As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/02/07  Black Gaming, LLC                 10-K       12/31/06   11:2.6M                                   Merrill Corp-MD/FA
          RBG, LLC
          B & B B, Inc.

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                       HTML   1.40M 
 2: EX-3.1      Articles of Incorporation/Organization or By-Laws   HTML     67K 
 4: EX-3.10     Articles of Incorporation/Organization or By-Laws   HTML     34K 
 5: EX-3.11     Articles of Incorporation/Organization or By-Laws   HTML    173K 
 6: EX-3.19     Articles of Incorporation/Organization or By-Laws   HTML     62K 
 3: EX-3.2      Articles of Incorporation/Organization or By-Laws   HTML     21K 
 7: EX-21.1     Subsidiaries of the Registrant                      HTML     18K 
 8: EX-31.1     Certification per Sarbanes-Oxley Act (Section 302)  HTML     14K 
 9: EX-31.2     Certification per Sarbanes-Oxley Act (Section 302)  HTML     14K 
10: EX-32.1     Certification per Sarbanes-Oxley Act (Section 906)  HTML     10K 
11: EX-32.2     Certification per Sarbanes-Oxley Act (Section 906)  HTML     10K 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

x		ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                  to

 

Commission file number 333-123179

 

BLACK GAMING, LLC

(Exact name of registrant as specified in its charter)

 

 

10777 W. Twain Ave., Las Vegas, Nevada  89135

(Address and telephone number of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code:     (702) 318-6860

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Name of each exchange on which registered
None.

 

Securities registered pursuant to Section 12(g) of the Act:

 

None.

(Title of each class)

 

 

(Title of each class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.		Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.		Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.		Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.		Yes o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o          Accelerated filer o          Non-Accelerated filer x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).		Yes o No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day
of the registrant’s most recently completed second fiscal quarter.	Not Applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.

 

 

 

or assets other than the ownership interests in Virgin River Casino Corporation, RBG, LLC and B & B B, Inc. The reorganization was consummated in part to streamline our organizational structure and to allow for consolidated financial reporting. The transaction was treated as a reorganization of entities under common control and the purchase of minority interest treated as a purchase for accounting purposes. Accordingly, all financial disclosures and accounting presentations are prepared assuming the reorganization occurred on January 1, 2004, with the exception of the purchase of the minority holder, which was accounted for on the date the purchase closed which was December 31, 2006. The reorganization had no significant effect on our management or operations.

 

The following chart illustrates our corporate structure.

 

(1)                                  Owned as trustee of the Robert R. Black , Sr. Gaming Properties Trust u/a/d May 24, 2004.

 

(2)                                  Black Gaming, LLC, R. Black, Inc., Casablanca Resorts, LLC, Oasis Interval Ownership, LLC, Oasis Interval Management, LLC and Oasis Recreational Properties, Inc. are guarantors of our $125,000,000 in principal amount of 9.00% Senior Secured Notes due 2012, or the Senior Secured Notes, and our $66,000,000 in principal amount at maturity of 12.75% Senior Subordinated Notes due 2013, or the Senior Subordinated Notes, and

 

4

 

collectively with the Senior Secured Notes referred to generally as the notes, all of which were issued by Virgin River Casino Corporation, RBG, LLC and B & B B, Inc.

 

(3)                                 Virgin River Casino Corporation owns the Virgin River real property as well as the Virgin River Convention Center.

 

(4)                                  B & B B, Inc. owns the Virgin River personal property.

 

(5)                                  RBG, LLC owns the CasaBlanca.

 

(6)                                  Casablanca Resorts, LLC owns the Oasis.

 

Casino Properties

 

CasaBlanca Hotel & Casino. The CasaBlanca is a full service entertainment and resort destination located off of exit 120 on Interstate 15. The CasaBlanca targets middle market guests looking for a high-quality gaming experience in a full service resort environment and a value alternative to Las Vegas. The CasaBlanca offers approximately 480 tower rooms (includes 18 suites with Jacuzzi tubs) and 22 timeshare units. The approximately 27,000 square foot casino offers 730 video poker and slot machines, 28 table games, a full service race and sports book, lounge entertainment and dancing. The CasaBlanca offers various resort and entertainment amenities, including championship golf, a full service spa, tennis courts, a lagoon swimming pool with a waterfall and slide, a hot tub, a sand volleyball court and an arcade. In addition, the CasaBlanca offers a 320-seat buffet restaurant, a 180-seat 24-hour café, a 136-seat fine dining restaurant, an ice cream parlor, a Starbucks®, a gift shop and 10,000 square foot banquet and conference facilities. The CasaBlanca is situated on an approximately 43-acre site, containing a parking lot with a capacity for approximately 1,940 cars as well as a 45-unit full service R.V. park. Approximately one mile from the casino hotel, situated on a 221-acre site, is the CasaBlanca Golf Club featuring an 18-hole, 7,011 yard championship course designed by Cal Olson. We lease the land on which the golf club is located pursuant to a 99-year lease that expires in June 2094. We also own approximately 34 acres of unimproved land near the golf club. For the twelve months ended December 31, 2006, the average daily room rate was approximately $78 and the overall occupancy rate was 89%.

 

Oasis Hotel & Casino. The Oasis is a full service entertainment and resort destination located off of exit 120 on Interstate 15 across Mesquite Boulevard from the CasaBlanca. The Oasis also targets middle market guests looking for value alternatives to Las Vegas and a high quality gaming experience in a full service resort environment. The Oasis offers approximately 950 rooms (includes 49 suites) and 63 timeshare units. The approximately 34,700 square foot casino offers over 725 video poker and slot machines, 33 table games, a full service sports book, and a live poker room. The Oasis offers various resort and entertainment amenities, including golf, a full service spa, swimming pools and hot tubs, tennis courts, arcade, go-kart track, miniature golf range, lounge entertainment and a nightclub. In addition, the Oasis offers a 260-seat buffet restaurant, a 125-seat fine dining restaurant, a Starbucks®, a gift shop and 5,000 square foot banquet and conference facilities. The Oasis is situated on an approximately 26-acre site, containing a parking lot with a capacity for approximately 1,800 cars as well as an 87 unit full-service R.V. park. Approximately four miles from the casino hotel is the Palms Golf Course featuring an 18-hole, 7,008 yard championship course. The Palms Golf Course straddles the Nevada/Arizona border and is located on a 256-acre site, of which 180 acres is leased from the State of Arizona pursuant to a 10-year lease that expires in May 2008. We are currently marketing our Palms Golf Course and Oasis Gun Club property for sale. See “Item 8 – Financial Statements and Supplementary Data – Black Gaming, LLC Consolidated Financial Statements, Footnote 3.” For the twelve months ended December 31, 2006, the average daily room rate was approximately $47 and the

 

5

 

occupancy rate was 76%. In January 2006, Oasis Interval Ownership, LLC entered into an agreement with Global Exchange Development Corp. to sell substantially all of the unsold time share intervals at the Oasis Hotel and Casino. The sale is expected to close in three separate closings each involving approximately one-third of the unsold time share intervals at the Oasis Hotel and Casino. Each close is expected to occur within six months of the preceding close. The first and second close occurred in January and June 2006, respectively. See “Item 8 – Financial Statements and Supplementary Data – Black Gaming, LLC Consolidated Financial Statements, Footnote 11.”

 

Virgin River Hotel & Casino. The Virgin River is located off of exit 122 on Interstate 15 across the highway from the Virgin River Convention Center. The Virgin River mostly attracts local customers and drive-in middle market customers. The Virgin River offers approximately 710 rooms (includes two suites) and a 36,000 square foot casino with 740 video poker and slot machines, 18 table games, a full service race and sports book, a 350-seat bingo parlor, live keno and a poker room. The Virgin River offers various resort and entertainment amenities, including swimming pools and hot tubs, a 24-lane state-of-the art bowling center, four first-run movie theaters, an arcade and a lounge for entertainment and dancing. In addition, the Virgin River offers a 182-seat 24-hour café, a 178-seat buffet restaurant, a Starbucks® and a gift shop. The Virgin River is situated on an approximately 32-acre site, containing a parking lot with a capacity for approximately 1,650 cars as well as a 47 unit full-service R.V. park. We also own approximately 31 acres of unimproved land adjacent to the Virgin River. For the twelve months ended December 30, 2006, the average daily room rate was approximately $47 and the occupancy rate was 81%.

