**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-K**

 

| **ý** | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (“Act”)** |
|------------|------------|-----------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                  |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**               |

 

**For the fiscal year ended December 31, 2005**

 

**Commission File No. 333-88242**

 

**JACOBS ENTERTAINMENT, INC.**

(Exact name of Registrant as specified in itscharter)

 

| **Delaware**                                                    | ** ** | **34-1959351**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |       | (I.R.S.  Employer Identification No.) |

 

**17301 West Colfax, Suite 250, Golden, Colorado 80401**

(Address of principal executive offices) (Zip code)

 

**(303) 215-5200**

(Registrant’s telephone number, including area code)

 

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

 

Securities registered pursuant to Section 12(g) ofthe Act:**None.**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer as defined in Rule 405 ofthe Securities Act.

 

Yes   o   No   ý

 

Indicate by check mark ifthe issuer is not required to file reports pursuant to Section 13 or 15(d) ofthe Act.

 

Yes   o   No   ý

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Act during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

 

Yes   ý   No   o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 
| Large accelerated filer |   | o |   | Accelerated filer |   | o |   | Non-accelerated filer |   | ý |
|-------------------------|--------|---|--------|-------------------|--------|---|--------|-----------------------|--------|--------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct).

 

Yes   o   No   ý

 

State the aggregate marketvalue of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was last sold, orthe average bid and asked price of such common equity, as of the last businessday of the registrant’s most recently completed second fiscal quarter:  No market exists for the common stock of theregistrant; all of its outstanding shares of common stock are held by twopersons.

 

Indicate the number ofshares outstanding of each of the registrant’s classes of common stock, as ofthe latest practicable date:

 
| **Class**                                   | ** ** | **Outstanding at March 15, 2006** |
|---------------------------------------------|------------|-------------------------------------------------------|
| Class A  Common Stock, $0.01 par value |       | 1,320 shares                                          |   |
| Class B  Common Stock, $0.01 par value |       | 180 shares                                            |   |

 

**DOCUMENTS INCORPORATED BY REFERENCE:  ****None**

 

See the exhibit indexwhich appears on page E-1.

 

 

**JACOBSENTERTAINMENT, INC.**

**2005 ANNUALREPORT ON FORM 10-K**

 

**Table ofContents**

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

 

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**SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

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

 

•                                               projections of future results of operationsor financial condition;

•                                               expectations for our casino and truck plazaproperties; and

•                                               expectation of the continued availability ofcapital resources.

 

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

 

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

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

•                                           Our indebtedness imposes restrictivecovenants on us.

•                                           We may not be able to successfullyintegrate the operations of recent, proposed and future acquisitions into ourbusiness.

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

•                                           We face extensive regulation from gaming andother government authorities and the possibility that legislative changes may prohibitor limit our gaming activities.

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

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

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

•                                           Members of our board of directors ownbeneficially 100% of Jacobs Entertainment, Inc. and could have intereststhat conflict with yours.

•                                           We rely on the maintenance of agreements withColonial’s horsemen.

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

 

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

 

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**NON-GAAPFINANCIAL MEASURES**

 

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

 

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

 

We use EBITDA, subject tocertain adjustments, as a measure in debt covenants in our debt agreements. Ourpresent indenture uses EBITDA, subject to certain adjustments, to measure ourcompliance with debt covenants. We also use EBITDA to evaluate and pricepotential acquisition candidates. We believe EBITDA facilitates operatingperformance comparisons from period to period and company to company byremoving potential differences caused by variations in capital structures(affecting relative interest expense), tax positions (such as the impact onperiods or type of companies of changes in effective tax rates or net operatinglosses) and the age and book depreciation of facilities and equipment(affecting relative depreciation expense).

 

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

 

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

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

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

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

•                                           other companies in our industry may calculateEBITDA differently than we do, limiting its usefulness as a comparativemeasure.

 

Because of theselimitations, Consolidated EBITDA should not be considered as a measure ofdiscretionary cash available to us to invest in the growth of our business. Wecompensate for these limitations by relying primarily on our generally acceptedaccounting principles’ results and using Consolidated EBITDA onlysupplementally. See our consolidated financial statements and the notes tothose statements included elsewhere in this report.

 

**INDUSTRYAND MARKET DATA**

 

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

 

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**PART I**

 

**Item 1.****                                                          *****Business***

 

**Introduction**

 

Jacobs Entertainment, Inc.(“Jacobs Entertainment”) was formed as a Delaware corporation on April 17,2001. We are a geographically diversified gaming and pari-mutuel wageringcompany with properties in Colorado, Louisiana, Nevada and Virginia. We own andoperate three casinos, 11 truck plaza video gaming facilities (one is leased)and a horseracing track with nine satellite wagering facilities (four areleased). In addition, we are a party to an agreement that entitles us to aportion of the gaming revenue from an additional truck plaza video gamingfacility.

 

All of our gaming facilitiestarget local customers and emphasize revenues from slot machine play or videogaming, or both. For the year ended December 31, 2005, our net revenuesand EBITDA were approximately $233.9 million and $28.9 million, respectively.See Note 14 to our consolidated financial statements for information concerningthe operational performance of the segments of our business.

 

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The following table sets forth certain informationand property level EBITDA (excluding corporate overhead) of our properties:

 
| ** **                                                  | ** ** | ** **                    | ** ** | ** **                            | ** ** | **As of December 31, 2005** | ** ** | **Year Ended  December 31, 2005** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------------|------------|
| **Property**                                                | ** ** | **Location**                  | ** ** | **Facility Type**                | ** ** | **Approximate  Gaming  Square  Footage**        | ** ** | **Gaming  Machines**                             | ** ** | **Table  Games** | ** ** | **Percentage  of Gaming  Revenue from  Machines** | ** ** | **Property Level  EBITDA (1)** | ** ** |
| ** **                                                  | ** ** | ** **                    | ** ** | ** **                            | ** ** | ** **                                      | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **(in thousands)** | ** ** |
| The Lodge  Casino                                           |       | Black Hawk, Colorado          |       | Land-based casino                     |       | 25,000                                          |       | 900                                              |       | 30 |   | 91 | % | $ | 21,262 |   |
| Gilpin Hotel  Casino                                        |       | Black Hawk, Colorado          |       | Land-based casino                     |       | 16,000                                          |       | 480                                              |       | 16 |   | 99 |   | 4,489 |   |
| Gold Dust  West Casino                                      |       | Reno, Nevada                  |       | Land-based casino                     |       | 17,500                                          |       | 500                                              |       | 0 |   | 100 |   | 6,103 |   |
| Louisiana  Truck Plazas                                     |       | Louisiana (various locations) |       | Video gaming                          |       | 9,000                                           |       | 570                                              |       | 0 |   | 100 |   | 15,733 |   |
|                                                        |       |                          |       |                                  |       |                                            |       |                                             |       |   |   |   |   |   |   |
| Colonial  Downs Racetrack and satellite wagering facilities |       | Virginia (various locations)  |       | Horse racing and pari-mutuel wagering |       | N/A                                             |       | N/A                                              |       | N/A |   | N/A |   | (11,026 | ) |
|                                                        |       |                          |       |                                  |       |                                            |       |                                             |       |   |   |   |   |   |   |
| **Total**                                                   |       |                          |       |                                  |       | 67,500                                          |       | 2,450                                            |       | 46 |   |   |   | $ | 36,561 |   |

 

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(1)                    Property LevelEBITDA excludes corporate overhead expense of $7,646 million in the aggregatefor all of our properties and income tax expense of $423.

 

**The following is a reconciliationof our property level EBITDA to our property level net income (loss) (inthousands):**

** **
| ** **                                           | ** ** | ** **    | ** ** | **Depreciation** | ** ** | ** **   | ** ** | ** **   | ** ** | **Income**  | ** ** | ** **          | ** ** |
|------------------------------------------------------|------------|---------------|------------|------------------|------------|--------------|------------|--------------|------------|-------------|------------|---------------------|------------|
| ** **                                           | ** ** | ** **    | ** ** | **and**          | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Tax**     | ** ** | **Net Income** | ** ** |
| **Year ended December 31, 2005** | ** ** | **EBITDA(1)** | ** ** | **Amortization** | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Expense** | ** ** | **(Loss)**          | ** ** |
| ** **                                           | ** ** | ** **    | ** ** | ** **       | ** ** | ** **   | ** ** | ** **   | ** ** | ** **  | ** ** | ** **          | ** ** |
| The Lodge  Casino                                    |       | $             | 21,262     |             | $          | 3,372        |       | $            | 32         |        | $          | 8,342               |       | $ | — |   | $ | 9,580 |   |
| Gilpin Hotel  Casino                                 |       | 4,489         |       | 1,645            |       | 12           |       | 2,592        |       | —      |       | 264                 |       |
| Gold Dust  West                                      |       | 6,103         |       | 1,691            |       | 15           |       | 3,141        |       | —      |       | 1,286               |       |
| Louisiana  Truck Plazas                              |       | 15,733        |       | 2,387            |       | 20           |       | 2,794        |       | —      |       | 10,572              |       |
| Colonial  Downs                                      |       | (11,026       | )          | 1,685            |       | 86           |       | 322          |       | —      |       | (12,947             | )          |
| Total  Property Level EBITDA                         |       | 36,561        |       | 10,780           |       | 165          |       | 17,191       |       |        |       | 8,755               |       |
| Corporate  overhead                                  |       | (7,646        | )          | 225              |       | 7            |       | 5,213        |       | 423         |       | (13,500             | )          |
| ** **                                           | ** ** | ** **    | ** ** | ** **       | ** ** | ** **   | ** ** | ** **   | ** ** | ** **  | ** ** | ** **          | ** ** |
| **Total**                                            | ** ** | **$**         | **28,915** | ** **       | **$**      | **11,005**   | ** ** | **$**        | **172**    | ** **  | **$**      | **22,404**          | ** ** | **$** | **423** | ** ** | **$** | **(4,745** | **)** |

 

***BusinessStrategy and Competitive Strengths***

 

Ourbusiness strategy is to create a broad, geographically diversified base ofgaming and pari-mutuel wagering properties that provide our customers with highquality experiences that build significant customer loyalty. We focus onattracting and fostering repeat business from local gaming patrons at ourcasino, truck plaza video gaming andpari-mutuel wagering facilities. Our local patrons are typically experiencedgaming customers who seek convenient locations, high payouts, and a pleasantatmosphere.

 

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We believe that there are opportunities for growthand operational efficiencies in the markets in which we operate. Black Hawk,Colorado, was one of the fastest growing gaming markets in the country, havingexperienced a 26.3% compound annual growth in gaming revenue, from 1998 through2000. Revenues in 2001 through 2003 stabilized at approximately $500 millionannually and rose to $524 million in 2004 and to $535 million in 2005. Webelieve that our two Black Hawk properties will continue to be competitive, andin 2003 we renovated our Gilpin Hotel Casino property in Black Hawk to enhanceour competitive position. In 2005, we entered into an agreement to acquire anoperating casino in Carson City, Nevada, and we entered into a land andbuilding lease to develop a casino in Elko, Nevada. We have identified,evaluated and continue to consider several other potential small casinoopportunities in Nevada. In the last three years, we acquired five additionalLouisiana truck plaza video gaming facilities and we believe that there areother truck plaza video gaming properties that may be available foracquisition. In November 2003 and 2004, referendums were passed in fourlocalities in Virginia that allowed us to expand our off-track wageringfacilities from four to nine such facilities in the last two years. Inaddition, we may acquire or develop additional gaming properties indifferent jurisdictions catering to local gaming patrons in the future, furtherexpanding our geographic diversity.

 

Our strategy for our casino and video gamingoperations is to continue to provide our customers with a user-friendly gamingenvironment featuring convenient locations, ample parking, good food ataffordable prices and promotional incentives that reward frequent play. Ourstrategy for our horse racing operations is to be a competitive participant inthe industry by capitalizing on our unique dirt and turf track facilities forlive racing, hosting marquee racing events, and expanding our off-trackwagering facility network under appropriate circumstances.

 

***Broad Geographic and Asset Diversification*****.** We own and operatethree land-based casinos, 11 truck plaza video gaming facilities and a horseracing track with nine off-track wagering facilities (of which four areleased), in four states. In addition, we are party to agreements that entitleus to a portion of the gaming revenue from an additional truck plaza videogaming facility. We believe that because of our geographic and assetdiversification, we are less dependent on results at a specific property or ina specific market to generate our cash flow. This geographic diversity helpsmitigate our susceptibility to regional economic downturns or weatherconditions.

 

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

 

***Significant Barriers to Entry*****.** There aresignificant regulatory and other barriers to entry in each of the markets inwhich we operate. In Black Hawk, Colorado, these barriers include the limitedavailability of space in the approved gaming district, which is defined in thestate constitution, the Gaming Commission’s regulations and the City of BlackHawk’s ordinances, and the high cost of acquiring land and constructing newgaming facilities. There are stringent licensing requirements and substantiallicensing and compliance expenses attendant to commencing and conducting gamingoperations in Nevada. In Louisiana, the barriers to entry include restrictionsthat require truck plaza video gaming facilities to meet specified minimumlevels of diesel and total fuel sales, have a specified minimum site acreageand conduct restaurant operations not fewer than 12 hours per day. Theserestrictions also prohibit the operation of more than 50 video gaming machinesat any location and require truck plaza video gaming facilities to be locatedonly in those parishes that voted to continue video gaming during a one-timestatewide referendum in 1996. In Virginia, in all but the county in which weoperate and one additional county, any potential operator of any competinghorse racing track would need to secure passage of a referendum in the localein which the track is to be operated. An unlimited racetrack owner’s andoperator’s license is required in order to have off-track wagering facilities.Off-track wagering facilities can only be opened in the current jurisdictionsin which we operate plus one other county without passage of additionalreferendums.

 

***Strong,Experienced Management Team.*****Our seniormanagement team is an experienced group of industry veterans. Jeffrey P.Jacobs, our Chairman and Chief Executive Officer, has been Black Hawk Gaming’sChief Executive Officer since November 1996 and the Chief ExecutiveOfficer of Colonial, our wholly owned subsidiary, since March 1997.Stephen R. Roark, our Chief Financial Officer and President of CasinoOperations, has been Black Hawk Gaming’s President since September 1995and its Chief Financial Officer since 1993. Ian M. Stewart, our President ofPari-Mutuel Wagering and 

 

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Video Poker Operations,has been President of Colonial since November 1998 and its Chief FinancialOfficer since June 1997. Michael Shubic, our Regional Vice-President ofCasino Operations, has over 30 years of experience in the gaming industry. Thethree general managers of our casinos, who have a combined total of over 60years of casino management experience, report directly to Mr. Shubic. StanGuidroz is Vice President of Operations and oversees our truck plaza videogaming operations and has over 12 years of experience in the truck plaza videogaming business. Mr. Guidroz reports directly to Mr. Shubic. Further,Mr. Guidroz is supported by Reid Smith, John Jurewicz and J. RichardGottardi, who oversee the day-to-day operations of our truck plaza video gamingoperations and who have over 25 years of combined experience in the gamingindustry. We believe the expertise and experience of our management teamenables us to enhance the operation of our existing properties and anyproperties we may acquire in the future.

 

**Our Properties and Operations**

 

***The Lodge Casino—Black Hawk, Colorado***. The Lodge Casino in Black Hawk, Colorado,which commenced operations in June 1998, is one of 21 casinos located inthe gaming district of Black Hawk. The Lodge services the greater Denvermetropolitan area which is located 40 miles east of Black Hawk and has apopulation of approximately 2.4 million, as well as customers from nearbycommunities such as Boulder and Fort Collins, Colorado and Cheyenne, Wyoming.We believe that most of The Lodge’s customers are primarily day trip patronswho reside in the greater Denver metropolitan area. As of December 31,2005, the Black Hawk market had approximately 9,700 gaming devices (slotmachines, blackjack and poker tables) generating approximately $535 million inrevenues for the year then ended. We are one of the largest gaming facilitiesin the market.

 

The Lodge is located on a2.5 acre site that abuts State Highway 119, with approximately 25,000 squarefeet of gaming space on two floors containing 900****slot machines and 30 table games, 50 hotel rooms, threerestaurants, four bars and on-site parking for 600 vehicles. Our propertyincludes The White Buffalo Grille, an upscale dining facility and a buffet thatwas completely remodeled in 2002 at a cost of $1 million. Black Hawk has nosignificant lodging facilities other than our facility and the Isle of Capri,which has a 397-room hotel at its Black Hawk casino. Anothercompetitor has announced plans to construct a 537-room hotel directlyacross from our Lodge casino, which is expected to be completed in the springof 2007.

 

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

 

***The Gilpin Hotel Casino—Black Hawk, Colorado***. The Gilpin Hotel Casino, which commencedoperations in October 1992, is a 37,000 square foot facility located on aone-acre site in the central Black Hawk gaming district. We expanded ourfacility through the acquisition of an adjacent casino in early 1994. We wereone of the first casinos opened in Colorado following the legalization ofcasino gaming in 1991. We offer 480 slot machines,  a restaurant and two bars. We also offer slotclub, busing and other promotional programs, and have available to ourcustomers 200 surface parking spots in the heart of historic Black Hawk.

 

We commenced a remodelingand expansion of the Gilpin Hotel Casino in the third quarter of 2002 to placeall gaming operations on a single floor and to upgrade and renovate the overallstructure. These improvements cost approximately $7.8 million and werecompleted in June 2003. Although we experienced construction and otherdisruptions that adversely affected our business during the remodeling period,we believe these renovations have enhanced the Gilpin Hotel Casino’scompetitiveness in the Black Hawk market. Further, in November 2004, webegan a renovation of the third floor of the Gilpin Hotel Casino, which wascompleted in March 2005 at an approximate cost of $1.8 million. Thisaddition, called the Gilpin Poker Room, initially added 16 live action pokertables with the space to add an additional 4 tables.

 

***The Gold Dust West Casino—Reno, Nevada***. The Gold Dust West Casino, located on 4.6acres in Reno’s central downtown gaming district, has been operating since1978. The casino caters to residents of Reno and surrounding areas and hasabout 17,500 square feet of gaming space, currently accommodating 500 slotmachines. We offer the Wildwood Restaurant, a 6,600 square foot diningfacility, 40 motel rooms, and surface parking for 300 vehicles. In December2005, the Company recorded an abandonment charge of $1,424 representing the netbook value of a stand-alone portion of the Gold Dust West's motel building (the“L-wing”) containing 66 of the previous 106 motel rooms. Afterconsidering alternative plans for this stand-alone portion of the motel,including a possible refurbish, it was decided that the property would bebetter served with improved access and expanded parking. The Company begandemolition of the L-wing during the first quarter of 2006 and expects tocomplete the project late in the second quarter at an estimated total cost of$1.4 million. The Company expects to add approximately 75 parking spaces as aresult of the demolition. The Company will continue to operate the remaining 40hotel rooms. We implemented a slotplayer tracking system in September 2001, which has facilitatedimprovement of the casino’s operating results. During 2002, we made severalimprovements to the property including a significant remodeling of the Wildwoodkitchen and serving line, the addition of outdoor signage, and generallandscaping improvements. The Reno/Sparks, Nevada, market area 

 

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generated approximately $1.0 billion of gamingrevenues during each of the years ended December 31, 2003, 2004 and 2005.There were 25 casinos in the Reno/Sparks market area at December 31, 2005.

 

***Louisiana Gaming Properties***. Our truck plaza properties consist of 11truck plaza video gaming facilities located in Louisiana and we share in thegaming revenues from an additional Louisiana truck plaza gaming facility. Ourproperties include the Houma Truck Plaza and Casino (a leased property) inHouma; Winner’s Choice Casino in Sulphur; Lucky Magnolia Truck Stop and Casinoin St. Helena Parish; Bayou Vista Truck Plaza and Casino in Bayou Vista;Colonel’s Truck Plaza and Casino in Thibodaux; Raceland Truck Plaza and Casinoin Raceland; Breaux Bridge in St. Martin Parish; Eunice in St. Landry Parish;Jefferson in Jefferson Parish (a leased property);Fuel Stop 36 in LakeCharles; and Larose Truck Plaza and Casino in Lockport. We acquired Fuel Stop36 and the Larose Truck Plaza in December 2005. We are also party to anagreement that entitles us to a portion of the gaming revenues from Cash’sTruck Plaza and Casino in Lobdell. Each truck plaza features a conveniencestore, fueling operations, a restaurant operating not fewer than 12 hours perday, and 50 video poker devices (except for Lucky Magnolia Truck Stop andCasino and Larose Truck Plaza, which have 40 devices, and Fuel Stop 36, whichhas 39 devices).

 

The Louisiana video gamingindustry consists of video gaming in 31 of Louisiana’s 64 parishes. Theindustry is highly regulated and video gaming machines can only be placed inqualifying bars, restaurants, hotels, satellite wagering facilities and truckplazas. In order to qualify for video gaming, a truck plaza must offer dieselfuel, gasoline, a convenience store, a restaurant and a place for truck driversto shower and sleep. Our video gaming machines are located in a separate gamingroom that is designed to provide a pleasant casino-like atmosphere. As of December 31,2005, Louisiana had 153 licensed truck plazas.

 

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

 

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

 

The one and one-quarter miledirt track is one of the largest tracks in the United States and its 180-footwide turf track is the widest turf track in North America. These uniqueconfigurations have attracted and are expected to continue to attract qualityhorses to the track. The track is known as a major turf racing center in theMid-Atlantic region. Colonial Downs has conducted approximately 67% of itsthoroughbred races over the turf course in 2005. Colonial Downs is developingthe Virginia Derby, a turf race for three-year old thoroughbreds, into themarquee event of the thoroughbred meet. In 2005, the Virginia Derby was a GradeIII stakes race.

 

In 2005, Colonial Downs createda new stakes race — the Colonial Turf Cup — which together with the VirginiaDerby forms the first two legs of the Grand Slam of GrassTM. TheGrand Slam of GrassTM consists of four races including the two racesat Colonial Downs, the Secretariat to be held at Arlington Park, and the JohnDeere Breeders’ Cup Turf at Churchill Downs Park. Jacobs Investments, anaffiliate of ours, had guaranteed $5 million to any horse that swept theseries. Our horse swept the series. We had purchased an insurance policy to coverthe potential estimated $2.4 million payable by us. The participatingracetracks would have been responsible to pay $2.6 million.

 

***Satellite Wagering Facilities, Virginia***. In addition to our racetrack facility, weoperate nine satellite wagering facilities in Virginia. These facilitiesprovide simulcast pari-mutuel wagering on thoroughbred and harness racing fromour racetrack and selected other racetracks throughout the United States. Oursatellite wagering facilities are located in Brunswick County, two inChesapeake, Hampton, Martinsville, Scott County, Vinton, and two in Richmond.These facilities employ state-of-the-art audio/video technology for receivingquality import simulcast thoroughbred and harness racing from nationally knownracetracks.

 

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

 

In 2003, the legislature ofthe Commonwealth of Virginia passed a statute authorizing the Virginia RacingCommission to grant licenses and thereafter regulate account wagering inVirginia. On April 28, 2004, the Virginia Racing Commission grantedColonial a license to accept wagers over the telephone or through the internetvia its advanced deposit wagering system. The advanced deposit wagering systembecame fully operational late in the third quarter of 2004. In addition,Colonial has entered into agreements with other licensed account wagering providersin Virginia. Pursuant to these agreements, Colonial receives a share of sourcemarket fees for wagers placed by Virginians through these account wageringservice providers. In 2004, the legislature of the Commonwealth of Virginiapassed a statute, signed by the governor of Virginia, authorizing up to tensatellite wagering facilities in localities that approved such facilities byreferenda. On November 2, 2004, referenda were passed authorizing thelocating of a satellite wagering facility in the following counties inVirginia: Henry County, Scott County and Westmoreland County. Thereafter, theVirginia Racing Commission granted Colonial licenses to own and operate asatellite wagering facility in Henry County and Scott County, Virginia. TheVirginia Racing Commission can grant licenses for one more satellite wageringfacility under existing legislation.

 

**Certain Transactions During 2005**

 

***PinonPlaza Resort.***On November 2, 2005, we enteredinto a definitive Asset Purchase Agreement with Capital City Entertainment, Inc.(“CCI”), an unaffiliated party, under which we agreed to acquire all of theassets of the Best Western Pinon Plaza Resort, a division of CCI. The assets tobe purchased include all of the personal property, buildings and improvementsused by Pinon Plaza in the operation of its casino, hotel, bowling alley and RVpark in Carson City, Nevada. The purchase price for the assets is $14,500,000.

 

Contemporaneously, we entered into a triplenet ground lease covering land underlying the assets. The lessor is a familytrust affiliated with CCI. The lease has a ten-year term with two ten-yearextensions at our option. Rentals under the lease are $250,000 per year foryears one through five, $300,000 per year for years six through ten, and a ratebased on an MAI appraisal of the property during the first and second extensionterms. We have the right to purchase the leased land at an MAI-appraised valueat the end of the first ten-year term. We also have a right of first refusalshould the lessor seek to sell the leased land to a third party.

 

Consummation of the Asset Purchase Agreementand entry into the land lease are subject to several customary conditions,particularly including approval of the Nevada State Gaming Control Board andthe Nevada Gaming Commission. Nevada gaming approvals are expected no laterthan June 30, 2006. The transaction is also subject to our obtainingfinancing on terms acceptable to us.

 

The Pinon Plaza Casino, which commencedoperations in 1995 is a 140,000 square foot facility located on 17.7 acrescovered by the land lease discussed above. Pinon Plaza offers 330 slot machinesand nine table games, four restaurants and two bars. It has a slot club andoffers various promotional packages, many associated with its 32 lane bowlingalley. The Pinon Plaza has 148 hotel rooms and operates under the “Best Western”brand and reservation system. It also owns and operates a 48-space RV park as part ofthe resort. There are 750 parking spaces for Pinon Plaza’s casino patrons andhotel guests.

 

***ColonialDowns Management Agreement.***In 1996, ColonialDowns, L.P., our wholly owned subsidiary, entered into a Management andConsulting Agreement with Maryland-Virginia Racing Circuit, Inc. (the “Circuit”),an affiliate of the Maryland Jockey Club (“MJC”), which was subsequentlyamended several times, to provide management for Colonial’s New Kent, Virginia,racetrack and satellite wagering facilities and to create a Maryland-Virginiathoroughbred racing circuit. Under the agreement, MJC agreed to suspend liveracing at its racetracks, Laurel Park and Pimlico Race Course, during Colonial’slive thoroughbred meets. Parties to the agreement also exchanged simulcastsignals for their live meets at no cost to either party. The Circuit managedColonial’s satellite facilities as well as the live standardbred andthoroughbred meets and provided certain personnel, at its expense, for the livethoroughbred meet. For its services, the Circuit received a 

 

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management fee of 1.0% of the first $75 million of the aggregate grossamounts wagered in any calendar year in Virginia, excluding certain amountsspecified in the agreement (“Handle”), and 2.0% of all Handle in excess of $75million per calendar year. In addition, Colonial agreed to pay a management feeof 3.25% of Handle for any future satellite facilities located in the countiesof Loudoun, Fairfax, Prince William, and Arlington and the Virginia cities ofManassas, Manassas Park, Fairfax City, Falls Church, and Alexandria.

 

In February 2003, Colonial entered intoan amendment to the agreement pursuant to which the Circuit agreed to amanagement fee of 1.5% of Handle for Handle in excess of $125 million generatedfrom the racetrack and satellite facilities located in Richmond, Chesapeake,Brunswick, and Hampton and certain localities in the Central and Southsideportions of Virginia. The agreement, as amended, was to remain in effect until2036, provided Colonial owned, controlled, or operated the racetrack under itsexisting licenses. At Colonial’s option, Colonial had the right to terminatethe agreement any time after 2021 upon payment of a fee equal to 17 times theaverage management fee paid during the three years immediately preceding suchtermination.

 

On August 17,2005, Colonial entered into an agreement with Magna Entertainment Corp.(“MEC”), an unaffiliated party, under which Colonial acquired all of theoutstanding shares of the Circuit, a wholly owned subsidiary of MEC. Under theterms of the agreement, Colonial paid MEC $7 million on closing and $3 millionby way of a one-year interest-bearing note. Colonial also paid the Circuit’sprorated 2005 management fees and repaid approximately $145,000 plus accruedinterest under an existing outstanding promissory note. A Maryland-Virginiathoroughbred racing circuit will continue for ten years under the agreement,with live thoroughbred racing concluding in Maryland by June 17 of eachyear and commencing at Colonial Downs thereafter. No live thoroughbred racingin Maryland will resume any earlier than August 1 of each year.

 

The purpose of the transaction was to obviatethe approximately $1.8 million annual management fees payable to the Circuitunder the contract which was effective until 2036. Colonial will, however,incur additional costs since it now will be responsible for the full cost ofthe thoroughbred meet as it assumes full management of the racing satellitewagering facilities. The stock acquisition which resulted in the indirectacquisition of the management agreement has been characterized as a terminationof a contract because the primary asset owned by the Circuit was the managementagreement with Colonial. As such, $10.4 million, consisting of the $10 millionpurchase price plus $400,000 in legal and professional fees associated withthis transaction, has been expensed in our 2005 financial statements.

 

***Elko,Nevada Land Lease.***On November 14, 2005, weentered into a triple net lease with an unaffiliated party for the lease of a37,000 square foot building and approximately six acres of land in Elko,Nevada. The lease has a five-year term with three five-year renewals at ouroption. Rent under the lease is $225,000 for the first year, with $50,000 ofthe first-year rent abated as an allowance for tenant improvements. The secondyear’s rent is $375,000 and for years three through five the annual rent is$450,000.

 

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

 

Our plan, which is subject to gaming approvaland suitable financing, is to renovate and upgrade the building and installapproximately 350 slot machines, six table games and appropriate food and beverageofferings. We estimate total pre-opening and gaming device costs to beapproximately $25 million. Although there can be no assurance, we expect tocommence renovation during the fourth quarter of 2006.

 

***DakotaWorks Land Lease and Option.***On September 12,2005, we entered into an agreement with Dakota/Blackhawk, LLC, an unaffiliatedColorado limited liability company (“Dakota”), granting us the option topurchase 2.2258 acres of undeveloped land situated in Gilpin County, Colorado,40,788 square feet of which is situated within the Black Hawk Gaming Districtof Gilpin County, Colorado.

 

Pursuant to the option agreement, we have theexclusive right to purchase the property for $13 million. The option has aninitial term of one year, with a right in our favor to extend the initial termfor an additional one year period upon the payment of a non-refundableextension fee of $500,000. The option agreement provides for an initial optionfee of $500,000 comprised of the following: (i) an initial deposit in the amountof $250,000, which was paid on the execution of the option agreement and (ii) asecond payment of $250,000, which will be due 180 days from the execution date,provided that the option agreement has not been terminated earlier. Fiftypercent of the initial option fee and fifty percent of the extension fee are tobe applied to the purchase price if the property is purchased.

 

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If the real estate purchase contract isclosed, the purchase price must be paid as follows: (i) 50% of thepurchase price minus the option fee credit, in cash or immediately availablefunds at closing; and (ii) a four year promissory note in the amount of50% of the purchase price executed by us.

 

The property is across Main Street from ourLodge Casino. During the near term we intend to level the property tograde (at an estimated cost of $3.7 million) and utilize the additional surfaceparking to facilitate parking at The Lodge. In the long term, while no planshave been finalized, we may seek to develop the property into ahotel/casino which will be integrated with The Lodge facilities.

 

***VideoGaming Truck Plazas.***In December 2005, weacquired two of our 11 Louisiana truck plaza video gaming facilities from twounaffiliated companies for an aggregate consideration of $12.3 million. We paid$3.5 million of the purchase price from internal funds and our ownerscontributed $8.8 million in additional capital to the company to pay thebalance. The two truck plazas acquired were Fuel Stop 36 located in CalcasieuParish and Larose Truck Plaza located in Lafourche Parish. Fuel Stop 36 islocated near Lake Charles, Louisiana and had 39 video draw poker gaming deviceswhen purchased. We are currently expanding that operation to fifty devices.Larose is located in Lockport, Louisiana and currently contains 40 video drawpoker gaming devices. We acquired all of the land and buildings associated withboth of these operations.

 

**Seasonality and Weather Conditions**

 

Seasonality and weatherconditions can affect our results of operations. Winter travel conditions canadversely affect patronage and revenues at our Colorado casinos. Althoughcasino business is not seasonal, levels of gaming activity increasesignificantly during weekends and holidays, especially holiday weekends.Hurricanes Katrina and Rita temporarily affected our truck plaza video gamingoperations in late 2005. Similar hurricanes could have a material adverse effect on our Louisianaoperations in future years. Our pari-mutuel wagering revenues are higher duringscheduled live racing than at other times of the year. Adverse weatherconditions can cause cancellation of or curtail attendance at outdoor races,thereby reducing wagering and our revenues. Attendance and wagering at both outdoorraces and satellite wagering facilities can be harmed by holidays and othercompeting seasonal activities.

 

**Competition**

 

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

 

We compete with other forms of gaming andentertainment such as online computer gaming, bingo, pull-tab games, cardparlors, sports books, pari-mutuel or telephonic betting on horse racing anddog racing, state-sponsored lotteries, video lottery terminals, and video pokerterminals. In the future, we may compete with gaming at other venues.

 

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

 

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

 

Our Colorado casinos are on opposite sides of MainStreet in Black Hawk. Because of their proximity, our Black Hawk casinoscompete for some of the same customers. Further, there were 20 other casinosoperating in Black Hawk on 

 

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December 31,2005. There were approximately 9,700 gaming devices (slot machines, blackjackand poker tables) in Black Hawk as of December 31, 2005.

 

Central City is located adjacent to Black Hawk andprovides the most direct competition to the gaming establishments in BlackHawk. There were six casinos operating in Central City with approximately 2,000gaming devices as of December 31, 2005. Black Hawk has historicallyenjoyed a competitive advantage over Central City in large part becauseaccess by State Highway 119 (formerly the only major access to Black Hawk fromthe Denver metropolitan area and Interstate 70) requires customers to drive byand, in part, through Black Hawk to reach Central City. Central City acquired aright-of-way and formed an entity to construct a road from I-70 directly intoCentral City, commonly referred to as the Southern Access. Financing wasobtained and road construction was completed in late 2004. It is now possiblefor certain traffic that passed through Black Hawk to proceed directly toCentral City from Interstate 70. Nonetheless, motorists driving from the Denvermetropolitan area still have the option of choosing to go either to Black Hawkor Central City without having to drive through the other town. Sincecompletion of the Southern Access, three additional casinos have reopened ordeveloped in Central City.

 

Large, well-financed companies have entered theBlack Hawk and other Colorado markets and others may enter through thepurchase or expansion of existing facilities, which could have a materialadverse effect on our results of operations and financial position. Forexample, the Mountain High Casino (formerly the Black Hawk Casino by Hyatt)opened in December 2001. The Mountain High Casino is directly across thestreet from The Lodge Casino. On January 1, 2005, Ameristar Casinos, Inc.purchased this facility and has since announced that it will commenceconstruction of a 537 hotel room tower, a convention center, and otheramenities. Under Ameristar’s ownership, this facility has been expanded toapproximately 1,900 slot machines and 24 table games, and a parking garageaccommodating 800 vehicles. No other casinos are currently under construction inBlack Hawk. In 2003, the Isle of Capri Casinos, Inc. purchased ColoradoCentral Station, directly across the street from its existing facility andsubsequently completed a major renovation and expansion project physicallylinking the two properties. The combined casinos are the largest in Black Hawkwith approximately 2,200 gaming devices, 400 hotel rooms and 2,500 parkingspaces. The Isle of Capri is noted for its aggressive marketing programs. TheMardi Gras casino, next to our Lodge casino, was purchased in 2005 and the newowners can be expected to develop and implement new marketing programs.

 

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

 

Our video gaming operations also face competitionfrom other truck plaza video gaming facilities located in surrounding areas, aswell as competition from Louisiana horse racing facilities, some of which havebeen authorized to operate video gaming machines, and restaurants and bars withvideo gaming machines. As of December 31, 2005, there were 153 truckplazas in Louisiana licensed to operate video gaming devices.

 

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

 

We have competed and will compete for wageringdollars and simulcast fees with live racing and races simulcast from racetracksin other states, particularly racetracks in neighboring states such as CharlesTown in West Virginia, Pimlico Race Course, Laurel Park, and Rosecroft Racewayin Maryland, and Delaware Park in Delaware. In connection with our acquisitionof the Circuit, a subsidiary of MEC, we entered into an agreement pursuant towhich a Maryland-Virginia thoroughbred racing circuit continues for tenyears, with live thoroughbred racing concluding in Maryland by June 17 ofeach year and commencing at Colonial Downs thereafter. No live thoroughbredracing in Maryland will resume any earlier than August. If the Virginia orMaryland Racing Commissions do not agree to the party’s proposed racing days inany of the next ten years, our track may compete directly with PimlicoRace Course and Laurel Park in Maryland.

 

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

 

**Employees and Labor Relations**

 

As of year end, we hadapproximately 1,000 full-time and part-time employees at our facilities inBlack Hawk, Colorado, and Reno, Nevada, 400 employees at our facilities inVirginia and 185 employees at our facilities in Louisiana. Employees includecashiers, dealers, food and beverage service personnel, facilities maintenance,security, valet, accounting, marketing, and personnel services. We considerrelations with our employees to be good.

 

None of our employees arerepresented by any union or other labor organization.

 

**Regulation**

 

***GamingRegulation and Licensing—Colorado***

 

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

 

It is illegal to operate a gaming facility without alicense issued by the Gaming Commission. The Gaming Commission is empowered toissue five types of gaming and gaming-related licenses. The licenses arerevocable and nontransferable. Black Hawk Gaming’s failure or inability toobtain and maintain necessary gaming licenses would have a material adverseeffect on its gaming operations.

 

The Colorado casinos were granted retail/operatorlicenses concurrently with their openings. The licenses are subject tocontinued satisfaction of suitability requirements and must be renewedannually. The current licenses for both Colorado casinos were renewed on April 21,2005. There can be no assurance that the Colorado casinos can successfullyrenew their licenses in a timely manner from year to year.

 

All persons employed by Black Hawk Gaming who areinvolved, directly or indirectly, in gaming operations in Colorado also arerequired to obtain various forms of gaming licenses. Key licenses are issued to“key employees,” which include any executive, employee or agent of a licenseehaving the power to exercise a significant influence over decisions concerningany part of the operations of a licensee. At least one key license holdermust be on the premises of each Colorado casino at all times that a casino isopen for business. Messrs. Jacobs and Roark and Stanley Politano (BlackHawk Gaming’s Secretary), among others, hold key licenses.

 

The Gaming Commission closely regulates thesuitability of persons owning or seeking to renew an interest in a gaminglicense, and the suitability of a licensee can be adversely affected by personsassociated with the licensee. Additionally, any person or entity having anydirect interest in Black Hawk Gaming or any casino directly or indirectly ownedby Black Hawk Gaming may be subject to administrative action, includingpersonal history and background investigations. The actions of personsassociated with Jacobs Entertainment, Inc., such as its management oremployees, could jeopardize any licenses held by Black Hawk Gaming. All ofBlack Hawk Gaming’s directors are required to be found suitable as associatedpersons.

