to place and operate video draw pokerdevices at licensed establishments. In many cases, an establishment licensedfor the placement of video draw poker devices will contract with a licenseddevice owner for video draw poker device placement services for a percentage ofthe video draw poker revenues. A licensed establishment may also, however,be a licensed device owner. A licensed device owner entity must be majority-ownedby a person who has resided within the State of Louisiana for a period of twoyears.

Licensed establishments in Louisiana may be arestaurant, bar, motel or hotel, a Louisiana State Racing Commission licensedpari-mutuel wagering facility, a Louisiana State Racing Commission licensedsatellite wagering facility, or a qualified truck stop facility. Generally, alicensed establishment pays to a device owner a percentage of the net devicerevenues generated by video draw poker devices placed at its business premises.There is no law that governs the minimum amount that a device owner must becompensated for its services.

Restaurants and bars may contain up to threevideo draw poker devices and a hotel or motel may have three video drawpoker devices in each of its lounges and restaurants licensed to sell alcoholicbeverages, up to a total of twelve for each hotel or motel. A pari-mutuelwagering facility and a licensed satellite wagering facility may have anunlimited number of video draw poker devices. A truck stop facilitymay have up to fifty video draw poker devices, with the number beingdetermined by the amount of fuel sales of the truck stop facility.

A restaurant, bar, motel or hotel, pari-mutuelwagering facility, and satellite wagering facility pays an initialnon-refundable licensing and processing fee of $1,100. A truck stop facilitypays an initial licensing and processing fee of $10,100. A license must berenewed every five years but a renewal fee is required each year. Thenon-refundable annual renewal and processing fee for a restaurant, bar, motelor hotel, pari-mutuel wagering facility, and satellite wagering facility is$200. The non-refundable annual renewal and processing fee for a truck stopfacility is $1,100.

In addition to the licensing fee, the device ownercollects all funds deposited in each video draw poker device and is required toremit to the State of Louisiana on a bi-weekly basis a franchise payment in anamount equal to a percentage of the net device revenue derived from theoperation of each video draw poker device owned by him. The amount of thepercentage is based on the type of licensed establishment authorized by theBoard for the placement of video draw poker devices, as follows: (i) arestaurant, bar, tavern, cocktail lounge, club, motel, or hotel—26%;(ii) a qualified truck stop facility—32.5%; and (iii) a pari-mutuelwagering facility or satellite wagering facility—22.5%.

The number of video draw poker devices permissiblein a qualified truck stop facility is based on average monthly fuel sales, asfollows: (i) 100,000 gallons of fuel, of which at least 40,000 gallons arediesel—not more than 50 devices; (ii) 75,000 gallons of fuel, of which atleast 30,000 gallons are diesel—not more than 40 devices; and (iii) 50,000gallons of fuel, of which at least 10,000 are diesel—not more than 35 devices.Once licensed, if a truck stop facility sells less than an average of 50,000gallons per 

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monthbut more 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 isrequired to offer fuel for sale in the regular course of business at retail, ata price at least 6% above the delivered cost of the fuel.

In addition, under the act, a qualified truck stopfacility is required to have at least five developed contiguous acres and sellfuel, 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) parking of sufficient size is allowed for safe ingress and egress; and(c) parking areas for other vehicles around business entrance ways andexits shall not constitute parking areas for 18-wheel tractor-trailer motorvehicles; (iv) it must have diesel and gasoline fuel; (v) it musthave on-site repair service facilities for 18-wheel tractor-trailer motorvehicles which facility may be in the form of a contract servicesbusiness which regularly performs this type of service; (vi) it must haveat least four of the following amenities: (a) a separate truckers’television lounge; (b) a full service laundry facility located in aconvenient area for truckers’ use; (c) private showers for men and women,not located in an area open to general public restroom facilities;(d) a travel store with items commonly referred to as truckers’ supplies(items commonly used only by commercial motor vehicles); (e) truck scales;(f) separate truckers’ telephones; and (g) permanent storagefacilities for fuel; (vii) it must have an area separated for adultpatronage only; and (viii) it must have, if available, aClass A—General retail permit or a Class A—Restaurant permit, asdefined in Part II of Chapter 1 or Part II of Chapter 2 of Title 26of the Louisiana Revised Statutes of 1950, to serve or sell alcoholic beveragesfor on-premises consumption and be owned and leased by a person who meets allpersonal qualifications for such permit. An owner or lessor of a qualifiedtruck stop facility may lease or sublease any restaurant, convenience store,fuel facility, 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 truckstop facility located, at the time application is made for a license to operatevideo draw poker devices, within five hundred feet of any property that is onthe National Historic Registry, any public playground, or a building usedexclusively as a church, synagogue, public library, or school.

All suitability information and applicationsrequired to be submitted with respect to the 16 Louisiana truck plazascurrently owned by our affiliates have been submitted to the Board and theDivision. Of these applications three are currently pending as is approval of athree machine bar at our Silver Fox facility. However, because the Board andthe Division conduct a new suitability investigation in connection with eachacquisition of a facility at which video gaming devices are to be operated, 

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regardlessof prior approvals, there can be no guarantee that a suitability approval willultimately result with respect to the plazas that we propose to acquire.

***GamingRegulation and Licensing—Virginia***

Colonial’s success is dependent upon continuedgovernment and public acceptance of horse racing as a form of legalizedgaming. Although Colonial believes that pari-mutuel wagering on horse racingwill continue to be legal in Virginia, gaming has come under increasingscrutiny nationally and locally.

Opposition to the Virginia Racing Act has beenunsuccessfully introduced in the Virginia legislature in the past, butadditional legislative opposition may arise in the future. Any repeal ormaterial amendment of the Virginia Racing Act could have a material adverseeffect on Colonial’s business of pari-mutuel wagering.

Under the Virginia Racing Act, the Virginia RacingCommission is vested with control over all aspects of horse racing withpari-mutuel wagering and the power to prescribe regulations and conditionsunder which such racing and wagering are conducted. The Virginia RacingCommission is responsible for, among other things, (i) conducting a reviewannually of the Colonial’s track and satellite wagering facility licenses,(ii) annually approving Colonial’s proposed schedule of racing days,(iii) approving new or modified types of pari-mutuel wagering poolsrequested by Colonial, (iv) issuing permits to all officers, directors,racing officials, and other employees of Colonial, and (v) approvingsimulcast schedules at the track and at the satellite wagering facilities. TheVirginia Racing Commission also has the authority to promulgate regulationspertaining to Colonial’s track facilities, equipment, safety and securitymeasures, and controls the issuing of licenses and permits for participants inpari-mutuel racing, including Colonial employees at the track and at thesatellite wagering facilities. In addition, the Virginia Racing Commission mustapprove any acquisition or continuing ownership of a 5% or greater interest inColonial. Action by the Virginia Racing Commission that is inconsistent withthe Colonial’s business plan could have a material adverse effect on Colonial.

During the 2000 session of the Virginia GeneralAssembly, an amendment to the Racing Act was passed that requires Colonial toenter into contracts with each representative horsemen’s group and provides forit to contribute to the purse account of the respective breed a minimum of 5%of the first $75 million of simulcast amounts wagered (“handle”), 6% of thenext $75 million and 7% of all handle over $150 million. The amendment alsoprovides for the breakage generated by pari-mutuel wagering to be allocated 70%to capital expenditures and 30% to backstretch benevolent activities. Prior tothis amendment, Colonial received all breakage. The Virginia Racing Actrequires that, after July 1, 2000, we enter into contracts with each representativehorsemen’s group that provide for us to contribute, by breed of horse, aminimum of 5% of the first $75 million of handle, 6% of the next $75 million ofhandle and 7% of all handle over $150 million to the purse account of therespective breed. Finally, the amendment empowers the Commission to summarilysuspend Colonial’s licenses if it believes the Racing Act or the regulationshave been violated. In addition, the Interstate Horse Racing Act also requiresthat we secure the consent of the Virginia Horsemen’s Benevolence andProtective Association (the “VaHBPA”) and the Virginia Harness HorseAssociation (“VHHA”) to the export simulcasting of races. These consents areusually contained in the agreement between each group and us.

The licenses issued by the Virginia RacingCommission to Colonial for the racetrack and its satellite wagering facilitiesare for a period of not less than 20 years, but are subject to annual review bythe Virginia Racing Commission. It is possible that such licenses will not berenewed or that such licenses could be suspended or revoked by the VirginiaRacing Commission for violations of the Virginia Racing 

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Actor Virginia Racing Commission rules. We also hold an advance deposit accountwagering license that is renewable annually. Our current license expiresDecember 31, 2007.

Our agreement with the VaHBPA expiresDecember 31, 2007. Our agreement with the VHHA expires December 31, 2008.In the event we cannot renew these agreements in the future, the VirginiaRacing 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 tothe predict 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.

Colonial, the track and the satellite wageringfacilities are also subject to a variety of other laws and regulations,including zoning, construction, and land-use laws and the regulations of theVirginia Alcoholic Beverage Control Board. Such laws and regulationsmay affect the selection of racing center sites because of parking,traffic flow, and other similar considerations. Any interruption or terminationof Colonial’s ability, or that of its concessionaires, to serve alcoholicbeverages could have a material adverse effect on Colonial.

***GamingRegulation—Federal***

Colonial’s interstate simulcast operations aresubject to the Federal Interstate Horse Racing Act, which regulates interstatesatellite wagering. In order to conduct wagering on import simulcasting at thetrack or any racing center, the Interstate Horse Racing Act requires Colonialto obtain the consent of the Virginia Racing Commission, the consent of theracing commission of the state where the horse racing meet originates, and theconsent of the representative horsemen groups in the origination state. Toconduct export simulcasting, Colonial must obtain the consent of the VirginiaHorseman’s Benevolent and Protective Association or the Virginia Harness HorseAssociation, and the Virginia Racing Commission. Also, in the case of satellitewagering to be conducted at any of Colonial’s satellite wagering facilities,the Interstate Horse Racing Act requires Colonial to obtain the approval of allcurrently operating horse racetracks within 60 miles of the satellite wageringfacilities or if there are no currently operating tracks within 60 miles, theapproval of the closest operating horse racetrack, if any, in an adjoiningstate. Significant delay in obtaining or failure to obtain these consents orapprovals could have a material adverse effect on Colonial.

The National Gaming Commission conducted acomprehensive legal and factual study of gambling in the United States andexisting federal, state, and local policies and practices with respect to thelegalization or prohibition of gambling activities. The commission publishedits findings and recommendations in 1999. Although no proposals have been putforward to implement the commission’s recommendations, the future adoption ofsome or all of these recommendations could have a material adverse effect onour business and operations.

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***LiquorRegulation***

The sale of alcoholic beverages in Colorado issubject to licensing, control and regulation by certain Colorado state andlocal agencies (the “Liquor Agencies”). Subject to certain exceptions, allpersons who directly or indirectly own 5% or more of a company or its casinomust file applications with and are subject to investigation by the LiquorAgencies. The Liquor Agencies also may investigate persons who, directlyor indirectly, lend money to liquor licensees. All liquor licenses arerenewable, are revocable and are not transferable. The Liquor Agencies havebroad powers to limit, condition, suspend or revoke any liquor license. Anydisciplinary action by the Liquor Agencies or any failure to renew or otherrevocation of any of our liquor licenses would have a material adverse effecton our operations and Black Hawk Gaming’s Colorado casinos.

Under Colorado law, it is a criminal violation forany person or entity to own a direct or indirect interest in more than one typeof alcoholic beverage license or more than three gaming tavern liquor licenses.Black Hawk Gaming’s Colorado casinos have gaming tavern liquor licenses.Accordingly, our expansion and diversification opportunities in Colorado arelimited by these licensing restrictions.

The sale of alcoholic beverages in the cities ofReno, Carson City and Elko Nevada, is subject to licensing, control andregulation by those cities. All licenses are revocable and are nottransferable. The agencies involved have full power to limit, condition,suspend or revoke any such license, and any such disciplinary action could (andrevocation would) have a material adverse effect on the operations of one ormore of our Gold Dust West casinos in Nevada.

Alcohol regulation within the State of Louisiana isperformed primarily by the Office of Alcohol and Tobacco Control (the “Board”).The Commissioner of the Board is given broad discretion in the granting anddenial of state alcohol permits. While permits are issued on a state level, thelocal municipality is also permitted to provide for concurrent local licensing.The state alcohol regulatory scheme is contained at Title 26:1 of the LouisianaRevised Statutes (hereinafter referred to as the “act”). Generally, no permitmay be issued if the applicable premises is located three hundred feet orless, as fixed by the local municipal ordinance, of a public playground or of abuilding used exclusively as a church or synagogue, public library, or school.Local municipalities are also permitted to regulate the opening and closinghours 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.

The sale of alcoholic beverages in Virginia issubject to licensing, control and regulation by the Virginia Department ofAlcoholic Beverage Control (the “Virginia ABC Board”), a Virginia state agency.The Virginia ABC Board issues licenses based upon the type of beverage, type ofestablishment or place of consumption. Virginia ABC laws include theresponsibility of the licensee to maintain complete and accurate records,certain restrictions on advertising and certain food 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.

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A licensee is required to maintain financialresponsibility for its business, including timely payment of all taxes,creditor obligations and other bills, and must keep accurate records of allsuch transactions. Mixed beverage licensees must record sales and purchases ofall mixed beverages, food and non-alcoholic beverages. Mixed beverage licenseesmust submit annual review reports to the Virginia ABC Board showing allpurchases and sales of alcoholic beverages during the year as well as anaccurate inventory. Finally, the Virginia ABC Board imposes certainrestrictions and limitations on advertising, the use of advertising materialsand promotions.

If Virginia ABC agents discover license violations,a disciplinary hearing will typically be conducted with a Virginia ABC hearingofficer. Any aggrieved localities and members of the community may attendthe hearing and present any additional or relevant objections or complaintsconcerning the license. The Virginia ABC Board has broad power to limit,condition, suspend or revoke any license granted on discovery of any violation.Any disciplinary action by the Virginia ABC Board or any failure to renew orany revocation of a liquor license would likely have a material adverse effecton the operation of Colonial’s track and satellite wagering facilities.

**Taxation**

Gaming operators in Colorado are subject to stateand local taxes and fees in addition to ordinary federal and state incometaxes. The City of Black Hawk has imposed an annual license fee, currently$750, for each gaming device installed in a casino. In addition, Colorado has atax on gross gaming revenue (also called “adjusted gross proceeds”) beinggenerally defined as the total amount wagered less the total amount paid out inprizes. Currently, gaming tax rates are as follows:

| Tax as Percentage of   | ** ** | **Annual Amount of Adjusted** | ** ** |
|---------------------------------------|------------|----------------------------------------------|------------|
| **Adjusted Gross Proceeds** | ** ** | **Gross Proceeds**                      | ** ** |
|                                  |       |                                         |       |   |   |   |   |
| 0.25%                                 |       | $                                            | 0          |   | — |   | 2,000,000 |   |
| 2.00%                                 |       | 2,000,001                                    |       | — |   | 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 |   |
|                                       |            |                                              |            |  |  |  |  |  |

 

Both of Black Hawk Gaming’s Colorado casinos aresubject to the maximum rate. Neither the Colorado constitution nor the gamingstatutes require that gaming tax rates be graduated, as they currently are.Under the Colorado constitution, the Colorado Gaming Commission could increasethe top rate to as much as 40%. A more recent tax limitation amendment to theColorado constitution, however, states that neither the state nor any localgovernment may increase a tax rate without an affirmative vote of the people;therefore, there is a question as to whether the Colorado Gaming Commissioncould constitutionally increase the state tax levied on gross gaming revenueswithout such a vote. The Colorado legislature rejected this argument after thetop tax rate was increased to 20% in 1996, and no court was asked to rule onthe applicability of the tax limitation amendment to gaming tax rates.

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In Nevada, license fees and taxes, computed invarious ways depending on the type of gaming or activity involved, are payableto the State of Nevada, Washoe and Carson City Counties and the Cities of Renoand Carson City. Our development in Elko, Nevada is subject to similar licensefees and taxes in that City and County. Depending upon the particular fee ortax involved, these fees and taxes are payable either monthly, quarterly orannually and are based upon either: (i) a percentage of the gross revenuesreceived; (ii) the number of gaming devices operated; or (iii) the number oftable games operated. A live entertainment tax is also paid by casinooperations where entertainment is furnished in connection with an admissionscharge or the selling or serving of food or refreshments or the selling ofmerchandise. Presently the state tax in Nevada on adjusted gross revenue fromgaming is 6.75%.

Video gaming operators in truck plazas in Louisianaare subject to state and local taxes and fees in addition to ordinary federaland state income taxes. The state of Louisiana has imposed a “gaming franchisefee” of 32.5% of the net device revenue from each video gaming device locatedat a truck plaza. The net device revenue is the amount remaining after allwinnings have been paid. This franchise fee is collected twice per month by theLouisiana state police based on the data that is provided directly to them fromthe devices. There is also an annual state establishment license fee of $1,000.In addition, the state imposes a device operation fee of $1,000 per year perdevice, which is paid quarterly, and each parish imposes an annual occupationallicense tax of up to $50 per device.

Colonialis subject to a number of federal, state and local taxes and fees. Theseinclude fees to support the Virginia Breeders Fund, taxes payable to theCommonwealth of Virginia, taxes and admission charges payable to New KentCounty, where the track is located, and taxes payable to localities in whichsatellite wagering facilities are located based upon attendance and the amountof monies wagered both at the track and at the satellite wagering facilities.Colonial believes that the public acceptance of pari-mutuel wagering on horseraces, as well as other forms of gaming, is based, in part, on the governmentalrevenues it generates from taxes and fees on such activities. It is possiblethat gaming activities, including horse racing, may become a target foradditional federal, state, or local taxes and fees. A significant increase insuch taxes or fees or the creation of significant additional taxes or feescould have a material adverse effect on us.

 

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**Item 1A. *RiskFactors.***

To inform readers of ourfuture plans and business strategies, this report contains statementsconcerning our future performance, intentions, objectives, plans andexpectations that are or may be deemed to be “forward-looking statements.” Ourability to do this has been fostered by the Private Securities LitigationReform Act of 1995, which provides a “safe harbor” for forward-lookingstatements to encourage companies to provide prospective information so long asthose statements are accompanied by meaningful cautionary statementsidentifying important factors that could cause actual results to differmaterially from those discussed in the statements. Such factors affecting usinclude, but are not limited to, the following:

**Risks Related to Our Indebtedness**

***Our substantial indebtedness could adversely affect our financialhealth and prevent us from fulfilling our obligations under our debtagreements.***

We have a significant amountof indebtedness. As of December 31, 2006 we had total indebtedness excludingaccounts payable and accrued expenses of approximately $277.1 million and totalstockholder’s equity of approximately $31.2 million. Our substantialindebtedness could have important consequences. For example, it could:

·                                          increase our vulnerability to general adverseeconomic and industry conditions;

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

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

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

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

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

The occurrence of any one ofthese events could have a material adverse effect on our business, financialcondition, results of operations, prospects and ability to satisfy ourobligations under our debt agreements.

***Our debt agreements impose many restrictive covenants on us.***

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

·                                          incur more debt;

·                                          issue stock of subsidiaries;

·                                          make investments;

·                                          repurchase stock;

·                                          create liens;

·                                          enter into transactions with affiliates;

·                                          enter into sale-leaseback transactions;

·                                          merge or consolidate; and

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·                                          transfer and sell assets.

Inaddition, our senior credit facility contains many restrictive covenantssimilar to the covenants of our indenture but the covenants in our seniorcredit facility are generally more restrictive than those contained in ourindenture. Our senior credit facility also requires us to maintain specifiedconsolidated financial ratios and satisfy certain consolidated financial tests.Our ability to meet those financial ratios and financial tests may be affectedby events beyond our control, and we may not be able to continue to meet thosetests. If we fail to meet those tests or breach any of the covenants, thelenders under our senior credit facility could declare all amounts outstandingthereunder, together with the accrued interest, to be immediately due andpayable. Our assets may not be sufficient to repay in full such indebtedness orany other indebtedness, including $210 million of our senior unsecured notesissued under our indenture. Further, any other agreements we may enter into inthe future governing our indebtedness may impose additional restrictions on us,any of which may adversely affect our ability to finance our future operationsor capital needs or to pursue available business opportunities.

Complying with thesecovenants could materially limit our financial and operating flexibility andcould cause us to take actions that we otherwise would not take or cause us notto take actions that we otherwise would take.

***Despite current indebtedness levels, we may still be able to incursubstantially more debt, which could exacerbate the risks described above.***

We and our subsidiaries maybe able to incur substantial additional indebtedness in the future. Theindenture governing our senior unsecured notes and our senior credit facilitydo not fully prohibit us or our subsidiaries from doing so. If new debt isadded to our and our subsidiaries’ current debt levels, the related risks thatwe and they now face could intensify.

***To service our indebtedness, we will require a significant amount ofcash, the availability of which depends on many factors beyond our control.***

Our ability to make paymentson and to refinance our indebtedness and to fund our operations will depend onour ability to generate cash. This, to an extent, is subject to generaleconomic, financial, competitive, legislative, regulatory and other factorsthat are beyond our control. Our business may not generate sufficient cash flowfrom operations and future borrowings may not be available to us in amountssufficient to enable us to pay our indebtedness, or to fund our other liquidityneeds. In addition, if we consummate significant acquisitions in the future,our cash requirements may increase significantly. If we are unable to generatesufficient cash flow and are unable to refinance or extend outstandingborrowings, we may have to:

·                                          reduce or delay planned expansion and capitalexpenditures;

·                                          sell assets;

·                                          restructure debt; or

·                                          raise additional capital.

Furthermore, we intend torefinance all of our debt on or before maturity. We cannot assure you that wewill be able to refinance any of our debt on commercially reasonable terms orat all.

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***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.***

Our senior notes are not secured by any of ourassets. Our obligations under our senior credit facility are secured by lienson substantially all of our assets. If we become insolvent or are liquidated,or if payments under our senior credit facility are accelerated, the lendersunder our senior credit facility will be entitled to exercise the remediesavailable to a secured lender under applicable law and our senior creditfacility. Accordingly, such lenders will have a prior claim with respect to ourassets and there may not be sufficient assets remaining to pay amounts due onour senior unsecured notes then outstanding.

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

We are a holding company.Substantially all of the operations necessary to fund payment on ourindebtedness are conducted by our subsidiaries. Our ability to make payments onour indebtedness will depend on our subsidiaries’ cash flow and their paymentof funds to us. Our subsidiaries’ ability to make payments to us will depend ontheir earnings, the terms of their indebtedness, business and taxconsiderations, legal and regulatory restrictions and economic conditions.

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

Upon the occurrence of certainchange of control events, we will be required to offer to repurchase alloutstanding senior unsecured notes at a purchase price equal to 101% of theirprincipal amount. Moreover, a change of control constitutes a default under oursenior credit facility. However, it is likely that we will not have sufficientfunds at the time of such a change of control to make the required repurchaseof our notes or repay the indebtedness under our senior credit facility. Thechange of control provisions may not protect you in a transaction in which weincur a large amount of debt, including a reorganization, restructuring, mergeror other similar transaction, because that kind of transaction may not involveany shift in voting power or beneficial ownership, or may not involve a shiftlarge enough to trigger a change of control as defined in our debt agreements.

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

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

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

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

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

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

In addition, a court could voidany payment by us or the guarantor pursuant to our senior unsecured notes or aguarantee and require that payment to be returned to us or the guarantor, or toa fund for the benefit of our creditors or the creditors of the guarantor.

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

·                                          the sum of its debts, including contingentliabilities, were greater than the fair saleable value of all of its assets,

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

·                                          it could not pay its debts as they becomedue.

We believe that we and theguarantors have received reasonably equivalent value and fair consideration forthe incurrence of the indebtedness and obligations represented by our seniorunsecured notes and the guarantees. On the basis of historical financialinformation, recent operating history and other factors, we believe that we andeach subsidiary guarantor, after giving effect to its guarantee of our seniorunsecured notes, are not insolvent, do not have unreasonably small capital forthe business in which we are or it is engaged and have not incurred debtsbeyond our or its ability to pay such debts as they mature. However, a courtmight disagree with any or all of our conclusions in this regard and it couldapply different legal standards.

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

The gaming authorities of anyjurisdiction in which we currently or in the future conduct or propose toconduct gaming, either through our subsidiaries or a joint venture, may requirethat a holder or beneficial owner of our senior unsecured notes be registered,licensed, qualified or found suitable, or comply with any other requirementunder applicable gaming laws. If you have an interest in our senior unsecurednotes, by the terms of the indenture, you will be deemed to agree to complywith all of these requirements, including your agreement to register or applyfor and maintain in full force and effect a license, qualification or a findingor suitability, or comply with any other requirement, within the required timeperiod, as provided by the relevant gaming authority. If you fail to apply tobe, or fail to become, registered, licensed or qualified or such registration,license or qualification is suspended or revoked or not maintained, or you arefound unsuitable or fail to comply with any other requirement of a gamingauthority, then we will have the right, at our option, to:

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

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

·                                          your cost;

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

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

If we elect, in our solediscretion, 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, anyright conferred by the senior unsecured notes; or

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

**Risks Related to Our Business**

***We facesignificant competition.***

Thegaming industry is characterized by a high degree of competition among a largenumber of participants, many of which have financial and other resources thatare greater than our resources. Competitive gaming activities include casinos,pari-mutuel wagering, video lottery terminals and other gaming devices, andother forms of legalized gaming. New or expanded operations by other personscan be expected to increase competition for our gaming operations and couldhave a material adverse impact on us.

*Casino Operations*. Our casinooperations are conducted in Black Hawk, Colorado, and Reno, Carson City, andElko, Nevada. Competition in the Black Hawk gaming market, which is the primarygaming market in Colorado, is intense. In addition, large, well-financedcompanies have entered the Black Hawk and other Colorado markets through thepurchase or expansion of existing facilities and others may continue to do so,all of which could materially harm our business, financial condition andresults of operations. For example:

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·                                          Ameristar Casinos, Inc. (“Ameristar”)purchased Mountain High Casino (formerly the Black Hawk Casino by Hyatt) in abankruptcy sale. That casino is directly across highway 119 from The Lodge andAmeristar has expanded the casino area to accommodate 1,800 gaming devices withnew slot product, expanded the parking garage and refurbished and rebranded itsdining venues. Ameristar has commenced construction of a $180 million, 33story, 537-room hotel, a convention center and other amenities and facilities.In all respects, Ameristar is known to be a fierce competitor in gaming marketsin which it operates;

·                                          Isle of Capri Casinos, Inc. ownsColorado Central Station, across the street from its existing facility and in2005 completed a major renovation and expansion project physically linking thetwo properties. The combined casinos are the largest in Black Hawk withapproximately 2,025 gaming devices, 258 hotel rooms and 1,700 parking spaces;

·                                          the Mardi Gras casino, next to our casino,The Lodge, was purchased in 2005 and the new owners have begun to develop andimplement new marketing programs, expanded the poker room and added new slotproduct;

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

·                                          the Cheyenne and Arapahoe Indian tribesclaiming significant treaty rights to land in Colorado have pursued a plan toexchange those rights for land east of the Denver metropolitan area on which tobuild and operate a large casino gaming facility. Although this project appearsto be dormant at present, if it is renewed and survives political and otherchallenges, it could have a material adverse effect on gaming revenues in BlackHawk and at The Lodge and Gilpin casinos;and

·                                          the 2005 acquisition of four Coloradoracetracks (two of which are in the Denver metropolitan area) that are ownedand operated by BLB Investors, L.L.C., a joint venture including KerznerInternational Limited, Starwood Capital Group Global, L.L.C., and WaterfordGroup, L.L.C., may reinvigorate efforts to authorize video lottery terminals atthe state’s racetracks. If this authorization is granted by the ColoradoLottery Division, the Colorado state legislature, or the voters, it could havea material adverse effect on gaming revenues in Black Hawk and at The Lodge andGilpin casinos.

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.

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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 a significant Native American gaming facility located near Sacramento,California. Our Carson City and Elko, Nevada Gold Dust West casinos facecompetition from several casinos in those cities and other venues in Nevada.Gold Dust West-Elko faces additional competitive and other risks associatedwith being a newly-opened casino.

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

*Louisiana Truck Plaza Operations*. Our Louisianatruck plaza operations compete with other truck plazas located in Louisiana andother forms of gaming, such as land-based, riverboat and Native Americancasinos, as well as slot machines located at horseracing tracks and video pokermachines located in bars, restaurants, hotels, off-track wagering facilitiesand bingo parlors. There were 162 licensed video poker truck plazas inLouisiana at December 31, 2006.

*Pari-Mutuel Wagering Operations*. We operate aracetrack in New Kent, Virginia, and off-track wagering facilities in BrunswickCounty, Chesapeake (two), Hampton, Martinsville, Scott County, Vinton, andRichmond (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).

Wecompete for wagering dollars and simulcast fees with live racing and racessimulcast from racetracks in other states, particularly racetracks inneighboring states such as Charles Town in West Virginia, Pimlico Race Course,Laurel Park, and Rosecroft Raceway in Maryland, and Delaware Park in Delaware.We also 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. Unlicensed account wagering companies have lower costs thanColonial Downs and thus are able to attract customers in Virginia with largewagering rebates.

