---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



Form 10-KSB



---



ANNUAL REPORT UNDER SECTION 13 OR
15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the Fiscal Year Ended: December 31, 2003



Commission file number: 000-50291



---



VCG HOLDING CORP.

(Name of small business issuer in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Colorado                                                       |  | 84-1157022                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



390 Union Boulevard,
Suite 540, Lakewood, CO 80228

(Address of principal executive offices, including zip code)



(303) 934-2424

(Issuers telephone number)



---



Securities registered under Section 12(b) of the Exchange Act: None



Securities registered under Section 12(g) of the
Exchange Act: Common Stock, $.0001 Par Value



---



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and
no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. ̈



Issuers revenues for fiscal year ended December 31, 2003 were $9,091,851.



The aggregate market value of the voting stock held by non-affiliates as of March 31, 2004 was $8,108,520.



The number of shares outstanding of the issuers common stock as of
March 31, 2004 was 8,026,559.



Documents incorporated by
reference: None.



Transitional Small Business Disclosure Format
(Check one):    Yes ̈No  x



---



---

TABLE OF CONTENTS



|               |  |                                                                                                                 |  |     
|-------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                                                 |  | Page
|PART I         |  |                                                                                                                 |  |     
|               |  |                                                                                                                
|Item 1.        |  | Description of Business                                                                                         |  | 1   
|               |  |                                                                                                                
|Item 2.        |  | Description of Property                                                                                         |  | 11  
|               |  |                                                                                                                
|Item 3.        |  | Legal Proceedings                                                                                               |  | 12  
|               |  |                                                                                                                
|Item 4.        |  | Submission of Matters to Vote of Security Holders                                                               |  | 12  
|               |  |                                                                                                                
|PART II        |  |                                                                                                                 |  |     
|               |  |                                                                                                                
|Item 5.        |  | Market for Common Equity and Related Stockholder Matters                                                        |  | 13  
|               |  |                                                                                                                
|Item 6.        |  | Managements Discussion and Analysis or Plan of Operation                                                       |  | 15  
|               |  |                                                                                                                
|Item 7.        |  | Financial Statements                                                                                            |  | 24  
|               |  |                                                                                                                
|Item 8.        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 45  
|               |  |                                                                                                                
|Item 8A.       |  | Controls and Procedures                                                                                         |  | 45  
|               |  |                                                                                                                
|PART III       |  |                                                                                                                 |  |     
|               |  |                                                                                                                
|Item 9.        |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 46  
|               |  |                                                                                                                
|Item 10.       |  | Executive Compensation                                                                                          |  | 50  
|               |  |                                                                                                                
|Item 11.       |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 52  
|               |  |                                                                                                                
|Item 12.       |  | Certain Relationships and Related Transactions                                                                  |  | 53  
|               |  |                                                                                                                
|Item 13.       |  | Exhibits and Reports on Form 8-K                                                                                |  | 56  
|               |  |                                                                                                                
|Item 14.       |  | Principal Accountant Fees and Services                                                                          |  | 57  
|               | 
|SIGNATURES     |  | 58                                                                                                             
|               | 
|CERTIFICATIONS |  | 59                                                                                                             



---

PART I



Item 1. Description of Business



VCG Holding Corp. (VCG) is in the business of acquiring, owning and operating nightclubs which provide premium quality live adult entertainment, and upscale restaurant and beverage services in a first class environment to
affluent patrons. Our management has over 20 years of experience in successfully owning and operating first class nightclubs and has in-depth knowledge of the industry. Our management has contributed approximately $3.5 million cash and contributed
assets of approximately $2.4 million in exchange for shares of our common stock. We were incorporated in Colorado in 1998.



We currently own three nightclubs currently operating, have one nightclub under construction, and two under management agreements with an option to
purchase.



| |  | PTs® Showclub in Indianapolis, Indiana (the Indianapolis Club)
| | - | -----------------------------------------------------------------



| |  | PTs® Showclub in Memphis, Tennessee (the  Memphis Club), and
| | - | ---------------------------------------------------------------



| |  | The Platinum Club in Brooklyn, Illinois, also known as East Saint Louis (the St. Louis Club).
| | - | -----------------------------------------------------------------------------------------------



The St. Louis Club was purchased from a third party. The Indianapolis Club and the Memphis Club were owned in part and
operated by affiliates of VCGs current management for 14 and two years, respectively.



We believe that there is an opportunity for industry consolidation of many profitable first class clubs which are available for acquisition on favorable terms. We also believe that the benefits of consolidation -
namely, centralized management, more efficient operations, less costly overhead, and increased market recognition and identity of the clubs under shared name branding will increase the current profitability of these nightclubs.



Our Business Strategy



VCGs business strategy is to consolidate first class adult
entertainment nightclubs and increase their profitability. VCG believes this can be accomplished through the opportunities that consolidation provides for economies of scale in management, operations and marketing.



We plan to acquire established nightclubs in existing locations in order to
avoid the substantial costs and risks associated with building and licensing nightclubs in new locations with no existing customer base. The adult entertainment nightclub industry is fragmented with most nightclub owners owning only one club. Adult
entertainment nightclubs are rarely advertised for sale; but rather, their availability is made known through word-of-mouth within the industry. VCG, through its extensive contacts in the industry, is aware of numerous nightclubs that are for sale
throughout the United States. Typically, these nightclubs become



1



---

available for sale because of owners reaching retirement age, increased operating expenses causing decreased
profitability, and inability or unwillingness to commit capital in order to upgrade older nightclubs.



Management believes that if VCG able to achieve sufficient public market valuation for its shares as a public company, VCG will be able to make all or
partial stock acquisitions of nightclubs.



The Adult
Entertainment Industry



For years, sexual content has been
continually increasing in the media  including movies, television, magazines, newspapers, and the Internet. Capitalizing on this opportunity, businesses that were not previously involved in the industry have now become major providers of adult
entertainment. These include hotel chains, cable and satellite television companies, national video store companies and long distance telephone carriers.



Public acceptance and demand for the premium quality adult entertainment nightclubs have become common in both cities and suburbs throughout the United
States as there is an increasingly open and healthy attitude toward sexuality. There is a strong existing and developing market among businessmen, professionals and other affluent persons for first-class adult entertainment nightclubs.



According to Forbes magazine (May 23, 2001), as the adult entertainment
industry has become more socially acceptable, it has grown to an $11 billion market and Adult entertainment businesses can expect to see their market capitalizations at least triple over the next five to seven years.



The social acceptance and accelerating growth in adult entertainment includes
adult entertainment nightclubs, particularly first class adult entertainment nightclubs, which are popular among affluent customers for social and business entertainment.



Our Product  First Class Adult Entertainment Nightclubs



Management believes maximum profitability is obtained from owning and
operating only first class adult entertainment nightclubs which attract an affluent clientele. VCGs first class entertainment nightclubs are distinguished by the following features:



Facilities. The facilities are within ready access to the principal
business, tourist and/or commercial districts in the metropolitan areas in which they are located. Both the exterior of the buildings and the interior design and decor of the clubs provide the appearance and atmosphere of an upscale restaurant. The
facilities have state of the art sound systems, theater-quality lighting and professional stage design. Some facilities have a VIP Room. This is a separate area of the club accessible only to those who purchase annual memberships. The VIP Room
provides an elegant, quiet atmosphere with its own restaurant featuring a more upscale food menu. The VIP Room is particularly conducive to business entertaining.



2



---

Professional On-Site Management. The facilities are managed by persons who are highly experienced
in the restaurant hospitality industry. The managers are responsible for maintaining the overall quality of the nightclubs and, specifically: (i) providing attentive customer service; (ii) supervising all personnel, including kitchen staff,
bartenders, security, waitresses, disc jockeys and performers; and (iii) maintaining the facility as clean, inviting, safe and comfortable.



Food and Beverage Operations. The food and beverage operations meet the high standard of business entertaining provided by an upscale restaurant.
An experienced chef is responsible for staffing and operating the food service and an experienced bar manager is responsible for staffing and operating the beverage service. The food menu ranges from buffet lunch service to fine dining for both
lunch and dinner. The beverage menu ranges from domestic and imported beer to fine wines, champagne and premium liquors.



Entertainment. The facilities provide premium quality female performers. The highest standards are maintained for appearance, attitude, demeanor,
dress and personality. The entertainment encourages repeat visits, increases the average length of a patrons stay and attracts customers to a late night destination, all of which provides for increased revenue.



Our Operations



We have contracted with International Entertainment Consultants, Inc.
(IEC) to manage our nightclub operations, and in October 2003, we purchased 100% of the outstanding common stock of IEC. IEC has more than 20 years of experience in managing adult entertainment nightclubs and currently has fifteen clubs
under management including VCGs three current clubs. Our Chairman, Mr. Lowrie and our President, Mr. Ocello are affiliated with the other nightclubs managed by IEC. IEC has approximately 75 employees.



The principal employees of IEC have been with that company for four to 20
years and they are highly experienced in this industry. IEC is responsible for all aspects of club management, administration and accounting. Among other things, IEC is responsible for the following:



| |  | Recruiting, hiring, training and supervision of on-site management;
| | - | -------------------------------------------------------------------



| |  | Implementing club operating policies and standards and monitoring compliance;
| | - | -----------------------------------------------------------------------------



| |  | Establishing and maintaining accounting and inventory controls and record keeping for the clubs;
| | - | ------------------------------------------------------------------------------------------------



| |  | Negotiating all contracts including those with vendors and suppliers, and particularly food and beverage;
| | - | ---------------------------------------------------------------------------------------------------------



3



---

| |  | Developing and implementing, advertising, marketing and promotional programs;
| | - | -----------------------------------------------------------------------------



| |  | Developing and maintaining relationships with local authorities, vendors and area businesses; and
| | - | -------------------------------------------------------------------------------------------------



| |  | Monitoring and maintaining the quality and performance of each club.
| | - | --------------------------------------------------------------------



Through this centralization of management, we are able to realize a substantial reduction in management expense that would otherwise be incurred.



All nightclubs managed by IEC, including those clubs owned by
VCG, pay their proportionate share of IECs general operating and administrative expenses for all of the nightclubs managed by IEC. These expenses do not include the direct operating expenses of each of our nightclubs which include: food and
beverage operations, employee payroll, advertising, entertainment and maintenance of facilities.



Compliance Policies and Controls



IEC has developed compliance policies for nightclub operations aimed at assuring that the operations of each club are conducted in conformance with local,
state and federal laws. The principal areas to which the policies are directed are illegal drug use and sexual activity. In keeping with the upscale nightclub environment, IEC does not use visible security, but rather persons who act in a host
capacity to address and resolve situations in which a customers behavior may be inappropriate.



IEC has developed and implemented internal operating and accounting controls to track cash, credit card transactions and food and beverage inventory.
These controls also help to maintain the accuracy of VCGs operating and accounting records. In particular, IEC has developed sophisticated software programs to capture operating information and generate reports for efficient management and
control of the nightclub. Analysis of the information provided enables IEC to detect atypical variances from expected operating results based on historical activity.



Market Environment/Marketing



The demographic market for adult entertainment nightclubs is substantial as nightclubs appeal to men of all age groups.
Within this market, there are two general categories of nightclubs, each having distinct differences in entertainment quality, atmosphere and food service. On the lower-end are strip clubs which typically have small facilities and a
low-grade atmosphere. These clubs generally cater to a blue-collar clientele, have limited or non-existent food service and a small number of entertainers who are not of the caliber of the upper-scale clubs. The upper-scale clubs are termed
gentlemens clubs. These clubs are characterized by their large facilities and featuring dozens of entertainers on any given night. They offer a variety of entertainment such as sports on television monitors, billiard tables, VIP
rooms and specialty acts. Their target market/audience is a more affluent clientele of businessmen and professionals



4



---

for whom gentlemens clubs are increasingly becoming a viable and attractive entertainment option. In addition, they
are no longer limited to providing evening entertainment; daytime operations are also growing, particularly during the lunch hour. Food is prepared by an on-site chef and the menu typically offers a wide variety of entrees and appetizers. Most clubs
provide a buffet at least once a week as a promotion special.



VCG focuses on acquiring and marketing upscale gentlemens clubs in areas that are not market saturated and already receptive to well managed adult gentlemens clubs. Adult entertainment nightclubs tend to group together by
location. When clubs are within relatively close proximity, regular customers are more likely to try a new club. A significant marketing benefit for VCG will be its ownership of multiple clubs in multiple cities which will enable VCG to obtain brand
name recognition for its first-class adult entertainment nightclubs. Management believes VCG is well positioned both financially and managerially to continue to grow in the adult entertainment industry. By expanding into other locations in other
cities and states, VCG will have the opportunity to realize the benefits of both the economies of scale and name recognition marketing.



The ability to attract new patrons to a nightclub for the first time is critical to a nightclubs success. Promotions, advertising and specials are
the typical means to market a nightclub. Newspaper and magazine coupons are often used to attract new customers. Professional sporting events are a natural advertising venue, including ticket-stub drink vouchers and other advertising, including
aerial banners at outdoor events.



During the past 20 years
operating nightclubs, IEC has developed a results-proven, cost-efficient marketing program. The clubs are marketed as a safe and upscale environment for adult entertainment. The marketing strategy is to attract new customers, to increase the
frequency of visits by existing customers and establish a higher level of name recognition. The marketing program includes advertising in travel and hospitality magazines, print advertising, billboards with distinctive graphics and taxi cab reader
boards. The target market is the business-convention traveler and local professionals and business people. In addition, IEC conducts various promotion activities throughout the year to keep the clubs name before the public. In order to promote
a good community reputation, the clubs actively sponsor and participate in local charitable events and make contributions to local charities.



Growth



Our goal is to become the leader in the first-class adult entertainment nightclub industry through acquisition of existing nightclubs. We anticipate that
the increase in the profitability of our recently acquired nightclubs and the addition of more nightclubs will be a major source of growth. We plan to have at least three nightclubs by fiscal year end 2004. We plan to increase revenue at our
recently acquired nightclubs through the efficiencies provided by consolidation and the application of the experience and expertise of IEC.



5



---

Competition



The adult entertainment nightclub industry is very competitive with respect to price, location and quality of (i) the
facility, (ii) entertainment, (iii) service and (iv) food and beverages. Further, the industry is especially sensitive to ever-changing and unpredictable competitive trends which cannot be easily predicted and which are beyond our control.



We have many competitors in the metropolitan areas in which we
are located and intend to expand. Some competitors have substantially greater financial resources and a longer history of operations than the nightclubs currently owned by VCG. Changes in customer preferences, economic conditions, demographic trends
and the location, number of and quality of competing nightclubs could adversely affect our business, as could a shortage of experienced local management and hourly employees. We believe our nightclubs enjoy a high level of repeat business and
customer loyalty due to our upscale restaurant atmosphere, food quality, premium entertainment, perceived price-value relationship and efficient service.



Government Regulations



Adult entertainment nightclubs are subject to ever changing local, state and federal regulation. Our business is regulated by local zoning, local and
state liquor licensing, local ordinances and state and federal time place and manner restrictions. In the states in which we currently operate, liquor licenses renew annually, and are considered to be a privileged license that could be
subject to suspension or revocation. The adult entertainment provided by our nightclubs has elements of speech and expression and, therefore, enjoys some protection under the First Amendment to the United States Constitution. However, the protection
is limited to the expression, and not the conduct of an entertainer. While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will
permit our nightclubs to remain in operation or profitable in the future.



Trademarks



The
PTs® name and logo are trademarks registered
with the United States Patent and Trademark Office. We have been granted a license to use the trademarks by Lowrie Management, LLLP, an affiliate of VCG. There is currently no fee for the license. Any future fee will be reviewed for fairness by, and
be subject to the approval of, a majority of independent directors. Until then, and as is currently the case, any such fee will be at a price the fairness of which will be established by an independent valuation.



Employees and Independent Contractors



As of December 31, 2003, VCG and its subsidiaries had approximately 270
employees in food and beverage service capacities. VCG has 20 executive personnel provided by IEC. VCGs employees are not members of a union and VCG has never suffered a work stoppage. The



6



---

performers providing entertainment in the nightclubs are not employees of VCG. They are self-employed independent
contractors who work at VCGs nightclubs on a non-exclusive basis. The performers pay VCG a fee for providing the facilities for them to perform. The performers source of revenue is tips from nightclub customers.



Risk Factors



Our success is subject to the risks described below, among others. Each of
these risk factors could adversely affect the price of our common stock, our business, financial condition and results of operations.



We may not be able to acquire additional nightclubs and we may not be able to operate on a profitable basis.



Our growth strategy will depend in large part on our ability to acquire
additional nightclubs and to operate our clubs on a profitable basis. The success of our planned expansion will depend upon numerous factors, many of which are beyond our control, including the following:



| |  | the ability to locate suitable nightclubs which are available for acquisition;
| | - | ------------------------------------------------------------------------------



| |  | competition for nightclub acquisitions;
| | - | ---------------------------------------



| |  | the ability negotiate nightclub acquisitions and leases on favorable terms;
| | - | ---------------------------------------------------------------------------



| |  | the ability to secure and maintain required governmental approvals and permits;
| | - | -------------------------------------------------------------------------------



| |  | the ability to hire, train and retain qualified operating personnel, especially managers;
| | - | -----------------------------------------------------------------------------------------



| |  | competition in our markets; and
| | - | -------------------------------



| |  | general economic conditions.
| | - | ----------------------------



We have had limited operations which makes our future operating results difficult to predict.