 

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

 

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

 

The Gaming Commission has the right to requestinformation from any person directly or indirectly interested in, or employedby, a licensee, and to investigate the moral character, honesty, integrity,prior activities, criminal record, reputation, habits and associations of (i) allpersons licensed pursuant to the Colorado Limited Gaming Act, (ii) allofficers, directors and stockholders of a licensed privately held corporation, (iii) allofficers, directors and stockholders holding either a 5% or greater interest ora controlling interest in a licensed publicly traded corporation, (iv) anyperson who as agent, consultant, advisor or otherwise, exercises a significantinfluence upon the management or affairs of a publicly traded corporation, (v) allgeneral partners and all limited partners of a licensed partnership, (vi) allpersons that have a relationship similar to that of an officer, director orstockholder of a corporation (such as members and managers of a limitedliability company), (vii) all persons supplying financing or lending moneyto any licensee connected with the establishment or operation of limitedgaming, and (viii) all persons having a contract, lease or ongoingfinancial or business arrangement with any licensee, if such contract, lease orarrangement relates to limited gaming operations, equipment, devices orpremises.

 

If the Gaming Commission determines that a person orentity is not suitable to own a direct or indirect voting interest in BlackHawk Gaming or Gameco, Black Hawk Gaming may be sanctioned unless theperson or entity disposes of its voting interest. Sanctions may includethe loss of the casino licenses. In addition, the Colorado Regulations prohibita licensee or any affiliate of a licensee from paying dividends, interest orother remuneration to any person found to be unsuitable, or recognizing theexercise of any voting rights by any person found to be unsuitable. TheColorado Regulations require an operating casino licensee to include in itscorporate charter provisions that permit the repurchase of the voting interestsof any person found to be unsuitable. Black Hawk Gaming’s Articles ofIncorporation include the required provisions.

 

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

 

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

 

Under Rule 4.5,gaming licensees, affiliated companies and controlling persons commencing apublic offering of voting securities must notify the Gaming Commission no laterthan ten business days after the initial filing of a registration statementwith the Securities and Exchange Commission. Licensed publicly tradedcorporations are also required to send proxy statements to the Division ofGaming within five days after their distribution. Licensees to whom Rule 4.5applies must include in their charter documents provisions that: restrict therights of the licensees to issue voting interests or securities except inaccordance with the Colorado Gaming Act and the Colorado Regulations; void thetransfer of voting securities or other voting interests issued in violation ofthe Colorado Gaming Act and the Colorado Regulations until the issuer ceases tobe subject to the jurisdiction of the Gaming Commission or until the GamingCommission, by affirmative act, validates the transfer; and provide thatholders of voting interests or securities of licensees found unsuitable by theGaming Commission may, within 60 days of such finding of unsuitability, berequired to sell their interests or securities back to the issuer at the lesserof the cash equivalent of the holders’ investment or the market price as of thedate of the finding of unsuitability. Alternatively, the holders may, within 60days after the finding of unsuitability, transfer the voting interests or

 

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securities to aperson suitable to the Gaming Commission. Until the voting interests orsecurities are held by suitable persons, the issuer may not pay dividendsor interest, the securities may not be voted, they may not beincluded in the voting or securities of the issuer, and the issuer may notpay any remuneration in any form to the holders of the securities.

 

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

 

•                                          5% or more of any class ofvoting securities of a publicly traded corporation that is required to includein its articles of organization the Rule 4.5 charter language provisions;or

 

•                                          5% or more of thebeneficial interest in a gaming licensee directly or indirectly through any class ofvoting securities of any holding company or intermediary company of a licensee,referred to as qualifying persons.

 

Notification must be made by persons acquiring theseinterests. Such persons must submit all requested information to the Divisionof Gaming, are subject to a finding of suitability as required by the Divisionof Gaming or the Gaming Commission, and must be informed of these requirementsby the licensee. A person other than an institutional investor whose interestequals 10% or more of a publicly traded corporation or a 10% beneficialinterest in a gaming licensee must apply to the Gaming Commission for a findingof suitability within 45 days after acquiring such securities.

 

Aninstitutional investor who, individually or in association with others,acquires, directly or indirectly, the beneficial ownership of 15% or more ofany class of voting securities or 15% of the beneficial interest in agaming licensee must apply to the Gaming Commission for a finding ofsuitability within 45 days after acquiring such interests.

 

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

 

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

 

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

 

Colorado casinos may operate only between 8:00 a.m.and 2:00 a.m., and may permit only individuals 21 years or older togamble or consume alcohol in the casino. Slot machines, black jack, pokerand other approved variations of those games and video poker are the onlypermitted games, with a maximum single wager of $5.00. Colorado casinos may notextend credit to gaming patrons. The Colorado Constitution and Regulationsrestrict the percentage of space a casino may use for gaming to 50% of anyfloor and 35% of the overall square footage of the building in which the casinois located. Effective July 1 of each year, Colorado establishes the grossgaming revenue tax rate for the ensuing 12 months. Under the ColoradoConstitution, the rate can be increased to as much as 40% of adjusted grossproceeds. Colorado has both raised and lowered gaming tax rates since they wereinitially set in 1991. Currently, the maximum gaming tax rate is 20%.

 

***GamingRegulation and Licensing—Nevada***

 

The ownership and operation of casino gamingfacilities in Nevada, including the Nevada casino operated by our indirectsubsidiary Gold Dust West Casino, Inc. (“Gold Dust West”), are subject tothe Nevada Gaming Control Act and the regulations promulgated thereunder (the “NevadaAct”) and to the licensing and regulatory control of the Nevada GamingCommission (the “Nevada Commission”), the Nevada State Gaming Control Board(the “Nevada Board”), and various local ordinances and regulations, including,without limitation, those of the City of Reno (collectively, the “Nevada GamingAuthorities”).

 

The laws, regulations and supervisory procedures ofthe Nevada Gaming Authorities are based upon declarations of public policywhich are concerned with, among other things: (i) the prevention ofunsavory or unsuitable persons from 

 

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havinga direct or indirect involvement with gaming at any time or in any capacity; (ii) theestablishment and maintenance of responsible accounting practices andprocedures; (iii) the maintenance of effective controls over the financialpractices of licensees, including the establishment of minimum procedures forinternal fiscal affairs and the safeguarding of assets and revenues, providingreliable record keeping and filing periodic reports with the Nevada GamingAuthorities; (iv) the prevention of cheating and fraudulent practices; and(v) providing a source of state and local revenues through taxation andlicensing fees. Change in such laws, regulations and procedures could have anadverse effect on our Nevada gaming operations.

 

Gold Dust Westhas been licensed by the Nevada Gaming Authorities. Gaming licenses require theperiodic payment of fees and taxes and are not transferable. Our subsidiaryBlack Hawk Gaming & Development Company, Inc. (“Black Hawk Gaming”)is currently registered by the Nevada Commission as an intermediary company andhas been found suitable to own the stock of Gold Dust West, which is acorporate licensee under the terms of the Nevada Act. Jacobs Entertainment iscurrently registered by the Nevada Commission as a publicly traded corporation(a “Registered Corporation”) and has been found suitable as the soleshareholder of Black Hawk Gaming. Registered Corporations, registeredintermediary companies, and corporate licensees are required periodically tosubmit detailed financial and operating reports to the Nevada Commission andfurnish any other information that the Nevada Commission may require.Substantially all material loans, leases, sales of securities and similarfinancing transactions by Jacobs Entertainment, Black Hawk Gaming and Gold DustWest must be reported to or approved by the Nevada Commission. No person may becomea stockholder of, or holder of an interest in, or receive any percentageof profits from a corporate licensee without first obtaining licenses andapprovals from the Nevada Gaming Authorities. Jacobs Entertainment, Black HawkGaming, and Gold Dust West’s controlling persons, directors and certainofficers have obtained from the Nevada Gaming Authorities the variousregistrations, findings of suitability, approvals, permits and licensesrequired in order to engage in gaming activities in Reno, Nevada.

 

The Nevada Gaming Authorities may investigateany individual who has a material relationship to, or material involvementwith, Jacobs Entertainment, Black Hawk Gaming or Gold Dust West in order todetermine whether that individual is suitable or should be licensed as abusiness associate of a gaming licensee. The officers, directors andshareholders of Jacobs Entertainment must file applications with and belicensed or found suitable by the Nevada Gaming Authorities. The officers,directors and certain key employees of Black Hawk Gaming and Gold Dust Westmust file applications with the Nevada Gaming Authorities and may berequired to be licensed or found suitable by the Nevada Gaming Authorities. Theofficers, directors and key employees of Jacobs Entertainment and Black HawkGaming who are actively and directly involved in the gaming activities of GoldDust West may be required to be licensed or found suitable by the NevadaGaming Authorities. The Nevada Gaming Authorities may deny an applicationfor licensing for any cause that they deem reasonable. A finding of suitabilityis comparable to licensing, and both require submission of detailed personaland financial information followed by a thorough investigation. The applicantfor licensing or a finding of suitability must pay all the costs of theinvestigation. Changes in licensed positions must be reported to the NevadaGaming Authorities and, in addition to their authority to deny an applicationfor a finding of suitability or licensure, the Nevada Gaming Authorities havejurisdiction to disapprove a change in a corporate position.

 

If the Nevada Gaming Authorities were to find anofficer, director or key employee unsuitable for licensing or unsuitable tocontinue having a relationship with Jacobs Entertainment, Black Hawk Gaming orGold Dust West, the companies involved would have to sever all relationshipswith that person. In addition, the Nevada Commission may require Jacobs Entertainment,Black Hawk Gaming or Gold Dust West to terminate the employment of any personwho refuses to file appropriate applications. Determinations of suitability orof questions pertaining to licensing are not subject to judicial review inNevada.

 

Jacobs Entertainment, Black Hawk Gaming and GoldDust West are required periodically to submit detailed financial and operatingreports to the Nevada Commission and furnish any other information that theNevada Commission may require. Substantially all of Jacobs Entertainment’s,Black Hawk Gaming’s and Gold Dust West’s material loans, leases, sales ofsecurities and similar financing transactions must be reported to or approvedby the Nevada Commission.

 

If it were determined that the Nevada Act wasviolated by Jacobs Entertainment, Black Hawk Gaming or Gold Dust West, theregistrations or gaming licenses that Jacobs Entertainment, Black Hawk Gaming,and Gold Dust West hold could be limited, conditioned, suspended or revoked,subject to compliance with certain statutory and regulatory procedures. Inaddition, Jacobs Entertainment, Black Hawk Gaming, Gold Dust West and thepersons involved could be subject to substantial fines for each separateviolation of the Nevada Act at the discretion of the Nevada Commission.Further, a supervisor could be appointed by the Nevada Commission to operatethe Gold Dust West Casino and, under certain 

 

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circumstances,earnings generated during the supervisor’s appointment (except for reasonablerental value of the casino) could be forfeited to the State of Nevada.Limitation, conditioning or suspension of the gaming licenses of Gold Dust Westor the appointment of a supervisor could (and revocation of any gaming licensewould) have a material adverse effect on Jacobs Entertainment’s gamingoperations, financial condition and results of operations.

 

The Nevada Act requires any person who acquiresbeneficial ownership of more than 5% of a Registered Corporation’s votingsecurities to report the acquisition to the Nevada Commission. The Nevada Actrequires that beneficial owners of more than 10% of a Registered Corporation’svoting securities apply to the Nevada Commission for a finding of suitabilitywithin 30 days after the Chairman of the Nevada Board mails the written noticerequiring such filing. Under certain circumstances, an “institutional investor,”as defined in the Nevada Act, that acquires more than 10%, but not more than15%, of our voting securities may apply to the Nevada Commission for awaiver of a finding of suitability if that institutional investor holds thevoting securities for investment purposes only. In certain circumstances, aninstitutional investor that has obtained a waiver may hold up to 19% ofour voting securities for a limited period of time and maintain the waiver. Aninstitutional investor will not be deemed to hold voting securities forinvestment purposes unless the voting securities were acquired and are held inthe ordinary course of business as an institutional investor and not for thepurpose of causing, directly or indirectly, the election of a majority of themembers of our board of directors, any change in our corporate charter, bylaws,management, policies or operations, or of any of our gaming affiliates, or anyother action that the Nevada Commission finds to be inconsistent with holdingour voting securities for investment purposes only. Activities which are notdeemed to be inconsistent with holding voting securities for investment purposesonly include: (i) voting on all matters voted on by stockholders; (ii) makingfinancial and other inquiries of management of the type normally made bysecurities analysts for informational purposes and not to cause a change in itsmanagement, policies or operations; and (iii) such other activities as theNevada Commission may determine to be consistent with such investmentintent. If the beneficial holder of voting securities who must be foundsuitable is a corporation, partnership or trust, it must submit detailedbusiness and financial information, including a list of beneficial owners. Theapplicant is required to pay all costs of investigation.

 

Any person who fails or refuses to apply for afinding of suitability or a license within 30 days after being ordered to do soby the Nevada Commission or the Chairman of the Nevada Board may be foundunsuitable. The same restrictions apply to a record owner if the record owner,after request, fails to identify the beneficial owner. Any stockholder foundunsuitable and who holds, directly or indirectly, any beneficial ownership ofthe common stock beyond such period of time as may be prescribed by theNevada Commission may be guilty of a criminal offense. We will be subjectto disciplinary action if, after we receive notice that a person is unsuitableto be a stockholder or to have any other relationship with us, we (i) paythat person any dividend or interest on our voting securities, (ii) allowthat person to exercise, directly or indirectly, any voting right conferredthrough securities held by that person, (iii) pay remuneration in any form tothat person for services rendered or otherwise, or (iv) fail to pursue alllawful efforts to require that unsuitable person to relinquish its votingsecurities including, if necessary, the immediate purchase of the votingsecurities for cash at fair market value. Additionally, the City of Reno hasthe authority to approve all persons owning or controlling the stock of anycorporation controlling a gaming licensee operating in Reno.

 

The Nevada Commission may, in its discretion,require the holder of any of our debt or similar securities, such as the notesor exchange notes, to file applications, be investigated and be found suitableto own our debt securities if the Nevada Commission has reason to believe thatsuch ownership would otherwise be inconsistent with the declared policies ofthe State of Nevada. If the Nevada Commission determines that a person isunsuitable to own those securities, then pursuant to the Nevada Act, we can besanctioned, including by revocation of our approvals, if without the priorapproval of the Nevada Commission, we (i) pay to the unsuitable person anydividend, interest, or any distribution whatsoever; (ii) recognize anyvoting right by the unsuitable person in connection with our securities; (iii) paythe unsuitable person remuneration in any form; or (iv) make any paymentto the unsuitable person by way of principal, redemption, conversion, exchange,liquidation, or similar transaction.

 

Jacobs Entertainment and Black Hawk Gaming arerequired to maintain a current stock ledger in Nevada that may be examinedby the Nevada Gaming Authorities at any time. If any securities are held intrust by an agent or by a nominee, the record holder may be required todisclose the identity of the beneficial owner to the Nevada Gaming Authorities.A failure to make the required disclosure may be grounds for finding therecord holder unsuitable. We are also required to render maximum assistance indetermining the identity of the beneficial owner. The Nevada Commission has thepower to require our stock certificates to bear a legend indicating that thesecurities are subject to the Nevada Act. To date, the Nevada Commission hasnot imposed such a requirement on us.

 

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Jacobs Entertainment and Black Hawk Gaming may not make a publicoffering without the prior approval of the Nevada Commission if the proceedsfrom the offering are intended to be used to construct, acquire or financegaming facilities in Nevada, or to retire or extend obligations incurred forthose purposes or for similar transactions. On September 27, 2005, theNevada Commission granted Jacobs Entertainment prior approval to make publicofferings for a period of two years, subject to certain conditions (the “ShelfApproval”). The Shelf Approval also applies to any affiliated company whollyowned by us which is a publicly traded corporation or would become a publiclytraded corporation pursuant to a public offering. The Shelf Approval, however, may berescinded for good cause without prior notice upon the issuance of aninterlocutory stop order by the Chairman of the Nevada Board. The ShelfApproval does not constitute a finding, recommendation or approval by any ofthe Nevada Gaming Authorities as to the accuracy or adequacy of the offeringmemorandum or the investment merits of the securities. Any representation tothe contrary is unlawful.

 

Changes in control of Jacobs Entertainment or Black Hawk Gaming throughmerger, consolidation, stock or asset acquisitions, management or consultingagreements, or any act or conduct by a person by which it obtains control ofJacobs Entertainment or Black Hawk Gaming, may not occur without the priorapproval of the Nevada Commission. Entities seeking to acquire control of usmust satisfy the Nevada Board and Nevada Commission on a variety of stringentstandards prior to assuming control of us. The Nevada Commission may alsorequire controlling stockholders, officers, directors and other persons havinga material relationship or involvement with the entity proposing to acquirecontrol, to be investigated and licensed as part of the approval processrelating to the transaction.

 

The Nevada legislature has declared that somecorporate acquisitions opposed by management, repurchases of voting securities,and corporate defense tactics affecting Nevada corporate gaming licensees may beinjurious to stable and productive corporate gaming. Regulations of the NevadaGaming Commission provide that control of a Registered Corporation cannot beacquired through a tender offer, merger, consolidation, acquisition of assets,management or consulting agreements or any form of takeover whatsoeverwithout the prior approval of the Nevada Gaming Commission. The NevadaCommission has established a regulatory scheme to ameliorate the potentiallyadverse effects of these business practices on Nevada’s gaming industry and tofurther Nevada’s policy to: (i) assure the financial stability of corporategaming licensees and their affiliates; (ii) preserve the beneficialaspects of conducting business in the corporate form; and (iii) promote aneutral environment for the orderly governance of corporate affairs. Approvalsare, in certain circumstances, required from the Nevada Commission before wecan make exceptional repurchases of voting securities above the current marketprice thereof and before a corporate acquisition opposed by management can beconsummated. The Nevada Act also requires prior approval of a plan ofrecapitalization proposed by us in response to a tender offer made directly toour stockholders for the purposes of acquiring control of us.

 

License fees and taxes, computed in various waysdepending on the type of gaming or activity involved, are payable to the Stateof Nevada and to the counties and cities in which the Nevada licensee’soperations are conducted. Depending on the particular fee or tax involved,these fees and taxes are payable either monthly, quarterly or annually and are basedon either (i) a percentage of the gross revenues received; (ii) thenumber of gaming devices operated; or (iii) the number of table gamesoperated. A casino entertainment tax is also paid by casino operations whereentertainment is furnished in connection with an admission fee and the sellingor serving of food or refreshments or the selling of merchandise. See “—Taxation”below.

 

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

 

***GamingRegulation and Licensing—Louisiana***

 

Video gaming in Louisiana is regulated by theLouisiana Gaming Control Board, which is part of the Department of PublicSafety and Corrections. The enforcement arm thereof in charge of licensing andcriminal investigations is the Video 

 

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GamingDivision of the Louisiana State Police, likewise a part of the Departmentof Public Safety and Corrections. The Gaming Section of the AttorneyGeneral’s Office provides all legal counsel and representation with respect toall matters involving licensing actions and any other litigation issue relativeto gaming and involving either the Louisiana Gaming Control Board (hereinafterthe “Board”) or the Video Gaming Division of the Louisiana State Police(hereinafter the “Division”).

 

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

 

The act gives the Board broad authority anddiscretion in the licensing of persons for video draw poker operations withinthe State of Louisiana. Generally, a person may not be licensed for videodraw poker if he has been convicted in any jurisdiction of any of the followingoffenses within ten years prior to the date of the application for a video drawpoker license or less than ten years has elapsed between the date ofapplication for a video draw poker license and the successful completion orservice of any sentence, deferred adjudication, or period of probation orparole for any such offense: (i) any offense punishable by imprisonmentfor more than one year; (ii) theft or any crime involving false statementsor declarations; or (iii) gambling, as defined by the laws or ordinancesof any municipality, any parish, any state, or the United States. The act andits corresponding regulations further provide that an application for a videodraw poker license may be denied if it contains any material omission ofinformation. An applicant must also not be delinquent in state or federalincome taxes, penalties or interest or delinquent in the payment of any salestaxes, penalties, or interest to either the state or any local governingauthority of the parish or municipality in which the establishment is located.

 

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

 

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

 

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

 

The exercise of voting privileges with regard topublicly traded securities is not deemed to constitute the exercise ofinfluence over the affairs of a licensee. The act also provides that thisexception is not to be construed to preclude the Board or the Division frominvestigating the suitability or qualifications of an institutional investorshould the Board or Division become aware of facts or information which may resultin such institutional investor being found unsuitable or disqualified.

 

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An institutional investor is defined in the act as: (i) aplan or trust established and maintained by the United States Government, astate, or a political subdivision of a state for the benefit of theirrespective employees; (ii) an investment company that is registered underthe Investment Company Act of 1940; (iii) a collective investment trustorganized by a bank under Part Nine of the Rules of the Comptrollerof the Currency; (iv) a closed end investment trust that is registeredwith the United States Securities and Exchange Commission; (v) a mutualfund; (vi) a life insurance company or property and casualty company; (vii) afederal or state bank; or (viii) an investment advisor registered underthe Investment Advisers Act of 1940.

 

If any person required to be found qualified orsuitable fails to provide all or part of the documents or informationrequired by the Board or the Division, and if, as a result, any person holdinga license issued pursuant to the act is not or may no longer be qualifiedor suitable, the Board will issue, under penalty of revocation of the license,a condition naming the person who failed to provide all or part of thedocuments or information required by the Board or the Division, and declaringthat such person may not: (i) receive dividends or interest onsecurities of a corporation holding a license, if the person has or controlsdirectly or indirectly more than a 5% ownership, income, or profit interest insuch corporation; (ii) exercise directly, or through a trustee or nominee,a right conferred by securities of a corporation holding a license, if theperson has or controls directly or indirectly more than a five percentownership, income, or profit interest in such corporation; (iii) receiveremuneration or other economic benefit from any person holding a license issuedpursuant to the provisions of the act; (iv) exercise significant influenceover the activities of a person holding a license issued pursuant to theprovisions of the act; or (v) continue owning or holding a security of acorporation holding a license if the person has or controls directly orindirectly more than a 5% ownership, income, or profit interest in suchcorporation.

 

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

 

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

 

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

 

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

 

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

 

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

 

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50,000gallons per month but more than 25,000 gallons per month in any calendarquarter, the truck stop facility will not be permitted to operate any videodraw poker devices in the following calendar quarter. A qualified truck stopfacility that sells less than an average of 25,000 gallons per month in anycalendar quarter will be subject to revocation of its video draw poker license.Bulk sales or transfers may not be used to calculate monthly averages. Thefuel facility is required to offer fuel for sale in the regular course ofbusiness at retail, at a price at least 6% above the delivered cost of thefuel.

 

In addition, under the act, a qualified truck stopfacility is required to have at least five developed contiguous acres and sellfuel, lubricating oil, and other vehicular merchandise, such as batteries,tires, or vehicle parts for eighteen-wheel tractor-trailers, and also meet allof the following criteria: (i) it must be located adjacent to a majorstate or interstate highway, as defined by the Board (within 2,000 feet of amajor state highway or U.S. interstate highway); (ii) it must have anon-site restaurant with all of the following features: (a) providesseating for at least 50 patrons; (b) provides full table service forsit-down meals; (c) is open 12 hours a day; (d) offers a varied menu;and (e) operates a fully equipped kitchen which includes, but is notlimited to, a range oven and refrigerated storage appliances used for the preparationof foods for on-premises or immediate consumption; (iii) it must haveparking areas with each of the following: (a) a stable parking area for atleast 50 18-wheel tractor-trailer motor vehicles, either paved or concrete (orotherwise certified and approved), to support 18-wheel tractor- trailer motorvehicles and their loads, constructed according to industry specifications,subject to approval by the Board and the Division; (b) parking ofsufficient size is allowed for safe ingress and egress; (c) parking areasfor other vehicles around business entrance ways and exits shall not constituteparking areas for 18-wheel tractor-trailer motor vehicles; (iv) it musthave diesel and gasoline fuel; (v) it must have on-site repair servicefacilities for 18-wheel tractor-trailer motor vehicles which facility may bein the form of a contract services business which regularly performs thistype of service; (vi) it must have at least four of the followingamenities: (a) a separate truckers’ television lounge; (b) a fullservice laundry facility located in a convenient area for truckers’ use; (c) privateshowers for men and women, not located in an area open to general public restroom facilities;(d) a travel store with items commonly referred to as truckers’ supplies(items commonly used only by commercial motor vehicles); (e) truck scales;(f) separate truckers’ telephones; and (g) permanent storagefacilities for fuel; (vii) it must have an area separated for adultpatronage only; and (viii) it must have, if available, a Class A—Generalretail permit or a Class A—Restaurant permit, as defined in Part IIof Chapter 1 or Part II of Chapter 2 of Title 26 of the Louisiana RevisedStatutes of 1950, to serve or sell alcoholic beverages for on-premisesconsumption.

 

Additionally, no license can be granted to any truckstop facility located, at the time application is made for a license to operatevideo draw poker devices, within five hundred feet of any property that is onthe National Historic Registry, any public playground, or a building usedexclusively as a church, synagogue, public library, or school.

 

All suitability information and applicationsrequired to be submitted with respect to the 11 Louisiana truck plazascurrently owned by our affiliates have been submitted to the Board and theDivision. The approval of the December 2005 acquisitions of Fuel Stop 36and Larose are currently pending. However, because the Board and the Divisionconduct a new suitability investigation in connection with each acquisition ofa facility at which video gaming devices are to be operated, regardless ofprior approvals, there can be no guarantee that a suitability approval willultimately result with respect to the plazas that we propose to acquire.

 

***GamingRegulation and Licensing—Virginia***

 

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

 

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

 

Under the Virginia Racing Act, the Virginia RacingCommission is vested with control over all aspects of horse racing withpari-mutuel wagering and the power to prescribe regulations and conditionsunder which such racing and wagering are conducted. The Virginia RacingCommission is responsible for, among other things, (i) conducting a reviewannually of the Colonial’s track and satellite wagering facility licenses, (ii) annuallyapproving Colonial’s proposed schedule of racing days, (iii) approvingnew or modified types of pari-mutuel wagering pools requested by Colonial, (iv) issuingpermits to all officers, directors, racing officials, and other employees ofColonial, and (v) approving simulcast schedules at the track and at thesatellite wagering facilities. The Virginia Racing Commission also has theauthority to promulgate regulations pertaining to Colonial’s track facilities,equipment, safety and security measures, and controls the issuing of licensesand permits for participants in pari-mutuel racing, including Colonialemployees at the track and at the satellite 

 

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wageringfacilities. In addition, the Virginia Racing Commission must approve anyacquisition or continuing ownership of a 5% or greater interest in Colonial.Action by the Virginia Racing Commission that is inconsistent with the Colonial’sbusiness plan could have a material adverse effect on Colonial.

 

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

 

The licenses issued by the Virginia RacingCommission to Colonial for the racetrack and its satellite wagering facilitiesare for a period of not less than 20 years, but are subject to annual review bythe Virginia Racing Commission. It is possible that such licenses will not berenewed or that such licenses could be suspended or revoked by the VirginiaRacing Commission for violations of the Virginia Racing Act or Virginia RacingCommission rules. We also hold an advance deposit account wagering license thatis renewable annually. Our current license expires December 31, 2006.

 

Our agreement with the VHBPA expires December 31,2007. Our agreement with the VHHA expires March 31,2006. We have signed anew agreement with the VHHA and have submitted it to the Virginia RacingCommission for approval. In the event the agreement is not approved, theVirginia Racing Commission has the right to suspend our licenses to operate ourracetrack and the satellite wagering facilities until agreements are in placealthough it has not indicated that it will do so. Although it is difficult tothe predict the likelihood of such an event, closure of the satellite wageringfacilities would be detrimental to the horsemen’s groups as well as us sinceeach horsemen’s group’s primary source of purse funds is its percentage ofwagering at the satellite facilities.

 

Colonial,the track and the satellite wagering facilities are also subject to a varietyof other laws and regulations, including zoning, construction, and land-uselaws and the regulations of the Virginia Alcoholic Beverage Control Board. Suchlaws and regulations may affect the selection of racing center sitesbecause of parking, traffic flow, and other similar considerations. Anyinterruption or termination of Colonial’s ability, or that of itsconcessionaires, to serve alcoholic beverages could have a material adverseeffect on Colonial.

 

***GamingRegulation—Federal***

 

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

 

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

 

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***LiquorRegulation***

 

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

 

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

 

The sale of alcoholic beverages in Reno, Nevada, issubject to licensing, control and regulation by the City of Reno. Alllicenses are revocable and are not transferable. The agencies involved havefull power to limit, condition, suspend or revoke any such license, and anysuch disciplinary action could (and revocation would) have a material adverseeffect on the operations of the Gold Dust West Casino.

 

Alcohol regulation within the State of Louisiana isperformed primarily by the Office of Alcohol and Tobacco Control (the “Board”).The Commissioner of the Board is given broad discretion in the granting anddenial of state alcohol permits. While permits are issued on a state level, thelocal municipality is also permitted to provide for concurrent local licensing.The state alcohol regulatory scheme is contained at Title 26:1 of the LouisianaRevised Statutes (hereinafter referred to as the “act”). Generally, no permit may beissued if the applicable premises is located three hundred feet or less, asfixed by the local municipal ordinance, of a public playground or of a buildingused exclusively as a church or synagogue, public library, or school. Localmunicipalities are also permitted to regulate the opening and closing hours ofpermitted businesses as well as to prohibit the sale of alcoholic beveragesaltogether by referendum vote of the people within the municipality. A localmunicipality may also regulate via zoning designations the permissibilityor prohibition of the permitting of businesses that sell alcoholic beverageswithin that municipality. All of our video gaming truck plaza facilities arecurrently licensed by the applicable state and local alcohol licensingauthorities.

 

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

 

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

 

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

 

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

 

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**Taxation**

 

Gamingoperators in Colorado are subject to state and local taxes and fees in additionto ordinary federal and state income taxes. The City of Black Hawk has imposedan annual license fee, currently $750, for each gaming device installed in a casino.In addition, Colorado has a tax on gross gaming revenue (also called “adjustedgross proceeds”) being generally defined as the total amount wagered less thetotal amount paid out in prizes. Currently, gaming tax rates are as follows:

 

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

 

Bothof Black Hawk Gaming’s Colorado casinos are subject to the maximum rate.Neither the Colorado constitution nor the gaming statutes require that gamingtax rates be graduated, as they currently are. Under the Colorado constitution,the Colorado Gaming Commission could increase the top rate to as much as 40%. Amore recent tax limitation amendment to the Colorado constitution, however,states that neither the state nor any local government may increase a tax ratewithout an affirmative vote of the people; therefore, there is a question as towhether the Colorado Gaming Commission could constitutionally increase thestate tax levied on gross gaming revenues without such a vote. The Coloradolegislature rejected this argument after the top tax rate was increased to 20%in 1996, and no court was asked to rule on the applicability of the taxlimitation amendment to gaming tax rates.

 

InNevada, license fees and taxes, computed in various ways depending on the typeof gaming or activity involved, are payable to the State of Nevada, WashoeCounty and the City of Reno. Depending upon the particular fee or tax involved,these fees and taxes are payable either monthly, quarterly or annually and arebased upon either: (i) a percentage of the gross revenues received; (ii) thenumber of gaming devices operated; or (iii) the number of table games operated.A live entertainment tax is also paid by casino operations where entertainmentis furnished in connection with an admissions charge or the selling or servingof food or refreshments or the selling of merchandise. Presently the state taxin Nevada on adjusted gross revenue from gaming is 6.75%.

 

Videogaming operators in truck plazas in Louisiana are subject to state and localtaxes and fees in addition to ordinary federal and state income taxes. Thestate of Louisiana has imposed a franchise tax of 32.5% of the net devicerevenue from each video gaming device located at a truck plaza. The net devicerevenue is the amount remaining after all winnings have been paid. Thisfranchise tax is collected twice per month by the Louisiana state police basedon the data that is provided directly to them from the devices. There is alsoan annual state establishment license fee of $1,000. In addition, the stateimposes a device operation fee of $1,000 per year per device, which is paidquarterly, and each parish imposes an annual occupational license tax of up to$50 per device.

 

Colonial is subject to a number of federal,state and local taxes and fees. These include fees to support the VirginiaBreeders’ Fund, taxes payable to the Commonwealth of Virginia, taxes andadmission charges payable to New Kent County, where the track is located, andtaxes payable to localities in which satellite wagering facilities are locatedbased upon attendance and the amount of monies wagered both at the track and atthe satellite wagering facilities. Colonial believes that the public acceptanceof pari-mutuel wagering on horse races, as well as other forms of gaming, isbased, in part, on the governmental revenues it generates from taxes and feeson such activities. It is possible that gaming activities, including horseracing, may become a target for additional federal, state, or local taxes andfees. A significant increase in such taxes or fees or the creation ofsignificant additional taxes or fees could have a material adverse effect onus.

 

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

 

To inform readers of our future plans and business strategies, thisreport contains statements concerning our future performance, intentions,objectives, plans and expectations that are or may be deemed to be “forward-lookingstatements.” Our ability to do this has been fostered by the Private SecuritiesLitigation Reform Act of 1995, which provides a “safe harbor” forforward-looking statements to encourage companies to provide prospectiveinformation so long as those statements are accompanied by meaningfulcautionary statements identifying important factors that could cause actualresults to differ materially from those discussed in the statements. Suchfactors affecting us include, but are not limited to, the following:

 

**RisksRelated to Our Indebtedness**

 

***Our substantial indebtedness couldadversely affect our financial health and prevent us from fulfilling ourobligations under our debt agreements.***

 

We have a significant amount of indebtedness. As of December 31, 2005we had total indebtedness excluding accounts payable and accrued expenses of approximately$183 million and total stockholders’ equity of approximately $68 million. Oursubstantial indebtedness could have important consequences. For example, itcould:

 

•                                          increase our vulnerability to general adverseeconomic and industry conditions;

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

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

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

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

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

 

The occurrence of any one of these events could have a material adverseeffect on our business, financial condition, results of operations, prospectsand ability to satisfy our obligations under our debt agreements.

 

Inaddition, subject to specified limitations in the indenture governing thenotes, we may be able to incur additional indebtedness in the future. Ourcredit facility will permit borrowings of up to $10 million, and all of the securityinterests securing those borrowings will be contractually senior to the notesand guarantees, as provided in the intercreditor agreement between the trusteeand Wells Fargo Foothill, Inc., the lender under our credit facility. If newdebt is added to our and our subsidiaries’ current debt levels, the relatedrisks we and they now face could intensify.

 

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

 

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

 

•                                          incur more debt;

•                                          issue stock of subsidiaries;

•                                          make investments;

•                                          repurchase stock;

•                                          create liens;

•                                          enter into transactions with affiliates;

•                                          enter into sale-leaseback transactions;

•                                          merge or consolidate; and

•                                          transfer and sell assets.

 

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Our credit facility alsorequires us to meet a number of financial ratios and tests. The covenantsgoverning the notes and the covenants governing our credit facility restrictthe operations of our subsidiaries and these limitations could impair ourability to meet such financial ratios and tests. In addition, our ability tomeet these ratios and tests and to comply with provisions governing ourindebtedness may be affected by changes in economic or business conditions orother events beyond our control. Our failure to comply with our debt-relatedobligations could result in an event of default which, if not cured or waived,could result in an acceleration of our indebtedness. Acceleration ofindebtedness outstanding under our credit facility or any of our otherindebtedness may cause us to be unable to make interest payments on our debtand to repay the principal amount of our debt or may cause the guarantors to beunable to make payments under their guarantees.

 

Complying with these covenants could materially limit our financial andoperating flexibility and could cause us to take actions that we otherwisewould not take or cause us not to take actions that we otherwise would take.

 

***Despite current indebtedness levels,we may still be able to incur substantially more debt, which could exacerbatethe risks described above.***

 

We and our subsidiaries may be able to incur substantial additionalindebtedness in the future. Our principal debt agreement, our note indenture,does not fully prohibit us or our subsidiaries from doing so. If new debt isadded to our and our subsidiaries’ current debt levels, the related risks thatwe and they now face could intensify.

 

***To service our indebtedness, we willrequire a significant amount of cash, the availability of which depends on manyfactors beyond our control.***

 

Our ability to make payments on and to refinance our indebtedness andto fund our operations will depend on our ability to generate cash. This, to anextent, is subject to general economic, financial, competitive, legislative,regulatory and other factors that are beyond our control. Therefore, we cannotassure you that our business will generate sufficient cash flow from operationsor that borrowings will be available to us in amounts sufficient to enable usto pay our indebtedness, or to fund our other liquidity needs. In addition, ifwe consummate significant acquisitions in the future, our cash requirements mayincrease significantly. If we are unable to generate sufficient cash flow andare unable to refinance or extend outstanding borrowings, we may have to:

 

•                                          reduce or delay planned expansion and capitalexpenditures;

•                                          sell assets;

•                                          restructure debt; or

•                                          raise additional capital.

 

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

 

**Risks Related to Our Senior Secured Notes**

 

***Holders’ rights to receivepayments on our 117/8% Senior Secured Notes in theprincipal amount of $148 million as of December 31, 2005 (the “notes”) areeffectively subordinated to payments under our Senior Credit Facility and anyequipment financing to the extent of the collateral securing this other debt.The proceeds from the collateral securing the notes may not be sufficient topay all amounts owed under the notes if an event of default occurs, even if thefair market value of the collateral would otherwise be sufficient to pay theamounts owed under the notes.***

 

The notes and guarantees are effectivelysubordinated to (i) up to $10.0 million principal amount of indebtedness thatmay be incurred under our Senior Credit Facility with respect to the assetssecuring the Senior Credit Facility, pursuant to the intercreditor agreementdescribed below, and (ii) any future equipment financing and purchase moneydebt, in each case to the extent of the assets securing that indebtedness. Wemay incur purchase money obligations and capital lease obligations in an aggregateprincipal amount not to exceed the greater of $5.0 million or 15% of ourconsolidated earnings before interest, depreciation and amortization for thetrailing four quarters. Those obligations may be secured by liens on thefinanced collateral senior to the lien securing the notes and guarantees, andthe right of payment of those obligations will be pari passu with the notes. Asa result, upon any distribution to our creditors or the creditors of anysubsidiary guarantors in bankruptcy, liquidation, reorganization or similarproceedings, or following acceleration of our indebtedness or an event ofdefault under such indebtedness, our lenders under our Senior Credit Facility,our equipment financing and our purchase money indebtedness will be entitled tobe repaid in full from the proceeds of the assets securing such indebtedness,or the sale of the equipment subject to such equipment financing, before anypayment is made to note holders from such proceeds. There 

 

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can be no assurance that thefair market value of the collateral securing the notes would be sufficient topay the amounts due under the notes, even absent the Senior Credit Facility,any equipment financing and any purchase money debt.

 

The trustee under our note indenture and the lenders under our SeniorCredit Facility have entered into an intercreditor agreement governing therelationships among them and their obligations and rights. Financing bymultiple lenders with security interests in common collateral may result inincreased complexity and lack of flexibility in a debt restructuring or otherwork-out relating to us. Furthermore, under the intercreditor agreement, thetrustee’s remedies in the event of a default are limited. Under the intercreditoragreement, if the notes become due and payable prior to the stated maturity orare not paid in full at the stated maturity at a time during which we haveindebtedness outstanding under our Senior Credit Facility, the trustee will nothave the right to foreclose upon the assets securing the Senior Credit Facilityunless and until the lenders under the Senior Credit Facility fail to takesteps to exercise remedies with respect to or in connection with the collateralwithin 180 days following notice to such lenders of the occurrence of an eventof default under the indenture. In addition, the intercreditor agreementprevents the trustee and the holders of the notes from pursuing remedies withrespect to the assets securing the Senior Credit Facility in an insolvencyproceeding. The intercreditor agreement also provides that the net proceedsfrom the sale of the assets securing the Senior Credit Facility will first beapplied to repay indebtedness outstanding under the credit facility andthereafter to the holders of the notes.