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***We faceextensive regulation from gaming authorities.***

*Licensing Requirements.*As owners andoperators of gaming and pari-mutuel wagering facilities, we are subject toextensive state and local and some federal regulation. State and localauthorities require us and our subsidiaries to demonstrate suitability toobtain and retain various licenses and require that we have registrations,permits and approvals to conduct gaming and wagering operations. Variousregulatory authorities, including the Colorado Limited Gaming 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 authorities may also levy substantial finesagainst us or seize our assets or those of our subsidiaries or of the peopleinvolved in violating gaming laws or regulations. Any of these events couldmaterially harm our business, financial condition and results of operations.Gaming authorities in the United Sates can generally require that anybeneficial owner of our securities, including holders of our debt, file anapplication for a finding of suitability.

*Potential Changes in Regulatory Environment.*From time to time,legislators and special interest groups have proposed legislation that wouldexpand, restrict or prevent gaming or wagering operations in the jurisdictionsin which we operate. Any expansion of gaming or wagering or restriction on orprohibition of our gaming or wagering operations could materially harm ourbusiness, financial condition and results of operations. In particular inColorado, there have been repeated attempts to expand gambling beyond BlackHawk, Central City and Cripple Creek to other towns, racetracks, bingo halls,and tribal gaming through legislation, ballot initiatives, and administrativeaction by state or local agencies and this is a continued competitive threat tous.

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

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

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***Members of the Jacobs family own a controlling beneficial interest inour capital stock and may significantly influence our affairs or may pursueother activities that compete with us.***

All of our equity securitiesare presently owned by Jacobs Investments, Inc. (“JII”). Jeffrey P. Jacobs, ourChairman and Chief Executive Officer, and his family trusts own 50% of JII’sequity securities and trusts created by Richard E. Jacobs, his father, own theremaining 50%. JII has the ability significantly to influence our affairs,including the election of our directors and transactions including mergers,consolidations or sales of assets. Although Messrs. Jacobs have agreed not topursue any U.S. casino or gaming activities except through us, they are allowedto purchase and own additional truck plazas in Louisiana which we have theright to buy. Any such activities by them could be competitive with ouroperations 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 needed levelsof capital expenditures, our competitive position could deteriorate if we areunable to borrow funds for such purposes.

***Economic conditions, seasonality and weather conditions could affectour operations***.

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

In addition, seasonality andweather conditions can affect our results of operations. 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 both outdoorraces and satellite wagering facilities can be harmed by holidays and othercompeting seasonal activities.

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

The Federal Interstate Horseracing Act and the VirginiaRacing Act require Colonial to have written agreements with representativeVirginia horsemen’s groups in order to simulcast races. Our agreement with theVirginia Horsemen’s Benevolence and Protective Association expires onDecember 31, 2007. Our agreement with the Virginia Harness HorseAssociation expires on December 31, 2008.

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

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

Our casino and horse racing and pari-mutuelwagering operations use significant amounts of electricity and other forms ofenergy. Any substantial increase in the cost of the forms of energy we use maynegatively affect our results of operations. In addition, consumer energy orgasoline price increases may reduce the disposable income of our potentialcustomers or their willingness to patronize our operations and correspondinglyreduce our patronage and revenues. Furthermore, a fuel price increase mayimpact fuel sales in Louisiana, making it more difficult to meet minimum fuelsale requirements which in turn could limit (or eliminate entirely) the numberof video gaming devices we can operate at any given truck plaza.

***Our business,financial condition, and results of operations may be harmed by union effortsto organize our employees.***

Our employees are not coveredby collective bargaining agreements. However, in January and February 2007, the United Food and CommercialWorkers local union #7 conducted some initial organizing activities in BlackHawk by direct mail to casino employees, handouts at bus stops and personalsolicitations. These efforts were directed to employees of all major casinos inBlack Hawk. A small number of our employees, which we estimate at about 22,have signed up with the local as internal organizers. If this or any other union seeks to organize any of our employees, wecould experience disruption in our business and incur significant costs, bothof which could have a material adverse effect on our results of operation andfinancial condition. If a union were successful in organizing any of ouremployees, we could experience significant increases in our labor costs whichcould also have a material adverse effect on our business, financial condition,and results of operations.

***Failure tocomplete any future construction or development projects on budget and on timecould adversely affect our financial condition.***

Any future construction orexpansion projects will be subject to significant risks, any of which couldcause unanticipated cost increases and delays. These include, among others, thefollowing:

·                                          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;

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·                                          fire, earthquake, flood and other naturaldisasters; and

·                                          geological, construction, excavation andequipment problems.

Our expansion projects may notbe completed within our budget, our construction activities may disrupt ouroperations and our new operations may not open on schedule. We have limitedexperience in developing properties and cannot predict all of the risks thatany particular construction or remodeling project might face. In addition, wehave experienced delays that adversely affected our business during similarremodeling and expansion projects. Failure to complete a construction orexpansion project on time or within our budget may cause us to devoteadditional resources to the project, which could divert our time and attentionaway from the operation of our other businesses and could cause our business tosuffer.

***If we are unableto finance our expansion and renovation projects as well as capitalexpenditures through cash flow, borrowings under our senior credit facility andadditional financings, our expansion and renovation efforts will bejeopardized.***

We intend to finance ourcurrent and future expansion and renovation projects primarily with cash flowfrom operations and borrowings under our senior credit facility. If we areunable to finance our current or future expansion projects, we will have toadopt one or more alternatives, such as reducing or delaying planned expansion,development and renovation projects as well as capital expenditures, sellingassets, restructuring debt, or obtaining additional equity financing or joint venturepartners, or modifying our senior credit facility. These sources of funds maynot be sufficient to finance our expansion, and other financing may not beavailable on acceptable terms in a timely manner or at all. In addition, ourexisting indebtedness contains certain restrictions on our ability to incuradditional indebtedness. If we are unable to secure additional financing, wecould be forced to limit or suspend expansion, development and renovationprojects, which may adversely affect our business, financial condition andresults of operations.

***Theconcentration and evolution of the slot machine manufacturing industry couldimpose additional costs on us.***

A majority of our revenues areattributable to slot machines operated by us at our gaming facilities. It isimportant, for competitive reasons, that we offer the most popular and up todate slot machine games with the latest technology to our customers.

We believe that a substantialmajority of the slot machines sold in the U.S. in 2006 were manufactured by afew select companies. In addition, we believe that one company in particularprovided a majority of all slot machines sold in the U.S. in 2006.

In recent years, the prices ofnew slot machines have escalated faster than the rate of inflation. Furthermore,in recent years, slot machine manufacturers have frequently refused to sellslot machines featuring the most popular games, instead requiring participationlease arrangements in order to acquire the machines. Participation slot machineleasing arrangements typically require the payment of a fixed daily rental.Such agreements may also include a percentage payment of coin-in or net win.Generally, a participation lease is substantially more expensive over the longterm than the cost to purchase a new machine.

For competitive reasons, we maybe forced to purchase new slot machines or enter into participation leasearrangements that are more expensive than our current costs associated with thecontinued operation of our existing slot machines. If the new slot machines donot result in sufficient incremental revenues to offset the increasedinvestment and participation lease costs, it could hurt our profitability.

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

In November 2006, a ballotinitiative listed as Question 5 and entitled the “Nevada Clean Indoor Air Act”(the “Question 5”) was approved by a majority of Nevada voters. Question 5restricts 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 “ColoradoClean Indoor Act” (the “Indoor Act”) was adopted in the Colorado legislature inMarch 2006. It bans smoking in virtually all public places although certainportions of gaming casinos, including gaming areas, are exempt from the IndoorAct. There is pending legislation to amend the Indoor Act to remove the gamingcasino exemption, which could have a material adverse effect on our business.Notwithstanding this exemption, the Indoor Act permits any employee to requestand obtain a smoke-free workplace within the casino. If this provision isemployed liberally and the entire casino becomes smoke-free, it could have amaterial adverse effect on our business, particularly if employees of otherBlack Hawk casinos do not request that their employers provide smoke-freeworkplaces.

**Item 1B.                 *Unresolved Staff Comments.***

None.

**Item 2.                    *Properties.***

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

**Item 3.                    *Legal Proceedings.***

We are involved in routinelitigation arising in the ordinary course of our business pertaining to workers’compensation claims, equal opportunity employment issues, or guest injuryclaims. All such claims are routinely turned over to our insurance providers.None of the claims is expected to have a material impact on our financialposition, results of operations or cash flows. We believe these matters arecovered by appropriate insurance policies.

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

There were no matterssubmitted to a vote of our security holders during the fourth quarter of thefiscal year covered by this report.

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

Effective January 31, 2007,all of our outstanding common stock became held by Jacobs Investments, Inc., aprivate holding company and, accordingly, there is no established tradingmarket for our common stock. We have elected to be taxed under the provisionsof SubChapter S of the Internal Revenue Code of 1986. Under those provisions,the owner of our common stock pays taxes on our taxable income. Our ability tomake distributions to our stockholder is limited by the terms of the creditagreement and indenture related to our indebtedness.

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

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

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

Thefollowing selected consolidated financial data should be read in conjunctionwith our management’s discussion and analysis of financial condition andresults of operations and our consolidated financial statements and relatednotes thereto appearing elsewhere in this report. The consolidated statementsof operations data and the consolidated balance sheet data are derived from ourconsolidated financial statements. The selected financial data provided belowis not necessarily indicative of our future results of operations or financialperformance.
| ** **                                                       | ** ** | **As of and for the Year Ended December 31,**                | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **2002**                                                                                             | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                                       | ** ** | **(Dollars In Thousands, except Distributions per Common Share)** | ** ** |
| ** **                                                       | ** ** | ** **                                                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Statements  of Operations Data:**(1)                           |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Net revenues                                                     |       | $                                                                                                    | 158,439    |   | $ | 184,650 |   | $ | 206,346 |   | $ | 251,963 |   | $ | 312,295 |   |
| Total costs and expenses                                         |       | 135,617                                                                                              |       | 164,571 |   | 182,349 |   | 232,764 |   | 282,340 |   |
| Operating income                                                 |       | 22,822                                                                                               |       | 20,079 |   | 23,997 |   | 19,199 |   | 29,955 |   |
| Interest expense, net                                            |       | (18,294                                                                                              | )          | (20,057 | ) | (20,008 | ) | (22,655 | ) | (31,553 | ) |
| Pre-payment penalties, tender and consent  costs                 |       |                                                                                                 |       |   |   |   |   |   |   | (9,321 | ) |
| Income tax (expense) benefit                                     |       | —                                                                                               |       | — |   | — |   | (423 | ) | 103 |   |
| Equity in earnings (loss) of investments and  minority interest  |       | (1,807                                                                                               | )          | — |   | — |   | — |   | — |   |
| Net income (loss)                                                |       | $                                                                                                    | 2,721      |   | $ | 22 |   | $ | 3,989 |   | $ | (3,879 | ) | $ | (10,816 | ) |
| **Balance  Sheet Data (end of period):**(1)                      |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Current assets                                                   |       | $                                                                                                    | 28,527     |   | $ | 24,254 |   | $ | 29,454 |   | $ | 32,294 |   | $ | 35,273 |   |
| Total assets                                                     |       | 246,753                                                                                              |       | 247,350 |   | 259,179 |   | 286,751 |   | 337,561 |   |
| Current liabilities                                              |       | 25,745                                                                                               |       | 26,666 |   | 26,589 |   | 32,155 |   | 29,931 |   |
| Long-term debt, capital lease obligations and other  liabilities |       | 153,974                                                                                              |       | 152,137 |   | 158,202 |   | 185,869 |   | 276,240 |   |
| Stockholders’ equity                                        |       | 67,034                                                                                               |       | 68,547 |   | 74,388 |   | 68,727 |   | 31,390 |   |
| **Financial  Data**                                              |       |                                                                                                 |       |   |   |   |   |   |   |   |   |
| Ratio of earnings to fixed charges(2)                            |       | 1.15x                                                                                                |       | 1.00x |   | 1.19x |   | 0.85x |   | 0.67x |   |
| **Distributions per Common Share**                               |       | $                                                                                                    | 1,290      |   | — |   | — |   | $ | 15,000 |   | $ | 22,803 |   |

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(1)                                  See a discussion of our recent acquisitionactivities in Note 4 and our debt issuances in Note 5 to theconsolidated financial statements.

(2)                                  The ratio of earnings to fixed charges is computedby dividing earnings by fixed charges. Earnings consist of income (loss) beforeincome taxes, equity earnings (losses) of investments and minority interest,plus fixed charges, amortization of capitalized interest and distributions fromequity investees, less interest capitalized during the period. Fixed chargesconsist of interest on indebtedness (whether expensed or capitalized),amortization of deferred financing costs, discounts and premiums and thatportion of rental expense that we believe is representative of interest. Forthe years ended December 31, 2005 and 2006, we had a deficiency of $3,495and $11,002, respectively, in earnings to fixed charges.

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

*This section discusses the results of our operationson a historical basis for the years indicated. You should read the followingdiscussion and analysis in conjunction with the audited consolidated financialstatements that are included elsewhere in this Form 10-K. Certain statementscontained in this Management’s Discussion and Analysis of Financial Conditionand Results of Operations constitute “forward-looking statements,” which statementsinvolve risks and uncertainties described elsewhere in this report.*

*Ourhistorical information may not necessarily be meaningful when makingyear-to-year comparisons, as our cost structure, debt structure,capitalization, and the overall composition of our company following thetransactions discussed herein have significantly changed. Further, thehistorical information should not necessarily be taken as a reliable indicationof our future performance.*

**TABLE OF CONTENTS TOMANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)**
| Description of item |
|-------------------------------|
|                          |   |   |   |   |
| A.                            |   | Company  background |   | 42 |
| B.                            |   | Significant  transactions occurring during the year ended December 31, 2006 |   | 42 |
| C.                            |   | Overview  and discussion of our operations |   | 44 |
| D.                            |   | Comparison of  our operations for the year ended December 31, 2006 to the year ended  December 31, 2005 |   | 49 |
| E.                            |   | Comparison of  our operations for the year ended December 31, 2005 to the year ended  December 31, 2004 |   | 53 |
| F.                            |   | Segment information  for the three years ended December 31, 2006 |   | 55 |
| G.                            |   | Liquidity and  capital resources—December 31, 2006 |   | 59 |
| H.                            |   | Critical  accounting policies and estimates |   | 61 |

 

**A.            Companybackground**

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, 2006,we own and operate two casinos in Colorado and two casinos in Nevada (a thirdcasino in Nevada opened on March 5, 2007), sixteen video gaming truck plazas inLouisiana and a horse racing track with nine satellite wagering facilities inVirginia. In addition, we are party to an agreement that entitles us to a portionof the gaming revenues from an additional truck plaza video gaming facility.

We have elected to be taxed under the provisions of Subchapter “S” ofthe Internal Revenue Code of 1986. Under those provisions, the owner of ourcompany pays income taxes on our taxable income.

**B.            Significant transactions occurring during the year endedDecember 31, 2006**

***Refinancing***

On June 16, 2006 we completed a debt refinancing inthe form of secured and unsecured indebtedness. The secured portion of ourindebtedness, which was with a bank syndicate group, consists of a $100 millionsenior secured credit facility comprising: (1) a $40 million six-year term loanfacility; (2) a $40 million five-year revolving credit facility; and (3) a $20million six-year delayed draw term loan facility. The delayed draw term loanfacility allowed us to make up to two borrowings prior to December 31, 2006 tofinance certain capital expenditures (which is discussed in further detailbelow). Borrowings 

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under our senior secured credit facility generally bear interest at arate equal to an applicable margin plus, at our option, the prime rate or aLIBOR rate for the interest period relevant to such borrowing, adjusted forcertain costs. At December 31, 2006, the blended borrowing rate on our seniorsecured credit facility was 7.85%. The unsecured portion of our debt is in theform of $210 million of 93⁄4% unsecured senior notes that rank equally in rightof payment with all of our existing and future unsecured senior indebtednessand senior to any existing and future subordinated 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 are guaranteed by our current and futurerestricted subsidiaries that also guarantee our senior credit facility.

There are many restrictions and covenants placed uponus under our secured and unsecured indebtedness.  For example, among other things, we arerequired to maintain certain operating performance ratios, our covenants imposevarious restrictions on us as to the timing of redemptions of our notes, thereare various change of control covenants, and there are many other restrictiveand operational limitations on us that would be difficult or impossible for usto change.  As of December 31, 2006, JEIis in compliance with all such debt covenants. At March 31, 2007, certain of these covenants become morerestrictive.  The Company may not be ableto meet these more restrictive covenants. 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 satisfy theobligations under our debt agreements.

Upon closing, we utilized $250 million ($210 millionfrom the unsecured indebtedness and $40 million from our secured term loanfacility) to refinance our old notes ($148 million), to pay related pre-paymentpenalties, tender and consent costs ($9.3 million), and accrued and unpaidinterest ($6.7 million); refinance our existing revolving loan and otheroutstanding debt of $26.5 million plus accrued and unpaid interest ($0.8million); acquire three additional truck plazas plus raw land from anaffiliated entity for $14.4 million and $0.6 million, respectively (discussedbelow); pay distributions to our shareholders of $18.8 million; acquire twoadditional truck plazas for $2.6 million and $3.5 million (discussedbelow); acquire a gaming property in Carson City, Nevada for $15.2 million(discussed below); and pay estimated transaction expenses of approximately $9.7million; with excess uses over proceeds paid from our cash on hand ($6.1million).

***Truck Plaza Video Gaming Facilities***

On June 16, 2006 we acquired from an affiliatedparty three video gaming facilities (St. Martin, Diamond and Magic) for $14.4million and raw land and equipment for $0.6 million.  Due to the related party nature of thistransaction, for accounting purposes, it has been accounted for as acombination of entities under common control and, as a result, the transactionhas been treated for accounting and financial reporting purposes similar to apooling of interests. Under this method of accounting, the acquisitions havebeen recorded at the related party’s historical identifiable basis in the netassets acquired approximating $7.4 million. The difference between the purchaseprice of $14.4 million and the net assets acquired of $7.4 million has been recordedas a net distribution to our owners of approximately $7.0 million andaccordingly has reduced our stockholders’ equity by that net amount. Theconsolidated financial statements and the accompanying management’s discussionand analysis of financial condition and results of operations presented in thisForm 10-K have been retroactively adjusted to include the operations of thethree acquired truck plaza entities from January 1, 2004.

On June 21, 2006, we acquired the Vinton truck plazavideo gaming facility from an unrelated third party for $2.2 million plus $0.4million for acquisition costs. On July 12, 2006, we acquired the St. Helenatruck plaza video gaming facility from an unrelated third party for $3.2million plus $0.2 million for cash on hand and $0.1 million for acquisitioncosts. The purchases of these two truck plaza video gaming facilities wererecorded using the purchase method of accounting.

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***Acquisition of Gold Dust West-Carson City, in Carson City, Nevada***

On June 25, 2006 we acquired the Piñon Plaza Hoteland Casino in Carson City, Nevada for $14.5 million plus $0.5 million forcash on hand and $0.2 million for acquisition costs. In January 2007 werebranded Piñon Plaza to Gold Dust West-Carson City. The purchase priceincluded all of the assets and a long term lease on the underlying land. Theassets acquired were the property, buildings and improvements used by PiñonPlaza in the operation of its casino, hotel, bowling alley and RV Park. Theproperty, which opened in June 1998, is located on approximately 18 acres andcontains approximately 1,100 parking spaces, 12,000 square feet of gamingspace, 368 slot machines and eight gaming tables. Piñon Plaza also has 5,000square feet of convention space, three restaurants, 148 hotel rooms, a 32-lanebowling alley and an RV Park with 48 hookups. We have made numerousmodifications to the property. We believe these modifications and therebranding will enhance the EBITDA performance of Gold Dust West-Carson City.

***Development of Gold Dust West-Elko in Elko, Nevada***

We have entered into a landand building lease to develop a new casino in Elko, Nevada (“Gold DustWest-Elko”) that features a 13,000 square-foot casino with approximately 350Ticket-In Ticket-Out (“TITO”) slot machines and seven table games, as well as arestaurant, sports bar and sports book. Gold Dust West-Elko has a capital leasematuring October 2010, with the right to extend the lease three times for fiveyear intervals, or to purchase the land and building for $5.0 million any timecommencing with the day after the last day of the first year of the initialterm through the end of the initial term, or for $5.4 million at any timeduring the first renewal period. The purchase option is no longer availableafter the first renewal period.

As of December 31, 2006, wehave capitalized $9.6 million of property, plant and equipment, including acapital lease totaling $1.4 million. During December 2006, we borrowed $20million on the delayed draw term loan facility as discussed above, which wasutilized to complete this development. The casino opened on March 5, 2007.

***Investment in Equity Securities***

During2006, we acquired approximately three percent of the outstanding shares of apublicly-traded company. Other entities affiliated with our two directors alsoinvested in the company, increasing the combined ownership to approximately 13%of its outstanding common shares. Our investment is accounted for asavailable-for-sale equity securities and has been recorded at fair value inother assets, with unrealized gains recorded as accumulated other comprehensiveincome. As of December 31, 2006, the fair value is $9.9 million and unrealizedgains included in accumulated other comprehensive income total $2.0 million.

**C.            Overview and discussion of ouroperations**

Wehave four segments representing the geographic regions of our operations:Colorado, Nevada, Louisiana and Virginia. Each segment is managed separatelybecause of the unique characteristics of its revenue stream and customer base.

Ourcasino properties in Colorado (The Lodge and Gilpin casinos) and Nevada (theGold Dust West-Reno, Gold Dust West-Carson City and Gold Dust West-Elkocasinos) are each managed by a Regional Vice President who reports to our ChiefOperating Officer (“COO”) who is located in our Golden, Colorado offices.Further, our seventeen video poker truck plaza operations are managed by ourRegional Vice President of Louisiana Operations who also reports to our COO.Our Virginia racetrack 

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and satellite wageringfacilities are managed by our on-site President of Pari-Mutuel Operations, andhe reports directly to our Chief Executive Officer (“CEO”). Our management teamconducts monthly video conferencing and teleconferencing calls with our CEO.Through the recent centralization of our operations in Golden, Colorado, webelieve we are achieving economies of scale in accounting, human resources,centralized purchasing and other areas. We expect to continue to consolidateseveral of our other corporate functions as we expand our operations andacquire additional properties.

Whenwe analyze and manage our business units, we focus on several measurements thatwe believe provide us with the necessary ratios and key performance indicatorsfor us to determine how we are performing versus our competition and againstour own internal goals and budgets. We confer monthly and discuss and analyzesignificant variances in an effort to identify trends and changes in ourbusiness. We focus on EBITDA (earnings before interest, taxes, depreciation andamortization) as one of the primary measurements of reviewing and analyzing theoperating results of each property. While we recognize that EBITDA is not agenerally accepted accounting principle, (i.e. it is a non-GAAP financialmeasure), we nonetheless believe it is useful because it allows holders of ourdebt and management to evaluate and compare operating results from continuingoperations from period to period in a meaningful and consistent manner inaddition to standard GAAP financial measures. Additionally, most financialanalysts following the gaming industry utilize EBITDA as a financialmeasurement, and when our debt holders (both secured and unsecured) inquire anddiscuss our operational performance with us, they consistently inquire aboutour EBITDA performance levels versus the prior year as well as our EBITDAmargins versus our competitors. Finally, EBITDA is a key component of certainfinancial covenants contained in our debt agreements, among other things, andas such it is a critical ingredient that we must watch in order to ensurecompliance with our bank credit agreement and our note indenture covenants,measure our historical operating performance, and determine our ability toachieve future growth.

Inaddition to the above performance measurements, we pay particular attention toour monthly and annual cash flow. Our business is sensitive to shifts involumes and levels of activity and we find it necessary to watch our cashclosely. Every six months (June 15 and December 15) we have a cash interestpayment due on our $210 million senior unsecured notes amounting to $10.2million. Additionally, we have drawn $60 million on our senior secured creditfacility with interest due at varying intervals.  As previously discussed, we have a $40million revolving loan with a bank group on which we can draw as needed inorder to facilitate the cash flow we generate from operations. This isgenerally a function of the timing of generating cash from operations coupledwith the amount of cash we need to run the business—i.e., our cash inventory.Presently, we estimate that we require approximately $15 million of cashinventory. We may be able to reduce this amount as we consolidate cash from ourvarious operations. This may help to reduce the amount of borrowings we need topay interest on our notes and/or to finance operations, which would be anotherby-product of our goal to centralize our business operations. See also SectionG, “Liquidity and Capital Resources.”

***Colorado***

Our Colorado operations consist of The Lodge Casino at Black Hawk (“TheLodge”) and the Gilpin Casino (“Gilpin”), both of which are located in BlackHawk, Colorado. The competitive aspects of the market in Black Hawk continue tobe a significant factor in our operations. As a result of the increased levelof development activity in Black Hawk over the last three years, there were10,130 gaming devices in the city at December 31, 2006. At December 31, 2006 wehad 1,477 devices in this market (1,020 at The Lodge and 457 at the Gilpin),which represented approximately 15% of the total devices in the Black Hawkmarket.

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For the year ended December 31, 2006 our gross gamingrevenues at The Lodge and the Gilpin totaled $94.5 million ($89.6 million innet revenues), which represented 17% of the total gaming revenues in BlackHawk. While the overall market in 2006 grew by 4% in gross gaming revenues, theaverage total gaming devices increased by 6%. We managed to generate 122%efficiencies (our percentage of the gross gaming revenues divided by ourpercentage of the gaming devices) within the market for 2006. We follow ourefficiency level very closely as we believe this is a useful measure of howwell we are performing within the market.

We expect some of ourprevious and existing market share to be lost due to increased competition. Asmore properties continue to compete for their fair share of the market, ourpersonnel costs, marketing costs, and other costs will likely increase as weattempt to keep our market share.

***Nevada***

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

As in Colorado, our Nevada casinos operate in highly competitivemarkets. With the added competition from Indian Gaming in California, allNorthern Nevada casinos are now advertising themselves as “locals’ casinos.” AtDecember 31, 2006, Reno had over 14,000 gaming devices, of which Gold DustWest-Reno had 498 devices, or 3.5% of the market. For the year endedDecember 31, 2006, our gross gaming revenues were 4% of the Reno market,with an efficiency rate of 101%.

Since its acquisition in June 2006, Gold Dust West—Carson City(formerly Piñon Plaza Resort), has undergone major renovations and changes tothe operations emerging January 24, 2007 as the “new” Gold Dust West—CarsonCity by way of an extensive re-branding program. The Carson City area (statecapital) is 30 miles south of Reno and services the areas of Dayton,Gardnerville & Minden areas surrounding it with a total population base of60,000 plus. The area has 4,28l gaming devices of which Gold Dust West—CarsonCity has 340 (8% of total devices). Prior to the re-branding efforts thisproperty had a 71% efficiency rate. This property is expected to substantiallyimprove its efficiency through enhanced utilization of its many unique amenities.

***Louisiana***

The Louisiana truck plazavideo gaming properties consist of sixteen truck plaza gaming facilitieslocated in Louisiana and a share in the gaming revenues of an additional truckplaza.

Each truck plaza features aconvenience store, fueling operations, a restaurant and 50 video gaming devices(except our Eunice and Vinton locations which each have 40 video gamingdevices, and our St. Martin and Diamond locations which have 48 and 47 devices,respectively).

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

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All video poker activity is reported instantaneously via a computerphone line directly to the Louisiana State Police. The Louisiana truck plazas’revenues are heavily dependent on meeting the minimum gallons of fuel salesrequirements necessary to operate video poker gaming machines in Louisiana.These requirements must be complied with on a quarterly basis. In the event ofnoncompliance, the Louisiana State Police must turn off a portion of the videopoker machines. Management of the Louisiana truck plazas believe that they willcontinue to meet the fuel sales requirements necessary to operate video pokergaming machines in Louisiana at current levels.

***Virginia***

Colonial’s revenues are comprised of: (i)pari-mutuel commissions from wagering on races broadcast from out-of-stateracetracks to Colonial’s satellite wagering facilities and the track usingimport simulcasting; (ii) wagering at the track and Colonial’s satellitewagering facilities of 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 account activities;and (v) net income from food and beverage sales and concessions.

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

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

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 a seventhsatellite 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 was granted alicense to own and operate a ninth satellite wagering facility in Scott County,Virginia. We opened the Scott County facility in the first quarter of 2006.