We were incorporated as a Colorado corporation in 1998 and in the last two
years became the owner of three nightclubs, including real estate, located in suburbs of St. Louis, Missouri; Memphis, Tennessee; and, Indianapolis, Indiana, which have been in business since 1992, 2000 and 1988, respectively. We have acquired a
location in Phoenix, AZ that is under construction and due to open in May 2004, have under management a location in Denver, CO owned by the Chairman and manage a location in Hawaii with an option to purchase up to fifty-one percent. We have a
limited operating history. We face the risks and uncertainties of other early-stage companies. Our limited operating history and history of losses make future operating results difficult to predict.



7



---

We may need additional financing and we may not be able to obtain it. As a result, our business
expansion plans may be significantly limited.



If cash
generated from our operations is insufficient to satisfy our working capital and capital expenditure requirements during the next year to two years, we will need to raise additional funds through the public or private sale of our equity or debt
securities. The timing and amount of our capital requirements will depend on a number of factors, including cash flow and cash requirements for nightclub acquisitions. If additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of our then-existing shareholders will be reduced. We cannot assure you that additional financing will be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms,
our ability to fund our expansion, take advantage of unanticipated opportunities, or otherwise respond to competitive pressures, could be significantly limited. Our business, financial condition and results of operations may be harmed by such
limitations.



Our directors and executive officers own a
majority of our common stock and may exercise significant influence over our direction and policies. Accordingly, non-management shareholders are subject to the control of our company by our management.



Our directors and executive officers beneficially own approximately 66.51% of
the outstanding shares of our common stock. As a result of this stock ownership, management has sufficient voting power to significantly influence our direction and policies, the election of directors, the outcome of any other matter submitted to a
vote of shareholders, and a change in control.



Our business
operations are subject to regulatory uncertainties which may affect our ability to acquire additional nightclubs, remain in operation or be profitable.



Adult entertainment nightclubs are subject to ever changing local, state and federal regulation. Our business is regulated by local zoning, local and
state liquor licensing, local ordinances and state and federal time place and manner restrictions. In the states in which we currently operate, liquor licenses renew annually, and are considered to be a privileged license that could be
subject to suspension or revocation. The adult entertainment provided by our nightclubs has elements of speech and expression and, therefore, enjoys some protection under the First Amendment to the United States Constitution. However, the protection
is limited to the expression, and not the conduct of an entertainer. While our nightclubs are generally well established in their respective markets, there can be no assurance that local, state and/or federal licensing and other regulations will
permit our nightclubs to remain in operation or profitable in the future.



8



---

There is substantial competition in the nightclub entertainment industry which may effect our ability
to operate profitably or acquire additional clubs.



Our
company and its existing nightclubs (and any other clubs that we may acquire) face competition from other nightclubs, both for nightclub acquisitions and patrons. These competitors may have greater financial and management resources than our
company. In addition, the industry is especially sensitive to ever-changing and unpredictable competitive trends and competition for general entertainment dollars which cannot be easily predicted and which are beyond our control.



Our business is dependent upon management and employees for continuing
operations and expansion.



Our success will depend, to a
significant extent, on the efforts and abilities of Troy H. Lowrie, our Chairman of the Board, and Micheal L. Ocello, our President. The loss of the services of Messrs. Lowrie and/or Ocello could have a material and continuing adverse effect on our
business. In addition, if our business grows, we will need to hire additional management and employees.



Our business plan and proposed strategy has not been independently evaluated.



We have not obtained any independent evaluation of our business plan and proposed business strategy. There can be no
assurance that our nightclubs or proposed strategy will generate sufficient revenues to maintain profitability.



We may be subject to uninsured risks which if realized could expose us to liabilities which we may not be able to pay.



We maintain insurance in amounts we consider adequate for personal injury and
property damage to which our nightclubs may be subject. When available at reasonable rates, we maintain personal injury liquor liability insurance. However, there can be no assurance that we will not be exposed to potential liabilities in excess of
the coverage provided by insurance, including, but not limited to, liabilities which may be imposed pursuant to state dram shop statutes or common law theories of liability. In general, dram shop statutes provide that a
person injured by an intoxicated person has the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person if it was apparent to the server that the individual being sold, served or provided with an
alcoholic beverage was obviously intoxicated to the extent that he presented a clear danger to himself and others.



We could use the issuance of additional shares of our authorized stock to deter a change in control. Even if a change in control would be beneficial to
our shareholders, management would be able to maintain control of our company.



We currently have 8,026,559 shares of common stock outstanding, out of a total of 50,000,000 shares of common stock and 1,000,000 shares of preferred stock authorized for future



9



---

issuance under our Articles of Incorporation. This does not include 468,210 shares of common stock reserved for issuance
under our 2002 Stock Option and Stock Bonus Plan and 225,000 shares of common stock reserved for issuance under our 2003 Stock Option and Stock Bonus Plan. The remaining shares of common stock and preferred stock not issued or reserved for specific
purposes may be issued without any action or approval of our shareholders unless such approval is required by applicable law. The issuance of additional shares would make it more difficult for a third party to acquire us, even if its doing so would
be beneficial to our shareholders.



We do not anticipate
paying dividends in the foreseeable future.



Since our
inception we have not paid any dividends and we do not anticipate paying any dividends in the foreseeable future. We expect that future earnings, if any, will be used for working capital and to finance growth.



The public market for our common stock may not be sustained and
shareholders may not have liquidity for their shares.



Our
stock is currently listed on the Over-the-Counter (OTC) Bulletin Board and we have applied for the listing of our common stock on the American Stock Exchange (AMEX). However, there can be no assurance that a public market for
our common stock will be sustained or that shareholders will have liquidity for their shares.



Future sales of our common stock may depress the price of our stock.



A registration statement on Form SB-2 registering up to 3,136,778 shares of our common stock which was declared effective by the Securities and Exchange
Commission (SEC) in May 2003. Upon completion of the offering, we may have up to 8,726,559 shares of common stock outstanding. All of these shares will be freely tradable without restriction or further registration under the Securities
Act of 1933, as amended (Securities Act), except for 74,922 shares issued to a former affiliate of our Company and 4,719,650 shares owned by affiliates not being registered at this time. The future sale of these shares of our common
stock may depress the price of our stock. Any sales of shares owned or subsequently purchased by affiliates as that term is defined in Rule 144 of the Securities Act, are subject to certain limitations and restrictions.



Forward Looking Statements



This annual report contains forward-looking statements. These statements
relate to future events or our future financial performance. We have attempted to identify forward looking statements by using words such as anticipate, believe, expect, future, may,
should, plan, projected, intend and similar expressions. These statements are only predictions and are based on our beliefs and the assumptions we made using information currently available to us.
Because these statements reflect our current views and assumptions concerning future events, these statements involve known and unknown risks, uncertainties and other factors. Our actual results could differ materially from the results discussed in
the forward-looking statements. Undue reliance should not be placed on these forward-looking statements which apply only as of the date of this annual report.



10



---

Item 2. Description of Property:



VCGs Offices



VCG maintains its offices
at 390 Union Boulevard, Suite 540, Lakewood, Colorado 80228, telephone number (303) 934-2424, the facilities are shared with its subsidiary IEC for which it pays a pro rata share of rent based on all clubs managed by IEC. VCG is currently paying
monthly rent of approximately $5,200 to a third party.



VCGs Nightclubs



Each of VCGs
three adult entertainment nightclub businesses is held in a separate, wholly-owned subsidiary and the related real estate and leases are held by a fourth wholly-owned subsidiary.



The Indianapolis Club is owned by Indy Restaurant Concepts, Inc., an Indiana corporation and wholly-owned subsidiary of VCG.
The club has been in business since 1988. VCG began operating the nightclub on June 30, 2002. The PTs® Showclub is located in Indianapolis, Indiana in a 7,200 square foot space.



The Memphis Club is owned by Tennessee Restaurant Concepts, Inc., a Tennessee corporation and wholly-owned subsidiary of VCG. The club has been in
business since 2000. VCG acquired and began operating the nightclub on June 30, 2002. The PTs® Showclub is located in Memphis, Tennessee in a 14,000 square foot building.



The St. Louis Club is owned by Platinum of Illinois, Incorporated, an Illinois corporation and wholly-owned subsidiary of VCG. The club has been in
business since 1992. VCG acquired Platinum of Illinois, Incorporated and began operating the nightclub on May 1, 2002. The Platinum Club is located in Brooklyn, Illinois (known as East Saint Louis) in a 9,000 square foot building.



The real estate and leases related to the nightclubs are owned by VCG RE.



In March 2003, VCG RE purchased a building, land and adult
entertainment license in Phoenix, Arizona, where VCG intends to locate an additional club. The building is approximately 16,000 square feet (including a 5,000 square foot mezzanine) and the land is



11



---

approximately four acres. VCG expects that the transfer of the license will be approved in the first quarter, the
refinish of the property will be completed and the club will be operational in the second quarter of 2004.



In connection with the purchase of Centerfolds nightclub in Denver from Larisa, Inc. (an unrelated third party) for $1,300,000, the Company authorized a
loan of $1,300,000 to Mr. Lowrie pursuant to a promissory note, due in one year at 9% interest, secured by the stock of VCG Restaurant Denver, Inc. (VCGD) Mr. Lowrie purchased the club in the name of VCGD and will transfer VCGD by
canceling the note. The Company is receiving a management fee of $10,000 per month



VCG signed a letter of intent in February 2004 to purchase 100% of the outstanding stock of Classic Affairs, Inc. (Classic). Classic owns and operates a premium adult nightclub in downtown Minneapolis, Minnesota under
the name of Schieks Palace Royale. Under the terms of the agreement, VCG will acquire 100% of outstanding common shares of Classic. The purchase price will be made up of cash, preferred stock, long-term notes and common stock with options. The
allocation of the source of funds will be finalized in the definitive agreement to be signed upon approval of the transfer of the liquor license in late April. In addition to the business, VCG retains an option to purchase the real estate. The real
estate used by Schieks Palace Royale was a federal reserve bank and is registered as a federal historic landmark. VCG anticipates closing under the definitive agreement within one week of the liquor license transfer in early May.



Item 3. Legal Proceedings



VCG is not a party to any legal proceedings. VCG is unaware of any pending litigation or proceeding involving a director, officer, employee or agent of VCG where indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding which may result in a claim for such indemnification.



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



No matters were submitted to a vote of VCGs security holders during the fourth quarter of the fiscal year ended December 31, 2003.



12



---

PART II



Item 5. Market for Common Equity and Related Stockholder Matters



Common Stock



Our common stock is currently listed and trading on the Over-the-Counter (OTC) Bulletin Board. We have applied for the listing of our common stock on the
American Stock Exchange (AMEX).



STOCK QUOTATIONS



|               |  |                       |  |     
|-------------- |  | --------------------- |  | ----
|               |  | FYE December 31, 2003
|               |  | BID                  
|Quarter Ending |  | High                  |  | Low 
|3/31/03        |  | N/A                   |  | N/A 
|6/30/03        |  | N/A                   |  | N/A 
|9/30/03        |  | 3.75                  |  | 3.00
|12/31/03       |  | 3.45                  |  | 3.00



As of March 31, 2004,
there were approximately 427 holders of record of VCGs common stock (which does not include shareholders whose shares are held of record by brokerage firms, if any.



We have filed a registration statement on Form SB-2 to register up to 3,136,778 shares of our common stock, which was
declared effective by the SEC in May 2003. The registration statement relates to the offer by selling security holders, for their own accounts, of 2,436,778 shares of our common stock and up to 700,000 shares of our common stock reserved for
issuance under our 2002 Stock Option and Bonus Plan. Upon completion of the offering, we may have up to 8,726,559 shares of common stock outstanding. All of these shares will be freely tradable without restriction or further registration under the
Securities Act, except for 74,922 shares issued to a former affiliate of our Company and 4,719,650 shares owned by affiliates not being registered at this time. Any sales of shares owned or subsequently purchased by affiliates as that
term is defined in Rule 144 of the Securities Act, are subject to certain limitations and restrictions.



Dividends



We have never declared or paid any dividends on our common stock. We do not intend to pay cash dividends on our common stock. We plan to retain our future
earnings, if any, to finance our operations and for expansion of our business. The decision whether to pay cash dividends on our common stock will be made by our Board of Directors, in its discretion, and will depend on our financial condition,
operating results, capital requirements and other factors that our Board of Directors considers significant.



13



---

Equity Compensation Plan Information



The following table sets forth information as of the fiscal year ended December 31, 2003 with respect to compensation plans
(including individual compensation arrangements) under which equity securities of VCG are authorized for issuance.



|                                                           |  |                                                                                                 |  |                                                                                 |  |                                                                                                                                                 |      
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- | -----
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |  | Weighted-average exercise price of outstanding options, warrants and rights (b) |  | Number of securities remaining available for future issuance under equity compensation plans (excluding securities
reflected in column (a)) (c) |      
|Equity compensation plans approved by security holders     |  | -0-                                                                                             |  | -0-                                                                             |  | 700,000                                                                                                                                         | (1)  
|Equity compensation plans not approved by security holders |  | -0-                                                                                             |  | -0-                                                                             |  | 250,000                                                                                                                                         | [(2)]
|                                                           |  |                                                                                                 |  |                                                                                 |  |                                                                                                                                                 |      
|                                                           |  | -0-                                                                                             |  | -0-                                                                             |  | 950,000                                                                                                                                         |      

---

|(1) | 2002 Stock Option and Stock Bonus Plan approved by shareholders on July 22, 2002. Shares of
common stock may be issued either: (i) upon the exercise of stock options granted under the Plan; or (ii) as stock bonuses granted under the Plan. Pursuant to Section 6(i) of the Plan, if there is any change in the number of shares of common stock
through the declaration of stock dividends, or through a recapitalization resulting in stock splits, or combinations or exchanges of such shares, the number of shares of common stock available for options and the number of such shares covered by
outstanding options, and the exercise price per share of the outstanding options, shall be proportionately adjusted to reflect any increase or decrease in the number of issued shares of common stock; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Company adopted a 2003 Stock Option and Stock Bonus Plan and reserved 250,000 shares of common stock for issuance under the Plan. The Company authorized the
preparation and filing of a Form S-8 registration statement to register the 250,000 shares of common stock reserved for issuance under the Plan
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recent Sales of Unregistered Securities



The following equity securities were sold by VCG during the fiscal year ended December 31, 2003 that were not registered under the
Securities Act.



Our registration statement on Form SB-2 to
register up to 3,136,778 shares of our common stock (Commission File No. 333-99379) was declared effective on May 13, 2003. The registration statement relates to the offer by selling security holders, for their own accounts, of



14



---

2,436,778 shares of our common stock and up to 700,000 shares of our common stock reserved for issuance under our Stock
Option and Bonus Plan. The selling security holders will sell their shares at prevailing market prices or privately negotiated prices. We will not receive any of the proceeds from the sale of the shares by the selling security holders. We may
receive proceeds upon the exercise of stock options issued under our Stock Option and Stock Bonus Plan, which proceeds will be used for working capital.



The offering commenced on May 14, 2003 and has not yet terminated. The offering is not being underwritten. The aggregate offering per share price is
$3.25. No shares have been sold and there have been no proceeds to VCG to date. Since the effective date of the registration statement on May 19, 2003, (i) no expenses were incurred for VCGs account in connection with the issuance and
distribution of the securities registered for underwriting discounts and commissions, or for finders fees, (ii) no expenses were paid to or for underwriters, (iii) other expenses were $ 0 and (iv) total expenses were $ 0. Payments for such
expenses were direct payments to third-parties and not direct or indirect payments to directors or officers of VCG or their associates, or to persons owning ten (10) percent or more of any class of equity securities of VCG, or to affiliates of VCG.
As of March 31, 2004, the net offering proceeds to VCG after deducting the total expenses are $ 0.



Item 6. Management Discussion and Analysis of Financial Condition and Results of Operations



The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and
related notes. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain
factors including, but not limited to, those discussed in Risk Factors and elsewhere in this prospectus.



Overview



We are in the business of acquiring, owning and operating nightclubs which provide premium quality live adult entertainment, restaurant and beverage
services in an up-scale environment to affluent patrons. At this time, we own and operate three nightclubs located in suburbs of Memphis, Tennessee; Indianapolis, Indiana; and, St. Louis, Illinois.



We were incorporated in Colorado in December 1998. We were formed as a
subsidiary of our former parent company for the purpose of holding certain assets transferred upon our parents merger with a pharmaceutical company that obtained $20 million in funding. Accordingly, from inception until April 2002, we did not
have any business operations.



In April 2002, our current
management and their affiliates purchased 1,236,428 shares of our previously issued and outstanding common stock for $125,000 from our former officers and directors, Albert Brenman and A. Thomas Tenenbaum. They received these shares as a pro rata
dividend to all shareholders of the parent company in connection with the merger and for



15



---

additional capital contributions. This transaction resulted in a change of control of VCG. Mr. Tenenbaum sold all of his
shares for a gain on sale of $63,000. Mr. Brenman retained 74,922 shares and sold the balance of his shares for a gain on sale of $60,000. There were no fees paid in the transaction.



Also in April 2002, Lowrie Management, LLLP (Lowrie Management), an entity affiliated with the new Chairman of
VCG, Troy H. Lowrie, purchased 1,585,000 shares of common stock from VCG for $1,585,000. In addition, VCG sold 515,000 shares of its common stock for $515,000 in a private placement.



On April 30, 2002, VCG acquired all of the outstanding capital stock of Platinum of Illinois, Inc., an Illinois corporation
(Platinum), for $2,000,000. Platinum has operated The Platinum Club in East St. Louis, Illinois since 1992.