 

Virgin River Convention Center. The Virgin River Convention Center is situated on an approximately 14-acre site located off of the Interstate 15 and East Mesquite Boulevard interchange. We acquired the Virgin River Convention Center out of bankruptcy in November 2000. The Virgin River Convention Center has 12,000 square feet of potential gaming space and 210 hotel rooms. We currently use the Virgin River Convention Center as a special event facility and for overflow hotel traffic from our other properties. At acquisition, the Virgin River Convention Center had a gourmet restaurant, a cocktail lounge with a performance stage, one coffee shop, an arcade and a gift shop, none of which is currently in operation. Although the Virgin River Convention Center has 12,000 square feet of potential gaming space, we do not hold a gaming license to operate a casino at the Virgin River Convention Center. We will apply for a gaming license in the future if we determine to operate a casino at the Virgin River Convention Center.

 

Competition

 

General. We face competition in the market in which our gaming facilities are located as well as in or near any geographic area from which we attract or expect to attract a significant number of our customers. As a result, our casino properties face direct competition from all other casinos and hotels in the Las Vegas, Nevada region and the Wendover, Nevada region as well as the California gaming market.

 

Mesquite, Nevada. There are four hotel-casinos in Mesquite, Nevada, three of which are owned by us. As of December 2006 there were approximately 2,700 hotel rooms in Mesquite, Nevada. Approximately 2,450 of the existing hotel rooms are associated with the four hotel-casinos. Through our three properties, we own approximately 2,200 of those rooms. Also, within the four hotel-casinos there are eleven dining options, nine of those dining options exist at one of our three properties. We also compete with free standing dining facilities in Mesquite, Nevada as a restaurant option. The only other licensed resort gaming facility in Mesquite is the Eureka Casino Hotel, or the Eureka. We believe that the hotel casinos are sufficiently distinct and diversified such that each property caters to a different type of clientele. For instance, the CasaBlanca, which contains a spacious casino floor and a tower hotel, appeals to the customer who seeks to enjoy a mega resort type experience that is away from the hustle and bustle of Las

 

6

 

Vegas. On the other hand, the Virgin River caters to the local Mesquite customer who is more likely to be attracted by the intimate gaming atmosphere and amenities such as a bowling alley and movie theaters. With 210 rooms and 2 dining facilities, we believe the Eureka targets the local Mesquite customer and competes directly with the Virgin River and to a lesser extent the Oasis. There is no limit on the number of gaming licenses that may be granted in Mesquite or in some of the other gaming markets in which we compete. In particular, other than zoning limitations and licensing requirements of the City of Mesquite, there are no restrictions on additional casinos being constructed and opened in Mesquite, including by competitors that may have greater financial and other resources than we do.

 

Las Vegas, Nevada. Many of our competitors in the Las Vegas market have significantly greater name recognition and financial, marketing and other resources than we do. However, our focus on providing value-oriented amenities with a quality casino experience attracts many of the Las Vegas locals who want to enjoy a weekend getaway.

 

West Wendover, Nevada. West Wendover, Nevada is located on the eastern border of Nevada in Elko County. The city is contiguous with Wendover, Utah and is approximately 120 miles west of Salt Lake City, Utah, less than half the distance between Mesquite and Salt Lake City, Utah. According to the Nevada State Gaming Control Board, the West Wendover casinos collectively contain approximately 3,900 slot machines and more than 190 games and tables as of December 31, 2006. We compete with these casinos for gaming customers located in Salt Lake City, Utah and the outlying areas. Nonetheless, we believe our more favorable climate and more attractive amenities give us a competitive advantage. In West Wendover, during October through January, the average number of days with precipitation ranges from five to nine days with temperatures ranging from 27 to 51 degrees Fahrenheit. Mesquite, on the other hand, has on average two to three days of precipitation with temperatures ranging from 44 to approximately 65 degrees Fahrenheit during the same months.

 

California Gaming Market. Voters in California approved an amendment to the California constitution in 2000 that gave Native American tribes in California the right to offer a limited number of slots machines and a range of house-banked card games. A number of Native American tribes have already signed and others have begun signing gaming compacts with the State of California. As of December 28, 2006, California has signed 66 compacts with Indian Tribes and casino-style gaming is legal on those tribal lands. According to the National Indian Gaming Commission, there currently are approximately 57 operating tribal casinos in California. In addition, several Native American tribes in California have reached agreements with the State of California that allow for an increased number of gaming machines within the facilities operated by such tribes in exchange for a revenue-based payment to the state. The competitive impact on our gaming establishments from the continued growth of gaming in California cannot be definitively determined but, depending on the nature, extent and location of the growth, the impact could be material.

 

Many of our competitors have significantly greater name recognition and financial, marketing and other resources than we do. We also compete, to some extent, with other forms of gaming on both a local and national level, including state-sponsored lotteries, Internet gaming, on- and off-track wagering and card parlors. The recent and continued expansion of legalized casino gaming to new jurisdictions throughout the United States has increased competition faced by us and will continue to do so in the future. Additionally, if gaming were legalized or expanded in jurisdictions near our properties or any geographic area from which we expect to attract a significant number of our customers, we could face additional competition which could have a significant adverse impact on our business, financial condition and results of operations. There can be no assurance that we will be able to continue to compete successfully in our existing markets or that we will be able to compete successfully against any such future competition.

 

7

 

Employees

 

As of December 31, 2006, we employed approximately 2,300 employees. None of our employees are covered by a collective bargaining agreement. We believe that our relationship with our employees is good.

 

Environmental Matters

 

We are subject to various federal, state and local environmental laws, ordinances and regulations, including those governing discharges to air and water, the generation, handling, management and disposal of petroleum products and hazardous substances, and the health and safety of our employees. Permits may be required for our operations and these permits are subject to renewal, modification and, in some cases, revocation. In addition, as a property owner and operator, we may be liable for the costs of investigating and remediating hazardous substances or petroleum products on, under, or in our property, without regard to whether we knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. The presence of, or failure to remediate properly, the substances may adversely affect our ability to sell or rent our property or to borrow funds using it as collateral. Additionally, we may be subject to claims by third parties based on damages and costs resulting from environmental contamination emanating from our property.

 

We have reviewed environmental assessments, and limited soil and groundwater testing, relating to our properties. As a result, we have become aware that there is contamination present on some of our properties apparently due to past operations, which included a truck stop and a gas station. In particular, groundwater contamination at our Oasis property (which appears to have migrated onto our CasaBlanca property) is the subject of investigation and cleanup activities being conducted by the prior owners of the Oasis. The water supply for the Oasis property and the CasaBlanca properties does not come from ground water that has been contaminated. Although we believe that the prior owners are responsible for such matters under an indemnity agreement we negotiated at the time we purchased the Oasis, we cannot give assurance that we will not incur costs related to this matter. Further, we could be held strictly liable for the environmental clean up of the contaminated properties.

 

We do not anticipate any material adverse effect on our earnings or competitive position relating to environmental matters, but it is possible that future developments could lead to material environmental compliance costs or other liabilities for us and that these costs could have a material adverse effect on our business and financial condition.

 

Regulation and Licensing

 

The ownership and operation of casino gaming facilities in Nevada are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder, or the Nevada Act, and various local regulations. In addition, our gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board, or the City of Mesquite and other local authorities, or collectively, the Nevada Gaming Authorities.

 

The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things:

 

•                  the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;

 

8

 

•                  the establishment and maintenance of responsible accounting practices and procedures;

 

•                  the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities;

 

•                  the prevention of cheating and fraudulent practices; and

 

•                  providing a source of state and local revenues through taxation and licensing fees.

 

Changes in these laws, regulations and procedures could have an adverse effect on our business, financial condition and results of operations.

 

Corporations and other entities that operate casinos in Nevada are required to be licensed by the Nevada Gaming Authorities. A gaming license for such activities requires the periodic payment of fees and taxes and is not transferable. In December 2004, Virgin River Casino Corporation, RBG, LLC and B & B B, Inc., and in December 2006, Black Gaming, LLC, became registered by the Nevada Gaming Commission as a publicly traded corporation, or registered corporation. As a registered corporation, we are required to periodically submit detailed financial and operating reports to the Nevada Gaming Commission and furnish any other information that the Nevada Gaming Commission may require.

 

The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with us in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Our officers, directors and certain key employees must file applications with the Nevada Gaming Authorities and are required to be licensed by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause that they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position.

 

If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to sever all relationships with that person. In addition, the Nevada Gaming Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada.

 

We are required to submit detailed financial and operating reports to the Nevada Gaming Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by us must be reported to the Nevada Gaming Commission.

 

If it were determined that we violated the Nevada gaming laws, our gaming licenses and registrations with the Nevada Gaming Commission could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, we and the persons involved could be subject to substantial fines for each separate violation of the Nevada laws at the discretion of the Nevada Gaming Commission. Further, the Nevada Gaming Commission could appoint a supervisor to operate our gaming properties and, under certain circumstances, earnings generated during the supervisor’s appointment (except for the reasonable rental value of our gaming properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the

 

9

 

appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect our operations.