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Our results of operationsreflect the consolidated operations of all our subsidiaries. A summary of ourconsolidated operating results for the years ended December 31, 2006, 2005 and2004 is as follows:

|                                                  | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                       | ** ** | **(Dollars in Thousands)**       | ** ** |
| **Revenues**                                     |       |                                       |       |   |   |   |   |
| Gaming:                                          |       |                                       |       |   |   |   |   |
| Casino                                           |       | $                                          | 121,483    |   | $ | 115,607 |   | $ | 108,347 |   |
| Truck stop                                       |       | 61,177                                     |       | 44,590 |   | 30,603 |   |
| Pari-mutuel                                      |       | 39,787                                     |       | 35,988 |   | 32,946 |   |
| Food and  beverage                               |       | 24,199                                     |       | 20,391 |   | 18,422 |   |
| Convenience  store—fuel                     |       | 74,226                                     |       | 47,434 |   | 27,714 |   |
| Other                                            |       | 17,694                                     |       | 11,788 |   | 9,048 |   |
| Less:  promotional allowances                    |       | (26,271                                    | )          | (23,835 | ) | (20,734 | ) |
|                                             |       |                                       |       |   |   |   |   |
| Total net  revenues                              |       | 312,295                                    |       | 251,963 |   | 206,346 |   |
|                                             |       |                                       |       |   |   |   |   |
| **Costs and expenses**                           |       |                                       |       |   |   |   |   |
| Gaming:                                          |       |                                       |       |   |   |   |   |
| Casino                                           |       | 43,567                                     |       | 41,804 |   | 38,586 |   |
| Truck stop                                       |       | 34,986                                     |       | 24,304 |   | 17,730 |   |
| Pari-mutuel                                      |       | 32,559                                     |       | 31,356 |   | 27,505 |   |
| Food and  beverage                               |       | 13,137                                     |       | 10,459 |   | 9,788 |   |
| Convenience  store—fuel                     |       | 70,140                                     |       | 44,363 |   | 25,876 |   |
| Other                                            |       | 13,977                                     |       | 8,913 |   | 6,359 |   |
| Marketing,  general and administrative           |       | 60,282                                     |       | 48,198 |   | 43,128 |   |
| Abandonment  costs                               |       |                                       |       | 1,424 |   | 2,891 |   |
| Termination of  contract                         |       |                                       |       | 10,367 |   |   |   |
| Depreciation and  amortization                   |       | 13,692                                     |       | 11,576 |   | 10,486 |   |
|                                             |       |                                       |       |   |   |   |   |
| Total costs and  expenses                        |       | 282,340                                    |       | 232,764 |   | 182,349 |   |
|                                             |       |                                       |       |   |   |   |   |
| Operating income                                 |       | 29,955                                     |       | 19,199 |   | 23,997 |   |
| Interest expense, net                            |       | (31,553                                    | )          | (22,655 | ) | (20,008 | ) |
| Pre-payment penalties,  tender and consent costs |       | (9,321                                     | )          |   |   |   |   |
| Income tax benefit  (expense)                    |       | 103                                        |       | (423 | ) |   |   |
|                                             |       |                                       |       |   |   |   |   |
| Net (loss) income                                |       | $                                          | (10,816    | ) | $ | (3,879 | ) | $ | 3,989 |   |

 

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**D.            Comparison****ofour operations for the year ended December 31, 2006 to the year ended December31, 2005**

Casinorevenues in our Colorado and Nevada segments increased $5.9 million or 5% from$115.6 million for the year ended December 31, 2005 to $121.5 million for theyear ended December 31, 2006. The increase in casino revenues is a result ofincreased casino revenues at The Lodge of $0.1 million, the Gilpin of $1.4million or 6%, Gold Dust West-Reno of $0.7 million or 3% while Gold DustWest-Carson City (which was acquired on June 25, 2006) contributed $3.7million. The increase in the casino revenues at our properties is a result ofseveral factors. We have expanded capital investments in our slot product overthe last year including the implementation of a TITO system at the Gilpin and aremodeled valet pavilion. Casino revenues at our two Colorado propertiescontinued to be positively affected due to construction disruption at acompeting casino which ended early in the second quarter of 2006. Additionally,in 2006, the City of Black Hawk casino win grew 4% compared to 2005. The GoldDust West-Reno casino revenue increase reflects the effect of severe snowstorms that hit the Reno market in the first quarter of 2005 but with no suchoccurrence in 2006, and during the third quarter of 2006 we completed theL-wing demolition (a portion of our motel) which enabled us to provideapproximately 75 additional surface parking spaces for our customers.

Truck plaza gaming revenues in our Louisiana segmentincreased $16.6 million or 37% for the year ended December 31, 2006 compared tothe year ended December 31, 2005. Approximately $5.2 million of the increase is from the two new truckstop video gaming locations in Eunice and Jefferson parish where video gamingoperations commenced the first and third quarters of 2005, respectively andtherefore reflects only a partial year’s operations. The 2006 video gamingrevenues from the Fuel Stop 36 and Larose truck stops, purchased in December2005, account for $5.3 million of the increase. Hurricane Rita, which hit theLouisiana/Texas Gulf Coast on September 24, 2005, caused the permanent closureof two of four competing truck stop video gaming facilities near the Cash MagicVinton location resulting in increased revenues at that location of $1.3million. 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 the populationrelocation after Hurricane Katrina devastated the New Orleans area in August2005.

Pari-mutuelrevenues in our Virginia segment increased $3.8 million or 11% from $36.0million to $39.8 million for the year ended December 31, 2005 compared to theyear ended December 31, 2006, respectively. Of the increase in revenues, $7.1 million isattributable to the new off track wagering facilities opened in Martinsville,Chesapeake and Scott County, Virginia in August 2005, October 2005 andJanuary 2006, respectively, and an increase of $1.0 million in account wageringrevenues, offset by decreases totaling $4.3 million in wagering revenues at theracetrack and remaining off track wagering facilities.

Foodand beverage revenues increased $3.8 million or 19% from $20.4 million to $24.2million for the year ended December 31, 2005 as compared to the year endedDecember 31, 2006, respectively. This increase is attributable to $1.8 million generated by Gold DustWest-Carson City and increases of $0.3 million at Colonial and $2.2 million atthe truck stop facilities, partially offset by decreases of $0.3 million atGold 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 Lodge and the Gilpin are attributableto a decrease in complimentary food offers to our customers. The increase atColonial is primarily attributable to the new off track wagering facilitiesopened in Martinsville, Chesapeake and Scott County, Virginia inAugust 2005, October 2005 and January 2006, respectively. Of the increaseat the truck stops, $1.7 million is attributable to the purchases of Fuel Stop36 and Larose in December 2005 and the purchases of the Vinton and St. Helenalocations in June and July 2006, respectively. The remaining increase is theresult 

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of increased business levelsdue the population relocation after Hurricane Katrina devastated the NewOrleans area in August 2005.

Convenience store fuel revenues increased$26.8 million or 56% from $47.4 million to $74.2 million for the year endedDecember 31, 2005 compared to the year ended December 31, 2006, respectively. The December 2005 acquisitions of the FuelStop 36 and Larose truck stops account for $12.9 million of the increase. Fuelsales from the St. Helena location purchased in July 2006 resulted in $1.6million of the increase. Hurricane Rita, which hit the Louisiana/Texas GulfCoast on September 24, 2005, caused the permanent closure of two of fourcompeting truck stop video gaming facilities near the Cash Magic Vintonlocation resulting in increased revenues at that location of $2.5 million. Theremaining increase of $9.8 million is the result of increased business levelsdue to the population relocation after Hurricane Katrina devastated the NewOrleans area in August 2005 and an increase in the average selling price offuel from $2.24 per gallon to $2.58 per gallon.

Otherrevenues increased $5.9 million or 50% from $11.8 million for the year endedDecember 31, 2005 to $17.7 million for the year ended December 31, 2006.Convenience store-other revenues increased $3.7 million or 61% for the yearended December 31, 2006 compared to the year ended December 31, 2005. The 2006revenues from the Fuel Stop 36 and Larose truck stops purchased in December2005 account for $2.6 million of the increase, and the St. Helena locationpurchased in July 2006 provided an additional $0.3 million. The remainingincrease totaling $0.8 million is the result of increased business levels duethe population relocation after Hurricane Katrina devastated the New Orleansarea in August 2005. Hotel and other revenues increased $2.2 million or 39% forthe year ended December 31, 2006 compared to the year ended December 31, 2005.The increase is primarily attributable to Gold Dust West-Carson City which wasacquired on June 25, 2006 and contributed $2.0 million, and a $0.3 millionincrease at The Lodge, somewhat offset by a decrease of $0.1 million at GoldDust West-Reno. The increase at The Lodge is attributable to an increase in theaverage number of rooms available to our customers as our rooms were closed forapproximately 20 days for remodeling in 2005 and we have increased ourcomplimentary hotel rooms provided to customers.

Promotional allowances increased $2.5 millionor 10% from $23.8 million for the year ended December 31, 2005 to $26.3 millionfor the year ended December 31, 2006. The increase is primarily associated withan increase in promotional allowances at The Lodge of $0.5 million, an increase at the truckstops of $1.3 million and an increase at Gold Dust West-Carson City of $0.9million, somewhat offset by a decrease of $0.2 million at Gold Dust West-Reno.The increase at The Lodge is attributable to increased hotel and beveragecomplimentaries and an increase in cash back incentives to players.  The decrease at Gold Dust West-Reno isattributable to a decrease in complimentary food provided to our customers. Ofthe increase at the truck stops, $0.5 million is due to complimentary food andbeverage sales at Jefferson which opened third quarter 2005, Fuel Stop 36 andLarose which were purchased in December 2005, and the Vinton and St. Helenalocations which were purchased in June and July 2006, respectively. Theremaining $0.8 million is the result of increased business levels due to thepopulation relocation after Hurricane Katrina devastated the New Orleans areain August 2005.

Casinoexpenses increased $1.8 million or 4% from $41.8 million to $43.6 million forthe year ended December 31, 2005 compared to the year ended December 31, 2006,respectively. This increase is a result of the addition of Gold DustWest-Carson City which had $1.9 million of casino expense and an increase atThe Lodge of $0.3 million, offset by decreases at Gold Dust West-Reno of $0.3million and the Gilpin of $0.1 million. The increase in The Lodge’s casinoexpense is due to increased gaming taxes (due to increased gaming revenues) andan increase in food and beverage charged to casino expenses for promotions. Thedecreases in casino expenses at the Gold Dust West-Reno and the Gilpin areprimarily due to a decrease in complimentary costs associated with the food andbeverage complimentary sales provided to our guests during the year endedDecember 31, 2006 compared to same period of 2005.

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Truck stop gaming expenses increased $10.7 million or 44% for the yearended December 31, 2006 compared to the year ended December 31, 2005. Of theincrease, $3.1 million is from the two new truck stop video gaming locations inEunice and Jefferson parish where video gaming operations commenced the firstand third quarters of 2005, respectively. The 2006 video gaming expenses fromthe Fuel Stop 36 and Larose truck stops, purchased in December 2005, accountfor $3.2 million of the increase and an additional increase of $1.9 million isfrom the Vinton and St. Helena truck stops purchased in June and July 2006,respectively. Hurricane Rita, which hit the Louisiana/Texas Gulf Coast onSeptember 24, 2005, caused the permanent closure of two of four competing truckstop video gaming facilities near the Cash Magic Vinton location resulting inincreased expenses at that location of $0.6 million. The remaining $1.9 millionincrease is the result of increased business levels due the populationrelocation after Hurricane Katrina devastated the New Orleans area in August2005.

Pari-mutuel costs andexpenses increased $1.2 million or 4% from $31.4 million to $32.6 million forthe year ended December 31, 2005 compared to the year ended December 31, 2006,respectively. The increase is primarily attributable to the new off trackwagering facilities opened in Martinsville, Chesapeake and Scott County,Virginia in August 2005, October 2005 and January 2006, respectively,combined with increased live racing expenses resulting from the Maryland JockeyClub (“MJC”) management contract buyout, offset by a decrease resulting fromthe elimination of the MJC management fees.

Foodand beverage costs and expenses increased $2.7 million or 26% for the yearended December 31, 2006 compared to the year ended December 31, 2005. Theincrease is attributable to $1.6 million at Gold Dust West-Carson City, a $0.3million increase at Colonial and a $1.2 million increase at the truck stopfacilities. The food and beverage costs for the new Fuel Stop 36 and Larosetruck stops, purchased in December 2005, account for the truck stop increase.These increases were partially offset by decreases at The Lodge of $0.3 millionand the Gilpin of $0.1 million. The decreases at The Lodge and Gilpin areassociated to an increase in complimentary costs associated to food andbeverage promotions charged to casino operations.

Convenience store-fuel expenses increased $25.8 million or 58% for theyear ended December 31, 2006 compared to the year ended December 31, 2005. The2006 fuel expenses from the Fuel Stop 36 and Larose truck stops purchased inDecember 2005 account for $12.2 million of the increase, and $1.6 million ofthe increase is the result of the St. Helena truck stop which was purchased inJuly 2006. Hurricane Rita, which hit the Louisiana/Texas Gulf Coast onSeptember 24, 2005, caused the permanent closure of two of four competing truckstop video gaming facilities near the Cash Magic Vinton location resulting inincreased expenses at that location of $2.5 million. The remaining increase of$9.5 million is the result of increased business levels due the populationrelocation after Hurricane Katrina devastated the New Orleans area in August2005 and an increase in the average cost of fuel from $2.08 per gallon to $2.43per gallon.

Other costs and expenses increased $5.1 million or 57% for the yearended December 31, 2006 compared to the year ended December 31, 2005. The 2006convenience store expenses from the Fuel Stop 36 and Larose truck stopspurchased in December 2005 account for $2.8 million of the increase and theaddition of the St. Helena location in July 2006 accounts for $0.4 million ofthe increase. The remaining increase of $1.5 million is the result of increasedbusiness levels due the population relocation after Hurricane Katrinadevastated the New Orleans area in August 2005. Hotel expenses increased $0.4million for the year ended December 31, 2006 compared to the year endedDecember 31, 2005 and were primarily attributable to the addition of hoteloperations at Gold Dust West-Carson City, which was acquired on June 25, 2006.

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Marketing, general andadministrative expenses increased $12.1 million or 25% for the year endedDecember 31, 2006 compared to the year ended December 31, 2005. This increaseis the result of the addition of our Gold Dust West-Carson City casino whichaccounted for $3.8 million of the increase, as well as increases at The Lodgeof $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 $2.8 million andcorporate overhead expenses of $4.4 million. These increases were offset by adecrease at the Gilpin of $0.1 million. The increased marketing costs at our operating units drove increased revenuesfor all segments. The decrease at the Gilpin is primarily related to areduction in bussing costs. The increase at the truck stops was primarily dueto the addition of corporate office space and additional corporate staff toaccommodate expansion. The increase in our corporate overhead was the result ofpolitical campaign costs of $3.3 million, the write off of feasibility costsassociated to the Dakota Works project of $0.4 million, an increase inprofessional accounting fees of $0.2 million, consulting fees of $0.5 million,travel expenses of $0.4 million and other net operating costs of $0.1 million,offset by a reduction in labor costs of $0.5 million.

Abandonment costs totaling $1.4 million were recorded during the yearended 2005 which represented the allocated net book value of a stand-aloneportion of the Gold Dust West-Reno’s motel building (the “L-wing”) containing66 of the property’s 106 motel rooms. After considering alternative plans forthis stand-alone portion of the motel including a refurbishing, we decided thatthe property would be better served with improved access and expanded parking.We began demolition of the L-wing during the first quarter of 2006 andsubstantially completed the project late in the second quarter at a cost of$1.2 million. We added approximately 75 parking spaces as a result of thedemolition.  We continue to operate theremaining 40 hotel rooms. No comparabletransaction occurred during 2006.

Terminationof contract expenses of $10.4 million were incurred during 2005.  On September 30, 2005, Colonial completed atransaction with Magna Entertainment Corp. (“MEC”), an unaffiliated party,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 has beencharacterized as a termination of a contract for accounting purposes. As such,$10.4 million, including the $10 million purchase price and $0.4 million inlegal and professional fees associated with this transaction, was expensed in2005. No comparable transaction occurred during 2006.

Depreciationand amortization expense increased $2.1 million from $11.6 million to $13.7million for the year ended December 31, 2005 compared to the year endedDecember 31, 2006, respectively. Approximately $1.2 million of the increase isattributable to the acquisitions of Gold Dust West-Carson City, 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 $8.9 million for the year ended December 31, 2006 as compared to theyear ended December 31, 2005. The increase is primarily attributable to theissuance of $23 million in additional senior secured notes in conjunction with the acquisition of three video gaming truckplaza facilities in March 2005, additional borrowings for acquisitions made inJune and July 2006, the write off of $5.7 million and $1.9 million in financingfees and note issue discount on the debt refinanced, as previously discussed.These increases were partially offset by the write off of note issue premium of$1.5 million in conjunction with the debt refinancing.

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Prepaymentpenalties, tender and consent costs in the amount of $9.3 million were incurredduring 2006.  These costs represent thepremium required to redeem our senior secured notes in 2006 prior to theirmaturity in 2009 and consent solicitation fees and expenses as part of theredemption of such notes.  No comparabletransaction occurred during 2005.

Income tax benefit (expense)increased by $0.5 million for the year ended December 31, 2006 as compared tothe year ended December 31, 2005. On March 11, 2002, we received notice fromthe Internal Revenue Service asserting deficiencies in federal corporate incometaxes for a subsidiary for the 1998 tax year. The proposed adjustment related to the deductibility of depreciationtaken against certain costs incurred by The Lodge to build and improve publicassets. We settled this issue with the Internal Revenue Service and recorded acharge to earnings of $0.4 million, including $0.1 million in interest, during2005. During 2006, we received a tax refund of a portion of this chargetotaling $0.1 million.

**E.            ****Comparison of our operations forthe year ended December 31, 2005 to the year ended December 31, 2004**

Casino revenues increased approximately $7.3 million or 7% from $108.3million for the year ended December 31, 2004 to $115.6 million for the yearended December 31, 2005. The increase in casino revenues is a result of increasedcasino revenues at The Lodge of $4.1 million or 6% and the Gilpin of $2.9million or 16%, and Gold Dust West-Reno of $0.3 million or 1%. The increase inthe revenues at our properties is a result of several factors. We havecontinued to focus our capital investments in our slot products including theimplementation of Ticket-In Ticket-Out (“TITO”) systems at The Lodge and theGilpin. The Gilpin’s poker room was opened in March 2005 resulting in increasedcasino revenues of approximately $0.9 million as compared to the prior year. Inaddition, casino revenues at our two Colorado properties were positivelyaffected due to construction disruptions at two competing casinos.

Truckplaza gaming revenues increased approximately $14.0 million or 46% for the yearended December 31, 2005 compared to the year ended December 31, 2004. Weattribute $7.1 million of this increase to the gaming operations of our fivenew truck plaza locations acquired during the year ended December 31, 2005. TheBreaux Bridge truck plaza commenced gaming operations in the third quarter of2004. The Eunice and Jefferson truck plaza locations commenced gamingoperations in the late first and third quarters of 2005, respectively.  The Larose and Fuel Stop 36 truck plazalocations commenced gaming operations late in the fourth quarter of 2005.

Pari-mutuel revenues increased $3.1 millionor 9% from $32.9 million to $36.0 million for the year ended December 31, 2004compared to the year ended December 31, 2005, respectively. The increase was primarily due to the openingin August of a new satellite wagering facility in Henry County, Virginia, andthe opening in October 2005 of a second satellite wagering facility inChesapeake, Virginia, and an increase in the number of live racing days in 2005from 66 to 76.

Food and Beverage revenues increased $2.0million or 11% from $18.4 million to $20.4 million for the year ended December31, 2004 as compared to the year ended December 31, 2005, respectively. Of thisincrease, $0.5 million is attributable to The Lodge, $0.5 million to ColonialDowns and $1.0 million to the truck plaza facilities. The increase at ColonialDowns is attributable to the opening in August 2005 of a new satellite wageringfacility in Henry County, Virginia, the opening in October 2005 of a secondsatellite wagering facility in Chesapeake, Virginia, and an increase in thenumber of live racing days from 66 in 2004 to 76 in 2005. The increase at thetruck plazas is attributable to the acquisitions of the five additional truck plazalocations, which was $0.4 million of the increase, and the remaining $0.6 wasattributable to overall change in the food menu in mid 2005.

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Conveniencestore fuel revenues increased $19.7 million or 71% from $27.7 million to $47.4million for the year ended December 31, 2004 compared to the year endedDecember 31, 2005, respectively. The increase was the result of the averageselling price of fuel rising from $1.78 to $2.29 per gallon, and theacquisition of the five additional truck plaza locations in 2005.

Other revenues increased$2.8 million or 30% from $9.0 million for the year ended December 31, 2004 to$11.8 million for the year ended December 31, 2005. The increase is primarilyattributable to miscellaneous sales made at the new satellite wagering facilitythat opened in November 2005 in Richmond, Virginia, and the new satellitewagering facility opened in October 2005 in Vinton, Virginia as well as theconvenience store revenues generated from the opening of the Breaux Bridge,Louisiana truck plaza location in 2004.

Promotionalallowances increased $3.1 million or 15% from $20.7 million for the year endedDecember 31, 2004 to $23.8 million for the year ended December 31, 2005. Theincrease is primarily associated with an increase in promotional allowances atThe Lodge of $2.1 million, the Gilpin of $0.1 million, the Gold Dust West-Reno$0.1 million and the truck plazas in Louisiana of $1.2 million. The increasesat The Lodge, the Gilpin and the Gold Dust West-Reno are attributable to acombination of increased complimentary sales and cash incentives to ourcustomers. The increase in Louisiana is attributable primarily to $0.3 millionin complimentary food and beverage sales at the five new truck plaza locationsand $0.9 million in additional promotional allowances from new customer rewardprograms which began in mid 2005.

Thetotal costs and expenses shown in the above summary of our consolidatedoperating results include all costs and expenses for our casino operations,pari-mutuel facilities, video poker truck plaza operations, as well as ourcorporate overhead and abandonment costs. Total costs and expenses increased$50.4 million or 28% from $182.3 million for the year ended December 31, 2004to $232.8 million for the year ended December 31, 2005 and were primarilyattributable to the increased revenues discussed above and as detailed below.

Includedin our total costs and expenses are our casinos operating costs, which wereview when we analyze our casino performance. Our total casino operating costsincreased $4.9 million or 6% to $84.2 million from $79.3 million for the yearended December 31, 2005 compared to the year ended December 31, 2004,respectively.

The Lodge casino comprised$2.2 million of this increase, the Gilpin accounted for $2.6 million of theincrease, with the balance of $0.1 million attributable to Gold Dust West-Reno.The increase in The Lodge expenses was due to increased gaming taxes (resultingfrom increased gaming revenues), slot participation costs, general operatingexpenses and maintenance. The increase at the Gilpin was attributable to gamingtaxes and operating costs of the Gilpin Poker room which opened in the firstquarter of 2005. The increase at theGold Dust West-Reno was related to an increase in depreciation and an increasein repairs and maintenance costs related to the snow storms that impacted theReno market in January 2005.

Includedin our total costs and expenses are our video poker truck plazas operatingcosts, which we review when we analyze our truck plaza performance. Our totaloperating costs and expenses at our video poker truck plaza expenses increased $29.1 millionor 52% to $85.6 million for the year ended December 31, 2005 compared to $56.5million for the year ended December 31, 2004. Approximately $12.0 million ofthis increase is due to the opening of the five new truck plazas, $12.4 millionwas the result of increased fuel costs and approximately $4.7 million reflectsother costs, primarily direct costs associated with increased gaming and conveniencestore revenues of the truck plazas.

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Includedin our total costs and expenses are our pari-mutuel facilities, which we reviewwhen we analyze our racetrack and our off track wagering facilities. Our totaloperating costs and expenses at our pari-mutuel facilities increased $16.5 million or 43% to $54.7million for the year ended December 31, 2005 compared to $38.2 million for theyear ended December 31, 2004. This increase is primarily attributable to theopening of the new satellite wagering facilities in Chesapeake, Virginia andHenry County, Virginia which we opened in August 2005 and October 2005,respectively, an increase in expense due to additional live race days, and$10.4 million was expensed in 2005 related to the management contract terminationdiscussed above.

Ourtotal corporate overhead costs and expenses increased by $1.4 million for the year ended December 31, 2005compared to the year ended December 31, 2004. The increase is primarily the result of $0.6 million in costs to organizeand operate a charity poker festival in Cleveland, Ohio from July throughSeptember 2005. The remaining $0.8 million increase is due to increased travelexpenses, compensation, and legal fees.

Abandonment costs decreased $1.5 million or 51% for the year ended December31, 2005 compared to the year ended December 31, 2004. During the year ended2004, we recorded a $2.9 million charge to operations attributable to thewrite-off of abandoned project costs. Included in these costs was $1.8 millionrelated to development costs associated with a potential gaming site in D’Iberville,Mississippi, $0.8 million in direct acquisition costs consisting of optionpayments, and legal and accounting fee expenditures associated with fourseparate unrelated parties to acquire seven video poker truck plaza operationsin Louisiana and approximately $0.3 million in other capitalized costs chargedto operations due to abandonment of miscellaneous other projects. The 2005abandonment charge of $1.4 million represents the allocated net book value of astand-alone portion of the Gold Dust West-Reno’s L-wing, containing 66 of theproperty’s 106 motel rooms. After considering alternative plans for thisstand-alone portion of the motel including a refurbishing, we decided that theproperty would be better served with improved access and expanded parking. Webegan demolition of the L-wing during the first quarter of 2006 andsubstantially completed the project late in the second quarter. We addedapproximately 75 parking spaces as a result of the demolition and will continueto operate the remaining 40 hotel rooms.

Net interest expenseincreased $2.6 million for the year ended December 31, 2005 as compared to theyear ended December 31, 2004. The increase is attributable to the issuance of$23 million in additional senior securednotes in conjunction with the acquisition of three truck plaza facilities asdiscussed above.

Income tax expense of $0.4million was incurred during the year ended December 31, 2005. On March 11,2002, we received notice from the Internal Revenue Service assertingdeficiencies in federal corporate income taxes for a subsidiary for the 1998tax year. The proposed adjustment related to the deductibility of depreciationtaken against costs incurred by The Lodge to build and improve public assets.We settled this issue with the Internal Revenue Service and recorded a chargeto earnings of $0.4 million, including $0.1 million in interest during thethird quarter of 2005. No penalties were assessed on this settlement.

**F.             Segment information for the threeyears ended December 31, 2006**

Asdiscussed above, we have four segments representing the geographic regions ofour operations: Colorado, Nevada, Louisiana and Virginia. Each segment ismanaged separately because of the unique characteristics of its revenue streamand customer base.

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The information presented isby each segment in which we have operations and also presents our EBITDA(earnings before interest, income taxes, depreciation and amortization) foreach segment. We believe that the presentation of a non-GAAP financial measuresuch as EBITDA is useful because it allows investors and management to evaluateand compare our operating results from continuing operations from period toperiod in a meaningful and consistent manner in addition to standard GAAPfinancial measures. Management internally evaluates the performance of ourproperties using EBITDA measures as do most analysts following the gamingindustry. EBITDA is an element of certain key financial covenants in our debtagreements and, as such, is a critical component that we closely watch in orderto determine our ability to achieve future growth and to ensure we are incompliance with our debt agreements. We present EBITDA in the tables below assupplemental information and to provide further discussion and analysis of ouroperating results. EBITDA can be reconciled directly to our consolidated netincome (loss) by adding the amounts shown for depreciation and amortization,interest and income taxes to net income (loss). This information should not beconsidered as an alternative to any measure of performance as promulgated underaccounting principles generally accepted in the United States of America, suchas net income (loss), nor should it be considered as an indicator of ouroverall financial performance. Our calculation of EBITDA may be different fromthe calculation used by other companies and comparability may be limited.

 

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The following is a summaryof the net revenues, costs and expenses and EBITDA, for the three years endedDecember 31, 2006, 2005 and 2004 (dollars in thousands):
| ** **                                                                                               | ** ** | **For the Years Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| **NET REVENUES**                                                                                         |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                |       | $                                                             | 67,315     |   | $ | 67,428 |   | $ | 64,144 |   |
| Gilpin                                                                                                   |       | 22,245                                                        |       | 20,986 |   | 18,137 |   |
| Total Colorado                                                                                           |       | 89,560                                                        |       | 88,414 |   | 82,281 |   |
| Nevada:                                                                                                  |       |                                                          |       |   |   |   |   |
| Gold Dust  West-Reno                                                                                     |       | 22,893                                                        |       | 22,331 |   | 22,465 |   |
| Gold Dust  West-Carson City                                                                              |       | 6,517                                                         |       |   |   |   |   |
| Gold Dust  West-Elko                                                                                     |       |                                                          |       |   |   |   |   |
| Total Nevada                                                                                             |       | 29,410                                                        |       | 22,331 |   | 22,465 |   |
| Louisiana                                                                                                |       | 148,776                                                       |       | 100,251 |   | 64,499 |   |
| Virginia                                                                                                 |       | 44,549                                                        |       | 40,967 |   | 37,101 |   |
| **Total  Net Revenues**                                                                                  |       | 312,295                                                       |       | 251,963 |   | 206,346 |   |
|                                                                                                     |       |                                                          |       |   |   |   |   |
| **COSTS AND EXPENSES (excluding  depreciation and amortization, net interest expense and income taxes)** |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                |       | 46,286                                                        |       | 46,166 |   | 43,973 |   |
| Gilpin                                                                                                   |       | 16,158                                                        |       | 16,497 |   | 14,094 |   |
| Total Colorado                                                                                           |       | 62,444                                                        |       | 62,663 |   | 58,067 |   |
| Nevada:                                                                                                  |       |                                                          |       |   |   |   |   |
| Gold Dust  West-Reno                                                                                     |       | 14,675                                                        |       | 16,228 |   | 14,930 |   |
| Gold Dust  West-Carson City                                                                              |       | 7,664                                                         |       |   |   |   |   |
| Gold Dust  West-Elko                                                                                     |       | 499                                                           |       |   |   |   |   |
| Total Nevada                                                                                             |       | 22,838                                                        |       | 16,228 |   | 14,930 |   |
| Louisiana                                                                                                |       | 127,760                                                       |       | 82,658 |   | 54,052 |   |
| Virginia                                                                                                 |       | 43,686                                                        |       | 51,993 |   | 35,500 |   |
| Net corporate  overhead                                                                                  |       | 21,241                                                        |       | 7,646 |   | 9,314 |   |
| **Total  Costs and Expenses**                                                                            |       | 277,969                                                       |       | 221,188 |   | 171,863 |   |
|                                                                                                     |       |                                                          |       |   |   |   |   |
| **EBITDA**                                                                                               |       |                                                          |       |   |   |   |   |
| Colorado:                                                                                                |       |                                                          |       |   |   |   |   |
| The Lodge                                                                                                |       | 21,029                                                        |       | 21,262 |   | 20,171 |   |
| Gilpin                                                                                                   |       | 6,087                                                         |       | 4,489 |   | 4,043 |   |
| Total Colorado                                                                                           |       | 27,116                                                        |       | 25,751 |   | 24,214 |   |
| Nevada:                                                                                                  |       |                                                          |       |   |   |   |   |
| Gold Dust  West-Reno                                                                                     |       | 8,218                                                         |       | 6,103 |   | 7,535 |   |
| Gold Dust  West-Carson City                                                                              |       | (1,147                                                        | )          |   |   |   |   |
| Gold Dust  West-Elko                                                                                     |       | (499                                                          | )          |   |   |   |   |
| Total Nevada                                                                                             |       | 6,572                                                         |       | 6,103 |   | 7,535 |   |
| Louisiana                                                                                                |       | 21,016                                                        |       | 17,593 |   | 10,447 |   |
| Virginia                                                                                                 |       | 863                                                           |       | (11,026 | ) | 1,601 |   |
| Net corporate  overhead                                                                                  |       | (21,241                                                       | )          | (7,646 | ) | (9,314 | ) |
|                                                                                                     |       |                                                          |       |   |   |   |   |
| **Total EBITDA**                                                                                         |       | $                                                             | 34,326     |   | $ | 30,775 |   | $ | 34,483 |   |

 

See Sections D and E above which provide explanations regarding thefluctuations in our revenues and costs and expenses by property and segment.