In May 2002, as part of the purchase of The Platinum Club, VCG acquired a five-year lease on the 9,000 square foot building and land on which The Platinum
Club is located for base rent of $900,000, which is to be paid in monthly installments of $15,000. At the end of the five-year term, VCG has the option to pay $900,000 as a final installment on the purchase of the building and land. VCG has elected
to capitalize this lease under FASB 13. The value of the building and land under the lease is $1,421,628. Mr. Lowrie has personally guaranteed the lease.



In June 2002, Lowrie Management provided VCG with a long-term credit facility of $1,400,000 which was fully drawn down in June 2002 as part of the
purchase of the property in Indianapolis, Indiana. Interest is charged initially at 9%, and all outstanding principal and accrued interest is due July 2007. The terms of this credit facility include a provision for conversion at any time after June
30, 2003, at the election of the lender, into shares of common stock of VCG at $1.00 per share. At December 31, 2002, VCG had re-paid $80,000 together with interest. In April 2003, VCG drew down the available $80,000 under the credit facility in
connection with the acquisition of the Phoenix, Arizona property. The credit facility was converted to common stock on July 1, 2003.



On June 30, 2002, VCG acquired all of the outstanding capital stock of Tennessee Restaurant Concepts, Inc., a Tennessee corporation (TRC),
which was valued at $604,800 for 604,800 shares of VCGs common stock. TRC has operated PTs® Showclub in Memphis, Tennessee (the Memphis Club) since 2000. VCG also acquired the 14,000 square foot building in which the club is located. The purchase price consisted of
the assumption of the $1,640,000 mortgage on the property and 195,200 shares of VCGs common stock valued at $1.00 per share. Mr. Lowrie has personally guaranteed the $1,640,000 mortgage on the property.



Also on June 30, 2002, VCG acquired all of the assets of Indy of Colorado
Ltd., an Indiana corporation (Indy), which were valued at $1,590,000 for 1,590,000 shares of VCGs common stock. Indy has operated PTs® Showclub in Indianapolis, Indiana since 1988. In connection with the transaction, VCG Real Estate Holding, Inc., a Colorado corporation
(VCG RE), a wholly-owned subsidiary of VCG, purchased the building and land on which PTs®



16



---

Showclub in Indianapolis, Indiana is located. The Purchase Agreement for the building and land was originally between the
seller and Lowrie Management and was subsequently assigned to VCG RE. The purchase price of $2,550,000 was paid in $1,550,000 cash and a $1,000,000 line of credit secured by a deed of trust. Any amounts drawn down and re-paid are available to VCG
under the credit facility. The cash portion of the purchase price was paid from VCGs cash flow and from drawing down the entire $1,400,000 long-term credit facility provided by Lowrie Management. Mr. Lowrie has personally guaranteed the
$1,000,000 line of credit.



In March 2003, VCG entered into a
Line of Credit and Security Agreement whereby VCG obtained a $1,200,000 short-term credit facility which expires in March 2004 and bears interest at 6.5% per annum. In connection with the line of credit, VCG issued the lender 40,000 shares of
VCGs common stock valued at $3.00 per share. Mr. Lowrie has personally guaranteed the line of credit.



In March 2003, VCG RE purchased a building, land and adult entertainment license in Phoenix, Arizona, where VCG intends to locate an additional club. The
purchase price of $3,800,000 was paid in $1,400,000 cash and a $2,400,000 mortgage on the property. The cash portion of the purchase price was paid from: (a) VCGs cash flow; (b) drawing down the available $80,000 on the $1,400,000 long-term
credit facility; and (c) drawing down the entire $1,200,000 short-term credit facility.



In July 2003, VCG completely refinanced the properties on which the Indianapolis and Memphis Clubs are located. In connection with the refinancing, VCG will repay the $1,000,000 line of credit secured by a deed of
trust on the Indianapolis property and the balance of the $1,640,000 mortgage, less an $80,000 prepayment discount on the Memphis property. There is a $1,440,000 mortgage on the Indianapolis property and a $872,000 mortgage on the Memphis property.
These mortgages have a 10 year amortization with a 6% per annum interest rate secured by the property and the personal guarantee of Mr. Lowrie.



In connection with the purchase of Centerfolds nightclub in Denver from Larisa, Inc. for $1,300,000, the Company authorized a loan of $1,300,000 to Mr.
Lowrie pursuant to a promissory note, due in one year at nine percent (9%) interest, secured by the stock of VCG Restaurant Denver, Inc. VCGD Mr. Lowrie purchased the club in the name of VCGD and will transfer VCGD to the Company.



The Company approved a line of credit with Thomas OHara
for $700,000 with an annual interest rate of six and half percent (6.5%), and issued Mr. OHara 23,333 shares of restricted common stock. The Company had drawn the line of credit for the full $700,000 and has repaid $200,000 plus interest on
August 1, 2003. The original draw on the note was used in connection with the loan to Mr. Lowrie for the Centerfolds nightclub purchase.



In addition the Company has a note to VCGD in connection with funding the $1,300,000 payment for the purchase of the nightclub. The interest accrued on
the note is $68,250 at December 31, 2003. The Company borrowed $975,000 from a bank and the bank was paid off by VCGD from a loan it secured from a bank. The board agreed to continue to pay to VCGD the



17



---

same amount as the bank was receiving and the loan will be removed as part of the Companys acquisition of VCGD. The
outstanding balance at December 31, 2003 was $945,487. During the fourth quarter of 2003 the Company advanced $239,472 to VCGD to remodel. At December 31, 2003 the outstanding balance on the advance was $242,329 including interest.



In July 2003, VCG entered into a Line of Credit and Security Agreement
whereby VCG obtained a $225,000 short-term credit facility that expires in July, 2004 and bears interest at 6.5% per annum. In connection with the Line of Credit, VCG issued the lender 7,500 shares of VCGs common stock valued at $3.00 per
share. The Company had drawn $225,000 on the line of credit by December 31, 2003.



In July 2003, VCG entered into an agreement, with a third party, to purchase a forty-nine percent interest and an option for an additional two percent in three years in a club in Hawaii by for $500,000. The purchase
is subject to due diligence review. VCG will have management and voting control and plans to begin operations in December 2003. VCG obtained an option to purchase the property for $1,800,000 on which the club is located the option can be exercised
after two years and for a three years term.



In February 2004
the board of directors authorized the issuance of options to acquire up to 1,000,000 shares to be registered after the options are purchased. In addition the board authorized the sale of 50,000 shares from the 2003 Stock Option and Stock Bonus Plan.
These options and shares are available to contract providers to VCG.



Effective on October 1, 2003 VCG purchased 100% of the outstanding common stock of International Entertainment Consultants, Inc. (IEC) in consideration for the issuance of 4,769 shares of the Companys restricted common
stock to Troy H. Lowrie, the Chairman of the Board and Chief Executive Officer of the Company, valued at $14,307 ($3.00 per share).



In April 2003, VCG entered into a line of credit with a bank for $350,000 that expires in January, 2004 and bears an interest rate of 6% per annum. The
line of credit is guaranteed by Lowrie Management LLLP and the proceeds were used to reduce the advance from Lowrie Management LLLP. The Company has paid the line off and entered into a new arrangement that provides a line of credit of $850,000 in
December 2003. The terms are similar to the old line of credit and VCG had drawn $670,381 at December 31, 2003. The note is due December 2004.



The analysis of the financial statements below is in two forms. The first is the information comparing the historical information. The second is the
analysis of the pro forma combined information that includes all acquisitions combined with the pro forma adjustments. The analysis of the pro forma information is included as there were part year acquisitions of operating clubs in 2002. All
historical numbers are presented on a consolidated basis that includes all acquisitions and eliminates inter-company transactions.



18



---

Historical



For the Years Ended December 31, 2003 and December 31, 2002



Total Revenues. Total revenues were $9,094,851 for the year ended December 31, 2003, as compared to $7,322,123 for the same period in 2002. The
revenues derived from the sale of liquor, beer, and wine comprise approximately 28.47% of total revenues. The revenues from food and merchandise comprise approximately 2.46% of total revenue. The charges to entertainers and cover charges comprise
approximately 15.31% of total revenues. The remaining revenues of approximately 53.76% are from the management fees charged by IEC and miscellaneous other revenue sources.



Cost of Sales. Cost of sales was 21.53% of sales of alcoholic beverages, food, and merchandise for the year ended
December 31, 2003 is compared to 20.15% for the same period in 2002.



Labor. Labor expenses were $4,449,227 for December 31, 2003, as compared to $ 4,075,971 for the same period in 2002. The increase is due to a full year on the three operating clubs and increase in clubs managed.



General and Administrative Expenses. General and administrative
expenses were $2,490,750 for the year ended December 31, 2003, as compared to $1,901,725 for the same period in 2002. Included in general and administrative expenses for the year ended December 31, 2003 and 2002 and are the following items: charge
card and bank fees of $69,829 and $49,129; legal and accounting costs of $257,576 and $210,951; and advertising and marketing costs of $334,081 and $316,935.



Interest Expense. Interest expense increased by $360,238 for the year ended December 31, 2003, as compared to $179,039 for the same period in 2002.
The increase is due to debt incurred in connection with growth.



Net income. Net income for the year ended December 31, 2003 was $677,039. Net loss for the year ended December 31, 2002 was $(153,849). This includes a one-time impairment write-off of $594,782 of goodwill on the Memphis Club.



Pro Forma



For the Years Ended December 31, 2003 and December 31, 2002



Total Revenues. Total revenues were $9,091,851 for
the year ended December 31, 2003, as compared with $9,070,493 for the year ended December 31, 2002.



Cost of Sales. Cost of sales were 21.6% and 20.2%, respectively, of sales of alcoholic beverages, food, and merchandise for the years ended
December 31, 2003 and 2002.



19



---

Labor. Labor expenses were $4,449,277 for the year ended December 31, 2003, as compared to
$4,440,453 for the same period in 2002, an increase of approximately 0.35%.



General and Administrative Expenses. General and administrative expenses increased 11.29% for the year ended December 31, 2003 as compared to the same period in 2003. Taxes and permits increased 6%. Legal and
accounting expenses increased $46,625. The increase is primarily to due the costs of acquisitions and the public offering. The depreciation and amortization increased by $109,779 for the year ended December 31, 2003 compared to the same period in
2002.



Interest Expense. Interest expense increased
$181,203 for the year ended December 31, 2003 as compared to the same period in 2002. This increase was due to the purchase of properties related to the night clubs and growth.



Net income. Net income after taxes was $677,039 for the year ended December 31, 2003 as compared with $529,737 for
the same period in 2002.



Liquidity and Capital Resources



At December 31, 2003, VCG had working capital of $125,602. The increase in
working capital is primarily due to the refinancing of the long term debt and earnings.



VCG had stockholders equity of $7,537,767 at December 31, 2003 as compared to $4,970,693 at December 31, 2002. The increase is the result of acquisitions, operations, and the contribution of $2,048,068 cash for
common stock.



The net cash used in operations for the year
ended December 31, 2003 was $386,475 as compared to proceeds from operations in 2002 of $693,375. VCG used $1,526,866 of 2003 cash flow for advances on construction, advances to the Hawaii opportunity and receivables.



The net cash used by investing activities for the year ended December 31,
2003 was $3,832,834, most of which was used for the purchase of fixed assets and the Centerfold note.



Cash used for financing activities in 2003 of $5,132,303 was applied to the reduction of debt and deferred offering costs.



The cash provided by financing activities for December 31, 2003 was
$9,285,569. The cash provided by financing activities consisted of $2,048,068 from sales of securities, $7,237,501 on mortgages and credit facilities, including $602,077 from a related party loan.



In June 2002, Lowrie Management provided VCG with a long-term credit facility
of $1,400,000 which was fully drawn down in June 2002 as part of the purchase of the property in Indianapolis, Indiana. Interest is charged initially at 9%, and all outstanding principal and accrued interest is due July 2007. The terms of this
credit facility include a provision for conversion at any time after June 30, 2003, at the election of the lender, into shares of common



20



---

stock of VCG at $1.00 per share. At December 31, 2003, VCG had paid $59,258 of interest and converted the $1,400,000 note
payable into common stock. In March 2003, VCG drew down the available $80,000 under the credit facility in connection with the acquisition of the Phoenix, Arizona property.



In March 2003, VCG obtained and fully drew down a $1,200,000 short-term credit facility as part of the purchase of the
property in Phoenix, Arizona. Interest is charged at the rate of 6.5% per annum, and all outstanding principal and accrued interest is due in March 2005. On March 31, 2004, the outstanding balance of the credit facility was $1,200,000.



In July 2003, VCG completely refinanced the properties on which the
Indianapolis and Memphis Clubs are located. In connection with the refinancing, VCG will repay the $1,000,000 line of credit secured by a deed of trust on the Indianapolis property and the balance of the $1,640,000 mortgage, less an $80,000
prepayment discount on the Memphis property. There is a $1,440,000 mortgage on the Indianapolis property and a $872,000 mortgage on the Memphis property. These mortgages have a 10 year amortization with a 6% per annum interest rate secured by the
property and the personal guarantee of Mr. Lowrie.



In July
2003, VCG entered into a Line of Credit and Security Agreement whereby VCG obtained a $225,000 short-term credit facility that expires in July, 2004 and bears interest at 6.5% per annum. In connection with the Line of Credit, VCG issued the lender
7,500 shares of VCGs common stock valued at $3.00 per share. The Company had drawn $225,000 on the line of credit by March 31, 2004.



In April 2003, VCG entered into a line of credit with a bank for $350,000 that expires in January, 2004 and bears an interest rate of 6% per annum. The
line of credit is guaranteed by Lowrie Management LLLP and the proceeds were used to reduce the advance from Lowrie Management LLLP. The Company has paid the line off and entered into a new arrangement that provides a line of credit of $850,000 in
December 2003. The terms are similar to the old line of credit and VCG had drawn $670,381 at December 31, 2003. The note is due December 2004. At March 31, 2004 the balance draw on the line is $850,000.



Management believes the operations of VCG together with the lines of credit
and purchase debt funding will provide adequate liquidity to meet its working capital needs for the next twelve months and will allow for expansion.



VCG has identified acquisition candidates and has entered into discussions with some of the candidates. These discussions are continuing. VCG has one
acquisition probable at this time. Accordingly, we have one material capital commitments for an acquisition. VCG signed a letter of intent in February 2004 to purchase 100% of the outstanding stock of Classic Affairs, Inc. (Classic). Classic owns
and operates a premium adult nightclub in downtown Minneapolis, Minnesota under the name of Schieks Palace Royale. Under the terms of the agreement, VCG will acquire 100% of outstanding common shares of Classic. The purchase price will be made up of
cash, preferred stock, long-term notes and common stock with options. The allocation of the source of funds will be finalized in the definitive agreement to be signed upon approval of the transfer of the liquor license in late April. In addition to
the business, VCG retains an option to



21



---

purchase the real estate. The real estate used by Schieks Palace Royale was a federal reserve bank and is registered as a
federal historic landmark. VCG anticipates closing under the definitive agreement within one week of the liquor license transfer in early May.



Because of the large volume of cash handled by VCG, we have implemented stringent cash controls. We use software developed for us which compares operating
data on a historical, current and projected basis. Management believes that it will be able to duplicate the financial controls that exist at its current locations at future locations, and that these controls will provide sufficient safeguards to
protect the interests of VCG.



In the event the adult
entertainment nightclub industry is required to convert entertainers from independent contractors to employees, VCG has prepared alternative plans that management believes will protect the profitability of VCG. In addition, management believes that
the industry standard of treating the entertainers as independent contractors provides sufficient safe harbor protection to preclude any tax assessment for prior years payroll taxes.



Recent accounting pronouncements



In July 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) Nos. 141 and 142 Business Combinations and Goodwill and other Intangible Assets. Statement 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method.
Under the guidance of Statement 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value base test. VCG adopted this
statement on April 30, 2002. The adoption of this statement did not have a material effect on the financial position or results of operations of VCG, as no adjustment was needed at December 31, 2002.



In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value, less cost to sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. VCG adopted SFAS 144 effective January 1, 2002. The adoption of this statement did not have a
material impact on its consolidated financial statements.



In
November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that a
liability be recorded for the fair market value of the obligation in the guarantors balance sheet upon issuance of a guarantee. In addition, FIN 45 requires certain disclosures about each of the entitys guarantees. The discloser
provisions of FIN 45 are effective foe annual and interim periods after December 31, 2002. The recognition provisions of FIN 45 are applicable prospectively to guarantees entered after December 31, 2002. The adoption of FIN 45 effective January 1,
2003 did not have a material effect on the Companys results of operations or financial postion.



22



---

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No.150). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of
both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the first interim period beginning after June 15, 2003, with certain exceptions. The
adoption of SFAB No. 150, effective July 1, 2003, did not have a material effect on the Companys results of operations or financial position.



23



---

Item 7. Financial Statements



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



The Board of
Directors

VCG Holding Corp.

Denver, Colorado



We have audited the accompanying consolidated balance sheets of VCG Holding Corp. and
subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the
companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements, referred to above, present fairly, in
all material respects, the financial position of VCG Holding Corp. and subsidiaries as of December 31, 2003 and 2002 and the results of their operations, and their cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.



Causey Demgen or Moore Inc



Denver, Colorado

April 9, 2004



24



---

VCG Holding Corp.