 

As a registered corporation, any beneficial holder of our voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as a beneficial holder of our voting securities determined if the Nevada Gaming Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. No transfer or issuance of our voting securities can be made without the prior approval of the Nevada Gaming Authorities. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting such investigation.

 

Although we do not intend to register or sell any equity securities, Nevada law requires any person who acquires more than 5% of a registered corporation’s voting securities to report the acquisition to the Nevada Gaming Commission. Nevada law requires that beneficial owners of more than 10% of a registered corporation’s voting securities apply to the Nevada Gaming Commission for a finding of suitability within 30 days after the Chairman of the Nevada State Gaming Control Board mails the written notice requiring the filing for a finding of suitability. Under certain circumstances, an “institutional investor,” as defined in the regulations of the Nevada Gaming Commission, which acquires more than 10%, but not more than 15%, of our voting securities may apply to the Nevada Gaming Commission for a waiver of such finding of suitability if that institutional investor holds the voting securities for investment purposes only. An institutional investor will not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of our board of directors, any change in our corporate charter, bylaws, management, policies or operations, or any of our gaming affiliates, or any other action which the Nevada Gaming Commission finds to be inconsistent with holding our voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include:

 

•                  voting on all matters voted on by stockholders;

 

•                  making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and

 

•                  other activities as the Nevada Gaming Commission may determine to be consistent with such investment intent.

 

If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation.

 

Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Gaming Commission or the Chairman of the Nevada State Gaming Control Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a registered corporation beyond the period of time as may be prescribed by the Nevada Gaming Commission may be guilty of a criminal offense. We may become subject to disciplinary action if, after receipt of notice that a person is unsuitable to be a stockholder or to have any other relationship with us, we:

 

•                  pay that person any dividend or interest upon voting securities;

 

10

 

•                  allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person;

 

•                  pay remuneration in any form to that person for services rendered or otherwise; or

 

•                  fail to pursue all lawful efforts to require the unsuitable person to relinquish his voting securities for cash at fair market value.

 

Additionally, the Clark County Liquor and Gaming Licensing Board has taken the position that it has the authority to approve all persons owning or controlling the stock of any corporation controlling a gaming license.

 

We may be required to disclose to the Nevada State Gaming Control Board and the Nevada Gaming Commission the identities of all holders of the notes. The Nevada Gaming Commission may, in its discretion, require the holder of any debt security of a registered corporation to file applications, be investigated and be found suitable to own the debt security of a registered corporation. If the Nevada Gaming Commission determines that a person is unsuitable to own a debt security, then pursuant to Nevada law, the registered corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Gaming Commission, it:

 

•                  pays to the unsuitable person any dividend, interest, or any distribution whatsoever;

 

•                  recognizes any voting right by the unsuitable person in connection with debt securities;

 

•                  pays the unsuitable person remuneration in any form; or

 

•                  makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.

 

We are required to maintain a current ledger in Nevada, which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial holder to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. We are also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Gaming Commission has the power to require our securities to bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada Gaming Commission has not imposed such a requirement on us.

 

We may not make a public offering of securities without the prior approval of the Nevada Gaming Commission if the securities or proceeds from the securities are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for the purposes of constructing, acquiring or financing gaming facilities. Furthermore, any approval, if granted, does not constitute a finding, recommendation or approval by the Nevada Gaming Commission or the Nevada State Gaming Control Board as to the accuracy or adequacy of the prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful.

 

Changes in our control through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby that person obtains control (including foreclosure on the pledged shares), may not occur without the prior approval of the Nevada Gaming Commission. Entities seeking to acquire control or ownership of a registered corporation must satisfy the Nevada State Gaming Control Board and Nevada Gaming Commission in a variety of stringent standards prior to assuming control of such registered corporation. The Nevada Gaming Commission may also require the stockholders, officers, directors and other persons having a material relationship or

 

11

 

involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.

 

License fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensee’s respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either:

 

•                  a percentage of the gross revenues received;

 

•                  the number of gaming devices operated; or

 

•                  the number of table games operated.

 

Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons, or Licensees, and who is or who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada State Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation by the Nevada State Gaming Control Board of the Licensees’ participation in foreign gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Gaming Commission. Thereafter, Licensees are also required to comply with certain reporting requirements imposed by the Nevada gaming laws. Licensees are also subject to disciplinary action by the Nevada Gaming Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to a foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign operation who has been denied a license or a finding of suitability in Nevada on the ground of personal unsuitability.

 

Treasury Department Regulations

 

The Internal Revenue Code and Treasury Regulations require operators of casinos located in the United States to file information returns for United States citizens, including names and addresses of winners, for keno and slot machine winnings in excess of prescribed amounts and table game winnings in which the payout is a certain amount greater than the wager. The Internal Revenue Code and Treasury Regulations also require operators to withhold taxes on some keno, bingo, and slot machine winnings of nonresident aliens. We are unable to predict the extent to which these requirements, if extended, might impede or otherwise adversely affect operations of, and/or income from, the other games.

 

Regulations adopted by the Financial Crimes Enforcement Network, or FinCEN, of the Treasury Department and the gaming regulatory authorities in some of the domestic jurisdictions in which we operate casinos, require the reporting of currency transactions in excess of $10,000 occurring within a gaming day, including identification of the patron by name and social security number. This reporting obligation began in May 1985 and may have resulted in the loss of gaming revenues to jurisdictions outside the United States, which are exempt from the ambit of these regulations. In 2002 FinCEN implemented the suspicious activity reporting rule. This new reporting obligation requires casinos to report suspicious monetary transactions when the casino knows, suspects, or has reason to suspect that the transaction involves funds derived from illegal activity or is otherwise intended to facilitate illegal activity. The new reporting obligations were effective in March 2003.

 

12

 

Potential Changes in Tax and Regulatory Requirements

 

In the past, federal and state legislators and officials have proposed changes in tax law, or in the administration of the laws, affecting the gaming industry. Regulatory commissions and state legislatures sometimes consider limitations on the expansion of gaming in jurisdictions where we operate and other changes in gaming laws and regulations. Proposals at the national level have included a federal gaming tax and limitations on the federal income tax deductibility of the cost of furnishing complimentary promotional items to customers, as well as various measures which would require withholding on amounts won by customers or on negotiated discounts provided to customers on amounts owed to gaming companies. It is not possible to determine with certainty the likelihood of possible changes in tax or other laws or in the administration of the laws. The changes, if adopted, could have a material adverse effect on our financial results.

 

Compliance with Other Laws and Regulations

 

In addition to the regulations described above, our operations are also subject to extensive state and local laws, regulations and ordinances that apply to non-gaming businesses generally, and, on a periodic basis, we must obtain various other licenses and permits, including those required to sell alcoholic beverages. We have not incurred, and do not expect to incur, material expenditures with respect to these laws and regulations. There can be no assurances, however, that we will not incur material liability under these laws and regulations in the future. See also “Item 1A. Risk Factors—Risks Related to Our Business—Governmental Regulation,” “—Environmental Matters” and “—Factors Beyond Our Control.”

 

ITEM 1A.               RISK FACTORS.

 

If any of the following risks actually occurs, our business, financial condition and/or operating results could be materially adversely affected.

 

Risks Related to Our Business

 

Geographic Concentration of Properties—We are subject to greater risks than a geographically diversified gaming company.

 

All of our properties are located in Mesquite, Nevada. Therefore, the impact of many economic and other business factors in Mesquite, and Nevada in general, on our properties are more significant to us than it would be to a geographically diversified gaming company, and we are subject to more significant fluctuations in our operating results than a geographically diversified gaming company would be due to factors such as:

 

•                  a downturn in local or regional economic conditions;

 

•                  an increase in competition in the surrounding area;

 

•                  inaccessibility to our properties due to road construction or closure of Interstate 15; and

 

•                  natural and other disasters in the surrounding area, including severe weather, flooding, fire, and other casualty losses.

 

Any of the foregoing factors could limit or result in a decrease in the number of customers at our properties or a decrease in the amount that customers are willing to wager. Although we maintain insurance policies, which may cover certain casualties, insurance proceeds may not adequately

 

13

 

costs which could also have a material adverse effect on our business, financial condition, and results of operations.

 

Factors Beyond Our Control—Our business, financial condition and results of operations are dependent in part on a number of factors that are beyond our control.