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The following table setsforth a reconciliation of our EBITDA, a non-GAAP financial measure, to our netincome (loss), a GAAP financial measure (dollars in thousands):
| **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                                        |       | 21,016     |       | 3,302                                   |       | 3,645                           |       |                         |       | 14,069                      |       |
| Virginia                                         |       | 863        |       | 2,069                                   |       | 549                             |       |                         |       | (1,755                      | )          |
| Corporate  overhead (1)                          |       | (21,241    | )          | 520                                     |       | 9,543                           |       | $                            | 103        |                        | (31,201    | ) |
| TOTAL                                            |       | $          | 34,326     |                                    | $          | 13,692                          |       | $                            | 31,553     |                        | $          | 103 |   | $ | (10,816 | ) |

 
| **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                       |       |
| Nevada (2)                                       |       | 6,103      |       | 1,691                                   |       | 3,126                           |       |                         |       | 1,286                       |       |
| Louisiana                                        |       | 17,593     |       | 2,958                                   |       | 3,197                           |       |                         |       | 11,438                      |       |
| Virginia (3)                                     |       | (11,026    | )          | 1,685                                   |       | 236                             |       |                         |       | (12,947                     | )          |
| Corporate  overhead                              |       | (7,646     | )          | 225                                     |       | 5,206                           |       | $                            | 423        |                        | (13,500    | ) |
| TOTAL                                            |       | $          | 30,775     |                                    | $          | 11,576                          |       | $                            | 22,655     |                        | $          | 423 |   | $ | (3,879 | ) |

 
| **Year ended  December 31, 2004** | ** ** | **EBITDA** | ** ** | **Depreciation and  Amortization** | ** ** | **Interest  Expense, net** | ** ** | **Income Tax  Expense** | ** ** | **Net  Income (Loss)** | ** ** |
|--------------------------------------------------|------------|------------|------------|-----------------------------------------|------------|---------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Colorado:                                        |       |       |       |                                    |       |                            |       |                         |       |                        |       |
| The Lodge                                        |       | $          | 20,171     |                                    | $          | 3,385                           |       | $                            | 8,368      |                        |       |   | $ | 8,418 |   |
| Gilpin                                           |       | 4,043      |       | 1,453                                   |       | 2,426                           |       |                         |       | 164                         |       |
| Total Colorado                                   |       | 24,214     |       | 4,838                                   |       | 10,794                          |       |                         |       | 8,582                       |       |
| Nevada                                           |       | 7,535      |       | 1,436                                   |       | 3,139                           |       |                         |       | 2,960                       |       |
| Louisiana                                        |       | 10,447     |       | 2,490                                   |       | 2,580                           |       |                         |       | 5,377                       |       |
| Virginia                                         |       | 1,601      |       | 1,544                                   |       | 92                              |       |                         |       | (35                         | )          |
| Corporate  overhead                              |       | (9,314     | )          | 178                                     |       | 3,403                           |       |                         |       | (12,895                     | )          |
| TOTAL                                            |       | $          | 34,483     |                                    | $          | 10,486                          |       | $                            | 20,008     |                        |       |   | $ | 3,989 |   |

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(1)                               Includedin 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 expendedto pursue a constitutional amendment in Ohio to allow slot machines at the sevenexisting racetracks and two locations in downtown Cleveland.  See Section G, “Liquidity and CapitalResources,” for further discussion.

(2)                                 Includedin Nevada for 2005 is a $1.4 million non-cash abandonment charge whichrepresented the allocated net book value of a stand-alone portion of the GoldDust West-Reno’s L-wing.

(3)                             Included in Virginia for2005 is $10.4 million that was expensed related to the management contracttermination.

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**G.****                                ****Liquidity and capitalresources—December 31, 2006**

As of December 31, 2006, wehad cash and cash equivalents of $24.1 million compared to $23.6 million incash and cash equivalents as of December 31, 2005. The $0.5 million increase isthe result of $4.5 million cash provided by operating activities, $53.4 millioncash used in investing activities, and $49.4 million provided by financingactivities, which is further discussed below.

During2006, we completed several transactions which impacted our liquidity. On June16, 2006, we completed our debt refinancing in the form of unsecured andsecured indebtedness totaling $210 million and $100 million, respectively.Additionally, in June and July 2006, we acquired three truck plaza video gamingfacilities from an affiliated party and two truck plazas from unrelated third parties.In June 2006, we acquired a casino in Carson City, Nevada. Finally, during thethird and fourth quarters of 2006, we acquired approximately three percent ofthe outstanding shares of a publicly-traded company because we believe theshares present an attractive investment opportunity to achieve capitalappreciation and perhaps the investment will present other opportunities for usin the future. These transactions are discussed in greater detail above inSection B, “Significant transactions occurring during the year ended December31, 2006.”

In Ohio, we provided supportfor a proposed constitutional amendment that would have established a tuitiongrant program for Ohio students to attend public or private colleges in thestate by allowing up to 3,500 slot machines at each of the state’s sevenexisting racetracks and two locations in downtown Cleveland. Ohio residentsvoted on the proposed constitutional amendment on November 7, 2006 and theamendment was not approved. During 2006, we funded a total of $3.3 million insupport of this amendment.

As of December 31, 2006, wehave $40 million available on our revolving senior credit facility foracquisitions and/or capital expenditure programs. The revolving senior creditfacility carries an interest rate of 2.50% above LIBOR and expires in June2011.

While our owners have madecapital contributions to facilitate various acquisitions of the company fromtime to time, we can give no assurance that they will continue to do so in thefuture. Additionally, as we are a Subchapter S Corporation, we may from time totime make distributions to our owners on any taxes due as a result of incomegenerated by us. Furthermore, annual distributions may be made to our owners inan aggregate amount not to exceed the greater of $1 million and 50% ofconsolidated net income for the immediately prior fiscal year.

As of December 31, 2006, ourtotal debt approximates $277.1 million. Our future liquidity, which includesour ability to make semi-annual interest payments on June 15 and December 15 ofeach year, depends upon our future operational success.

We do not have anyoff-balance sheet financing arrangements or transactions with unconsolidated,limited purpose entities nor are any contemplated in the future.

We believe that our cashflow from operations, cash and cash equivalents and our $40 million seniorrevolving credit facility discussed above will be adequate to meet our debtservice obligations and operational expenditures, as well as our capitalexpenditure requirements for the next twelve months. Throughout 2006, we havebeen developing a new casino in Elko, Nevada. As of December 31, 2006, we havecapitalized $9.6 million of property, plant and equipment, including acapital lease totaling $1.4 million. During December 2006, we borrowed $20million on the delayed draw term loan facility, which will be utilized tocomplete the development of our Elko property. The property opened on March 5,2007. Additionally, capital expenditures, excluding development projects, for2007 are projected to be $13.3 million. While 

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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 and senior unsecured notes. We cangive no assurance that we will be able to raise any capital or obtain thenecessary sources of liquidity and financing on favorable terms, if at all.Additionally, any debt financing that we may incur in the future will increasethe amount of our total outstanding indebtedness and our debt servicerequirements, and therefore heighten the related risks we currently face.

We also face the risk thatthere could be a decline in the demand for our products and services, whichwould reduce our ability to generate funds from operations.  While we believe our cash flows aregeographically diverse, at present we do have a significant concentration ofcash flows generated in the Black Hawk, Colorado and Louisiana markets.  Should the Black Hawk or Louisiana marketsdecline or become saturated or should competition erode our market share, wewould suffer a decline in available funds generated from operations.  If this were to occur, there exists thepossibility that our credit rating could be downgraded, which would furtherreduce our ability to access the capital markets and obtain additional oralternative financing.  See the section “RiskFactors” in Item 1A above.

Thefollowing table provides disclosure concerning JEI’s obligations andcommitments to make future payments under contracts, such as debt and leaseagreements, and purchase and other long-term obligations as of December 31,2006.
| ** **                          | ** ** | ** **                           | ** ** | **Less than 1** | ** ** | **1-3**   | ** ** | **4-5**   | ** ** | **After 5** | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|---------------------------|------------|-----------|------------|-----------|------------|------------------|------------|
| ** **                          | ** ** | **Total**                            | ** ** | **Year**                  | ** ** | **Years** | ** ** | **Years** | ** ** | **Years**        | ** ** |
| ** **                          | ** ** | **(Dollars in Thousands)** | ** ** |
| Long-term  debt(1)                  |       | $                                    | 462,959    |                      | $          | 27,262    |       | $         | 54,347     |             | $          | 54,620 |   | $ | 326,730 |   |
| Operating  leases(2)                |       | 41,687                               |       | 2,601                     |       | 4,560     |       | 3,399     |       | 31,127           |       |
| Other long-term  obligations(3)     |       | 25,734                               |       | 1,906                     |       | 3,417     |       | 2,911     |       | 17,500           |       |
| Total contractual cash  obligations |       | $                                    | 530,380    |                      | $          | 31,769    |       | $         | 62,324     |             | $          | 60,930 |   | $ | 375,357 |   |

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(1)                                 Long-term debt includes principal andinterest owing under the terms of our senior unsecured notes, our seniorsecured credit facility, the Black Hawk special assessment bonds, indebtednessof Colonial and various capital leases.

(2)                                 Operatingleases include a land and warehouse lease for the Gold Dust West-Reno in Reno,Nevada, a land lease for Gold Dust West-Carson City in Carson City, Nevada, aland and building lease for Gold Dust West-Elko in Elko, Nevada, a land andbuilding lease for the Vinton truck plaza in Vinton, Louisiana, and otherleases for property and equipment.

(3)                                 Other long-term obligations include ourobligation to pay $1 per video poker machine per day, plus $1,000 per machineannually in licensing to an unaffiliated party to maintain its video pokermachines in our truck plaza operations.

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Inaddition, we have the following commitments and obligations:

·                                        JEI, through itssubsidiary Colonial, has entered into an agreement with a totalisator company,which provides wagering services and designs, programs, and manufacturestotalisator systems for use in wagering applications. On March 16, 2005,Colonial entered into an amendment with the totalisator company that extendsthe term of the agreement to 2012, provides replacement equipment for theexisting equipment, and increases the rate to .385% of handle up to $270million in handle. Handle above $270 million is charged a rate of .345%. Theamendment also provides for a minimum charge per calendar year of $330,000.

·                                        JEI, through theLucky Magnolia truck plaza, has an obligation to pay to an individual 4.9% ofits net video poker revenue, after associated state taxes, for as long as videopoker machines are operated on the property.

Finally, our outstanding senior unsecured notesaggregating $210 million cannot be redeemed until June 15, 2010. We can,however, with proceeds from an equity offering on more than one occasion redeemup to 35% of the aggregate principal amount of the notes at a redemption priceof 109.75% of the principal amount thereof, plus accrued and unpaid interest.

**H.            Critical accounting 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, Louisiana,Nevada and Virginia operations are subject to regulations that describe andregulate operating and internal control procedures. The majority of our casinorevenue is in the form of cash, personal checks, credit cards or gaming chipsand tokens, which by their nature do not require complex estimations. Weestimate certain liabilities with payment periods that extend for longer thanseveral months. Such estimates include our slot club liabilities, outstandinggaming chip, token and pari-mutuel ticket liability, self-insured medical andworkers compensation liabilities, and litigation costs. We believe that theseestimates are reasonable based on our past experience with the business andbased upon our assumptions related to possible outcomes in the future. Futureactual results will likely differ from these estimates.

***Property andequipment***

Wehave a significant investment in long-lived property and equipment,representing approximately 70% of our total assets, which includes the recentacquisitions of Gold Dust West-Carson City and the video gaming truck stops. Weestimate that the undiscounted future cash flows expected to result from theuse of these assets exceed the current carrying value of these assets. Anyadverse change to the estimate of these undiscounted cash flows couldnecessitate an impairment charge that would adversely affect operating results.We review the carrying value of our property and equipment when events andcircumstances indicate that the carrying value of an asset may not berecoverable from the estimated future cash flows expected to result from itsuse. Further, we assign lives to our assets based on our standard policy, whichis established by management as representative of the useful life of each classof assets. Should the actual useful life of a class of assets differ from theestimated useful life, we would 

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recordan impairment charge. We review useful lives and obsolescence and assess thecommercial viability of our assets periodically.

***Goodwill andother intangible assets***

Wehave $36.7 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 requires theuse 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, 2006 areColorado ($6.7 million), Nevada ($9.0 million) and Louisiana($21.0 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, 2006 and updated the test at year end. Ourannual impairment test included an analysis of the gaming industry overall aswell as an analysis of the specific locations in which we operate. Wedetermined the fair values for each of these reporting units using both themarket approach (recent comparable transactions from which we derived anapplicable valuation multiple) and the income approach (net present value ofour anticipated future cash flows). These fair values were then compared to thecarrying values for the respective reporting unit and determined that goodwillis not impaired at any of our reporting units. Furthermore, if the fair valueof these reporting units declined by 10%, no goodwill impairment would exist.

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

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**Item 7A.                *Quantitative and Qualitative Disclosure about MarketRisk.***

**Market Risk**

Market risk is the risk ofloss arising from adverse changes in market rates and prices, such as interestrates, foreign currency exchange rates and commodity prices.  On June 16, 2006 we issued $210 million of93⁄4% senior unsecured notes due in 2014 and we issued $40 million in a securedterm loan financing.  The proceeds ofthese two issuances were used to finance our acquisitions, refinance existingdebt and for working capital purposes. Additionally, during December 2006, weborrowed $20 million on the secured delayed draw term loan facility which wasused to complete the development of our new casino in Elko, Nevada. We haveavailable a secured revolving facility of $40 million. The senior unsecurednotes bear interest at a fixed rate of 93⁄4% and our senior secured debt, ofwhich $59.8 million is outstanding as of December 31, 2006, bears interest at ablended rate of 7.85% at December 31, 2006 (2.50% above LIBOR).

If market interest ratesincrease, our cash requirements for interest on the senior secured creditfacility balance would also increase. Conversely, if market interest ratesdecrease, our cash requirements for interest on the senior secured creditfacility balance would also decrease. There would be an approximate change inour cash requirements of $0.5 million annually for interest should market ratesincrease or decrease by 10% compared to interest rate levels at December 31,2006.

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

**Item 8.                   *Financial Statements and Supplementary Data.***

Reference is made to thefinancial statements, the notes, and the report of our independent registeredpublic accounting firm commencing on page F-1 of this report.

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

None.

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

We have carried out underthe supervision and with the participation of our management, including ourChief Executive Officer and our Chief Financial Officer, an evaluation of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)) as of December 31, 2006. Based on such evaluation, we haveconcluded that, as of such date, our disclosure controls and procedures wereeffective to ensure that information required to be disclosed by us in ourExchange Act reports is recorded, processed, summarized and reported within thetime periods specified in applicable SEC rules and forms, and that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely discussions regarding required disclosure.

There has been no change inour internal control over financial reporting during our most recent fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

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

There is no information wewere required to report on Form 8-K during our fourth fiscal quarter of theyear ended December 31, 2006 that was not so reported.

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

The following table providesinformation regarding our directors and executive officers and key employees ofBlack Hawk Gaming, Colonial and the Louisiana properties as of March 1,2007:
| **Name**           | ** ** | **Age** | ** ** | **Position**                                                             |
|--------------------|------------|---------|------------|--------------------------------------------------------------------------|
| Jeffrey P.  Jacobs |       | 53      |       | Chief Executive Officer, Secretary, Treasurer and  Chairman of the Board |
| Richard E.  Jacobs |       | 81      |       | Director                                                                 |
| Stephen R. Roark   |       | 59      |       | President                                                                |
| Ian M. Stewart     |       | 52      |       | President of Pari-Mutuel Wagering Operations                             |
| Michael T.  Shubic |       | 52      |       | Chief Operating Officer                                                  |
| Brett Kramer       |       | 38      |       | Chief Financial Officer                                                  |
| Stan Guidroz       |       | 40      |       | Vice President of Louisiana Operations                                   |

 

Jeffrey P. Jacobs is our Chairman, Chief ExecutiveOfficer, Secretary and Treasurer and a director. From 1996 to present, heserved as Chairman and Chief Executive Officer of Diversified OpportunitiesGroup Ltd., a company co-founded by Mr. Jacobs and his father, Richard E.Jacobs, and based in Cleveland, Ohio, that has investments in gaming companiesand ventures. Diversified was acquired by Jacobs Entertainment onFebruary 22, 2002. From 1975 to present, Mr. Jacobs has also served asChairman and Chief Executive Officer of Jacobs Investments, Inc., a companyengaged in the development, construction and operation of residential andcommercial real estate projects in Ohio. He is also involved in a variety ofprivate equity transactions and investments. Mr. Jacobs served in the OhioHouse of Representatives from 1982 until 1986. He is also Chairman and ChiefExecutive Officer of Colonial, and Chairman and Chief Executive Officer ofBlack Hawk Gaming.

Richard E. Jacobs is our other Director. Mr. Jacobswas Chairman of the Board, President and Chief Executive Officer of ClevelandIndians Baseball Company, Inc. from its inception in 1998 toFebruary 2000. From 1986 to 1998, Mr. Jacobs was Chairman of the Board,President and Chief Executive Officer of Cleveland Baseball Corporation, whichpreviously served as the general partner of the partnership that now owns theCleveland Indians Baseball team. Mr. Jacobs is also Chairman of the Board andChief Executive Officer of The Richard E. Jacobs Group Inc., a real estatemanagement and development company.

Stephen R. Roark wasappointed as our President on December 5, 2006. During the five years prior tothat, he was our Chief Financial Officer and President of Casino Operations. Hewas employed as Chief Financial Officer of Black Hawk Gaming since August 1993.Mr. Roark became a director of Black Hawk Gaming in 1994. He was electedPresident of Black Hawk Gaming in September 1995. Prior to that time hewas an independent consultant in the Denver area rendering financial andaccounting assistance to companies in the public marketplace. Mr. Roark has 17years of public accounting experience, having served as a partner with a localaccounting firm based in Denver and as a partner with a national accountingfirm. Mr. Roark was with Hanifen, Imhoff and Prudential Securities, Inc. forthree years and is a member of the American Institute of Certified PublicAccountants and the Colorado Society of Certified Public Accountants. Mr. Roarkobtained his B.S.B.A. in Accounting from the University of Denver in 1973.

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Ian M. Stewart is currently our President ofPari-Mutuel Wagering Operations. He has served as President of Colonial sinceNovember 1998 and its Chief Financial Officer since June 1997. FromJanuary 1998 through November 1998, Mr. Stewart served as Chief OperatingOfficer of Colonial. From October 1994 to June 1997, Mr. Stewartserved as a consultant and a temporary Chief Financial Officer for severalVirginia-based businesses. From December 1989 to September 1994, Mr.Stewart was 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 beenour Chief Operating Officer since July 1, 2006. From December 1, 2002 when hejoined us until his appointment as our Chief Operating Officer, he served asour Vice President of Casino Operations. From 2000 to 2002, Mr. Shubic was VicePresident and General Manager of the Isle of Capri Black Hawk Casino in BlackHawk, Colorado. From 1997 to 2000, as a private individual, he explored andparticipated in various aspects of the golf industry, including education,sales and management. From 1984 to 1997, Mr. Shubic was employed by severalgaming companies in Las Vegas and Reno, Nevada, Joliet, Illinois, and Nassau,Bahamas. His positions included marketing manager, casino administrator,customer analysis manager, casino credit manager and food and beverage manager.Mr. Shubic holds a B.S. degree in Hotel Administration from the University ofNevada.

Brett Kramer has been ourChief Financial Officer since December 5, 2006. He has been employed by us andcertain of our predecessor subsidiaries for 12 years. He was responsible foroverseeing accounting managers and controllers of our multi-state operatingsubsidiaries, over 30 in all. He has also been involved in developing oursystem of internal controls in order to comply with various gaming regulationsand provisions of the Sarbanes-Oxley Act of 2002. Mr. Kramer was a staff andsenior accountant for five years with Deloitte & Touche, LLP. He graduatedwith a degree in accounting from the University of Colorado in 1989 and is aCertified Public Accountant in Colorado.

Stan Guidroz is currently our Vice President ofLouisiana Operations, having joined us in July 2002. Prior to that he wasDirector of Sales and Marketing for our Louisiana operations where he managedthe sales and marketing efforts as well as the development of a proprietaryfuel program for our truck stop plazas. Prior to joining us, Mr. Guidroz heldthe position of Director of Operations for Pumpelly Oil, the largest petroleummarketing company in the Gulf Coast for six years. Mr. Guidroz recentlycompleted his MBA at the University of Louisiana of Lafayette.

We are a company whollyowned by Jacobs Investments, Inc. which in turn is 50% owned by Jeffrey P.Jacobs and two family trusts created by him, and 50% owned by a revocable trustand an irrevocable trust established by his father, Richard E. Jacobs. Ourboard of directors, consisting of Messrs. Jeffrey P. Jacobs and Richard E.Jacobs, has no nominating, audit, compensation or other committees. These twopersons have served as our directors since our formation in 2001. They areelected each year. The board has adopted a code of ethics policy which isapplicable to our CEO, CFO and our employees. We rely on our employmentprocedures and system of internal controls and procedures, to deter wrongdoingand to promote honest and ethical conduct, full, fair and accurate disclosurein our reports, our compliance with governmental laws, rules and regulations,and internal reporting of violations of our policies.

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

**Compensation Discussionand Analysis**

The following discussion ofour executive compensation policies and practices 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 12immediately below, we are a wholly owned subsidiary of a privately-heldcompany, hence we have no publicly traded securities, nor any option or otherequity based incentive programs for our executives or employees. Our Chairmanand Chief Executive Officer, Jeffrey P. Jacobs, and his father, Richard E.Jacobs, a director, and trusts that they have established, own the equitysecurities of Jacobs Investments, Inc., the company that owns all of our equitysecurities.

The total cash compensationto Messrs. Jeffrey P. Jacobs and Richard E. Jacobs is limited to an aggregateof $1 million per year under our credit agreements. As a result, most elementsof our compensation plans discussed below do not include our CEO, Jeffrey P.Jacobs. However, as also discussed below, our sole shareholder nonetheless isentitled under our credit agreements to certain tax distributions since, as aSubChapter S corporation, our taxable income flows through and is taxed to it.Finally and also as discussed in detail in Item 13 below, Messrs. Jeffrey P.Jacobs and Richard E. Jacobs have received certain direct dividends from us andconstructive dividends resulting from the accounting treatment required ofcertain related party transactions.

Our Executive CompensationProgram (Program) is designed to attract, motivate and retain high performingexecutives who are critical to our long-term success. The Program is structuredto link executive compensation to how successfully we execute our businessplans and meet a number of corporate, financial and operational goals. Thisdesign is intended to provide executives increased compensation when we do welland to provide less compensation when we do not.

The design and effectivenessof compensation policies and programs are reviewed by our CEO periodically inlight of general industry and peer trends, and recommendations for changes aremade to the board of directors as deemed advisable by the CEO. The CEO reviewssuch compensation matters with our internal personnel. The board of directorsbelieves that the role played by the CEO in this process is reasonable andappropriate because the CEO is best suited to evaluate the performance of ourexecutive personnel.

Our CEO reviews the philosophy, goals and objectives of the Program atleast annually. In assessing their continued appropriateness, our CEO examinesour success 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.

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As a result of our corporatestructure, the base compensation structure and amounts paid to all of ourexecutive officers, except Jeffrey P. Jacobs, are determined after individualnegotiations with each executive and approved by him. We formulate an annualcash incentive compensation plan for our named executive officers and 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 considers thedesirability of maintaining a cohesive, long standing management and operatinggroup and keeps himself informed of the salaries and benefits offered bycompetitors although he does not adhere to specific benchmarks, medianplacements, percentages or ranges of compensation paid by competitors orothers.

The following table sets forth information regardingthe compensation paid by us to each of the following individuals for servicesrendered in all capacities 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                            |       | 2006  2005  2004 |       | 500,000  500,000   500,000 |       | 250,000  250,000   250,000 |       |              |       |               |       |                                              |       |                                                                                               |       | 1,513,000  450,000   450,000           |       |      |       |
|                                          |       |             |       |                       |       |                       |       |              |       |               |       |                                              |       |                                                                                               |       |                                   |       |      |       |
| Stephen R. Roark                              |       | 2006  2005  2004 |       | 370,529  350,000  350,000  |       | 140,000  107,000  72,700   |       |              |       |               |       |                                              |       |                                                                                               |       |                                   |       |      |       |
|                                          |       |             |       |                       |       |                       |       |              |       |               |       |                                              |       |                                                                                               |       |                                   |       |      |       |
| Ian M. Stewart                                |       | 2006  2005  2004 |       | 264,769  250,000  250,000  |       | 50,000  75,000  30,000     |       |              |       |               |       |                                              |       |                                                                                               |       |                                   |       |      |       |
|                                          |       |             |       |                       |       |                       |       |              |       |               |       |                                              |       |                                                                                               |       |                                   |       |      |       |
| Michael T.  Shubic                            |       | 2006  2005  2004 |       | 272,445  242,000  240,000  |       | 105,000  73,000  59,440    |       |              |       |               |       |                                              |       |                                                                                               |       |                                   |       |      |       |
|                                          |       |             |       |                       |       |                       |       |              |       |               |       |                                              |       |                                                                                               |       |                                   |       |      |       |
| Brett Kramer                                  |       | 2006  2005  2004 |       | 166,921  137,845  113,200  |       | 70,000  30,000  24,700     |       |              |       |               |       |                                              |       |                                                                                               |       |                                   |       |      |       |

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

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

(3)                                  Also see Item 13 below that describes$34,205,000 of distributions to our owners during 2006 which directly andindirectly benefited our Chief Executive Officer.

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***Employment Agreements***

Each of our five executiveofficers, except our CEO, Jeffrey P. Jacobs, is a party to an ExecutiveEmployment 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 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 substantiallyidentical except with respect to the amount of the executives’ respectivesalaries. Among the more important provisions of the agreements are thefollowing:

(a)           theterm of each agreement is three years from its effective date;

(b)           the base salaries are set forth above; in addition, eachexecutive is entitled to receive an annual bonus of up to 35% of his basesalary if certain performance criteria (established each year) are met;

(c)           the agreements provide that if the executive is terminatedwithout cause or dies, he or his estate is entitled to a lump sum payment equalto six month’s salary and a pro rated portion of his bonus. If there is achange in our control and the executive is not offered employment satisfactoryto him, he is entitled to a lump sum payment equal to one year’s salary exceptin the case of Mr. Roark who is entitled to a lump sum payment equal to threeyear’s salary; and

(d)           each agreement contains customary provisions regardingvacations, automobile benefits, insurance and expense reimbursements.

***Director Compensation***

We have two directors,Jeffrey P. Jacobs, who is also our CEO, and Richard E. Jacobs, his father. In2006, Richard E. Jacobs was paid $250,000 for his service as a director. Ourdirectors receive no other compensation for their services as directors.

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Asexplained in Item 13 below, our stockholders received compensation from us in2006 as a result of direct distributions and amounts accounted for asdistributions under generally accepted accounting principles resulting fromsales of certain Louisiana truck stops to us for amounts greater than thestockholders’ identifiable cash cost therein.Distributions to our stockholders totaled$34,205,000 in 2006, including distributions payable at December 31, 2006of $1,000,000.

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 hasreviewed and discussed the foregoing Compensation Discussion and Analysis withmanagement and based thereon, the board of directors has recommended that it beincluded in this Annual Report on Form 10-K.

During 2006, there were nointerlocking relationships between any member of our board of directors and anyof our executive officers that would be required to be disclosed under Item407(e)(4) of Regulation S-K.

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**Item 12.**                                                    ***SecurityOwnership of Certain Beneficial Owners and Management andRelated Stockholder Matters.***

As of March 15, 2007,there were 1,500 shares of our common stock outstanding divided into 1,320Class A shares and 180 Class B shares. The shares are equal in all respectsexcept that each Class B share entitles the holder to 50,000 votes on eachmatter required to be voted upon by our shareholders. We have no equitycompensation, stock option or similar plans relating to our equity securities.All 1,500 shares (100%) of our issued and outstanding common stock are owned byJacobs Investments, Inc., a Delaware corporation (“JII”).