 

***The value of the collateral securingthe notes may not be sufficient to pay all amounts owed under the notes if anevent of default occurs.***

 

A large portion of the collateral securing the notes consists of ourcasinos, truck plazas and personal property, which depreciate in value overtime. As a result, if an event of default occurs with respect to the notes, wecan give no assurance that the liquidation of the collateral securing the noteswill produce sufficient proceeds to pay all amounts owed under the notes. Thevalue of the collateral at any time will depend on market and other economicconditions, including the availability of suitable buyers for the collateral.If the proceeds are insufficient, the deficiency would be an unsecuredobligation. There can be no assurance that note holders would recover anydeficiency.

 

***We may have subsidiaries in thefuture that will not guarantee the notes.***

 

We may have subsidiaries in the future that will not guarantee thenotes. Any non-guarantor subsidiary would have no obligation to make paymentsto us or in respect of the notes. In the event of a bankruptcy, liquidation orreorganization of any non-guarantor subsidiary, the creditors of suchsubsidiary (including trade creditors) would generally be entitled to paymentof their claims from the assets of such subsidiary before any assets were madeavailable for distribution to us as a stockholder. After paying its owncreditors, a non-guarantor subsidiary may not have any remaining assets availablefor payment to note holders. As a result, the notes would be effectively juniorin right of payment to the obligations of any non-guarantor subsidiary.

 

***The trustee’s ability to realize onthe collateral securing the notes may be limited.***

 

The trustee’s ability to foreclose on the pledged shares and othercollateral comprising our gaming businesses is limited by relevant gaming laws.Regulations of the gaming authorities in the several states in which we operateprovide that no person may acquire an interest in a gaming licensee or enforcea security interest in the stock of a corporation that is the holder of agaming license or that owns stock in such a corporation without the priorapproval of the gaming authority. As such, neither the trustee nor any noteholder is permitted to operate or manage any gaming business or assets unlessthat person has been licensed under applicable law for that purpose.

 

Gaming law requires that any person who proposes to own shares oflicensed corporations or of registered holding corporations must be foundsuitable as a stockholder of such corporations by the applicable gamingauthority and other relevant gaming authorities before acquiring ownership ofthose interests. Consequently, it would be necessary for the trustee to file anapplication with the gaming authorities requesting approval to enforce thesecurity interest in any pledged stock and obtain that approval before it maytake any steps to enforce the security interest. Additionally, the trustee mustfile applications with the gaming authorities requesting approval to enforce asecurity interest in our gaming assets before it may take steps to enforce thesecurity interest. Moreover, it would be necessary for a prospective purchaserof the pledged stock or of the gaming assets to file the necessaryapplications, be investigated, and be licensed or found suitable by the gamingauthorities before acquiring the gaming assets or the pledged stock through theforeclosure sale. These requirements may therefore limit the number ofpotential bidders who would participate in any foreclosure sale and may delaythe sale of any pledged stock or other gaming assets, either of which couldhave an adverse effect on the proceeds received from those sales.

 

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In addition, the trustee’s ability to foreclose on and sell thecollateral will be subject to the procedural restrictions of state real estatelaw and the Uniform Commercial Code. Furthermore, the right of the trustee to forecloseupon and sell the collateral is likely to be significantly impaired byapplicable bankruptcy law if a bankruptcy proceeding were to be commenced by oragainst us or any of our subsidiaries prior to, or possibly even after, thetrustee has repossessed and disposed of the collateral.

 

***We are a holding company and willdepend on the business of our subsidiaries to satisfy our obligations under thenotes.***

 

We are a holding company. Substantially all of the operations necessaryto fund payment on the notes are conducted by our subsidiaries. Our ability tomake payment on the notes depends on our subsidiaries’ cash flow and theirpayment of funds to us. Our subsidiaries’ ability to make payments to usdepends on their earnings, the terms of their indebtedness, business and taxconsiderations, legal and regulatory restrictions and economic conditions.

 

***We may not have the ability to raisethe funds necessary to finance the change of control offer required by the noteindenture.***

 

Upon the occurrence of certain specific kinds of change of controlevents, we will be required to offer to repurchase all outstanding notes.However, it is possible that we will not have sufficient funds at the time ofsuch a change of control to make the required repurchase of notes. The changeof control provisions may not protect note holders in a transaction in which weincur a large amount of debt, including a reorganization, restructuring, mergeror other similar transaction, because that kind of transaction may not involveany shift in voting power or beneficial ownership, or may not involve a shiftlarge enough to trigger a change of control as defined in the note indenture.

 

***Our original senior notes in theamount of $125 million were issued in February 2002 with original issuediscount. As a result, holders of these notes will generally be required forUnited States federal income tax purposes to include in gross income accruedoriginal issue discount on the notes before the receipt of a cash payment onaccount thereof, and in the event of a bankruptcy of the Company, a note holder’sclaim would not include any unamortized original discount.***

 

Original issue discount (the difference between the notes’ statedredemption price at maturity and their issue price) will accrue from theFebruary 2002 issue date of the notes, and purchasers of these notes generallywill be required to include such amounts in gross income for United Statesfederal income tax purposes in advance of their receipt of the cash payments towhich the income is attributable.

 

If a bankruptcy case is commenced by or against us under the UnitedStates Bankruptcy Code after the issuance of the notes, the claim of a holderof the notes may be limited to an amount equal to the sum of (i) the notes’issue price, (ii) accrued and unpaid interest thereon through the date of thebankruptcy filing, and (iii) that portion of the original issue discount deemedto have accrued from the issue date through the date of the bankruptcy filing.Any original issue discount deemed not to have accrued as of the date of anysuch bankruptcy filing would constitute “unmatured interest” and would not beallowed under the Bankruptcy Code. Accordingly, the holder’s claim would likelybe less than the notes’ stated redemption price at maturity.

 

***Federal and state statutes allowcourts, under specific circumstances, to void guarantees, subordinate claims inrespect of indebtedness and require debt holders to return payments receivedfrom guarantors.***

 

Under the federal bankruptcy law and comparable provisions of statefraudulent transfer laws, a court could void a guarantee of one or more of oursubsidiaries or claims related to the notes or subordinate a subsidiary’sguarantee to all of our other debts or all other debts of the guarantor if,among other things, we or the guarantor, at the time we or it incurred theindebtedness evidenced by its guarantee:

 

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

 

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

 

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

 

•                                          we or the guarantor intended to incur, or believed that we or it would incur,debts beyond our or its ability to pay those debts as they mature.

 

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In addition, a court could void any payment by us orthe guarantor pursuant to the notes or a guarantee and require that payment tobe returned to us or the guarantor, or to a fund for the benefit of ourcreditors or the creditors of the guarantor.

 

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

 

•                                          the sum of its debts, including contingent liabilities, were greater than thefair saleable value of all of its assets,

 

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

 

•                                          it could not pay its debts as they becomedue.

 

We believe that we and the guarantors have received reasonablyequivalent value and fair consideration for the incurrence of the indebtednessand obligations represented by the notes and the guarantees. On the basis ofhistorical financial information, recent operating history and other factors,we believe that we and each subsidiary guarantor, after giving effect to itsguarantee of these notes, are not insolvent, do not have unreasonably smallcapital for the business in which we are or it is engaged and have not incurreddebts beyond our or its ability to pay such debts as they mature. There can beno assurance, however, as to what standard a court would apply in making thosedeterminations or that a court would agree with our conclusions in this regard.

 

**RisksRelated to Our Business**

 

***We face significant competition.***

 

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

 

*Casino Operations*. Our casinooperations are conducted in Black Hawk, Colorado, and Reno, Nevada. Competitionin the Black Hawk gaming market, which is the primary gaming market inColorado, is intense. In addition, large, well-financed companies have enteredthe Black Hawk and other Colorado markets through the purchase or expansion ofexisting facilities and others may continue to do so, all of which couldmaterially harm our business, financial condition and results of operations.For example:

 

•                                     Ameristar Casinos,Inc. purchased Mountain High Casino (formerly the Black Hawk Casino by Hyatt)in a bankruptcy sale. That casino is directly across from our Lodge Casino andit has expanded the casino area and parking garage. Ameristar has announcedplans to construct a 537-room hotel and add a convention center and otheramenities and facilities. In all respects, Ameristar is known to be a fierce competitorin gaming markets in which it operates;

 

•                                     Isle of CapriCasinos, Inc. recently purchased Colorado Central Station, directly across thestreet from its existing facility, and in 2005 completed a major renovation andexpansion project physically linking the two properties. The combined casinosare the largest in Black Hawk with approximately 2,300 gaming devices, 400hotel rooms and 2,500 parking spaces. Isle of Capri is noted for its aggressivemarketing programs;

 

•                                     the Mardi Grascasino, next to our Lodge casino, was purchased in 2005 and the new owners haveexpanded and improved their property and can be expected to develop andimplement new and aggressive marketing programs;

 

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

 

•                                     the Cheyenne andArapahoe Indian tribes claiming significant treaty rights to land in Coloradohave pursued a plan to exchange those rights for land east of the Denvermetropolitan area on which to build and operate a large casino gaming facility.Although this project appears to be dormant at present, if it is renewed andsurvives political and other challenges, it could have a material adverseeffect on gaming revenues in Black Hawk and at our Lodge and Gilpin casinos;and

 

•                                     the 2005acquisition of four Colorado racetracks (two of which are in the Denvermetropolitan area) that have been owned and operated by Wembley, Plc, mayreinvigorate efforts to authorize video lottery terminals at the state’sracetracks. If this authorization is granted by the Colorado Lottery Division,the Colorado state legislature, or the voters, it could have a material adverseeffect on gaming revenues in Black Hawk and at our Lodge and Gilpin casinos.

 

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

 

TheGold Dust West Casino in Reno, Nevada, encounters strong competition from largehotel and casino facilities and smaller casinos similar in size to the GoldDust West Casino in the Reno area, which includes Sparks, Nevada. There is alsocompetition from gaming establishments in other towns and cities in Nevada andfrom a significant Native American gaming facility located near theCalifornia-Nevada state line.

 

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

 

*Louisiana Truck Plaza Operations*. Our Louisianatruck plaza operations compete with other truck plazas located in Louisiana andother forms of gaming, such as land-based, riverboat and Native Americancasinos, as well as slot machines located at horseracing tracks and video pokermachines located in bars, restaurants, hotels and off-track wageringfacilities. There were 153 licensed video poker truck plazas in Louisiana atDecember 31, 2005.

 

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

 

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

 

We compete for wagering dollars and simulcastfees with live racing and races simulcast from racetracks in other states,particularly racetracks in neighboring states such as Charles Town in WestVirginia, Pimlico Race Course, Laurel Park, and Rosecroft Raceway in Maryland,and Delaware Park in Delaware. We also compete for wagering dollars withaccount wagering companies operating both legally and illegally inVirginia.  These companies take wagersfrom Virginians both over the phone and the internet.  We believe our agreements with two licensedaccount wagering companies provide us with fair compensation for theiractivities.  Unlicensed account wageringcompanies have lower costs than Colonial Downs and thus are able to attractcustomers in Virginia with large wagering rebates.

 

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

 

*Licensing Requirements.*As owners andoperators of gaming and pari-mutuel wagering facilities, we are subject toextensive state and local and some federal regulation. State and localauthorities require us and our subsidiaries to demonstrate suitability toobtain and retain various licenses and require that we have registrations,permits and approvals to conduct gaming and wagering operations. Variousregulatory authorities, including the Colorado Limited Gaming ControlCommission, the Nevada Gaming Commission, the Nevada State Gaming ControlBoard, the Louisiana Gaming Control Board and the Virginia Racing Commissionmay, for any reason set forth in the applicable legislation, limit, condition,suspend or revoke a license or registration to conduct gaming or wageringoperations or prevent us from owning the securities of any of our gaming orwagering subsidiaries. Like all gaming and wagering operators in thejurisdictions in which we operate, we will need to apply periodically to renewour licenses or registrations. We cannot assure you that we will be able toobtain such renewals. Regulatory authorities may also levy substantial finesagainst us or seize our assets or those of our subsidiaries or of the peopleinvolved in violating gaming laws or regulations. Any of these events couldmaterially harm our business, financial condition and results of operations.Gaming authorities in the United Sates can generally require that anybeneficial owner of our securities, including holders of our debt, file anapplication for a finding of suitability.

 

*Potential Changes in Regulatory Environment.*From time to time,legislators and special interest groups have proposed legislation that wouldexpand, restrict or prevent gaming or wagering operations in the jurisdictionsin which we operate. Any expansion of gaming or wagering or restriction on orprohibition of our gaming or wagering operations could materially harm ourbusiness, financial condition and results of operations.

 

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

 

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

 

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

 

We are highly dependent onthe services of Jeffrey P. Jacobs (one of our two principal owners and our ChiefExecutive Officer) and other officers and key employees. The loss of theservices of any of these individuals could materially harm our business,financial condition and results of operations. The loss of their experience andfamiliarity with our operations could have negative effects on management’sefficiency and could cause us to incur costs to find qualified replacements.

 

***Members of the Jacobs family own acontrolling interest in our capital stock and may significantly influence ouraffairs or may pursue other activities that compete with us.***

 

Jeffrey P. Jacobs, ourChairman and Chief Executive Officer, and his family trusts own 50% of ourequity securities and trusts controlled by Richard E. Jacobs, his father, ownthe remaining 50% of our equity securities. Each has the ability significantlyto influence our affairs, including the election of our directors andtransactions including mergers, consolidations or sales of assets. AlthoughMessrs. Jacobs have agreed not to pursue any U.S. casino or gaming activitiesexcept through us, they are allowed to purchase additional truck plazas inLouisiana which we have the right to buy at their cost. Any such activities bythem could be competitive with our operations in that state.

 

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***We need to increase capital expenditures to competeeffectively.***

 

Capitalexpenditures, amenity upgrades and new gaming equipment are necessary from timeto time to preserve the competitiveness of our properties. The gaming industrymarket is very competitive and is expected to become more competitive in thefuture. If cash from our operations is insufficient to provide for neededlevels of capital expenditures, our competitive position could deteriorate ifwe are unable to generate internal cash flow or borrow funds for such purposes.

 

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

 

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

 

In addition, seasonality andweather conditions can affect our results of operations. Winter travelconditions can adversely affect patronage and revenues at our Colorado casinos.Although casino business is not seasonal, levels of gaming activity increasesignificantly during weekends and holidays, especially holiday weekends.Hurricanes Katrina and Rita temporarily affected our truck plaza video gamingoperations in late 2005. Similar hurricanes could have a material adverseeffect on our Louisiana operations in future years. Our pari-mutuel wageringrevenues are higher during scheduled live racing than at other times of theyear. Adverse weather conditions can cause cancellation of or curtailattendance at outdoor races, thereby reducing wagering and our revenues.Attendance and wagering at both outdoor races and satellite wagering facilitiescan be harmed by holidays and other competing seasonal activities.

 

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

 

TheFederal Interstate Horseracing Act and the Virginia Racing Act require Colonialto have written agreements with representative Virginia horsemen’s groups in orderto simulcast races. Our agreement with the Virginia Horsemen’s Benevolence andProtective Association (the “VaHBPA”) expires on December 31, 2007. Wehave signed a new agreement with the VaHBPA and have submitted it to theVirginia Racing Commission for approval.

 

Inthe event the agreement is not approved, the Virginia Racing Commission has theright to suspend our licenses to operate our racetrack and the satellitewagering facilities until agreements are in place although it has not indicatedthat it will do so. Although it is difficult to predict the likelihood of suchan event, closure of the satellite wagering facilities would be detrimental tothe horsemen groups as well as us since each horsemen group’s primary source ofpurse funds is its percentage of wagering at the satellite facilities.

 

***Energy price increases may adverselyaffect our costs and our revenues***.

 

Our casino and horse racing and pari-mutuel wagering operations usesignificant amounts of electricity and other forms of energy. Any substantialincrease in the cost of the forms of energy we use may negatively affect ourresults of operations. In addition, consumer energy or gasoline price increasesmay reduce the disposable income of our potential customers or theirwillingness to patronize our operations and correspondingly reduce ourpatronage and revenues. Furthermore, a fuel price increase may impact fuelsales in Louisiana, making it more difficult to meet minimum fuel salerequirements.

 

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

 

None.

 

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

 

See “Our Properties and Operations” in Item 1 above for a descriptionof the location and general character of our principal properties. Each of ourproperties is subject to liens and encumbrances securing our senior creditfacility and senior secured notes. See note 6 to our consolidated financialstatements included elsewhere herein.

 

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

 

We are involved in routine litigation arising in the ordinary course ofbusiness. We believe these matters are covered by appropriate insurancepolicies.

 

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

 

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

 

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

 

All of our outstanding common stock is held by one person and fourrelated trusts and, accordingly, there is no established trading market for ourcommon stock. We have elected to be taxed under the provisions of SubChapter Sof the Internal Revenue Code of 1986. Under those provisions, the owners of ourcommon stock pay taxes on our taxable income. Our ability to make distributionsto our stockholders is limited by the terms of credit agreements and theindenture related to our indebtedness.

 

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

 

We have made no repurchases of our equity securities since ourinception in 2001.

 

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

 

*JacobsEntertainment, Inc.*

 

The following selectedconsolidated financial data should be read in conjunction with our management’sdiscussion and analysis of financial condition and results of operations andour consolidated financial statements and related notes thereto appearingelsewhere in this report. The consolidated statements of operations data andthe consolidated balance sheet data are derived from our consolidated financialstatements. The selected financial data provided below is not necessarilyindicative of our future results of operations or financial performance.

 
| ** **                                                       | ** ** | **2001**           | ** ** | **2002**   | ** ** | **2003**   | ** ** | **2004**   | ** ** | **2005**   | ** ** |
|------------------------------------------------------------------|------------|--------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                       | ** ** | **(In Thousands)** | ** ** |
| ** **                                                       | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Statements of Operations Data:**                               |       |               |       |       |       |       |       |       |       |       |       |
| Net revenues                                                     |       | $                  | 46,653     |       | $          | 153,720    |       | $          | 171,849    |       | $          | 194,152 |   | $ | 234,083 |   |
| Total costs and expenses                                         |       | 42,568             |       | 130,869    |       | 149,645    |       | 170,620    |       | 216,173    |       |
| Operating income                                                 |       | 4,085              |       | 22,851     |       | 22,204     |       | 23,532     |       | 17,910     |       |
| Interest expense, net                                            |       | (4,130             | )          | (18,106    | )          | (19,573    | )          | (19,641    | )          | (22,232    | )          |
| Income tax expense                                               |       | —             |       | —     |       | —     |       | —     |       | (423       | )          |
| Equity in earnings (loss) of investments  and minority interest  |       | 4,635              |       | (1,807     | )          | —     |       | —     |       | —     |       |
| Net income (loss)                                                |       | $                  | 4,590      |       | $          | 2,938      |       | $          | 2,631      |       | $          | 3,891 |   | $ | (4,745 | ) |
| **Balance Sheet Data (end of period):**                          |       |               |       |       |       |       |       |       |       |       |       |
| Current assets                                                   |       | $                  | 5,148      |       | $          | 26,850     |       | $          | 22,045     |       | $          | 28,284 |   | $ | 30,078 |   |
| Total assets                                                     |       | 105,992            |       | 236,226    |       | 238,984    |       | 252,266    |       | 278,753    |       |
| Current liabilities                                              |       | 10,233             |       | 24,351     |       | 24,107     |       | 25,329     |       | 30,572     |       |
| Long-term debt, capital lease obligations  and other liabilities |       | 14,692             |       | 147,113    |       | 145,867    |       | 152,333    |       | 180,379    |       |
| Minority interest                                                |       | 17,308             |       | —     |       | —     |       | —     |       | —     |       |
| Stockholders’ equity                                        |       | 63,759             |       | 64,762     |       | 69,010     |       | 74,604     |       | 67,802     |       |

 

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**Item 7.****                                                           *Management’s Discussion and Analysis of FinancialCondition and Results of Operations***

 

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

 

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

 

**TABLE OF CONTENTS TO MANAGEMENT’S DISCUSSIONAND ANALYSIS (MD&A)**

 
| **Description of item** |       |
|-----------------------------------|------------|
|                              |       |   |   |
| **1.**                            | ** ** | **Company background** |   |
| **2.**                            | ** ** | **Significant transactions  occurring during the year ended December 31, 2005 and their related  accounting treatment** |   |
| **3.**                            | ** ** | **Overview and discussion of  our operations—i.e., how we look at things** |   |
| **4.**                            | ** ** | **Comparison of our historical  operations for the year ended December 31, 2005 to the year ended December  31, 2004** |   |
| **5.**                            | ** ** | **Comparison of our historical  operations for the year ended December 31, 2004 to the year ended December  31, 2003** |   |
| **6.**                            | ** ** | **Liquidity and capital  resources—December 31, 2005** |   |
| **7.**                            | ** ** | **Critical accounting policies  and estimates** |   |
| **8.**                            | ** ** | **EBITDA segment information  and discussion of operations—three years ended December 31, 2005** |   |
|                                   |            |  |  |  |

 

**1.****                                      Companybackground**

 

We are a geographically diversified gaming and pari-mutuel wageringcompany with properties in Colorado, Louisiana, Nevada and Virginia. Presently,we own and operate three land-based casinos, eleven truck plaza video gamingfacilities (including the five additional truck plazas we acquired in March andDecember 2005) and a horseracing track with nine satellite wagering facilities,two of which were opened in 2005. We are also a party to an agreement thatentitles us to a portion of the gaming revenues from an additional truck plazavideo gaming facility.

 

OnFebruary 22, 2002, we completed several acquisitions, which were primarilyfunded from the proceeds of $125 million in senior secured notes issued onFebruary 8, 2002. On March 2, 2005, we issued $23 million in principal amountof additional notes to acquire three video gaming truck plazas from a relatedparty. We are paying an interest rate of 117/8% on all ofthese notes and they are due in February 2009. In December 2005, we purchasedtwo additional video gaming truck plazas in Louisiana from unrelated parties.

 

We haveelected to be taxed under the provisions of Subchapter “S” of the InternalRevenue Code of 1986. Under those provisions, the owners of our company payincome taxes on our taxable income.

 

**2.****                                  ****Significant transactions occurringduring the year ended December 31, 2005 and their related accounting treatment**

 

***Sale ofadditional notes and purchase of three video poker truck plazas***

 

OnMarch 2, 2005 we sold $23 million of new notes subject to the same terms andconditions as our existing senior secured notes, carrying a coupon of 11 7/8%are due 2009 with interest payable on each February 1 and August 1. We issuedthe new notes at a 10% premium over their principal amount which yielded totalproceeds, before offering costs, of approximately $25.3 million. We used $22.5million of the proceeds to acquire three video poker truck-plaza operations 

 

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known as Breaux Bridge, Eunice and JeffersonParish from a related party which is owned and controlled by our owners. Thebalance of the proceeds was used to pay the offering costs of the new notes.Breaux Bridge opened for gaming operations on September 22, 2004, Eunice openedfor gaming operations on March 28, 2005, and due to the impacts of hurricanesKatrina and Rita, our Jefferson Parish facility’s license was delayed 90 days,and became licensed and operational for gaming purposes on September 22, 2005.Generally, these three locations conducted truck, fuel and convenience storesales operations for several months prior to being allowed to commence videopoker gaming operations.

 

Dueto the related party nature of this transaction (and under the terms of theindenture governing our notes) we obtained a fairness opinion from aninvestment banking firm that the acquisition of the three video poker truckplazas was fair to us from a financial point of view. For accounting andfinancial reporting purposes, the transaction was accounted for as acombination of entities under common control which is treated similarly to apooling of interests. Under this method of accounting, the acquisitions wererecorded at the related party’s historical identifiable cash cost in the netassets acquired, approximately $10.1 million. The difference between the purchaseprice of $22.5 million and the net assets acquired of $10.1 million wasrecorded for accounting and financial reporting purposes as a net distributionto our two owners of approximately $12.4 million, and accordingly ourstockholders’ equity  was reduced by thatnet amount.

 

Theconsolidated financial statements presented in this Form 10-K have beenrestated to the dates of the formation of each of the three acquired truckplaza entities during 2003.

 

Theaccompanying management’s discussion and analysis of operations for the yearsended December 31, 2005, 2004 and 2003 includes retroactive adjustments toaccount for the acquisition of the three video poker truck plazas as though thetransaction had occurred at the beginning of each of the years presented.Accordingly, certain historical data that was previously reported in priorfilings has been adjusted to account for this business combination.

 

***Termination ofmanagement contract and acquisitions***

 

OnSeptember 30, 2005, Colonial completed a transaction with Magna EntertainmentCorp. (“MEC”), an affiliate of the Maryland Jockey Club (“MJC”), under whichColonial acquired all of the outstanding shares of Maryland-Virginia RacingCircuit, Inc. (the “Circuit”), a wholly-owned subsidiary of MEC, for $10 million.The sale was approved by the Virginia Racing Commission on September 28, 2005.Under the terms of the purchase agreement, Colonial paid $7 million in cash atclosing and issued a one-year $3 million note bearing interest at the primerate plus 1% (7.75% at December 31, 2005). The note is guaranteed by JEI. Thestock acquisition has been characterized as a termination of a contract becausethe primary assets owned by the Circuit was a management agreement withColonial and as such, $10.4 million, which is the $10 million purchase priceplus $0.4 million in legal and professional fees associated with thistransaction, has been expensed in the current year. As part of the transaction,Colonial paid off an existing promissory note to MJC in the amount of $73,000,plus accrued interest. Colonial also paid the Circuit’s prorated 2005management fees of approximately $1.8 million. Under the agreement, aMaryland-Virginia thoroughbred racing circuit will continue for ten years withlive thoroughbred racing in Maryland concluding on the later of the Mondayfollowing the running of the Preakness Stakes or June 17 of each year andbeginning at Colonial Downs thereafter. Under the agreement, no livethoroughbred racing will resume in Maryland before August 1st of eachyear.

 

On December16, 2005, we acquired from an unaffiliated party Fuel Stop 36 in Lake Charles,Louisiana for $6.1 million. On December 20, 2005, we acquired from anunaffiliated party the assets of Larose Truck Plaza in Larose Louisiana for$6.2 million. The purchases of these two truck plaza video gaming facilitieswere recorded using the purchase method of accounting.

 

**3.****                                      Overviewand discussion of our operations—i.e., how we look at things**

 

Duringthe fourth quarter of 2005 we began to consolidate the management andaccounting functions of our company. We relocated our offices and have madeGolden, Colorado our corporate headquarters. We believe that over the long-termwe will gain greater operational efficiencies and costs savings. Each of our casinoproperties (The Lodge, the Gilpin, and the Gold Dust), i.e., the WesternDivision, is managed by an on-site General Manager, each of whom reports to aVice-President of Operations who is located in our Golden, Colorado offices.Our Eastern Division comprises all of our video poker truck-plaza operationsand our Virginia race-track and satellite betting parlor facilities. Each ofour respective divisions is headed by a President, each of whom reports to ourChief Executive Officer located in West Palm Beach, Florida. Our managementteam conducts monthly video conferencing and teleconferencing calls and each ofthe divisions functions as a 

 

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separate profit center. We account for ourbusinesses in segments, with each segment designated by the respective state inwhich the properties operate. Presently, we operate with four segments:Colorado, Louisiana, Nevada and Virginia. By centralizing our operations webelieve we are able to obtain some economies of scale in accounting, humanresources, centralized purchasing and other areas. We will continue toconsolidate several of our other corporate functions as we expand the company’soperations and acquire additional properties.

 

Whenwe analyze and run our business units, we focus on several measurements whichwe believe provide us with the necessary ratios and key performance indicatorsin order for us to determine how we are doing versus our competition andagainst our own internal goals and budgets. We confer monthly and discuss andanalyze significant variances and try to identify trends and changes in ourbusiness. Additionally, we utilize EBITDA (earnings before interest, taxes,depreciation and amortization) as one of the primary methods of reviewing and analyzingthe results of our operations of each property. While we recognize that EBITDAis not a generally accepted accounting principle (i.e., a non-GAAP financialmeasure), we nonetheless believe it is useful because it allows investors andmanagement to evaluate and compare operating results from continuing operationsfrom period to period in a meaningful and consistent manner in addition tostandard GAAP financial measures. Additionally, most analysts following thegaming industry utilize EBITDA as a financial measurement and when our noteholders inquire and discuss our operational performance with us, theyinvariably inquire as to our EBITDA and our EBITDA margins versus ourcompetitors. Finally, EBITDA is a key component of certain financial covenantscontained in our debt agreements and as such it is a critical ingredient thatwe watch closely in order to measure our historical performance as well as todetermine our ability to achieve future growth and ensure compliance with ournote indenture covenants.

 

Inaddition to the performance measurements discussed above, we pay particularattention to our monthly and annual cash flow. Our business is sensitive toshifts in volumes and levels of activity and we find it necessary to watch ourcash closely. Every six months (February 1 and August 1) we have a cashinterest payment due on our $148 million of senior secured notes amounting to$8.8 million. We have a $10 million revolver with a lender on which we usuallydraw about $2 to $5 million every nine months in order to make our interestpayments. This is generally a function of the timing of cash receipts from ouroperations coupled with the amount of cash we need to run the business—i.e.,our cash inventory. We estimate that we require approximately $12 million ofcash inventory to run our business. We may be able to reduce this amount whenwe are able to consolidate our cash from our various operations. This wouldreduce the amount of borrowings we would need and free up cash and workingcapital to pay interest on our notes and/or to finance operations. This will beanother byproduct of our goal to centralize our business operations. See also “Liquidityand Capital Resources.”

 

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Our results of operations reflectthe consolidated operations of all our subsidiaries. A summary of ourconsolidated operating results for the years ended December 31, 2005, 2004 and2003 is as follows:

 
| ** **                   | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|
| ** **                   | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                   | ** ** | **(In Thousands)**                    | ** ** |
| **Revenues**                 |       |                                       |       |   |   |   |   |
| Gaming:                      |       |                                       |       |   |   |   |   |
| Casino                       |       | $                                          | 115,607    |   | $ | 108,347 |   | $ | 96,816 |   |
| Truck plaza                  |       | 37,432                                     |       | 24,842 |   | 24,108 |   |
| Pari-mutuel                  |       | 35,988                                     |       | 32,946 |   | 29,189 |   |
| Food and beverage            |       | 19,774                                     |       | 17,964 |   | 16,383 |   |
| Convenience store—fuel  |       | 37,361                                     |       | 21,690 |   | 17,229 |   |
| Other                        |       | 11,096                                     |       | 8,538 |   | 7,776 |   |
| Less: promotional allowances |       | (23,175                                    | )          | (20,175 | ) | (19,652 | ) |
|                         |       |                                       |       |   |   |   |   |
| Total net revenues           |       | 234,083                                    |       | 194,152 |   | 171,849 |   |
|                         |       |                                       |       |   |   |   |   |
| Costs and expenses           |       | 216,173                                    |       | 170,620 |   | 149,645 |   |
| Operating income             |       | 17,910                                     |       | 23,532 |   | 22,204 |   |
| Interest expense, net        |       | (22,232                                    | )          | (19,641 | ) | (19,583 | ) |
| Other income                 |       | —                                     |       | — |   | 10 |   |
| Income tax expense           |       | (423                                       | )          |   |   |   |   |
|                         |       |                                       |       |   |   |   |   |
| Net (loss) income            |       | $                                          | (4,745     | ) | $ | 3,891 |   | $ | 2,631 |   |

 

**4.****                                   Comparison of our historicaloperations for the year ended December 31, 2005 to the year ended December 31,2004**

 

***Revenues:***

 

Casinorevenues increased approximately $7.3 million or 7% from $108.3 million for theyear ended December 31, 2004 to $115.6 million for the year ended December 31,2005. The increase in casino revenues is a result of increased casino revenuesat The Lodge of $4.1 million or 6% and the Gilpin of $2.9 million or 16%, andthe Gold Dust of $0.3 million or 1%. The increase in the revenues at ourproperties is a result of several factors. We have continued to focus ourcapital investments in our slot products including the implementation ofTicket-In Ticket-Out (“TITO”) systems at The Lodge and Gilpin. The Gilpin’spoker room was opened in March 2005 resulting in increased casino revenues ofapproximately $0.9 million as compared to the prior year. In addition, casinorevenues at our two Colorado properties were positively affected due toconstruction disruptions at two competing casinos.

 

Truckplaza gaming revenues increased approximately $12.6 million or 51% for the yearended December 31, 2005 compared to the year ended December 31, 2004. Weattribute $7.1 million of this increase to the gaming operations of our fivenew truck plaza locations acquired during the year ended December 31, 2005. TheBreaux Bridge truck plaza commenced gaming operations in the third quarter of2004. The Eunice and Jefferson truck plaza locations commenced gamingoperations in the late first and third quarters of 2005 respectively. TheLarose and Fuel Stop 36 truck plaza locations commenced gaming operations latein the fourth quarter of 2005.

 

Pari-mutuelrevenues increased $3.0 million or 9% from $32.9 million to $35.9 million forthe year ended December 31, 2004 compared to the year ended December 31,2005.  The increase was primarilydue to the opening in August of a new satellite wagering facility in HenryCounty, Virginia, and the opening in October 2005 of a second satellitewagering facility in Chesapeake, Virginia, and an increase in the number oflive racing days in 2005 from 66 to 76.

 

Foodand Beverage revenues increased $1.8 million or 10% from $18 million to $19.8million for the year ended December 31, 2004 as compared to the year endedDecember 31, 2005. Of this increase, $0.5 million is attributable to the Lodge,$0.5 million to Colonial and $0.8 million to the truck plaza facilities. Theincrease at Colonial is attributable to the opening in August 2005 of a newsatellite wagering facility in Henry County, Virginia, the opening in October2005 of a second

 

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satellite wageringfacility in Chesapeake, Virginia, and an increase in the number of live racingdays from 66 in 2004 to 76 in 2005. The increase at the truck plazas isattributable to the acquisitions of the 5 additional truck plaza locations,which was $0.5 million of the increase, and the remaining $0.3 was attributableto overall change in the food menu in mid 2005.

 

Conveniencestore fuel revenues increased $15.7 million or 72% from $21.7 million to $37.4million for the year ended December 31, 2005 compared to the year endedDecember 31, 2005. The increase was the result of the average selling price offuel rising from $1.78 to $2.29 per gallon, and the acquisition of the fiveadditional truck plaza locations in 2005.

 

Other revenues increased$2.6 million or 30% from $8.5 million for the year ended December 31, 2004 to$11.1 million for the year ended December 31, 2005. The increase is primarilyattributable to miscellaneous sales made at the new satellite wagering facilitythat opened in November 2005 in Richmond, Virginia, and the new satellitewagering facility opened in October 2005 in Vinton, Virginia as well as theconvenience store revenues generated from the opening of the Breaux Bridge,Louisiana truck plaza location in 2004.

 

Promotionalallowances increased $3 million or 15% from $20.2 million for the year endedDecember 31, 2004 to $23.2 million for the year ended December 31, 2005. Theincrease is primarily associated with an increase in promotional allowances atThe Lodge of $2.1 million, the Gilpin of $0.1 million, the Gold Dust West $0.1million and the truck plazas in Louisiana of $0.7 million. The increase at TheLodge, the Gilpin and the Gold Dust West is attributable to a combination ofincreased complimentary sales and cash incentives to our customers. Theincrease in Louisiana is attributable primarily to $0.3 million incomplimentary food and beverage sales at the five new truck plaza locations and$0.4 million in additional promotional allowances from new customer rewardprograms which began in mid 2005.

 

***Cost andExpenses:***

 

Thetotal costs and expenses shown in the above summary of our consolidatedoperating results include all costs and expenses for our casino operations,pari-mutuel facilities, video poker truck plaza operations, as well as ourcorporate overhead and abandonment costs. Total costs and expenses increased$45.5 million or 27% from $170.6 million for the year ended December 31, 2004to $216.2 million for the year ended December 31, 2005 and was primarilyattributable to the increased revenue discussed above and as detailed below.

 

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

 

The Lodge casino comprised$2.2 million of this increase, the Gilpin accounted for $2.6 million of theincrease, with the balance of $0.1 million attributable to Gold Dust West. The increase in The Lodge expenses wasdue to increased gaming taxes (resulting from increased gaming revenues), slotparticipation costs, general operating supplies, and maintenance. The increaseat the Gilpin was attributable to gaming taxes and operating costs of theGilpin Poker room which opened in the first quarter of 2005. The increase at the Gold Dust West wasrelated to an increase depreciation and an increase in repairs and maintenancecosts related to the snow storms that impacted the Reno market in January 2005.

 

Includedin our total costs and expenses is our video poker truck plaza operating costswhich we review when we analyze our truck plaza performance. Our totaloperating costs and expenses at our video poker truck plaza expenses increased $24 million or54% to 69 million for the year ended December 31, 2005 compared to 44.8 millionfor the year ended December 31, 2004. Approximately $12 million of thisincrease is due to the opening of the five new truck plazas, $8.5 million wasthe result of increased fuel costs and approximately $3.7 million reflectsother costs primarily associated with direct costs incurred on increased gamingand convenience store revenues of the truck plazas.

 

Includedin our total costs and expenses is our pari-mutual facilities which we reviewwhen we analyze our race-track and our off track betting facilities. Our totaloperating costs and expenses at our pari-mutual facilities increased $16.5 million or 43% to$54.7 million for the year ended December 31, 2005 compared to $38.2 millionfor the year ended December 31, 2004. Thisincrease is primarily attributable to the opening of the new satellite wageringfacilities in Chesapeake, Virginia and Henry County, Virginia which we openedin August 2005 and October 2005, respectively, an increase in expense due toadditional live race days, and $10.4 million in costs related to the Circuitcontract termination described in Section 2 above.

 

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OnSeptember 30, 2005, Colonial completed a transaction with MEC under whichColonial acquired all of the outstanding shares of the Circuit for a purchaseprice of $10 million. Under the terms of the purchase agreement, Colonial paid$7 million in cash at closing of the transaction and issued a one-year $3million note bearing interest at the prime rate plus 1% (7.75% at September 30,2005). The stock acquisition has been characterized as a termination of acontract. As such, $10.4 million, including the $10 million purchase priceand $0.4 million in legal and professional fees associated with thistransaction, has been expensed in 2005.

 

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

 

Abandonmentcosts decreased $1.5 million or 51% for the year ended December 31, 2005compared to the year ended December 31, 2004. During the year ended 2004, werecorded a $2.9 million charge to operations attributable to the write-off ofabandoned project costs. Included in these costs was $1.8 million related todevelopment costs associated with a potential gaming site in D’Iberville,Mississippi, $0.8 million in direct acquisition costs consisting of optionpayments, and legal and accounting fee expenditures associated with fourseparate unrelated parties to acquire seven video poker truck plaza operationsin Louisiana and approximately $0.3 million in other capitalized costs chargedto operations due to abandonment of miscellaneous other projects. The2005 abandonment charge of $1.4 million represents the allocated net book valueof a stand-alone portion of the Gold Dust West’s motel building (“the L-wing”)containing 66 of the property’s 106 motel rooms. After considering alternativeplans for this stand-alone portion of the motel including a refurbishing, itwas decided that the property would be better served with improved access andexpanded parking. We began demolition of the L-wing during the first quarter of2006 and expect to complete the project late in the second quarter at anestimated total cost of $1.4 million. We expect to add approximately 75 parkingspaces as a result of the demolition. We will continue to operate the remaining40 hotel rooms.

 

Interest expense increased$2.7 million for the year ended December 31, 2005 as compared to the year endedDecember 31, 2004. The increase is attributable to the issuance of $23 millionin additional senior secured notes inconjunction with the acquisition of three truck plaza facilities as discussedabove.