 

The economic health of our business is generally affected by a number of factors that are beyond our control, including:

 

•                  continued increases in healthcare costs;

 

•                  general economic conditions and economic conditions specific to our primary markets;

 

•                  levels of disposable income of casino customers;

 

•                  increases in transportation costs;

 

•                  local conditions in key gaming markets, including seasonal and weather-related factors;

 

•                  increase in gaming taxes or fees;

 

•                  decline in tourism and travel due to occurrences or threats of terrorism or other destabilizing events;

 

•                  substantial increases in the cost of electricity, natural gas and other forms of energy;

 

•                  competitive conditions in the gaming industry, including the effect of such conditions on the pricing of our games and products;

 

•                  the relative popularity of entertainment alternatives to casino gaming that compete for the leisure dollar;

 

•                  the adoption of additional anti-smoking regulations; and

 

•                  an outbreak or suspicion of an outbreak of an infectious communicable disease.

 

Any of these factors could negatively impact our properties or geographic location in particular or the casino industry generally, and as a result, our business, financial condition and results of operations.

 

Environmental Matters—We are subject to environmental laws and potential exposure to environmental liabilities. This may cause us to incur costs or affect our ability to develop, sell or rent our property or to borrow money where such property is required to be used as collateral.

 

We are subject to various federal, state and local environmental laws, ordinances and regulations, including those governing discharges to air and water, the generation, handling, management and disposal of petroleum products and hazardous substances, and the health and safety of our employees. Permits may be required for our operations and these permits are subject to renewal, modification and, in some cases, revocation. In addition, as a property owner and operator, we may be liable for the costs of investigating and remediating hazardous substances or petroleum products on, under, or in our property, without regard to whether we knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. The presence of, or failure to remediate properly, the substances may adversely affect our ability to sell or rent our property or to borrow funds using it as collateral. Additionally, we may be subject to claims by third parties based on damages and costs resulting from environmental contamination emanating from our property.

 

16

 

We have reviewed environmental assessments, and limited soil and groundwater testing, relating to our properties. As a result, we have become aware that there is contamination present on some of our properties apparently due to past operations, which included a truck stop and a gas station. In particular, groundwater contamination at our Oasis property (which appears to have migrated onto our CasaBlanca property) is the subject of investigation and cleanup activities being conducted by the prior owners of the Oasis. The water supply for the Oasis property and the CasaBlanca property does not come from ground water that has been contaminated. Although we believe that the prior owners are responsible for such matters under an indemnity agreement we negotiated at the time we purchased the Oasis, we cannot assure note holders that we will not incur costs related to this matter. Further, we could be held strictly liable for the environmental clean-up of the contaminated properties.

 

We do not anticipate any material adverse effects on our earnings or competitive position relating to environmental matters, but it is possible that future developments could lead to material environmental compliance costs or other liabilities for us and that these costs could have a material adverse effect on our business and financial condition.

 

Risks Associated with Construction Projects—Expansion and renovation efforts are inherently subject to significant development and construction risks.

 

Expansion projects and periodic renovations will be subject to the many risks in expanding or renovating an existing enterprise or developing new projects, including unanticipated design, construction, regulatory, environmental and operating problems, and the significant risks commonly associated with implementing an expansion strategy. In particular, any such projects are subject to the risks associated with the following:

 

•                  the availability of financing and the terms and covenants in our senior credit facility and other debt;

 

•                  shortages in materials;

 

•                  insufficient public infrastructure improvements or maintenance;

 

•                  shortages of skilled labor or work stoppages;

 

•                  unforeseen construction, scheduling, engineering, environmental or geological problems;

 

•                  weather interference, floods, fires or other casualty losses;

 

•                  the failure to obtain required licenses, permits or approvals;

 

•                  regulatory or private litigation arising out of projects; and

 

•                  unanticipated cost increases and budget overruns.

 

In addition, although we design our projects for existing facilities to minimize disruption of business operations, expansion and renovation projects require, from time to time, portions of the existing operations to be closed or disrupted. Any extended disruptions in our operations could have a material adverse affect on our business, financial condition or results of operations.

 

Uninsured Losses—We may incur losses that are not adequately covered by insurance which may harm our financial condition and results of operations.

 

Although we maintain insurance which we believe is customary and appropriate for our business, we cannot give assurance that insurance will be available or adequate to cover all loss and damage to which our business and our assets might be subjected. In connection with insurance renewals subsequent

 

17

 

to the events of September 11, 2001, the insurance coverage for certain types of damages or occurrences has been diminished substantially and is unavailable at commercial rates. The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are underinsured. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to find replacements or repairs for destroyed property and reduce the funds available for payment of our obligations on the notes.

 

Risks Related to the Notes

 

Substantial Debt—Our substantial level of debt could adversely affect our financial condition and prevent us from fulfilling our obligations under the notes and our other debt.

 

We have substantial debt. As of December 31, 2006 we have total debt of $182.0 million. In addition, we and our subsidiaries are permitted under the indentures governing the notes to incur additional debt including up to $15.0 million principal amount of debt under our senior secured credit facility and certain debt to purchase furniture, fixtures and equipment. Additionally, if we satisfy debt coverage tests in our debt agreements, we could issue additional notes and incur further debt. If new debt were to be incurred in the future, the related risks could intensify.

 

Our substantial debt could have significant effects on our business. For example, it could:

 

•                  make it more difficult for us to satisfy our obligations under the notes and our other debt;

 

•                  result in an event of default if we fail to satisfy our obligations under the notes or our other debt or fail to comply with the financial and other restrictive covenants contained in the indentures or our senior secured credit facility, which event of default could result in all of our debt becoming immediately due and payable and could permit our lenders to foreclose on our assets securing such debt;

 

•                  require us to dedicate a substantial portion of our cash flow from our business operations to pay our debt, thereby reducing the availability of cash flow to fund working capital, capital expenditures, development projects, general operational requirements and other purposes;

 

•                  limit our ability to obtain additional financing for working capital, capital expenditures and other activities;

 

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

 

•                  increase our vulnerability to general adverse economic and industry conditions or a downturn in our business; and

 

•                  place us at a competitive disadvantage compared to competitors that are not as highly leveraged.

 

Any of the above-listed factors could have a material adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under the notes and our other debt.

 

18

 

In addition, the trustee’s ability to repossess and dispose of collateral is subject to the procedural and other restrictions of state real estate, commercial and gaming law, as well as the prior approval of the lenders under our senior secured credit facility. Among other things, if the trustee did conduct a foreclosure sale, and if the proceeds of the sale were insufficient, after expenses, to pay all amounts due on the Senior Secured Notes, the trustee might, under certain circumstances, be permitted to assert a deficiency claim against us. There can be no assurance that the trustee would be able to obtain a judgment for the deficiency or that we would have sufficient other assets to pay a deficiency judgment.

 

Federal bankruptcy law also could impair the trustee’s ability to foreclose upon the collateral. If we or a guarantor become a debtor in a case under the United States Bankruptcy Code, as amended, or the Bankruptcy Code, the automatic stay, imposed by the Bankruptcy Code upon the commencement of a case, would prevent the trustee from foreclosing upon the collateral or (if the trustee has already taken control of the collateral) from disposing of it, without prior bankruptcy court approval.

 

The bankruptcy court might permit us to continue to use the collateral while the bankruptcy case was pending, even if the Senior Secured Notes were then in default. Under the Bankruptcy Code, holders of Senior Secured Notes and the trustee would be entitled to “adequate protection” of the interest of holders of Senior Secured Notes in the collateral, if necessary to protect against any diminution in value during the case. Because the Bankruptcy Code does not define “adequate protection,” and because the bankruptcy court has broad discretion, however, there can be no assurance that the court would require us to provide holders of Senior Secured Notes with any form of “adequate protection,” or that any protection so ordered would, in fact, be adequate.

 

In a bankruptcy case, the court would allow a claim for all amounts due under the Senior Secured Notes, including all accrued and unpaid interest through the date of bankruptcy. Under the Bankruptcy Code, interest stops accruing on the date of bankruptcy except under certain specified circumstances, and there can be no assurance that the court would allow a claim for post-bankruptcy interest. If the court held that the value of the collateral securing the Senior Secured Notes was less than the amount due, the trustee would be permitted to assert a secured claim in an amount equal to the collateral’s value and an unsecured claim for the deficiency.

 

For these and other reasons, if we or our subsidiaries become debtors in cases under the Bankruptcy Code, there can be no assurance:

 

•                  whether any payments under the notes would be made;

 

•                  whether or when the trustee could foreclose upon or sell the collateral;

 

•                  whether the term or other conditions of the notes or any rights of the holders could be altered in a bankruptcy case without the trustee’s or the noteholders’ consent;

 

•                  whether the trustee or note holders would be able to enforce the noteholders’ rights against the guarantors under their guarantees; or

 

•                  whether or to what extent holders of the Senior Secured Notes would be compensated for any delay in payment or decline in the collateral’s value.