Consolidated Balance Sheets



|                                             |  |              |            |   |      |   |            |  
|-------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                             |  | December 31, |           
|                                             |  | 2003         |            |   | 2002 |  
|Assets                                       |  |              |            |   |      |   |            |  
|Current Assets                               |  |              |            |   |      |   |            |  
|Cash & cash equivalents                      |  | $            | 366,654    |   |      | $ | 432,697    |  
|Other receivables - includes related parties |  |              | 2,857,580  |   |      |   | 95,487     |  
|Inventories                                  |  |              | 41,907     |   |      |   | 23,574     |  
|Prepaid expenses                             |  |              | 193,433    |   |      |   | 16,602     |  
|                                             |  |              |            |   |      |   |            |  
|Total Current Assets                         |  |              | 3,459,574  |   |      |   | 568,360    |  
|                                             |  |              |            |   |      |   |            |  
|Equipment and Leasehold Improvements         |  |              |            |   |      |   |            |  
|Land                                         |  |              | 831,225    |   |      |   | 530,340    |  
|Buildings                                    |  |              | 8,398,972  |   |      |   | 5,278,240  |  
|Equipment                                    |  |              | 624,817    |   |      |   | 155,173    |  
|Furniture & Fixtures                         |  |              | 149,483    |   |      |   | 131,478    |  
|Signs                                        |  |              | 22,688     |   |      |   | 18,431     |  
|Leasehold improvements                       |  |              | 513,890    |   |      |   | 295,239    |  
|Less accumulated depreciation                |  |              | (416,647   | ) |      |   | (191,745   | )
|                                             |  |              |            |   |      |   |            |  
|Net equipment and leasehold improvements     |  |              | 10,124,428 |   |      |   | 6,217,156  |  
|                                             |  |              |            |   |      |   |            |  
|Other Assets                                 |  |              |            |   |      |   |            |  
|Deposits                                     |  |              | 46,956     |   |      |   | 13,183     |  
|License Costs                                |  |              | 145,838    |   |      |   |           |  
|Loan Fees, net                               |  |              | 228,943    |   |      |   | 13,500     |  
|Goodwill                                     |  |              | 3,909,380  |   |      |   | 3,809,380  |  
|Plans and drawings                           |  |              | 139,943    |   |      |   | 55,431     |  
|Construction period interest and taxes       |  |              | 238,401    |   |      |   |           |  
|Deferred offering costs                      |  |              | 10,751     |   |      |   | 103,821    |  
|Investments                                  |  |              | 186,998    |   |      |   | 41,298     |  
|                                             |  |              |            |   |      |   |            |  
|Total Other Assets                           |  |              | 4,907,210  |   |      |   | 4,036,613  |  
|                                             |  |              |            |   |      |   |            |  
|Total Assets                                 |  | $            | 18,491,212 |   |      | $ | 10,822,129 |  
|                                             |  |              |            |   |      |   |            |  
|Liabilities and Stockholders Equity         |  |              |            |   |      |   |            |  
|Current Liabilities                          |  |              |            |   |      |   |            |  
|Accounts payable - trade                     |  | $            | 92,897     |   |      | $ | 100,481    |  
|Accrued expenses                             |  |              | 718,905    |   |      |   | 424,214    |  
|Due to related parties                       |  |              |           |   |      |   | 1,320,000  |  
|Income taxes payable                         |  |              | 79,012     |   |      |   | 84,126     |  
|Current portion of capitalized lease         |  |              | 112,140    |   |      |   | 94,773     |  
|Current portion of long-term debt            |  |              | 2,331,018  |   |      |   | 1,608,747  |  
|                                             |  |              |            |   |      |   |            |  
|Total current liabilities                    |  |              | 3,333,972  |   |      |   | 3,632,341  |  
|                                             |  |              |            |   |      |   |            |  
|Long-term Debt                               |  |              |            |   |      |   |            |  
|Deferred income taxes                        |  |              | 86,346     |   |      |   |           |  
|Capitalized lease                            |  |              | 1,184,403  |   |      |   | 1,259,342  |  
|Long-term debt                               |  |              | 6,348,724  |   |      |   | 959,753    |  
|                                             |  |              |            |   |      |   |            |  
|Total long-term debt                         |  |              | 7,619,473  |   |      |   | 2,219,095  |  
|                                             |  |              |            |   |      |   |            |  
|Stockholders Equity                         |  |              |            |   |      |   |            |  
|Common stock                                 |  |              | 798        |   |      |   | 624        |  
|Paid-in capital                              |  |              | 6,474,570  |   |      |   | 4,501,012  |  
|Retained earnings                            |  |              | 1,062,399  |   |      |   | 469,057    |  
|                                             |  |              |            |   |      |   |            |  
|Total stockholders equity                   |  |              | 7,537,767  |   |      |   | 4,970,693  |  
|                                             |  |              |            |   |      |   |            |  
|Total Liabilities and Stockholders Equity   |  | $            | 18,491,212 |   |      | $ | 10,822,129 |  
|                                             |  |              |            |   |      |   |            |  



The
accompanying notes are an integral part of the financial statements.



25



---

VCG Holding Corp.

Consolidated Statements of Income

For the years ended,



|                                         |  |              |           |   |      |   |           |  
|---------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                         |  | December 31, |          
|                                         |  | 2003         |           |   | 2002 |  
|Revenues                                 |  |              |           |   |      |   |           |  
|Sales of Alcoholic beverages             |  | $            | 2,588,706 |   |      | $ | 1,978,192 |  
|Sales of food and merchandise            |  |              | 223,281   |   |      |   | 149,587   |  
|Service revenue                          |  |              | 1,391,566 |   |      |   | 1,009,610 |  
|Other                                    |  |              | 4,888,298 |   |      |   | 4,184,734 |  
|                                         |  |              |           |   |      |   |           |  
|Total Revenue                            |  |              | 9,091,851 |   |      |   | 7,322,123 |  
|                                         |  |              |           |   |      |   |           |  
|Operating Expenses                       |  |              |           |   |      |   |           |  
|Cost of goods sold                       |  |              | 605,543   |   |      |   | 428,755   |  
|Salaries and wages                       |  |              | 4,449,277 |   |      |   | 4,075,971 |  
|Management fee                           |  |              |          |   |      |   |          |  
|Other general and administrative         |  |              |           |   |      |   |           |  
|Taxes and permits                        |  |              | 420,813   |   |      |   | 364,162   |  
|Charge card and bank fees                |  |              | 69,829    |   |      |   | 49,129    |  
|Rent                                     |  |              | 73,977    |   |      |   | 147,427   |  
|Legal and professional                   |  |              | 257,576   |   |      |   | 210,951   |  
|Advertising and marketing                |  |              | 334,081   |   |      |   | 316,935   |  
|Other                                    |  |              | 1,334,474 |   |      |   | 813,121   |  
|Write-down goodwill to market            |  |              |          |   |      |   | 594,782   |  
|Depreciation & amortization              |  |              | 252,257   |   |      |   | 142,478   |  
|                                         |  |              |           |   |      |   |           |  
|Total Operating Expenses                 |  |              | 7,797,827 |   |      |   | 7,143,711 |  
|                                         |  |              |           |   |      |   |           |  
|Income from operations                   |  |              | 1,294,024 |   |      |   | 178,412   |  
|                                         |  |              |           |   |      |   |           |  
|Other income (expenses)                  |  |              |           |   |      |   |           |  
|Interest expense                         |  |              | (360,238  | ) |      |   | (179,039  | )
|Interest income                          |  |              | 76,772    |   |      |   | 4,554     |  
|Unrealized gain on marketable securities |  |              | 3,085     |   |      |   |          |  
|Other                                    |  |              |          |   |      |   |          |  
|                                         |  |              |           |   |      |   |           |  
|Total Other Income (Expenses)            |  |              | (280,381  | ) |      |   | (174,485  | )
|                                         |  |              |           |   |      |   |           |  
|Net income before income taxes           |  |              | 1,013,643 |   |      |   | 3,927     |  
|                                         |  |              |           |   |      |   |           |  
|Income tax expense  current             |  |              | 250,257   |   |      |   | 157,776   |  
|Income tax expense - deferred            |  |              | 86,347    |   |      |   |          |  
|                                         |  |              |           |   |      |   |           |  
|Total income taxes                       |  |              | 336,604   |   |      |   | 157,776   |  
|                                         |  |              |           |   |      |   |           |  
|Net income                               |  | $            | 677,039   |   |      | $ | (153,849  | )
|                                         |  |              |           |   |      |   |           |  
|Basis income per common share            |  | $            | .10       |   |      | $ | (0.04     | )
|                                         |  |              |           |   |      |   |           |  
|Weighted average shares outstanding      |  |              | 7,070,760 |   |      |   | 4,364,310 |  
|                                         |  |              |           |   |      |   |           |  



The
accompanying notes are an integral part of the financial statements.



26



---

VCG Holding Corp.

Consolidated Statement of Stockholders Equity

For the years ended December 31, 2003 and 2002



|                                                                           |  |                 |  |              |   |                            |           |        |                   |     |  |                            |           |   |  |   |           |   |  |   |           |  
|-------------------------------------------------------------------------- |  | --------------- |  | ------------ | - | -------------------------- | --------- | ------ | ----------------- | --- |  | -------------------------- | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                                                           |  | Preferred Stock |  | Common Stock |   | Additional Paid-in Capital |           |        | Retained Earnings |     |  | Total Stockholders Equity |          
|                                                                           |  | Shares          |  | Amount       |   | Shares                     |           | Amount |                   |     | 
|Balances, December 31, 2001                                                |  |                |  | $            |  |                            | 1,750,000 |        | $                 | 175 |  | $                          | 11,461    |   |  | $ | (9,628    | ) |  | $ | 2,008     |  
|Sales of common stock for cash                                             |  |                 |  |              |   |                            | 2,100,000 |        |                   | 210 |  |                            | 2,099,790 |   |  |   |          |   |  |   | 2,100,000 |  
|Issuance of common stock to acquire:                                       |  |                 |  |              |   |                            |           |        |                   |     |  |                            |           |   |  |   |           |   |  |   |           |  
|Assets and liabilities of Indy of Colorado, Ltd.                           |  |                 |  |              |   |                            | 1,590,000 |        |                   | 159 |  |                            | 1,589,841 |   |  |   |          |   |  |   | 1,590,000 |  
|Stock of Tennessee Restaurant Concepts, Inc.                               |  |                 |  |              |   |                            | 604,800   |        |                   | 60  |  |                            | 604,740   |   |  |   |          |   |  |   | 604,800   |  
|Purchase of Tennessee building                                             |  |                 |  |              |   |                            | 195,200   |        |                   | 20  |  |                            | 195,180   |   |  |   |          |   |  |   | 195,200   |  
|Loss for year ended, December 31, 2002                                     |  |                |  |              |  |                            |          |        |                   |    |  |                            |          |   |  |   | (153,849  | ) |  |   | (153,849  | )
|Prior loss on Tennessee (January 1, 2002 to June 30, 2002)                 |  |                 |  |              |   |                            |           |        |                   |     |  |                            |           |   |  |   | 581,788   |   |  |   | 581,788   |  
|Equity of IEC, Inc. at December 31, 2002                                   |  |                |  |              |  |                            |          |        |                   |    |  |                            |          |   |  |   | 50,746    |   |  |   | 50,746    |  
|                                                                           |  |                 |  |              |   |                            |           |        |                   |     |  |                            |           |   |  |   |           |   |  |   |           |  
|Balances, December 31, 2002                                                |  |                |  | $            |  |                            | 6,240,000 |        | $                 | 624 |  | $                          | 4,501,012 |   |  | $ | 469,057   |   |  | $ | 4,970,693 |  
|Issuance of common stock in connection with the receipt of lines of credit |  |                |  |              |  |                            | 70,833    |        |                   | 7   |  |                            | 212,493   |   |  |   |          |   |  |   | 212,500   |  
|Issuance of common stock in connection with the payment for legal services |  |                |  |              |  |                            | 45,957    |        |                   | 4   |  |                            | 79,366    |   |  |   |          |   |  |   | 79,370    |  
|Issuance of common stock in connection with the payment for services       |  |                |  |              |  |                            | 115,000   |        |                   | 12  |  |                            | 202,488   |   |  |   |          |   |  |   | 202,500   |  
|Issuance of common stock in connection with the conversion of debt         |  |                |  |              |  |                            | 1,400,000 |        |                   | 140 |  |                            | 1,399,860 |   |  |   |          |   |  |   | 1,400,000 |  
|Deferred offering costs                                                    |  |                |  |              |  |                            |          |        |                   |    |  |                            | (149,945  | ) |  |   |          |   |  |   | (149,945  | )
|Sale of common stock for cash                                              |  |                |  |              |  |                            | 100,000   |        |                   | 10  |  |                            | 214,990   |   |  |   |          |   |  |   | 215,000   |  
|Issuance of stock to acquire IEC, Inc.                                     |  |                |  |              |  |                            | 4,769     |        |                   | 1   |  |                            | 14,306    |   |  |   | (14,307   | ) |  |   |          |  
|IEC distributions                                                          |  |                |  |              |  |                            |          |        |                   |    |  |                            |          |   |  |   | (69,390   | ) |  |   | (69,390   | )
|Income for year ended, December 31, 2003                                   |  |                |  |              |  |                            |          |        |                   |    |  |                            |          |   |  |   | 677,039   |   |  |   | 677,039   |  
|                                                                           |  |                 |  |              |   |                            |           |        |                   |     |  |                            |           |   |  |   |           |   |  |   |           |  
|Balances, December 31, 2003                                                |  |                |  | $            |  |                            | 7,976,559 |        | $                 | 798 |  | $                          | 6,474,570 |   |  | $ | 1,062,399 |   |  | $ | 7,537,767 |  
|                                                                           |  |                 |  |              |   |                            |           |        |                   |     |  |                            |           |   |  |   |           |   |  |   |           |  



The
accompanying notes are an integral part of the financial statements



27



---

VCG Holding Corp.

Consolidated Statements of Cash Flow

For the years ended,



|                                                                                  |  |              |            |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ----------- | -
|                                                                                  |  | December 31, |           
|                                                                                  |  | 2003         |            |   | 2002 |  
|Net income (loss)                                                                 |  | $            | 677,039    |   |      | $ | (153,849    | )
|Adjustments to reconcile net income to net cash provided by operating activities: |  |              |            |   |      |   |             |  
|Depreciation and amortization                                                     |  |              | 252,257    |   |      |   | 144,758     |  
|Write-down of goodwill to market                                                  |  |              |           |   |      |   | 594,782     |  
|(Increase) decrease in other receivables                                          |  |              | (1,526,866 | ) |      |   | 141,684     |  
|(Increase) in inventory                                                           |  |              | (18,333    | ) |      |   | (5,462      | )
|(Increase) in prepaid expenses                                                    |  |              | (82,819    | ) |      |   | (2,051      | )
|(Gain) on unrealized marketable securities                                        |  |              | (3,085     | ) |      |   |            |  
|Increase (decrease) in trade accounts payable                                     |  |              | (7,584     | ) |      |   | 68,084      |  
|(Decrease) in bank overdraft                                                      |  |              |           |   |      |   | (54,426     | )
|Increase (decrease) in income taxes payable                                       |  |              | (51,081    | ) |      |   | 78,545      |  
|Increase in deferred income taxes payable                                         |  |              | 86,346     |   |      |   |            |  
|Increase (decrease) in accrued expenses                                           |  |              | 287,651    |   |      |   | (118,690    | )
|                                                                                  |  |              |            |   |      |   |             |  
|Net cash provided by operating activities                                         |  |              | (386,475   | ) |      |   | 693,375     |  
|                                                                                  |  |              |            |   |      |   |             |  
|Investing Activities                                                              |  |              |            |   |      |   |             |  
|Investments                                                                       |  |              | (186,998   | ) |      |   | (849,688    | )
|Purchase of fixed assets                                                          |  |              | (1,763,312 | ) |      |   | (5,993,558  | )
|Issuance of note receivable                                                       |  |              | (1,300,000 | ) |      |   |            |  
|Purchase of goodwill and non compete agreement                                    |  |              | (100,000   | ) |      |   | (3,279,998  | )
|Deposits                                                                          |  |              | (33,773    | ) |      |   | (3,458      | )
|Investment in plans and drawings                                                  |  |              | (84,512    | ) |      |   | (55,431     | )
|Investment in licenses                                                            |  |              | (145,838   | ) |      |   |            |  
|Construction period interest and taxes                                            |  |              | (218,401   | ) |      |   |            |  
|                                                                                  |  |              |            |   |      |   |             |  
|Net cash used by investing activities                                             |  |              | (3,832,834 | ) |      |   | (10,182,133 | )
|                                                                                  |  |              |            |   |      |   |             |  
|Financing Activities                                                              |  |              |            |   |      |   |             |  
|Deferred offering costs                                                           |  |              | (56,875    | ) |      |   | (103,821    | )
|Cost of loan fee                                                                  |  |              | (50,298    | ) |      |   | (15,000     | )
|Proceeds from capitalized lease                                                   |  |              | 37,200     |   |      |   | 1,421,628   |  
|Payment on capitalized lease                                                      |  |              | (94,773    | ) |      |   | (67,512     | )
|Proceeds from mortgage payable                                                    |  |              | 6,598,224  |   |      |   | 2,640,000   |  
|Payments on mortgage payable                                                      |  |              | (3,489,059 | ) |      |   | (71,501     | )
|Loan from related party                                                           |  |              | 602,077    |   |      |   | 1,401,450   |  
|Distribution                                                                      |  |              | (41,298    | ) |      |   | (12,042     | )
|Related party payments                                                            |  |              | (1,400,000 | ) |      |   | (121,579    | )
|Proceeds from capital contributions                                               |  |              | 2,048,068  |   |      |   | 4,489,551   |  
|                                                                                  |  |              |            |   |      |   |             |  
|Net cash provided by financing activities                                         |  |              | 4,153,266  |   |      |   | 9,561,623   |  
|                                                                                  |  |              |            |   |      |   |             |  
|Net increase (decrease) in cash                                                   |  |              | (66,043    | ) |      |   | 72,865      |  
|Cash beginning of year                                                            |  |              | 432,697    |   |      |   | 359,832     |  
|                                                                                  |  |              |            |   |      |   |             |  
|Cash end of year                                                                  |  | $            | 366,654    |   |      | $ | 432,697     |  
|                                                                                  |  |              |            |   |      |   |             |  
|Interest Paid                                                                     |  | $            | 528,818    |   |      | $ | 158,836     |  
|                                                                                  |  |              |            |   |      |   |             |  
|Income Taxes Paid                                                                 |  | $            | 176,886    |   |      | $ | 75,000      |  
|                                                                                  |  |              |            |   |      |   |             |  

|                                                                                                                                                                                                    |  |  |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Supplemental disclosure of non-cash investing and financing activities:                                                                                                                            
|During 2002, the Company acquired the stock of Platinum and the assets of Indy for the Companys common stock. The Company
also entered into a capital lease for a building recorded at $1,421,628.
|During 2003, the Company paid $212,500 for loan fees in Common Stock.                                                                                                                              
|During 2003, the Company paid $79,370 for legal fees in Common Stock.                                                                                                                              
|During 2003, the Company paid $202,500 for services in Common Stock                                                                                                                                
|During 2003, the Company received $2,400,000 in seller financing for the purchase of a building.                                                                                                   





The accompanying notes are an integral part of the financial statements.