 

Income tax expense of $0.4million was incurred during the year ended December 31, 2005. On March 11,2002, we received notice from the Internal Revenue Service assertingdeficiencies in federal corporate income taxes for a subsidiary for the 1998tax year. The proposed adjustment relates to the deductibility of depreciationtaken against certain costs incurred by The Lodge to build and improve publicassets. We are in the final phases of settling this issue with the InternalRevenue Service and have estimated and charged to earnings $423,000 whichincludes $149,000 of interest.

 

**5.****                                  ****Comparison of our historicaloperations for the year ended December 31, 2004 to the year ended December 31,2003**

 

***Revenues:***

 

Casinorevenues increased $11.5 million or 12% from $96.8 million for the year endedDecember 31, 2003 to $108.3 million for the year ended December 31, 2004. Theincrease in casino revenues is a result of increased casino revenues at TheLodge of $6.5 million or 11%, the Gilpin of $2.5 million or 15% and Gold DustWest of $2.5 million or 13%. We expanded capital expenditures in our slotproduct during 2004 including the implementation of a Ticket-In Ticket-Out (“TITO”)system at Gold Dust West. Additionally, it appears that our marketing effortsproved successful as we continue to receive more than our fair share of themarket (i.e. the percentage of casino revenues in our market as compared to thepercentage of machines in our market). Finally, casino revenues at our twoColorado properties were positively affected due to construction disruption attwo competing casinos. It is anticipated that these competing casinos will havecompleted additions to their garages, restaurants and gaming facilities in thespring of 2006 with the completion of a hotel addition in the spring of 2007.

 

Truckplaza revenues increased $0.7 million or 3% from $24.1 million for the yearended December 31, 2003 to $24.8 million for the year ended December 31, 2004.The increase in gaming revenues is a result of continuing marketing programsimplemented to drive video poker revenue and the opening of the Breaux Bridge,Louisiana truck plaza in July 2004.

 

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Pari-mutuel revenuesincreased $3.8 million or 13% from $29.2 million for the year ended December31, 2003 to $32.9 million for the year ended December 31, 2004. The increase inrevenues is due to the new satellite wagering facility that we opened inNovember 2003 in Richmond, Virginia, and the new satellite wagering facilityopened in October 2004 in Vinton, Virginia, coupled with eight additional liveracing days at our track in New Kent, Virginia, during the year ended 2004 ascompared to the year ended 2003.

 

Foodand beverage revenues increased $1.6 million or 10% from $16.4 million for theyear ended December 31, 2003 to $18 million for the year ended December 31,2004. This increase is attributable to an increase of $0.5 million at theGilpin, $0.5 million at The Lodge, $0.1 at Colonial, and $0.5 at the truckplazas in the current period as compared to the prior year. The increase infood and beverage revenues at The Lodge and Gilpin casinos was a result ofincreased traffic through the casinos as discussed above. The increase in foodand beverage revenues at Colonial is attributable to the new satellite facilitythat opened in November 2003 in Richmond, Virginia, and the new satellitewagering facility opened in October 2004 in Vinton, Virginia. The increase infood and beverage revenues at the truck plazas in 2004 as compared to the yearended 2003 was a result of increased complimentary activity to customers whichwas designed to drive an increase in fuel sales volume and truck plaza casinorevenues as well as the opening of the Breaux Bridge, Louisiana location in2004.

 

Conveniencestore fuel revenues increased $4.5 million or 26% from $17.2 million for theyear ended December 31, 2003 to $21.7 million for the year ended December 31,2004. The increase is primarily attributable to the increase in the averageprice of fuel during 2005 as compared to 2004 as well as the opening of theBreaux Bridge, Louisiana location in 2004.

 

Other revenues increased$0.8 million or 10% from $7.8 million for the year ended December 31, 2003 to$8.5 million for the year ended December 31, 2004. The increase is primarilyattributable to miscellaneous sales made at the new satellite wagering facilitythat opened in November 2003 in Richmond, Virginia, and the new satellitewagering facility opened in October 2004 in Vinton, Virginia as well as theconvenience store revenues generated from the opening of the Breaux Bridgelocation in 2004.

 

Promotionalallowances increased $0.5 million or 3% from $19.7 million for the year endedDecember 31, 2003 to $20.2 million for the year ended December 31, 2004. Theincrease is primarily due to an increase of $0.3 million in promotionalallowance at the truck plaza facilities and a $0.3 million increase inpromotional allowance at the Gilpin, offset by a decrease of $0.1 million inpromotional allowances at The Lodge. The increases in the truck plaza and theGilpin’s promotional allowances are associated with increased complimentaryfood and beverage promotions for our players and the opening of the BreauxBridge, Louisiana location in 2004. The decrease in promotional allowances atThe Lodge was attributable to a change in the marketing cash back programduring 2004.

 

***Cost and Expenses******:***

 

Costsand expenses increased $21 million or 14% from $149.6 million for the yearended December 31, 2003 to $170.6 million for the year ended December 31, 2004.The increase in costs and expenses was primarily related to the increasedrevenue levels discussed above. During the year ended 2004, we recorded a $2.9million charge to operations attributable to the write-off of abandoned projectcosts. Included in these costs is $1.8 million related to development costsassociated with a potential gaming site in D’Iberville, Mississippi. Afterconsidering various development projects, we chose to pursue other alternativeswhich, in our estimation, would result in greater returns than the potential ofthe D’Iberville site. The majority of these abandoned project cost expenditureswere primarily associated with land option payments and design, development andplanning costs. Further, we charged to operations approximately $0.8 million indirect acquisition costs consisting of option payments, and legal andaccounting fee expenditures associated with four separate unrelated parties toacquire seven video poker truck plaza operations in Louisiana. Based on theresults of the due diligence work, we abandoned the potential acquisitions withall seven truck plaza operations targeted for acquisition. Finally,approximately $0.3 million in other capitalized costs was charged to operationsdue to abandonment of miscellaneous other projects.

 

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**6.****                                   Liquidityand capital resources—December 31, 2005**

 

As of December31, 2005, we had cash and cash equivalents of $21.8 million which wasrelatively unchanged compared to $21.5 million in cash and cash equivalents asof December 31, 2004.

 

We have a $10million senior credit facility of which $5.4 million and $10 million wasavailable as of December 31, 2005 and December 31, 2004, respectively. Thesenior credit facility carries an interest rate of 1.75% above the prime rateand expires in July 2007.

 

Asdiscussed above, on March 2, 2005, we sold $23 million of new notes. The newnotes are subject to the same terms and conditions of our existing seniorsecured notes which carry a coupon of 11 7/8% and are due in February 2009, andlike our existing notes the interest is payable on each February 1 and August1. We issued the tack-on notes at a 10% premium of their principal amount whichyielded total proceeds, before offering costs, of approximately $25.3 million.We paid $3.3 million in costs to obtain this financing and used $22.5 millionof the proceeds to acquire three video poker truck plaza operations.

 

Aspreviously discussed, on September 30, 2005, Colonial completed a transactionwith MEC, under which Colonial acquired all of the outstanding shares of theCircuit, a wholly-owned subsidiary of MEC, for $10 million ($7 million of whichwas paid in cash and $3 million in the form of a 1-year promissory note bearinginterest at 7.75% as of December 31, 2005. Our two shareholders providedcapital contributions of $3.5 million to assist in funding this transaction.

 

Also,as previously discussed our owners contributed $8.8 million in late December2005 to facilitate the acquisition of two video poker truck plazas from twounaffiliated third parties. Further, as discussed earlier our ownerscontributed approximately $8.1 million in 2005 to facilitate the acquisition of three video poker truck plazaoperations from a related party.

 

Whileour owners have made capital contributions to facilitate various acquisitionsof the company from time to time we can give no assurance that they willcontinue to do so in the future. Additionally, as we are a Subchapter S Corporation,we may from time-to-time make distributions to our owners on any taxes due as aresult of income generated by us.

 

Asof December 31, 2005 our total debt approximates $183 million. Our futureliquidity, which includes our ability to make semiannual interest payments onour notes on February 1 and August 1 of each year, depends upon our futureoperational success.

 

Wedo not have any off-balance sheet financing arrangements or transactions withunconsolidated or limited purpose entities, nor are any contemplated in thefuture.

 

Webelieve that our cash flow from operations, cash and cash equivalents and oursenior credit facility of $10 million discussed above will be adequate to meetour debt service obligations as well as our capital expenditure requirementsfor the next twelve months. However, we can give no assurance that thesesources of cash will be sufficient to enable us to do so. Further, in additionto our normal capital expenditure requirements, we anticipate that we willpursue the acquisition of other properties and continue to engage in thepursuit of new development opportunities. It is possible that we may need toenter into new financing arrangements and raise additional capital in thefuture if we are unable to sustain our current operations. Our ability to incuradditional debt is restricted by the terms and covenants of our senior securednotes. We can give no assurance that we will be able to raise capital or obtainthe necessary sources of liquidity and financing on favorable terms, if at all.Additionally, any debt financing that we may incur in the future will increasethe amount of our total outstanding indebtedness and our debt servicerequirements, and therefore heighten the related risks we currently face.

 

Wealso face the risk that there could be a decline in the demand for our productsand services, which would reduce our ability to generate funds from operations.While we believe our cash flows are geographically diverse, at present we dohave a significant concentration of cash flows generated in the Black Hawkgaming market. Should the Black Hawk market decline or become saturated orshould competition erode our market share, we would suffer a decline inavailable funds generated from operations. If this were to occur, there existsthe possibility that our credit rating could be downgraded, which would furtherreduce our ability to access the capital markets and obtain additional oralternative financing. See the section “Risk Factors” in Item IA above.

 

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Thefollowing table provides disclosure concerning JEI’s obligations andcommitments to make future payments under contracts, such as debt and leaseagreements, and purchase and other long-term obligations as of December 31,2005.

** **
| ** **                         | ** ** | ** **              | ** ** | **Less than 1** | ** ** | **1-3**   | ** ** | **4-5**   | ** ** | **After 5** | ** ** |
|------------------------------------|------------|-------------------------|------------|---------------------------|------------|-----------|------------|-----------|------------|------------------|------------|
| ** **                         | ** ** | **Total**               | ** ** | **Year**                  | ** ** | **Years** | ** ** | **Years** | ** ** | **Years**        | ** ** |
| ** **                         | ** ** | **(In Thousands)** | ** ** |
| Long-term debt(1)                  |       | $                       | 278,707    |                      | $          | 24,135    |       | $         | 46,655     |             | $          | 181,707 |   | $ | 26,210 |   |
| Operating leases(2)                |       | 19,735                  |       | 1,600                     |       | 2,969     |       | 1,908     |       | 13,258           |       |
| Other long-term obligations(3)     |       | 5,161                   |       | 2,991                     |       | 1,423     |       | 747       |       |             |       |
| Total contractual cash obligations |       | $                       | 303,603    |                      | $          | 28,726    |       | $         | 51,047     |             | $          | 184,362 |   | $ | 39,468 |   |

 

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(1)                                 Long-term debtincludes principal and interest owing under the terms of our notes, the seniorcredit facility, the Black Hawk special assessment bonds, indebtedness ofColonial, and our subordinated debt to affiliates.

 

(2)                                 Operating leasesinclude a land and warehouse leased by the Gold Dust in Reno, Nevada, as wellas other leases for property and equipment.

 

(3)                                 Other long-termobligations include the payment of one dollar per video poker machine per day,plus $1 per machine annually in licensing to an unaffiliated party to maintainour video poker machines in our truck plaza operations.

 

Inaddition, we have the following commitments and obligations:

 

•                                        Through oursubsidiary Colonial, we have entered into an agreement with a totalisatorcompany, which provides wagering services and designs, programs, andmanufactures totalisator systems for use in wagering applications. The basicterms of the agreement state that the totalisator company shall providetotalisator services to Colonial for all wagering held at Colonial’s facilitiesthrough 2004 at a rate of .365% of handle. In addition, Colonial agreed to usecertain equipment provided by the totalisator company. On March 16, 2005,Colonial entered into an amendment with the totalisator company extending theterm of the agreement to 2012, providing replacement equipment for the existingequipment, and increasing the rate to .385% of handle up to $270 million inhandle. Handle above $270 million is charged a rate of .345%. The amendmentalso provides for a minimum charge per calendar year of $330,000.

 

•                                        Through our LuckyMagnolia truck plaza, we have an obligation to pay to an individual 4.9% of theplaza’s net video poker revenue, after associated state taxes, for as long asvideo poker machines are operated on the property.

 

Finally,our outstanding senior secured notes aggregating $148 million (after givingeffect to the March 2005 “tack-on” described above) are redeemable on or afterFebruary 1, 2006 at the following redemption prices (expressed as percentagesof principal amounts) plus accrued and unpaid interest, as follows:

 
| **Year** | ** ** | **Percentage** | ** ** |
|----------|------------|----------------|------------|
| 2006     |       | 105.938        | %          |
| 2007     |       | 102.969        | %          |
| 2008     |       | 100.000        | %          |

 

Inthe event that interest rates and market conditions dictate, we would more thanlikely be willing to refinance our notes at lower rates. However, a refinancingwould be predicated upon our ability to secure financing on terms favorable andin amounts necessary to generate borrowings in excess of current principalamounts as illustrated in the above table. If we were unable to secure suchrefinancing, our ability to repay the entire current principal amountoutstanding (which is due in 2009) may be difficult, if not impossible, barringan entire liquidation of our assets. However, we believe we will be able tosecure a refinancing package which will be acceptable to us some time between2006 and 2009 in order to repay our existing senior secured notes.

 

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**7.****                                  ****Critical accounting policies andestimates**

 

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

 

***Property and equipment***

 

Wehave a significant investment in long-lived property and equipment, representingapproximately 71% of our total assets. We estimate that the undiscounted futurecash flows expected to result from the use of these assets exceed the currentcarrying value of these assets. Any adverse change to the estimate of theseundiscounted cash flows could necessitate an impairment charge that wouldadversely affect operating results. We review the carrying value of ourproperty and equipment when events and circumstances indicate that the carryingvalue of an asset may not be recoverable from the estimated future cash flowsexpected to result from its use. Further, we assign lives to our assets basedon our standard policy, which is established by management as representative ofthe useful life of each class of assets. Should the actual useful life of aclass of assets be shorter than the estimated useful life, we would record animpairment charge. We review useful lives and obsolescence and assess thecommercial viability of our assets periodically.

 

***Goodwill and other intangible assets***

 

Wehave approximately $33 million in goodwill recorded on our consolidated balancesheet resulting from the acquisition of other businesses. We do not have anyother nonamortizing intangible assets on our consolidated balance sheet. Weannually review our goodwill for impairment. The annual evaluation of goodwillrequires the use of estimates about future operating results of each reportingunit to determine its estimated fair value. Changes in forecasted operationscan materially affect these estimates. Once an impairment of goodwill has beenrecorded, it cannot be reversed. We completed our initial assessment forimpairment of goodwill in 2002 and determined that no impairment of ourgoodwill existed. Further, we performed our most recent annual impairment test asof September 30, 2005 and determined that goodwill was not impaired. Finally,we have reassessed the useful lives of our identifiable intangible assetswithout any change to the previously established amortization periods of suchassets.

 

**8.****                                   EBITDA segment information and results ofoperations—three years ended December 31, 2005**

 

As discussed above, we have four segments representing the geographicregions of our operations. Each segment is managed separately because of theunique characteristics of the revenue stream and customer base attributable tothat segment.

 

The Colorado segment consists of The Lodge and Gilpin casinos and theNevada segment consists of the Gold Dust West casino. The Louisiana operationsconsist of our truck plaza video poker facilities and the Virginia segmentconsists of Colonial’s pari-mutuel operations.

 

Theinformation presented is by each segment in which we have operations and alsopresents our EBITDA (earnings before interest, taxes, depreciation andamortization) for each segment. We believe that the presentation of a non-GAAPfinancial measure such as EBITDA is useful because it allows investors andmanagement to evaluate and compare our operating results from continuingoperations from period to period in a meaningful and consistent manner inaddition to standard GAAP financial measures. Management internally evaluatesthe performance of our properties using EBITDA measures as do most analystsfollowing the gaming industry. Additionally, EBITDA is an element of certain financialcovenants in our debt agreements and, as such, is a critical component that weclosely watch in order to determine our ability 

 

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to achieve future growth and to ensure we are in compliance with our debtagreements. We present EBITDA in the tables below as supplemental informationand to provide further discussion and analysis of our operating results. EBITDAcan be reconciled directly to our consolidated net income by adding the amountsshown for depreciation, amortization, interest and taxes to our net income.This information should not be considered as an alternative to any measure ofperformance as promulgated under accounting principles generally accepted inthe United States of America, such as net income, nor should it be consideredas an indicator of our overall financial performance. Our calculation of EBITDAmay be different from the calculation used by other companies and comparabilitymay be limited. The components of operations presented below differ from theanalysis provided above for actual results because many items are reclassifiedor grouped in order to show our operations by the segments we measure.

 
| ** **               | ** ** | **For the Years Ended** | ** ** |
|--------------------------|------------|----------------------------------------|------------|
| ** **               | ** ** | **December 31,**                  | ** ** |
| ** **               | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **               | ** ** | **(In Thousands)**                | ** ** |
|                     |       |                                   |       |   |   |   |   |
| **NET REVENUES**         |       |                                   |       |   |   |   |   |
| Colorado                 |       | $                                      | 88,414     |   | $ | 82,281 |   | $ | 72,477 |   |
| Nevada                   |       | 22,331                                 |       | 22,465 |   | 19,864 |   |
| Louisiana                |       | 82,371                                 |       | 52,305 |   | 46,505 |   |
| Virginia                 |       | 40,967                                 |       | 37,101 |   | 33,003 |   |
| Total net revenues       |       | $                                      | 234,083    |   | $ | 194,152 |   | $ | 171,849 |   |
|                     |       |                                   |       |   |   |   |   |
| **COSTS AND EXPENSES**   |       |                                   |       |   |   |   |   |
| Colorado                 |       | $                                      | 62,663     |   | $ | 58,067 |   | $ | 53,769 |   |
| Nevada                   |       | 16,228                                 |       | 14,930 |   | 14,122 |   |
| Louisiana                |       | 66,638                                 |       | 42,851 |   | 36,207 |   |
| Virginia                 |       | 51,993                                 |       | 35,500 |   | 31,220 |   |
| Net corporate overhead   |       | 7,646                                  |       | 9,314 |   | 5,256 |   |
| Total costs and expenses |       | $                                      | 205,168    |   | $ | 160,662 |   | $ | 140,574 |   |
|                     |       |                                   |       |   |   |   |   |
| **EBITDA**               |       |                                   |       |   |   |   |   |
| Colorado                 |       | $                                      | 25,751     |   | $ | 24,214 |   | $ | 18,708 |   |
| Nevada                   |       | 6,103                                  |       | 7,535 |   | 5,742 |   |
| Louisiana                |       | 15,733                                 |       | 9,454 |   | 10,298 |   |
| Virginia                 |       | (11,026                                | )          | 1,601 |   | 1,783 |   |
| Net corporate overhead   |       | (7,646                                 | )          | (9,314 | ) | (5,256 | ) |
|                     |       |                                   |       |   |   |   |   |
| **EBITDA**               |       | $                                      | 28,915     |   | $ | 33,490 |   | $ | 31,275 |   |

 

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The following table sets forth areconciliation of EBITDA, a non-GAAP financial measure, to net income, a GAAPfinancial measure.

 
| ** **                                           | ** ** | ** ** | ** ** | ** **                | ** ** | ** **   | ** ** | **Income**   | ** ** | ** **  | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------|------------|---------------------------|------------|--------------|------------|--------------|------------|-------------|------------|------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **Depreciation and** | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Tax**     | ** ** | **Net**    | ** ** |
| **Year ended December 31, 2005** | ** ** | **EBITDA** | ** ** | **Amortization**          | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Expense** | ** ** | **Income** | ** ** |
|                                                 |       |       |       |                      |       |         |       |         |       |        |       |       |       |
| Colorado                                             |       | $          | 25,751     |                      | $          | 5,017        |       | $            | 44         |        | $          | 10,934     |       | $ |   |   | $ | 9,844 |   |
| Nevada                                               |       | 6,103      |       | 1,691                     |       | 15           |       | 3,141        |       |        |       | 1,286      |       |
| Louisiana                                            |       | 15,733     |       | 2,387                     |       | 20           |       | 2,794        |       |        |       | 10,572     |       |
| Virginia                                             |       | (11,026    | )          | 1,685                     |       | 86           |       | 322          |       |        |       | (12,947    | )          |
| Corporate overhead                                   |       | (7,646     | )          | 225                       |       | 7            |       | 5,213        |       | 423         |       | (13,500    | )          |
| Totals                                               |       | $          | 28,915     |                      | $          | 11,005       |       | $            | 172        |        | $          | 22,404     |       | $ | 423 |   | $ | (4,745 | ) |
|                                                      |            |            |            |                           |            |              |            |              |            |             |            |            |            |  |  |  |  |  |  |  |

 
| ** **                                           | ** ** | ** ** | ** ** | ** **                | ** ** | ** **   | ** ** | ** **   | ** ** | **Income**  | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------|------------|---------------------------|------------|--------------|------------|--------------|------------|-------------|------------|------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **Depreciation and** | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Tax**     | ** ** | **Net**    | ** ** |
| **Year ended December 31, 2004** | ** ** | **EBITDA** | ** ** | **Amortization**          | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Expense** | ** ** | **Income** | ** ** |
|                                                 |       |       |       |                      |       |         |       |         |       |        |       |       |       |
| Colorado                                             |       | $          | 24,214     |                      | $          | 4,838        |       | $            | 13         |        | $          | 10,807     |       |   |   | $ | 8,582 |   |
| Nevada                                               |       | 7,535      |       | 1,436                     |       | 3            |       | 3,142        |       |        |       | 2,960      |       |
| Louisiana                                            |       | 9,454      |       | 1,962                     |       | 3            |       | 2,216        |       |        |       | 5,279      |       |
| Virginia                                             |       | 1,601      |       | 1,544                     |       | 29           |       | 121          |       |        |       | (35        | )          |
| Corporate overhead                                   |       | (9,314     | )          | 178                       |       | 16           |       | 3,419        |       |        |       | (12,895    | )          |
| Totals                                               |       | $          | 33,490     |                      | $          | 9,958        |       | $            | 64         |        | $          | 19,705     |       | $ | — |   | $ | 3,891 |   |
|                                                      |            |            |            |                           |            |              |            |              |            |             |            |            |            |  |  |  |  |  |  |

 
| ** **                                           | ** ** | ** ** | ** ** | ** **                | ** ** | ** **   | ** ** | ** **   | ** ** | **Income**  | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------|------------|---------------------------|------------|--------------|------------|--------------|------------|-------------|------------|------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **Depreciation and** | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Tax**     | ** ** | **Net**    | ** ** |
| **Year ended December 31, 2003** | ** ** | **EBITDA** | ** ** | **Amortization**          | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Expense** | ** ** | **Income** | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | ** **                | ** ** | ** **   | ** ** | ** **   | ** ** | ** **  | ** ** | ** ** | ** ** |
| Colorado                                             |       | $          | 18,708     |                      | $          | 4,759        |       | $            | 3          |        | $          | 10,774     |       |   |   | $ | 3,178 |   |
| Nevada                                               |       | 5,742      |       | 1,241                     |       | —       |       | 3,123        |       |        |       | 1,378      |       |
| Louisiana                                            |       | 10,298     |       | 1,650                     |       | 14           |       | 1,986        |       |        |       | 6,676      |       |
| Virginia                                             |       | 1,783      |       | 1,285                     |       | 44           |       | 264          |       |        |       | 278        |       |
| Corporate overhead                                   |       | (5,256     | )          | 136                       |       | 11           |       | 3,498        |       |        |       | (8,879     | )          |
| Totals                                               |       | $          | 31,275     |                      | $          | 9,071        |       | $            | 72         |        | $          | 19,645     |       | $ | — |   | $ | 2,631 |   |
|                                                      |            |            |            |                           |            |              |            |              |            |             |            |            |            |  |  |  |  |  |  |

 

**The following is a discussion ofour results of operations by segment, for the year ended December 31, 2005compared to the year ended December 31, 2004.**

 

**COLORADO**

 

***Overview***

 

A summary of the netrevenue, costs and expenses and EBITDA of our Colorado properties is asfollows:

 

42

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| ** **               | ** ** | **For the Years Ended** | ** ** |
|--------------------------|------------|----------------------------------------|------------|
| ** **               | ** ** | **December 31,**                  | ** ** |
| ** **               | ** ** | **2005**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **               | ** ** | **(In Thousands)**                | ** ** |
| Net revenues             |       |                                   |       |   |   |   |   |
| Lodge                    |       | $                                      | 67,428     |   | $ | 64,144 |   | $ | 57,136 |   |
| Gilpin                   |       | 20,986                                 |       | 18,137 |   | 15,341 |   |
|                     |       |                                   |       |   |   |   |   |
| Total net revenues       |       | 88,414                                 |       | 82,281 |   | 72,477 |   |
|                     |       |                                   |       |   |   |   |   |
| Costs and expenses       |       |                                   |       |   |   |   |   |
| Lodge                    |       | 46,166                                 |       | 43,973 |   | 40,262 |   |
| Gilpin                   |       | 16,497                                 |       | 14,094 |   | 13,507 |   |
|                     |       |                                   |       |   |   |   |   |
| Total costs and expenses |       | 62,663                                 |       | 58,067 |   | 53,769 |   |
|                     |       |                                   |       |   |   |   |   |
| EBITDA                   |       |                                   |       |   |   |   |   |
| Lodge                    |       | 21,262                                 |       | 20,171 |   | 16,874 |   |
| Gilpin                   |       | 4,489                                  |       | 4,043 |   | 1,834 |   |
|                     |       |                                   |       |   |   |   |   |
| EBITDA                   |       | $                                      | 25,751     |   | $ | 24,214 |   | $ | 18,708 |   |

 

The followingtable sets forth a reconciliation of EBITDA, a non-GAAP financial measure, tonet income, a GAAP financial measure.

 
| ** **                                                             | ** ** | ** **         | ** ** | **Depreciation and** | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Net**    | ** ** |
|------------------------------------------------------------------------|------------|--------------------|------------|---------------------------|------------|--------------|------------|--------------|------------|------------|------------|
| **For the year ended December 31, 2005** | ** ** | **EBITDA**         | ** ** | **Amortization**          | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Income** | ** ** |
| ** **                                                             | ** ** | **(In Thousands)** | ** ** |
|                                                                   |       |               |       |                      |       |         |       |         |       |       |       |
| Lodge                                                                  |       | $                  | 21,262     |                      | $          | 3,372        |       | $            | 32         |       | $          | 8,342 |   | $ | 9,580 |   |
| Gilpin                                                                 |       | 4,489              |       | 1,645                     |       | 12           |       | 2,592        |       | 264        |       |
| Total                                                                  |       | $                  | 25,751     |                      | $          | 5,017        |       | $            | 44         |       | $          | 10,934 |   | $ | 9,844 |   |

 
| ** **                                                             | ** ** | ** ** | ** ** | **Depreciation and** | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Net**    | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|---------------------------|------------|--------------|------------|--------------|------------|------------|------------|
| **For the year ended December 31, 2004** | ** ** | **EBITDA** | ** ** | **Amortization**          | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Income** | ** ** |
|                                                                   |       |       |       |                      |       |         |       |         |       |       |       |
| Lodge                                                                  |       | $          | 20,171     |                      | $          | 3,385        |       | $            | 10         |       | $          | 8,378 |   | $ | 8,418 |   |
| Gilpin                                                                 |       | 4,043      |       | 1,453                     |       | 3            |       | 2,429        |       | 164        |       |
| Total                                                                  |       | $          | 24,214     |                      | $          | 4,838        |       | $            | 13         |       | $          | 10,807 |   | $ | 8,582 |   |

 
| ** **                                                             | ** ** | ** ** | ** ** | **Depreciation and** | ** ** | **Interest** | ** ** | **Interest** | ** ** | **Net**    | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|---------------------------|------------|--------------|------------|--------------|------------|------------|------------|
| **For the year ended December 31, 2003** | ** ** | **EBITDA** | ** ** | **Amortization**          | ** ** | **Income**   | ** ** | **Expense**  | ** ** | **Income** | ** ** |
|                                                                   |       |       |       |                      |       |         |       |         |       |       |       |
| Lodge                                                                  |       | $          | 16,874     |                      | $          | 3,339        |       | $            | 2          |       | $          | 8,341 |   | $ | 5,196 |   |
| Gilpin                                                                 |       | 1,834      |       | 1,420                     |       | 1            |       | 2,433        |       | (2,018     | )          |
| Total                                                                  |       | $          | 18,708     |                      | $          | 4,759        |       | $            | 3          |       | $          | 10,774 |   | $ | 3,178 |   |

 

43

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***Increased Competition in the Black HawkMarket***

 

Thecompetitive aspects of the market in Black Hawk continue to be a significantfactor in our operations. As a result of the increased level of developmentactivity in Black Hawk over the last three years, there were approximately9,700 gaming devices in the city at December 31, 2005. At December 31, 2005 wehad 1,400 devices in this market (950 at The Lodge and 450 at the Gilpin),which represented approximately 14.4% of the total devices in the Black Hawkmarket.

 

Forthe year ended December 31, 2005 our gross gaming revenues at The Lodge and theGilpin totaled $93.1 million ($88.4 million in net revenues), which represented17.3% of the total gaming revenues in Black Hawk. While the overall market in2005 grew by 1.5% in gross gaming revenues, the average total gaming devices increased by2.6%. We managed to generate 120% efficiencies (our percentage of the grossgaming revenues divided by our percentage of the gaming devices) within the marketfor 2005. We follow our efficiency levels very closely as we believe this is auseful measure of how well we are performing within the market.

 

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

 

***Net Revenues***. The $6.1 million increase in net revenuesof our Colorado operations for the year ended December 31, 2005 compared to thesame period of 2004 is attributable to an increase in net revenues at theGilpin of $2.8 million and $3.3 million in net revenues at The Lodge. Weexpanded capital expenditures in our slot product in Colorado over the pastyear attempting to provide the latest games available to our customers andopened the Gilpin poker room in March of 2005. In addition, our Colorado casinorevenues were positively affected due to construction disruptions at two competingcasinos.

 

***Costs and Expenses****.* Total costs and expenses associated withour Colorado operations increased $4.6 million for the year ended December 31,2005 compared to the same period of 2004. The increase was a result ofincreased costs and expenses at the Gilpin of $2.4 million and $2.2 million atThe Lodge. The increase in costs and expenses attributable to The Lodge was aresult of increased gaming taxes (due to increased gaming revenues), food andbeverage cost of sales, slot participation, and marketing-related expenses. Theincrease at the Gilpin was a result of opening the new poker room, increasedgaming taxes (due to increased gaming revenues), food and beverage costs ofsales, slot participation expenses, and marketing-related expenses.

 

***Earnings BeforeInterest, Taxes, Depreciation and Amortization (EBITDA)****.*One additional measurement thatmanagement utilizes to gauge performance of our operating segments is what werefer to as “flow-through” on incremental revenue. Generally speaking, we havesignificant fixed costs and when we are able to increase our revenues, we wouldexpect a significant portion of those incremental revenues, after the paymentof gaming taxes and promotional and advertising costs to capture thoseadditional revenues, will flow through to our EBITDA. As discussed above,because our net revenues at The Lodge increased approximately $3.3 millionduring 2005 causing an increase in our costs and expenses of approximately $2.2million, our EBITDA in 2005 increased over 2004 by approximately $1.1 million.In other words, we realized approximately 33% of those incremental revenueswhich flowed through to our EBITDA. Additionally, our net revenues at theGilpin increased approximately $2.8 million in 2005 as compared to 2004, approximately16% of that amount flowed through to our EBITDA in 2005. The decline inincremental flow through at the Gilpin is due to the additional costsassociated with opening the poker room. This measurement is only one of thetools we use to gauge the success of our marketing programs and it also servesto highlight our fixed cost infra-structure and how those costs affect theoperations and performance of our properties.

 

**NEVADA**

 

***Overview***

 

Weacquired our Reno, Nevada, property in January 2001. In September 2001 weinstalled a slot-player tracking system and began to directly market to ourlocal customer base. During 2002, we made several improvements to the propertyincluding a significant remodeling of the Wildwood kitchen and serving line,the addition of outdoor signage, and general landscaping improvements. During2003, we improved the exterior signage and focused on the casino’s slot productimprovements. During 2004 and 2005, we continued to focus on our slot productby introducing Ticket-In Ticket-Out (“TITO”) technology to our gaming floor.

 

44

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***Net revenues***.The net revenues of Gold Dust West decreased by $0.1 million for the year endedDecember 31, 2005 as compared to the same period of 2004. During the firstquarter of 2005 the Reno market was hit with a significant snow storm thatseverely impacted the entire Reno market. However, we continued to expandcapital expenditures in our slot product over the last year including theincrease in TITO available games for our customers. Additionally, we continueto realize success with our marketing and slot club efforts.

 

***Costs and Expenses***.Costs and expenses of Gold Dust West increased $1.3 million for the year endedDecember 31, 2005 as compared to the same period of 2004. This increase incosts and expenses was the result of the Company recording an abandonmentcharge of $1.4 million partially offset by a $0.1 million reduction inoperating costs of the casino. The abandonment charge of $1.4 million representsthe allocated net book value of a stand-alone portion of the Gold Dust West’smotel building (“the L-wing”) containing 66 of the property’s 106 motel rooms.After considering alternative plans for this stand-alone portion of the motelincluding a possible refurbish, it was decided that the property would bebetter served by improved access and expanded parking. We began demolition ofthe L-wing during the first quarter of 2006 and expects to complete the projectlate in the second quarter at an estimated total cost of $1.4 million. Weexpect to add approximately 75 parking spaces as a result of the demolition. Wewill continue to operate the remaining 40 hotel rooms.

 

***Earnings Before Interest,Taxes, Depreciation and Amortization***. TheGold Dust West’s EBITDA was approximately $6.1 million for the year endedDecember 31, 2005 compared to $7.5 million for the years ended December 31,2004 with the difference being the result of the L-wing abandonment chargediscussed above.

** **

***Overview***

 

TheLouisiana truck plaza video gaming properties consist of eleven truck plazagaming facilities located in Louisiana and a share in the gaming revenues of anadditional truck plaza.

 

Eachtruck plaza features a convenience store, fueling operations, a  restaurant operating not fewer than 12 hoursper day, and 50 video gaming devices (except for the Fuel Stop 36 and LaroseTruck plazas, which have 39 video gaming devices, and Eunice  Truck Plaza and Casino,  which has 40 video gaming devices).

 

TheLouisiana truck plazas’ revenues are comprised of (i) revenue from video pokergaming machines; (ii) sales of gasoline and diesel fuel; (iii) sales ofgroceries, trucker supplies and sundry items through their convenience stores;(iv) sales of food and beverages in their restaurants and bars; and (v)miscellaneous commissions on ATMs, pay phones and lottery sales.

 

All video poker activity isreported instantaneously via a computer phone line directly to the LouisianaState Police. The Louisiana truck plazas’ revenues are heavily dependent onmeeting the minimum gallons of fuel sales requirements necessary to operatevideo poker gaming machines in Louisiana. These requirements must be compliedwith on a quarterly basis. In the event of noncompliance, the Louisiana StatePolice must turn off a portion of the video poker machines. We believe theLouisiana truck plazas will continue to meet the fuel sales requirementsnecessary to operate video poker gaming machines in Louisiana at currentlevels.

 

***Net revenues***.The Louisiana truck plazas generated net revenues of $82.3 million for the yearended December 31, 2005 compared to $52.3 million for the year ended December31, 2004. Weattribute $14.4 million of this increase in net revenues to our five new truckplaza locations, acquired during the year ended December 31, 2005. Thisremaining increase of $15.6 million or 29% is due to increases in gaming andfuel revenues. Gaming revenues have increased as a result of the continuingadvertising and promotional marketing efforts driven to create a brand andidentity for our locations. Fuel revenues have increased primarily due to aweighted average price per gallon increase from $1.78 per gallon in 2004 to$2.29 per gallon in 2005.

 

***Costs and Expenses***.The Louisiana truck plazas’ costs and expenses were $66.6 million and $42.9million for the years ended December 31, 2005 and 2004, respectively. We attribute $12million of this increase in costs and expenses to our five new truck plazalocations, acquired during the year ended December 31, 2005. Theremaining increase of $11.8 million or 27% is primarily due to the costsattributable to increased gaming operations and the cost of fuel sold.

 

45

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***EarningsBefore Interest, Taxes, Depreciation and Amortization***.The Louisiana properties’ EBITDA was approximately $15.7 million and $9.5million for the years ended December 31, 2005 and 2004, respectively. We attribute $2.7million of this increase in EBITDA to our five new truck plaza locations,acquired during the year ended December 31, 2005. This remainingincrease of $3.5 million or 56% is primarily due to the increase in gamingrevenues.

 

**VIRGINIA**

 

***Overview***

 

Colonial’s revenues arecomprised of (i) pari-mutuel commissions from wagering on races broadcast fromout-of-state racetracks to Colonial’s satellite wagering facilities and thetrack using import simulcasting; (ii) wagering at the track and Colonial’ssatellite wagering facilities on its live races; (iii) admission fees, programand racing form sales, and certain other ancillary activities; and (iv) netincome from food and beverage sales and concessions.

 

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

 

Aspreviously discussed, on September 30, 2005 Colonial acquired the managementcontract from MEC and now is able to manage the track’s operations. We believethis will enable us to immediately influence the operational aspects ofColonial. The 2005 EBITDA reflects a charge of $10.4 million representing thepurchase price of the contract plus $0.4 million in legal and professional feesassociated with the transaction.

 

OnMarch 8, 2004, the Virginia Racing Commission granted the license to Colonialto open its sixth satellite wagering facility in Vinton, Virginia. Constructionon the facility started in the second quarter of 2004 and the facility openedfor business on October 11, 2004.

 

OnApril 28, 2004, the Virginia Racing Commission granted Colonial a license toaccept wagers over the telephone or through the internet through its advanceddeposit wagering system. The advanced deposit wagering system became fullyoperational late in the third quarter of 2004.

 

OnNovember 2, 2004, referenda were passed in the following counties in Virginia:Henry County; Scott County and Westmoreland County. On March 16, 2005, Colonial received a license to own and operatea seventh satellite wagering facility in Henry County, Virginia. We opened theHenry County facility in the third quarter of 2005. On April 27, 2005, Colonialreceived a license to own and operate its eighth satellite wagering facility ata second location in Chesapeake, Virginia. We opened the second Chesapeakefacility in the fourth quarter of 2005. On May 25, 2005, Colonial was granted alicense to own and operate a ninth satellite wagering facility in Scott County,Virginia. We opened the Scott County facility in the first quarter of 2006.

 

***TotalRevenues***. Colonial generated net revenues for the yearended December 31, 2005 of $41.0 million compared to $37.1 million for the sameperiod of 2004. The increase of total revenues of $3.9 million, or 10.4%, isdue primarily to the opening in August 2005 of a second satellite wageringfacility in Chesapeake, Virginia, the opening in October 2005 of a newsatellite wagering facility in Henry County, Virginia, and an increase in thenumber of live racing days from 66 in 2004 to 76 in 2005.

 

46

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***Costsand Expenses****.*Colonial’sdirect operating costs and expenses were $52.0 million for the year endedDecember 31, 2005 compared to $35.5 million for the same period of 2004. Costsand expenses increased $16.5 million, or 46.5%, for the year ended December 31,2005 from the same period of 2004. This increase is primarily attributable tothe opening of the new satellite wagering facilities in Henry County and Chesapeake,Virginia which we opened in August 2005 and October 2005, respectively, anincrease in expense due to additional live race days, and $10.4 million incosts related to the Circuit contract termination.