The following table sets forth certain informationregarding the beneficial ownership of JII’s common stock as of March 15,2007, for each stockholder who is known by us to own beneficially more than 5%of JII’s common stock.
| ** **                                                                                                                       | ** ** | **Number of Shares** | ** ** | **Percentage**   | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------------|------------|
| **Stockholder of JII**                                                                                                           | ** ** | **Class A**               | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Jeffrey P. Jacobs(1)  Golden Bear Plaza  East Tower  1170 U.S. Highway One, Suite 600  North Palm Beach, Florida 33408           |       | 528                            |       | —           |       | 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 | % |

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

(2)                                  The Jacobs Family Economic Trust owns 792Class 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 benefitof his current and future heirs and place certain restrictions on the transferof 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 & ParksLLP.

(3)                                  All shares shown as beneficially owned byRichard E. Jacobs are owned by The Richard E. Jacobs Revocable Trust, and theRichard E. Jacobs Irrevocable Trust. Richard E. Jacobs is the trustee of theRevocable 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 precedingnotes are referred to herein collectively as the “Trusts.”

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

In order to assist us in ourefforts to research, develop, perform due diligence on and possibly acquire newgaming opportunities, we entered into an agreement with Premier One DevelopmentCompany, effective October 1, 1997. On May 9, 2000, Premier merged intoJacobs Investments Management Co. Inc., 82% of which is owned by Jeffrey P.Jacobs and the remaining 18% of which is owned in equal portions by two formerdirectors of Colonial. Jacobs Entertainment, Inc. paid $450,000 to JacobsInvestments Management Company, Inc. (“JIMCO”) in January 2006, 2005 and 2004for each respective year’s services. On June 16, 2006, fees under thisagreement were increased to $1.25 million per year for 20 years and theagreement also requires that we pay a development fee of 21⁄2% of budgeteddevelopment costs for projects undertaken by us. In accordance with the amendedand restated agreement, $800,000 was paid in July 2006. Additionally, for theyear ended December 31, 2006, we paid or accrued $263,000 to JIMCO fordevelopment projects undertaken by us.

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 $539,000, $64,000 and $51,000for the years ended December 31, 2006, 2005 and 2004, respectively.Additionally, we provide shared services such as a branded fuel card that canbe used at the truck stops owned both by us and the affiliate, and repair partspurchased by the affiliate from us. These transactions result in receivablesfrom and payables to affiliate. As of December 31, 2006, these transactionsresulted in net receivables from affiliates totaling $316,000, and as ofDecember 31, 2005, these transactions resulted in net payables to affiliatestotaling $710,000. We expect to continue to render management and accountingservices to the affiliate in the future. We believe the fees paid to us are noless favorable to us than those that would be paid to unaffiliated vendors.

Jacobs Entertainment was theobligor on notes to Jeffrey P. Jacobs and the Richard E. Jacobs Revocable Trusttotaling $9.0 million, with interest only payable semi-annually at 12% perannum, and the principal amount due and payable on January 31, 2010. Thesenotes were issued in connection with our acquisition of Louisiana truck stops.We were also an obligor on $10.5 million of notes issued in connection with ouracquisition of additional truck stops from an unaffiliated party. These noteswere purchased from the seller in February 2003 for $7 million by JeffreyP. Jacobs and the Richard E. Jacobs Revocable Trust. All of these notes werepaid on June 16, 2006.

InMarch 2005, we issued an additional $23 million in principal amount of our117/8 Senior Secured Notes due 2009. We used proceeds derived from the sale ofthe notes to complete a purchase and sale agreement with Gameco Holdings, Inc.(“Gameco”), a company owned and controlled by our two directors and then soleowners. We purchased 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. Weobtained an opinion from an independent investment bank that the cashconsideration paid was fair from a financial point of view. As part of theacquisition of these three truck plazas, the affiliated party seller providedcapital to us. Amounts payable to this affiliated party totaled $386,000 as ofDecember 31, 2005.

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In December 2005, we acquired two of our 16Louisiana 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, we enteredinto agreements with Gameco, an affiliated company, to purchase three Louisianatruck plaza video gaming facilities and raw land and equipment suitable for afourth facility. We closed these agreements on June 16, 2006. The totalpurchase price was $15.0 million (with $620,000 allocated to the rawland). Gameco’s net book value in the interests acquired was approximately$8.0 million resulting, for accounting purposes, in a net distribution toit of approximately $7.0 million.

We may invest up to $3 million per year inprivate or publicly traded securities of unaffiliated companies. Theseinvestments may be selected and managed by Jacobs Investments, Inc., acompany wholly owned and controlled by our Chairman and Chief ExecutiveOfficer, Jeffrey P. Jacobs, certain of his family trusts and trusts created byRichard E. Jacobs, a director, provided that under our senior credit agreementour pro forma consolidated leverage ratio (ratio of our total pro forma debt toour pro forma EBITDA) must be 5.0 to 1.0 or less after giving effect to anysuch investment and provided that under our note indenture our fixed chargecoverage ratio (ratio of our Consolidated EBITDA to our fixed charges,primarily interest) was at least 2.0 to 1.0 for the preceding four quarterperiod; and provided further that to the extent that less than$3.0 million in the aggregate of such investments are made in any fiscalyear, the unused amount may be used in the succeeding fiscal year, subject tothe pro forma leverage condition just discussed. See “Management’s Discussionand Analysis of Financial Condition and Results of Operations—Investment inEquity Securities.”

Gameco, an affiliated company,owns and has the right to acquire additional video gaming truck plazas inLouisiana. We have the right to purchase any existing or future video gamingfacilities acquired by that company at a price equal to (i) the lesser of(a) seven times trailing 12 months EBITDA, and (b) the sum of theconsideration paid by the affiliated company plus or minus an adjustment forworking capital and plus an amount equal to the trailing 12 months EBITDA,or (ii) an amount supported by a fairness opinion by a nationallyrecognized accounting, investment banking or appraisal firm; provided thatafter giving effect to each such acquisition and pro forma for contemplatedexpenditures, (x) there must be at least $10,000,000 of undrawnavailability under our revolving credit line, (y) we must be in pro formacompliance with all financial covenants under our credit agreements, and(z) we must maintain specified levels with respect to our consolidatedtotal leverage ratio. Any such acquisitions by us could result in significantprofits to Gameco.

We have acquired from anaffiliated party 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 four years topurchase two parcels and the right to purchase or enter into long term leaseson the other four parcels. In general, the purchase price of the parcels wouldbe 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. Jeffrey P. Jacobs, our Chairman and Chief ExecutiveOfficer, owns varying interests in five of the six parcels.

72

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Although we may elect not to exercise 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. The purchase price and rentpayments would be increased if casino gaming were to become legal in Ohio and acasino is licensed at Nautica.

On June 16, 2006, we used proceeds from ourrefinancing to pay our stockholders a special distribution of $10 million.

**Director Independence**

We are a privately held company wholly owned byJacobs Investments, Inc. which in turn is owned beneficially by our twodirectors, Jeffrey P. Jacobs, who is also our Chief Executive Officer, and hisfather, Richard E. Jacobs and several trusts created by them. Therefore,neither member of our board of directors is independent, nor are anyindependence standards applicable to us as a result of stock exchange or anyother self regulatory organization’s requirements.

73

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

Fees paid to our registeredpublic accounting firm for the last two years were as follows:

|                     | ** ** | **Year Ended**   | ** ** |
|---------------------|------------|-----------------------|------------|
| ** **          | ** ** | **December 31,** | ** ** |
| ** **          | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Audit fees          |       | $                     | 920,000    |   | $ | 765,000 |   |
| Audit related fees* |       | $                     | 29,000     |   | 31,000 |   |
| Tax fees**          |       | 270,000               |       | 165,000 |   |
| All other fees***   |       | $                     | 988,000    |   | 128,000 |   |
|                     |            |                       |            |  |  |  |  |

----

*                                         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. 2005 includes $90,000 in feesattributable to our March 2, 2005 debt tack-on offering of additional securednotes.

We have no audit committee.Our board of directors has considered and has determined that provision of theservices described above and amounts paid for those services are compatiblewith maintaining our principal accountant’s independence.

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

(a)                                  *Financial Statements andFinancial Statement Schedules*

(1)           Financial Statements are listed in the Index toConsolidated Financial Statements on page F-1 of this report.

(2)           No Financial Statement Schedules are included herein becausesuch schedules are not applicable, are not required, or because the requiredfinancial information is included in the Consolidated Financial Statements ornotes thereto.

74

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

 

75

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| 3.16(1)  |   | Articles of Organization of Diversified  Opportunities Group Ltd.                                                 |
|----------|--------|-------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                              |
| 3.17(1)  |   | Articles of Organization of Jalou L.L.C.                                                                          |
|     |   |                                                                                                              |
| 3.18(1)  |   | Articles of Organization of Houma Truck Plaza &  Casino, L.L.C.                                               |
|     |   |                                                                                                              |
| 3.19(1)  |   | Articles of Organization of Jalou-Cash’s L.L.C.                                                              |
|     |   |                                                                                                              |
| 3.20(1)  |   | Articles of Incorporation of JACE, Inc.                                                                           |
|     |   |                                                                                                              |
| 3.21(1)  |   | Articles of Organization of Lucky Magnolia Truck  Stop and Casino, L.L.C.                                         |
|     |   |                                                                                                              |
| 3.22(1)  |   | Articles of Organization of Bayou Vista Truck Plaza and  Casino, L.L.C.                                           |
|     |   |                                                                                                              |
| 3.23(1)  |   | Articles of Organization of Raceland Truck Plaza and  Casino, L.L.C.                                              |
|     |   |                                                                                                              |
| 3.24(1)  |   | Articles of Incorporation of JACE, Inc. (duplicate  of Exhibit 3.20).                                             |
|     |   |                                                                                                              |
| 3.25(2)  |   | Certificate of Amendment of Certificate of  Incorporation of Gameco, Inc.                                         |
|     |   |                                                                                                              |
| 3.26(2)  |   | Amended and Restated Certificate of Limited  Partnership of Colonial Downs, L.P.                                  |
|     |   |                                                                                                              |
| 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. |

 

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| 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.                                                         |
|      |   |                                                                                              |
| 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.              |

 

77

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

 

78

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

 

79

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|            |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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.                                                                                                                                                                                                                                                                                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                     |

 

80

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| 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.                                                                               |
|      |   |                                                                                                                                                                                          |
| 12(17)    |   | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                            |
|      |   |                                                                                                                                                                                          |
| 14.1(15)  |   | Code of Ethics.                                                                                                                                                                               |
|      |   |                                                                                                                                                                                          |
| 21.1(12)  |   | Subsidiaries of Jacobs Entertainment, Inc.                                                                                                                                                    |
|      |   |                                                                                                                                                                                          |
| 25.1(12)  |   | Statement of Eligibility of Trustee on Form T-1.                                                                                                                                              |
|      |   |                                                                                                                                                                                          |
| 31.1(17)  |   | Chief Executive Officer Certificate under  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                |
|      |   |                                                                                                                                                                                          |
| 31.2(17)  |   | Chief Financial Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                              |
|      |   |                                                                                                                                                                                          |
| 32.1(17)  |   | Chief Executive Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                              |
|      |   |                                                                                                                                                                                          |
| 32.2(17)  |   | Chief Financial Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                              |

 

81

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----

| (1)  |   | Incorporated hereby by reference from our  registration statement on Form S-4 (SEC Registration No. 333-88242) filed on  May 14, 2002.                           |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  |   | Incorporated hereby by reference from Amendment No.  1 of our registration statement on Form S-4 (SEC Registration No. 333-88242)  filed on August 8, 2002. |
| (3)  |   | Incorporated hereby by reference from our Form 10-K  filed on March 29, 2004.                                                                               |
| (4)  |   | Incorporated hereby by reference from our Form 10-K  filed on March 31, 2003.                                                                               |
| (5)  |   | Incorporated by reference from our Form 10-Q filed  August 13, 2004.                                                                                        |
| (6)  |   | Incorporated hereby by reference from our Report on  Form 8-K filed October 7, 2004.                                                                        |
| (7)  |   | Incorporated hereby by reference to Exhibits  2.01(a)and 2.01(b) from our Report on Form 8-K dated March 4, 2005.                                           |
| (8)  |   | Incorporated hereby by reference from our Form 10-K  filed March 28, 2005.                                                                                       |
| (9)  |   | Incorporated hereby by reference from our Report on  Form 8-K filed on March 4, 2005.                                                                            |
| (10) |   | Incorporated by reference from our Form 10-Q filed  November 14, 2005.                                                                                           |
| (11) |   | Incorporated hereby by reference from our Report on  Form 8-K filed on November 15, 2005.                                                                        |
| (12) |   | Incorporated hereby by reference from our  registration statement on Form S-4 (SEC Registration No. 333-136066) filed on  July 7, 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) |   | Filed herewith.                                                                                                                                                  |

 

 

82

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**SIGNATURES**

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
|            | JACOBS ENTERTAINMENT, INC. |                         |
|------------|----------------------------|------------------------------|
|       |                       |                         |   |
|       | By:                        | /s/ JEFFREY P.  JACOBS       |   |
| ** ** | ** **                 | **Jeffrey  P. Jacobs**       |   |
| ** ** | ** **                 | **Chief  Executive Officer** |   |
| ** ** | ** **                 | ** **                   | ** ** |
|       | By:                        | /s/BRETT KRAMER              |   |
| ** ** | ** **                 | **Brett  Kramer**            |   |
| ** ** | ** **                 | **Chief  Financial Officer** |   |

 

Date: March 26, 2007

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

 
| Signature              | ** ** | **Title**                                       | ** ** | **Date**            |
|------------------------|------------|-------------------------------------------------|------------|---------------------|
|                   |       |                                            |       |                |
| /s/ JEFFREY P.  JACOBS |       | Chairman of the Board of Directors and Chief    |       | March 27, 2007 |
| **Jeffrey  P. Jacobs** |       | Executive Officer (Principal Executive Officer) |       |                |
| ** **             |       |                                            |       |                |
| /s/ BRETT KRAMER       |       | Chief Financial Officer                         |       | March 27, 2007 |
| **Brett  Kramer**      |       | (Principal Financial and Accounting Officer)    |       |                |
| ** **             |       |                                            |       |                |
| /s/ RICHARD E.  JACOBS |       | Director                                        |       | March 27, 2007 |
| **Richard  E. Jacobs** |       |                                            |       |                |

 

83

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***JacobsEntertainment, Inc.***

*Consolidated Financial Statements as ofDecember 31, 2006 and 2005, and for the Years Ended December 31,2006, 2005, and 2004, 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. andsubsidiaries as of December 31, 2006 and 2005, and the relatedconsolidated statements of operations, stockholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2006. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour 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. and subsidiariesas of December 31, 2006 and 2005, and the results of their operations andtheir cash flows for each of the three years in the period endedDecember 31, 2006, in conformity with accounting principles generallyaccepted in the United States of America.
| /s/ Deloitte & Touche LLP |   |   |
|-------------------------------|--------|--------|
|                          |   |   |
| Denver, Colorado              |   |   |
| March 23, 2007                |   |   |
|                               |        |        |  |

 

F-1

----

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**AS OF DECEMBER 31, 2006 AND 2005**

**(Dollars in thousands)**
| ** **                                                                                                                            | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **ASSETS**                                                                                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT ASSETS:                                                                                                                       |       |       |       |       |       |
| Cash and cash  equivalents                                                                                                            |       | $          | 24,101     |       | $          | 23,619 |   |
| Restricted cash                                                                                                                       |       | 951        |       | 1,515      |       |
| Accounts  receivable, net                                                                                                             |       | 4,512      |       | 2,916      |       |
| Due from  affiliate                                                                                                                   |       | 316        |       |       |       |
| Inventory                                                                                                                             |       | 2,572      |       | 2,126      |       |
| Prepaid expenses  and other current assets                                                                                            |       | 2,821      |       | 2,118      |       |
| Total current  assets                                                                                                                 |       | 35,273     |       | 32,294     |       |
| PROPERTY, PLANT AND  EQUIPMENT:                                                                                                       |       |       |       |       |       |
| Land and  improvements                                                                                                                |       | 55,822     |       | 54,137     |       |
| Buildings and  improvements                                                                                                           |       | 161,533    |       | 139,493    |       |
| Equipment and  furniture and fixtures                                                                                                 |       | 61,010     |       | 46,184     |       |
| Leasehold  improvements                                                                                                               |       | 2,426      |       | 2,364      |       |
| Construction in  progress                                                                                                             |       | 10,262     |       | 5,101      |       |
|                                                                                                                                  |       | 291,053    |       | 247,279    |       |
| Less accumulated  depreciation and amortization                                                                                       |       | (55,119    | )          | (43,843    | )          |
| Property, plant  and equipment, net                                                                                                   |       | 235,934    |       | 203,436    |       |
| OTHER ASSETS:                                                                                                                         |       |       |       |       |       |
| Goodwill                                                                                                                              |       | 36,674     |       | 33,558     |       |
| Identifiable  intangible assets, net                                                                                                  |       | 8,500      |       | 8,361      |       |
| Debt issue  costs, net                                                                                                                |       | 9,369      |       | 6,702      |       |
| Investment in  equity securities                                                                                                      |       | 9,942      |       |       |       |
| Other assets                                                                                                                          |       | 1,869      |       | 2,400      |       |
| Total other  assets                                                                                                                   |       | 66,354     |       | 51,021     |       |
| TOTAL                                                                                                                                 |       | $          | 337,561    |       | $          | 286,751 |   |
|                                                                                                                                  |       |       |       |       |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT LIABILITIES:                                                                                                                  |       |       |       |       |       |
| Accounts payable  and accrued expenses                                                                                                |       | $          | 23,075     |       | $          | 15,806 |   |
| Gaming taxes payable                                                                                                                  |       | 3,191      |       | 3,144      |       |
| Interest payable                                                                                                                      |       | 1,368      |       | 8,185      |       |
| Distributions  payable                                                                                                                |       | 1,000      |       |       |       |
| Due to affiliate                                                                                                                      |       |       |       | 1,096      |       |
| Current portion  of long-term debt and capital lease obligations                                                                      |       | 1,297      |       | 3,924      |       |
| Total current  liabilities                                                                                                            |       | 29,931     |       | 32,155     |       |
| Long-term debt and  capital lease obligations                                                                                         |       | 275,767    |       | 165,908    |       |
| Long-term debt —  related parties                                                                                                |       |       |       | 19,489     |       |
| Total long-term  debt                                                                                                                 |       | 275,767    |       | 185,397    |       |
| Other liabilities                                                                                                                     |       | 473        |       | 472        |       |
| Total  liabilities                                                                                                                    |       | 306,171    |       | 218,024    |       |
| COMMITMENTS AND  CONTINGENCIES (Note 9)                                                                                               |       |       |       |       |       |
| STOCKHOLDERS’ EQUITY:                                                                                                            |       |       |       |       |       |
| Class A Common  stock, $.01 par value; 1,800 shares authorized, 1,320 shares issued and  outstanding as of December 31, 2006 and 2005 |       | —     |       | —     |       |
| Class B Common  stock, $.01 par value; 200 shares authorized, 180 shares issued and  outstanding as of December 31, 2006 and 2005     |       | —     |       | —     |       |
| Additional  paid-in capital                                                                                                           |       | 32,522     |       | 54,541     |       |
| Retained  (deficit) earnings                                                                                                          |       | (3,131     | )          | 14,186     |       |
| Accumulated  other comprehensive income                                                                                               |       | 1,999      |       |       |       |
| Total  stockholders’ equity                                                                                                      |       | 31,390     |       | 68,727     |       |
| TOTAL                                                                                                                                 |       | $          | 337,561    |       | $          | 286,751 |   |

 

Seenotes to consolidated financial statements.

F-2

----

**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THEYEARS ENDED DECEMBER 31, 2006, 2005, AND 2004**

**(Dollars in thousands)**
| ** **                                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **REVENUES**                                    |       |     |       |     |       |     |       |
| Gaming:                                         |       |     |       |     |       |     |       |
| Casino                                          |       | $        | 121,483    |     | $          | 115,607  |       | $ | 108,347 |   |
| Truck stop                                      |       | 61,177   |       | 44,590   |       | 30,603   |       |
| Pari-mutuel                                     |       | 39,787   |       | 35,988   |       | 32,946   |       |
| Food and beverage                               |       | 24,199   |       | 20,391   |       | 18,422   |       |
| Convenience store—fuel                     |       | 74,226   |       | 47,434   |       | 27,714   |       |
| Convenience store—other                    |       | 9,814    |       | 6,111    |       | 4,316    |       |
| Hotel                                           |       | 3,509    |       | 1,982    |       | 1,382    |       |
| Other                                           |       | 4,371    |       | 3,695    |       | 3,350    |       |
| Total revenues                                  |       | 338,566  |       | 275,798  |       | 227,080  |       |
| Less: Promotional allowances                    |       | (26,271  | )          | (23,835  | )          | (20,734  | )          |
| Net revenues                                    |       | 312,295  |       | 251,963  |       | 206,346  |       |
|                                            |       |     |       |     |       |     |       |
| **COSTS  AND EXPENSES**                         |       |     |       |     |       |     |       |
| Gaming:                                         |       |     |       |     |       |     |       |
| Casino                                          |       | 43,567   |       | 41,804   |       | 38,586   |       |
| Truck stop                                      |       | 34,986   |       | 24,304   |       | 17,730   |       |
| Pari-mutuel                                     |       | 32,559   |       | 31,356   |       | 27,505   |       |
| Food and beverage                               |       | 13,137   |       | 10,459   |       | 9,788    |       |
| Convenience store—fuel                     |       | 70,140   |       | 44,363   |       | 25,876   |       |
| Convenience store—other                    |       | 13,243   |       | 8,558    |       | 5,612    |       |
| Hotel                                           |       | 734      |       | 355      |       | 747      |       |
| Marketing, general and administrative           |       | 60,282   |       | 48,198   |       | 43,128   |       |
| Abandonment costs                               |       |     |       | 1,424    |       | 2,891    |       |
| Termination of contract                         |       |     |       | 10,367   |       |     |       |
| Depreciation and amortization                   |       | 13,692   |       | 11,576   |       | 10,486   |       |
|                                            |       |     |       |     |       |     |       |
| Total costs and expenses                        |       | 282,340  |       | 232,764  |       | 182,349  |       |
|                                            |       |     |       |     |       |     |       |
| OPERATING INCOME                                |       | 29,955   |       | 19,199   |       | 23,997   |       |
|                                            |       |     |       |     |       |     |       |
| Interest income                                 |       | 352      |       | 178      |       | 66       |       |
| Interest expense, net of amounts capitalized    |       | (31,905  | )          | (22,833  | )          | (20,074  | )          |
| Pre-payment penalties, tender and consent costs |       | (9,321   | )          |     |       |     |       |
|                                            |       |     |       |     |       |     |       |
| (LOSS) INCOME  BEFORE INCOME TAXES              |       | (10,919  | )          | (3,456   | )          | 3,989    |       |
|                                            |       |     |       |     |       |     |       |
| Income tax benefit (expense)                    |       | 103      |       | (423     | )          |     |       |
|                                            |       |     |       |     |       |     |       |
| NET (LOSS) INCOME                               |       | $        | (10,816    | )        | $          | (3,879   | )          | $ | 3,989 |   |

 

Seenotes to consolidated financial statements.

F-3

----

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

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**FOR THEYEARS ENDED DECEMBER 31, 2006, 2005, AND 2004**

**(Dollars in thousands)**
| ** **                                                        | ** ** | **Common Stock** | ** ** | ** **       | ** ** | ** **       | ** ** | **Accumulated** | ** ** | ** **     | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|------------|------------------|------------|------------------|------------|-----------------|------------|----------------|------------|
| ** **                                                        | ** ** | ** **            | ** ** | ** **       | ** ** | ** **       | ** ** | ** **      | ** ** | **Additional** | ** ** | **Retained** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | ** **            | ** ** | **Class A** | ** ** | **Class B** | ** ** | ** **      | ** ** | **Paid-in**    | ** ** | **(Deficit)** | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Shares**            | ** ** | **Shares**       | ** ** | **Shares**       | ** ** | **Amount***     | ** ** | **Capital**    | ** ** | **Earnings** | ** ** | **Income** | ** ** | **Total** | ** ** |
| BALANCES,  JANUARY 1, 2004                                   |       | 1,500                 |       |             |       |             |       | $               |       |           | $          | 31,940 |   | $ | 36,576 |   |   |   | $ | 68,516 |   |
| Capital contribution                                              |       |                  |       |             |       |             |       |            |       | 1,883          |       |   |   |   |   | 1,883 |   |
| Net income                                                        |       |                  |       |             |       |             |       |            |       |           |       | 3,989 |   |   |   | 3,989 |   |
| BALANCES,  DECEMBER 31, 2004                                      |       | 1,500                 |       |             |       |             |       | $               |       |           | $          | 33,823 |   | $ | 40,565 |   |   |   | $ | 74,388 |   |
| Capital contribution                                              |       |                  |       |             |       |             |       |            |       | 20,718         |       |   |   |   |   | 20,718 |   |
| Distributions                                                     |       |                  |       |             |       |             |       |            |       |           |       | (22,500 | ) |   |   | (22,500 | ) |
| Common stock exchange                                             |       | (1,500                | )          | 1,320            |       | 180              |       |            |       |           |       |   |   |   |   |   |   |
| Net loss                                                          |       |                  |       |             |       |             |       |            |       |           |       | (3,879 | ) |   |   | (3,879 | ) |
| BALANCES,  DECEMBER 31, 2005                                      |       |                  |       | 1,320            |       | 180              |       | $               |       |           | $          | 54,541 |   | $ | 14,186 |   |   |   | $ | 68,727 |   |
| Capital contribution                                              |       |                  |       |             |       |             |       |            |       | 5,685          |       |   |   |   |   | 5,685 |   |
| 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                                                          |       |                  |       |             |       |             |       |            |       |           |       | (10,816 | ) |   |   | (10,816 | ) |
| Total comprehensive loss                                          |       |                  |       |             |       |             |       |            |       |           |       |   |   |   |   | (8,817 | ) |
| BALANCES,  DECEMBER 31, 2006                                      |       |                  |       | 1,320            |       | 180              |       | $               |       |           | $          | 32,522 |   | $ | (3,131 | ) | $ | 1,999 |   | $ | 31,390 |   |
|                                                                   |            |                       |            |                  |            |                  |            |                 |            |                |            |  |  |  |  |  |  |  |  |  |  |  |

----

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

See notes to consolidated financial statements.

F-4

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**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004**

**(Dollars in thousands)**
| ** **                                                                                | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **OPERATING  ACTIVITIES:**                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net (loss) income                                                                         |       | $          | (10,816    | )          | $          | (3,879     | )          | $ | 3,989 |   |
| Adjustments to reconcile net (loss) income to net  cash provided by operating activities: |       |       |       |       |       |       |       |
| Depreciation and amortization                                                             |       | 13,692     |       | 11,576     |       | 10,486     |       |
| Loss on sale of equipment                                                                 |       | 201        |       | 89         |       | 134        |       |
| Deferred financing cost amortization and write-off                                        |       | 7,489      |       | 2,076      |       | 1,367      |       |
| Note issue discount amortization and write-off                                            |       | 2,189      |       | 708        |       | 710        |       |
| Note issue premium amortization and write-off                                             |       | (1,811     | )          | (489       | )          |       |       |
| Noncash charge related to termination of contract                                         |       |       |       | 3,000      |       |       |       |
| Noncash abandonment costs                                                                 |       |       |       | 1,424      |       | 1,500      |       |
| Other                                                                                     |       | 385        |       |       |       | 23         |       |
| Changes in operating assets and liabilities, net of  acquisitions:                        |       |       |       |       |       |       |       |
| Restricted cash                                                                           |       | 564        |       | 400        |       | 235        |       |
| Accounts receivable                                                                       |       | (1,539     | )          | (1,113     | )          | (364       | )          |
| Inventory                                                                                 |       | (253       | )          | (294       | )          | (256       | )          |
| Prepaid expenses and other assets                                                         |       | (199       | )          | (1,099     | )          | (723       | )          |
| Accounts payable and accrued expenses                                                     |       | 2,730      |       | 2,177      |       | 2,425      |       |
| Gaming taxes payable                                                                      |       | 47         |       | 287        |       | 136        |       |
| Interest payable                                                                          |       | (6,817     | )          | 1,225      |       | (28        | )          |
| Due from/to affiliate                                                                     |       | (1,412     | )          | (1,151     | )          | 1,045      |       |
| Net cash provided by operating activities                                                 |       | 4,450      |       | 14,937     |       | 20,679     |       |
| **INVESTING  ACTIVITIES:**                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Additions to property, plant and equipment                                                |       | (24,212    | )          | (19,097    | )          | (18,584    | )          |
| Proceeds from sale of equipment                                                           |       | 72         |       | 159        |       | 295        |       |
| Purchase of device rights                                                                 |       | (773       | )          | (732       | )          | (907       | )          |
| Purchase of available-for-sale securities                                                 |       | (7,943     | )          |       |       |       |       |
| Acquisitions, net of cash acquired:                                                       |       |       |       |       |       |       |       |
| Casino                                                                                    |       | (14,702    | )          |       |       |       |       |
| Truck stops                                                                               |       | (5,808     | )          | (12,161    | )          |       |       |
| Net cash used in investing activities                                                     |       | (53,366    | )          | (31,831    | )          | (19,196    | )          |
| **FINANCING  ACTIVITIES:**                                                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proceeds from note issuance                                                               |       | 210,000    |       | 25,300     |       |       |       |
| Payments to obtain financing                                                              |       | (10,406    | )          | (3,348     | )          |       |       |
| Proceeds from long-term debt                                                              |       | 60,000     |       | 1,338      |       | 5,100      |       |
| Proceeds from revolving line of credit                                                    |       | 26,461     |       | 17,821     |       | 4,265      |       |
| Contributions from stockholders                                                           |       |       |       | 14,388     |       | 1,883      |       |
| Payments on long-term debt (including $19,489 paid  to related parties in 2006)           |       | (172,401   | )          | (1,269     | )          | (3,152     | )          |
| Payments on revolving line of credit                                                      |       | (31,051    | )          | (13,231    | )          | (4,265     | )          |
| Distributions to stockholders                                                             |       | (33,205    | )          | (22,500    | )          |       |       |
| Net cash provided by financing activities                                                 |       | 49,398     |       | 18,499     |       | 3,831      |       |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                                |       | 482        |       | 1,605      |       | 5,314      |       |
| CASH AND CASH  EQUIVALENTS—Beginning of year                                         |       | 23,619     |       | 22,014     |       | 16,700     |       |
| CASH AND CASH  EQUIVALENTS—End of year                                               |       | $          | 24,101     |       | $          | 23,619     |       | $ | 22,014 |   |
| SUPPLEMENTAL  CASH FLOW INFORMATION:                                                      |       |       |       |       |       |       |       |
| Cash paid for interest, net of amounts capitalized                                        |       | $          | 30,367     |       | $          | 19,231     |       | $ | 17,686 |   |
| Non-cash investing and financing activities:                                              |       |       |       |       |       |       |       |
| Capital contribution exchanged for retirement of  note paid by affiliate                  |       | $          | 5,685      |       | $          | 6,330      |       | $ |   |   |
| Acquisition of property for payables incurred                                             |       | $          | 5,374      |       | $          | 800        |       | $ | 1,357 |   |
| Acquisition of property under capital lease  agreements                                   |       | $          | 287        |       | $          | 3,288      |       | $ | 1,732 |   |
| Distributions payable                                                                     |       | $          | 1,000      |       | $          |       |       | $ |   |   |
| Notes payable  incurred on termination of contract                                        |       | $          |       |       | $          | 3,000      |       | $ |   |   |

 

See notes to consolidatedfinancial statements.