28



---

VCG Holding Corp

Notes To Consolidated Financial Statements

For the years ended December 31, 2003 and 2002



|1) | Organization
|-- | ------------



The Company was organized on May 16, 1989 for the purpose of engaging in any lawful business, but it was managements plan to seek a business
combination. On November 1, 1995, the Company was administratively dissolved by the Colorado Secretary of State due to no renewal of the required corporate report. Effective January 8, 1998, the Company reincorporated for the purpose of carrying on
the business of the old corporation. Until January 8, 1998, the Company was a wholly owned subsidiary of Vanden Capital Group, Inc.



The Company reincorporated as a Colorado corporation in December 1998. The Company in April 2002 came under new management and is in the business of
acquiring, owning and operating nightclubs which provide premium quality live adult entertainment, restaurant and beverage services in an up-scale environment to affluent patrons. The Company owns and operates three nightclubs located in suburbs of
Memphis, Tennessee; Indianapolis, Indiana; and, East St. Louis, Illinois.



In April 2002, the Companys current management and their affiliates purchased 1,236,428 shares of the Companys previously issued and outstanding common stock from the former officers and directors of the
Company. This transaction resulted in a change of control of the Company.



In April 2002, an entity affiliated with the new Chairman of the Company purchased 1,585,000 shares of common stock from the Company for $1,585,000. In addition, the Company sold 515,000 shares of common stock for
$515,000 in a private placement.



On April 30, 2002, the
Company acquired for $2,000,000 all of the outstanding capital stock of Platinum of Illinois, Inc., an Illinois corporation (Platinum). The purchase included a lease that has been capitalized and guaranteed by the Companys Chairman. The lease
was transferred to a wholly-owned subsidiary, VCG Real Estate Holdings, Inc. (VCGRE).



On May 1, 2002, the Company contracted with an affiliate of the new management to manage operations.



On May 8, 2002, the Company formed a wholly-owned subsidiary, Indy
Restaurant Concepts, Inc. (INDY), an Indiana Corporation. In June 2002 the Company acquired and transferred into INDY all of the assets and liabilities of Indy of Colorado Ltd., a Colorado limited partnership. The assets were valued at
$1,590,000 and acquired for 1,590,000 shares of the Companys common stock.



29



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|1) | Organization (Continued)
|-- | ------------------------



In June 2002, VCGRE purchased the building that INDY leases space. VCGRE paid $2,550,000 for the building and land. The property has a mortgage of
$1,000,000 from a bank and is guaranteed by the Chairman of the Company. In addition a company affiliated with the Companys Chairman, provided a $1,400,000 credit facility, which was used to partially fund the purchase of the building and
land.



On June 30, 2002, the Company acquired all of the
outstanding capital stock of Tennessee Restaurant Concepts, Inc., a Tennessee corporation (TRC), which was valued at $604,800 for 604,800 shares of the Companys common stock. TRC was owned 100% by an affiliate of the Company and
therefore is treated as being under common control with the Company.



On June 30, 2002, VCGRE acquired, from Tennessee Restaurant Concepts II, LP, the 14,000 square foot building used entirely by TRC. The purchase price consisted of the assumption of the $1,640,000 mortgage on the property and 195,200 shares
of the Companys common stock at $1.00 per share. The mortgage has been guaranteed by its Chairman.



In May 2003, VCG RE purchased a building, land and adult entertainment license in Phoenix, Arizona, where VCG intends to locate additional club. The
purchase price of $3,800,000 was paid in $1,400,000 cash and a $2,400,000 mortgage on the property. The cash portion of the purchase price was paid from: (a) VCGs cash flow; (b) drawing down the available $80,000 credit on the long-term credit
facility; and (c) drawing down the entire $1,200,000 short-term credit facility. In addition VCG purchased the entire interest in the Epicurean Enterprises, LLC. The asset of Epicurean is the liquor and entertainment license for the location
purchased in Phoenix, AZ; VCG paid $100,000 for the Epicurean



On October 1, 2003 VCG purchased 100% of the outstanding common stock of International Entertainment Consultants, Inc. (IEC) in consideration for the issuance of 4,769 shares of the Companys restricted common stock to Troy
H. Lowrie, the Chairman of the Board and Chief Executive Officer of the Company, valued at $14,307 ($3.00 per share). IEC was owned 100% by an affiliate of the Company and therefore is treated as being under common control with the Company.



|2) | Summary of Accounting Policies
|-- | ------------------------------



Principles of Consolidation



The consolidated financial statements include the accounts of the Company and its subsidiaries and Platinum of Illinois, Incorporated; from May 1, 2002,
Indy Restaurant Concepts, Inc.: from July 1, 2002, Tennessee Restaurant Concepts, Inc.; for all periods presented, Epicurean Enterprises, LLC.; from May 1, 2003, International Entertainment Consultants, Inc.; for all periods presented, and VCG Real
Estate Holding, Inc. from date of inception (July 3, 2002). All significant inter-company balances and transactions are eliminated in the consolidation. The Company has elected to report consolidated operations under the guidance of ARB 51 for
consolidated companies.



The 2002 Financial Statements have
been restated for the acquisition of IEC, a Company under common control. The effect of the restatement was to increase revenues by $3,694,319 and reduce the net loss by $32,952.



30



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|2) | Summary of Accounting Policies (Continued)
|-- | ------------------------------------------



Net Income Per Common Share



Net Income per share is computed by dividing net income by the weighted average number of shares outstanding during the years, after giving retroactive
effect to the reorganization transaction, the reverse split of shares and the combination and acquisitions as explained in notes 1 & 3.



The Company computes net income per common share in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128). SFAS 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings per share reflects the potential dilution of securities that could share in the earnings of the Company. The accompanying presentation is of basic earnings per share because dilutive earnings per
share is the same as basic.



Use of Estimates in the
Preparation of Financial Statements



Preparation of the
Companys financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting periods. Accordingly, actual results could differ from those estimates.



Cash Equivalents



For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.



Inventories



Inventories, consisting principally of liquor and food products, are stated at the lower of cost or market (first-in, first-out method).



Property and Equipment



Property and equipment are stated at cost. Cost of property renovations or
improvements are capitalized; costs of property maintenance and repairs are charged against operations as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets, as follows:



|                               |  |           
|------------------------------ |  | ----------
|Building and improvements      |  | 40 years  
|Leasehold improvements         |  | 7-15 years
|Equipment, furniture and signs |  | 5-7 years 



31



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|2) | Summary of Accounting Policies (Continued)
|-- | ------------------------------------------



Revenue Recognition



The Company recognizes all revenues at point-of-sale upon receipt of cash, check or charge card sale. VIP Room Memberships are amortized into revenue over
the one year period of membership.



32



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|2) | Summary of Accounting Policies (Continued)
|-- | ------------------------------------------



Stock Options



Effective May 1, 2002, the Company adopted the disclosure only provisions of SFAS No. 123, Accounting for Stock-Based Compensation(SFAS
123). SFAS 123 establishes a fair value based method of accounting for stock-based employee compensation plans; however, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.



Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to
acquire the stock. The Company has elected to continue to account for its employee stock compensation plans under APB Opinion No. 25. As no options were issued during 2002 or 2003 SFAS 123 did not have any effect on the Companys financial
statements.



Goodwill



The Company adopted the Statement of Financial Accounting Standards
(SFAS) Nos. 141 and 142 Business Combinations and Goodwill and other Intangible Assets on April 30, 2002. Statement 141 requires all business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under the guidance of Statement 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value base
test. The adoption of this statement did not have a material effect on the financial position or results of operations of the Company, as no adjustment was needed at December 31, 2003 and 2002.



33



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|2) | Summary of Accounting Policies (Continued)
|-- | ------------------------------------------



Goodwill (Continued)



The consolidated companies reflected a write down of the goodwill on the books of TRC before the acquisition by the Company. The charge to earnings was
accounted for as an ordinary charge of $594,782 against the December 31, 2002 earnings. The amount of the charge was determined by an independent business valuation prepared for the purpose of the acquisition by the Company and the adoption of SFAS
141 and 142. An additional impairment was recorded on the fair market value of the consideration paid by the Company to acquire TRC.



Impaired Assets



In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Requirement Obligations. SFAS No. 143 requires the fair value of a liability for an
asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS
No. 143 is effective December 31, 2002 for the Company. The adoption of this statement had no material impact on its consolidated financial statements.



In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that those long-lived
assets be measured at the lower of carrying amount or fair value, less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or
include amounts for operating losses that have not yet occurred. The Company adopted SFAS 144 on January 1, 2002. The adoption of this statement did not have a material impact on its consolidated financial statements.



Accounting Pronouncements



In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that a liability be recorded for the fair market value of the
obligation in the guarantors balance sheet upon issuance of a guarantee. In addition, FIN 45 requires certain disclosures about each of the entitys guarantees. The discloser provisions of FIN 45 are effective foe annual and interim
periods after December 31, 2002. The recognition provisions of FIN 45 are applicable prospectively to guarantees entered after December 31, 2002. The adoption of FIN 45 effective January 1, 2003 did not have a material effect on the Companys
results of operations or financial postion.



In May 2003, the
FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (SFAS No.150). This statement establishes standards for how an
issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for the
first interim period beginning after June 15, 2003, with certain exceptions. The adoption of SFAB No. 150, effective July 1, 2003, did not have a material effect on the Companys results of operations or financial position.



|3) | Acquisitions
|-- | ------------



On April 30, 2002, the Company acquired all of the outstanding capital stock of Platinum of Illinois, Inc., an Illinois corporation
(Platinum), for $2,000,000 cash. The acquisition of Platinum was accounted for by the purchase method of accounting; therefore the operations of Platinum have been included in the accompanying statements of operations since the date of
acquisition. Platinum is operated as a wholly owned subsidiary. The purchase price and adjustments to the historical book values of Platinum are as follows:



|                                                  |  |   |           |  
|------------------------------------------------- |  | - | --------- | -
|Fair value of inventory acquired                  |  | $ | 6,622     |  
|Fair values of property and equipment             |  |   | 78,586    |  
|Less, liabilities assumed                         |  |   | (2,104    | )
|Excess cost over fair values assigned to goodwill |  |   | 1,916,896 |  
|                                                  |  |   |           |  
|Purchase price                                    |  | $ | 2,000,000 |  
|                                                  |  |   |           |  



34



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|3) | Acquisitions (Continued)
|-- | ------------------------



On June 30, 2002, the Company acquired all of the assets and liabilities of Indy of Colorado Ltd., an Indiana Limited Partnership., as discussed in Note
4. The acquisition of Indy of Colorado Ltd. was accounted for by the purchase method of accounting; therefore the operations of Indy of Colorado Ltd. have been included in the accompanying statements of operations since the date of acquisition. The
operations are included as Indy Restaurant Concepts, Inc. Under purchase accounting, the purchase price was allocated to the assets acquired based on their fair values. Consideration for the purchase was 1,590,000 shares of Company common stock
valued at their fair market value of $1,590,000. (Note 4)



All
of the assets acquired and liabilities assumed were contributed to a wholly owned subsidiary of the Company, Indy and operates PTs Showclub in Indianapolis, Indiana. The purchase price and adjustments to the historical book values of Indy are
as follows:



|                                                  |  |   |           |  
|------------------------------------------------- |  | - | --------- | -
|Fair value of cash and other current assets       |  | $ | 29,749    |  
|Fair value of inventory acquired                  |  |   | 8,118     |  
|Fair values of property and equipment             |  |   | 160,907   |  
|Less, liabilities assumed                         |  |   | (17,706   | )
|Excess cost over fair values assigned to goodwill |  |   | 1,408,932 |  
|                                                  |  |   |           |  
|Purchase price                                    |  | $ | 1,590,000 |  
|                                                  |  |   |           |  



On June 30, 2002, the
Company acquired all of the outstanding capital stock of Tennessee Restaurant Concepts, Inc., a Tennessee corporation. The acquisition of TRC was accounted for as an acquisition of an entity under common control; therefore the operations of TRC have
been included in the accompanying statements of operations for the entire year ended December 31, 2002. Consideration for the purchase was 604,800 shares of Company common stock valued at their fair market value of $604,800. TRC is operated as a
wholly owned subsidiary of the Company and operates PTs Showclub in Memphis, Tennessee.



The purchase price and adjustments to the historical book values of TRC are as follows:



|                                                  |  |   |         |  
|------------------------------------------------- |  | - | ------- | -
|Book value of cash and other current assets       |  | $ | 24,584  |  
|Book value of inventory acquired                  |  |   | 5,200   |  
|Book value of property and equipment              |  |   | 108,351 |  
|Book value of other assets                        |  |   | 9,725   |  
|Less, liabilities assumed                         |  |   | (26,612 | )
|Excess cost over fair values assigned to goodwill |  |   | 483,552 |  
|                                                  |  |   |         |  
|Purchase price                                    |  | $ | 604,800 |  
|                                                  |  |   |         |  



35



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|3) | Acquisitions (Continued)
|-- | ------------------------



The following transactions were acquisitions of VCG Real Estate Holdings, Inc. a wholly owned subsidiary of the Company:



In May 2002, as part of the purchase of Platinum, the Company acquired a
five year lease on the 9,000 square foot building and land on which Platinum is located for base rent of $900,000, which is to be paid in monthly installments of $15,000. At the end of the five year term, the Company has the option to pay $900,000
as a final installment on the purchase of the building and land. The Company has elected to capitalize this lease under FASB 13 as discussed in Note 6. The value of the building and land under the lease is $1,421,628.



On June 30, 2002 as part of the acquisition of TRC, VCGRE acquired the
14,000 square foot building in which TRC is located. The purchase price consisted of the assumption of the $1,640,000 mortgage on the property and 195,200 shares of the Companys common stock valued at $195,200. The total value of the building
and land is $1,835,200 as discussed in Note 5.



On June 30,
2002 the building and land on which PTs Showclub in Indianapolis, Indiana is located was purchased. The Purchase Agreement for the building and land was originally between the seller and Lowrie Management and was subsequently assigned to VCG
RE. The purchase price of $2,550,000 was paid $1,550,000 in cash and a $1,000,000 mortgage. (Note 7, 8 and 9)



On May 1 2003, a building, land and adult entertainment license in Phoenix, Arizona, where VCG intends to locate additional club, was purchased for
$3,800,000 was paid in $1,400,000 cash and a $2,400,000 mortgage on the property. The cash portion of the purchase price was paid from: (a) VCGs cash flow; (b) drawing down the available $80,000 credit on the long-term credit facility; and (c)
drawing down $1,200,000 short-term credit facility. (Note 9)



On May 1 2003, the Company acquired all of the membership interest in Epicurean Enterprises, LLC. to obtain the liquor and entertainment license for the location in Phoenix, AZ and paid $100,000 for the interest. There was no book value of
Epicurean upon acquisition and the entire purchase price was assigned to goodwill.