 

Finally, the trustee’s ability to foreclose on the collateral on behalf of the holders of Senior Secured Notes may be subject to the consent of third parties, prior liens (as discussed above) and practical problems associated with the realization of the trustee’s security interest in the collateral.

 

22

 

Restrictive Covenants—The indentures governing the notes and our senior secured credit facility contain covenants that significantly restrict our operations.

 

The indentures governing the notes and the agreement governing our senior secured credit facility contain, and any other future debt agreements may contain, numerous covenants imposing financial and operating restrictions on our business. These restrictions may affect our ability to operate our business, may limit our ability to take advantage of potential business opportunities as they arise and may adversely affect the conduct of our current business. These covenants restrict on our ability and the ability of our restricted subsidiaries to, among other things:

 

•      pay dividends, redeem stock or make other distributions or restricted payments;

 

•      incur debt or issue preferred equity interests;

 

•      make certain investments;

 

•      create liens;

 

•      agree to payment restrictions affecting the subsidiary guarantors;

 

•      consolidate or merge;

 

•      sell or otherwise transfer or dispose of assets, including equity interests of our restricted subsidiaries;

 

•      enter into transactions with our affiliates;

 

•      designate our subsidiaries as unrestricted subsidiaries; and

 

•      use the proceeds of permitted sales of our assets.

 

The indentures governing the notes do not allow us to incur additional debt unless the debt is classified as permitted indebtedness or we meet certain financial ratios. Permitted indebtedness includes, among other things:

 

•      indebtedness evidenced by the notes or refinancing of the notes;

 

•      indebtedness to finance purchases of furniture, fixture and equipment, or FF&E, so long as the financing does not exceed $2.5 million for non-gaming FF&E;

 

•      indebtedness to finance our general liability insurance premium so long as the amount does not exceed $1.0 million;

 

•      indebtedness secured by our contracts between us and owners of timeshare interests in our timeshare units so long as the amount does not exceed $1.0 million; and

 

•      other indebtedness in an amount not to exceed $1.0 million.

 

We may also incur additional indebtedness that does not qualify as permitted indebtedness if we are not in default under our existing indebtedness and we meet certain financial ratios after incurring such additional indebtedness. In addition, we may incur a maximum of $15.0 million in indebtedness under our senior secured credit facility. Our organizational documents do not contain any limitations on the amount or percentage of indebtedness we may incur. As of December 31, 2006, we have incurred $0.5 million in additional indebtedness in compliance with these restrictions in order to finance our general liability insurance premium, to finance our purchases of FF&E and to obtain advances against our timeshare contracts.

 

24

 

If the Nevada Gaming Authorities require any person, including a record or beneficial owner of the notes, to be licensed, qualified or found suitable, that person must apply for a license, qualification or finding of suitability within the time period specified by the Nevada Gaming Authorities. The person would be required to pay all costs of obtaining a license, qualification or finding of suitability. If such person is unable or unwilling to obtain such license, qualification or finding of suitability, such agencies and authorities may not grant us or, if already granted, may suspend or revoke our licenses unless we terminate our relationship with such person. Under these circumstances, we would be required to repurchase the relevant notes. There can be no assurance that we will have sufficient funds or otherwise will be able to repurchase any or all of the notes. See “Item 1. Business–Regulation and Licensing.”

 

Fraudulent Transfer—Under certain circumstances, a court could cancel the guarantees of our subsidiaries or limit the obligations of an individual issuer under the notes.

 

Unless designated as an unrestricted subsidiary, each domestic subsidiary we form or acquire will be required to guarantee the notes and grant a security interest in certain of its assets (junior to the security interest granted to the lenders under our senior secured credit facility) to secure its guarantee. Under federal bankruptcy law and comparable provisions of state and federal nonbankruptcy fraudulent transfer laws, under certain circumstances a court could avoid (i.e., cancel) a guarantee and the security interest in the guarantor’s assets, and order the return of any payments made thereunder to the guarantor or to a fund for the benefit of its other creditors.

 

A court might take these actions if it found that when the guarantor entered into its guarantee (or, in some jurisdictions, when payments became due on its guarantee), (i) it received less than reasonably equivalent value or fair consideration for its guarantee, and (ii) any of the following conditions was then satisfied:

 

•      the guarantor was insolvent or rendered insolvent by reason of incurring its obligations under its guarantee or granting a security interest in its assets;

 

•      the guarantor was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or

 

•      the guarantor intended to incur, or believed (or reasonably should have believed) that it would incur, debts beyond its ability to pay as those debts matured.

 

In applying these factors, a court would likely find that a subsidiary guarantor did not receive fair consideration or reasonably equivalent value for its guarantee, except to the extent that it benefited directly or indirectly from the notes’ issuance. The determination of whether a subsidiary was or was rendered “insolvent” would vary depending on the law of the jurisdiction being applied. Generally, an entity would be considered insolvent if the sum of its debts (including contingent or unliquidated debts) is greater than all of its property at a fair valuation or if the present fair salable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts (including contingent or unliquidated debts) as they become absolute and matured.

 

A court might also avoid a guarantor’s guarantee and the security interest in its assets, if the court concluded that the guarantor entered into the guarantee with actual intent to hinder, delay, or defraud creditors. If a court avoided a guarantor’s guarantee, note holders would no longer have a claim against that subsidiary, and the claims of creditors of the subsidiary generally would be entitled to payment in full before the subsidiary paid any dividends or made any distributions to us for the purpose of our satisfying any claims under the notes.

 

26

 

Original Issue Discount on Senior Subordinated Notes—The Senior Subordinated Notes have significant original issue discount, or OID, for United State federal income tax purposes, and accordingly, United States holders of the Senior Subordinated Notes will be required to include OID in income in advance of the receipt of cash attributable to such income.

 

Because the Senior Subordinated Notes do not provide for cash payment of stated interest prior to January 15, 2009, the Senior Subordinated Notes have significant OID for United States federal income tax purposes. United States holders generally must include OID income for United States federal income tax purposes under a constant yield accrual method regardless of their regular method of tax accounting. As a result, United States holders of the Senior Subordinated Notes will include OID in income in advance of the receipt of cash attributable to such income.

 

Past Breach of Credit Facility Covenants—We have breached certain covenants of our previous credit facility.

 

On June 28, 2001 we entered into a credit agreement with Bank of America, N.A., Wells Fargo Bank, N.A. and U.S. Bank, N.A. We refer to the credit agreement as the Original Credit Agreement. The terms of the Original Credit Agreement contained certain financial and other covenants. These included a leverage ratio which was calculated quarterly based on the ratio of funded debt to our trailing twelve-month EBITDA (as that term is defined in the Indentures governing the notes and the agreement governing our senior secured credit facility). In addition to the leverage ratio, we were to maintain throughout the term of the Original Credit Agreement, a certain adjusted fixed charge ratio and, commencing June 30, 2002, a minimum trailing twelve-month adjusted EBITDA of no less than $23.0 million.

 

As of March 31, 2004, December 31, 2003 and September 30, 2003, we were not in compliance with the adjusted fixed charge coverage ratio and the minimum trailing twelve-month EBITDA. Further, at December 31, 2003 and March 31, 2004 we were not in compliance with the leverage ratio. On July 6, 2004, we entered into a forbearance agreement with the lenders whereby the lenders agreed to forbear exercising their legal remedies under the Original Credit Agreement by reason of technical default while we renegotiated the terms of the Original Credit Agreement with the lenders. On November 4, 2004, we obtained an amended credit agreement which cured all past covenant violations and extended the due date of the loans. We used the proceeds of the old notes to pay this credit facility in full. At the closing of the transactions on December 20, 2004, we obtained our senior secured credit facility to replace the Original Credit Agreement. We are not in breach of any of the covenants of our senior secured credit facility.

 

Redemption—We may choose to redeem the notes at anytime on or after January 15, 2009.

 

The notes are redeemable at our option on or after January 15, 2009. This means that we have the right, without our noteholder’s consent, to redeem or “call” all or a portion of the notes at any time on or after January 15, 2009. This does not mean that note holders have a similar right to require us to repay their notes. We may choose to redeem the notes, for example, when prevailing interest rates are lower than the rate then borne by the notes. In that case an investor would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the notes being redeemed. Any such redemption right also may adversely impact an investor’s ability to sell its notes, and/or the price at which it could sell its notes, as the redemption date approaches.

 

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

 

Not applicable.

 

28

 

ITEM 2.    PROPERTIES.