F-5

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**JACOBS ENTERTAINMENT, INC. ANDSUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2006 AND 2005, AND FOR THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004**(Dollars in thousands)

**1.**                   BUSINESS ANDORGANIZATION

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 turn is50% owned by Jeffrey P. Jacobs, our Chief Executive Officer, and two of hisfamily trusts, and 50% owned by a revocable trust and an irrevocable trustestablished by his father, Richard E. Jacobs. These persons and their affiliates are referred to herein as “Jacobs.”  As of December 31, 2006, we own andoperate four 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 in Carson City, Nevada.  Additionally, we developed a new casino inElko, Nevada (“Gold Dust West-Elko”), which opened on March 5, 2007.  JEI also owns and operates sixteen truckplaza video gaming facilities in Louisiana through two wholly-ownedsubsidiaries, Jalou LLC and Jalou II, 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 previouslyowned by Jacobs and on June 16, 2006 we acquired three additional truck plazavideo gaming facilities, land and equipment in Louisiana previously owned byJacobs.  The purchases of these truckplaza video gaming facilities were accounted for as a combination of entitiesunder common control, which is similar to the pooling of interests method ofaccounting for business combinations. Accordingly, the accompanying consolidated financial statements havebeen retroactively adjusted to include the operations of the first threeacquired truck plazas from January 1, 2004 through March 2, 2005 andthe second three acquired truck plazas from January 1, 2004 through June 16,2006.  See Note 4 below.

**2.**                   SIGNIFICANTACCOUNTING POLICIES

***Consolidation***—Theaccompanying consolidated financial statements include the accounts of JEI andits wholly-owned subsidiaries.  Allintercompany transactions and balances have been eliminated in consolidation.

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

***RestrictedCash***—Amounts due under agreements with the VirginiaHorsemen’s Benevolent and Protective Association, Inc. and the Virginia HarnessHorse Association are accrued based on the terms of the agreements.  Funds for purses for future live race meetsare held in restricted cash accounts.  Inaddition, at December 31, 2005 our St. Martin truck plaza was required tomaintain immaterial compensating cash balances on deposit equal to an amountnot less than 10% of its loan commitment with its primary lender.  These cash balances are reported asrestricted cash in the accompanying consolidated balance sheet at December 31,2005.  The debt requiring thesecompensating cash balances was paid in full during 2006.

***Accounts Receivable***—Our accounts receivablebalances primarily consist of receivables from convenience store fuel sales onaccount.  Generally, our receivables arecollected within two months, and we have had minimal bad debts.  We routinely assess the recoverability of allmaterial receivables to determine their collectibility.  At December 31, 2006 and 2005, we had anallowance for doubtful accounts of $208 and $80, respectively.

F-6

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***Inventory***—Inventory consists of food andbeverages and uniforms at the casinos and of fuel, convenience store, andrestaurant items at Jalou’s truck stop operations, and is recorded at the lowerof 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 and furniture  and fixtures |   |   2-20 years |
| Leasehold  improvements               |   |   5-25 years |

 

Costs of major improvements are capitalized, while costs of normalrepairs and maintenance are charged to expense as incurred.  Gains or losses on disposal of assets arerecognized as incurred.

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

***Identifiable Intangible Assets***—Identifiableintangible assets are comprised of revenue rights, device use rights associatedwith video poker machines used at each truck stop, and restriction agreementsassociated with certain Jalou truck stop acquisitions.  Revenue rights are amortized on a straightline basis over 50 years representing the initial term of the relatedagreement.  Device use rights and therestriction agreements are amortized on a straight line basis over five years,representing the initial terms of the related agreements.

***Capitalized Interest***—Interest costs associated withmajor construction projects are capitalized. When no debt is incurred specifically for a project, interest iscapitalized on amounts expended for the project using our weighted average costof borrowing.  Capitalization of interestceases when the project or discernible portions of the project aresubstantially complete.  We amortizecapitalized interest over the estimated useful life of the related asset.  Capitalized interest for the years endedDecember 31, 2006, 2005 and 2004 was $154, $106 and $110, respectively.

***Debt Issue Costs***—Debt issue costs that areincurred by us in connection with the issuance of debt are capitalized andamortized to interest expense, using the effective interest method, over theexpected terms of the related debt agreements.

***Investments in Equity Securities***—Investments inavailable-for-sale equity securities are recorded at fair value in otherassets, with unrealized gains and losses recognized as accumulated othercomprehensive income.

***Slot Club Liability***—Our casinos offer customersthe ability to become members in their respective slot clubs.  Once a member, the customer can insert aspecial card into slot and video poker machines while playing in our casinos toearn “points.”  Based on their pointtotals, 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.

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

***Revenue***—***Casino***—Casino revenues are the netwinnings from gaming activities, which is the difference between gaming winsand losses and are recognized as earned.

F-7

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***Revenue***—***TruckStop***—Video poker revenue is the net winnings from gamingactivities of our truck stops, which is the difference between gaming wins andlosses and are recognized as earned.

***Revenue***—***Pari-Mutuel***—Pari-mutuel revenueincludes our share of pari-mutuel wagering on live races after payments ofamounts returned on winning wagers, and our share of wagering from import andexport simulcasting at our racing centers and are recognized as earned.

***Revenue***—***Food and Beverage***—We recognize foodand beverage revenue at the time that goods or services are rendered.

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

***Revenue***—***Hotel***—We recognize hotel revenue atthe time rooms are provided to customers.

***Revenue***—***Other***—Other revenue consists of ATMcommissions, cash advance commissions, miscellaneous vending commissions,rental income, admission charges, and program and concession sales at Colonial’slive racing events.  Other revenues arerecognized at the time services are provided to patrons.

***PromotionalAllowances***—Gross revenues include the retail amount ofrooms, food and beverages, and other goods and services provided gratuitouslyto customers.  When computing netrevenues, the retail amount of rooms, food and beverages and coupons, as wellas slot club player point redemptions, is deducted from gross revenues aspromotional 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** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|                          |       |                                       |       |   |   |   |   |
| Casino  operations            |       | $                                          | 10,445     |   | $ | 9,811 |   | $ | 9,191 |   |
| Truck stop  operations        |       | 1,652                                      |       | 1,142 |   | 525 |   |
| Convenience store  operations |       | 491                                        |       | 364 |   | 185 |   |
|                               |            |                                            |            |  |  |  |  |  |  |  |

 

***Comprehensive Income (Loss)***—The Company accounts forcomprehensive income (loss) in accordance with SFAS No. 130, *Reporting Comprehensive Income*, which established standardsfor the reporting and presentation of comprehensive income in the consolidatedfinancial statements.  We presentcomprehensive income (loss) in our consolidated statements of stockholders’equity.

***Income Taxes***—The Company has elected for income tax purposes to be treatedas a Subchapter S Corporation under the Internal Revenue Code of 1986, asamended, and, consequently, no current or deferred income taxes have beenreflected in the accompanying consolidated financial statements as these taxesare the responsibility of the stockholders. See Note 15 for information relating to income tax benefit (expense) forthe years ended December 31, 2006 and 2005.

***Long-LivedAssets***—We periodically evaluate the value of long-livedassets, including property, plant and equipment, goodwill and identifiableintangibles, for potential impairment. If an impairment is indicated, such impaired assets are written down totheir estimated fair value.  As ofDecember 31, 2006 and 2005, we determined that there was no impairment ofour long-lived assets other than those discussed in Note 13.

***OperatingSegments***—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.

F-8

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***Useof Estimates***—The preparation of financial statements inaccordance with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amount of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting periods.  We periodically evaluate our policies, andthe estimates 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 havedetermined that the policy associated with our long-lived assets, goodwill andidentifiable intangible assets, and related estimates are critical to thepreparation of our consolidated financial statements.  We have a significant investment inlong-lived property and equipment.  Weestimate that the undiscounted future cash flows expected to result from theuse of these assets exceeds the current carrying value of these assets.  Any adverse change to the estimate of theseundiscounted cash flows could necessitate an impairment charge that wouldadversely affect operating results.  Weestimate the useful lives for our assets based on historical experience,estimates of assets’ commercial lives, and the likelihood of obsolescence.  Should the actual useful life of a class ofassets differ from the estimated useful life, we would record an impairmentcharge.  We review useful lives andobsolescence and assess commercial viability of our assets periodically.

***Reclassifications***—Inthe accompanying consolidated statements of cash flows for the years endedDecember 31, 2005 and 2004, we have changed the classification of changes inrestricted cash balances to present such activity as an operatingactivity.  We previously presented suchchanges as an investing activity.  Thisreclassification has resulted in a $400 and $235 increase to operating cashflows during 2005 and 2004, respectively, and a corresponding decrease toinvesting cash flows from the amounts previously reported.  We believe these reclassifications areimmaterial as they had no impact on our financial position or results ofoperations.

***New Accounting Pronouncement***—InFebruary 2007, the FASB issued Statement of Financial Accounting Standards No.159, *The Fair Value Option for FinancialAssets and Financial Liabilities—including an amendment of FASB Statement No.115* (“SFAS 159”),which permits entities to choose, at specified election dates, to measureeligible financial assets and liabilities at fair value that are not otherwiserequired to be measured at fair value. If a company elects the fair value option for an eligible item, changesin that item’s fair value in subsequent reporting periods must be recognized incurrent earnings.  SFAS 159 alsoestablishes presentation and disclosure requirements designed to drawcomparisons between entities that elect different measurement attributes forsimilar types of assets and liabilities. SFAS 159 is effective for us on January 1, 2008.  We have not assessed the impact of SFAS 159on our consolidated results of operations, cash flows or financial position.

**3.**                   GOODWILL ANDIDENTIFIABLE INTANGIBLE ASSETS

We test goodwill for impairment as of September 30th each year. Testing compares the estimated fair values of our reporting units to thereporting units’ carrying value.  Weconsider a variety of factors when estimating the fair value of our reportingunits, including estimates about future operating results of each reportingunit, multiples of EBITDA, investment banker market analyses, and recent salesof comparable 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, 2006 and asupdated at year-end, we believe the goodwill held in our reporting units is notimpaired.  In addition, we havereassessed the useful lives of our identifiable intangible assets without anychange to the previously established amortization periods of such assets.

F-9

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The changes in the carrying amount of goodwill for the years endedDecember 31, 2006 and 2005 are as follows:

|                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
|                             |       |     |       |     |       |
| Balance as of  beginning of year |       | $        | 33,558     |     | $          | 27,400 |   |
| Goodwill acquired during year    |       | 3,116    |       | 6,158    |       |
|                             |       |     |       |     |       |
| Balance as of end of  year       |       | $        | 36,674     |     | $          | 33,558 |   |

 

Acquired intangibleassets as of December 31, 2006 and 2005, consist of the following:
| ** **                      | ** ** | ** **    | ** ** | **2006**     | ** ** | **2005**         | ** ** |
|---------------------------------|------------|---------------|------------|--------------|------------|------------------|------------|
| ** **                      | ** ** | **Weighted**  | ** ** | ** **   | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                      | ** ** | **Average**   | ** ** | **Gross**    | ** ** | ** **       | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                      | ** ** | **Remaining** | ** ** | **Carrying** | ** ** | **Accumulated**  | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                      | ** ** | **Life**      | ** ** | **Amount**   | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
|                            |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Amortizable  intangible assets: |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Revenue rights                  |       | 45.00         |       | $            | 6,000      |             | $          | 600 |   | $ | 5,400 |   | $ | 6,000 |   | $ | 480 |   | $ | 5,520 |   |
| Device use rights               |       | 2.45          |       | 6,664        |       | 3,719            |       | 2,945 |   | 5,159 |   | 2,527 |   | 2,632 |   |
| Other                           |       | 5.02          |       | 560          |       | 405              |       | 155 |   | 510 |   | 301 |   | 209 |   |
|                            |       |          |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Total                           |       |          |       | $            | 13,224     |             | $          | 4,724 |   | $ | 8,500 |   | $ | 11,669 |   | $ | 3,308 |   | $ | 8,361 |   |

 

Aggregate amortizationexpense was $1,416, $1,025, and $780 for the years ended December 31,2006, 2005 and 2004, respectively.

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

| 2007       |   | $      | 1,017  |   |
|------------|--------|--------|--------|--------|
| 2008       |   | 894    |   |
| 2009       |   | 849    |   |
| 2010       |   | 620    |   |
| 2011       |   | 298    |   |
| Thereafter |   | 4,822  |   |
|       |   |   |   |
| Total      |   | $      | 8,500  |   |

 

**4.**                   RECENTACQUISITION ACTIVITY

On February 25, 2005, we filed an application forgaming licenses to open a Jefferson Parish, Louisiana truck plazalocation.  The license was approved onAugust 16, 2005, and the location opened on September 22, 2005.

On March 2, 2005, withthe $23,000 proceeds from the financing occurring on the same date (see Note5), we acquired from Jacobs, three truck plaza video gaming facilities inLouisiana known as Breaux Bridge, Eunice and Jefferson Parish for $22,500.  Due to the related party nature of thetransaction (and under the terms of our indenture) we obtained a fairnessopinion from an investment banking firm that the acquisition of the three videopoker truck plazas was fair from a financial point of view.  The acquisitions of the three truck plazafacilities were accounted for as a combination of entities under commoncontrol, and as such are reflected for accounting and financial reportingpurposes similar to a pooling of interests. Therefore, the acquisitions have been recorded at Jacobs’ historicalcost basis in the assets transferred. Accordingly, the accompanying consolidated financial statements havebeen retroactively restated from January 1, 2004 through March 2,2005 to include the operations of the acquired truck plazas as though thetransactions had occurred at the beginning of each of the periods presented.

F-10

----

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 table summarizes the net assets acquiredand liabilities assumed as of March 2, 2005, for the transactionsoccurring 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 own and operate a seventh satellite wagering facilityin Martinsville, Virginia.  This facilitywas opened on August 15, 2005.  On April27, 2005, we received a license to own and operate an eighth satellite wageringfacility and second location in Chesapeake, Virginia.  We opened this facility on October 12,2005.  On May 25, 2005, we received alicense to own and operate a ninth satellite wagering facility in Scott County,Virginia.  We opened this facility onJanuary 18, 2006.

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 ofsignificant additional 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.***

F-11

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***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, withthe proceeds of the refinancing occurring on the same date (see Note 5), weacquired from Jacobs, three truck plaza video gaming facilities for $14,380 andraw land and equipment for $620 to possibly develop a fourth truck plaza videogaming facility.  Two of the three truckplaza video gaming facilities acquired, Jalou Diamond and Jalou of St. Martinare located in Broussard, Louisiana, and the third facility, Jalou Magic, islocated in Vinton, Louisiana.  The landand equipment on which we may develop a fourth truck plaza video gamingfacility is also located in Vinton, Louisiana. The acquisitions of the three truck plaza facilities, the raw land andequipment were accounted for as a combination of entities under common control,and as such are reflected for accounting and financial reporting purposessimilar to a pooling of interests. Therefore, the acquisitions have been recorded at Jacobs’ historicalcost basis in the assets transferred. Accordingly, the accompanying consolidated financial statements havebeen retroactively restated from January 1, 2004 through June 16,2006 to include the operations of the acquired truck plazas as though thetransactions had occurred at the beginning of each of the periods presented.

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.

The followingtable summarizes the net assets acquired and liabilities assumed as ofJune 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, weacquired from an unaffiliated party Texas Pelican Truck Plaza (“Vinton”), inVinton, Louisiana for $2,169, plus estimated acquisition costs of $389.  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

F-12

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per year for years sixthrough ten, and $600 per year for years eleven through fifteen.  JEI has the right to purchase the leasedproperty for $5,000 during the first five year term reduced by a $100 optionpayment credit, and a $8 credit for each month in which rent has been paid witha maximum credit of $450 irrespective of the number of months paid.  After the first term and through allremaining terms, JEI has the right to purchase the leased property for $5,000.

The following tablesummarizes the allocation of purchase price to net assets acquired andliabilities assumed as of June 21, 2006, for the purchase of Vinton:

|                                 | ** ** | **Vinton** | ** ** |
|---------------------------------|------------|------------|------------|
|                            |       |       |       |
| Property and  equipment         |       | $          | 255        |   |
| Goodwill                        |       | 2,269      |       |
| Identifiable  intangible assets |       | 305        |       |
|                            |       |       |       |
| Total assets  acquired          |       | 2,829      |       |
|                            |       |       |       |
| Current  liabilities            |       | 61         |       |
| Long-term  liabilities          |       | 210        |       |
| Total  liabilities assumed      |       | 271        |       |
|                            |       |       |       |
| Net assets acquired             |       | $          | 2,558      |   |

 

Goodwill resulting fromthe Vinton transaction is attributable to anticipated future cash flowsassociated with the acquired entity.  Anychange in the fair value of the net assets of Vinton during the purchase priceallocation period (generally within one year of the acquisition date) willchange the amount of the purchase price allocated to goodwill. The finalallocation of purchase price and its effect on results of operations may differsignificantly from the proforma operating results included herein.

On June 25, 2006, weacquired the assets of the Piñon Plaza Resort (“Piñon Plaza”), a division ofCapital City Entertainment, Inc. (“CCI”). In January 2007 we rebranded Piñon Plaza to Gold Dust West-CarsonCity.  Under the purchase method ofaccounting, the total purchase price is allocated to Piñon Plaza’s net tangibleand intangible assets and liabilities based on their estimated fair value as ofthe acquisition date.  Fair values forproperty and equipment have been determined based upon a valuation performed.  Goodwill resulting from the Piñon Plazatransaction is attributable to anticipated future cash flows associated withthe acquired entity.  Any change in thefair value of the net assets of Piñon Plaza during the purchase priceallocation period (generally within one year of the acquisition date) will changethe amount of the purchase price allocated to goodwill.  The final allocation of purchase cost and itseffect on results of operations may differ significantly from the proformaoperating results included herein.

The assets purchasedincluded all of the personal property, buildings and improvements used by PiñonPlaza in the operation of its casino, hotel, bowling alley and RV Park inCarson City, Nevada.  The purchase pricefor the assets was $14,500 plus $519 for cash on hand at closing and acquisitioncosts of $202.  Additionally, we enteredinto a triple net ground lease covering land underlying the assets which beganat the closing date of the asset purchase. The lessor is a family trust affiliated with CCI.  The lease has a ten year term with two tenyear extensions at the option of JEI. Rentals under the lease are $250 per year for years one through five,$300 per year for years six through ten, and a rate based on an appraisalperformed by a Member of the Appraisal Institute (“MAI”) of the property duringthe first and second extension terms. JEI has the right to purchase the leased land at an MAI appraised valueat the end of the first ten year term. It also has a right of first refusal should the lessor seek to sell theleased land to a third party.

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The following tablesummarizes the allocation of purchase price to net assets acquired andliabilities assumed as of June 25, 2006, for the purchase of Piñon Plaza:

|                              | ** ** | **Piñon Plaza** | ** ** |
|------------------------------|------------|---------------------------|------------|
| ** **                   | ** ** | ** **                | ** ** |
| Current assets               |       | $                         | 679        |   |
| Property and  equipment      |       | 14,500                    |       |
| Goodwill                     |       | 177                       |       |
|                         |       |                      |       |
| Total assets  acquired       |       | 15,356                    |       |
|                         |       |                      |       |
| Current  liabilities assumed |       | 135                       |       |
|                         |       |                      |       |
| Net assets acquired          |       | $                         | 15,221     |   |

 

On July 12, 2006, weacquired from an unaffiliated party the St. Helena Truck Plaza in Amite,Louisiana (“St. Helena”) which includes a truck plaza, convenience store,casino and food and beverage outlet operation for $3,094, plus $200 for cash onhand at closing, $90 for inventory and acquisition costs of $66.

Thefollowing table summarizes the allocation of purchase price to net assetsacquired and liabilities assumed as of July 12, 2006, for the purchase ofSt. Helena:

|                                 | ** ** | **St. Helena** | ** ** |
|---------------------------------|------------|---------------------|------------|
|                            |       |                |       |
| Current assets                  |       | $                   | 290        |   |
| Property and  equipment         |       | 2,330               |       |
| Goodwill                        |       | 457                 |       |
| Identifiable  intangible assets |       | 376                 |       |
|                            |       |                |       |
| Total assets  acquired          |       | 3,453               |       |
|                            |       |                |       |
| Current  liabilities            |       | 3                   |       |
|                            |       |                |       |
| Net assets acquired             |       | $                   | 3,450      |   |

 

Goodwill resulting fromthe St. Helena transaction is attributable to anticipated future cash flowsassociated with the acquired entity.  Anychange in the fair value of the net assets of St. Helena 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 purchase price and its effect on results of operations may differsignificantly from the proforma operating results included herein.

***Assuming the acquisitions of Fuel Stop 36 and Larose hadoccurred as of January 1, 2004, combined unaudited proforma net revenues, costsand expenses, and net income (loss) would have been as follows:***

|                     | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
|                |       |     |       |     |       |
| Net revenues        |       | $        | 251,705    |     | $          | 205,931 |   |
| Costs and  expenses |       | 254,885  |       | 201,902  |       |
|                |       |     |       |     |       |
| Net income (loss)   |       | $        | (3,180     | )        | $          | 4,029 |   |

 

F-14

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***Assuming the acquisitions of Vinton, Piñon Plaza and St.Helena had occurred as of January 1, 2005, combined unaudited proforma netrevenues, costs and expenses, and net income (loss) would have been as follows:***

|                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
|               |       |     |       |     |       |
| Net revenues       |       | $        | 324,306    |     | $          | 274,052 |   |
| Costs and expenses |       | 335,553  |       | 277,494  |       |
|               |       |     |       |     |       |
| Net income (loss)  |       | $        | (11,247    | )        | $          | (3,442 | ) |

 

The proforma informationis not necessarily indicative of the results of operations that would haveoccurred had the acquisitions occurred at the beginning of each periodpresented, nor are they indicative of future operating results.

On October 4, 2006, weentered into an asset purchase agreement to acquire a truck stop underconstruction in Shreveport, Louisiana. When completed, the truck stop will provide retail motor and dieselfuels, convenience store, restaurant operations and video poker devices.  The minimum purchase price is $4,000.  Additionally, on January 15, 2007, we enteredinto a sublease with the seller, whereby we assumed the terms of its landlease.  We expect to close on thisacquisition during the first quarter of 2007.

**5.**                   LONG-TERMDEBT

Long-term debt, capitallease obligations and long-term debt—related parties as of December 31,2006 and 2005, consist of the following:

|                                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |     |       |
| 93⁄4% Senior Unsecured  Notes due 2014                |       | $        | 210,000    |     |       |   |
| Senior Secured Term  Loan Facility due 2012              |       | 39,800   |       |     |       |
| Senior Secured Delayed  Draw Term Loan Facility due 2012 |       | 20,000   |       |     |       |
| Senior Secured Revolving  Credit Facility expiring 2011  |       |     |       |     |       |
| 117/8% Senior Secured Notes due  2009                    |       |     |       | $        | 147,622    |   |
| Line of Credit  Agreement expiring 2007                  |       |     |       | 4,590    |       |
| Black Hawk Bonds  Payable due 2011                       |       | 3,022    |       | 3,526    |       |
| Other Notes Payable —  Colonial                     |       | 87       |       | 4,104    |       |
| Other Notes Payable —  Jalou                        |       |     |       | 5,831    |       |
| Capital Leases                                           |       | 4,155    |       | 4,159    |       |
| Indebtedness to Related  Parties                         |       |     |       | 19,489   |       |
|                                                     |       |     |       |     |       |
| Total  indebtedness                                      |       | 277,064  |       | 189,321  |       |
|                                                     |       |     |       |     |       |
| Less current  indebtedness                               |       | (1,297   | )          | (3,924   | )          |
|                                                     |       |     |       |     |       |
| Total long-term  indebtedness                            |       | $        | 275,767    |     | $          | 185,397 |   |

 

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

On June 16, 2006, we completed the issuance of seniorunsecured notes in the amount of $210,000 bearing interest at 93⁄4% due June 15,2014 with interest only payments due each June 15 and December 15, beginning onDecember 15, 2006.  In conjunction withthe closing of these notes, we entered into a new $100,000 senior securedcredit facility consisting 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-yeardelayed draw term loan.  Borrowings underour senior secured credit facility bear interest at a rate equal to anapplicable margin plus, at our option, either (a) a base rate determined byreference to 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 period relevant tosuch borrowing adjusted for certain costs. As of 

F-15

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December 31, 2006, $40,000 was available on therevolving credit facility.  Proceeds fromthe senior unsecured 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 the assetsof Piñon Plaza in Carson City, Nevada for a purchase price of $15,221 includingacquisition costs (see Note 4), (iii) acquire three truck plazas and raw landin Louisiana from an affiliated party for $14,380 and $620 respectively (seeNote 4), (iv) acquire two additional truck plazas for a purchase price of$2,558 and $3,450 including acquisition costs (see Note 4), (v) pay adistribution to our stockholders in connection with December 2005 truck plaza acquisitionsof $8,825, (vi) pay a distribution to our stockholders of $10,000, (vii)refinance approximately $26,568 aggregate principal amount of existingindebtedness (including $19,489 of subordinated debt held by our stockholders),along with $840 accrued and unpaid interest, and (viii) pay related fees andexpenses associated 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 million of 93⁄4% unsecured seniornotes that 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 also guaranteeour senior credit facility.

We filed a registration statement (the “Exchange Offer RegistrationStatement”) with the Securities and Exchange Commission (“SEC”) with respect tothe offer to exchange (the “Exchange Offer”) our privately placed seniorunsecured notes for identical registered notes. The Exchange Offer Registration Statement was declared effective by theSEC on October 3, 2006.  The ExchangeOffer was concluded on November 21, 2006.

There are manyrestrictions and covenants placed upon us under our secured and unsecuredindebtedness. For example, among other things, we are required to maintaincertain operating performance ratios, our covenants impose various restrictionson us as to the timing of redemptions of our notes, there are various change ofcontrol covenants, and there are many other restrictive and operationallimitations on us that would be difficult or impossible for us to change. As ofDecember 31, 2006, JEI is in compliance with all such debt covenants.  At March 31, 2007, certain of these covenantsbecome more restrictive.  The Company maynot be able to meet these more restrictive covenants. The occurrence of any oneof these events and/or covenant violations to our debt agreements could have amaterial adverse effect on our business, financial condition, results ofoperations, prospects and ability to satisfy the obligations under our debtagreements.

***11******7/******8% Senior SecuredNotes due 2009***

On February 8, 2002,JEI completed a $125,000 issuance of 117/8%Senior Secured Notes (the “Notes”) due 2009, with interest payable on eachFebruary 1 and August 1, with payments beginning August 1, 2002.  The Notes were issued at a 3.96% discountfrom their principal amount, resulting in a discount of $4,950, which wasamortized using the effective interest method over the life of the Notes.  The proceeds of the Notes were primarily usedto fund the acquisition of the common stock of Black Hawk, Jalou LLC, Jalou II,and Colonial, and to refinance certain debt of these entities in connectionwith the acquisitions.  The Notes weresecured by the assets and stock of our 100% owned subsidiaries and thesubsidiaries’ guarantees on the Notes were full and unconditional and joint andseveral within the meaning of Rule 3-10(h) of Regulation S-X of the Securitiesand Exchange Commission.  The Notescontained a number of affirmative and negative covenants which among otherthings required JEI to maintain certain financial ratios and refrain fromcertain actions without prior approval from the Trustee of the Notes.  As of December 31, 2005, JEI was incompliance with all such debt covenants.