On October 1, 2003 VCG purchased all of the outstanding common stock of International Entertainment Consultants, Inc. (IEC) in consideration for the issuance of 4,769 shares of the Companys
restricted common stock from Troy H. Lowrie, the Chairman of the Board and Chief Executive Officer of the Company, valued at $14,307 ($3.00 per share). The purchase price and adjustments to the historical book values of IEC are as follows:



|                                                  |  |   |          |  
|------------------------------------------------- |  | - | -------- | -
|Book value of cash and other current assets       |  | $ | 714,572  |  
|Book value of property and equipment              |  |   |         |  
|Less, liabilities assumed                         |  |   | (700,265 | )
|Excess cost over fair values assigned to goodwill |  |   |         |  
|                                                  |  |   |          |  
|Purchase price                                    |  | $ | 14,307   |  
|                                                  |  |   |          |  



36



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|4) | Incorporation and Change in Tax Status
|-- | --------------------------------------



Effective June 30, 2002, Indy Restaurant Concepts, Inc. was incorporated by issuing 20,000 shares of it common stock in exchange for all of the assets and
liabilities of Indy of Colorado, Ltd. an Indiana limited partnership. Those assets and liabilities were recorded in consolidated financial statements at the partnerships historical cost basis as summarized below:



Common stock of $20,000 and additional paid-in capital of $206,898 were
recorded.



|                            |  |   |         |  
|--------------------------- |  | - | ------- | -
|Current assets              |  | $ | 37,867  |  
|Property and equipment, net |  |   | 160,907 |  
|Goodwill                    |  |   | 45,830  |  
|Current liabilities         |  |   | (17,706 | )
|                            |  |   |         |  
|                            |  | $ | 226,298 |  
|                            |  |   |         |  



|5) | Transfer of Partnership Assets
|-- | ------------------------------



On June 30, 2002 VCGRE agreed to purchase the building and land owned by Tennessee Restaurant Concepts II, LP, a Tennessee limited partnership for
$1,804,504. This purchase included all of the assets of the partnership and assumed its only liability. This acquisition was treated as a sale on the books of the seller, including a gain for both financial statement and income tax purposes. There
are no income taxes recorded on the books of the Company for this transaction as the gain will be reported by the respective partners on their individual tax returns.



|6) | Obligation under Capital Lease
|-- | ------------------------------



The Company has two capital lease obligations, which is included in property in St. Louis and equipment in Indianapolis, and is summarized as follows:



|                               |  |           |           |   |              |   |       
|------------------------------ |  | --------- | --------- | - | ------------ | - | ------
|                               |  | St. Louis |           |   | Indianapolis
|Equipment                      |  | $         |          |   |              | $ | 37,200
|Land                           |  |           | 100,000   |   |              |   |      
|Building                       |  |           | 1,321,628 |   |              |   |      
|                               |  |           |           |   |              |   |       
|                               |  |           | 1,421,628 |   |              |   | 37,200
|Less Accumulated Decpreciation |  |           | (56,980   | ) |              |   |      
|                               |  |           |           |   |              |   |       
|                               |  | $         | 1,365,148 |   |              | $ | 37,200
|                               |  |           |           |   |              |   |       



The St Louis capital
lease requires a monthly payment of $15,000 including effective interest of 6.697% per annum through April 2007.



The Indianapolis capital lease requires a monthly payment of $1,225.37 including effective interest of 12.042% per annum through December 2006.



37



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|6) | Obligation under Capital Lease (Continued)
|-- | ------------------------------------------



Future minimum lease payments under capital leases at December 31, as follows:



|                                              |  |   |          
|--------------------------------------------- |  | - | ---------
|Years Ending December 31:                     |  |   |          
|2004                                          |  | $ | 194,704  
|2005                                          |  |   | 194,704  
|2006                                          |  |   | 194,706  
|2007                                          |  |   | 960,000  
|                                              |  |   |          
|                                              |  |   | 1,544,114
|Less: amount representing interest            |  |   | 247,571  
|                                              |  |   |          
|Present value of future minimum lease payment |  |   | 1,296,543
|Less: current maturities                      |  |   | 112,140  
|                                              |  |   |          
|Long-term capital lease obligation            |  | $ | 1,184,403
|                                              |  |   |          



|7) | Long-term debt
|-- | --------------



|                                                                                                                                                                                                                                                                                                                                                                                  |  |      |           |      |   |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                                                                                                                                                                                                                                                                                                                                                  |  | 2003 |           | 2002
|Long-term debt consists of the following:                                                                                                                                                                                                                                                                                                                                         |  |      |           |      |   |          
|                                                                                                                                                                                                                                                                                                                                                                                  |  |     
|5.75% mortgage loan from a bank, secured by real estate in Indianapolis, Indiana. Payable at $7,070 per month including interest, due July,
2005. After first year the interest rate is adjustable to 1 percent over seventy-five percent of the Wall Street Journal Prime Rate rounded to the near eighth of a percent. Paid off 2003 Guaranteed by the chairman of the Company. |  | $    |          |      | $ | 988,500  
|                                                                                                                                                                                                                                                                                                                                                                                  |  |     
|4% note payable to an individual secured by real estate in Memphis, Tennessee. Payable at $15,000 per month including interest, due September,
2003. The payment is allocated $5,000 to interest and $10,000 to principle reduction. Paid off 2003. Guaranteed by the chairman of the Company                                                                                     |  |      |          |      |   | 1,580,000
|                                                                                                                                                                                                                                                                                                                                                                                  |  |     
|6% mortgage loan from a bank, secured by real estate in Indianapolis, Indiana. Payable at $16,053 per month including interest, due July,
2013. After the third year the interest rate is adjustable to 1 percent over the Wall Street Journal Prime Rate rounded to the near eighth of a percent. Guaranteed by the chairman of the Company                                      |  |      | 1,395,289 |      |   |         



38



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|7) | Long-term debt (Continued)
|-- | --------------------------



|                                                                                                                                                                                                                                                                                                                                         |  |           |  |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- |  | -
|6% mortgage loan from a bank, secured by real estate in Memphis, Tennessee. Payable at $9,186 per month including interest, due July, 2013.
After the third year the interest rate is adjustable to 1 percent over the Wall Street Journal Prime Rate rounded to the near eighth of a percent. Guaranteed by the chairman of the Company |  | 798,416   |  | 
|                                                                                                                                                                                                                                                                                                                                         |  |          
|8% mortgage loan from a Company, secured by real estate in Phoenix, Arizona. Payable at $22,949 per month including interest, due June, 2018.
After the fifth year the interest rate is adjustable to 4 percent over the ten year treasury rate or twelve percent which ever is less.                                                    |  | 2,343,092 |  | 
|                                                                                                                                                                                                                                                                                                                                         |  |          
|6.5% line of credit from a Company, secured by real estate in Phoenix, Arizona. Payable at interest only monthly, due March, 2005. The line is
$1,200,000. Guaranteed by the chairman of the Company                                                                                                                                     |  | 1,200,000 |  | 
|                                                                                                                                                                                                                                                                                                                                         |  |          
|6.5% line of credit from a Individual, secured by the advance to Entertainment International, Inc. Payable interest only monthly, due May,
2004. The line is $700,000. Guaranteed by the chairman of the Company                                                                                                                         |  | 500,000   |  | 
|                                                                                                                                                                                                                                                                                                                                         |  |          
|6.5% line of credit from a Company, secured by the general assets of the Company, payable at $1,219 per month interest only, due June, 2004.
The line is $225,000. Guaranteed by the chairman of the Company                                                                                                                             |  | 225,000   |  | 
|                                                                                                                                                                                                                                                                                                                                         |  |          
|5% line of credit from a Bank, secured by the general assets of the Company, payable monthly interest only, due December, 2004. Interest rate
is adjustable to 1% over the Wall Street Journal Prime Rate. The line is $850,000. Guaranteed by the chairman of the Company                                                               |  | 670,381   |  | 
|                                                                                                                                                                                                                                                                                                                                         |  |          
|6.5% loan from a VCGD, unsecured, related to the the assets of Centerfolds, payable at $11,120 per month including interest, due June,
2006                                                                                                                                                                                              |  | 945,487   |  | 



39



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|7) | Long-term debt (Continued)
|-- | --------------------------



|                                                                                               |  |   |           |  |   |          
|---------------------------------------------------------------------------------------------- |  | - | --------- |  | - | ---------
|6% Note to a partnership controlled by the Chairman, payable upon demand including interest.   |  |   | 140,920   |  |   |         
|                                                                                               |  |  
|7.5% Note to a partnership controlled by the Chairman, payable upon demand including interest. |  |   | 461,157   |  |   |         
|                                                                                               |  |   |           |  |   |          
|                                                                                               |  |  
|Total                                                                                          |  | $ | 8,679,742 |  | $ | 2,568,500
|                                                                                               |  |  
|Less current portion long-term debt                                                            |  |   | 2,331,018 |  |   | 1,608,747
|                                                                                               |  |   |           |  |   |          
|                                                                                               |  |  
|Long-term debt                                                                                 |  | $ | 6,348,724 |  | $ | 959,753  
|                                                                                               |  |   |           |  |   |          



The
following are the maturities of the long-term:



|           |  |   |          
|---------- |  | - | ---------
|2004       |  | $ | 2,331,018
|2005       |  |   | 1,564,188
|2006       |  |   | 1,096,908
|2007       |  |   | 325,787  
|2008       |  |   | 2,163,796
|Thereafter |  |   | 1,198,045
|           |  |   |          
|           |  | $ | 8,679,742
|           |  |   |          



|8) | Income Taxes
|-- | ------------



A reconciliation of the Companys effective income tax rate and the United States statutory rate is as follows:



|                                                      |  |       |   |  |         |   
|----------------------------------------------------- |  | ----- | - |  | ------- | --
|                                                      |  | 2003  |   |  | 2002    |   
|United States statutory rate                          |  | 34.00 | % |  | 34.00   | % 
|                                                      |  |      
|State income taxes, net of Federal income tax benefit |  | 2.55  |   |  | 3.63    |   
|Illinois replacement tax                              |  |      |   |  | 8.00    |   
|Reduction by valuation allowance (used NOL)           |  |      |   |  | (4.20   | ) 
|Tax Credits                                           |  | (1.11 | ) |  |        |   
|Book to tax differences                               |  | (2.23 | ) |  | 12.57   |   
|Nondeductible prior period loss of TRC                |  |      |   |  | (598.00 | ) 
|                                                      |  |       |   |  |         |   
|                                                      |  | 33.21 | % |  | (544.00 | %)
|                                                      |  |       |   |  |         |   



The provisions for income taxes from
continuing operations consist of the following components:



|                     |  |      |         |   |      |   |         |  
|-------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                     |  | 2003 |         |   | 2002 |  
|Current tax expense  |  | $    | 261,555 |   |      | $ | 163,887 |  
|Deferred tax expense |  |      | 86,347  |   |      |   |        |  
|Other credits        |  |      | (11,298 | ) |      |   | (6,111  | )
|                     |  |      |         |   |      |   |         |  
|                     |  | $    | 336,604 |   |      | $ | 157,776 |  
|                     |  |      |         |   |      |   |         |  



40



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|9) | Due to/from Related Parties
|-- | ---------------------------



Credit Facility



In June 2002, Lowrie Management, LLLP, a company affiliated with Mr. Lowrie, provided a $1,400,000 long-term credit facility which expires in July 2007
and bears interest at 9% per annum. Debt under the credit facility was convertible at any time after June 30, 2003, at the election of the lender, into shares of the Companys common stock at $1.00 per share. This credit facility was fully
drawn to partially fund the purchase of real estate in Indianapolis, Illinois. The Company believes the credit facility to be fair and reasonable as it is on at least as favorable terms as would be available from a third party. The outstanding
balance was $1,320,000 as December 31, 2002 and the balance of $1,400,000 was converted to common stock on July 1, 2003. (Note 3 and 10)



Centerfolds Purchase



In connection with the purchase of Centerfolds nightclub in Denver from Larisa, Inc. (an unrelated third party) for $1,300,000, the Company authorized a
loan of $1,300,000 to the chairman pursuant to a promissory note, due in one year at 9% interest, secured by the stock of VCG Restaurant Denver, Inc. (VCGD) Mr. Lowrie purchased the club in the name of VCGD and will transfer VCGD to the
Company upon the approval of a liquor license for the club. Upon the approval of the liquor license, the Company will purchase VCGD by canceling the note. In the event the liquor license is not approved, the Company will have the option to purchase
VCGD or to require Mr. Lowrie pay the loan. The Company is receiving a management fee of $10,000 per month. The board has approved the exercise of the option. In addition the Company has a note to VCGD in connection with funding the $1,300,000
payment for the purchase of the nightclub. The interest accrued on the note is $68,250 at December 31, 2003. The Company borrowed $975,000 from a bank and the bank was paid off by VCGD from a loan it secured from a bank. The board agreed to continue
to pay to VCGD the same amount as the bank was receiving and the loan will be removed as part of the Companys acquisition of VCGD. The outstanding balance at December 31, 2003 was $945,487. During the fourth quarter of 2003 the Company
advanced $239,472 to VCGD to remodel. At December 31, 2003 the outstanding balance on the advance was $242,329 including interest.



Lowrie Management LLLLP Advances



During the year the Company has received advances from Lowrie Management LLLLP. These advances were used for various cash flow needs. The board agreed to
pay interest on the balances owed and the balances due are include in two notes with outstanding balances at December 31, 2003 of $140,920 and $461,157. Interest of $21,799 was accrued but unpaid at December 31, 2003.



41



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|10) | Stockholders Equity
|--- | --------------------



Description of Securities



Authorized capital stock consists of 50,000,000 shares of common stock, $.0001 value per share, and 1,000,000 shares of preferred stock, $.0001 value per
share. As of December 30, 2003 and 2002, 7,976,559 shares and 6,240,000 shares of common stock were outstanding, and no shares of preferred stock were outstanding.



Common Stock



Holders of our common stock are entitled to one vote for each share held of record on all matters on which shareholders may vote. Since our common stock
does not have cumulative voting rights, the holders of shares having more than 50% of the voting power, if they choose to do so, may elect all directors and the holders of the remaining shares would not be able to elect any directors. In the event
of a voluntary or involuntary liquidation of our company, all shareholders are entitled to a pro rata distribution of our assets remaining after payment of claims of creditors and liquidation preferences of any preferred stock. Holders of our common
stock have no conversion, redemption or sinking fund rights. All of our outstanding shares of common stock are fully paid and non-assessable.



Preferred Stock



The Board of Directors, without further action by the shareholders, is authorized to issue up to 1,000,000 shares of preferred stock in one or more
series. The board may, without shareholder approval, determine the dividend rates, redemption prices, preferences on liquidation or dissolution, conversion rights, voting rights and any other preferences. The Board has not authorized any series of
preferred stock, and there are no agreements or understandings for the issuance of any shares of preferred stock. Because of its broad discretion with respect to the creation and issuance of preferred stock without shareholder approval, the Board
could adversely affect the voting power of the holders of our common stock and, by issuing shares of preferred stock with certain voting, conversion and/or redemption rights, could delay, defer or prevent an attempt to obtain control of the Company.
The board has authorized sale of 400,000 shares of Class A Preferred. These shares will be issued in 2004 in connection with an acquisition.



Stock Option and Stock Bonus Plans



The Board adopted the 2002 Stock Option and Stock Bonus Plan as of April 23, 2002 and it was approved by our shareholders on July 22, 2002. On June 23,
2003, the Board adopted the 2003 stock option and stock bonus plan. Under the Plans, the Company may grant to designated employees, officers, directors, advisors and independent contractors incentive stock options, nonqualified stock options and
stock. By encouraging stock ownership, we seek to motivate Plan participants by allowing them an opportunity to benefit from any increased value of the Company which their individual effort, initiative, and skill help produce. As of December 31,
2003 stock bonuses of 231,790 shares had been issued under the 2002 Plan. Up to 700,000 and 250,000 shares of common stock are authorized for issuance under the 2002 and 2003 Plan, respectively.



42



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|10) | Stockholders Equity (Continued)
|--- | --------------------------------



Stock Option and Stock Bonus Plan (Continued)



If options granted under the Plan expire or are terminated for any reason without being exercised, or bonus shares are forfeited, the shares underlying
such option and/or bonus shares will become available again for issuance under the Plan.



Administration of the Plan. The compensation committee and/or the Board determines which individuals will receive grants, the type, size and terms of the grants, the time when the grants are made and the
duration of any applicable exercise or restriction period, including the criteria for vesting and the acceleration of vesting, and the total number of shares of common stock available for grants.



Eligibility for Participation. Grants may be made to employees,
officers, directors and consultants of the Company and its subsidiaries, including any non-employee member of the Board of Directors.



Options. Incentive stock options may be granted only to employees of the Company. Nonqualified stock options may be granted to employees, officers,
directors and consultants. The exercise price of an option will be determined by the compensation committee and may be equal to, greater than, or less than the fair market value of a share of common stock at the time of grant; provided that:



| | (i) | the exercise price of an incentive stock option must be equal to or greater than the fair market value of a share of common stock on the date of grant;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) | the exercise price of an incentive stock option granted to an employee who owns more than 10% of the issued and outstanding common stock must not be less than 110% of the fair
market value of the underlying shares of common stock on the date of grant; and
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (iii) | the exercise price of a non-qualified stock option must be at a price not less than 85% of the fair market value of the underlying shares of common stock on the date of grant.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The compensation committee determines the term
of each option, which may not exceed ten years from the date of grant, except that the term of an incentive stock option granted to an employee who owns more than 10% of the issued and outstanding common stock may not exceed five years from the date
of grant. The compensation committee may accelerate or extend the exercisability of any or all outstanding options at any time for any reason.



Stock. The compensation committee determines the number of shares of stock granted to a participant and may subject any grant to performance
requirements, vesting provisions, transfer restrictions and other restrictions and conditions as the compensation committee may determine in its sole discretion.



43



---

VCG Holding Corp

Notes To Consolidated Financial Statements (Continued)

For the years ended December 31, 2003 and 2002



|10) | Stockholders Equity (Continued)
|--- | --------------------------------



Stock Option and Stock Bonus Plan (Continued)



Termination. If a participant ceases to be an employee, officer, director or consultant, other than because of retirement, death or disability, the
participant will forfeit any stock options or stock rights that are not yet vested, and any stock for which the restrictions are still applicable.



Amendment and termination of the Plan. The compensation committee may amend or terminate the Plan at any time, except that it may not make any
amendment that requires shareholder approval as provided in Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or Section 162(m) of the Internal Revenue Code without shareholder approval. The Plan will
terminate on the tenth anniversary of its effective date, unless terminated earlier by the compensation committee.