 

Our corporate office is located at 10777 W. Twain Avenue, Las Vegas, Nevada in approximately 5,100 square feet of space leased from an affiliate. The following table provides an overview of our other owned and leased real properties:

 

Location and Function(s)		Ownership Structure
CasaBlanca Hotel & Casino
Main Site and Improvements		Owned
Timeshare Units		Owned by us and unrelated third parties
Timeshare Unit Land		Owned(1)
CasaBlanca Golf Club		Leased(2)
Unimproved Land		Owned
Oasis Hotel & Casino
Main Site and Improvements		Owned
Palms Golf Course		Nevada Land Owned / Arizona Land Leased(3)
Oasis Recreational Facility(4)		Owned
Timeshare Units		Owned by us and unrelated third parties(5)
Timeshare Units Land		Owned by us and unrelated third parties
Virgin River Hotel, Casino & Bingo
Main Site and Improvements		Owned
Unimproved Land		Owned
Virgin River Convention Center Hotel & Casino
Main Site and Improvements		Owned
Unimproved Land		Owned

 

(1)    We leased the land on which some of our former timeshare units are situated pursuant to a 50-year lease with our affiliate, MDW Mesquite, LLC. Pursuant to an agreement which became effective December 15, 2004, RBG, LLC and MDW Mesquite, LLC terminated the lease. See “Item 13. Certain Relationships and Related Transactions.”

(2)    We lease the land on which the golf club is located pursuant to a 99-year lease with River View, LLC that expires in June 2094.

(3)    The Palms Golf Course is located on a 256-acre site in Arizona, of which 180 acres are leased from the State of Arizona pursuant to a 10-year lease that expires in May 2008.

(4)    The Oasis Recreational Facility consists of a gun club as well as motocross and equestrian facilities in Arizona.

(5)    In January 2006, Oasis Interval Ownership, LLC entered into an agreement with Global Exchange Development Corp. to sell substantially all of the unsold time share intervals at the Oasis Hotel and Casino. The sale is expected to close in three separate closings each involving approximately one-third of the unsold time share intervals at the Oasis Hotel and Casino. Each close is expected to occur within six months of the preceding close. The first and second closings occurred in January and June 2006, respectively. See “Item 8 – Financial Statements and Supplementary Data – Black Gaming, LLC Consolidated Financial Statements, Footnote 11.”

 

ITEM 3.    LEGAL PROCEEDINGS.

 

From time to time, we are a party to various claims arising in the normal course of business. However, management believes that there are no proceedings pending or threatened against us which, if determined adversely, would have a material adverse effect on our financial condition, results of operations or liquidity.

 

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

Not applicable.

 

29

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Not applicable.

 

ITEM 6.    SELECTED FINANCIAL DATA.

 

The selected financial data of Black Gaming, LLC set forth below as of and for each of the years ended December 31, 2002, 2003, 2004, 2005 and 2006. On December 31, 2006, we completed a holding company reorganization of entities under common control whereby each of Virgin River Casino Corporation, RBG, LLC and B&BB, Inc. became a directly or indirectly wholly owned subsidiary of Black Gaming, LLC. In addition Black Gaming, LLC purchased the minority interest of Glenn Teixeira by exchanging his interest of Virgin River Casino Corporation for an interest in Black Gaming, LLC. Prior to the transaction Virgin River Casino Corporation, RBG, LLC and B&BB, Inc. each filed as a Registrant. As a result of the reorganization Black Gaming, LLC, became a registrant. The selected financial data reflects the operations and financial condition of Black Gaming, LLC as though the reorganization took place on January 1, 2002 similar to a pooling of interest. The acquisition of the minority interest was accounted for as a purchase on the date the transaction closed on December 31, 2006. Prior to the closing date the minority interest was accounted for as minority interest in the selected financial data. The information presented below summarizes certain selected financial data, which should be read in conjunction with “Item 8. Financial Statements and Supplementary Data” and with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Black Gaming, LLC has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986, as amended, which permits the owners of our companies to pay income taxes on our taxable income. Accordingly, a provision for income taxes is not included in our financial data.

 

		Year ended December 31,
		2002		2003		2004		2005		2006
		(dollars in thousands)
Statement of Operations Data:
Net revenues		139,826		142,648		154,010		158,904		165,045
Operating expenses		130,356		132,971		140,898		148,463		157,966
Operating income		9,470		9,677		13,112		10,441		7,079
Net income (loss)		216		2,801		2,859		(8,414	)	(12,097	)
Other Financial Data:
Depreciation and amortization, net of discontinued operations		8,411		8,485		8,180		12,171		16,939

 

30

 

VRCC and B&BB. The Reorganization, which included a transfer of B&BB and VRCC shares for membership interests in us, was completed on December 31, 2006. As a result of the reorganization, the Robert R. Black, Sr. Gaming Properties Trust (the “Black Trust”) owns 99.03% of our membership interests and Glenn Teixeira owns .97% of our membership interests. The transfer of shares of B&BB and VRCC for our membership interests has been accounted for as a reorganization of entities under common control in a manner similar to a pooling-of-interests. Accordingly, the contributed assets and assumed liabilities were recorded at VRCC’s and B&BB’s historical cost basis.

 

Immediately prior to the Reorganization, VRCC acquired, directly and indirectly, an additional aggregate 11.2% ownership in RBG, LLC (“RBG”) as a result of the following transaction:

 

•      VRCC received 100 shares of R. Black, Inc. (“RBI”) from the Robert R. Black, Sr. Gaming Properties Trust (the “Black Trust”). The Black Trust owns 100% of the outstanding shares of VRCC. The 100 shares of RBI representing 100% of the outstanding capital stock of RBI, was exchanged for 3.68 shares of VRCC held by the Black Trust, representing 3.68% of the outstanding capital stock of VRCC. RBI does not have any material operations, liabilities or assets other than a 5.47% ownership in RBG. The transfer of shares of RBI to VRCC was accounted for at the historical cost of RBG as RBI and VRCC were under common control.

 

•      VRCC received a 3.8% membership interest in RBG from the Black Trust in exchange for 2.57 shares of VRCC held by the Black Trust, representing 2.57% of the outstanding capital stock of VRCC. The transfer of membership interests of RBG to VRCC was accounted for at historical cost as the Black Trust and VRCC were under common control.

 

VRCC received a 1.92% membership interest in RBG from Glenn Teixeira in exchange for 1.29 shares of VRCC held by the Black Trust, representing 1.29% of the outstanding capital stock of VRCC. The acquisition of the membership interests from RBG from Glenn Teixeira was accounted for at fair value as it was considered an acquisition of a minority interest of a subsidiary. Based upon an internal analysis the fair value of Glenn Teixeira’s interest approximated book value.

 

On December 20, 2004, VRCC, RBG and B&BB entered into a series of transactions whereby they issued $125.0 million aggregate principal amount of Senior Secured Notes due 2012 and $66.0 million aggregate principal amount at maturity ($39.9 million in gross proceeds) of Senior Subordinated Notes due 2013, and received a $16.0 million equity contribution from the Black Trust and RBI. The proceeds from the above offering were used to purchase the interests held by certain affiliated and unaffiliated shareholders (collectively known as the “Buyout”) for $101.4 million pursuant to the Agreement for Purchase and Sale or Redemption of Equity Interests (“Agreement for Purchase of Equity Interests”) between James A. Black Gaming Properties Trust, Gary W. Black Gaming Properties Trust, Michael T. Black Gaming Properties Trust, Jorco, Inc., Marcus A. Hall, James Ritchie and Barry Moore as Sellers and Robert R. Black, VRCC, and B&BB as Purchasers. As a result of the Buyout, the Black Trust obtained the remaining 80.97% interest in B&BB and 75.0% interest in VRCC. VRCC along with RBI obtained 32.69% of the membership interest in RBG that was being purchased. The remaining proceeds were utilized to repay $64.0 million owed under the then existing credit facility and the $2.0 million promissory note payable to a selling shareholder. Five days prior to the Buyout, RBG terminated the lease with MDW and certain assets were disposed of. As a result of these transactions, the Black Trust and RBI control VRCC, RBG and B&BB. In addition, VRCC, RBG and B&BB are co-issuers on the Senior Secured and Senior Subordinated Notes and all three entities are jointly managed and share resources.

 

32

 

Most of our revenue is essentially cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our industry is capital intensive and we rely heavily on the ability of our properties to generate operating cash flow to repay debt financing, fund maintenance capital expenditures and provide excess cash for future development.

 

Our results of operations tend to be seasonal in nature. During the year ended December 31, 2006, approximately 38% of our operating income (less depreciation and amortization and other non-cash items) was generated in the first quarter and approximately 32% was generated in the second quarter with the remainder being generated during the final half of the year.