On March 2, 2005,JEI issued $23,000 of additional notes subject to the indenture covering theNotes described above.  The terms ofthese additional notes were the same as the existing Notes, which carried acoupon rate of 117/8% per annum and maturedFebruary 2009.  The notes were issued at10% above their principal amount resulting in a premium of $2,300.  We used $22,500 of the proceeds from the saleof the notes to fund the acquisition of three truck plaza video gamingfacilities in Louisiana known as Breaux Bridge, Eunice and Jefferson Parish,all of which were owned by Jacobs (see Note 4). The balance of the proceeds was used to pay for the offering costs ofthe additional notes.

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The principal balance ofthe Notes and all accrued interest was paid in full on June 16, 2006 with theproceeds from the sale of our 93⁄4% senior unsecured notes (see above).

***Lineof Credit Agreement expiring 2007***

Effective July 12,2002, we entered into a $10,000 line of credit (“LOC”) agreement with WellsFargo Foothill, Inc., expiring July 12, 2007.  The LOC bore interest at the prime ratepublished by Wells Fargo Bank, N.A., plus 1.75%.  The LOC was collateralized by the land,buildings and related improvements of The Lodge and the Gilpin.  The security interests under the terms of theLOC were contractually senior to the Notes. The principal balance of the LOC and all accrued interest was paid infull on June 16, 2006 with the proceeds from the sale of our 93⁄4% seniorunsecured notes (see above).

***BlackHawk Bonds Payable due 2011***

The Black Hawk bonds payable were issued in two series with interestpayments varying between 6.25% and 6.50%. Principal and interest payments totaling $368 are due semi-annuallybeginning in June 2000 and continuing until December 2011.  These bonds are secured by infrastructureimprovements made by The Lodge.

***Other Notes Payable — Colonial***

·                  Anote payable to John Deere Credit, maturing October 2008, bearing interest at arate of 2.25% payable monthly in equal installments of interest and principalbeginning November 2003, is secured by the equipment purchased with the note.

·                  Anote payable to individuals, with interest and principal payments of $8 permonth through maturity at October 2020, at an interest rate of 6.5% per annum,was secured by the building and land. This note was paid in full in 2006.

·                  Anote payable totaling $3,000 to Pimlico Racing Association, Inc, and LaurelRacing Association Limited Partnership, maturing September 2006, with interestaccruing at the prime rate published by the Wall Street Journal, plus 1%, waspayable at maturity.  This note wasguaranteed by JEI and was paid in full in 2006.

***Other Notes Payable — Jalou***

·                  Anote payable was issued to Cameron State Bank, maturing September 2017, bearinginterest at the five-year treasury bill rate plus 3.5%, with a monthly paymentof $22 and final payment in September 2017 including all unpaid interest andprincipal balances.  In addition, we wererequired to maintain certain compensating cash balances on deposit equal to anamount not less than 10% of the loan commitment with the primary lender.  These cash balances were reported asrestricted cash at December 31, 2005. The note was secured by substantially all of St. Martin’s assets and waspaid in full in 2006.

·                  Anote payable was issued to Regions Bank, maturing September 2012, bearinginterest at a rate of prime plus 1%, with a monthly payment of $24 and a finalpayment for all unpaid principal and interest in September 2012.  Additional annual principal payments arerequired equal to 25% of the After Tax Cash Flow, defined as net income after atax reserve, plus depreciation and amortization, less capital expenditures upto $50 and debt service amounts.  Thenote was secured by substantially all of Diamond’s assets and was paid in fullin 2006.

·                  Anote payable was issued to Regions Bank, maturing September 2012, bearinginterest at a rate of prime plus 1%, with a monthly payment of $19 and a finalpayment for all unpaid principal and interest in September 2012.  Additional annual principal payments arerequired equal to 25% of the After Tax Cash Flow, defined as net income after atax reserve, plus depreciation and amortization, 

F-17

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less capital expenditures up to $50.  The note was secured by substantially all ofMagic’s assets and was paid in full in 2006.

***Capital Leases***

GoldDust West-Elko has a capital lease with interest and principal payments of $3per month until October 2006, increasing to $15 per month through October 2007,increasing to $21 per month thereafter, maturing October 2010, with the rightto extend the lease three times for five year intervals, or to purchase theland and building for $5,000 any time commencing with the day after the lastday of the first year of the initial term through the end of the initial term,or for $5,398 at any time during the first renewal period.  The purchase option is no longer availableafter the first renewal period.  Theeffective interest rate is 16.9%.  Eachlease renewal if elected will result in an increase in monthly payment based ona base index rate established with the August 2005 Consumer Price Index (“CPI”)as published.

Colonial has a capital lease with interest and principal payments of$10 per month, maturing September 11, 2009, with the right to extend the termof the lease five times for five year intervals, or to purchase the land for$800 at any time after the term and first renewal period of the lease (afterSeptember 11, 2014).  The effectiveinterest rate is 11.84%.  Each leaserenewal if elected will result in an increase in monthly payments by 10% overthe previous lease term.

Colonial has a capital lease with interest and principal payments of $4per month, until the earlier of occupancy or June 1, 2005, then interest andprincipal payments of $8 per month, maturing June 1, 2010, with the right toextend the term of the lease four times for five year intervals, or to purchasethe land and building for $700 at any time after the initial term of the lease(after June 1, 2010), with the purchase price increasing 8% with any successiverenewal term. The effective interest rate is 10.3%.  Each lease renewal if elected will result inan increase in annual payments by $8 over the lease term.

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

Jalou has a capital lease with interest and principal payments of $5per month until May 2011, with two renewal periods of five years each withmonthly payments starting at $6 per month increasing to $7 per month.  The effective interest rate is 9.75% perannum.

***Indebtedness to Related Parties***

JEI was the obligor onunsecured notes to an affiliate totaling $9,000, with semi-annual interestpayments at 12% per annum, with the principal amount due at maturity onJanuary 31, 2010.  These notes wereissued in connection with the acquisition of certain Louisiana truck plazas onFebruary 22, 2002.  Additionally,JEI was the obligor on secured notes totaling $10,489 issued by the seller inconnection with the acquisition of certain Jalou truck plazas from anunaffiliated party.  These notes wereacquired from the seller by Jacobs on February 13, 2003.  These notes required semi-annual interestpayments at 8.5% per annum, with the principal amounts due at maturity in March2009.  These notes were secured by theland, buildings and related improvements of the acquired truck plazas.  The principal balance of these notes and allaccrued interest was paid in full on June 16, 2006 with the proceeds of the 93⁄4%senior unsecured notes (see above).

Scheduled maturities oflong-term debt as of December 31, 2006, are as follows:

| 2007       |   | $       | 1,297   |   |
|------------|--------|---------|---------|--------|
| 2008       |   | 1,296   |    |
| 2009       |   | 1,308   |    |
| 2010       |   | 2,076   |    |
| 2011       |   | 1,317   |    |
| Thereafter |   | 269,770 |    |
|       |   |    |    |
| Total      |   | $       | 277,064 |   |

 

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

During2006, we acquired approximately three percent of the outstanding shares of apublicly-traded company. Other entities affiliated with our two directors alsoinvested in the company, increasing the combined ownership to approximately 13%of its outstanding common shares. Our investment is accounted for asavailable-for-sale equity securities and has been recorded at fair value inother assets, with unrealized gains recognized as accumulated othercomprehensive income.  As of December 31,2006, the fair value is $9,942 and unrealized gains included in accumulatedother comprehensive income total $1,999.

**7.**                   ESTIMATEDFAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosureof estimated fair value of our financial instruments has been determined usingavailable market information and generally accepted valuationmethodologies.  However, considerablejudgment is required to interpret market data in order to develop the estimatesof fair value.  Accordingly, theestimates herein are not necessarily indicative of the amounts we could realizein a current market exchange.  The use ofdifferent market assumptions and/or estimation methodologies may have amaterial effect on the estimated fair value amounts.  The estimated fair value of our financialinstruments are as follows:

|                                                               | ** ** | **2006**     | ** ** | **2005**      | ** ** |
|---------------------------------------------------------------|------------|--------------|------------|---------------|------------|
| ** **                                                    | ** ** | ** **   | ** ** | **Estimated** | ** ** | ** ** | ** ** | **Estimated** | ** ** |
| ** **                                                    | ** ** | **Carrying** | ** ** | **Fair**      | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                                                    | ** ** | **Amount**   | ** ** | **Value**     | ** ** | **Amount** | ** ** | **Value** | ** ** |
|                                                          |       |         |       |          |       |   |   |   |   |
| Liabilities—long-term debt and capital lease obligations |       | $            | 277,064    |          | $          | 281,056 |   | $ | 189,321 |   | $ | 195,021 |   |
|                                                               |            |              |            |               |            |  |  |  |  |  |  |  |  |

 

The estimationmethodologies utilized are summarized as follows:

***Debt***—Thefair value of variable-rate debt is estimated to be equal to its carryingamount.  The fair value of seniorunsecured notes issued in 2006 and senior secured notes issued in 2002 and 2005is based upon quoted market rates.  Thefair value of other fixed rate debt is estimated based on a discounted cashflow analysis, using the prevailing market interest rates for debt of similardollar amount, maturity and risk.

The estimated fair valueof our other financial instruments, such as cash and cash equivalents, accountsreceivable and accounts payable, have been determined to approximate carryingvalue based on the short-term nature of those financial instruments.  The estimated fair value of our investment inequity securities (see Note 6) is based upon quoted market rates.

**8.**                   RELATED-PARTYTRANSACTIONS

In order to assist JEI inits efforts to research, develop, perform due diligence on and possibly acquirenew gaming opportunities, JEI entered into an agreement with Premier OneDevelopment Company effective October 1, 1997.  On May 9, 2000, Premier merged intoJacobs Investments Management Co. Inc. (“JIMCO”), 82% of which is owned byJeffrey P. Jacobs and the remaining 18% of which is owned in equal portions bytwo former directors of Colonial.  Theagreement was renewed on January 2, 2003 for a period of nine years, at $450per year, payable on January 15 of each year. JEI paid $450 in January 2006, 2005 and 2004 for each respective year’sservices by JIMCO.  On June 16, 2006, theagreement was amended and restated effective January 1, 2006 for a period of 20years, at $1,250 per year payable in two equal installments of $625 on January1st and July 1st each year plustwo and one-half percent (2.5%) of budgeted development costs for projectsundertaken by us.  In accordance with theamended and restated agreement, $800 was paid in July 2006.  Additionally, for the year ended December 31,2006, we paid or accrued $263 to JIMCO for development projects undertaken byus.

Weprovide monthly management and accounting services for various truck stopsowned by Jacobs.  Total charges for thesemanagement services totaled $539, $64 and $51 for the years ended December 31,2006, 2005 and 2004, respectively. Additionally, we provide shared services such as a branded fuel cardthat can be 

F-19

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usedat the truck stops owned both by us and Jacobs, and repair parts purchased byJacobs from us.  These transactionsresult in receivables from and payables to affiliate.  As of December 31, 2006, these transactionsresulted in net receivables from affiliates totaling $316, and as of December31, 2005, these transactions resulted in net payables to affiliates totaling$710.

As part of theacquisition agreement for the Breaux Bridge, Eunice, and Jefferson locations,the affiliated party seller provided cash advances to us.  Amounts payable to this affiliated partytotaled $0 and $386 as of December 31, 2006 and 2005, respectively.

JEI was the obligor onnotes to Jacobs totaling $9,000, with interest only payable semi-annually at12% per annum, and the principal amount due and payable on January 31,2010. These notes were issued in connection with the acquisition of certainLouisiana truck plazas on February 22, 2002.  JEI was also the obligor on $10,489 of notesissued by the seller in connection with the acquisition of additional truckplazas from an unaffiliated party.  Thesenotes were acquired from the seller by Jacobs on February 13, 2003, for$7,000.  The principal balance of thenotes and all accrued interest was paid in full on June 16, 2006 with theproceeds of the 93⁄4% senior unsecured notes (see Note 5).  Interest payable to related parties was $0and $723 as of December 31, 2006 and 2005, respectively.

We have acquired from affiliatedparties several options to lease and options to purchase land and certainimprovements on the west bank of the Cuyahoga River in Cleveland, Ohio. Werefer 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 per year.The option agreements give us the right during the next three and one-halfyears to purchase two parcels and the right to purchase or enter into long termleases on the other four parcels.  Ingeneral, 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.  Our Chairman and Chief Executive Officer ownsvarying interests in five of the six parcels.

Althoughwe may elect not to exercise 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 legal but we decide toexercise 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 became legal in Ohio and a casino islicensed at Nautica.

**9.**                   COMMITMENTSAND CONTINGENCIES

***Commitments***

Colonial has entered intoan agreement with a totalisator company which provides wagering services anddesigns, programs, and manufactures totalisator systems for our pari-mutuelwagering applications.  The basic termsof the agreement state that the totalisator company shall provide totalisatorservices to Colonial for all wagering held at Colonial’s facilities through2004 at a rate of .365% of the gross amounts wagered.  On March 16, 2005, Colonial entered intoan amendment with the totalisator company to extend the term of the agreementto 2012, to provide replacement equipment for the existing equipment, and toincrease the rate to .385% of handle up to $270,000 in handle.  Handle above $270,000 will be charged a rateof .345%.  The amendment also providesfor minimum charge per calendar year of $330.  In addition, Colonial has entered intoagreements 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 facilitiescontinue until December 31, 2007. Total expense incurred for totalisator and broadcasting and simulcastingequipment was $1,146, $1,094, and $922 for the years ended December 31,2006, 2005, and 2004, respectively.

Colonialleases automobiles, building space, and certain equipment under operatingleases expiring at various dates. Total rental expense under thesenon-cancelable leases was $505, $400 and$420 for the years ended December 31, 2006, 2005 and 2004, respectively.

F-20

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The Company’s operating leases include land andwarehouse leases for Gold Dust West-Reno, a land lease for Gold DustWest-Carson City, a land and building lease for Gold Dust West-Elko, leases foroffice space in Golden, Colorado and in West Palm Beach, Florida, as well asleases for automobiles and other property and equipment, expiring at variousdates.  Total expense under thesenon-cancelable operating leases was $1,057,$611 and $561 for the years ended December 31, 2006, 2005 and 2004, respectively.

Other long-termobligation and commitments at JEI also include the JIMCO management agreement(see Note 8).  Total expense related tothe JIMCO agreement was $1,250, $450 and$450 for the years ended December 31, 2006, 2005 and 2004, respectively.

Jalou leases land for various truck plazas, andoffice space in Lafayette as well as automobiles, and other property andequipment under operating leases expiring at various dates.  Total expense related to these operatingleases was approximately $797, $543 and$314 for the years ended December 31, 2006, 2005 and 2004, respectively.  Additionally, the Jalou truck plazavideo gaming facilities pay $1 per video poker machine per day, plus $1,000 permachine annually in licensing to an unaffiliated party to maintain its videopoker machines in its truck stop premises. Total expense under these obligations was $1,107, $833 and $686 for the years ended December 31, 2006, 2005 and2004, respectively.

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

| Years Ending December 31 | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|
|                                    |       |       |       |
| 2007                                    |       | $          | 2,601      |   |
| 2008                                    |       | 2,329      |       |
| 2009                                    |       | 2,231      |       |
| 2010                                    |       | 1,973      |       |
| 2011                                    |       | 1,426      |       |
| Thereafter                              |       | 31,127     |       |
|                                    |       |       |       |
| Total                                   |       | $          | 41,687     |   |

 

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

| Class of Property                | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land                                       |       | $          | 1,523      |       | $          | 1,523 |   |
| Buildings                                  |       | 895        |       | 959        |       |
| Equipment and furniture  and fixtures      |       | 255        |       |       |       |
| Construction in  progress                  |       | 1,200      |       | 1,200      |       |
| Other                                      |       | 32         |       | 16         |       |
| Less: accumulated  depreciation            |       | (70        | )          | (42        | )          |
|                                       |       |       |       |       |       |
| Total leased property under capital leases |       | $          | 3,835      |       | $          | 3,656 |   |

 

F-21

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As of December 31, 2006, the following is aschedule by years of future minimum lease payments under capital leasestogether with the net present value of the net minimum lease payments:

| Years Ending December 31                                 | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|
|                                                                    |       |       |       |
| 2007                                                                    |       | $          | 550        |   |
| 2008                                                                    |       | 612        |       |
| 2009                                                                    |       | 615        |       |
| 2010                                                                    |       | 1,293      |       |
| 2011                                                                    |       | 501        |       |
| Thereafter                                                              |       | 6,697      |       |
|                                                                    |       |       |       |
| Total future  minimum lease payments                                    |       | 10,268     |       |
|                                                                    |       |       |       |
| Less amount  representing interest ranging from 1.6% to 16.9% per annum |       | 6,113      |       |
|                                                                    |       |       |       |
| Net present value of net minimum lease payments                         |       | $          | 4,155      |   |

 

***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.

**10.**            COMMON STOCK

In connection with estateplanning activities by our two former shareholders, effectiveSeptember 27, 2005, all 1,500 shares of our common stock, $.01 par value,were converted into a total of 1,320 Class A Common Shares, $.01 parvalue, and 180 Class B Common Shares, $.01 par value. The shares are identicalin all respects except that the Class A Common Shares are entitled to onevote per share and the Class B Common Shares are entitled to 50,000 votesper share.  The Class A andClass 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 Exchange Act of 1933, as amended,as a transaction not involving a public offering.

Effective January 31,2007, we became a wholly-owned subsidiary of JII, which in turn is 50% owned byJeffrey 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 hisfather, Richard E. Jacobs.

**11.**            EMPLOYEEBENEFIT PLANS

In June 1998, Colonialimplemented a 401(k) Plan in which all full time and part time employees areeligible to participate after six months of employment.  The Plan is a defined contribution plancovering eligible employees of Colonial. The Plan allows eligible employees tomake tax-deferred contributions that are matched by us up to a specified level.On July 9, 2004, the Colonial 401(k) plan was merged into the Black HawkGaming & Development Company Inc. 401(k) plan (renamed Jacobs Entertainment,Inc. plan on December 21, 2004). Our contributions to the 401(k) Plan were approximately $14 for theperiod ended July 9, 2004.

On January 1, 1997,the Gilpin Hotel Casino Employees’ 401(k) Plan (renamed Black Hawk Gaming &Development Company Inc.’s 401(k) Plan on March 31, 1999, further re-namedJacobs Entertainment, 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 

F-22

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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 $357, $307, and$257 to the Plan for the years ended December 31, 2006, 2005, and 2004,respectively.  On July 9, 2004,Colonial’s Plan and Jacobs Entertainment, Inc.’s Plan were merged into one plancovering all eligible employees of JEI.

**12.**            PROPOSEDOHIO CONSTITUTIONAL AMENDMENT

In Ohio, we provided support for a proposed constitutional amendmentthat would have established a tuition grant program for Ohio students to attendpublic or private colleges in the state and allowed slot machines at the state’sseven existing racetracks and two locations in downtown Cleveland.  Ohio residents voted on the proposedconstitutional amendment on November 7, 2006 and the amendment was not approvedby voters.  For the year ended December31, 2006, we funded a total of $3,255 in support of this amendment.

**13.**            ABANDONMENTCOSTS

In December 2005, werecorded an abandonment charge of $1,424 representing the net book value of astand-alone portion of the Gold Dust West-Reno’s motel building (the “L-wing”)containing 66 of the properties 106 motel rooms. After considering alternativeplans for this stand-alone portion of the motel including a possible refurbish,it was decided that the property would be better served with improved accessand expanded parking.  We begandemolition of the L-wing during the first quarter of 2006 and completed theproject late in the second quarter at a total cost of $1,230.  We added approximately 75 parking spaces as aresult of the demolition.  We willcontinue to operate the remaining 40 hotel rooms.

During the year ended2004, we recorded a $2,891 charge to operations which is attributable to thewrite-off of abandoned project costs. Included in these costs is $1,829 related to development costs associatedwith a potential gaming site in D’Iberville, Mississippi. After consideringvarious development alternatives, we chose to abandon the project to pursueother alternatives which, in our estimation would result in greater returnsthan the potential of the D’Iberville site. The majority of these expenditureswere primarily associated with land option payments and design, development andplanning costs. Further, we charged to operations $800 consisting of optionpayments, legal and accounting fee expenditures associated with four separateunrelated parties to acquire seven video poker stop operations in Louisiana.Based on the results of the due diligence work, we abandoned the potentialacquisitions with all seven truck stop operations targeted for acquisition.  Finally, $262 in other capitalized costs werecharged to operations due to abandonment of miscellaneous other projects.

**14.**            TERMINATIONOF CONTRACT

In 1996, Colonial entered into a Management andConsulting Agreement, as amended (the “Management Agreement”), withMaryland-Virginia Racing Circuit, Inc. (the “Circuit”), a wholly-ownedsubsidiary of Magna Entertainment Corp. (“MEC”), which is an affiliate of theMaryland Jockey Club (“MJC”).  TheManagement Agreement provided for management services for Colonial’s racetrackand its satellite facilities and created a Virginia-Maryland thoroughbredracing circuit. Under the Management Agreement, MJC agreed to suspend liveracing at its racetracks, Laurel Park and Pimlico Race Course, during Colonial’slive thoroughbred meets.  Parties to theManagement Agreement also exchanged simulcast signals for their livethoroughbred meets at no cost to either party. The effect of the exchange of signals is immaterial to the consolidatedfinancial statements of JEI.  The Circuitmanaged Colonial’s satellite facilities, as well as, the live standardbred andthoroughbred meets and provided certain personnel, at its expense, for the livethoroughbred meet. For its services, the Circuit received a management fee of1.0% of the first $75 million of the aggregate gross amounts wagered inany calendar year in the Commonwealth of Virginia, excluding certain amountsspecified in the Management Agreement (“Handle”), 2.0% of all Handle of $75million to $125 million per calendar year, 1.5% of all Handle in excess of $125million, and 3.25% of any Handle for satellite wagering facilities located inthe counties of Loudoun, Fairfax, Prince William, and Arlington and theVirginia cities of Manassas, Manassas Park, Fairfax City, Falls Church, andAlexandria.  The Management Agreement was to remain in effect until 2036 providedColonial owned, controlled, or operated its racetrack under its existinglicenses.  At Colonial’s option, Colonialcould terminate the Management Agreement any time after 2021 upon payment of afee equal to 17 times the average management fee paid during the three yearsimmediately 

F-23

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preceding such termination.  Management fees incurred under the ManagementAgreement were $0, $1,787, and $2,082 during each of the years endedDecember 31, 2006, 2005, and 2004, respectively.

On September 30, 2005, Colonial completed atransaction with MEC under which Colonial acquired all of the outstandingshares of the Circuit for a purchase price of $10,000.  The sale was subject to the approval of theVirginia Racing Commission which was granted on September 28, 2005.  Under the terms of the purchase agreement,Colonial paid $7,000 in cash at closing of the transaction and issued aone-year $3,000 note bearing interest at the prime rate plus 1% (7.75% atSeptember 30, 2005).  The note wasguaranteed by JEI and was paid in full in 2006. The stock acquisition has been characterized as a termination of acontract because the primary asset owned by the Circuit was a Management Agreementwith Colonial. Statement of Financial Accounting Standards No. 146, *Accounting for Costs Associated with Exit or Disposal Activities*,prescribes expensing of the costs associated with the termination of acontract.  As such, $10,367, includingthe $10,000 purchase price and $367 in legal and professional feesassociated with 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. As of December 31, 2005, $178 of these fees were still owed toMJC.  Also under the purchase agreement,a Maryland-Virginia thoroughbred racing circuit will continue for ten yearswith live thoroughbred racing in Maryland concluding on the latter of theMonday following the running of the Preakness Stakes or June 17 of eachyear and beginning at Colonial Downs thereafter.  No live thoroughbred racing will resume inMaryland before August 1 each year under the agreement.

**15.**            INCOME TAXES

On March 11, 2002, we received notice from theInternal Revenue Service asserting deficiencies in federal corporate incometaxes for a subsidiary’s 1998 tax year. The proposed adjustment related to the deductibility of depreciationtaken against certain costs incurred by The Lodge to build and improve publicassets.  During 2005, we settled thisissue with the Internal Revenue Service and recorded a charge to earnings of $423,including $149 in interest.  No penaltieswere assessed on this settlement.  During2006, we received a tax refund of a portion of this charge totaling $103.

**16.**            HURRICANE

On August 29, 2005and September 24, 2005, hurricanes Katrina and Rita struck Louisianacausing severe damage to the region.  OurLouisiana operations sustained minimal damage. After consideration of insurance proceeds, damages totaled $153.

**17.**            SEGMENTINFORMATION

At December 31,2006, 2005, and 2004, we have four segments representing the geographic regionsof our operations. Each segment is managed separately because of the uniquecharacteristics of its revenue stream and customer base.

The Colorado segmentconsists of The Lodge and Gilpin casinos. We have aggregated the operations of The Lodge and the Gilpin in our Coloradosegment based on similarities in the nature of the properties’ businesses,customers and regulatory environment in which each property operates. Similarto the Colorado segment, our Nevada properties have been aggregated and includethe Gold Dust West-Reno and Gold Dust West-Carson City casinos, as well as theGold Dust West-Elko casino which opened on March 5, 2007.  The Virginia segment consists of Colonial’spari-mutuel operations and its satellite wagering facilities, and the Louisianaoperations consist of Jalou’s truck plaza/video poker facilities.

The accounting policiesof the segments are the same as those described in Note 2.  The corporate adjustments and eliminationsrepresent all other income and expenses, and are also presented.  The following segment information ispresented after elimination of inter-segment transactions.