Stock Split



Effective July 22, 2002, the Company effected a one for two reverse stock split. All references to stock outstanding have been retroactively adjusted as
if the split had taken place on the earliest date shown.



|11) | Advances to Entertainment International, Inc.
|--- | ---------------------------------------------



In July 2003, VCG entered into an agreement, with a third party, to purchase a forty-nine percent interest and an option for two percent more in the next
three years in a club in Hawaii by November 2003 for $500,000. The purchase is subject to due diligence review and approval by the State of Hawaii and City of Honolulu. VCG will have management and voting control and plans to begin operations in
December 2003. VCG has advanced $719,467 to the project through December 31, 2003. VCG obtained an option to purchase the property for $1,800,000 on which the club is located the option can be exercised after two years. The opening was delayed until
January 2004, VCG has advanced $1,000,000 and the board is reviewing the options.



|12) | Investment in marketable securities
|--- | -----------------------------------



At December 31, 2003 VCG had investments in marketable securities of common stock with a carry value of $183,913 and a fair market value of $186,998.



|13) | Subsequent Events
|--- | -----------------



VCG signed a letter of intent in February 2004 to purchase 100% of the outstanding stock of Classic Affairs, Inc. (Classic). Classic owns and operates a
premium adult nightclub in downtown Minneapolis, Minnesota under the name of Schieks Palace Royale. Under the terms of the agreement, VCG will acquire 100% of outstanding common shares of Classic. The purchase price will be made up of cash,
preferred stock, long-term notes and common stock with options. The allocation of the source of funds will be finalized in the definitive agreement to be signed upon approval of the transfer of the liquor license in late April. In addition to the
business, VCG retains an option to purchase the real estate. The real estate used by Schieks Palace Royale was a federal reserve bank and is registered as a federal historic landmark. VCG anticipates closing under the definitive agreement within one
week of the liquor license transfer in early May.



In February
2004 the board of directors authorized the issuance of options to acquire up to 1,000,000 shares to be registered after the options are purchased. In addition the board authorized the sale of 50,000 shares from the 2003 Stock Option and Stock Bonus
Plan. These options and shares are available to contract providers to VCG.





44



---

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



On November 26, 2002, Schumacher & Associates, Inc. was dismissed as the independent accountants for the Company. Schumacher & Associates, Inc.
was appointed as the Companys independent accountants in 1998.



On November 26, 2002, the Company engaged Causey Demgen & Moore, Inc. as independent accountants for the Company.



Neither of the principal accountants reports on the Companys financial statements for the two years ended December 31, 2002 contained an
adverse opinion or disclaimer of opinion, and neither was modified as to uncertainty, audit scope nor accounting principles. The decision to change accountants was approved by the Companys Board of Directors and audit committee. There were no
disagreements with Schumacher, resolved or unresolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Schumachers satisfaction, would have caused
it to make reference to the subject matter of the disagreement in connection with its report. During the Companys two most recent fiscal years and subsequent interim period, the Company did not consult Causey Demgen & Moore, Inc.
regarding: (i) the application of accounting principles to a specific or contemplated transaction, or the type of audit opinion that might be rendered on the Companys financial statements; (ii) any matter that was the subject of a disagreement
with or advice from Schumacher.



Item 8A. Controls and Procedures]



| | (a) | Evaluation of disclosure controls and procedures.
| | --- | -------------------------------------------------



VCG maintains controls and procedures designed to ensure that information required to be disclosed in the reports that VCG files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon their evaluation of those controls and procedures performed within 90 days of the filing
date of this report, the Chief Executive and Chief Financial Officers concluded that VCGs disclosure controls and procedures were adequate.



| | (b) | Changes in internal controls
| | --- | ----------------------------



VCG made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to
the date of the evaluation of those controls by the Chief Executive and Chief Financial Officers.



45



---

PART III



Item 9. Directors and Executive Officers of the Registrant



The following table sets forth certain information about our directors and executive officers as of December 31, 2003.



|                      |  |     |  |                                                  
|--------------------- |  | --- |  | -------------------------------------------------
|Name                  |  | Age |  | Position                                         
|Troy H. Lowrie        |  | 38  |  | Chairman of the Board and Chief Executive Officer
|                      |  |    
|Micheal L. Ocello     |  | 44  |  | Director and President                           
|                      |  |    
|Donald W. Prosser     |  | 52  |  | Director, Chief Financial and Accounting Officer 
|                      |  |    
|Mary E. Bowles-Cook   |  | 50  |  | Secretary and Treasurer                          
|                      |  |    
|Robert J. McGraw, Jr. |  | 49  |  | Director                                         
|                      |  |    
|Rand E. Kruger        |  | 53  |  | Director                                         
|                      |  |    
|Allan S. Rubin        |  | 37  |  | Director                                         
|                      |  |    
|Arthur M. Schwartz*   |  | 76  |  | Director                                         
|                      |  |    
|Edward Bearman, **    |  | 39  |  | Director                                         

---

*Resigned as a member of the Board of Directors on
January 10, 2004

**Appointed as member of the Board Of Directors on February 24, 2004



Our directors are elected to hold office until the next annual meeting of shareholders and until their respective successors
have been elected and qualified. Our officers serve at the pleasure of the Board of Directors. Messrs. McGraw, Kruger, Rubin and Bearman are independent directors.



The following sets forth biographical information concerning our directors and executive officers for at least the past five
years. Our executive officers are not full-time employees.



Troy H. Lowrie has been Chairman of the Board of the Directors of VCG since April 2002 and was appointed Chief Executive Officer in November 2002. Mr. Lowrie has been President of Lowrie Management, LLLP, a
Colorado limited liability limited partnership, which owns and operates adult entertainment nightclubs, since 1996. Mr. Lowrie has been an owner and President of International Entertainment Consultants, Inc. since 1982. IEC, a company engaged in the
business of managing adult entertainment nightclubs. Over his career, Mr. Lowrie has by ownership or management been affiliated with eighteen adult entertainment nightclubs including all PTs® Showclubs; Diamond Cabaret, St. Louis; Gold Club, and Shotgun Willies, Denver; The



46



---

Platinum Club, St. Louis; and Olympic Gardens, Las Vegas. From 1992 to 1996, Mr. Lowrie was president of Western Country
Clubs, Inc. a public company specializing in large country western bars with live music and operated as A Little Bit of Texas. From 1996 to 1998, Mr. Lowrie was president of New Millenium Media, Inc. a public company which sells rotating
print advertising equipment and full movement video billboards. Mr. Lowrie received a Masters degree in finance and securities from the University of Denver in 1988 and a Bachelors degree in general business from Fort Lewis College in 1986.



Micheal L. Ocello has been a director and
President of VCG since April 2002. Mr. Ocello has been President of Unique Entertainment Consultants, Inc., of St. Louis, Missouri, a management company that specializes in the management of nightclubs, since 1995. Mr. Ocello has been affiliated
with International Entertainment Consultants, Inc. since 1982. He is currently National Director of Operations. Over his career, Mr. Ocello has by ownership or management been affiliated with eighteen adult entertainment nightclubs including all
PTs® Showclubs; Diamond Cabaret, St. Louis;
Gold Club, and Shotgun Willies, Denver; The Platinum Club, St. Louis; and Olympic Gardens, Las Vegas. He is President of the Association of Club Executives (ACE national), President of the Illinois Club Owners Association and a Board member of the
Indiana Nightclub Association. Mr. Ocello attended the United States Military Academy West Point from 1979 to 1981 and the University of Missouri, Kansas City from 1977 to 1978.



Donald W. Prosser, CPA has been a director and Chief Financial and Accounting Officer of VCG since November
2002. Mr. Prossers firm performs accounting services for VCG and serves as outside accountant for affiliated entities of Mr. Lowrie, including International Entertainment Consultants, Inc. Mr. Prosser has been a certified public accountant
since 1975 and is licensed in the state of Colorado. Mr. Prosser was Senior Manager of two national certified public accounting firms, Fox and Company (1975-83) and Pannell Kerr Forester (1984-91) Mr. Prosser also was the managing director of an
American Express Tax and Business Services unit in the Colorado region (1992-96). In addition to the accounting business Mr. Prosser was owner and operator of an adult entertainment nightclub (Mile High Saloon) in Denver, Colorado from 1994 until
1999. He also started as a part-time consultant and later became Chief Financial Officer and a director of three public companies: Chartwell International, Inc. (1997-99), a company in the business of publishing high school athletic information and
recruiting services; Anything Internet Corporation (1999-2000), a company in the business of selling computer equipment and internet services; and NetCommerce, Inc. (2001-2002), a company in the business of selling of internet services. Mr. Prosser
attended the University of Colorado from 1970 to 1971 and Western State College of Colorado from 1972 to 1975, where he earned a Bachelors degree in both accounting and history (1973) and a Masters degree in accounting  income taxation
(1975).



Mary E. Bowles-Cook has been Secretary
and Treasurer of VCG since April 2002. Ms. Bowles-Cook was office manager of Titello & Associates, Inc., a bookkeeping firm in Denver, Colorado, from 1985 to September 2002. Ms. Bowles worked for International Entertainment Consultants, Inc.
from 1981 to 1985 in administration, continues to serve as the Secretary-Treasurer of that company, and has been the office manager since October 2002. From 1993 to 1996, Ms. Bowles was Secretary-Treasurer of Western Country Clubs, Inc., a public
company where she was responsible for administration. She received a Business Administration and Management Degree from Regis University in 1999 and an Associate Degree in Business Administration from Arapahoe Community College in 1996.



47



---

Robert J. McGraw, Jr., CPA has been a director of VCG since November 2002. A certified
public accountant since 1982, Mr. McGraw is president of McGraw and McGraw CPA PC of Westminster, Colorado. Mr. McGraws firm specializes in accounting and bookkeeping for restaurants, lounges and small businesses. The practice consists of
income tax preparation, financial statement preparation, bookkeeping and small business consulting. Mr. McGraw will serve as the chairman of the audit committee and serve as a member of the compensation committee of the Board of Directors. Mr.
McGraw has a Bachelors degree from Western State College of Colorado (1977). Mr. McGraw is currently licensed in the state of Colorado and is a member of the American Institute of Certified Public Accountants and Colorado Society of Certified
Public Accountants. Mr. McGraw serves on the audit committee and will serve on the compensation committee of the Board of Directors.



Rand E. Krugerhas been a director of VCG since November 2002. Mr. Kruger is founding and managing partner of the law firm, Kruger, Schwartz
& Morreau in Louisville, Kentucky, established in 1989. Primary areas of practice include commercial real estate and business transactions. He represents many nightclubs, restaurants and fine dining establishments, particularly with respect to
licensing and related administrative law issues. Mr. Kruger will serve on the Audit Committee and Compensation Committee for the Board of Directors. Mr. Kruger has a Bachelors degree from George Washington University (1972) and his J.D. from
University of Louisville (1975). Mr. Kruger serves on the audit committee and will serve on the compensation and nominating committees of the Board of Directors.



Allan S. Rubinhas been a director of VCG since November 2002. Mr. Rubins practice is primarily devoted
to the representation of matters involving free speech, constitutional law, and complex corporate litigation, both civil and criminal. Among his clients are adult entertainment businesses. Mr. Rubin also serves as General Counsel to the Association
of Club Executives of Michigan and has been a speaker at a number of Trade Association Meetings regarding matters relating to the First Amendment. Mr. Rubin received his B.A. in Criminal Justice in 1988 from Michigan State University and graduated
Cum Laude from the Thomas M. Cooley Law School in Lansing, Michigan in 1990. Mr. Rubin is a member of the First Amendment Lawyers Association. Mr. Rubin serves on the audit committee and will serve on the nominating committee of the Board of
Directors.



Committees



The members Companys audit committee, compensation committee and
nominating committee were appointed in November 2002. The nominating and compensation committees began service on May 13, 2003.



The audit committee consists of the following independent directors of VCG: Robert J. McGraw, Jr., Rand E. Kruger and Allan S. Rubin. Mr. McGraw is our
audit committee financial expert as defined under applicable Securities and Exchange Commission (SEC)



48



---

rules. The audit committees primary responsibilities are to: monitor VCGs financial reporting process and
internal control system; monitor the audit processes of VCGs independent auditors, and internal financial management; and provide an open avenue of communication among VCGs independent auditors, financial and senior management, and the
Board. The committee reviews its charter annually and updates it as appropriate. The committee also recommends to the Board whether or not the year-end audited financial statements should be included in VCGs annual report for filing with the
SEC. The committee met three times during the year, reviewed the 10QSB filings and met independently with the audit firm.



The compensation committee consists of the following independent directors of VCG: Robert J. McGraw, Jr., Rand E. Kruger and Allan Rubin The compensation
committee administers VCGs incentive plans, sets policies that govern executives annual compensation and long-term incentives, and reviews management performance, compensation, development and succession. The committee met once to review
the loans to and from the chairman Troy Lowrie.



The nominating
committee consists of the following independent directors of VCG: Rand E. Kruger, Allan S. Rubin and Arthur M. Schwartz. The Nominating Committee identifies candidates for future Board membership and proposes criteria for Board candidates and
candidates to fill Board vacancies, as well as a slate of directors for election by the shareholders at each annual meeting. The committee annually assesses and reports to the Board on Board and Board Committee performance and effectiveness; reviews
and makes recommendations to the Board concerning the composition, size and structure of the Board and its committees; and annually reviews and reports to the Board on Directors compensation and benefits.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934, as amended
(Exchange Act), requires VCGs Directors, certain officers and persons who own more than ten percent of the outstanding common stock of VCG, to file with the SEC reports of changes in ownership of the common stock of VCG held by
such persons. Officers, directors and greater than ten percent shareholders are also required to furnish VCG with copies of all forms they file under this regulation. No Section 16(a) reports were filed in 2003. The forms were all filed in 2004.



Code of Ethics



VCG has adopted a code of ethics that applies to VCGs principal
executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions.



VCGs code of ethics is designed to deter wrongdoing and to promote:



| |  | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



49



---

| |  | Full, fair, accurate, timely, and understandable disclosure in reports and documents that VCG files with, or submits to, the SEC and in other public communications made by VCG;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Compliance with applicable governmental laws, rules and regulations;
| | - | --------------------------------------------------------------------



| |  | The prompt internal reporting of violations of the ethics code to an appropriate person or persons identified in the code; and
| | - | ------------------------------------------------------------------------------------------------------------------------------



| |  | Accountability for adherence to the ethics code.
| | - | ------------------------------------------------



Item 10. Executive compensation



Summary Compensation Table



|                             |  |          |  |                     |              |          |    |                      |  |                         |  |                                      |  |              |  |                          |  |       
|---------------------------- |  | -------- |  | ------------------- | ------------ | -------- | -- | -------------------- |  | ----------------------- |  | ------------------------------------ |  | ------------ |  | ------------------------ |  | ------
|                             |  |          |  |                     |              |          |    |                      |  | Long Term Compensation 
|                             |  |          |  | Annual Compensation |              | Awards   |    | Payouts             
|Name and Principal Position  |  | Year     |  | Salary($)           |              | Bonus($) |    | OtherCompensation($) |  | RestrictedStockAward(s) |  | SecuritiesUnderlyingOptions/ SARs(#) |  | LTIP Payouts |  | All OtherCompensation($)
|Troy H. Lowrie, CEO          |  | 20032002 |  |                     | -0--0-       |          |    | -0--0-               |  | -0--0-                  |  | -0--0-                               |  | -0--0-       |  | -0--0-                   |  | -0--0-
|                             |  |          |  |                     |              |          |    |                     
|Micheal L. Ocello, President |  | 20032002 |  | $$                  | 24,00012,000 |          |    | -0--0-               |  | -0--0-                  |  | -0--0-                               |  | -0--0-       |  | -0--0-                   |  | -0--0-
|                             |  |          |  |                     |              |          |    |                     
|Donald W. Prosser, CFO       |  | 20032002 |  | $$                  | 75,00012,500 |          | $$ | 700700               |  | -0--0-                  |  | -0--0-                               |  | -0--0-       |  | -0--0-                   |  | -0--0-



No compensation was
awarded to, earned by or paid to our executive officers during the fiscal year ended December 31, 2001. For his services as our President, Mr. Ocello receives an annual salary of $24,000. This salary commenced May 1, 2002. For his services as Chief
Financial Officer, Mr. Prosser receives compensation of $75,000 per year. This compensation commenced on November 1, 2002. No other compensation has been awarded to, earned by or paid to any other executive officer.



We have contracted with International Entertainment Consultants, Inc., a
wholly-owned subsidiary of VCG (IEC), to operate our nightclubs. Each of our nightclubs pays its proportionate share of IECs general operating and administrative expenses for all of the nightclubs managed by IEC. These include
IECs expenses for 21 management personnel and Mr. Ocello who manages these employees in his capacity as National Director of Operations for IEC. IEC paid $114,400 in 2003 to Unique Entertainment Consultants, Inc. (UEC) for Mr.
Ocellos services relating to all clubs under IEC Management, including VCGs clubs. UEC will continue to be paid by IEC for Mr. Ocellos services. Mr. Ocello is a principal of UEC.



50



---

Mr. Prosser serves as Chief Financial Officer for VCG. VCG pays Donald W. Prosser, P.C. (DWP) for his
services. Mr. Prosser is a principal of DWP. Mr. Prosser also has duties as Chief Financial Officer of IEC which are not related to his duties with VCG. For these services DWP received $25,000 for 2003. Mr. Lowrie received compensation from IEC of
$-0- in 2003, attributable to the management of the clubs prior to their acquisition by VCG. Mr. Lowrie ceased being compensated for club management after VCG acquired the clubs.



Because our day-to-day operations are managed by IEC, our executive officers devote as much time as is necessary, but less
than their full-time, to VCGs business. Mr. Lowrie, our Chairman of the Board and Chief Executive Officer, Mr. Ocello, a director and our President, and Ms. Bowles Cook, our Secretary and Treasurer, each devotes approximately 15 hours per week
to VCGs business. Mr. Prosser, a director and our Chief Financial Officer, commits approximately 50 hours per week to VCGs business.