 

Financial Highlights of Black Gaming, LLC

 

		Year ended December 31,				%		Year ended December 31,		%
		2004		2005		Change		2006		Change
		(in thousands)
Casino revenues		89,865		97,195		8.2	%	105,762		8.8	%
Casino expenses		42,999		45,306		5.4	%	47,444		4.7	%
Profit margin		52.2	%	53.4	%			55.1	%
Food and beverage revenues		42,011		42,086		0.2	%	43,172		2.6	%
Food and beverage expenses		26,064		26,404		1.3	%	25,711		(2.6	)%
Profit margin		38.0	%	37.3	%			40.4	%
Hotel revenues		27,104		29,481		8.8	%	35,062		18.9	%
Hotel expenses		10,920		9,610		(12.0	)%	7,090		(26.2	)%
Profit margin		59.7	%	67.4	%			79.8	%
Other revenues		18,953		16,932		(10.7	)%	17,062		0.8	%
Other expenses		11,833		9,859		(16.7	)%	9,320		(5.5	)%
Promotional allowances		23,923		26,790		12.0	%	36,013		34.4	%
Percent of gross revenues		13.4	%	14.4	%			17.9	%
General and administrative expenses		40,961		44,384		8.4	%	49,914		12.5	%
Percent of net revenues		26.6	%	27.9	%			30.2	%

 

Year 2006 Compared to Year 2005

 

Consolidated Net Revenues. Consolidated net revenues increased by 3.9% to $165.0 million for the year ended December 31, 2006 as compared to $158.9 million for the year ended December 31, 2005. The increase was primarily due to a $8.6 million increase in casino revenues, a $1.1 million increase in food and beverage revenues, a $5.6 million increase in hotel revenues offset by a $9.2 million increase in promotional allowances.

 

Consolidated Operating Income. Consolidated operating income decreased by 32.2% to $7.1 million for the year ended December 31, 2006 as compared to $10.4 million from the prior year. This was mainly due to a $5.5 million increase in general and administrative expenses, a $4.8 million increase in depreciation and amortization expense, and a $1.4 million impairment loss recorded to adjust the carrying value of land due to contested ownership rights offset by a $6.1 million increase in net revenues and $2.5 million decrease in hotel expenses. Operating income margin decreased to 4.3% of net revenues for the year ended December 31, 2006 as compared to 6.6% in the prior year.

 

Casino. Casino revenues increased 8.8% to $105.8 million for the year ended December 31, 2006 as compared to $97.2 million for the year ended December 31, 2005. The increase in casino revenues was due to the increase in slot revenues, which increased $8.1 million between periods on an increased overall hold for the year ended December 31, 2006 compared to the prior year. Table games revenues increased $0.3 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005. This increase resulted from an overall increase in hold on a consistent drop year

 

34

 

over year. These increases were offset by decreases in keno revenue which decreased during the year ended December 31, 2006 due to the closure of two of our keno operations in December 2005. Casino profit margin increased to 55.1% for the year ended December 31, 2006 as compared to 53.4% for year ended December 31, 2005. Overall casino expenses increased 4.7% to $47.4 million for the year ended December 31, 2006 compared to $45.3 million for the year ended December 31, 2005. The increase was due to an increase in revenues as well as an increase in casino marketing as we continue to focus on targeting our casino customers.

 

Food and Beverage. Food and beverage revenues increased by 2.6% to $43.2 million for the year ended December 31, 2006 as compared to $42.1 million for the year ended December 31, 2005. Revenues increased due to an increase in pricing offset by fewer covers. Food and beverage expenses decreased 2.6% to $25.7 million for the year ended December 31, 2006 as compared to $26.4 million for the year ended December 31, 2005. The decrease in expenses was primarily due to a reduction in covers. Food and beverage profit margin increased to 40.4% for the year ended December 31, 2006 as compared to 37.3% for the year ended December 31, 2005. This increase in food and beverage profit margin is primarily due to an increase in revenue due to pricing.

 

Hotel. Hotel revenues increased by 18.9% to $35.1 million for the year ended December 31, 2006 as compared to $29.5 million for the year ended December 31, 2005. Hotel revenues increased due to increased ADR on decreased number of occupied rooms. Hotel expenses decreased 26.2% for the same time period to $7.1 million from $9.6 million mainly due to an overall decline in occupied rooms and efficiency gains in payroll management. As a result of increased pricing on declining occupied rooms, hotel profit margin increased to 79.8% for the year ended December 31, 2006 as compared to 67.4% for the prior year.

 

Other Revenues. Other revenues increased slightly by 0.8% to $17.1 million for the year ended December 31, 2006 as compared to $16.9 million for the year ended December 31, 2005. Other revenue increases were primarily due to a $0.5 million increase in spa revenues offset by a $0.4 million decrease in time share revenues. Other expenses decreased 5.5% to $9.3 million for the year ended December 31, 2006 as compared to $9.9 million for the year ended December 31, 2005.  The main reason for the decrease is a reduction in the cost associated with the time share operation offset by increases in costs associated with the concert and showroom revenue.

 

Promotional Allowances. We provide promotional allowances at our properties including complimentary hotel rooms, food and beverage, golf rounds, spa treatments and gift shop purchases. Promotional allowances increased by 34.4% to $36.0 million for the year ended December 31, 2006 as compared to $26.8 million for the year ended December 31, 2005. As a percent of gross revenues, promotional allowances increased to 17.9% for the year ended December 31, 2006 from 14.4% for the year ended December 31, 2005 as we focused our marketing attention on targeting our casino customers and due to the increase in the retail pricing associated with our complimentary hotel rooms and food and beverage.

 

General and Administrative (“G&A”). G&A expenses increased by 12.5% to $49.9 million for the year ended December 31, 2006 as compared to $44.4 million for the year ended December 31, 2005. As a percent of net revenues, G&A expenses increased to 30.2% for the year ended December 31, 2006 as compared to 27.9% for the year ended December 31, 2005. The increase in G&A expense was primarily due to an increase in repairs and maintenance of $1.1 million, an increase in utilities of $1.1 million, an increase in advertising of $0.5 million, an increase in professional fees of $1.0 million and an increase in salaries and wages of $1.0 million.

 

35

 

Depreciation and Amortization. Depreciation and amortization increased to $16.9 million for the year ended December 31, 2006 compared to $12.2 million for the year ended December 31, 2005. The increase in depreciation and amortization was due to large capital projects that began depreciating during the year ended December 31, 2006 such as the consolidated laundry operation, the new property management and back office system, and renovation of the Tailgaterz lounge and CasaBlanca sports book along with the purchase of additional gaming equipment and other capital expenditures in addition to a change in the estimated life of our gaming equipment which was made effective January 1, 2006 and our purchase accounting adjustment, related to the December 20, 2004 buyout, completed in the fourth quarter of 2005.

 

Loss on Disposal of Assets. Loss on disposal of assets decreased to $0.2 million for the year ended December 31, 2006 compared to a $0.7 million loss at December 31, 2005. The decrease in the loss was due to the disposal of less equipment during the year.

 

Change in Fair Value of Swaps. Change in fair value of swaps decreased to income of $0.2 million during the year ended December 31, 2006 compared to $1.3 million during the year ended December 31, 2005. The decrease in income is due to the expiration of the swap agreements.

 

Interest Expense. Interest expense decreased to $19.8 million for the year ended December 31, 2006 as compared to $20.4 million for the year ended December 31, 2005. The decrease in interest expense was due to less outstanding debt during the year ended December 31, 2006 compared to the year ended December 31, 2005.

 

Loss from Operations of Discontinued Oasis Recreational Properties. Loss from operations of discontinued Oasis recreational properties were $0.2 million for the year ended December 31, 2006 compared to a $0.6 million loss at December 31, 2005. The decrease in the loss was due to the elimination during the year ended December 31, 2006 of a separate sales group dedicated to golf sales.

 

Year 2005 Compared to Year 2004

 

Consolidated Net Revenues. Consolidated net revenues increased by 3.2% to $158.9 million for the year ended December 31, 2005 as compared to $154.0 million for the year ended December 31, 2004. The increase was primarily due to a $7.3 million increase in casino revenues, a $2.4 million increase hotel revenues offset by a $2.0 million decrease in other revenues and a $2.9 million increase in promotional allowances.

 

Consolidated Operating Income. Consolidated operating income decreased by 20.4% to $10.4 million for the year ended December 31, 2005 as compared to $13.1 million for the year ended December 31, 2004. This was mainly due to a $3.4 million increase in general and administrative expenses, a $4.0 million increase in depreciation and amortization expense and a $0.7 million increase in loss on disposal of assets offset by a $4.9 million increase in net revenues. Operating income margin decreased to 6.6% of net revenues for the year ended December 31, 2005 as compared to 8.5% during the year ended December 31, 2004.