F-24

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**As of andfor the Year Ended December 31,2006**
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **Corporate**    | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|--------------|------------|---------------|------------|------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **Adjustments**  | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **and**          | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
| Revenues                                      |       | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    |       | ** **       |       | ** ** |       |
| Gaming                                        |       | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    |       | ** **       |       | ** ** |       |
| Casino                                        |       | $            | 94,547     |       | $          | 26,936       |       |          |       |             |       |       |       | $ | 121,483 |   |
| Truck stop                                    |       |         |       |       |       |         |       | $             | 61,177     |             |       |       | 61,177     |   |
| Pari-mutuel                                   |       |         |       |       |       | $            | 39,787     |          |       |             |       |       | 39,787     |   |
| Food and  beverage                            |       | 9,997        |       | 4,953      |       | 2,823        |       | 6,426         |       |             |       | 24,199     |       |
| Convenience  store — fuel                |       |         |       |       |       |         |       | 74,226        |       |             |       | 74,226     |       |
| Convenience  store — other               |       |         |       |       |       |         |       | 9,814         |       |             |       | 9,814      |       |
| Hotel                                         |       | 1,887        |       | 1,622      |       |         |       |          |       |             |       | 3,509      |       |
| Other                                         |       | 827          |       | 705        |       | 1,939        |       | 900           |       |             |       | 4,371      |       |
| Total revenues                                |       | 107,258      |       | 34,216     |       | 44,549       |       | 152,543       |       |             |       | 338,566    |       |
| Less:  Promotional allowances                 |       | (17,698      | )          | (4,806     | )          |         |       | (3,767        | )          |             |       | (26,271    | )          |
| Net revenues                                  |       | $            | 89,560     |       | $          | 29,410       |       | $             | 44,549     |             | $          | 148,776    |       |   |   | $ | 312,295 |   |
|                                          |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Depreciation and  amortization                |       | $            | 5,535      |       | $          | 2,266        |       | $             | 2,069      |             | $          | 3,302      |       | $ | 520 |   | $ | 13,692 |   |
| Interest income                               |       | $            | 47         |       | $          | 49           |       | $             | 78         |             | $          | 91         |       | $ | 87 |   | $ | 352 |   |
| Interest expense, net  of amounts capitalized |       | $            | 13,141     |       | $          | 4,771        |       | $             | 627        |             | $          | 3,736      |       | $ | 9,630 |   | $ | 31,905 |   |
| Income tax benefit                            |       |         |       |       |       |         |       |          |       | $                | 103        |       | $          | 103 |   |
| Net income (loss)                             |       | $            | 8,487      |       | $          | (416         | )          | $             | (1,755     | )                | $          | 14,069     |       | $ | (31,201 | ) | $ | (10,816 | ) |
| EBITDA(1)                                     |       | $            | 27,116     |       | $          | 6,572        |       | $             | 863        |             | $          | 21,016     |       | $ | (21,241 | ) | $ | 34,326 |   |
|                                          |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Goodwill                                      |       | $            | 6,711      |       | $          | 9,013        |       |          |       | $                | 20,950     |       |       |   | $ | 36,674 |   |
| Identifiable intangible  assets               |       |         |       |       |       |         |       | $             | 8,500      |             |       |       | $          | 8,500 |   |
| Property, plant and  equipment, net           |       | $            | 91,557     |       | $          | 36,973       |       | $             | 67,717     |             | $          | 36,940     |       | $ | 2,747 |   | $ | 235,934 |   |
| Total assets                                  |       | $            | 111,909    |       | $          | 53,551       |       | $             | 73,785     |             | $          | 79,005     |       | $ | 19,311 |   | $ | 337,561 |   |
| Long-term debt                                |       | $            | 87,255     |       | $          | 62,191       |       | $             | 5,727      |             | $          | 39,054     |       | $ | 81,540 |   | $ | 275,767 |   |
| Capital expenditures                          |       | $            | 7,473      |       | $          | 10,151       |       | $             | 1,919      |             | $          | 2,132      |       | $ | 2,537 |   | $ | 24,212 |   |

 

F-25

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**As of andfor the Year Ended December 31,2005**
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **Corporate**    | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|--------------|------------|---------------|------------|------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **Adjustments**  | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **and**          | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
| Revenues                                      |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Gaming                                        |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Casino                                        |       | $            | 93,088     |       | $          | 22,519       |       |          |       |             |       |       |       | $ | 115,607 |   |
| Truck stop                                    |       |         |       |       |       |         |       | $             | 44,590     |             |       |       | 44,590     |   |
| Pari-mutuel                                   |       |         |       |       |       | $            | 35,988     |          |       |             |       |       | 35,988     |   |
| Food and beverage                             |       | 10,177       |       | 3,459      |       | 2,560        |       | 4,195         |       |             |       | 20,391     |       |
| Convenience store — fuel                 |       |         |       |       |       |         |       | 47,434        |       |             |       | 47,434     |       |
| Convenience store — other                |       |         |       |       |       |         |       | 6,111         |       |             |       | 6,111      |       |
| Hotel                                         |       | 1,662        |       | 320        |       |         |       |          |       |             |       | 1,982      |       |
| Other                                         |       | 742          |       | 141        |       | 2,419        |       | 393           |       |             |       | 3,695      |       |
| Total revenues                                |       | 105,669      |       | 26,439     |       | 40,967       |       | 102,723       |       |             |       | 275,798    |       |
| Less: Promotional allowances                  |       | (17,255      | )          | (4,108     | )          |         |       | (2,472        | )          |             |       | (23,835    | )          |
| Net revenues                                  |       | $            | 88,414     |       | $          | 22,331       |       | $             | 40,967     |             | $          | 100,251    |       |   |   | $ | 251,963 |   |
|                                          |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Depreciation and  amortization                |       | $            | 5,017      |       | $          | 1,691        |       | $             | 1,685      |             | $          | 2,958      |       | $ | 225 |   | $ | 11,576 |   |
| Interest income                               |       | $            | 44         |       | $          | 15           |       | $             | 86         |             | $          | 26         |       | $ | 7 |   | $ | 178 |   |
| Interest  expense, net of amounts capitalized |       | $            | 10,934     |       | $          | 3,141        |       | $             | 322        |             | $          | 3,223      |       | $ | 5,213 |   | $ | 22,833 |   |
| Income tax  expense                           |       |         |       |       |       |         |       |          |       | $                | 423        |       | $          | 423 |   |
| Net income  (loss)                            |       | $            | 9,844      |       | $          | 1,286        |       | $             | (12,947    | )                | $          | 11,438     |       | $ | (13,500 | ) | $ | (3,879 | ) |
| EBITDA(1)                                     |       | $            | 25,751     |       | $          | 6,103        |       | $             | (11,026    | )                | $          | 17,593     |       | $ | (7,646 | ) | $ | 30,775 |   |
|                                          |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Goodwill                                      |       | $            | 6,710      |       | $          | 8,836        |       |          |       | $                | 18,012     |       |       |   | $ | 33,558 |   |
| Identifiable  intangible assets               |       |         |       |       |       |         |       | $             | 8,361      |             |       |       | $          | 8,361 |   |
| Property, plant  and equipment, net           |       | $            | 88,597     |       | $          | 9,734        |       | $             | 68,640     |             | $          | 34,427     |       | $ | 2,038 |   | $ | 203,436 |   |
| Total assets                                  |       | $            | 110,211    |       | $          | 23,711       |       | $             | 73,313     |             | $          | 73,472     |       | $ | 6,044 |   | $ | 286,751 |   |
| Long-term debt                                |       | $            | 82,802     |       | $          | 22,813       |       | $             | 3,940      |             | $          | 31,807     |       | $ | 44,035 |   | $ | 185,397 |   |
| Capital expenditures                          |       | $            | 5,844      |       | $          | 1,212        |       | $             | 2,316      |             | $          | 9,171      |       | $ | 554 |   | $ | 19,097 |   |

 

F-26

----

 

**As of andfor the Year Ended December 31,2004**
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **Corporate**    | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------|------------|------------|------------|--------------|------------|---------------|------------|------------------|------------|------------|------------|
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **Adjustments**  | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | **and**          | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Colorado** | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
| Revenues                                      |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Gaming                                        |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Casino                                        |       | $            | 86,115     |       | $          | 22,232       |       |          |       |             |       |       |       | $ | 108,347 |   |
| Truck stop                                    |       |         |       |       |       |         |       | $             | 30,603     |             |       |       | 30,603     |   |
| Pari-mutuel                                   |       |         |       |       |       | $            | 32,946     |          |       |             |       |       | 32,946     |   |
| Food and beverage                             |       | 9,618        |       | 3,527      |       | 2,056        |       | 3,221         |       |             |       | 18,422     |       |
| Convenience store — fuel                 |       |         |       |       |       |         |       | 27,714        |       |             |       | 27,714     |       |
| Convenience store — other                |       |         |       |       |       |         |       | 4,316         |       |             |       | 4,316      |       |
| Hotel                                         |       | 800          |       | 582        |       |         |       |          |       |             |       | 1,382      |       |
| Other                                         |       | 755          |       | 152        |       | 2,099        |       | 344           |       |             |       | 3,350      |       |
| Total revenues                                |       | 97,288       |       | 26,493     |       | 37,101       |       | 66,198        |       |             |       | 227,080    |       |
| Less: Promotional allowances                  |       | (15,007      | )          | (4,028     | )          |         |       | (1,699        | )          |             |       | (20,734    | )          |
| Net revenues                                  |       | $            | 82,281     |       | $          | 22,465       |       | $             | 37,101     |             | $          | 64,499     |       |   |   | $ | 206,346 |   |
|                                          |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Depreciation and  amortization                |       | $            | 4,838      |       | $          | 1,436        |       | $             | 1,544      |             | $          | 2,490      |       | $ | 178 |   | $ | 10,486 |   |
| Interest income                               |       | $            | 13         |       | $          | 3            |       | $             | 29         |             | $          | 5          |       | $ | 16 |   | $ | 66 |   |
| Interest  expense, net of amounts capitalized |       | $            | 10,807     |       | $          | 3,142        |       | $             | 121        |             | $          | 2,585      |       | $ | 3,419 |   | $ | 20,074 |   |
| Net income  (loss)                            |       | $            | 8,582      |       | $          | 2,960        |       | $             | (35        | )                | $          | 5,377      |       | $ | (12,895 | ) | $ | 3,989 |   |
| EBITDA(1)                                     |       | $            | 24,214     |       | $          | 7,535        |       | $             | 1,601      |             | $          | 10,447     |       | $ | (9,314 | ) | $ | 34,483 |   |
|                                          |       |         |       |       |       |         |       |          |       |             |       |       |       |
| Goodwill                                      |       | $            | 6,711      |       | $          | 8,836        |       |          |       | $                | 11,853     |       |       |   | $ | 27,400 |   |
| Identifiable  intangible assets               |       |         |       |       |       |         |       | $             | 8,386      |             |       |       | $          | 8,386 |   |
| Property, plant  and equipment, net           |       | $            | 87,391     |       | $          | 11,594       |       | $             | 59,690     |             | $          | 28,057     |       | $ | 450 |   | $ | 187,182 |   |
| Total assets                                  |       | $            | 111,277    |       | $          | 24,577       |       | $             | 63,538     |             | $          | 56,654     |       | $ | 3,133 |   | $ | 259,179 |   |
| Long-term debt                                |       | $            | 78,265     |       | $          | 22,682       |       | $             | 1,888      |             | $          | 30,263     |       | $ | 24,681 |   | $ | 157,779 |   |
| Capital expenditures                          |       | $            | 6,243      |       | $          | 1,792        |       | $             | 3,970      |             | $          | 6,435      |       | $ | 144 |   | $ | 18,584 |   |

----

(1)     EBITDA (earnings before interest, taxes,depreciation and amortization) is presented as supplemental information in thetables above and in the discussion of our operating results.  EBITDA can be reconciled directly to ourconsolidated 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 asan alternative to any measure of performance as promulgated under accountingprinciples generally accepted in the United States of America, such as netincome (loss), nor should it be considered as an indicator of our overallfinancial performance.  Our calculationof EBITDA may be different from the calculation used by other companies andcomparability may be limited.  Managementbelieves that presentation of a non-GAAP financial measure such as EBITDA isuseful because it allows holders of our debt and management to evaluate andcompare our operating results from continuing operations from period to periodin a meaningful and consistent manner in addition to standard GAAP financialmeasures.  Management internallyevaluates the performance of our properties using EBITDA measures as do mostanalysts following the gaming industry. EBITDA is also a key component of certain financial covenants in ourdebt agreements.

 

F-27

----

**18.**            CONDENSEDCONSOLIDATING FINANCIAL INFORMATION

On June 16, 2006,we completed a debt refinancing in the form of secured and unsecuredindebtedness.  The secured portion of ourindebtedness, which was with a bank syndicate group, consists of a $100 millionsenior secured credit facility comprising: (1) a $40 million six-year term loanfacility; (2) a $40 million five-year revolving credit facility; and (3) a $20million six-year delayed draw term loan facility.  The unsecured portion of our debt is in theform of $210 million of 93⁄4% unsecured senior notes.  The senior secured credit facility and theunsecured senior notes are both guaranteed by our current and future restrictedsubsidiaries.  Each subsidiary guarantoris 100% owned by the parent company, all guarantees are full and unconditionaland joint and several, and all subsidiaries of JEI guarantee the securities.

The following informationsets forth our Condensed Consolidating Balance Sheets as of December 31, 2006and 2005, and the Condensed Consolidating Statements of Operations and theCondensed Consolidating Statements of Cash Flows for the three years endedDecember 31, 2006 as required by Rule 3-10 of Regulation S-X of the SecuritiesExchange Act of 1934, as amended. Investments in our subsidiaries are accounted for on the equitymethod.  Accordingly, entries necessaryto consolidate the Parent Company Issuer and our Subsidiary Guarantors arereflected in the eliminations column.

F-28

----

**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATING BALANCE SHEETS**

**AS OF DECEMBER 31, 2006**

 
| ** **                                          | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|-----------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                          | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                          | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                          |       |        |       |           |       |             |       |             |       |
| Current assets                                      |       | $           | 2,534      |           | $          | 32,739           |       |             |       | $ | 35,273 |   |
| Property, plant  and equipment, net                 |       | 2,747       |       | 233,187        |       |             |       | 235,934          |       |
| Net investment  in and advances to subsidiaries     |       | 98,073      |       |           |       | $                | (98,073    | )                | —     |   |
| Other long-term  assets                             |       | 14,030      |       | 52,324         |       |             |       | 66,354           |       |
| **Total assets**                                    |       | $           | 117,384    |           | $          | 318,250          |       | $                | (98,073    | ) | $ | 337,561 |   |
|                                                |       |        |       |           |       |             |       |             |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**      |       |        |       |           |       |             |       |             |       |
| Current  liabilities                                |       | $           | 4,403      |           | $          | 25,528           |       |             |       | $ | 29,931 |   |
| Long-term debt                                      |       | 81,540      |       | 194,227        |       |             |       | 275,767          |       |
| Other long-term  liabilities                        |       | 51          |       | 422            |       |             |       | 473              |       |
| Stockholders’  equity                          |       | 31,390      |       | 98,073         |       | $                | (98,073    | )                | 31,390     |   |
| **Total liabilities and stockholders’ equity** |       | $           | 117,384    |           | $          | 318,250          |       | $                | (98,073    | ) | $ | 337,561 |   |

 

**AS OF DECEMBER 31, 2005**
| ** **                                           | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                           | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| **ASSETS**                                           |       |        |       |           |       |             |       |             |       |
| Current assets                                       |       | $           | 1,007      |           | $          | 31,287           |       |             |       | $ | 32,294 |   |
| Property, plant and equipment, net                   |       | 2,038       |       | 201,398        |       |             |       | 203,436          |       |
| Net investment in and advances to subsidiaries       |       | 110,221     |       |           |       | $                | (110,221   | )                | —     |   |
| Other long-term assets                               |       | 2,999       |       | 48,022         |       |             |       | 51,021           |       |
| **Total  assets**                                    |       | $           | 116,265    |           | $          | 280,707          |       | $                | (110,221   | ) | $ | 286,751 |   |
|                                                 |       |        |       |           |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**       |       |        |       |           |       |             |       |             |       |
| Current liabilities                                  |       | $           | 3,424      |           | $          | 28,731           |       |             |       | $ | 32,155 |   |
| Long-term debt                                       |       | 44,035      |       | 141,362        |       |             |       | 185,397          |       |
| Other long-term liabilities                          |       | 79          |       | 393            |       |             |       | 472              |       |
| Stockholders’ equity                            |       | 68,727      |       | 110,221        |       | $                | (110,221   | )                | 68,727     |   |
| **Total liabilities and stockholders’  equity** |       | $           | 116,265    |           | $          | 280,707          |       | $                | (110,221   | ) | $ | 286,751 |   |

 

F-29

----

**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS**

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

 
| ** **                                       | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                       | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                       | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net revenues                                     |       |        |       | $              | 312,295    |             |       |             | $          | 312,295 |   |
| Costs and  expenses                              |       | $           | (12,441    | )              | (269,899   | )                |       |             | (282,340   | ) |
| Interest  expense, net                           |       | (7,953      | )          | (23,600        | )          |             |       | (31,553          | )          |
| Pre-payment  penalties, tender and consent costs |       | (9,321      | )          |           |       |             |       | (9,321           | )          |
| Equity in  earnings of subsidiaries              |       | 18,796      |       |           |       | $                | (18,796    | )                |       |   |
| Income (loss) before income taxes                |       | (10,919     | )          | 18,796         |       | (18,796          | )          | (10,919          | )          |
| Income tax  benefit                              |       | 103         |       |           |       |             |       | 103              |       |
| Net income  (loss)                               |       | $           | (10,816    | )              | $          | 18,796           |       | $                | (18,796    | ) | $ | (10,816 | ) |

 

**FOR THE YEAR ENDED DECEMBER 31, 2005**

 
| ** **                          | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|-------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                          | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net revenues                        |       |        |       | $              | 251,963    |             |       |             | $          | 251,963 |   |
| Costs and  expenses                 |       | $           | (7,871     | )              | (224,893   | )                |       |             | (232,764   | ) |
| Interest  expense, net              |       | (3,617      | )          | (19,038        | )          |             |       | (22,655          | )          |
| Equity in  earnings of subsidiaries |       | 8,032       |       |           |       | $                | (8,032     | )                |       |   |
| Income (loss) before income taxes   |       | (3,456      | )          | 8,032          |       | (8,032           | )          | (3,456           | )          |
| Income tax  expense                 |       | (423        | )          |           |       |             |       | (423             | )          |
| Net income  (loss)                  |       | $           | (3,879     | )              | $          | 8,032            |       | $                | (8,032     | ) | $ | (3,879 | ) |

 

**FOR THE YEAR ENDED DECEMBER 31, 2004**

** **
| ** **                          | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|-------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                          | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Net revenues                        |       |        |       | $              | 206,346    |             |       |             | $          | 206,346 |   |
| Costs and  expenses                 |       | $           | (9,492     | )              | (172,857   | )                |       |             | (182,349   | ) |
| Interest  expense, net              |       | (1,807      | )          | (18,201        | )          |             |       | (20,008          | )          |
| Equity in  earnings of subsidiaries |       | 15,288      |       |           |       | $                | (15,288    | )                |       |   |
| Net income  (loss)                  |       | $           | 3,989      |           | $          | 15,288           |       | $                | (15,288    | ) | $ | 3,989 |   |

 

F-30

----

**JACOBSENTERTAINMENT, INC. AND SUBSIDIARIES**

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

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

 
| ** **                                               | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                               | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **Net  cash provided by (used in) operating activities** |       | $           | (8,439     | )              | $          | 12,889           |       | $                |       |   | $ | 4,450 |   |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **INVESTING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Additions to property, plant and equipment               |       | (2,537      | )          | (21,675        | )          |             |       | (24,212          | )          |
| Proceeds from sale of equipment                          |       |        |       | 72             |       |             |       | 72               |       |
| Purchase of device rights                                |       |        |       | (773           | )          |             |       | (773             | )          |
| Purchase of available-for-sale securities                |       | (7,943      | )          |           |       |             |       | (7,943           | )          |
| Acquisitions, net of cash acquired:                      |       |        |       |           |       |             |       |             |       |
| Casino                                                   |       |        |       | (14,702        | )          |             |       | (14,702          | )          |
| Truck stop                                               |       |        |       | (5,808         | )          |             |       | (5,808           | )          |
| **Net  cash used in investing activities**               |       | (10,480     | )          | (42,886        | )          |             |       | (53,366          | )          |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **FINANCING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Proceeds from note issuance                              |       | 47,742      |       | 162,258        |       |             |       | 210,000          |       |
| Payments to obtain financing                             |       | (4,147      | )          | (6,259         | )          |             |       | (10,406          | )          |
| Proceeds from long-term debt                             |       | 52,048      |       | 7,952          |       |             |       | 60,000           |       |
| Proceeds from revolving line of credit                   |       |        |       | 26,461         |       |             |       | 26,461           |       |
| Payments on long-term debt                               |       | (54,503     | )          | (117,898       | )          |             |       | (172,401         | )          |
| Payments on revolving line of credit                     |       |        |       | (31,051        | )          |             |       | (31,051          | )          |
| Net advances to/from subsidiaries                        |       | 12,148      |       | (12,148        | )          |             |       |             |       |
| Distributions to stockholders                            |       | (33,205     | )          |           |       |             |       | (33,205          | )          |
| **Net  cash provided by financing activities**           |       | 20,083      |       | 29,315         |       |             |       | 49,398           |       |
|                                                     |       |        |       |           |       |             |       |             |       |
| Net Increase  (Decrease) in Cash and Cash Equivalents    |       | 1,164       |       | (682           | )          |             |       | 482              |       |
| Cash and Cash  Equivalents — Beginning of Year      |       | 688         |       | 22,931         |       |             |       | 23,619           |       |
| Cash and Cash  Equivalents — End of Year            |       | $           | 1,852      |           | $          | 22,249           |       | $                |       |   | $ | 24,101 |   |

 

F-31

----

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

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

**FOR THE YEAR ENDED DECEMBER 31, 2005**

 
| ** **                                               | ** ** | **Parent**  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** |
|----------------------------------------------------------|------------|-------------|------------|----------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **Company** | ** ** | **Subsidiary** | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                               | ** ** | **Issuer**  | ** ** | **Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **Net cash  provided by (used in) operating activities** |       | $           | (2,892     | )              | $          | 17,829           |       | $                |       |   | $ | 14,937 |   |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **INVESTING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Additions to property, plant and equipment               |       | (554        | )          | (18,543        | )          |             |       | (19,097          | )          |
| Proceeds from sale of equipment                          |       |        |       | 159            |       |             |       | 159              |       |
| Purchase of device rights                                |       |        |       | (732           | )          |             |       | (732             | )          |
| Truck stop acquisitions, net of cash acquired            |       |        |       | (12,161        | )          |             |       | (12,161          | )          |
| **Net  cash used in investing activities**               |       | (554        | )          | (31,277        | )          |             |       | (31,831          | )          |
| ** **                                               |       |        |       |           |       |             |       |             |       |
| **FINANCING  ACTIVITIES:**                               |       |        |       |           |       |             |       |             |       |
| Proceeds from note issuance                              |       | 18,338      |       | 6,962          |       |             |       | 25,300           |       |
| Payments to obtain financing                             |       | (2,498      | )          | (850           | )          |             |       | (3,348           | )          |
| Proceeds from long-term debt                             |       |        |       | 1,338          |       |             |       | 1,338            |       |
| Proceeds from revolving line of credit                   |       |        |       | 17,821         |       |             |       | 17,821           |       |
| Contributions from stockholders                          |       | 14,388      |       |           |       |             |       | 14,388           |       |
| Payments on long-term debt                               |       |        |       | (1,269         | )          |             |       | (1,269           | )          |
| Payments on revolving line of credit                     |       |        |       | (13,231        | )          |             |       | (13,231          | )          |
| Net advances to/from subsidiaries                        |       | (5,844      | )          | 5,844          |       |             |       |             |       |
| Distributions to stockholders                            |       | (22,500     | )          |           |       |             |       | (22,500          | )          |
| **Net  cash provided by financing activities**           |       | 1,884       |       | 16,615         |       |             |       | 18,499           |       |
|                                                     |       |        |       |           |       |             |       |             |       |
| Net Increase  (Decrease) in Cash and Cash Equivalents    |       | (1,562      | )          | 3,167          |       |             |       | 1,605            |       |
| Cash and Cash  Equivalents — Beginning of Year      |       | 2,250       |       | 19,764         |       |             |       | 22,014           |       |
| Cash and Cash  Equivalents — End of Year            |       | $           | 688        |           | $          | 22,931           |       | $                |       |   | $ | 23,619 |   |

 

F-32

----

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

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

**FOR THE YEAR ENDED DECEMBER 31, 2004**

 
| ** **                                               | ** ** | **Parent  Company  Issuer** | ** ** | **Subsidiary  Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | ** **                  | ** ** | ** **                 | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Net  cash provided by operating activities**           |       | $                           | 1,261      |                       | $          | 19,418           |       | $                |       |   | $ | 20,679 |   |
| ** **                                               |       |                        |       |                       |       |             |       |             |       |
| **INVESTING  ACTIVITIES:**                               |       |                        |       |                       |       |             |       |             |       |
| Additions to property, plant and equipment               |       | (144                        | )          | (18,440                    | )          |             |       | (18,584          | )          |
| Proceeds from sale of equipment                          |       |                        |       | 295                        |       |             |       | 295              |       |
| Purchase of device rights                                |       |                        |       | (907                       | )          |             |       | (907             | )          |
| **Net  cash used in investing activities**               |       | (144                        | )          | (19,052                    | )          |             |       | (19,196          | )          |
| ** **                                               |       |                        |       |                       |       |             |       |             |       |
| **FINANCING  ACTIVITIES:**                               |       |                        |       |                       |       |             |       |             |       |
| Proceeds from long-term debt                             |       |                        |       | 5,100                      |       |             |       | 5,100            |       |
| Proceeds from revolving line of credit                   |       |                        |       | 4,265                      |       |             |       | 4,265            |       |
| Contributions from stockholders                          |       | 1,883                       |       |                       |       |             |       | 1,883            |       |
| Payments on long-term debt                               |       |                        |       | (3,152                     | )          |             |       | (3,152           | )          |
| Payments on revolving line of credit                     |       |                        |       | (4,265                     | )          |             |       | (4,265           | )          |
| Net advances to/from subsidiaries                        |       | (2,152                      | )          | 2,152                      |       |             |       |             |       |
| **Net  cash provided by (used in) financing activities** |       | (269                        | )          | 4,100                      |       |             |       | 3,831            |       |
|                                                     |       |                        |       |                       |       |             |       |             |       |
| Net Increase  (Decrease) in Cash and Cash Equivalents    |       | 848                         |       | 4,466                      |       |             |       | 5,314            |       |
| Cash and Cash  Equivalents — Beginning of Year      |       | 1,402                       |       | 15,298                     |       |             |       | 16,700           |       |
| Cash and Cash  Equivalents — End of Year            |       | $                           | 2,250      |                       | $          | 19,764           |       | $                |       |   | $ | 22,014 |   |

 

******

F-33

----

**EXHIBIT INDEX**

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

 

E-1

----

 
| 3.16(1)  |   | Articles of Organization of Diversified  Opportunities Group Ltd.                                                |
|----------|--------|------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                             |
| 3.17(1)  |   | Articles of Organization of Jalou L.L.C.                                                                         |
|     |   |                                                                                                             |
| 3.18(1)  |   | Articles of Organization of Houma Truck Plaza &  Casino, L.L.C.                                              |
|     |   |                                                                                                             |
| 3.19(1)  |   | Articles of Organization of Jalou-Cash’s L.L.C.                                                             |
|     |   |                                                                                                             |
| 3.20(1)  |   | Articles of Incorporation of JACE, Inc.                                                                          |
|     |   |                                                                                                             |
| 3.21(1)  |   | Articles of Organization of Lucky Magnolia Truck  Stop and Casino, L.L.C.                                        |
|     |   |                                                                                                             |
| 3.22(1)  |   | Articles of Organization of Bayou Vista Truck Plaza  and Casino, L.L.C.                                          |
|     |   |                                                                                                             |
| 3.23(1)  |   | Articles of Organization of Raceland Truck Plaza and  Casino, L.L.C.                                             |
|     |   |                                                                                                             |
| 3.24(1)  |   | Articles of Incorporation of JACE, Inc. (duplicate  of Exhibit 3.20).                                            |
|     |   |                                                                                                             |
| 3.25(2)  |   | Certificate of Amendment of Certificate of  Incorporation of Gameco, Inc.                                        |
|     |   |                                                                                                             |
| 3.26(2)  |   | Amended and Restated Certificate of Limited  Partnership of Colonial Downs, L.P.                                 |
|     |   |                                                                                                             |
| 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 |

 

E-2

----

 
| 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.                                                        |
|      |   |                                                                                             |
| 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.               |

 

E-3

----

 
| 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                                                                                                                                                                                                                                                                            |
|      |   |                                                                                                                                                                                                                                                                                                                       |
| 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.                                                                                                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                       |
| 4.1(13)   |   | Trust Indenture Agreement by and between Jacobs  Entertainment, Inc. and Wells Fargo Bank, as Trustee, dated June 16,  2006                                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                       |
| 4.2(13)   |   | Registration Rights Agreement by and between Jacobs  Entertainment, Inc. and Credit Suisse Securities (USA) LLC, CIBC World  Markets Corp., Libra Securities, LLC, Wells Fargo Securities, LLC and KeyBanc  Capital Markets, a Division of McDonald Investments Inc., as the initial  purchasers, dated June 16, 2006 |
|      |   |                                                                                                                                                                                                                                                                                                                       |
| 4.3(12)   |   | Pledge Agreement dated as of June 16, 2006 by and  among Jacobs Entertainment, Inc., Black Hawk Gaming & Development  Company, Inc. and Credit Suisse, Cayman Islands Branch                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                       |
| 4.4(12)   |   | Guarantee Agreement dated as of June 16, 2006, by  and among Jacobs Entertainment, Inc., certain of the subsidiaries of Jacobs  Entertainment, Inc. and Credit Suisse, Cayman Islands Branch                                                                                                                               |

E-4

----

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

 

E-5

----

 
| 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.                                                                                                                                                                                                                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

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| 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                                                                                |
|      |   |                                                                                                                                                                                          |
| 12(17)    |   | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                             |
|      |   |                                                                                                                                                                                          |
| 14.1(15)  |   | Code of Ethics                                                                                                                                                                                |
|      |   |                                                                                                                                                                                          |
| 21.1(12)  |   | Subsidiaries of Jacobs Entertainment, Inc.                                                                                                                                                    |
|      |   |                                                                                                                                                                                          |
| 25.1(12)  |   | Statement of Eligibility of Trustee on Form T-1                                                                                                                                               |
|      |   |                                                                                                                                                                                          |
| 31.1(17)  |   | Chief Executive Officer Certificate under  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                 |
|      |   |                                                                                                                                                                                          |
| 31.2(17)  |   | Chief Financial Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                               |
|      |   |                                                                                                                                                                                          |
| 32.1(17)  |   | Chief Executive Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                               |
|      |   |                                                                                                                                                                                          |
| 32.2(17)  |   | Chief Financial Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                               |

 

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| (1)  |   | Incorporated hereby by reference from our  registration statement on Form S-4 (SEC Registration No. 333-88242) filed on  May 14, 2002.                           |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  |   | Incorporated hereby by reference from Amendment No.  1 of our registration statement on Form S-4 (SEC Registration No. 333-88242)  filed on August 8, 2002. |
| (3)  |   | Incorporated hereby by reference from our Form 10-K  filed on March 29, 2004.                                                                               |
| (4)  |   | Incorporated hereby by reference from our Form 10-K  filed on March 31, 2003.                                                                               |
| (5)  |   | Incorporated by reference from our Form 10-Q filed  August 13, 2004.                                                                                        |
| (6)  |   | Incorporated hereby by reference from our Report on  Form 8-K filed October 7, 2004.                                                                        |
| (7)  |   | Incorporated hereby by reference to Exhibits  2.01(a)and 2.01(b) from our Report on Form 8-K dated March 4, 2005.                                           |
| (8)  |   | Incorporated hereby by reference from our Form 10-K  filed March 28, 2005.                                                                                       |
| (9)  |   | Incorporated hereby by reference from our Report on  Form 8-K filed on March 4, 2005.                                                                            |
| (10) |   | Incorporated by reference from our Form 10-Q filed  November 14, 2005.                                                                                           |
| (11) |   | Incorporated hereby by reference from our Report on  Form 8-K filed on November 15, 2005.                                                                        |
| (12) |   | Incorporated hereby by reference from our  registration statement on Form S-4 (SEC Registration No. 333-136066) filed on  July 7, 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) |   | Filed herewith.                                                                                                                                                  |

 

 

 

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