 

***EarningsBefore Interest, Taxes, Depreciation and Amortization***.Colonial’s property level EBITDA was approximately ($11.0) million and $1.6million for the years ended December 31, 2005 and 2004, respectively. Thedecrease of $12.6 million was due primarily to expenses associated with the newsatellite wagering facilities in Henry County and Chesapeake, Virginia,additional live racing days, and costs related to the Circuit contracttermination.

 

**Net Corporate Overhead**

 

***Overview***

 

Our corporate operationsdirects the overall management, operational, accounting, and administrativeaspects of our Company.

 

***Costs and Expenses.*** Corporate overhead costs and expensesdecreased from $9.3 million for the year ended December 31, 2004 to $7.6million in 2005. The $1.7 million decrease is primarily due to a $2.9 millioncharge to earnings associated with the abandonment of projects during 2004 withno such charge occurring in 2005. The increase in other corporate overheadexpenses of $1.2 million is attributable to costs incurred for a charity pokerfestival in Cleveland, Ohio, an increase in labor, rent and satellite wageringfacility referenda campaign costs in Virginia as well as an increase in travel,labor and consulting costs associated with the Sarbanes Oxley Act of 2002 Section404 compliance preparatory work.

 

**Item7A.****                *Quantitative and Qualitative Disclosure about MarketRisk***

 

**MarketRisk**

 

Marketrisk is the risk of loss arising from adverse changes in market rates andprices, such as interest rates, foreign currency exchange rates, and commodityprices. On February 8, 2002, we issued $125.0 million in 117/8%senior secured notes due in 2009 and in March 2005 we issued an additional$23.0 million of such notes. All debt currently bears interest at a fixed rate,except our $10 million line of credit (which currently has no amountsoutstanding), which bears interest at 1.75% above the prime rate published byWells Fargo Bank, N.A.

 

Ifmarket interest rates increase, our cash requirements for interest on thesenior credit facility balance would also increase. Conversely, if marketinterest rates decrease, our cash requirements for interest on the seniorcredit facility balance would also decrease. A 1% change in the variableinterest rate would not have a material impact on our results of operations.

 

Therewould be an approximate change in our cash requirements of $54,000 annually forinterest should market rates increase or decrease by 10% compared to interestrate levels at December 31, 2005.

 

Wecurrently do not invest in derivative financial instruments, interest rateswaps or other similar investments to alter interest rate exposure.

 

**Item8.****                   *Financial Statements and Supplementary Data***

 

Referenceis made to the financial statements, the notes, and the report of our independentregistered public accounting firm commencing on page F-1 of this report.

 

**Item9.**                   ***Changes in and Disagreements withAccountants on Accounting and Financial Disclosure***

 

None.

 

47

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**Item9A.****                *Controls and Procedures***

 

We have carried out under the supervision and withthe participation of our management, including our Chief Executive Officer andour Chief Financial Officer, an evaluation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as ofDecember 31, 2005. Based on such evaluation, we have concluded that, as ofsuch date, our disclosure controls and procedures were effective to ensure thatinformation required to be disclosed by us in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified inapplicable SEC rules and forms. There has been no change in our internal control over financialreporting during our most recent fiscal quarter that has materially affected, oris reasonably likely to materially affect, our internal control over financialreporting.

 

**Item9B.****                *Other Information***

 

Thereis no information we were required to report on Form 8-K during our fourthfiscal quarter of the year ended December 31, 2005 that was not soreported.

 

**Item10.****                *Directors and Executive Officers of the Registrant***

 

Thefollowing table provides information regarding our directors and executiveofficers and key employees of Black Hawk Gaming, Colonial and the Louisianaproperties as of March 1, 2006:

 
| **Name**          | ** ** | **Age** | ** ** | **Position**                                                                        |
|-------------------|------------|---------|------------|-------------------------------------------------------------------------------------|
| Jeffrey P. Jacobs |       | 52      |       | Chief Executive  Officer, President, Secretary, Treasurer and Chairman of the Board |
| Richard E. Jacobs |       | 80      |       | Director                                                                            |
| Stephen R. Roark  |       | 58      |       | Chief Financial Officer  and President of Casino Operations                         |
| Ian M. Stewart    |       | 51      |       | President of  Pari-Mutuel Wagering and Video Poker Operations                       |
| Michael T. Shubic |       | 51      |       | Vice President of  Casino Operations                                                |
| Stan Guidroz      |       | 39      |       | Vice President of  Louisiana Operations                                             |

 

JeffreyP. Jacobs is our Chairman, Chief Executive Officer, President, Secretary andTreasurer. From 1996 to present, he served as Chairman and Chief ExecutiveOfficer of Diversified Opportunities Group Ltd., a company co-founded by Mr.Jacobs and his father, Richard E. Jacobs, and based in Cleveland, Ohio, thathas investments in gaming companies and ventures. Diversified was acquired byJacobs Entertainment on February 22, 2002. From 1975 to present, Mr.Jacobs has also served as Chairman and Chief Executive Officer of JacobsInvestments, Inc., a company engaged in the development, construction andoperation of residential and commercial real estate projects in Ohio. He isalso involved in a variety of private equity transactions and investments. Mr.Jacobs served in the Ohio House of Representatives from 1982 until 1986. He isalso Chairman and Chief Executive Officer of Colonial, and Chairman and ChiefExecutive Officer of Black Hawk Gaming.

 

RichardE. Jacobs is our other Director. Mr. Jacobs was Chairman of the Board,President and Chief Executive Officer of Cleveland Indians Baseball Company,Inc. from its inception in 1998 to February 2000. From 1986 to 1998, Mr.Jacobs was Chairman of the Board, President and Chief Executive Officer ofCleveland Baseball Corporation, which previously served as the general partnerof the partnership that now owns the Cleveland Indians Baseball team. Mr.Jacobs is also Chairman of the Board and Chief Executive Officer of The RichardE. Jacobs Group Inc., a real estate management and development company.

 

StephenR. Roark is currently our Chief Financial Officer and President of CasinoOperations. He has been employed as Chief Financial Officer of Black HawkGaming since August 1993. Mr. Roark became a director of Black Hawk Gamingin 1994. He was elected President of Black Hawk Gaming in September 1995.Prior to that time he was an independent consultant in the Denver arearendering financial and accounting assistance to companies in the publicmarketplace. Mr. Roark has 17 years of public accounting experience, having servedas a partner with a local accounting firm based in Denver and as a partner witha national accounting firm. Mr. Roark was with Hanifen, Imhoff and PrudentialSecurities, Inc. for three years and is a member of the American Institute ofCertified Public Accountants and the Colorado Society of Certified PublicAccountants. Mr. Roark obtained his B.S.B.A. in Accounting from the Universityof Denver in 1973.

 

48

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Ian M.Stewart is currently our President of Pari-Mutuel Wagering and Video PokerOperations. He has served as President of Colonial since November 1998 andits Chief Financial Officer since June 1997. From January 1998through November 1998,Mr. Stewart served as Chief Operating Officer of Colonial. FromOctober 1994 to June 1997, Mr. Stewart served as a consultant and atemporary Chief Financial Officer for several Virginia-based businesses. FromDecember 1989 to September 1994, Mr. Stewart was Vice President andCFO of Hat Brands, Inc. Mr. Stewart is a certified public accountant and holdsan M.B.A. degree from the University of Michigan.

 

MichaelT. Shubic is currently our Vice President of Casino Operations, having joinedus in December 2002. From 2000 to 2002, Mr. Shubic was Vice President andGeneral Manager of the Isle of Capri Black Hawk Casino in Black Hawk, Colorado.From 1997 to 2000, as a private individual, he explored and participated invarious aspects of the golf industry, including education, sales andmanagement. From 1984 to 1997, Mr. Shubic was employed by several gamingcompanies in Las Vegas and Reno, Nevada, Joliet, Illinois, and Nassau, Bahamas.His positions included marketing manager, casino administrator, customeranalysis manager, casino credit manager and food and beverage manager. Mr.Shubic holds a B.S. degree in Hotel Administration from the University ofNevada.

 

StanGuidroz is currently our Vice President of Louisiana Operations, having joinedus in July 2002. Prior to that he was Director of Sales and Marketing forour Louisiana operations where he managed the sales and marketing efforts aswell as the development of a proprietary fuel program for our truck stopplazas. Prior to joining us, Mr. Guidroz held the position of Director ofOperations for Pumpelly Oil, the largest petroleum marketing company in theGulf Coast for six years. Mr. Guidroz recently completed his MBA at theUniversity of Louisiana of Lafayette.

 

We area company wholly owned 50% by Jeffrey P. Jacobs and two of his family trusts,and revocable and irrevocable trusts established by his father, Richard E.Jacobs. Our board of directors, consisting of Messrs. Jeffrey P. Jacobs andRichard E. Jacobs, has no nominating, audit, compensation or other committees.The board has adopted a code of ethics policy which is applicable to our CEO,CFO and our employees, and is an exhibit to this report. We rely on ouremployment procedures and system of internal controls and procedures, to deterwrongdoing and to promote honest and ethical conduct, full, fair and accuratedisclosure in our reports, our compliance with governmental laws, rules andregulations, and internal reporting of violations of our policies.

 

49

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

 

Becausewe are a SubChapter S corporation under the Internal Revenue Code of 1986 andour stockholders, rather than we, pay taxes on our income, we anticipate makingdistributions to our stockholders in amounts sufficient to enable them to makethe required tax payments. We formulate additional incentive compensation plansfor upper management and selected middle management personnel based on JacobsEntertainment’s achievement of multi-year financial and growth objectives. Theterms of the incentive compensation plans are established by JacobsEntertainment’s board of directors.

 

Thefollowing table sets forth information regarding the compensation paid byJacobs Entertainment to each of the following individuals for services renderedin all capacities for the years indicated:

 
| ** **                                    | ** ** | ** ** | ** ** | ** **                   | ** ** | ** ** | ** ** | ** **                      | ** ** | **Long-Term Compensation**  | ** ** | ** **                                          | ** ** |
|-----------------------------------------------|------------|------------|------------|------------------------------|------------|------------|------------|---------------------------------|------------|----------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Awards** | ** ** | **Payouts**                     | ** ** | ** **                       | ** ** |
| **Name and Principal  Position(1)** | ** ** | **Year**   | ** ** | **Salary**                   | ** ** | **Bonus**  | ** ** | **Other  Annual  Compensation** | ** ** | **Restricted  Stock  Awards(s)** | ** ** | **Securities  Underlying  Options/  SARs (#)** | ** ** | **LTIP  Payouts** | ** ** | **All Other****Compensation** | ** ** |
| ** **                                    | ** ** | ** ** | ** ** | **($)**                      | ** ** | **($)**    | ** ** | **($)**                         | ** ** | **($)**                          | ** ** | ** **                                          | ** ** | **($)** | ** ** | **($)** | ** ** |
| Jeffrey P.  Jacobs                            |       | 2005       |       | 500,000                      |       | 250,000    |       |                            |       |                             |       |                                                |       |   |   |   |   |
|                                          |       | 2004       |       | 500,000                      |       | 250,000    |       | —                          |       | —                           |       | —                                              |       | — |   | (2 | ) |
|                                          |       | 2003       |       | 500,000                      |       | -0-        |       | —                          |       | —                           |       | —                                              |       | — |   | (2 | ) |
|                                          |       |       |       |                         |       |       |       |                            |       |                             |       |                                                |       |   |   |   |   |
| Stephen R. Roark                              |       | 2005       |       | 350,000                      |       | 107,000    |       |                            |       |                             |       |                                                |       |   |   |   |   |
|                                          |       | 2004       |       | 350,000                      |       | 72,700     |       | —                          |       | —                           |       | —                                              |       | — |   | — |   |
|                                          |       | 2003       |       | 300,000                      |       | 30,000     |       | —                          |       | —                           |       | —                                              |       | — |   | — |   |
|                                          |       |       |       |                         |       |       |       |                            |       |                             |       |                                                |       |   |   |   |   |
| Ian M. Stewart                                |       | 2005       |       | 250,000                      |       | 75,000     |       |                            |       |                             |       |                                                |       |   |   |   |   |
|                                          |       | 2004       |       | 250,000                      |       | 30,000     |       | —                          |       | —                           |       | —                                              |       | — |   |   |   |
|                                          |       | 2003       |       | 215,000                      |       | 40,000     |       | —                          |       | —                           |       | —                                              |       | — |   |   |   |
|                                          |       |       |       |                         |       |       |       |                            |       |                             |       |                                                |       |   |   |   |   |
| Michael T.  Shubic                            |       | 2005       |       | 242,000                      |       | 73,000     |       |                            |       |                             |       |                                                |       |   |   |   |   |
|                                          |       | 2004       |       | 240,000                      |       | 59,440     |       |                            |       |                             |       |                                                |       |   |   |   |   |
|                                          |       | 2003       |       | 200,000                      |       | 30,000     |       |                            |       |                             |       |                                                |       |   |   |   |   |

 

----

(1)                                  SeeItem 10 above which describes the principal positions of the named executives.

 

(2)                                  SeeItem 13 below which describes consulting fees paid to an affiliate of Mr.Jacobs.

 

**Item 12.**                                                    ***Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters***

 

Thefollowing table sets forth certain information regarding the beneficialownership of our common stock as of March 1, 2006, for (i) eachstockholder who is known by us to own beneficially more than 5% of our commonstock, (ii) each director and executive officer, and (iii) all of our directorsand executive officers as a group. Except as otherwise indicated, we believe,based on information furnished by the persons named in this table, that suchpersons have voting and investment power with respect to all shares of commonstock beneficially owned by them, subject to community property laws, whereapplicable.

 

As ofMarch 1, 2006, there were 1,500 shares of our common stock outstandingdivided into 1,320 Class A shares and 180 Class B shares. The shares are equalin all respects except that each Class B share entitles the holder to 10,000votes on each matter required to be voted upon by our shareholders. We have noequity compensation, stock option or similar plans relating to our equitysecurities.

 

50

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| ** **                                       | ** ** | **Number of Shares** | ** ** | **Percentage**   | ** ** |
|--------------------------------------------------|------------|--------------------------------|------------|------------------|------------|
| **Stockholder**                                  | ** ** | **Class A**               | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| Jeffrey P.  Jacobs(1)                            |       | 264                            |       | —           |       | 20 | % | — |   |
| Golden Bear  Plaza                               |       |                           |       |             |       |   |   |   |   |
| East Tower                                       |       |                           |       |             |       |   |   |   |   |
| 1170 U.S.  Highway One, Suite 600                |       |                           |       |             |       |   |   |   |   |
| North Palm  Beach, Florida 33408                 |       |                           |       |             |       |   |   |   |   |
|                                             |       |                           |       |             |       |   |   |   |   |
| Jacobs Family  Economic and Control Trusts(2)    |       | 396                            |       | 90               |       | 30 | % | 50 | % |
| Hahn Loeser  & Parks LLP                     |       |                           |       |             |       |   |   |   |   |
| 200 Public  Square, Suite 3300                   |       |                           |       |             |       |   |   |   |   |
| Cleveland, Ohio  44114                           |       |                           |       |             |       |   |   |   |   |
|                                             |       |                           |       |             |       |   |   |   |   |
| Richard E. Jacobs(3)                             |       | 660                            |       | 90               |       | 50 | % | 50 | % |
| 25425 Center  Ridge Road                         |       |                           |       |             |       |   |   |   |   |
| Cleveland, Ohio  41445                           |       |                           |       |             |       |   |   |   |   |
|                                             |       |                           |       |             |       |   |   |   |   |
| All executive  officers and directors as a group |       | 924                            |       | 90               |       | 70 | % | 50 | % |

 

----

(1)           JeffreyP. Jacobs is our Chief Executive Officer, President, Secretary, Treasurer andChairman of the Board.

 

(2)           TheJacobs Family Economic Trust owns 396 Class A shares and the Jacobs FamilyControl Trust owns 90 Class B shares. Both trusts are dynasty trustsestablished by Jeffrey P. Jacobs for the benefit of his current and futureheirs and place certain restrictions on the transfer of the shares by thetrustee. The current trustee of both trusts is Stanley R. Gorom III, a partnerin the Cleveland, Ohio law firm of Hahn Loeser & Parks LLP.

 

(3)           Allshares shown as beneficially owned by Richard E. Jacobs are owned by TheRichard E. Jacobs Revocable Trust, and the Richard E. Jacobs Irrevocable Trust.Richard E. Jacobs is the trustee of the Revocable Trust and Jeffrey P. Jacobsis the trustee of the Irrevocable Trust.

 

51

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**Item 13.****                                                    *Certain Relationships and Related Transactions***

 

Inorder to assist us in our efforts to research, develop, perform due diligenceon and possibly acquire new gaming opportunities, we entered into an agreementwith Premier One Development Company, effective October 1, 1997. On May 9,2000, Premier merged into Jacobs Investments Management Co. Inc., 82% of whichis owned by Jeffrey P. Jacobs and the remaining 18% of which is owned in equalportions by two former directors of Colonial. Jacobs Entertainment, Inc. paidor accrued $450,000 to Jacobs Investments Management Company for servicesduring the year ended December 31, 2005, 2004 and 2003. In 2002, this agreementwas extended until December 31, 2009, at the rate of $450,000 annually.

 

Weprovide monthly management and accounting services to truck stops owned by anaffiliate of Jeffrey P. Jacobs and the Trusts. In addition, the affiliatepurchases repair parts from us. Total charges to the affiliate for managementservices and repair part purchases totaled $480,000, $384,000 and $318,000 forthe years ended December 31, 2005, 2004 and 2003, respectively. Accountsreceivable due from affiliates totaled $260,000 and $224,000 as ofDecember 31, 2005 and 2004, respectively.

 

JacobsEntertainment is the obligor on notes to Jeffrey P. Jacobs and the Richard E.Jacobs Revocable Trust totaling $9.0 million, with interest only payablesemi-annually at 12% per annum, and the principal amount due and payable onJanuary 31, 2010. These notes were issued in connection with ouracquisition of the Louisiana truck stops. We are also an obligor on $10.5million of notes issued in connection with our acquisition of additional truckstops from an unaffiliated party. These notes were purchased from the seller inFebruary 2003 for $7 million by Jeffrey P. Jacobs and the Richard E.Jacobs Revocable Trust. The amount and terms of the notes now payable to Mr.Jacobs and the Richard E. Jacobs Revocable Trust are identical to thosedescribed above. As a result of this transaction, for tax purposes ourshareholders recognized taxable income in the form of a discharge ofindebtedness of $3.5 million representing the difference between the $10.5 millionface amount of the notes and the purchase price of $7.0 million.

 

In March 2005, we issued an additional $23million in principal amount of our 117/8 Senior SecuredNotes due 2009. We used proceeds derived from the sale of the notes to completea purchase and sale agreement with Gameco Holdings, Inc., a company owned andcontrolled by our two directors and then sole owners. We purchased from Gamecoall of the membership interests of three limited liability companies, each ofwhich owned or leased a video gaming truck plaza in Louisiana. The aggregatepurchase price of the entire membership interests in the three LLCs was $22.5million. The assets of each LLC were purchased free and clear of liens andencumbrances and were pledged as additional collateral under our indenture. Theacquisition of the three video gaming truck plazas was a combination ofentities under common control and, as a result, the transaction was treated foraccounting and financial reporting purposes similar to a pooling of interests.Under this method of accounting, the acquisitions were recorded at thetransferor’s (Gameco’s) book value (rather than fair value), which is primarilyrepresented by the historical identifiable cash cost in the assets transferred.This amount is approximately $10.1 million. The difference between this amountand the purchase price of $22.5 million was regarded for accounting andfinancial reporting purposes as a distribution to our then two owners and ourstockholders’ equity was reduced by that amount. We received an opinion from anindependent investment bank that the cash consideration paid was fair from afinancial point of view.

 

52

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**Item 14.****                                                    *Principal Accountant Fees and Services***

 

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

 
| ** **           | ** ** | **Year Ended  December 31,** | ** ** |
|----------------------|------------|----------------------------------------|------------|
| ** **           | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                 |       |                                   |       |   |   |
| Audit fees           |       | $                                      | 765,000    |   | $ | 675,000 |   |
| Audit related  fees* |       | 31,000                                 |       | 177,500 |   |
| Tax fees**           |       | 165,000                                |       | 166,000 |   |
| All other  fees***   |       | 128,000                                |       | 541,000 |   |
|                      |            |                                        |            |  |  |  |  |

 

----

*                                         Audit-relatedfees are principally comprised of our 401(k) audits and fees related to theinternal control consulting services associated with our Sarbanes-Oxleyimplementation project of $13,000 and $170,000 for 2005 and 2004, respectively.

**                                  Taxfees are principally comprised of preparation of federal and state corporateincome tax returns, various state tax returns, and research and related taxconsultation services.

***                           2004includes $538,000 in audit fees related to several Louisiana truck plazas weultimately decided not to purchase and $3,000 in other miscellaneous consultingservices. 2005 includes $90,000 in fees attributable to the March 2, 2005 debttack-on offering.

 

Wehave no audit committee. Our board of directors has considered and hasdetermined that provision of the services described above and amounts paid forthose services are compatible with maintaining our principal accountant’sindependence.

 

53

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**Item 15.****                                                    *Exhibits and Financial Statement Schedules***

 

(a)                                  *Financial Statements and Financial StatementSchedules*

 

(1)   FinancialStatements are listed in the Index to Consolidated Financial Statements on pageF-1 of this report.

 

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

 

(b)                                 *Exhibits*

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

 

54

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| 3.14(1)  |   | Articles of  Incorporation of Winner’s Choice Casino, Inc.                                                    |
|----------|--------|--------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                               |
| 3.15(1)  |   | By-Laws of Winner’s  Choice Casino, Inc.                                                                      |
|     |   |                                                                                                               |
| 3.16(1)  |   | Articles of  Organization of Diversified Opportunities Group Ltd.                                                  |
|     |   |                                                                                                               |
| 3.17(1)  |   | Articles of  Organization of Jalou L.L.C.                                                                          |
|     |   |                                                                                                               |
| 3.18(1)  |   | Articles of  Organization of Houma Truck Plaza & Casino, L.L.C.                                                |
|     |   |                                                                                                               |
| 3.19(1)  |   | Articles of  Organization of Jalou-Cash’s L.L.C.                                                              |
|     |   |                                                                                                               |
| 3.20(1)  |   | Articles of  Incorporation of JACE, Inc.                                                                           |
|     |   |                                                                                                               |
| 3.21(1)  |   | Articles of  Organization of Lucky Magnolia Truck Stop and Casino, L.L.C.                                          |
|     |   |                                                                                                               |
| 3.22(1)  |   | Articles of  Organization of Bayou Vista Truck Plaza and Casino, L.L.C.                                            |
|     |   |                                                                                                               |
| 3.23(1)  |   | Articles of  Organization of Raceland Truck Plaza and Casino, L.L.C.                                               |
|     |   |                                                                                                               |
| 3.24(1)  |   | Articles of  Incorporation of JACE, Inc. (duplicate of Exhibit 3.20).                                              |
|     |   |                                                                                                               |
| 3.25(2)  |   | Certificate of  Amendment of Certificate of Incorporation of Gameco, Inc.                                          |
|     |   |                                                                                                               |
| 3.26(2)  |   | Amended and Restated  Certificate of Limited Partnership of Colonial Downs, L.P.                                   |
|     |   |                                                                                                               |
| 3.27(2)  |   | Limited Partnership  Agreement of Colonial Downs, L.P.                                                             |
|     |   |                                                                                                               |
| 3.28(2)  |   | Amended and Restated  Articles of Incorporation of Colonial Downs Holdings, Inc.                                   |
|     |   |                                                                                                               |
| 3.29(2)  |   | Amendment to Articles  of Incorporation of Colonial Downs Holdings, Inc.                                           |
|     |   |                                                                                                               |
| 3.30(2)  |   | Bylaws of Colonial  Downs Holdings, Inc.                                                                           |
|     |   |                                                                                                               |
| 3.31(2)  |   | Articles of  Incorporation of Stansley Racing Corp.                                                                |
|     |   |                                                                                                               |
| 3.32(2)  |   | Articles of Amendment  to the Articles of Incorporation of Stansley Racing Corp.                                   |
|     |   |                                                                                                               |
| 3.33(2)  |   | Bylaws of Stansley  Racing Corp.                                                                                   |
|     |   |                                                                                                               |
| 3.34(2)  |   | Amended and Restated  Operating Agreement of Diversified Opportunities Group Ltd.                                  |
|     |   |                                                                                                               |
| 3.35(2)  |   | Amendment to the  Operating Agreement of Black Hawk/Jacobs Entertainment, LLC.                                     |
|     |   |                                                                                                               |
| 3.36(2)  |   | Amendment to the  Certificate of Incorporation of Gameco, Inc.                                                     |
|     |   |                                                                                                               |
| 3.37(8)  |   | Articles of  Organization of Jalou Breaux Bridge, LLC dated January 29, 2003.                                 |
|     |   |                                                                                                               |
| 3.38(8)  |   | Articles of  Organization of Jalou Eunice, LLC dated March 27, 2003.                                          |
|     |   |                                                                                                               |
| 3.39(8)  |   | Articles of  Organization of Jalou of Jefferson, LLC dated September 23, 2003.                                |
|     |   |                                                                                                               |
| 3.40(10) |   | Certificate of  Amendment of Certificate of Incorporation of Jacobs Entertainment, Inc. dated  September 27, 2005. |
|     |   |                                                                                                               |
| 3.41(10) |   | Articles of  Incorporation of Jacobs Pinon Plaza Entertainment, Inc. dated November 2,  2005.                      |

 

55

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| 3.41A(12) |   | Bylaws of Jacobs Pinon  Plaza Entertainment, Inc. dated November 8, 2005.                                                                                                                                                                                                                                                                                             |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.42(12)  |   | Articles of  Incorporation of Fuel Stop 36, Inc. dated August 24, 1989.                                                                                                                                                                                                                                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.43(12)  |   | Articles of  Organization of Jalou of Larose, LLC dated November 3, 2005.                                                                                                                                                                                                                                                                                             |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.1(1)    |   | Indenture dated  February 8, 2002 by and among Gameco, Inc., certain guarantors and Wells  Fargo Bank Minnesota, National Association relating to 117/8%  Senior Secured Notes due 2009.                                                                                                                                                                         |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.2(1)    |   | Form of Gameco, Inc. 117/8%  Senior Secured Notes due 2009 (included as part of the Indenture at Exhibit  4.1).                                                                                                                                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.3(1)    |   | Supplemental Indenture  dated February 22, 2002 by and among Gameco, Inc., certain guarantors  and Wells Fargo Bank Minnesota, National Association relating to 117/8%  Senior Secured Notes due 2009.                                                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.4(1)    |   | Form of Subsidiary  Guaranty for 117/8% Senior Secured Notes due 2009  (included as part of the Indenture at 4.1).                                                                                                                                                                                                                                                    |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.5(1)    |   | Registration Rights  Agreement dated as of February 8, 2002 by and among Gameco, Inc.,  certain guarantors, CIBC World Markets Corp. and Libra Securities, LLC.                                                                                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.6(1)    |   | Security Agreement dated  February 8, 2002 among Gameco, Inc., certain guarantors and Wells Fargo  Bank Minnesota, National Association as Trustee.                                                                                                                                                                                                              |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.7(1)    |   | Amendment to the  Security Agreement dated February 22, 2002 among Gameco, Inc., certain  guarantors and Wells Fargo Bank Minnesota, National Association.                                                                                                                                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.7A(12)  |   | Amendment to Security  Agreement dated December 21, 2005 between Jacobs Entertainment, Inc.  (formerly Gameco, Inc.) and Wells Fargo Bank, National Association.                                                                                                                                                                                                      |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.8(1)    |   | Joinder Agreements  dated February 22, 2002 between Wells Fargo Bank Minnesota, National  Association and each guarantor.                                                                                                                                                                                                                                        |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.9(1)    |   | Guaranty of each  guarantor dated February 22, 2002.                                                                                                                                                                                                                                                                                                             |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.10(1)   |   | Fee and Leasehold Deed  of Trust, Assignment of Leases and Rents, Security Agreements and fixture  filings by Black Hawk/Jacobs Entertainment LLC and Gilpin Hotel Venture to  the Public Trustee of Gilpin County, State of Colorado, as Trustee for the  Benefit of Wells Fargo Bank Minnesota, National Association as Beneficiary,  dated February 22, 2002. |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.11(1)   |   | Fee and Leasehold Deed  of Trust, Assignment of Leases and Rents, Security Agreements and fixture  filings by Gold Dust Casino, Inc. to the First American Title Company of  Nevada, as Trustee for the benefit of Wells Fargo Bank Minnesota, National  Association as Beneficiary, dated February 22, 2002.                                                    |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.12(1)   |   | Leasehold Mortgage,  Assignment of Leases and Rents, Security Agreement and fixture filing by  Houma Truck Plaza & Casino, L.L.C. to Wells Fargo Bank Minnesota,  National Association, as Trustee dated February 22, 2002.                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.13(1)   |   | Mortgage, Assignment of  Leases and Rents, Security Agreements and fixture filing by Winner’s Choice  Casino, Inc. to Wells Fargo Bank Minnesota, National Association as Trustee  dated February 22, 2002.                                                                                                                                                 |
|      |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.14(1)   |   | Mortgage, Assignment of  Leases and Rents, Security Agreements and fixture filing by Raceland Truck  Plaza and Casino, LLC to Wells Fargo Bank Minnesota, National Association as  Trustee dated February 22, 2002.                                                                                                                                              |

 

56

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| 4.15(1) |   | Mortgage, Assignment of  Leases and Rents, Security Agreements and fixture filing by Bayou Vista Truck  Plaza and Casino, LLC to Wells Fargo Bank Minnesota, National Association as  Trustee dated February 22, 2002.                                                       |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                              |
| 4.16(1) |   | Mortgage, Assignment of  Leases and Rents, Security Agreements and fixture filing by Lucky Magnolia  Truck Stop and Casino, L.L.C. to Wells Fargo Bank Minnesota, National  Association as Trustee dated February 22, 2002.                                                  |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.17(1) |   | Mortgage, Assignment of  Leases and Rents, Security Agreements and fixture filing by JACE, Inc. to  Wells Fargo Bank Minnesota, National Association as Trustee dated  February 22, 2002.                                                                                    |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.18(1) |   | Collateral Assignment  of Deeds of Trust, Assignments of Rents and Leases, Security Agreements and  fixture filings and other loan documents by Gameco, Inc. to Wells Fargo Bank  Minnesota, National Association as Trustee dated February 22, 2002.                        |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.19(1) |   | Escrow Agreement  between Gameco, Inc. and Wells Fargo Bank Minnesota, National Association dated  February 22, 2002.                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.20(1) |   | Supplemental Indenture  dated June 14, 2002 by and among Jacobs Entertainment, Inc., certain  guarantors and Wells Fargo Bank Minnesota, National Association relating to  117/8% Senior Secured Notes due 2009.                                                             |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.21(2) |   | Joinder Agreements  dated June 14, 2002 between Wells Fargo Bank, National Association and  each guarantor.                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.22(2) |   | Subsidiary Guarantee of  each subsidiary guarantor dated June 14, 2002 for 117/8%  Senior Secured Notes due 2009.                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.23(2) |   | Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing by  Colonial Downs, L.P. to David F. Belkowitz and James L. Weinberg as Trustees  for the benefit of Wells Fargo Bank Minnesota, National Association, dated  June 14, 2002.           |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.24(2) |   | Leasehold Deed of  Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing  by Colonial Downs, L.P. to David F. Belkowitz and James L. Weinberg as  Trustees for the benefit of Wells Fargo Bank Minnesota, National Association,  dated June 14, 2002. |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.25(2) |   | Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing by  Colonial Holdings, Inc. to David F. Belkowitz and James L. Weinberg as  Trustees for the benefit of Wells Fargo Bank Minnesota, National Association,  dated June 14, 2002.        |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.26(2) |   | Loan and Security  Agreement dated July 12, 2002 by and among Jacobs Entertainment, Inc.,  certain subsidiaries and Foothill Capital Corporation.                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.27(2) |   | Promissory Note dated  July 12, 2002 by and among Jacobs Entertainment, Inc., certain borrowers  and Foothill Capital Corporation.                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.28(2) |   | Guaranty of Gold Dust  West Casino, Inc. and Diversified Opportunities Group Ltd. dated  July 12, 2002.                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.29(2) |   | Intercreditor Agreement  dated July 12, 2002 by and between Wells Fargo Bank Minnesota, National  Association and Foothill Capital Corporation.                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                              |
| 4.30(2) |   | Memorandum of  Intercreditor Agreement dated July 12, 2002 by and among Foothill  Capital Corporation, Wells Fargo Bank Minnesota, National Association and  Borrowers.                                                                                                      |

 

57

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| 4.31(2)       |   | Fee and Leasehold Deed  of Trust, Assignment of Leases and Rents, Securiting Agreement and Fixture  Filing by Black Hawk Gaming & Development Company, Inc., Black  Hawk/Jacobs Entertainment, LLC, and Gilpin Hotel Venture to the Public  Trustee of Gilpin County, State of Colorado and Foothill Capital Corporation,  dated July 12, 2002. |
|---------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.32(5)       |   | Second Supplemental  Indenture dated June 14, 2002 among Jacobs Entertainment, Inc., certain  guarantors and Wells Fargo Bank Minnesota, National Association (Trustee).                                                                                                                                                                            |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.33(a)(5)    |   | Subsidiary Guarantees  of Colonial Holding, Inc. dated June 28, 2002.                                                                                                                                                                                                                                                                               |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.33(b)(5)    |   | Subsidiary Guarantee of  Colonial Downs, L.P. dated June 28, 2002.                                                                                                                                                                                                                                                                                  |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.33(c)(5)    |   | Subsidiary Guarantee of  Stansley Racing Corp. dated June 28, 2002.                                                                                                                                                                                                                                                                                 |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.34(a)(5)    |   | Joinder Agreement of  Colonial Holdings, Inc. dated June 28, 2002.                                                                                                                                                                                                                                                                                  |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.34(b)(5)    |   | Joinder Agreement of  Colonial Downs, L.P. dated June 28, 2002.                                                                                                                                                                                                                                                                                     |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.34(c)(5)    |   | Joinder Agreement of  Stansley Racing Corp. dated June 28, 2002.                                                                                                                                                                                                                                                                                    |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.34(d)(12)   |   | Joinder Agreement of  Jacobs Pinon Plaza Entertainment, Inc. dated December 21, 2005.                                                                                                                                                                                                                                                                    |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.35(a)(1)(5) |   | Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing by  Colonial Holdings, Inc. (New Kent Racetrack) dated June 28, 2002.                                                                                                                                                                                         |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.35(a)(2)(5) |   | Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing  (Richmond Southwest) dated June 28, 2002.                                                                                                                                                                                                                    |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.35(b)(1)(5) |   | Leasehold Deed of  Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing  (New Kent and Chesapeake) dated June 28, 2002.                                                                                                                                                                                                     |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.36(5)       |   | Form of Control  Agreement Concerning Deposit Accounts (Citizens Bank/Colonial Downs, L.P.)  dated June 14, 2002.                                                                                                                                                                                                                                   |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.37(5)       |   | Form of Control  Agreement Concerning Deposit Accounts (Citizens Bank/Colonial Holdings, Inc.)  dated June 14, 2002.                                                                                                                                                                                                                                |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.38(6)       |   | Subsidiary  Guarantee—Colonial Downs, LLC dated June 4, 2003.                                                                                                                                                                                                                                                                                  |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.39(6)       |   | Security Agreement  Amendment by Colonial Holdings, Inc. dated June 4, 2003.                                                                                                                                                                                                                                                                        |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.40(6)       |   | Supplemental Letter by  Colonial Downs, LLC dated June 4, 2003.                                                                                                                                                                                                                                                                                     |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.41(6)       |   | Third Supplemental  Indenture dated June 4, 2003 among Jacobs Entertainment, Inc., certain  Guarantors and Wells Fargo Bank Minnesota, National Association (Trustee).                                                                                                                                                                              |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.42(6)       |   | Supplemental Deed of  Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing  by Colonial Downs, LLC dated June 4, 2003.                                                                                                                                                                                                      |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.43(a)(7)    |   | Fourth Supplemental  Indenture among Jacobs Entertainment, Inc., certain Guarantors and Wells  Fargo Bank, National Association dated March 2, 2005.                                                                                                                                                                                                |
|          |   |                                                                                                                                                                                                                                                                                                                                                     |
| 4.43(b)(7)    |   | Fifth Supplemental  Indenture among Jacobs Entertainment, Inc., certain Guarantors and Wells  Fargo Bank, National Association dated March 2, 2005.                                                                                                                                                                                                 |

 

58

----

 
| 4.43(c)(12) |   | Sixth Supplemental  Indenture among Jacobs Entertainment, Inc., certain Guarantors and Wells  Fargo Bank, National Association dated December 21, 2005.                                                                                                              |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                 |
| 4.44(8)     |   | Amendment No. 2 to  Security Agreement dated March 2, 2005 between Jalou, LLC and Wells  Fargo Bank, National Association.                                                                                                                                      |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.45(8)     |   | Supplement to Security  Agreement dated March 2, 2005 by Jalou Breaux Bridge, LLC, Jalou Eunice,  LLC and Jalou of Jefferson, LLC and Wells Fargo Bank, National Association.                                                                                   |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.46(8)     |   | Leasehold Mortgage,  Assignment of Leases and Rents, Security Agreement and Fixture Filing dated  March 2, 2005 by Jalou of Jefferson, LLC and Wells Fargo Bank, National  Association.                                                                         |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.47(8)     |   | Mortgage, Assignment of  Leases and Rents, Security Agreement and Fixture Filing dated March 2,  2005 by Jalou Breaux Bridge, LLC and Wells Fargo Bank, National Association.                                                                                   |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.48(8)     |   | Mortgage, Assignment of  Leases and Rents, Security Agreement and Fixture Filing dated March 2,  2005 by Jalou Eunice, LLC and Wells Fargo Bank, National Association.                                                                                          |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.49(a)(8)  |   | Subsidiary Guarantee  dated March 2, 2005 by Jalou of Jefferson, LLC.                                                                                                                                                                                           |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.49(b)(8)  |   | Subsidiary Guarantee  dated March 2, 2005 by Jalou Breaux Bridge, LLC.                                                                                                                                                                                          |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.49(c)(8)  |   | Subsidiary Guarantee  dated March 2, 2005 by Jalou Eunice, LLC.                                                                                                                                                                                                 |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.49(d)(12) |   | Subsidiary Guarantee  dated December 21, 2005 of Jacobs Pinon Plaza Entertainment, Inc.                                                                                                                                                                              |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.50(8)     |   | First Amendment to Fee  and Leasehold Deed of Trust, Assignment of Leases and Rents, Security  Agreement and Fixture Filing dated March 2, 2005 between Black Hawk  Gaming & Development Company, Inc., et al, and Wells Fargo Bank, National  Association. |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.51(8)     |   | First Amendment to Fee  and Leasehold Deed of Trust, Assignment of Leases and Rents, Security  Agreement and Fixture Filing dated March 2, 2005 between Gold Dust West  Casino, Inc. and Wells Fargo Bank, National Association.                                |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.52(9)     |   | Fourth Supplemental  Indenture dated March 2, 2005 among Jacobs Entertainment, Inc. and Wells  Fargo Bank, National Association.                                                                                                                                     |
|        |   |                                                                                                                                                                                                                                                                 |
| 4.53(9)     |   | Fifth Supplemental  Indenture dated March 2, 2005 among Jacobs Entertainment, Inc. and Wells  Fargo Bank, National Association.                                                                                                                                      |
|        |   |                                                                                                                                                                                                                                                                 |
| 10.1(1)     |   | Consulting Agreement  between Diversified Opportunities Group Ltd. and Ian M. Stewart dated  January 1, 2001.                                                                                                                                                   |
|        |   |                                                                                                                                                                                                                                                                 |
| 10.2(1)     |   | Executive Employment  Agreement between Gameco, Inc. and Jeffrey P. Jacobs dated February 22,  2002.                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                                                 |
| 10.3(1)     |   | Executive Employment  Agreement between Gameco, Inc. and Richard E. Jacobs dated February 22,  2002.                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                                                 |
| 10.4(1)     |   | Executive Employment  Agreement between Gameco, Inc. and Stephen R. Roark dated February 22,  2002.                                                                                                                                                             |
|        |   |                                                                                                                                                                                                                                                                 |
| 10.5(1)     |   | Executive Employment  Agreement between Colonial Holdings, Inc. and Ian M. Stewart dated February 22,  2002.                                                                                                                                                    |
|        |   |                                                                                                                                                                                                                                                                 |
| 10.7(3)     |   | Standardbred Horsemen’s  Contract effective March 1, 2003 among Colonial Downs, L.P., Stansley  Racing Corp. and The Virginia Harness Horse Association.                                                                                                   |