 

Casino. Casino revenues increased 8.2% to $97.2 million for the year ended December 31, 2005 as compared to $89.9 million for the year ended December 31, 2004. The increase in casino revenues was due to the increase in slot revenues, which increased $6.9 million between periods as coin-in increased 1.1% or $16.4 million on increased overall hold for the year ended December 31, 2005 compared to the prior year. Casino profit margin increased to 53.4% for the year ended December 31, 2005 as compared to 52.2% for year ended December 31, 2004. The increase in casino profit margin is primarily due to an increase in casino revenue. Overall casino expenses increased 5.4% for the year

 

36

 

ended December 31, 2005 compared to the prior year which was mainly due to an increase in casino marketing as we continue to focus on targeting our better casino customers.

 

Food and Beverage. Food and beverage revenues increased by 0.2% to $42.1 million for the year ended December 31, 2005 as compared to $42.0 million for the year ended December 31, 2004. The increase in food and beverage revenues was due to an increase in pricing offset by fewer covers. Food and beverage expenses increased 1.3% to $26.4 million for the year ended December 31, 2005 as compared to $26.1 million for the year ended December 31, 2004. Food and beverage profit margin decreased slightly to 37.3% for the year ended December 31, 2005 as compared to 38.0% million for the year ended December 31, 2004.

 

Hotel. Hotel revenues increased by 8.8% to $29.5 million for the year ended December 31, 2005 as compared to $27.1 million for the year ended December 31, 2004. Hotel revenues increased due to increased ADR on decreased number of occupied rooms. Hotel expenses decreased 12.0% for the same time period to $9.6 million from $10.9 million mainly due to the decrease in occupied rooms. Hotel profit margin increased to 67.4% for the year ended December 31, 2005 as compared to 59.7% for the prior year due mainly to the increase in ADR.

 

Other Revenues. Other revenues decreased by 10.7% to $16.9 million for the year ended December 31, 2005 as compared to $19.0 million for the year ended December 31, 2004. Other revenue decreases were primarily due to a decrease in time share revenues and a decrease in spa revenues offset by increases in gift shop revenue. Other expenses decreased 16.7% to $9.9 million for the year ended December 31, 2005 as compared to $11.8 million for the year ended December 31, 2004.  The decrease is due to a reduction in the cost associated with the time share operations.

 

Promotional Allowances. We provide promotional allowances at our properties including complimentary hotel rooms, food and beverage, golf rounds, spa treatments and gift shop purchases. Promotional allowances increased by 12.0% to $26.8 million for the year ended December 31, 2005 as compared to $23.9 million for the year ended December 31, 2004. As a percent of gross revenues, promotional allowances increased to 14.4% for the year ended December 31, 2005 from 13.4% for the year ended December 31, 2004 as we focused our marketing attention on our better casino customers and due to the increase in the retail pricing associated with our complimentary hotel rooms and food and beverage.

 

General and Administrative (“G&A”). G&A expenses increased by 8.4% to $44.4 million for the year ended December 31, 2005 as compared to $41.0 million for the year ended December 31, 2004. As a percent of net revenues, G&A expenses increased to 27.9% for the year ended December 31, 2005 as compared to 26.6% for the year ended December 31, 2004. The increase in G&A expense was primarily due to the increase in management fees of $1.2 million, an increase in bonuses of $1.1 million, an increase in salaries of $1.3 million offset by reduced medical and workman’s compensation claims.

 

Depreciation and Amortization. Depreciation and amortization increased to $12.2 million for the year ended December 31, 2005 compared to $8.2 million for the year ended December 31, 2004. The increase was due to an increase in the depreciable asset base due to the Buyout on December 20, 2004 and slot machine purchases during the year.

 

Loss on Disposal of Assets. Loss on disposal of assets increased to $0.7 million for the year ended December 31, 2005 compared to a $0.1 million gain at December 31, 2004. The increase in the loss was due to the disposal of slot machines with the purchase of ticket-in ticket-out slot machines during the year.

 

37

 

Change in Fair Value of Swaps. Change in fair value of swaps increased to income of $1.3 million during the year ended December 31, 2005 compared to an expense of $1.5 million in the prior year. The increase in income is due to an increase in interest rates in the year ended December 31, 2005 compared to the prior year along with an overall decrease in the average notional amount of the swap outstanding.

 

Interest Expense. Interest expense increased to $20.4 million for the year ended December 31, 2005 as compared to $7.6 million for the year ended December 31, 2004. The increase in interest expense was due to an increase in our average outstanding borrowings during the year ended December 31, 2005 compared to the prior year.

 

Loss from Operations of Discontinued Oasis Recreational Properties. Loss from operations of discontinued Oasis recreational properties were $0.6 million for the year ended December 31, 2005 compared to a $0.2 million loss at December 31, 2004. The increase in the loss was due to a $0.2 million decrease in golf and gun club revenues along with a $0.2 million increase in the associated expenses.

 

Liquidity and Capital Resources for Black Gaming, LLC

 

The following liquidity and capital resources discussion contains certain forward-looking statements with respect to our business, financial condition, results of operations, expansion projects and our subsidiaries, which involve risks and uncertainties that cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied herein. Such risks and uncertainties include, but are not limited to, financial market risks, the ability to maintain existing management, competition within the gaming industry, the cyclical nature of the hotel business and gaming business, economic conditions, regulatory matters and litigation and other risks. In addition, construction projects such as the convention center project entail significant risks, including shortages of materials or skilled labor, unforeseen regulatory problems, work stoppages, weather interference, and unanticipated cost increases. The anticipated costs and construction periods are based on budgets, conceptual design documents and construction schedule estimates. There can be no assurance that the budgeted costs or construction period will be met. All forward-looking statements are based on our current expectations and projections about future events. Some of the contingencies and uncertainties which any forward looking statement set forth below are subject to include, but are not limited to, those set forth above in the heading “Item 1A. Risk Factors.”

 

Cash Flows

 

Our primary sources of liquidity and capital resources have been cash flow from operations and our credit facilities. As of December 31, 2006 and December 31, 2005, cash and cash equivalents were $11.1 million and $15.6 million, respectively.

 

Operating Activities

 

Cash provided by operating activities for the year ended December 31, 2006 was $13.6 million compared to $16.9 million for the year ended December 31, 2005. The $3.3 million decrease was primarily due to a $3.4 million decrease in operating income and $0.4 million decrease in operating income from discontinued operations of the Oasis Recreational Properties.

 

Cash provided by operating activities for the year ended December 31, 2005 was $16.9 million compared to $16.9 million for the year ended December 31, 2004.

 

38

 

We believe that existing cash, cash flows from operations, equipment financing and available borrowings under our senior secured credit facility will be adequate to satisfy our anticipated uses of capital during 2007.

 

Off Balance Sheet Arrangements for Black Gaming, LLC.

 

We are not currently subject to any off-balance sheet arrangements which we believe will have a material adverse impact on our financial condition.

 

Contractual Obligations and Commitments for Black Gaming, LLC.

 

The following table summarizes our contractual obligations and commitments as of December 31, 2006.

 

					Payments Due by Period
		Total			Less than 1 Year			1-3 Years			4-5 Years			After 5 Years
		(dollars in thousands)
Contractual obligations:
Long-term debt(1)		$	191,000		$	—		$	—		$	—		$	191,000
Gaming equipment financing		5,656			4,933			723			—			—
Operating leases		26,013			938			1,509			816			22,750
Total contractual obligations		$	222,669		$	5,871		$	2,232		$	816		$	213,750

 

(1)   As of December 31, 2006, we were in compliance with the restrictive covenants of the indentures governing our notes and our senior secured credit facility.

 

We have no intention at the present time of entering into any new swaps to hedge the new debt incurred as a result of the Transactions.

 

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. Historically, we have attempted to limit our exposure to interest rate risk by managing the mix of our long-term fixed-rate borrowings, which include the notes and short-term borrowings under our senior secured credit facility. Borrowings under our senior secured credit facility bear interest at a margin above the Base Rate plus Base Rate Margin or the LIBOR rate plus LIBOR Rate Margin (each, as defined) as selected by us. However, the amount of outstanding borrowings is not expected to fluctuate and may be reduced from time to time. Our secured senior credit facility matures in December 2008. Our Senior Secured Notes bear interest at 9% and mature in January 2012. Our Senior Subordinated Notes bear interest at 12 ¾% and mature in January 2013. Our Senior Subordinated Notes accrue interest in the form of increased accreted value until January 2009 when the carrying value of the Senior Subordinated Notes will be $66.0 million.

 

40