Compensation of Directors



We currently do not pay cash compensation to our directors. Our directors are reimbursed for expenses they incur in attending meetings of the Board. No directors have
received stock options or stock bonuses to date. The directors will be compensated 5,000 shares each of common stock from the 2002 stock and bonus plan. The compensation committee will recommend the amount and terms of compensation.



Employment Contracts and Termination of Employment and Change-in-Control Arrangements



We currently do not have any employment contracts or termination of
employment and change-in-control arrangements.



Equity Compensation Plan
Information



Equity compensation plan information is set forth in Item 5,
above.



51



---

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters



The following table sets forth, as of March 31, 2004, the ownership of our common stock based upon 8,026,559 shares of common stock outstanding, by (i)
each of our directors and executive officers, (ii) all of our directors and executive officers as a group and (iii) all persons we know to be the owner of 5% or more of our common stock.



|                                                                   |  |                                                     |  |                                              |     |  |                         |  
|------------------------------------------------------------------ |  | --------------------------------------------------- |  | -------------------------------------------- | --- |  | ----------------------- | -
|Name and Address                                                   |  | Position                                            |  | Amount and Nature of Beneficial Ownership(1) |     |  | Percent of Common Stock |  
|Troy H. Lowrie 390 Union Blvd, Suite 540 Lakewood, CO 80228        |  | Chairman of the Board And Chief Executive Officer   |  | 5,025,419                                    | (2) |  | 62.61                   | %
|                                                                   |  |                                                     | 
|Micheal L. Ocello 390 Union Blvd, Suite 540 Lakewood, CO 80228     |  | Director and President                              |  | 169,000                                      | (3) |  | 2.11                    | %
|                                                                   |  |                                                     | 
|Mary E. Bowles-Cook 390 Union Blvd, Suite 540 Lakewood, CO 80228   |  | Secretary and Treasurer                             |  | 7,700                                        |     |  | 0.10                    | %
|                                                                   |  |                                                     | 
|Donald W. Prosser 390 Union Blvd, Suite 540 Lakewood, CO 80228     |  | Director and Chief Financial and Accounting Officer |  | 115,600                                      |     |  | 1.44                    | %
|                                                                   |  |                                                     | 
|Robert J. McGraw, Jr. 390 Union Blvd, Suite 540 Lakewood, CO 80228 |  | Director                                            |  | 11,000                                       |     |  | 0.14                    | %
|                                                                   |  |                                                     | 
|Rand E. Kruger 390 Union Blvd, Suite 540 Lakewood, CO 80228        |  | Director                                            |  | 5,000                                        |     |  | 0.006                   | %
|                                                                   |  |                                                     | 
|Allan S. Rubin 390 Union Blvd, Suite 540 Lakewood, CO 80228        |  | Director                                            |  | 5,000                                        |     |  | 0.006                   | %
|                                                                   |  |                                                     | 
|Arthur M. Schwartz4 390 Union Blvd, Suite 540 Lakewood, CO 80228   |  | Director                                            |  | 0                                            |     |  | 0.00                    | %
|                                                                   |  |                                                     | 
|Edward Bearman 390 Union Blvd, Suite 540 Lakewood, CO 80228        |  | Director                                            |  | 0                                            |     |  | 0.00                    | %
|                                                                   |  |                                                     | 
|All Executive Officers and Directors as a group (Eight persons)    |  |                                                     |  | 5,338,719                                    |     |  | 66.51                   | %



52



---

|                                                                                  |  |                                              |  |           |  |       |  
|--------------------------------------------------------------------------------- |  | -------------------------------------------- |  | --------- |  | ----- | -
|Lowrie Management, LLLP 1601 W. Evans, Suite 200 Denver, CO 80223                 |  | None                                         |  | 4,604,453 |  | 57.37 | %
|                                                                                  |  |                                              | 
|A. Thomas Tenenbaum 6400 S. Fiddlers Green Circle Suite 2025 Englewood, CO 80111 |  | Director and President until April 2002      |  | -0-       |  | 0.0   | %
|                                                                                  |  |                                              | 
|Albert Brenman 4400 E. Oxford Englewood, CO 80110                                 |  | Director and Vice President until April 2002 |  | 74,922    |  | 0.12  | %

---

|(1) | Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Unless otherwise stated below, each
such person has sole voting and investment power with respect to all such shares and, under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 4,604,463 shares owned by Lowrie Management, LLLP, 420,966 shares owned by Mr.
Lowrie who controls Lowrie Management, LLLP.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 124,000 shares of common stock owned by LTD Investment Group, LLC, of which Mr.
Ocello is the Managing Member.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(4) | Mr. Schwartz resigned as a director on January 2004.
|--- | ----------------------------------------------------

|(5) | Mr. Bearman was appointed as a director February 2004.
|--- | ------------------------------------------------------



Item 12. Certain Relationships and Related Transactions



VCG did not have independent directors prior to July 2002. Accordingly, the material related party transactions which occurred during the period of May through July 2002 were not reviewed by independent directors for
fairness. We believe that the transaction terms to be at least as favorable as obtainable from third parties. There are now a majority of independent directors serving on our Board. All material related party transactions after July 2002 have been
ratified by the independent directors. The independent directors will review future material related party transactions for fairness and have access, at our expense, to our legal counsel or to independent legal counsel. Our former officers and
directors, Albert Brenman and A. Thomas Tenenbaum, participated in our formation and may, therefore, be deemed our promoters. We did not acquire any assets from either of them.



Acquisition of Nightclubs



In June 2002, VCG formed a wholly-owned subsidiary, Indy Restaurant Concepts, Inc., an Indiana corporation, which acquired the assets and liabilities of
PTs® Show Club in Indianapolis, Indiana (the
Indianapolis Club), for 1,590,000 shares of VCGs common stock valued at $1.00 per share. Affiliates of Mr. Lowrie, our Chairman of the Board, owned one-third of the Indianapolis Club. Based on an independent valuation study that
was performed for VCG, VCG believes the transaction was fair and reasonable.



53



---

In June 2002, VCG acquired all of the common stock of Tennessee Restaurant Concepts, Inc., a Tennessee
corporation which owns PTs® Showclub in
Memphis, Tennessee (the Memphis Club), from Mr. Lowrie and an affiliate of Mr. Lowrie for 604,800 shares of VCGs common stock valued at $1.00 per share. The seller acquired the Memphis Club in October 2000 for $1.5 million cash.
Prior to the acquisition, an independent valuation was performed by Fairfield Management Company LLC to determine the fairness of the price. Based on comparisons with similar clubs, it was determined that the carrying value of goodwill was
overvalued by $594,782. Accordingly, the purchase price of the Memphis Club took this factor into account. The seller took a charge for impaired asset before the merger and VCG purchased the shares at book value. We believe the price we paid to be
fair and reasonable.



In June 2002, VCG RE acquired the 14,000
square foot building in which the Memphis Club is located, from Tennessee Restaurant Concepts II, Ltd., a limited partnership in which affiliates owned a 30.33 % interest. The remaining 69.67% interest was owned by non-affiliates of VCG. The
purchase price consisted of the assumption of the $1,640,000 mortgage on the property and 195,200 shares of VCGs common stock valued at $1.00 per share. The partnership was dissolved in September 2002. The shares were delivered to the
partners: Lowrie Management LLLP (controlled by Troy Lowrie); LTD Investments, LLC (controlled by Michael Ocello); IS Investments, Inc. (controlled by Jay Dinkelman, unaffiliated); Johan A. Van Baal, IRA; and Martin F. Egan. The former partners own
the shares in their individual capacities and they are among the selling security holders in this offering. VCG believes the acquisition to be fair and reasonable as the building was purchased approximately two years previously for $40,000 cash plus
assumption of $1,820,000 mortgage debt.



In July 2002, VCG RE
purchased the building and land on which the Indianapolis Club is located from a third party, Havair Realty whose control person is Ms. Janie Goldberg. The Purchase Agreement for the building and land was originally between the seller and Lowrie
Management and was subsequently assigned to VCG RE. The purchase price of $2,550,000 was paid in $1,550,000 cash and a $1,000,000 line of credit secured by a deed of trust. The cash portion of the purchase price was paid from VCGs cash flow
and from drawing down the entire $1,400,000 long-term credit facility provided by Lowrie Management.



VCG may acquire other nightclubs currently affiliated with our management upon the review and approval of a majority of independent directors. All future
related party acquisitions will be made or entered into on terms not less favorable than can be obtained from third parties.



Management of VCG is required to present to VCG all nightclub acquisition opportunities of which management is or becomes aware and VCG has rights of
priority to any such opportunity.



Personal Guarantees



As part of the purchase of The Platinum Club from a third party, VCG
acquired a five-year lease on the 9,000 square foot building and land on which The Platinum Club is located for base rent of $900,000, which is to be paid in monthly installments of $15,000. At the end of the



54



---

five-year term, VCG has the option to pay $900,000 as a final installment on the purchase of the building and land. VCG
has elected to capitalize this lease under FASB 13. The value of the building and land under the lease is $1,421,628. Mr. Lowrie has personally guaranteed the lease.



In July 2003, VCG completely refinanced the properties on which the Indianapolis and Memphis Clubs are located. In
connection with the refinancing, VCG will repay the $1,000,000 line of credit secured by a deed of trust on the Indianapolis property and the balance of the $1,640,000 mortgage, less an $80,000 prepayment discount on the Memphis property. There is a
$1,440,000 mortgage on the Indianapolis property and a $872,000 mortgage on the Memphis property. These mortgages have a 10 year amortization with a 6% per annum interest rate secured by the property and the personal guarantee of Mr. Lowrie.



In March 2003, VCG entered into a Line of Credit and Security
Agreement whereby VCG obtained a $1,200,000 short-term credit facility which expires in March 2004 and bears interest at 6.5% per annum. Mr. Lowrie has personally guaranteed the line of credit.



Management Contract



In May 2002, we contracted with International Entertainment Consultants, Inc. (IEC), a company affiliated with
Mr. Lowrie and Michael Ocello, our President, under which IEC is providing us management services at IECs cost. The contract is for a one-year initial term and automatically extended for subsequent one-year terms absent cancellation by either
party. After July 1, 2002, no management fees will be paid until the fairness of any fees is reviewed by our compensation committee and approved by a majority of independent directors. We believe the IEC management contract to be fair and
reasonable.



VCGs Offices



VCG maintains its offices at 390 Union Boulevard, Suite 540, Lakewood,
Colorado 80228. VCG is currently paying monthly rent of approximately $5,700 to a third party.



Trademarks



The
PTs® name and logo are trademarks registered
with the United States Patent and Trademark Office. We have been granted a license to use the trademarks by Lowrie Management, LLLP, an affiliate of VCG. There is currently no fee for the license. Any future fee will be reviewed for fairness by, and
be subject to the approval of, a majority of independent directors. Until then, and as is currently the case, any such fee will be at a price the fairness of which will be established by an independent valuation.



55



---

Item 13. Exhibits and Reports on Form 8-K



Exhibits



|            |  |                                                                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                       
|3.1         |  | Articles of Incorporation*                                                                                                                                                                                                                                                        
|            | 
|3.2         |  | Bylaws*                                                                                                                                                                                                                                                                           
|            | 
|3.3         |  | Amended Articles of Incorporation. Series A Preferred*                                                                                                                                                                                                                            
|            | 
|4.1         |  | Specimen copy of certificate for common stock $.0001 par value*                                                                                                                                                                                                                   
|            | 
|4.2         |  | Specimen copy of certificate for preferred stock $.0001 par value*                                                                                                                                                                                                                
|            | 
|4.3         |  | Stock Option and Stock Bonus Plan*                                                                                                                                                                                                                                                
|            | 
|10.1        |  | Stock Purchase/Sale Agreement, dated March 27, 2002, between VCG and Shelia Lichty and Linda Sonnenschein (agreement by which VCG acquired all of the outstanding capital stock of Platinum of
Illinois, Inc., an Illinois corporation)*                                          
|            | 
|10.2        |  | Lease Agreement for 213-215 Madison, Brooklyn, Illinois, dated May 1, 2002, between VCG and RELMSS Service, Inc. (agreement by which VCG acquired the lease on the building and land for the
nightclub owned by Platinum of Illinois, Inc., an Illinois corporation)*             
|            | 
|10.3        |  | Purchase Agreement between Lowrie Management, LLLP and Havair Realty (agreement whereby Lowrie Management acquired the building and land for the nightclub in Indianapolis,
Indiana)*                                                                                             
|            | 
|10.4        |  | Letter from Lowrie Management, LLLP to Havair Realty LLP, dated May 13, 2002 (letter agreement whereby Lowrie Management assigned the Purchase Agreement for the building and land for the
nightclub in Indianapolis, Indiana to VCG)*                                            
|            | 
|10.5        |  | Stock Purchase Agreement, dated June 30, 2002, between VCG, Tennessee Restaurant Concepts, Inc., Lowrie Management, LLLP and Troy H. Lowrie (agreement whereby VCG acquired all of the
outstanding capital stock of Tennessee Restaurant Concepts, Inc., a Tennessee corporation)*
|            | 
|10.6        |  | Contract to Buy and Sell Real Estate, dated June 30, 2002, between VCG and Tennessee Restaurant Concepts II, LP (agreement whereby VCG acquired the building for the nightclub owned by
Tennessee Restaurant Concepts, Inc., a Tennessee corporation)*                            
|            | 
|10.7        |  | Trademark License Agreement, dated June 30, 2002, between VCG and Lowrie Management, LLLP*                                                                                                                                                                                        
|            | 
|10.8        |  | Line of Credit and Security Agreement, dated June 30, 2002, between VCG and Lowrie Management, LLLP*                                                                                                                                                                              
|            | 
|10.9        |  | Management Contract, dated July 1, 2002, between VCG and International Entertainment Consultant, Inc.*                                                                                                                                                                            



56



---

|      |  |                                                                                                                                                                                                                                                                
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10 |  | Plan of Reorganization Pursuant to IRC §351, dated August 14, 2002, between VCG and Indy of Colorado, Ltd.*                                                                                                                                                    
|      | 
|10.11 |  | Line of Credit and Security Agreement, dated March 7, 2003, between VCG and Red Rock Investments Co.**                                                                                                                                                         
|      | 
|10.12 |  | Agreement to Purchase/Sell Real Estate, dated March 5, 2003, between VCG Real Estate Holdings, Inc. and Sacred Grounds Resources, L.L.C. (agreement whereby VCG Real Estate Holdings, Inc.
acquired the building and land for a nightclub in Phoenix, Arizona**
|      | 
|16.1  |  | Letter regarding change in certifying accountant**                                                                                                                                                                                                             
|      | 
|21.1  |  | Subsidiaries*                                                                                                                                                                                                                                                  
|      | 
|23.3  |  | Consent of Causey Demgen & Moore, Inc.                                                                                                                                                                                                                         
|      | 
|31.1  |  | Certification of Chief Executive Officer under Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                       
|      | 
|31.2  |  | Certification of Chief Financial Officer under Section 302 of Sarbanes-Oxley Act of 2002                                                                                                                                                                       
|      | 
|32.1  |  | Certification of Chief Executive Officer under Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                       
|      | 
|32.2  |  | Certification of Chief Financial Officer under Section 906 of Sarbanes-Oxley Act of 2002                                                                                                                                                                       
|      | 
|99.3  |  | Code of Ethics***                                                                                                                                                                                                                                              

---

|* | Incorporated by reference from VCGs Registration Statement on Form SB-2 (333-99379) filed on September 10, 2002.
|- | -----------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference from Amendment No. 2 to VCGs Registration Statement on Form SB-2 (333-99379) filed on April 21, 2003.
|-- | --------------------------------------------------------------------------------------------------------------------------------



Reports on Form 8-K



The following reports on Form 8-K were filed during the quarter ended December 31, 2003.



8K filed October 23, 2003Acquisition of IEC.



Item 14. Principal Accountant Fees and Services



Audit Fees: $51,955



Audit-Related Fees: $1,870



Tax Fees: Income tax returns and related matters are handled in house and there are no
related fees



All Other Fees: None



57



---

SIGNATURES



In accordance with
Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



VCG HOLDING CORP.By:

/s/ Troy H. LowrieTroy H. Lowrie, Chairman of the BoardChief Executive Officer




In accordance
with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                          |  |                                                     |  |               
|------------------------- |  | --------------------------------------------------- |  | --------------
|/s/ Troy H. Lowrie        |  | Chairman of the Board and Chief Executive
Officer   |  | April 14, 2004
|Troy H. Lowrie            |  |                                                     |  |               
|                          |  |                                                    
|/s/ Michael L. Ocello     |  | Director and President                              |  | April 14, 2004
|Michael L. Ocello         |  |                                                     |  |               
|                          |  |                                                    
|/s/ Donald W. Prosser     |  | Director and Chief Financial and Accounting
Officer |  | April 14, 2004
|Donald W. Prosser         |  |                                                     |  |               
|                          |  |                                                    
|/s/ Robert J. McGraw, Jr. |  | Director                                            |  | April 14, 2004
|Robert J. McGraw, Jr.     |  |                                                     |  |               
|                          |  |                                                    
|/s/ Allen S. Rubin        |  | Director                                            |  | April 14, 2004
|Allen S. Rubin            |  |                                                     |  |               
|                          |  |                                                    
|/s/ Rand E. Kruger        |  | Director                                            |  | April 14, 2004
|Rand E. Kruger            |  |                                                     |  |               
|                          |  |                                                    
|/s/ Edward M Bearman      |  | Director                                            |  | April 14, 2004
|Edward M Bearman          |  |                                                     |  |               



58