 

59

----

 
| 10.8(3)    |   | Thoroughbred Horsemen’s  Agreement dated December 23, 2002 between Colonial Downs, L.P. and The  Virginia Horsemen’s Benevolent and Protective Association, Inc.                                                                                                    |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                               |
| 10.8A(3)   |   | First Amendment dated  January 1, 2003 to Thoroughbred Horsemen’s Agreement dated  December 23, 2002 between Colonial Downs, L.P. and the Virginia  Horsemen’s Benevolent and Protective Association.                                                          |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.9(4)    |   | Consulting Agreement  dated January 1, 2003 between Jacobs Entertainment, Inc. and Jacobs  Investments Management Co., Inc.                                                                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.10(3)   |   | Option Agreement dated  January 20, 2004 regarding Vinton, Virginia, Off Track Wagering  Facility.                                                                                                                                                                            |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.11(3)   |   | Deed of Lease dated May  8, 2003 between Haynes Chippenham Plaza, LLC and Colonial Downs, L.P.                                                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.12(8)   |   | Assignment of  Membership Interests between Jacobs Entertainment, Inc. and Gameco Holdings,  LLC dated February 22, 2005.                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.13(8)   |   | Registration Rights  Agreement dated March 2, 2005 by and among Jacobs Entertainment, Inc.,  the Guarantors and the Purchasers.                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.14(10)  |   | Stock Purchase Agreement  dated August 18, 2005 among Pimlico Racing Association, Inc., Laurel Racing  Association Limited Partnership, The Maryland Jockey Club of Baltimore City,  Inc., Maryland-Virginia Racing Circuit, Inc. and Colonial Downs, L.P.                         |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.14A(10) |   | First Amendment to the  Stock Purchase Agreement dated August 18, 2005 among Pimlico Racing  Association, Inc., Laurel Racing Association Limited Partnership, The  Maryland Jockey Club of Baltimore City, Inc., Maryland-Virginia Racing  Circuit, Inc. and Colonial Downs, L.P. |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.15(10)  |   | Asset Purchase  Agreement dated November 2, 2005 among Capital City Entertainment, Inc. and  Jacobs Pinon Plaza Entertainment, Inc.                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.15A(12) |   | Pinon Plaza Ground  Lease (proposed) by and between Clark G. Russell and Jean M. Russell, Trustees  of The Clark and Jean Russell Family Trust and Jacobs Entertainment, Inc.                                                                                                      |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.16(11)  |   | Triple Net Lease dated  November 14, 2005 among Route 225 Investments, LLC and Jacobs Entertainment,  Inc.                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.17(12)  |   | Ground Lease and Option  Purchase Agreement dated September 12, 2005 between Dakota/Blackhawk, LLC and  Jacobs Entertainment, Inc.                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.18(12)  |   | Thoroughbred Horseman’s  Agreement dated January 1, 2005 between Colonial Downs, L.P., Stansley Racing  Corp. and The Virginia Horsemen’s Benevolent and Protective Association, Inc.                                                                                    |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.19(12)  |   | Shopping Center Lease  dated February 28, 2005 between Jay F. Wilks, Trustee under Indenture dated  December 20, 1976 by and between Herbert Cashvan and Marvin Simon, as  Settlors, and Jay F. Wilks as Trustee, and Colonial Downs, L.P.                                         |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.20(12)  |   | Asset Purchase  Agreement dated November 2, 2005, between Larose Truck Plaza & Casino,  LLC, Midway Recreation, L.L.C., Joe F. Penn, Jr., Melissa Penn, and Gameco  Holdings, Inc., including an Amendment dated December 19, 2005 adding Jalou  of Larose, LLC, as a party.   |
|       |   |                                                                                                                                                                                                                                                                               |
| 10.21(12)  |   | Stock Purchase  Agreement dated December 12, 2005 between Jalou II, Inc. and several persons  relating to the purchase and sale of the common stock of Fuel Stop 36, Inc.                                                                                                          |
|       |   |                                                                                                                                                                                                                                                                               |
| 14.1(12)   |   | Code of Ethics                                                                                                                                                                                                                                                                     |
|       |   |                                                                                                                                                                                                                                                                               |
| 21.1(12)   |   | Subsidiaries of Jacobs  Entertainment, Inc.                                                                                                                                                                                                                                        |

 

60

----

 
| 25.1(1)  |   | Statement of  Eligibility of Trustee on Form T-1.                                                                                        |
|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                     |
| 31.1(12) |   | Chief Executive Officer  Certificate under Section 302 of the Sarbanes-Oxley Act of 2002.                                           |
|     |   |                                                                                                                                     |
| 31.2(12) |   | Chief Financial Officer  Certification under Section 302 of the Sarbanes-Oxley Act of 2002.                                         |
|     |   |                                                                                                                                     |
| 32.1(12) |   | Chief Executive Officer  Certification under Section 906 of the Sarbanes-Oxley Act of 2002.                                         |
|     |   |                                                                                                                                     |
| 32.2(12) |   | Chief Financial Officer  Certification under Section 906 of the Sarbanes-Oxley Act of 2002.                                         |
|     |   |                                                                                                                                     |
| 99.1(1)  |   | Form of Letter of  Transmittal.                                                                                                          |
|     |   |                                                                                                                                     |
| 99.2(1)  |   | Form of Notice of  Guaranteed Delivery.                                                                                                  |
|     |   |                                                                                                                                     |
| 99.3(1)  |   | Jacobs Entertainment,  Inc. Exchange of all Outstanding 117/8% Senior Secured  Notes Due 2009 For 117/8% Senior Secured Notes Due  2009. |
|     |   |                                                                                                                                     |
| 99.4(1)  |   | Jacobs Entertainment,  Inc. Letter to Depository Trust Company Participants.                                                             |
|     |   |                                                                                                                                     |
| 99.5(8)  |   | Significant Guarantor  Information.                                                                                                      |

 

----

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

 

61

----

 

**SIGNATURES**

 

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

 
|       | JACOBS ENTERTAINMENT, INC. |                         |
|------------|----------------------------|------------------------------|
|       |                       |                         |
|       | By:                        | /s/ JEFFREY P. JACOBS        |   |
| ** ** | ** **                 | **Jeffrey P.  Jacobs**       |   |
| ** ** | ** **                 | **Chief  Executive Officer** |   |
| ** ** | ** **                 | ** **                   | ** ** |
|       | By:                        | /s/ STEPHEN R. ROARK         |   |
| ** ** | ** **                 | **Stephen R.  Roark**        |   |
| ** ** | ** **                 | **Chief  Financial Officer** |   |

 

Date: March 29, 2006

 

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

 
| **Signature**          | ** ** | **Title**                                        | ** ** | **Date**            |
|------------------------|------------|--------------------------------------------------|------------|---------------------|
|                   |       |                                             |       |                |
| /s/ JEFFREY P. JACOBS  |       | Chairman of the Board  of Directors and Chief    |       | March 29, 2006 |
| **Jeffrey P.  Jacobs** |       | Executive Officer  (Principal Executive Officer) |       |                |
| ** **             |       |                                             |       |                |
| /s/ STEPHEN R. ROARK   |       | Chief Financial Officer                          |       | March 29, 2006 |
| **Stephen R.  Roark**  |       | (Principal Financial  and Accounting Officer)    |       |                |
| ** **             |       |                                             |       |                |
| /s/ RICHARD E. JACOBS  |       | Director                                         |       | March 29, 2006 |
| **Richard E.  Jacobs** |       |                                             |       |                |

 

62

----

 

***Jacobs Entertainment, Inc.***

 

***Consolidated Financial Statements as of December 31, 2005 and2004, and for the Years Ended December 31, 2005, 2004, and 2003, andReport of Independent Registered Public Accounting Firm***

 

----

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

 

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

 

We have audited theaccompanying consolidated balance sheets of Jacobs Entertainment, Inc. andsubsidiaries as of December 31, 2005 and 2004, and the relatedconsolidated statements of operations, stockholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2005. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

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

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Jacobs Entertainment, Inc. and subsidiaries as of December 31,2005 and 2004, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2005, inconformity with accounting principles generally accepted in the United Statesof America.

 
| /s/ Deloitte  & Touche LLP |   |
|--------------------------------|--------|
|                           |   |
| Denver,  Colorado              |
| March 28, 2006                 |

 

----

 

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATED BALANCE SHEETS**

**AS OF DECEMBER 31, 2005 AND 2004**

**(Dollars in thousands)**

 
| ** **                                      | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|
| **ASSETS**                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                            |       |       |       |       |       |
| CURRENT ASSETS:                                 |       |       |       |       |       |
| Cash and cash  equivalents                      |       | $          | 21,804     |       | $          | 21,497 |   |
| Restricted cash                                 |       | 1,619      |       | 1,670      |       |
| Accounts  receivable—net                   |       | 2,728      |       | 1,634      |       |
| Inventory                                       |       | 1,843      |       | 1,413      |       |
| Prepaid expenses  and other current assets      |       | 2,084      |       | 2,070      |       |
|                                            |       |       |       |       |       |
| Total current  assets                           |       | 30,078     |       | 28,284     |       |
|                                            |       |       |       |       |       |
| PROPERTY, PLANT,  AND EQUIPMENT:                |       |       |       |       |       |
| Land and  improvements                          |       | 53,583     |       | 52,299     |       |
| Buildings and  improvements                     |       | 136,378    |       | 122,995    |       |
| Equipment and  furniture and fixtures           |       | 44,920     |       | 37,516     |       |
| Leasehold  improvements                         |       | 2,364      |       | 2,344      |       |
| Construction in  progress                       |       | 4,483      |       | 1,948      |       |
|                                            |       |       |       |       |       |
| Total property,  plant, and equipment           |       | 241,728    |       | 217,102    |       |
|                                            |       |       |       |       |       |
| Less accumulated  depreciation and amortization |       | (42,889    | )          | (34,399    | )          |
|                                            |       |       |       |       |       |
| Property, plant,  and equipment—net        |       | 198,839    |       | 182,703    |       |
|                                            |       |       |       |       |       |
| OTHER ASSETS:                                   |       |       |       |       |       |
| Goodwill                                        |       | 32,930     |       | 26,773     |       |
| Identifiable  intangible assets—net        |       | 7,830      |       | 7,790      |       |
| Debt issue  costs—net                      |       | 6,702      |       | 5,426      |       |
| Other assets                                    |       | 2,374      |       | 1,290      |       |
|                                            |       |       |       |       |       |
| Total other  assets                             |       | 49,836     |       | 41,279     |       |
|                                            |       |       |       |       |       |
| TOTAL                                           |       | $          | 278,753    |       | $          | 252,266 |   |

 

F-2

----

 
| ** **                                                                                                                   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                               | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                         |       |       |       |       |       |
| CURRENT  LIABILITIES:                                                                                                        |       |       |       |       |       |
| Accounts payable  and accrued expenses                                                                                       |       | $          | 15,292     |       | $          | 12,721 |   |
| Gaming taxes  payable                                                                                                        |       | 3,130      |       | 2,841      |       |
| Interest payable                                                                                                             |       | 8,181      |       | 6,942      |       |
| Due to affiliate                                                                                                             |       | 386        |       | 1,819      |       |
| Current  maturities of long-term debt and capital lease obligations                                                          |       | 3,583      |       | 1,006      |       |
|                                                                                                                         |       |       |       |       |       |
| Total current  liabilities                                                                                                   |       | 30,572     |       | 25,329     |       |
|                                                                                                                         |       |       |       |       |       |
| LONG-TERM DEBT  AND CAPITAL LEASE OBLIGATIONS                                                                                |       | 160,418    |       | 132,421    |       |
|                                                                                                                         |       |       |       |       |       |
| LONG-TERM  DEBT—Related parties                                                                                         |       | 19,489     |       | 19,489     |       |
|                                                                                                                         |       |       |       |       |       |
| OTHER                                                                                                                        |       | 472        |       | 423        |       |
|                                                                                                                         |       |       |       |       |       |
| Total  liabilities                                                                                                           |       | 210,951    |       | 177,662    |       |
|                                                                                                                         |       |       |       |       |       |
| COMMITMENTS AND  CONTINGENCIES (Note 11)                                                                                     |       |       |       |       |       |
|                                                                                                                         |       |       |       |       |       |
| STOCKHOLDERS’  EQUITY:                                                                                                  |       |       |       |       |       |
| Common stock,  $.01 par value—1,500 authorized, 1,500 shares issued and outstanding as of  December 31, 2004            |       |       |       |       |       |
| Class A Common  stock, $.01 par value; 1,800 shares authorized, 1,320 shares issued and  outstanding as of December 31, 2005 |       |       |       |       |       |
| Class B Common  stock, $.01 par value; 200 shares authorized, 180 shares issued and  outstanding as of December 31, 2005     |       |       |       |       |       |
| Additional  paid-in capital                                                                                                  |       | 51,755     |       | 31,312     |       |
| Retained  earnings                                                                                                           |       | 16,047     |       | 43,292     |       |
|                                                                                                                         |       |       |       |       |       |
| Total  stockholders’ equity                                                                                             |       | 67,802     |       | 74,604     |       |
|                                                                                                                         |       |       |       |       |       |
| TOTAL                                                                                                                        |       | $          | 278,753    |       | $          | 252,266 |   |

 

Seenotes to consolidated financial statements.

 

F-3

----

 

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003**

**(Dollars in thousands)**

 
| ** **                               | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                     |       |     |       |     |       |     |       |
| REVENUES:                                |       |     |       |     |       |     |       |
| Gaming:                                  |       |     |       |     |       |     |       |
| Casino                                   |       | $        | 115,607    |     | $          | 108,347  |       | $ | 96,816 |   |
| Truck stop                               |       | 37,432   |       | 24,842   |       | 24,108   |       |
| Pari-mutuel                              |       | 35,988   |       | 32,946   |       | 29,189   |       |
| Food and  beverage                       |       | 19,774   |       | 17,964   |       | 16,383   |       |
| Convenience  store—fuel             |       | 37,361   |       | 21,690   |       | 17,229   |       |
| Convenience  store—other            |       | 5,441    |       | 3,825    |       | 3,403    |       |
| Hotel                                    |       | 1,982    |       | 1,382    |       | 1,370    |       |
| Other                                    |       | 3,673    |       | 3,331    |       | 3,003    |       |
|                                     |       |     |       |     |       |     |       |
| Total revenues                           |       | 257,258  |       | 214,327  |       | 191,501  |       |
|                                     |       |     |       |     |       |     |       |
| Promotional  allowances                  |       | (23,175  | )          | (20,175  | )          | (19,652  | )          |
|                                     |       |     |       |     |       |     |       |
| Net revenues                             |       | 234,083  |       | 194,152  |       | 171,849  |       |
|                                     |       |     |       |     |       |     |       |
| COSTS AND  EXPENSES                      |       |     |       |     |       |     |       |
| Gaming:                                  |       |     |       |     |       |     |       |
| Casino                                   |       | 41,804   |       | 38,586   |       | 36,209   |       |
| Truck stop                               |       | 19,810   |       | 13,689   |       | 12,704   |       |
| Pari-mutuel                              |       | 31,356   |       | 27,505   |       | 24,212   |       |
| Food and  beverage                       |       | 10,302   |       | 9,607    |       | 8,133    |       |
| Convenience  store—fuel             |       | 34,843   |       | 20,171   |       | 15,881   |       |
| Convenience  store—other            |       | 7,272    |       | 4,683    |       | 4,203    |       |
| Hotel                                    |       | 355      |       | 747      |       | 743      |       |
| Marketing,  general, and administrative  |       | 47,635   |       | 42,783   |       | 38,316   |       |
| Abandonment  costs                       |       | 1,424    |       | 2,891    |       | 173      |       |
| Termination of  contract                 |       | 10,367   |       |     |       |     |       |
| Depreciation and  amortization           |       | 11,005   |       | 9,958    |       | 9,071    |       |
|                                     |       |     |       |     |       |     |       |
| Total costs and  expenses                |       | 216,173  |       | 170,620  |       | 149,645  |       |
|                                     |       |     |       |     |       |     |       |
| OPERATING INCOME                         |       | 17,910   |       | 23,532   |       | 22,204   |       |
|                                     |       |     |       |     |       |     |       |
| INTEREST INCOME                          |       | 172      |       | 64       |       | 72       |       |
|                                     |       |     |       |     |       |     |       |
| INTEREST EXPENSE                         |       | (22,404  | )          | (19,705  | )          | (19,645  | )          |
|                                     |       |     |       |     |       |     |       |
| (LOSS) INCOME  BEFORE INCOME TAX EXPENSE |       | (4,322   | )          | 3,891    |       | 2,631    |       |
|                                     |       |     |       |     |       |     |       |
| INCOME TAX  EXPENSE                      |       | (423     | )          |     |       |     |       |
|                                     |       |     |       |     |       |     |       |
| NET (LOSS)  INCOME                       |       | $        | (4,745     | )        | $          | 3,891    |       | $ | 2,631 |   |

 

Seenotes to consolidated financial statements.

 

F-4

----

 

**JACOBS ENTERTAINMENT, INC.****AND SUBSIDIARIES**

** **

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003**

**(Dollars in thousands)**

 
| ** **                           | ** ** | **Common Stock** | ** ** | ** **       | ** ** | **Additional**   | ** ** | ** **  | ** ** | ** **  | ** ** |
|--------------------------------------|------------|-----------------------|------------|------------------|------------|------------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | ** **            | ** ** | **Class A** | ** ** | **Class B** | ** ** | ** **  | ** ** | **Paid-in** | ** ** | **Retained** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **Shares**            | ** ** | **Shares**       | ** ** | **Shares**       | ** ** | **Amount*** | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **Total** | ** ** |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| BALANCES—January  1, 2003       |       | 1,500                 |       | —           |       | —           |       | $           | —     |        | $          | 27,992 |   | $ | 36,770 |   | $ | 64,762 |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| Capital  contribution                |       |                  |       |             |       |             |       |        |       | 1,617       |       |   |   | 1,617 |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| Net income                           |       |                  |       |             |       |             |       |        |       |        |       | 2,631 |   | 2,631 |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| BALANCES—December  31, 2003     |       | 1,500                 |       | —           |       | —           |       | —      |       | 29,609      |       | 39,401 |   | 69,010 |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| Capital  contribution                |       |                  |       |             |       |             |       |        |       | 1,703       |       |   |   | 1,703 |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| Net income                           |       |                  |       |             |       |             |       |        |       |        |       | 3,891 |   | 3,891 |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| BALANCES—December  31, 2004     |       | 1,500                 |       | —           |       | —           |       | —      |       | 31,312      |       | 43,292 |   | 74,604 |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| Capital  contribution                |       |                  |       |             |       |             |       |        |       | 20,443      |       |   |   | 20,443 |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| Stockholder  distributions           |       |                  |       |             |       |             |       |        |       |        |       | (22,500 | ) | (22,500 | ) |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| Common stock  exchange (see Note 13) |       | (1,500                | )          | 1,320            |       | 180              |       |        |       |        |       |   |   | — |   |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| Net loss                             |       |                  |       |             |       |             |       |        |       |        |       | (4,745 | ) | (4,745 | ) |
|                                 |       |                  |       |             |       |             |       |        |       |        |       |   |   |   |   |
| BALANCES—December  31, 2005     |       | —                |       | 1,320            |       | 180              |       | $           | —     |        | $          | 51,755 |   | $ | 16,047 |   | $ | 67,802 |   |

 

----

*The par value amount of Jacobs Entertainment, Inc. common stockoutstanding for the periods presented is less than $500 and is thereforepresented as $0 above due to rounding.

 

Seenotes to consolidated financial statements.

 

F-5

----

 

**JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES**

** **

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003**

**(Dollars in thousands)**

 
| ** **                                                                                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                               |       |     |       |     |       |     |       |
| OPERATING  ACTIVITIES:                                                                                             |       |     |       |     |       |     |       |
| Net (loss)  income                                                                                                 |       | $        | (4,745     | )        | $          | 3,891    |       | $ | 2,631 |   |
| Adjustments to  reconcile net (loss) income to net cash provided by operating activities:                          |       |     |       |     |       |     |       |
| Noncash charge  termination of contract (see Note 13)                                                              |       | 3,000    |       |     |       |     |       |
| Depreciation and  amortization                                                                                     |       | 11,005   |       | 9,958    |       | 9,071    |       |
| Loss on sale of  equipment                                                                                         |       | 45       |       | 75       |       | 94       |       |
| Deferred  financing cost amortization                                                                              |       | 2,072    |       | 1,363    |       | 1,361    |       |
| Bond issue  discount amortization                                                                                  |       | 708      |       | 710      |       | 707      |       |
| Bond issue  premium amortization                                                                                   |       | (489     | )          |     |       |     |       |
| Loan discount  amortization                                                                                        |       |     |       | 23       |       | 180      |       |
| Noncash  abandonment costs                                                                                         |       | 1,424    |       | 1,500    |       | 35       |       |
| Changes in  operating assets and liabilities—net of the effect of acquisitions:                               |       |     |       |     |       |     |       |
| Accounts  receivable—net                                                                                      |       | (1,094   | )          | (547     | )          | 369      |       |
| Inventory                                                                                                          |       | (232     | )          | (211     | )          | 85       |       |
| Prepaid expenses  and other assets                                                                                 |       | (1,098   | )          | (734     | )          | (88      | )          |
| Accounts payable  and accrued expenses                                                                             |       | 2,048    |       | 2,644    |       | 582      |       |
| Gaming taxes  payable                                                                                              |       | 289      |       | 132      |       | 105      |       |
| Interest payable                                                                                                   |       | 1,239    |       | (28      | )          | (1,507   | )          |
| Due to affiliate                                                                                                   |       | (1,433   | )          | 982      |       | 837      |       |
|                                                                                                               |       |     |       |     |       |     |       |
| Net cash  provided by operating activities                                                                         |       | 12,737   |       | 19,758   |       | 14,462   |       |
|                                                                                                               |       |     |       |     |       |     |       |
| INVESTING  ACTIVITIES:                                                                                             |       |     |       |     |       |     |       |
| Additions to  property, plant, and equipment                                                                       |       | (18,591  | )          | (18,374  | )          | (16,281  | )          |
| Proceeds from  sale of equipment                                                                                   |       | 155      |       | 295      |       | 66       |       |
| Purchase of  device rights                                                                                         |       | (546     | )          | (907     | )          | (566     | )          |
| Capitalized  project costs                                                                                         |       |     |       |     |       | (1,465   | )          |
| (Increases)  decreases restricted cash                                                                             |       | 51       |       | 237      |       | (512     | )          |
| Truck stop acquisitions,  net of cash acquired of $100                                                             |       | (12,161  | )          |     |       |     |       |
|                                                                                                               |       |     |       |     |       |     |       |
| Net cash used in  investing activities                                                                             |       | (31,092  | )          | (18,749  | )          | (18,758  | )          |
|                                                                                                               |       |     |       |     |       |     |       |
| FINANCING  ACTIVITIES:                                                                                             |       |     |       |     |       |     |       |
| Proceeds from  bond issuance                                                                                       |       | 25,300   |       |     |       |     |       |
| Payments to  obtain financing                                                                                      |       | (3,348   | )          |     |       | (49      | )          |
| Proceeds from  long-term debt                                                                                      |       | 1,338    |       | 5,100    |       | 228      |       |
| Proceeds from  revolving line of credit                                                                            |       | 17,821   |       | 4,265    |       | 11,210   |       |
| Contributions  from stockholders                                                                                   |       | 14,113   |       | 1,703    |       | 1,617    |       |
| Payments on  long-term debt                                                                                        |       | (831     | )          | (2,553   | )          | (2,620   | )          |
| Payments on  revolving line of credit                                                                              |       | (13,231  | )          | (4,265   | )          | (11,210  | )          |
| Distributions to  stockholders                                                                                     |       | (22,500  | )          |     |       |     |       |
|                                                                                                               |       |     |       |     |       |     |       |
| Net cash  provided by (used in) financing activities                                                               |       | 18,662   |       | 4,250    |       | (824     | )          |
|                                                                                                               |       |     |       |     |       |     |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                              |       | 307      |       | 5,259    |       | (5,120   | )          |
|                                                                                                               |       |     |       |     |       |     |       |
| CASH AND CASH  EQUIVALENTS—Beginning of year                                                                  |       | 21,497   |       | 16,238   |       | 21,358   |       |
|                                                                                                               |       |     |       |     |       |     |       |
| CASH AND CASH  EQUIVALENTS—End of year                                                                        |       | $        | 21,804     |     | $          | 21,497   |       | $ | 16,238 |   |
|                                                                                                               |       |     |       |     |       |     |       |
| SUPPLEMENTAL  CASH FLOW INFORMATION:                                                                               |       |     |       |     |       |     |       |
| Cash paid for  interest, net of amounts capitalized in 2005, 2004, and 2003 of $106, $110,  and $140, respectively |       | $        | 18,790     |     | $          | 17,329   |       | $ | 17,582 |   |
|                                                                                                               |       |     |       |     |       |     |       |
| Noncash  investing and financing activity:                                                                         |       |     |       |     |       |     |       |
| Capital  contribution exchanged for retirement of note paid by affiliate                                           |       | $        | 6,330      |     | $          | —   |       | $ | — |   |
|                                                                                                               |       |     |       |     |       |     |       |
| Acquisition of  property for payables incurred                                                                     |       | $        | 800        |     | $          | 1,357    |       | $ | 303 |   |
|                                                                                                               |       |     |       |     |       |     |       |
| Acquisition of  property under capital lease agreements                                                            |       | $        | 3,288      |     | $          | 1,732    |       | $ | — |   |
|                                                                                                               |       |     |       |     |       |     |       |
| Notes payable  incurred on termination of contract                                                                 |       | $        | 3,000      |     | $          | —   |       | $ | — |   |
|                                                                                                               |       |     |       |     |       |     |       |
| Debt conversion  to related party                                                                                  |       | $        | —     |     | $          | —   |       | $ | 10,489 |   |

 

Seenotes to consolidated financial statements.

 

F-6

----

 

***JACOBS ENTERTAINMENT, INC. AND SUBSIDIARIES***

* *

**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

**AS OF DECEMBER 31, 2005AND 2004, AND FOR THE YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003**

**(Dollars in thousands)**

** **

**1.**                   BUSINESS AND ORGANIZATION

** **

Jacobs Entertainment, Inc. (“JEI”, the ”Company”,“us”, “our”, or “we”) was formed on April 17, 2001, as a Subchapter SCorporation under the Internal Revenue Code of 1986, as amended, to become ageographically diversified gaming and pari-mutuel wagering company with propertiesin Colorado, Nevada, Louisiana, and Virginia. The Company’s sole stockholders,who each own beneficially 50% of each class of JEI’s common stock, are JeffreyP. Jacobs and Richard E. Jacobs (collectively, “Jacobs”). As ofDecember 31, 2005, we own and operate three casinos through Black HawkGaming & Development Company, Inc. (“Black Hawk”), a wholly ownedsubsidiary. They are The Lodge Casino at Black Hawk (“The Lodge”) and theGilpin Hotel Casino (“Gilpin”), both in Colorado, and the Gold Dust West Casino(“Gold Dust”) in Nevada. JEI also owns and operates eleven truck plaza videogaming facilities in Louisiana through two wholly owned subsidiaries, Jalou LLCand Jalou II which are collectively referred to as “Jalou”, “Truck stops” or “TruckPlazas”. We also receive a percentage of gaming revenue from an additionaltruck plaza video gaming facility. Finally, JEI owns and operates a horseracing track with nine satellite wagering facilities in Virginia through awholly owned subsidiary Colonial Holdings, Inc. (“Colonial”).

 

On February 25, 2005, we filed anapplication for gaming licenses to open a Jefferson Parish, Louisiana truckplaza location. The license was approved on August 16, 2005, and thelocation opened on September 22, 2005.

 

On March 2, 2005, we acquired threetruck plaza video gaming facilities in Louisiana previously owned by Jacobs for$22.5 million. The purchase of the three truck plaza video gamingfacilities was accounted for as a combination of entities under common control,which is similar to the pooling of interests method of accounting for businesscombinations. Accordingly, the accompanying consolidated financial statementshave been retroactively adjusted to include the operations of the acquiredtruck plazas from January 1, 2003. See Note 4 below.

 

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

 

On December 16, 2005, we acquired from anunaffiliated party Fuel Stop 36 in Lake Charles, Louisiana for $6.1 million. OnDecember 20, 2005, we acquired from an unaffiliated party the assets of LaroseTruck Plaza in Larose, Louisiana for $6.2 million. The purchases of these twotruck plaza video gaming facilities were recorded using the purchase method ofaccounting. See Note 4 below.

 

F-7

----

 

**2.**                   SIGNIFICANT ACCOUNTING POLICIES

** **

***Consolidation***—Theaccompanying consolidated financial statements include the accounts of JEI,Black Hawk, Jalou and Colonial. All significant inter-company transactions andbalances have been eliminated in consolidation.

 

***Cash and Cash Equivalents***—TheCompany considers all demand deposits and time deposits with originalmaturities of three months or less to be cash equivalents.

 

***Restricted Cash***—Amountsdue under agreements with the Virginia Horsemen’s Benevolent and ProtectiveAssociation, Inc. and the Virginia Harness Horse Association are accrued basedon the terms of the agreements. Funds for purses for future live race meets areheld in restricted cash accounts.

 

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

 

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

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

 

Costs of majorimprovements are capitalized, while costs of normal repairs and maintenance arecharged to expense as incurred. Gains or losses on disposal of assets arerecognized as incurred.

 

***Goodwill***—Goodwillrepresents the excess purchase price over the fair value of the netidentifiable assets acquired related to acquisitions. See Note 4 for currentyear acquisitions.

 

***Identifiable Intangible Assets***—Identifiableintangible assets are comprised of revenue rights, device use rights, and anoncompete agreement associated with the Jalou truck stop acquisitions. Amortizationof the revenue rights are being amortized on a straight line basis over 50years representing the initial term of the related agreement. Amortization ofdevice use rights and the noncompete agreement are being amortized on astraight line basis over five years, representing the initial terms of therelated agreements.

 

***Debt Issue Costs***—Debtissue costs that are incurred by the Company in connection with the issuance ofdebt are deferred and amortized to interest expense, using the effective interestmethod, over the life of the related loan, and are included as a component ofother assets in the accompanying consolidated balance sheets.

 

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

 

F-8

----

 

***Outstanding Gaming Chip andToken Liability***—When customers exchange cash forgaming chips and tokens, the Company has a liability as long as those chips andtokens are not redeemed or won by the house. That liability is established bydetermining the difference between the total chips and tokens placed in serviceand the actual inventory of chips and tokens in custody or under the control ofthe casinos. The chip and token liability is adjusted periodically to reflectan estimate of chips and tokens that will never be redeemed, such as chips andtokens that have been lost or taken as souvenirs and is reflected as acomponent of accounts payable and accrued expenses in the accompanyingconsolidated balance sheets.

*** ***

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

 

***Revenue***—***Truck Stop***—Video poker revenue isthe net winnings from gaming activities of the Company’s truck stops, which isthe difference between gaming wins and losses and are recognized as earned.

 

***Revenue***—***Pari-Mutuel***—Pari-mutuel revenueincludes the Company’s share of pari-mutuel wagering on live races afterpayments of amounts returned on winning wagers, and the Company’s share ofwagering from import and export simulcasting at its racing centers and arerecognized as earned.

 

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

 

***Revenue***—***Convenience Store***—***Fuel and Other***—The Companyrecognizes revenue at the time of sale for fuel and convenience-store items.

 

***Revenue***—***Hotel***—The Company recognizes hotelrevenue at the time rooms are provided to customers.

 

***Revenue***—***Other***—Other revenue consists of ATMcommissions, cash advance commissions, miscellaneous vending commissions,admission charges, and program and concession sales at Colonial’s live racingevents. Other revenues are recognized at the time services are provided topatrons.

 

***Promotional Allowances***—Grossrevenues include the retail amount of rooms, food and beverages providedgratuitously to customers. When computing net revenues, the retail amount ofrooms, food and beverages and coupons, gratuitously provided to customers, aswell as slot club player point redemptions, is deducted from gross revenues aspromotional allowances. The estimated cost of such complimentary services inour casino operations for rooms, food, and beverages is charged to casinooperations and was $9,811, $9,191, and $9,388 for the years endedDecember 31, 2005, 2004, and 2003, respectively. The estimated cost ofsuch complimentary services in our truck stops related to video pokeroperations for food and beverages is charged to truck stop operations and was$798, $276, and $121 for the years ended December 31, 2005, 2004, and 2003,respectively. The estimated cost of such complimentary services in our truckstops related to fuel operations for food and beverages is charged toconvenience store operations and was $261, $136, and $323 for the years endedDecember 31, 2005, 2004, and 2003, respectively.

 

***IncomeTaxes***—TheCompany has elected for income tax purposes to be treated as a SubchapterS Corporation under the Internal Revenue Code of 1986, as amended, and,consequently, no current or deferred income taxes have been reflected in theaccompanying consolidated financial statements as these taxes are theresponsibility of the stockholders. See Note 6 for information relating to $423income tax expense charged for the year ended December 31, 2005.

 

F-9

----

 

***Long-Lived Assets***—TheCompany periodically evaluates the value of long-lived assets, includingproperty, plant and equipment, goodwill and identifiable intangibles, forpotential impairment. If an impairment is indicated, such impaired assets arewritten down to their estimated fair value. As of December 31, 2005 and2004, management determined that there was no impairment of the Company’slong-lived assets other than those costs abandoned as described in Note 10.

 

***Operating Segments***—TheCompany has four reportable segments (Colorado, Nevada, Virginia, andLouisiana), as defined by SFAS No. 131, *Disclosuresabout Segments of an Enterprise and Related Information.* See Note 16.

 

***Use of Estimates***—Thepreparation of financial statements in accordance with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amount of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting periods. Management periodically evaluates the Company’spolicies, and the estimates and assumptions related to such policies. All ofJEI’s subsidiary companies operate in a highly regulated industry. Colonial,Jalou and Black Hawk operations are subject to regulations that describe andregulate operating and internal control procedures. The majority of gamingrevenue is in the form of cash which by nature does not require complexestimations. Management estimates certain liabilities with payment periods thatextend for longer than several months. Such estimates include the self-insuredmedical and workers compensation liabilities and litigation costs. Furthermore,JEI believes that these estimates are reasonable based on past experience withthe business and based upon assumptions related to possible outcomes in thefuture. Actual results could differ from those estimates.

 

Furthermore, we have determined that thepolicy associated with our long-lived assets, goodwill and identifiableintangible assets, and related estimates are critical to the preparation of ourconsolidated financial statements. We have a significant investment inlong-lived property and equipment. We estimate that the undiscounted futurecash flows expected to result from the use of these assets exceeds the currentcarrying value of these assets. Any adverse change to the estimate of theseundiscounted cash flows could necessitate an impairment charge that wouldadversely affect operating results. We estimate the useful lives for our assetsbased on historical experience, estimates of assets’ commercial lives, and thelikelihood of technological obsolescence. Should the actual useful life of aclass of assets differ from the estimated useful life, we would record animpairment charge. We review useful lives and obsolescence and assesscommercial viability of our assets periodically.

 

***Reclassifications***—Inthe accompanying Consolidated Statements of Cash Flows for the years endedDecember 31, 2004 and 2003, we have changed the classification of changes inrestricted cash balances to present such activity as an investing activity. Wepreviously presented such changes as an operating activity. Thisreclassification has resulted in a $0.24 million increase and a $0.51 milliondecrease to investing cash flows during 2004 and 2003, respectively, and acorresponding $0.24 million decrease and $0.51 million increase to operatingcash flows from the amounts previously reported. Certain other amounts havebeen reclassified within the 2004 and 2003 financial statements to conform tothe presentation used in 2005. Management believes these reclassifications areimmaterial as they had no impact on the Company’s financial position or netincome.

 

**3.**                   GOODWILL AND OTHER INTANGIBLE ASSETS

 

The Companytests goodwill for impairment as of September 30theach year. Testing compares the estimated fair values of the Company’sreporting units to the reporting units’ carrying value. The Company considers avariety of factors when estimating the fair value of its reporting units,including

 

F-10

----

 

estimatesabout furture operating results of each reporting unit, multiples of EBITDA,investment banker market analysis, and recent sales of comparable businessunits if such information is available to the Company. A variety of estimatesand judgments about the relevance and comparability of these factors to thereporting units are made. As of September 30, 2005 and as updated at year-end,management of the Company believes the goodwill held in our reporting units isnot imparied. In addition, the Company has reassessed the useful lives of itsidentifiable intangible assets without any charge to the previously establishedamortization periods of such assets.

 

The changes inthe carrying amount of goodwill for the years ended December 31, 2005 and 2004are as follows (in thousands):

 
| ** **                      | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
|                            |       |     |       |     |       |
| Balance as of beginning of year |       | $        | 26,773     |     | $          | 26,773 |   |
| Goodwill acquired during year   |       | 6,157    |       | —   |       |
|                            |       |     |       |     |       |
| Balance as of end of year       |       | $        | 32,930     |     | $          | 26,773 |   |

 

Acquired intangible assets as ofDecember 31, 2005 and 2004, consist of the following (in thousands):

 
| ** **                     | ** ** | **2005**     | ** ** | **2004**         | ** ** |
|--------------------------------|------------|--------------|------------|------------------|------------|
| ** **                     | ** ** | **Gross**    | ** ** | ** **       | ** ** | **Net** | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                     | ** ** | **Carrying** | ** ** | **Accumulated**  | ** ** | **Carrying** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                     | ** ** | **Amount**   | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
|                           |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Amortizable intangible assets: |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Revenue rights                 |       | $            | 6,000      |             | $          | 480 |   | $ | 5,520 |   | $ | 6,000 |   | $ | 360 |   | $ | 5,640 |   |
| Device use rights              |       | 4,232        |       | 2,018            |       | 2,214 |   | 3,518 |   | 1,368 |   | 2,150 |   |
| Other                          |       | 100          |       | 4                |       | 96 |   |   |   |   |   |   |   |
|                           |       |         |       |             |       |   |   |   |   |   |   |   |   |
| Total                          |       | $            | 10,332     |             | $          | 2,502 |   | $ | 7,830 |   | $ | 9,518 |   | $ | 1,728 |   | $ | 7,790 |   |

 
| ** **                     | ** ** | **Years Ended December 31** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|
| ** **                     | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                           |       |                                       |       |   |   |   |   |
| Aggregate amortization expense |       | $                                          | 821        |   | $ | 624 |   | $ | 581 |   |
|                                |            |                                            |            |  |  |  |  |  |  |  |

 

Estimated amortization expense for the yearsending December 31 (in thousands):

 
| 2006       |   | $      | 987    |   |
|------------|--------|--------|--------|--------|
| 2007       |   | 588    |   |
| 2008       |   | 546    |   |
| 2009       |   | 499    |   |
| 2010       |   | 290    |   |
| Thereafter |   | 4,920  |   |
|       |   |   |   |
| Total      |   | $      | 7,830  |   |

 

**4.**                   SALE OF DEBT AND ACQUISITIONS

** **

On March 2, 2005, we completed the issuanceof $23,000 of additional notes subject to the same terms and conditions as ourexisting senior secured notes which carry a coupon of 11 7/8% due 2009, withinterest payable each February 1, and August 1. The notes were issued at 10%above their principal

 

F-11

----

 

amount resulting in a premium of $2,300,which is being amortized using the effective interest method over the remaininglife of the notes. We used $22,500 of the proceeds from the sale of the notesto fund the acquisition of a 100% interest in three truck plaza video gamingfacilities in Louisiana known as Breaux Bridge, Eunice and Jefferson Parish,all of which were owned by Jacobs. The balance of the proceeds was used to payfor the offering costs of the additional notes. Due to the related party natureof the transaction (and under the terms of our indenture) we obtained afairness opinion from an investment banking firm that the acquisition of thethree video poker truck stops was fair from a financial point of view.

 

The acquisition of the three truck plazafacilities was accounted for as a combination of entities under common control,and as such is reflected for accounting and financial reporting purposessimilar to a pooling of interests. Therefore, the acquisitions have beenrecorded at the related party’s historical cash cost in the assets transferred.Accordingly, the accompanying consolidated financial statements have beenretroactively restated from January 1, 2003 through the acquisition date toinclude the operations of the acquired truck plazas. See Note 1 above.

 

A distribution of $22,500 was recorded on theacquisition date as the assets of the entities acquired have been retroactivelyaccounted for in JEI’s financial statements. Therefore a net distribution of$12,380 (the $22,500 distribution reduced by the $10,121 of net assetsacquired) has been recorded by us as of March 2, 2005, acquisition date.

 

The following table summarizes the value ofassets acquired and liabilities assumed and recorded as of March 2, 2005,for the transaction occurring on that date.

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

 

The consolidated financial statements for theyears ended December 31, 2004 and 2003, have been retroactively restatedas though the transaction had occurred at the beginning of each of the periodspresented.

 

F-12

----

 

The following table summarizes the operationsof the acquired truck plaza entities:

 
| ** **         | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
|               |       |     |       |     |       |
| Net revenues       |       | $        | 4,437      |     | $          | — |   |
| Costs and expenses |       | 5,533    |       | 42       |       |
|               |       |     |       |     |       |
| Net loss           |       | $        | (1,096     | )        | $          | (42 | ) |

 

On September 30, 2005, we entered intoan agreement with Dakota/Blackhawk, LLC, an unaffiliated Colorado limitedliability company (“Dakota”), granting us the option to purchase 2.2 acres ofundeveloped land (approximately 1 acre of which is located within the BlackHawk Gaming District) directly across the street from The Lodge.

 

Under the terms of the option agreement, wehave the exclusive right to purchase the property for $13 million. Theoption has an initial term of one year, with a right in our favor to extend theoption for an additional one year period upon the payment of a nonrefundableextension fee of $500,000. The option agreement provides for an initial optionfee of $500,000. Fifty percent of the initial option fee and fifty percent ofthe extension fee are to be applied to the purchase price if the property ispurchased.

 

If the real estate purchase contract isclosed, the purchase price must be paid as follows: (i) 50% of thepurchase price minus the option fee credit, in cash or immediately availablefunds at closing; and (ii) a four year promissory note in the amount of50% of the purchase price executed by us.

 

On November 2, 2005, we formed a newwholly owned subsidiary, Jacobs Pinon Plaza Entertainment, Inc. and enteredinto a definitive Asset Purchase Agreement with Capital City Entertainment,Inc. (“CCI”), a nonaffiliated party, under which we agreed to acquire all ofthe assets of the Best Western Pinon Plaza Resort (“Pinon Plaza”), a divisionof CCI. The assets to be purchased include all of the personal property,buildings and improvements used by Pinon Plaza in the operation of its casino,hotel, bowling alley and RV park in Carson City, Nevada. The purchase price forthe assets is $14,500. Upon entering into the agreement, we deposited $500 intoescrow which will be allocable to the purchase price. We anticipate closingthis transaction during the second quarter of 2006. Under the agreement, theCompany has until June 30, 2006 to close the transaction. If thetransaction is not closed by June 30, 2006, the Company may extend theclosing deadline to September 30, 2006, for a one time nonrefundable $250payment to the seller. If the transaction is not closed by September 30,2006, the $500 deposit will be forfeited and paid to the seller. No furtherrecourse will be available to the seller.

 

Contemporaneously, we entered into a triplenet ground lease covering land underlying the assets which will begin uponclosing of the Asset Purchase Agreement discussed above. The lessor is a familytrust affiliated with CCI. The lease has a ten year term with two ten yearextensions at the option of JEI. Rentals under the lease are $250 per year foryears one through five, $300 per year for years six through ten, and a ratebased on an appraisal performed by a Member of the Appraisal Institute “MAI” ofthe property during the first and second extension terms.

 

JEI has the right to purchase the leased landat an MAI appraised value at the end of the first ten year term. It also has aright of first refusal should the lessor seek to sell the leased land to athird party.

 

Consummation of the Asset Purchase Agreementand entry into the land lease are subject to several customary conditions,particularly including approval of the Nevada State Gaming Control Board andthe Nevada Gaming Commission. Nevada gaming approvals could take severalmonths.

 

F-13

----

 

On December 16, 2005, we acquired froman unaffiliated party Fuel Stop 36 in Lake Charles, Louisiana for$6.1 million. On December 20, 2005, we acquired from an unaffiliatedparty the assets of Larose Truck Plaza in Larose, Louisiana for$6.2 million. The following table summarizes the assets acquired andliabilities assumed and recorded as of the acquisition dates. 

 
| ** **                      | ** ** | **Fuel Stop 36** | ** ** | **Larose** | ** ** | **Total** | ** ** |
|---------------------------------|------------|----------------------------|------------|------------|------------|-----------|------------|
|                            |       |                       |       |       |       |      |       |
| Current assets                  |       | $                          | 176        |       | $          | 122       |       | $ | 298 |   |
| Property and equipment—net |       | 2,748                      |       | 2,729      |       | 5,477     |       |
| Goodwill                        |       | 2,860                      |       | 3,297      |       | 6,157     |       |
| Identifiable intangible assets  |       | 278                        |       | 71         |       | 349       |       |
|                            |       |                       |       |       |       |      |       |
| Total assets acquired           |       | 6,062                      |       | 6,219      |       | 12,281    |       |
|                            |       |                       |       |       |       |      |       |
| Total liabilities assumed       |       |                       |       | 16         |       | 16        |       |
|                            |       |                       |       |       |       |      |       |
| Net assets acquired             |       | $                          | 6,062      |       | $          | 6,203     |       | $ | 12,265 |   |

 

Goodwill resulting from the Larose and FuelStop 36 transactions is attributable to anticipated future cash flowsassociated with the acquired entities. Amortization expense recorded on theseidentifiable intangible assets was $4 for the year ended December 31,2005.

 

Assuming the transactions had occurred at thebeginning of each period presented, combined unaudited pro forma revenue andnet (loss) income would have been as follows.

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

 

The pro forma information is not necessarilyindicative of the results of operations that would have occurred had theacquisitions occurred at the beginning of each period presented, nor are theyindicative of future operating results.

 

F-14

----

 

**5.**                   LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES,AND CAPITAL LEASES

** **

Long-term debt, notes payable-relatedparties, and capital leases, as of December 31, 2005 and 2004, consist ofthe following:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Indebtedness of JEI:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Senior secured notes due 2009, with  interest only payable each February 1, and August 1, beginning August 1,  2002, at a fixed interest rate of 11 7/8%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | $        | 147,622    |     | $          | 122,103 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| A $10 million line of credit (“LOC”)  agreement with Wells Fargo Foothill, expiring July 12, 2007. The LOC bears  interest at the prime rate published by Wells Fargo Bank, N.A., plus 1.75%.  The LOC is collateralized by the land, buildings and related improvements of  The Lodge and the Gilpin, the Company’s Colorado casino properties. The  security interests under the terms of the LOC are contractually senior to the  notes.                                                                                                                                                                                                                                                                                                                                                                            |       | 4,590    |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Capital Lease with interest and principal  payments of $3 per month until October 2006, increasing to $15 per month  through October 2007, increasing to $21 per month thereafter, maturing  October 2010, with the right to extend the lease three time for five years,  or to purchase the land and building for $5,000 any time commencing with the  day after the last day of the first year of the initial term through the end  of the initial term, or for $5,398 at any time during the first renewal  period. The purchase option is no longer available after the first renewal  period. The effective interest rate is 17%. Each lease renewal if elected  will result in an increase in monthly payment based on a base index rate  established with the August 2005 Consumer Price Index (“CPI”) as published. |       | 1,227    |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 153,439  |       | 122,103  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Indebtedness of Black Hawk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |     |       |     |       |
| Bonds payable; issued in two series with  interest payments varying between 6.25% and 6.50%; principal and interest  payments approximating $360 are due semi-annually beginning in June 2000  continuing until December 2011; secured by infrastructure improvements made  by the Lodge.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | 3,526    |       | 3,997    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Indebtedness of Colonial:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |     |       |     |       |
| Note payable to Maryland Jockey Club,  maturing December 2005, bearing interest at a rate of 7.75% payable quarterly  for the first two years, and equal installments of interest and principal to  be paid quarterly over the remaining five year term of the note, beginning in  the first quarter of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |     |       | 290      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Note payable to John Deere Credit, maturing  October 2008, bearing interest at a rate of 2.25% payable monthly in equal  installments of interest and principal beginning November 2003, secured by  the equipment purchased with the Note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       | 133      |       | 177      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Capital lease with interest and principal payments  of $10 per month, maturing September 11, 2009, with the right to extend the  term of the lease five times for five year intervals, or to purchase the land  for $800 at any time after the term and first renewal period of the lease  (after September 11, 2014). The effective interest rate is 11.84%. Each lease  renewal if elected will result in an increase in monthly payments by 10% over  the previous lease term.                                                                                                                                                                                                                                                                                                                                                     |       | 971      |       | 976      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |            |          |            |          |            |  |  |

 

 

(continued)

 

F-15

----

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Indebtedness of Colonial (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |     |       |     |       |
| Capital lease with interest and principal  payments of $4 per month, until the earlier of occupancy or June 1, 2005,  then interest and principal payments of $8 per month, maturing June 1, 2010,  with the right to extend the term of the lease four times for five year  intervals, or to purchase the land and building for $700 at any time after  the initial term of the lease (after June 1, 2010), with the purchase price  increasing 8% with any successive renewal term. The effective interest rate is  10.31%. Each lease renewal if elected will result in an increase in annual  payments by $8 over the lease term. |       | 764      |       | 756      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Capital lease with interest and principal  payments of $8 per month until October 2006, then interest and principal  payments of $10 per month until October 2010, then interest and principal  payments of $11 per month until October 2015, with three renewal period terms  of five years each with monthly payments starting at $13 per month increasing  to $17 per month. The effective interest is 10.5% per annum.                                                                                                                                                                                                            |       | 1,195    |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Note payable to individuals, with interest  and principal payments of $8 per month through maturity at October, 2020, at  an interest rate of 6.5% per annum, secured by the building and land.                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | 954      |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Note payable to Pimlico Racing Association,  Inc, and Laurel Racing Association Limited Partnership, maturing September  2006, interest accruing at the prime rate published by the Wall Street  Journal, plus 1%, payable at maturity, guaranteed by Jacobs Entertainment,  Inc.                                                                                                                                                                                                                                                                                                                                                     |       | 3,000    |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | 19       |       | 28       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | 7,036    |       | 2,227    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Indebtedness of Jalou:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |     |       |     |       |
| Note payable to Cameron State Bank,  maturing October 1, 2018, interest only monthly payments through April 1,  2005 bearing interest at a rate of 7%, beginning May 1, 2005 monthly  principal and interest payments of $22 due until October 1, 2008, beginning  November 1, 2008 monthly principal and interest payments of $21 due until  September 1, 2018 bearing interest at a rate of the five year treasury bill plus  3%, October 1, 2018 all remaining interest and principal due. The note is secured  by the land and improvements purchased with the note and inventory, equipment  and fixtures.                       |       |     |       | 2,300    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
| Note payable to Cameron State Bank,  maturing July 1, 2018, interest only monthly payments through January 1, 2005  bearing interest at a rate of 7%, beginning February 1, 2005 monthly  principal and interest payments of $27 due until July 1, 2008, beginning  August 1, 2008 monthly principal and interest payments of $25 due until June  1, 2018 bearing interest at a rate of the five year treasury bill plus 3%,  July 1, 2018 all remaining interest and principal due. The note is secured by  the land and improvements purchased with the note and inventory, equipment  and fixtures.                                |       |     |       | 2,800    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       |     |       |     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | —   |       | 5,100    |       |

 

 

(continued)

 

F-16

----

 
| ** **                                                                                                                                                                         | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                                               |       |     |       |     |       |
| Indebtedness to related parties:                                                                                                                                                   |       |     |       |     |       |
| Notes payable to affiliates, maturing  January 31, 2010, semi-annual payments of interest only at 12.0%, unsecured                                                                 |       | $        | 9,000      |     | $          | 9,000 |   |
| Note payable to affiliates maturing March  2009, semi-annual payments of interest only at 8.5%, secured by the land,  buildings, and related improvements of Houma                 |       | 1,811    |       | 1,811    |       |
| Note payable to affiliates maturing March  2009, semi-annual payments of interest only at 8.5%, secured by the land,  buildings and related improvements of Winner’s          |       | 1,208    |       | 1,208    |       |
| Note payable to affiliates maturing March  2009, semi-annual payments of interest only at 8.5%, secured by the land,  buildings, and related improvements of Cash’s           |       | 1,717    |       | 1,717    |       |
| Note payable to affiliates maturing March  2009, semi-annual payments of interest only at 8.5%, secured by the land,  buildings, and related improvements of Colonel’s        |       | 2,172    |       | 2,172    |       |
| Note payable to affiliates maturing March  2009, semi-annual payments of interest only at 8.5%, secured by the land,  buildings, and related improvements of Lucky Magnolia’s |       | 788      |       | 788      |       |
| Note payable to affiliates maturing March  2009, semi-annual payments of interest only at 8.5%, secured by the land,  buildings, and related improvements of Bayou Vista           |       | 1,679    |       | 1,679    |       |
| Note payable to affiliates maturing March  2009, semi-annual payments of interest only at 8.5%, secured by the land,  buildings, and related improvements of Raceland              |       | 1,114    |       | 1,114    |       |
|                                                                                                                                                                               |       |     |       |     |       |
|                                                                                                                                                                               |       | 19,489   |       | 19,489   |       |
|                                                                                                                                                                               |       |     |       |     |       |
| Total indebtedness                                                                                                                                                                 |       | 183,490  |       | 152,916  |       |
|                                                                                                                                                                               |       |     |       |     |       |
| Less current indebtedness                                                                                                                                                          |       | (3,583   | )          | (1,006   | )          |
|                                                                                                                                                                               |       |     |       |     |       |
| Total long-term indebtedness                                                                                                                                                       |       | $        | 179,907    |     | $          | 151,910 |   |

 

 

(concluded)

 

On February 8, 2002, JEI completed a$125,000 of 11 7/8% Senior Secured Notes (the ”Notes”) due 2009, withinterest payable on each February 1, and August 1, with payments beginningAugust 1, 2002. The Notes were issued at a 3.96% discount from theirprincipal amount, resulting in a discount of $4,950, which is being amortizedusing the effective interest method over the life of the Notes. The proceeds ofthe Notes were primarily used to fund the acquisition of the common stock ofBlack Hawk, Jalou LLC, Jalou II, and Colonial, and to refinance certain debt ofthese entities in connection with the acquisitions. The Notes are secured bythe assets and stock of the acquired entities. JEI has no independent assets oroperations and the subsidiaries’ guarantees on the Notes are full andunconditional and joint and several. The Notes contain a number of affirmativeand negative covenants which among other things require JEI to maintain certainfinancial ratios and refrain from certain actions without prior approval fromthe Trustee of the Notes. As of December 31, 2005, management believes JEIis in compliance with all such debt covenants.

 

On February 13, 2003, $10,489 of notesissued by the seller in connection with the acquisition of certain Jalou truck stopsfrom an unaffiliated party were acquired by a related party. See discussion inNote 9 below.

 

On March 2, 2005, JEI issued $23,000 indebt subject to the indenture of the Notes described above. The terms of thenew notes are the same as the existing notes, which carry a coupon rate of 117/8% per annum and mature February 2009. See Note 4.

 

F-17

----

 

Scheduled principal payments as ofDecember 31, 2005, are as follows:

 
| 2006       |   | $       | 3,429   |   |
|------------|--------|---------|---------|--------|
| 2007       |   | 5,181   |    |
| 2008       |   | 683     |    |
| 2009       |   | 159,182 |    |
| 2010       |   | 10,447  |    |
| Thereafter |   | 4,928   |    |
|       |   |    |    |
| Total      |   | $       | 183,850 |   |

 

Effective July 12, 2002, the Companyentered into a $10,000 line of credit (“LOC”) agreement with Wells FargoFoothill, Inc., expiring July 12, 2007. The LOC bears interest at theprime rate published by Wells Fargo Bank, N.A., plus 1.75%. The LOC iscollateralized by the land, buildings and related improvements of The Lodge andthe Gilpin Hotel and Casino, the Company’s Colorado casino properties. Thesecurity interests under the terms of the LOC are contractually senior to theNotes. There were no amounts outstanding under the LOC as of December 31,2005 and 2004.

 

**6.**                   INCOME TAXES

** **

On March 11, 2002, the Company receivednotice from the Internal Revenue Service asserting deficiencies in federalcorporate income taxes for Black Hawk’s 1998 tax year. The proposed adjustmentrelated to the deductibility of depreciation taken against certain costsincurred by The Lodge to build and improve public assets. The Company has settledthis issue with the Internal Revenue Service and has recorded a charge toearnings of $423 including $149 in interest. No penalties were assessed on thissettlement.

 

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

** **

The following disclosure of estimated fairvalue of the Company’s financial instruments has been determined by the Companyusing available market information and generally accepted valuationmethodologies. However, considerable judgment is required to interpret marketdata in order to develop the estimates of fair value. Accordingly, theestimates herein are not necessarily indicative of the amounts the Companycould realize in a current market exchange. The use of different marketassumptions and/or estimation methodologies may have a material effect on theestimated fair value amounts. The estimated fair value of the Company’sfinancial instruments are as follows:

 
| ** **                                                     | ** ** | **2005**     | ** ** | **2004**      | ** ** |
|----------------------------------------------------------------|------------|--------------|------------|---------------|------------|
| ** **                                                     | ** ** | ** **   | ** ** | **Estimated** | ** ** | ** ** | ** ** | **Estimated** | ** ** |
| ** **                                                     | ** ** | **Carrying** | ** ** | **Fair**      | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                                                     | ** ** | **Amount**   | ** ** | **Value**     | ** ** | **Amount** | ** ** | **Value** | ** ** |
|                                                           |       |         |       |          |       |   |   |   |   |
| Liabilities—long-term debt and capital  lease obligations |       | $            | 183,490    |          | $          | 189,190 |   | $ | 152,916 |   | $ | 173,208 |   |
|                                                                |            |              |            |               |            |  |  |  |  |  |  |  |  |

 

The estimation methodologies utilized by theCompany are summarized as follows:

 

***Debt***—Thefair value of variable-rate debt is estimated to be equal to its carryingamount. The fair value of senior secured notes issued in 2002 and 2005 is basedupon quoted market rates. The fair value of other fixed rate debt is estimatedbased on a discounted cash flow analysis, using the prevailing market interest ratesfor debt of similar dollar amount, maturity and risk.

 

F-18

----

 

The estimated fair value of the Company’sother financial instruments, such as cash and cash equivalents, accountsreceivable, inventory and accounts payable, have been determined to approximatecarrying value based on the short-term nature of those financial instruments.

 

**8.**                   EMPLOYEE BENEFIT PLANS

** **

In June 1998, Colonial implemented a 401(k)Plan in which all full time and part time employees are eligible to participateafter six months of employment. The Plan is a defined contribution plancovering eligible employees of Colonial. The Plan allows eligible employees tomake tax-deferred contributions that are matched by the Company up to a specifiedlevel. On July 9, 2004, the Colonial 401(k) plan was merged into the BlackHawk Gaming & Development Company Inc. 401(k) plan (renamed JacobsEntertainment, Inc. plan on December 21, 2004). The Company’scontributions to the 401(k) Plan were approximately $14 and $14 for the periodended July 9, 2004, and for the year ended 2003, respectively.

 

On January 1, 1997, the Gilpin HotelCasino Employees’ 401(k) Plan (renamed Black Hawk Gaming & DevelopmentCompany Inc.’s 401(k) Plan on March 31, 1999, further re-named JacobsEntertainment, Inc.’s 401(k) plan on December 20, 2004) (the ”Plan”)was organized and began accepting contributions on September 1, 1997. ThePlan is a defined contribution plan covering eligible employees of Black Hawk,The Lodge, the Gilpin, GDW, and Colonial (after July 9, 2004). The Planallows eligible employees to make tax-deferred contributions that are matchedby the Company up to a specified level. The Company contributed approximately$307, $257, and $249 to the Plan for the years ended December 31, 2005,2004, and 2003, respectively. On July 9, 2004, Colonial’s Plan and JacobsEntertainment, Inc.’s Plan were merged into one plan covering all eligibleemployees of JEI.

 

**9.**                   RELATED-PARTY TRANSACTIONS

** **

In order to assist JEI in its efforts toresearch, develop, perform due diligence on and possibly acquire new gamingopportunities, Black Hawk entered into an agreement with Premier OneDevelopment Company effective October 1, 1997. On May 9, 2000,Premier merged into Jacobs Investments Management Co. Inc. (“Management”), 82%of which is owned by Jeffrey P. Jacobs and the remaining 18% of which is ownedin equal portions by two former directors of Colonial Holdings. Black Hawk paidor accrued $450, $450, and $450 for Management’s services during the yearsended December 31, 2005, 2004, and 2003, respectively. The agreementexpired on December 31, 2002, but was renewed on January 2, 2003 for aperiod of nine years, at $450 per year, payable on January 15 of eachyear.

 

The Company provides monthly management andaccounting services to truckstops owned by an affiliate. In addition, theaffiliates purchase repair parts from the Company. Total charges to affiliatesfor management services and repair part purchases totaled $480, $384 and $318 forthe years ended December 31, 2005, 2004 and 2003, respectively. Accountsreceivables due from affiliate totaled $286 and $224 as of December 31,2005 and 2004, respectively.

 

As part of the acquisition agreement for theBreaux Bridge, Eunice, and Jefferson locations, the affiliated party sellerprovided capital to the Company. Amounts payable to this affiliated partytotaled $386 and $1,819 as of December 31, 2005 and 2004, respectively.

 

JEI is the obligor on notes to Jacobstotaling $9,000, with interest only payable semi-annually at 12% per annum, andthe principal amount due and payable on January 31, 2010. These notes wereissued in connection with the acquisition of certain Louisiana truck stops. JEIis also the obligor of $10,489 of notes issued by the seller in connection withthe acquisition of additional truck stops from an unaffiliated party. Thesenotes were acquired from the seller by Jacobs on February 13, 2003, for$7,000. Interest 

 

F-19

----

 

payable to related parties was $723 for eachof the years ended December 31, 2005 and 2004, respectively.

 

**10.**            ABANDONMENT COSTS

** **

In December 2005, the Company recorded anabandonment charge of $1,424 representing the net book value of a stand-aloneportion of the Gold Dust West’s motel building (the ”L-wing”) containing66 of the properties 106 motel rooms. After considering alternative plans forthis stand-alone portion of the motel including a possible refurbish, it wasdecided that the property would be better served with improved access andexpanded parking. The Company began demolition of the L-wing during the firstquarter of 2006 and expects to complete the project late in the second quarterat an estimated total cost of $1.4 million. The Company expects to addapproximately 75 parking spaces as a result of the demolition. The Company willcontinue to operate the remaining 40 hotel rooms.

 

During the year ended 2004, we recorded a$2,900 charge to operations which is attributable to the write-off of abandonedproject costs. Included in these costs is approximately $1,800 related todevelopment costs associated with a potential gaming site in D’Iberville,Mississippi. After considering various development alternatives, we chose toabandon the project to pursue other alternatives which, in our estimation wouldresult in greater returns than the potential of the D’Iberville site. Themajority of these expenditures were primarily associated with land optionpayments and design, development and planning costs. Further, we charged tooperations approximately $800 consisting of option payments, legal andaccounting fee expenditures associated with four separate unrelated parties toacquire seven video poker stop operations in Louisiana. Based on the results ofthe due diligence work, we abandoned the potential acquisitions with all seventruck stop operations targeted for acquisition. Finally, approximately $300 inother capitalized costs were charged to operations due to abandonment ofmiscellaneous other projects.

 

**11.**            COMMITMENTS AND CONTINGENCIES

** **

In 1996, Colonial entered into a Managementand Consulting Agreement, as amended (the ”Management Agreement”), withMaryland-Virginia Racing Circuit, Inc. (the ”Circuit”), a wholly ownedsubsidiary of Magna Entertainment Corp. (“MEC”), which is an affiliate of theMaryland Jockey Club (“MJC”). The Management Agreement provided for managementservices for Colonial’s racetrack and its satellite facilities and created aVirginia-Maryland thoroughbred racing circuit. Under the Management Agreement,MJC agreed to suspend live racing at its racetracks, Laurel Park and PimlicoRace Course, during Colonial’s live thoroughbred meets. Parties to theManagement Agreement also exchanged simulcast signals for their livethoroughbred meets at no cost to either party. The effect of the exchange ofsignals is immaterial to the consolidated financial statements of JEI. TheCircuit managed Colonial’s satellite facilities, as well as, the livestandardbred and thoroughbred meets and provided certain personnel, at itsexpense, for the live thoroughbred meet. For its services, the Circuit receiveda management fee of 1.0% of the first $75 million of the aggregate grossamounts wagered in any calendar year in the Commonwealth of Virginia, excludingcertain amounts specified in the Management Agreement (“Handle”), 2.0% of allHandle of $75 million to $125 million per calendar year, 1.5% of all Handle inexcess of $125 million, and 3.25% of any Handle for satellite wageringfacilities located in the counties of Loudoun, Fairfax, Prince William, andArlington and the Virginia cities of Manassas, Manassas Park, Fairfax City,Falls Church, and Alexandria. TheManagement Agreement was to remain 

 

F-20

----

 

in effect until2036 provided Colonial owned, controlled, or operated its racetrack under itsexisting licenses. At Colonial’s option, Colonial could terminate theManagement Agreement any time after 2021 upon payment of a fee equal to 17times the average management fee paid during the three years immediatelypreceding such termination. Management fees incurred under the ManagementAgreement were approximately $1,787, $2,082, and $1,831 during each of theyears ended December 31, 2005, 2004, and 2003, respectively. 

 

On September 30,2005, Colonial acquired all of the outstanding shares of the Circuit. See Note14 for discussion of this transaction.

 

Colonial has entered into an agreement with atotalisator company which provides wagering services and designs, programs, andmanufactures totalisator systems for the Company’s pari-mutuel wageringapplications. The basic terms of the agreement state that the totalisatorcompany shall provide totalisator services to Colonial for all wagering held atColonial’s facilities through 2004 at a rate of .365% of the gross amountswagered. Totalisator fees incurred under this agreement was approximately $731,$622, and $497 for the years ended December 31, 2005, 2004, and 2003, respectively. On March 16, 2005,Colonial entered into an amendment with the totalisator company to extend theterm of the agreement to 2012, to provide replacement equipment for theexisting equipment, and to increase the rate to .385% of handle up to $270,000in handle. Handle above $270,000 will be charged a rate of .345%. The amendmentalso provides for minimum charge per calendar year of $330.

 

Colonial has entered into agreements with acompany which provides broadcasting and simulcasting equipment and services.The agreements for live racing services at the horse racing track, andequipment leases at two of the off track wagering facilities were extendedduring 2002 until December 31, 2007. Effective November 6, 2002,Colonial acquired certain equipment located at the horse racing track previouslyleased under these agreements. Total expense incurred for totalisator andbroadcasting and simulcasting equipment was approximately $1,094, $922, and$745 for the years ended December 31, 2005, 2004, and 2003, respectively.

 

Colonial leases automobiles, building space,and certain equipment under operating leases expiring at various dates. Totalrental expense under these noncancelable leases was approximately $400, $420,and $357 for the years ended December 31, 2005, 2004, and 2003,respectively.

 

Black Hawk leases land and warehouse spacefor the Gold Dust in Reno, Nevada as well as automobiles, and other propertyand equipment under operating leases expiring at various dates. Total rentalexpense under these noncancelable leases was approximately $368, $357, and $352for the years ended December 31, 2005, 2004, and 2003, respectively.

 

The following are the future estimatedminimum commitments relating to JEI’s noncancelable operating agreements andleases:

 
| **Years Ending** | ** ** | ** ** | ** ** |
|-----------------------|------------|------------|------------|
| **December 31**  | ** ** | ** ** | ** ** |
|                  |       |       |       |
| 2006                  |       | $          | 1,600      |   |
| 2007                  |       | 1,599      |       |
| 2008                  |       | 1,370      |       |
| 2009                  |       | 1,077      |       |
| 2010                  |       | 831        |       |
| Thereafter            |       | 13,258     |       |
|                  |       |       |       |
| Total                 |       | $          | 19,735     |   |

 

F-21

----

 

Other long-term obligations include thecommitment of the Louisiana truck plaza video gaming facilities to pay $1 pervideo poker machine per day, plus $1,000 per machine annually in licensing toan outside party to maintain its video poker machines in its truck stoppremises. Other long-term obligations also include commitments under employmentcontracts with members of senior management.

 

      The following analysis of theleased property under capital leases:

 
| **Class of Property**           | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land                                      |       | $          | 1,523      |       | $          | 1,323 |   |
| Building                                  |       | 959        |       | 409        |       |
| Construction in progress                  |       | 1,200      |       |       |       |
| Other                                     |       | 16         |       | 16         |       |
| Less accumulated depreciation             |       | (42        | )          | (5         | )          |
|                                      |       |       |       |       |       |
| Total leased property under capital lease |       | $          | 3,656      |       | $          | 1,743 |   |

 

As of December 31, 2005, the followingis a schedule by years of future minimum lease payments under capital leasestogether with the present value of the net minimum lease payments:

 
| **Years Ending**                                                   | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|
| **December 31**                                                         | ** ** | ** ** | ** ** |
|                                                                    |       |       |       |
| 2006                                                                    |       | $          | 363        |   |
| 2007                                                                    |       | 522        |       |
| 2008                                                                    |       | 584        |       |
| 2009                                                                    |       | 587        |       |
| 2010                                                                    |       | 1,256      |       |
| Thereafter                                                              |       | 8,350      |       |
|                                                                    |       |       |       |
| Total future minimum lease payments                                     |       | 11,662     |       |
|                                                                    |       |       |       |
| Less amount representing interest ranging  from 1.6% to 17.1% per annum |       | 7,503      |       |
|                                                                    |       |       |       |
| Net present value of net minimum lease  payments                        |       | $          | 4,159      |   |

 

The Company is also involved in routinelitigation arising in the ordinary course of business. These matters are believedby the Company to be covered by appropriate insurance policies.

 

**12.**            COMMON STOCK

** **

In connection with estate planning activitiesby our two shareholders, effective September 27, 2005, all 1,500 shares ofour common stock, $.01 par value, were converted into a total of 1,320Class A Common Shares, $.01 par value, and 180 Class B Common Shares, $.01par value. The shares are identical in all respects except that theClass A Common Shares are entitled to one vote per share and theClass B Common Shares are entitled to 50,000 votes per share. TheClass A and Class B Shares are owned equally by Richard E. Jacobs andJeffrey P. Jacobs and their family trusts. No proceeds were obtained by theCompany in connection with the stock conversion and no underwriters wereinvolved. The conversion was deemed exempt from the registration requirementsof the Securities Act of 1933, as amended, as a transaction not involving apublic offering.

 

F-22

----

 

**13.**            TERMINATION OF CONTRACT

** **

On September 30, 2005, Colonialcompleted a transaction with MEC under which Colonial acquired all of theoutstanding shares of the Circuit for a purchase price of $10 million. Thesale was subject to the approval of the Virginia Racing Commission which wasgranted on September 28, 2005. Under the terms of the purchase agreement,Colonial paid $7 million in cash at closing of the transaction and issueda one-year $3 million note bearing interest at the prime rate plus 1% (7.75% atSeptember 30, 2005). The note is guaranteed by JEI. The stock acquisitionhas been characterized as a termination of a contract because the primary assetowned by the Circuit was a Management Agreement with Colonial. Statement ofFinancial Accounting Standards No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities*; prescribes expensing ofthe costs associated with the termination of a contract. As such,$10.4 million, including the $10 million purchase price and$0.4 million in legal and professional fees associated with thistransaction, has been expensed in the current period. As part of thetransaction, Colonial paid off an existing promissory note to MJC in the amountof $73, plus accrued interest. Colonial must also pay the Circuit’s prorated2005 management fees of $1,787. As of December 31, 2005 $178 of these feeswere still owed to MJC. Also under the purchase agreement, a Maryland-Virginiathoroughbred racing circuit will continue for ten years with live thoroughbredracing in Maryland concluding on the latter of the Monday following the runningof the Preakness Stakes or June 17 of each year and beginning at ColonialDowns thereafter. No live thoroughbred racing will resume in Maryland beforeAugust 1 each year under the agreement.

 

**14.**            HURRICANE

** **

On August 29, 2005 andSeptember 20, 2005, hurricanes Katrina and Rita struck Louisiana causingsevere damage to the region. The Company’s Louisiana operations sustainedminimal damage. The Company estimates total damages after consideration ofinsurance company deductibles to be approximately $125.

 

**15.**            SEGMENT INFORMATION

** **

At December 31, 2005, 2004, and 2003,the Company has four segments representing the geographic regions of theiroperations. Each segment is managed separately because of the unique characteristicsof revenue stream and customer base.

 

The Colorado segment consists of The Lodgeand Gilpin casinos. We have aggregated the operations of The Lodge and theGilpin in our Colorado segment based on similarities in the nature of theproperties' businesses, customers and regulatory environment in which eachproperty operates. The Nevada segment consists of the Gold Dust West casino.The Virginia segment consists of Colonial’s pari-mutuel operations and theLouisiana operations consist of Jalou’s truck plaza/video poker facilities.

 

The accounting policies of the segments arethe same as those described in Note 1. The corporate operations representall other revenues and expenses, and are also presented. The following segmentinformation is presented after elimination of inter-segment transactions.

 

F-23

----

 
| ** **                                                | ** ** | **Year Ended December 31, 2005** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                | ** ** | **(Dollars in thousands)**                 | ** ** |
| ** **                                                | ** ** | **Colorado**                                         | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Total** | ** ** |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total revenues:                                           |       |                                                 |       |   |   |   |   |   |   |   |   |
| Gaming:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |
| Casino                                                    |       | $                                                    | 93,088     |   | $ | 22,519 |   | $ | — |   | $ | — |   | $ | 115,607 |   |
| Truck stop                                                |       |                                                 |       |   |   |   |   | 37,432 |   | 37,432 |   |
| Pari-mutuel                                               |       |                                                 |       |   |   | 35,988 |   |   |   | 35,988 |   |
| Food and beverage                                         |       | 10,177                                               |       | 3,459 |   | 2,560 |   | 3,578 |   | 19,774 |   |
| Convenience store—fuel                               |       |                                                 |       |   |   |   |   | 37,361 |   | 37,361 |   |
| Convenience store—other                              |       |                                                 |       |   |   |   |   | 5,441 |   | 5,441 |   |
| Hotel                                                     |       | 1,662                                                |       | 320 |   |   |   |   |   | 1,982 |   |
| Other                                                     |       | 742                                                  |       | 141 |   | 2,420 |   | 370 |   | 3,673 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total revenues                                            |       | 105,669                                              |       | 26,439 |   | 40,968 |   | 84,182 |   | 257,258 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Promotional allowances                                    |       | (17,255                                              | )          | (4,108 | ) |   |   | (1,812 | ) | (23,175 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Net revenues                                              |       | $                                                    | 88,414     |   | $ | 22,331 |   | $ | 40,968 |   | $ | 82,370 |   | $ | 234,083 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Depreciation and amortization                             |       | $                                                    | 5,017      |   | $ | 1,691 |   | $ | 1,685 |   | $ | 2,387 |   | $ | 10,780 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 225 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated depreciation and amortization                |       |                                                 |       |   |   |   |   |   |   | $ | 11,005 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Interest income                                           |       | $                                                    | 44         |   | $ | 15 |   | $ | 86 |   | $ | 20 |   | $ | 165 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 7 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total interest income                        |       |                                                 |       |   |   |   |   |   |   | $ | 172 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Interest expense                                          |       | $                                                    | 10,934     |   | $ | 3,141 |   | $ | 322 |   | $ | 2,794 |   | $ | 17,191 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 5,213 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total interest expense                       |       |                                                 |       |   |   |   |   |   |   | $ | 22,404 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Income tax expense                                        |       | $                                                    | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | 423 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Net income (loss)                                         |       | $                                                    | 9,844      |   | $ | 1,286 |   | $ | (12,947 | ) | $ | 10,572 |   | $ | 8,755 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | (13,500 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated net income (loss)                            |       |                                                 |       |   |   |   |   |   |   | $ | (4,745 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| EBITDA (1)                                                |       | $                                                    | 25,751     |   | $ | 6,103 |   | $ | (11,026 | ) | $ | 15,733 |   | $ | 36,561 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | (7,646 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated EBITDA                                       |       |                                                 |       |   |   |   |   |   |   | $ | 28,915 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Goodwill                                                  |       | $                                                    | 6,710      |   | $ | 8,836 |   | $ | — |   | $ | 17,384 |   | $ | 32,930 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Identifiable intangible assets—net                   |       | $                                                    | —     |   | $ | — |   | $ | — |   | $ | 7,830 |   | $ | 7,830 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Property, plant, and equipment—net                   |       | $                                                    | 87,173     |   | $ | 11,158 |   | $ | 68,640 |   | $ | 29,832 |   | $ | 196,803 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 2,036 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated net property, plant, and  equipment—net |       |                                                 |       |   |   |   |   |   |   | $ | 198,839 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total assets                                              |       | $                                                    | 110,211    |   | $ | 23,711 |   | $ | 73,453 |   | $ | 65,334 |   | $ | 272,709 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 6,044 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total assets                                 |       |                                                 |       |   |   |   |   |   |   | $ | 278,753 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Long-term debt                                            |       | $                                                    | 82,802     |   | $ | 22,813 |   | $ | 3,940 |   | $ | 26,317 |   | $ | 135,872 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 44,035 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total long-term debt                         |       |                                                 |       |   |   |   |   |   |   | $ | 179,907 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                      |       | $                                                    | 5,844      |   | $ | 1,212 |   | $ | 2,316 |   | $ | 8,665 |   | $ | 18,037 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 554 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated capital expenditures                         |       |                                                 |       |   |   |   |   |   |   | $ | 18,591 |   |

 

F-24

----

 
| ** **                                                | ** ** | **Year Ended December 31, 2004** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                | ** ** | **(Dollars in thousands)**                 | ** ** |
| ** **                                                | ** ** | **Colorado**                                         | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Total** | ** ** |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total revenues:                                           |       |                                                 |       |   |   |   |   |   |   |   |   |
| Gaming:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |
| Casino                                                    |       | $                                                    | 86,115     |   | $ | 22,232 |   | $ | — |   | $ | — |   | $ | 108,347 |   |
| Truck stop                                                |       |                                                 |       |   |   |   |   | 24,842 |   | 24,842 |   |
| Pari-mutuel                                               |       |                                                 |       |   |   | 32,946 |   |   |   | 32,946 |   |
| Food and beverage                                         |       | 9,618                                                |       | 3,527 |   | 2,056 |   | 2,763 |   | 17,964 |   |
| Convenience store—fuel                               |       |                                                 |       |   |   |   |   | 21,690 |   | 21,690 |   |
| Convenience store—other                              |       |                                                 |       |   |   |   |   | 3,825 |   | 3,825 |   |
| Hotel                                                     |       | 800                                                  |       | 582 |   |   |   |   |   | 1,382 |   |
| Other                                                     |       | 755                                                  |       | 152 |   | 2,099 |   | 325 |   | 3,331 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total revenues                                            |       | 97,288                                               |       | 26,493 |   | 37,101 |   | 53,445 |   | 214,327 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Promotional allowances                                    |       | (15,007                                              | )          | (4,028 | ) |   |   | (1,140 | ) | (20,175 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Net revenues                                              |       | $                                                    | 82,281     |   | $ | 22,465 |   | $ | 37,101 |   | $ | 52,305 |   | $ | 194,152 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Depreciation and amortization                             |       | $                                                    | 4,838      |   | $ | 1,436 |   | $ | 1,544 |   | $ | 1,962 |   | $ | 9,780 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 178 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated depreciation and amortization                |       |                                                 |       |   |   |   |   |   |   | $ | 9,958 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Interest income                                           |       | $                                                    | 13         |   | $ | 3 |   | $ | 29 |   | $ | 3 |   | $ | 48 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 16 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total interest income                        |       |                                                 |       |   |   |   |   |   |   | $ | 64 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Interest expense                                          |       | $                                                    | 10,807     |   | $ | 3,142 |   | $ | 121 |   | $ | 2,216 |   | $ | 16,286 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 3,419 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total interest expense                       |       |                                                 |       |   |   |   |   |   |   | $ | 19,705 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Net income                                                |       | $                                                    | 8,582      |   | $ | 2,960 |   | $ | (35 | ) | $ | 5,279 |   | $ | 16,786 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | (12,895 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated net income                                   |       |                                                 |       |   |   |   |   |   |   | $ | 3,891 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| EBITDA (1)                                                |       | $                                                    | 24,214     |   | $ | 7,535 |   | $ | 1,601 |   | $ | 9,454 |   | $ | 42,804 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | (9,314 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated EBITDA                                       |       |                                                 |       |   |   |   |   |   |   | $ | 33,490 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Goodwill                                                  |       | $                                                    | 6,711      |   | $ | 8,836 |   | $ | — |   | $ | 11,226 |   | $ | 26,773 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Identifiable intangible assets—net                   |       | $                                                    | —     |   | $ | — |   | $ | — |   | $ | 7,790 |   | $ | 7,790 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Property, plant, and equipment—net                   |       | $                                                    | 87,391     |   | $ | 11,594 |   | $ | 59,690 |   | $ | 23,578 |   | $ | 182,253 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 450 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated net property, plant, and  equipment—net |       |                                                 |       |   |   |   |   |   |   | $ | 182,703 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total assets                                              |       | $                                                    | 111,277    |   | $ | 24,577 |   | $ | 63,538 |   | $ | 49,741 |   | $ | 249,133 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 3,133 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total assets                                 |       |                                                 |       |   |   |   |   |   |   | $ | 252,266 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Long-term debt                                            |       | $                                                    | 78,265     |   | $ | 22,682 |   | $ | 1,888 |   | $ | 24,394 |   | $ | 127,229 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 24,681 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total long-term debt                         |       |                                                 |       |   |   |   |   |   |   | $ | 151,910 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                      |       | $                                                    | 5,585      |   | $ | 1,619 |   | $ | 5,665 |   | $ | 6,182 |   | $ | 19,051 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   |   |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated capital expenditures                         |       |                                                 |       |   |   |   |   |   |   | $ | 19,051 |   |

 

F-25

----

 
| ** **                                                | ** ** | **Year Ended December 31, 2003** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                | ** ** | **(Dollars in thousands)**                 | ** ** |
| ** **                                                | ** ** | **Colorado**                                         | ** ** | **Nevada** | ** ** | **Virginia** | ** ** | **Louisiana** | ** ** | **Total** | ** ** |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total revenues:                                           |       |                                                 |       |   |   |   |   |   |   |   |   |
| Gaming:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |
| Casino                                                    |       | $                                                    | 77,137     |   | $ | 19,679 |   | $ | — |   | $ | — |   | $ | 96,816 |   |
| Truck stop                                                |       |                                                 |       |   |   |   |   | 24,108 |   | 24,108 |   |
| Pari-mutuel                                               |       |                                                 |       |   |   | 29,189 |   |   |   | 29,189 |   |
| Food and beverage                                         |       | 8,646                                                |       | 3,446 |   | 1,951 |   | 2,340 |   | 16,383 |   |
| Convenience store—fuel                               |       |                                                 |       |   |   |   |   | 17,229 |   | 17,229 |   |
| Convenience store—other                              |       |                                                 |       |   |   |   |   | 3,403 |   | 3,403 |   |
| Hotel                                                     |       | 792                                                  |       | 578 |   |   |   |   |   | 1,370 |   |
| Other                                                     |       | 722                                                  |       | 131 |   | 1,863 |   | 287 |   | 3,003 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total revenues                                            |       | 87,297                                               |       | 23,834 |   | 33,003 |   | 47,367 |   | 191,501 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Promotional allowances                                    |       | (14,820                                              | )          | (3,970 | ) |   |   | (862 | ) | (19,652 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Net revenues                                              |       | $                                                    | 72,477     |   | $ | 19,864 |   | $ | 33,003 |   | $ | 46,505 |   | $ | 171,849 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Depreciation and amortization                             |       | $                                                    | 4,759      |   | $ | 1,241 |   | $ | 1,285 |   | $ | 1,650 |   | $ | 8,935 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 136 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated depreciation and amortization                |       |                                                 |       |   |   |   |   |   |   | $ | 9,071 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Interest income                                           |       | $                                                    | 3          |   | $ |   |   | $ | 44 |   | $ | 14 |   | $ | 61 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 1 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total interest income                        |       |                                                 |       |   |   |   |   |   |   | $ | 62 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Other income                                              |       |                                                 |       |   |   |   |   |   |   | $ | 10 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Interest expense                                          |       | $                                                    | 10,774     |   | $ | 3,123 |   | $ | 264 |   | $ | 1,986 |   | $ | 16,147 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 3,498 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total interest expense                       |       |                                                 |       |   |   |   |   |   |   | $ | 19,645 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Net income                                                |       | $                                                    | 3,178      |   | $ | 1,378 |   | $ | 278 |   | $ | 6,676 |   | $ | 11,510 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | (8,879 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated net income                                   |       |                                                 |       |   |   |   |   |   |   | $ | 2,631 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| EBITDA (1)                                                |       | $                                                    | 18,708     |   | $ | 5,742 |   | $ | 1,783 |   | $ | 10,298 |   | $ | 36,531 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | (5,256 | ) |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated EBITDA                                       |       |                                                 |       |   |   |   |   |   |   | $ | 31,275 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Goodwill                                                  |       | $                                                    | 6,711      |   | $ | 8,836 |   | $ | — |   | $ | 11,226 |   | $ | 26,773 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Identifiable intangible assets—net                   |       | $                                                    | —     |   | $ | — |   | $ | — |   | $ | 7,507 |   | $ | 7,507 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Property, plant, and equipment—net                   |       | $                                                    | 86,770     |   | $ | 11,579 |   | $ | 55,569 |   | $ | 18,713 |   | $ | 172,631 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 576 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated net property, plant, and  equipment—net |       |                                                 |       |   |   |   |   |   |   | $ | 173,207 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Total assets                                              |       | $                                                    | 108,775    |   | $ | 24,071 |   | $ | 59,363 |   | $ | 42,897 |   | $ | 235,106 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 3,878 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total assets                                 |       |                                                 |       |   |   |   |   |   |   | $ | 238,984 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Long-term debt                                            |       | $                                                    | 78,302     |   | $ | 22,549 |   | $ | 471 |   | $ | 19,489 |   | $ | 120,811 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 24,539 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated total long-term debt                         |       |                                                 |       |   |   |   |   |   |   | 145,350 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                      |       | $                                                    | 8,226      |   | $ | 1,080 |   | $ | 2,804 |   | $ | 3,729 |   | $ | 15,839 |   |
| Corporate adjustments and eliminations                    |       |                                                 |       |   |   |   |   |   |   | 440 |   |
|                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |
| Consolidated capital expenditures                         |       |                                                 |       |   |   |   |   |   |   | $ | 16,279 |   |

 

F-26

----

 

----

(1)     EBITDA(earnings before interest, taxes, depreciation and amortization) is presentedas supplemental information in the tables above and in the discussion of ouroperating results. EBITDA can be reconciled directly to our consolidated netincome by adding the amounts shown for depreciation, amortization, andinterest. This information should not be considered as an alternative to anymeasure of performance as promulgated under accounting principles generallyaccepted in the United States of America, such as net (loss) income, nor shouldit be considered as an indicator of our overall financial performance. Ourcalculation of EBITDA may be different from the calculation used by othercompanies and comparability may be limited. Management believes thatpresentation of a non-GAAP financial measure such as EBITDA is useful becauseit allows investors and management to evaluate and compare the Company’soperating results from continuing operations from period to period in ameaningful and consistent manner in addition to standard GAAP financialmeasures. Management internally evaluates the performance of its propertiesusing EBITDA measures as do most analysts following the gaming industry. EBITDAis also a component of certain financial covenants in the Company’s debtagreements.

 

******

 

F-27

----

 

**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                               |
|-----------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1(1)          |       | Agreement and Plan of Merger dated as of  April 25, 2001, among Black Hawk Gaming & Development Company,  Gameco, Inc. and BH Acquisition, Inc.                      |
|            |       |                                                                                                                                                                          |
| 2.2(1)          |       | Amendment to Agreement and Plan of Merger dated as  of November 12, 2001 among Black Hawk Gaming & Development Company,  Inc., Gameco, Inc. and BH Acquisition, Inc. |
|            |       |                                                                                                                                                                          |
| 2.3(1)          |       | Exchange Agreement dated February 22, 2002  among Gameco, Inc., Jeffrey P. Jacobs and The Richard E. Jacobs Revocable  Trust                                             |
|            |       |                                                                                                                                                                          |
| 2.4(1)          |       | Agreement and Plan of Merger dated as of  June 11, 2001 among Colonial Holdings, Inc., Gameco, Inc. and Gameco  Acquisitions, Inc.                                       |
|            |       |                                                                                                                                                                          |
| 2.5(1)          |       | Amendment to Agreement and Plan of Merger dated as  of November 16, 2001 among Colonial Holdings, Inc., Gameco, Inc., and  Gameco Acquisition, Inc.                      |
|            |       |                                                                                                                                                                          |
| 2.6(1)          |       | Agreement and Plan of Merger, dated  February 22, 2002 between Gameco, Inc. and Jacobs Entertainment, Inc.                                                               |
|            |       |                                                                                                                                                                          |
| 3.1(1)          |       | Certificate of Incorporation of Gameco, Inc.                                                                                                                                  |
|            |       |                                                                                                                                                                          |
| 3.2(1)          |       | By-Laws of Gameco, Inc.                                                                                                                                                       |
|            |       |                                                                                                                                                                          |
| 3.3(1)          |       | Articles of Incorporation of Black Hawk Gaming  & Development Company, Inc.                                                                                               |
|            |       |                                                                                                                                                                          |
| 3.4(1)          |       | Bylaws of Black Hawk Gaming & Development  Company, Inc.                                                                                                                  |
|            |       |                                                                                                                                                                          |
| 3.5(1)          |       | Articles of Incorporation of Gold Dust West  Casino, Inc.                                                                                                                     |
|            |       |                                                                                                                                                                          |
| 3.6(1)          |       | Code of By-laws of Gold Dust West Casino, Inc.                                                                                                                                |
|            |       |                                                                                                                                                                          |
| 3.7(1)          |       | Articles of Organization of Black Hawk/Jacobs  Entertainment, LLC                                                                                                             |
|            |       |                                                                                                                                                                          |
| 3.8(1)          |       | Operating Agreement of Black Hawk/Jacobs  Entertainment, LLC                                                                                                                  |
|            |       |                                                                                                                                                                          |
| 3.9(1)          |       | Joint Venture Agreement of Gilpin Hotel Venture                                                                                                                               |
|            |       |                                                                                                                                                                          |
| 3.10(1)         |       | Articles of Incorporation of Gilpin Ventures, Inc.                                                                                                                            |
|            |       |                                                                                                                                                                          |
| 3.11(1)         |       | By-Laws of Gilpin Ventures, Inc.                                                                                                                                              |
|            |       |                                                                                                                                                                          |
| 3.12(1)         |       | Articles of Incorporation of Jalou II Inc.                                                                                                                                    |
|            |       |                                                                                                                                                                          |
| 3.13(1)         |       | By-Laws of Jalou II Inc.                                                                                                                                                      |
|            |       |                                                                                                                                                                          |
| 3.14(1)         |       | Articles of Incorporation of Winner’s Choice  Casino, Inc.                                                                                                               |
|            |       |                                                                                                                                                                          |
| 3.15(1)         |       | By-Laws of Winner’s Choice Casino, Inc.                                                                                                                                  |
|            |       |                                                                                                                                                                          |
| 3.16(1)         |       | Articles of Organization of Diversified  Opportunities Group Ltd.                                                                                                             |
|            |       |                                                                                                                                                                          |
| 3.17(1)         |       | Articles of Organization of Jalou L.L.C.                                                                                                                                      |
|            |       |                                                                                                                                                                          |
| 3.18(1)         |       | Articles of Organization of Houma Truck Plaza  & Casino, L.L.C.                                                                                                           |
|            |       |                                                                                                                                                                          |
| 3.19(1)         |       | Articles of Organization of Jalou-Cash’s L.L.C.                                                                                                                          |

 

E-1

----

 
| 3.20(1)   |   | Articles of Incorporation of JACE, Inc.                                                                                                                                                                   |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                      |
| 3.21(1)   |   | Articles of Organization of Lucky Magnolia Truck  Stop and Casino, L.L.C.                                                                                                                                 |
|      |   |                                                                                                                                                                                                      |
| 3.22(1)   |   | Articles of Organization of Bayou Vista Truck  Plaza and Casino, L.L.C.                                                                                                                                   |
|      |   |                                                                                                                                                                                                      |
| 3.23(1)   |   | Articles of Organization of Raceland Truck Plaza  and Casino, L.L.C.                                                                                                                                      |
|      |   |                                                                                                                                                                                                      |
| 3.24(1)   |   | Articles of Incorporation of JACE, Inc. (duplicate  of Exhibit 3.20)                                                                                                                                      |
|      |   |                                                                                                                                                                                                      |
| 3.25(2)   |   | Certificate of Amendment of Certificate of  Incorporation of Gameco, Inc.                                                                                                                                 |
|      |   |                                                                                                                                                                                                      |
| 3.26(2)   |   | Amended and Restated Certificate of Limited  Partnership of Colonial Downs, L.P.                                                                                                                          |
|      |   |                                                                                                                                                                                                      |
| 3.27(2)   |   | Limited Partnership Agreement of Colonial Downs,  L.P.                                                                                                                                                    |
|      |   |                                                                                                                                                                                                      |
| 3.28(2)   |   | Amended and Restated Articles of Incorporation of  Colonial Downs Holdings, Inc.                                                                                                                          |
|      |   |                                                                                                                                                                                                      |
| 3.29(2)   |   | Amendment to Articles of Incorporation of Colonial  Downs Holdings, Inc.                                                                                                                                  |
|      |   |                                                                                                                                                                                                      |
| 3.30(2)   |   | Bylaws of Colonial Downs Holdings, Inc.                                                                                                                                                                   |
|      |   |                                                                                                                                                                                                      |
| 3.31(2)   |   | Articles of Incorporation of Stansley Racing Corp.                                                                                                                                                        |
|      |   |                                                                                                                                                                                                      |
| 3.32(2)   |   | Articles of Amendment to the Articles of  Incorporation of Stansley Racing Corp.                                                                                                                          |
|      |   |                                                                                                                                                                                                      |
| 3.33(2)   |   | Bylaws of Stansley Racing Corp.                                                                                                                                                                           |
|      |   |                                                                                                                                                                                                      |
| 3.34(2)   |   | Amended and Restated Operating Agreement of  Diversified Opportunities Group Ltd.                                                                                                                         |
|      |   |                                                                                                                                                                                                      |
| 3.35(2)   |   | Amendment to the Operating Agreement of Black  Hawk/Jacobs Entertainment, LLC                                                                                                                             |
|      |   |                                                                                                                                                                                                      |
| 3.36(2)   |   | Amendment to the Certificate of Incorporation of  Gameco, Inc.                                                                                                                                            |
|      |   |                                                                                                                                                                                                      |
| 3.37(8)   |   | Articles of Organization of Jalou Breaux Bridge,  LLC dated January 29, 2003                                                                                                                         |
|      |   |                                                                                                                                                                                                      |
| 3.38(8)   |   | Articles of Organization of Jalou Eunice, LLC  dated March 27, 2003                                                                                                                                  |
|      |   |                                                                                                                                                                                                      |
| 3.39(8)   |   | Articles of Organization of Jalou of Jefferson,  LLC dated September 23, 2003                                                                                                                        |
|      |   |                                                                                                                                                                                                      |
| 3.40(10)  |   | Certificate of Amendment of Certificate of  Incorporation of Jacobs Entertainment, Inc. dated September 27, 2005                                                                                          |
|      |   |                                                                                                                                                                                                      |
| 3.41(10)  |   | Articles of Incorporation of Jacobs Pinon Plaza  Entertainment, Inc. dated November 2, 2005                                                                                                               |
|      |   |                                                                                                                                                                                                      |
| 3.41A(12) |   | Bylaws of Jacobs Pinon Plaza Entertainment, Inc.  dated November 8, 2005                                                                                                                                  |
|      |   |                                                                                                                                                                                                      |
| 3.42(12)  |   | Articles of Incorporation of Fuel Stop 36, Inc.  dated August 24, 1989                                                                                                                                    |
|      |   |                                                                                                                                                                                                      |
| 3.43(12)  |   | Articles of Organization of Jalou of Larose, LLC  dated November 3, 2005                                                                                                                                  |
|      |   |                                                                                                                                                                                                      |
| 4.1(1)    |   | Indenture dated February 8, 2002 by and among  Gameco, Inc., certain guarantors and Wells Fargo Bank Minnesota, National  Association relating to 117/8% Senior Secured Notes due 2009               |
|      |   |                                                                                                                                                                                                      |
| 4.2(1)    |   | Form of Gameco, Inc. 117/8% Senior Secured Notes due 2009 (included  as part of the Indenture at Exhibit 4.1)                                                                                             |
|      |   |                                                                                                                                                                                                      |
| 4.3(1)    |   | Supplemental Indenture dated February 22,  2002 by and among Gameco, Inc., certain guarantors and Wells Fargo Bank  Minnesota, National Association relating to 117/8% Senior Secured Notes due 2009 |

 

E-2

----

 
| 4.4(1)   |   | Form of Subsidiary Guaranty for 117/8% Senior Secured Notes due 2009 (included  as part of the Indenture at 4.1)                                                                                                                                                                                                                                                      |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.5(1)   |   | Registration Rights Agreement dated as of  February 8, 2002 by and among Gameco, Inc., certain guarantors, CIBC  World Markets Corp. and Libra Securities, LLC                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.6(1)   |   | Security Agreement dated February 8, 2002  among Gameco, Inc., certain guarantors and Wells Fargo Bank Minnesota,  National Association as Trustee                                                                                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.7(1)   |   | Amendment to the Security Agreement dated  February 22, 2002 among Gameco, Inc., certain guarantors and Wells Fargo  Bank Minnesota, National Association                                                                                                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.7A(12) |   | Amendment to Security Agreement dated December 21,  2005 between Jacobs Entertainment, Inc. (formerly Gameco, Inc.) and Wells  Fargo Bank, National Association                                                                                                                                                                                                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.8(1)   |   | Joinder Agreements dated February 22, 2002  between Wells Fargo Bank Minnesota, National Association and each guarantor                                                                                                                                                                                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.9(1)   |   | Guaranty of each guarantor dated February 22,  2002                                                                                                                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.10(1)  |   | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Security Agreements and fixture filings by Black  Hawk/Jacobs Entertainment, LLC and Gilpin Hotel Venture to the Public Trustee  of Gilpin County, State of Colorado, as Trustee for the Benefit of Wells  Fargo Bank Minnesota, National Association as Beneficiary, dated  February 22, 2002 |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.11(1)  |   | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Security Agreements and fixture filings by Gold Dust  Casino, Inc. to the First American Title Company of Nevada, as Trustee for  the benefit of Wells Fargo Bank Minnesota, National Association as  Beneficiary, dated February 22, 2002                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.12(1)  |   | Leasehold Mortgage, Assignment of Leases and  Rents, Security Agreement and fixture filing by Houma Truck Plaza &  Casino, L.L.C. to Wells Fargo Bank Minnesota, National Association, as  Trustee dated February 22, 2002                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.13(1)  |   | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Winner’s Choice Casino, Inc. to Wells Fargo  Bank Minnesota, National Association as Trustee dated February 22, 2002                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.14(1)  |   | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Raceland Truck Plaza and Casino, LLC to  Wells Fargo Bank Minnesota, National Association as Trustee dated  February 22, 2002                                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.15(1)  |   | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Bayou Vista Truck Plaza and Casino, LLC to  Wells Fargo Bank Minnesota, National Association as Trustee dated  February 22, 2002                                                                                                                                            |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.16(1)  |   | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by Lucky Magnolia Truck Stop and Casino, L.L.C.  to Wells Fargo Bank Minnesota, National Association as Trustee dated  February 22, 2002                                                                                                                                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.17(1)  |   | Mortgage, Assignment of Leases and Rents, Security  Agreements and fixture filing by JACE, Inc. to Wells Fargo Bank Minnesota,  National Association as Trustee dated February 22, 2002                                                                                                                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.18(1)  |   | Collateral Assignment of Deeds of Trust, Assignments  of Rents and Leases, Security Agreements and fixture filings and other loan  documents by Gameco, Inc. to Wells Fargo Bank Minnesota, National Association  as Trustee dated February 22, 2002                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.19(1)  |   | Escrow Agreement between Gameco, Inc. and Wells  Fargo Bank Minnesota, National Association dated February 22, 2002                                                                                                                                                                                                                                              |

 

E-3

----

 
| 4.20(1)     |   | Supplemental Indenture dated June 14, 2002 by  and among Jacobs Entertainment, Inc., certain guarantors and Wells Fargo Bank  Minnesota, National Association relating to 117/8% Senior Secured Notes due 2009                                                                                                                                    |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.21(2)     |   | Joinder Agreements dated June 14, 2002  between Wells Fargo Bank, National Association and each guarantor                                                                                                                                                                                                                                         |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.22(2)     |   | Subsidiary Guarantee of each subsidiary guarantor  dated June 14, 2002 for 117/8% Senior Secured Notes due 2009                                                                                                                                                                                                                                   |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.23(2)     |   | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Downs, L.P. to David F.  Belkowitz and James L. Weinberg as Trustees for the benefit of Wells Fargo  Bank Minnesota, National Association, dated June 14, 2002                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.24(2)     |   | Leasehold Deed of Trust, Assignment of Leases and  Rents, Security Agreement and Fixture Filing by Colonial Downs, L.P. to David  F. Belkowitz and James L. Weinberg as Trustees for the benefit of Wells Fargo  Bank Minnesota, National Association, dated June 14, 2002                                                                        |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.25(2)     |   | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Holdings, Inc. to David F.  Belkowitz and James L. Weinberg as Trustees for the benefit of Wells Fargo  Bank Minnesota, National Association, dated June 14, 2002                                                                               |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.26(2)     |   | Loan and Security Agreement dated July 12,  2002 by and among Jacobs Entertainment, Inc., certain subsidiaries and  Foothill Capital Corporation                                                                                                                                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.27(2)     |   | Promissory Note dated July 12, 2002 by and  among Jacobs Entertainment, Inc., certain borrowers and Foothill Capital  Corporation                                                                                                                                                                                                                 |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.28(2)     |   | Guaranty of Gold Dust West Casino, Inc. and  Diversified Opportunities Group Ltd., dated July 12, 2002                                                                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.29(2)     |   | Intercreditor Agreement dated July 12, 2002  by and between Wells Fargo Bank Minnesota, National Association and Foothill  Capital Corporation                                                                                                                                                                                                    |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.30(2)     |   | Memorandum of Intercreditor Agreement dated  July 12, 2002 by and among Foothill Capital Corporation, Wells Fargo  Bank Minnesota, National Association and Borrowers                                                                                                                                                                             |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.31(2)     |   | Fee and Leasehold Deed of Trust, Assignment of  Leases and Rents, Securiting Agreement and Fixture Filing by Black Hawk  Gaming & Development Company, Inc., Black Hawk/Jacobs Entertainment, LLC,  and Gilpin Hotel Venture to the Public Trustee of Gilpin County, State of  Colorado and Foothill Capital Corporation, dated July 12, 2002 |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.32(5)     |   | Second Supplemental Indenture dated June 14,  2002 among Jacobs Entertainment, Inc., certain guarantors and Wells Fargo  Bank Minnesota, National Association (Trustee)                                                                                                                                                                           |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.33(a)(5)  |   | Subsidiary Guarantees of Colonial Holding, Inc.  dated June 28, 2002                                                                                                                                                                                                                                                                              |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.33(b)(5)  |   | Subsidiary Guarantee of Colonial Downs, L.P. dated  June 28, 2002                                                                                                                                                                                                                                                                                 |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.33(c)(5)  |   | Subsidiary Guarantee of Stansley Racing Corp.  dated June 28, 2002                                                                                                                                                                                                                                                                                |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.34(a)(5)  |   | Joinder Agreement of Colonial Holdings, Inc. dated  June 28, 2002                                                                                                                                                                                                                                                                                 |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.34(b)(5)  |   | Joinder Agreement of Colonial Downs, L.P. dated  June 28, 2002                                                                                                                                                                                                                                                                                    |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.34(c)(5)  |   | Joinder Agreement of Stansley Racing Corp. dated  June 28, 2002                                                                                                                                                                                                                                                                                   |
|        |   |                                                                                                                                                                                                                                                                                                                                                   |
| 4.34(d)(12) |   | Joinder Agreement of Jacobs Pinon Plaza  Entertainment, Inc. dated December 21, 2005                                                                                                                                                                                                                                                                   |

 

E-4

----

 
| 4.35(a)(1)(5) |   | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing by Colonial Holdings, Inc. (New Kent  Racetrack) dated June 28, 2002                            |
|---------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |   |                                                                                                                                                                                       |
| 4.35(a)(2)(5) |   | Deed of Trust, Assignment of Leases and Rents,  Security Agreement and Fixture Filing (Richmond Southwest) dated  June 28, 2002                                                       |
|          |   |                                                                                                                                                                                       |
| 4.35(b)(1)(5) |   | Leasehold Deed of Trust, Assignment of Leases and  Rents, Security Agreement and Fixture Filing (New Kent and Chesapeake) dated  June 28, 2002                                        |
|          |   |                                                                                                                                                                                       |
| 4.36(5)       |   | Form of Control Agreement Concerning Deposit  Accounts (Citizens Bank/Colonial Downs, L.P.) dated June 14, 2002                                                                       |
|          |   |                                                                                                                                                                                       |
| 4.37(5)       |   | Form of Control Agreement Concerning Deposit  Accounts (Citizens Bank/Colonial Holdings, Inc.) dated June 14, 2002.                                                                   |
|          |   |                                                                                                                                                                                       |
| 4.38(6)       |   | Subsidiary Guarantee—Colonial Downs, LLC dated  June 4, 2003                                                                                                                     |
|          |   |                                                                                                                                                                                       |
| 4.39(6)       |   | Security Agreement Amendment by Colonial Holdings,  Inc. dated June 4, 2003                                                                                                           |
|          |   |                                                                                                                                                                                       |
| 4.40(6)       |   | Supplemental Letter by Colonial Downs, LLC dated  June 4, 2003                                                                                                                        |
|          |   |                                                                                                                                                                                       |
| 4.41(6)       |   | Third Supplemental Indenture dated June 4,  2003 among Jacobs Entertainment, Inc., certain Guarantors and Wells Fargo  Bank Minnesota, National Association (Trustee)                 |
|          |   |                                                                                                                                                                                       |
| 4.42(6)       |   | Supplemental Deed of Trust, Assignment of Leases  and Rents, Security Agreement and Fixture Filing by Colonial Downs, LLC dated  June 4, 2003                                         |
|          |   |                                                                                                                                                                                       |
| 4.43(a)(7)    |   | Fourth Supplemental Indenture among Jacobs  Entertainment, Inc., certain Guarantors and Wells Fargo Bank, National  Association dated March 2, 2005                                   |
|          |   |                                                                                                                                                                                       |
| 4.43(b)(7)    |   | Fifth Supplemental Indenture among Jacobs  Entertainment, Inc., certain Guarantors and Wells Fargo Bank, National  Association dated March 2, 2005                                    |
|          |   |                                                                                                                                                                                       |
| 4.43(c)(12)   |   | Sixth Supplemental Indenture among Jacobs  Entertainment, Inc., certain Guarantors and Wells Fargo Bank, National  Association dated December 21, 2005                                |
|          |   |                                                                                                                                                                                       |
| 4.44(8)       |   | Amendment No. 2 to Security Agreement dated  March 2, 2005 between Jalou, LLC and Wells Fargo Bank, National  Association                                                             |
|          |   |                                                                                                                                                                                       |
| 4.45(8)       |   | Supplement to Security Agreement dated  March 2, 2005 by Jalou Breaux Bridge, LLC, Jalou Eunice, LLC and Jalou  of Jefferson, LLC and Wells Fargo Bank, National Association          |
|          |   |                                                                                                                                                                                       |
| 4.46(8)       |   | Leasehold Mortgage, Assignment of Leases and  Rents, Security Agreement and Fixture Filing dated March 2, 2005 by  Jalou of Jefferson, LLC and Wells Fargo Bank, National Association |
|          |   |                                                                                                                                                                                       |
| 4.47(8)       |   | Mortgage, Assignment of Leases and Rents, Security  Agreement and Fixture Filing dated March 2, 2005 by Jalou Breaux Bridge,  LLC and Wells Fargo Bank, National Association          |
|          |   |                                                                                                                                                                                       |
| 4.48(8)       |   | Mortgage, Assignment of Leases and Rents, Security  Agreement and Fixture Filing dated March 2, 2005 by Jalou Eunice, LLC  and Wells Fargo Bank, National Association                 |
|          |   |                                                                                                                                                                                       |
| 4.49(a)(8)    |   | Subsidiary Guarantee dated March 2, 2005 by  Jalou of Jefferson, LLC                                                                                                                  |
|          |   |                                                                                                                                                                                       |
| 4.49(b)(8)    |   | Subsidiary Guarantee dated March 2, 2005 by  Jalou Breaux Bridge, LLC                                                                                                                 |
|          |   |                                                                                                                                                                                       |
| 4.49(c)(8)    |   | Subsidiary Guarantee dated March 2, 2005 by  Jalou Eunice, LLC                                                                                                                        |
|          |   |                                                                                                                                                                                       |
| 4.49(d)(12)   |   | Subsidiary Guarantee dated December 21, 2005 of  Jacobs Pinon Plaza Entertainment, Inc.                                                                                                    |

 

E-5

----

 
| 4.50(8)    |   | First Amendment to Fee and Leasehold Deed of  Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing  dated March 2, 2005 between Black Hawk Gaming & Development Company,  Inc., et al, and Wells Fargo Bank, National Association                |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                              |
| 4.51(8)    |   | First Amendment to Fee and Leasehold Deed of  Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing  dated March 2, 2005 between Gold Dust West Casino, Inc. and Wells Fargo  Bank, National Association                                              |
|       |   |                                                                                                                                                                                                                                                                              |
| 4.52(9)    |   | Fourth Supplemental Indenture dated March 2, 2005  among Jacobs Entertainment, Inc. and Wells Fargo Bank, National Association                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                              |
| 4.53(9)    |   | Fifth Supplemental Indenture dated March 2, 2005  among Jacobs Entertainment, Inc. and Wells Fargo Bank Minnesota, National Association                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.1(1)    |   | Consulting Agreement between Diversified  Opportunities Group Ltd. and Ian M. Stewart dated January 1, 2001                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.2(1)    |   | Executive Employment Agreement between Gameco,  Inc. and Jeffrey P. Jacobs dated February 22, 2002                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.3(1)    |   | Executive Employment Agreement between Gameco,  Inc. and Richard E. Jacobs dated February 22, 2002                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.4(1)    |   | Executive Employment Agreement between Gameco,  Inc. and Stephen R. Roark dated February 22, 2002                                                                                                                                                                            |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.5(1)    |   | Executive Employment Agreement between Colonial  Holdings, Inc. and Ian M. Stewart dated February 22, 2002                                                                                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.7(3)    |   | Standardbred Horsemen’s Contract effective  March 1, 2003 among Colonial Downs, L.P., Stansley Racing Corp. and The  Virginia Harness Horse Association                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.8(3)    |   | Thoroughbred Horsemen’s Agreement dated  December 23, 2002 between Colonial Downs, L.P. and the Virginia Horsemen’s  Benevolent and Protective Association, Inc.                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.8A(3)   |   | First Amendment dated January 1, 2003 to  Thoroughbred Horsemen’s Agreement dated December 23, 2002 between  Colonial Downs L.P. and the Virginia Horsemen’s Benevolent and Protective  Association, Inc.                                                     |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.9(4)    |   | Consulting Agreement dated January 1, 2003  between Jacobs Entertainment, Inc. and Jacobs Investments Management Co.,  Inc.                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.10(3)   |   | Option Agreement dated January 20, 2004  regarding Vinton, Virginia, Off Track Wagering Facility                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.11(3)   |   | Deed of Lease dated May 8, 2003 between Haynes  Chippenham Plaza, LLC and Colonial Downs, L.P.                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.12(8)   |   | Assignment of Membership Interests between Jacobs  Entertainment, Inc. and Gameco Holdings, LLC dated February 22, 2005                                                                                                                                                      |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.13(8)   |   | Registration Rights Agreement dated March 2,  2005 by and among Jacobs Entertainment, Inc., the Guarantors and the  Purchasers                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.14(10)  |   | Stock Purchase Agreement dated August 18, 2005  among Pimlico Racing Association, Inc., Laurel Racing Association Limited  Partnership, The Maryland Jockey Club of Baltimore City, Inc.,  Maryland-Virginia Racing Circuit, Inc. and Colonial Downs, L.P.                        |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.14A(10) |   | First Amendment to the Stock Purchase Agreement  dated August 18, 2005 among Pimlico Racing Association, Inc., Laurel Racing  Association Limited Partnership, The Maryland Jockey Club of Baltimore City,  Inc., Maryland-Virginia Racing Circuit, Inc. and Colonial Downs, L.P. |
|       |   |                                                                                                                                                                                                                                                                              |
| 10.15(10)  |   | Asset Purchase Agreement dated November 2, 2005  among Capital City Entertainment, Inc. and Jacobs Pinon Plaza Entertainment,  Inc.                                                                                                                                               |

 

E-6

----

 
| 10.15A(12) |   | Pinon Plaza Ground Lease (proposed) by and between  Clark G. Russell and Jean M. Russell, Trustees of The Clark and Jean Russell  Family Trust and Jacobs Entertainment, Inc.                                                                                               |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                        |
| 10.16(11)  |   | Triple Net Lease dated November 14, 2005 among  Route 225 Investments, LLC and Jacobs Entertainment, Inc.                                                                                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                        |
| 10.17(12)  |   | Ground Lease and Option Purchase Agreement dated  September 12, 2005 between Dakota/Blackhawk, LLC and Jacobs Entertainment,  Inc.                                                                                                                                          |
|       |   |                                                                                                                                                                                                                                                                        |
| 10.18(12)  |   | Thoroughbred Horseman’s Agreement dated January 1,  2005 between Colonial Downs, L.P., Stansley Racing Corp. and The Virginia  Horsemen’s Benevolent and Protective Association, Inc.                                                                             |
|       |   |                                                                                                                                                                                                                                                                        |
| 10.19(12)  |   | Shopping Center Lease dated February 28, 2005  between Jay F. Wilks, Trustee under Indenture dated December 20, 1976 by and  between Herbert Cashvan and Marvin Simon, as Settlors, and Jay F. Wilks as  Trustee, and Colonial Downs, L.P.                                  |
|       |   |                                                                                                                                                                                                                                                                        |
| 10.20(12)  |   | Asset Purchase Agreement dated November 2, 2005,  between Larose Truck Plaza & Casino, LLC, Midway Recreation, LLC, Joe F.  Penn, Jr., Melissa Penn, and Gameco Holdings, Inc., including an Amendment  dated December 19, 2005 adding Jalou of Larose, LLC, as a party |
|       |   |                                                                                                                                                                                                                                                                        |
| 10.21(12)  |   | Stock Purchase Agreement dated December 12, 2005  between Jalou II, Inc. and several persons relating to the purchase and sale  of the common stock of Fuel Stop 36, Inc.                                                                                                   |
|       |   |                                                                                                                                                                                                                                                                        |
| 14.1(12)   |   | Code of Ethics                                                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                        |
| 21.1(12)   |   | Subsidiaries of Jacobs Entertainment, Inc.                                                                                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                        |
| 25.1(1)    |   | Statement of Eligibility of Trustee on Form T-1                                                                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                        |
| 31.1(12)   |   | Chief Executive Officer Certificate under  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                        |
| 31.2(12)   |   | Chief Financial Officer Certification under  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                        |
| 32.1(12)   |   | Chief Executive Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                        |
| 32.2(12)   |   | Chief Financial Officer Certification under  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                        |
| 99.1(1)    |   | Form of Letter of Transmittal                                                                                                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                        |
| 99.2(1)    |   | Form of Notice of Guaranteed Delivery                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                        |
| 99.3(1)    |   | Jacobs Entertainment, Inc. Exchange of All  Outstanding 117/8% Senior Secured Notes Due 2009 for 117/8%  Senior Secured Notes Due 2009                                                                                                                                      |
|       |   |                                                                                                                                                                                                                                                                        |
| 99.4(1)    |   | Jacobs Entertainment, Inc. Letter to  Depository Trust Company Participants                                                                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                        |
| 99.5(8)    |   | Significant Guarantor Information                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                        |

 

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

 

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