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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

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

Commission File No. 000-54085

HERBST GAMING, LLC

(Exact name of Registrant as specified in its charter)

(702) 889-7695

(Registrant’s telephone number, including area code)

Securities Registered Pursuant To Section 12(b) of the Act: None

Securities Registered Pursuant To Section 12(g) of the Act:  Common Units

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 and 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o  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.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No  x

As of June 30, 2010, the aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates of the Registrant was $0. There currently is no established public trading market for our membership interests.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes  x  No  o

The number of the Registrant’s common units outstanding was 20,000,001 as of March 28, 2011.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects”, “projects,” “may,” “will” or “should” or the negative or other variation of these or similar words, or by discussions of strategy or risks and uncertainties, and similar references to future periods.  Examples of forward-looking statements include, but are not limited to, statements we make regarding (i) the adequacy of cash flows from operations and available cash and (ii) the effects to our business as a result of our reorganization proceedings under title 11 of the United States Code (the “Bankruptcy Code”), 11 U.S.C. §§ 101, et seq., as amended (“Chapter 11”), in the United States Bankruptcy Court for the District of Nevada, Northern Division.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Our actual results may differ materially from those contemplated by the forward-looking statements.  We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.  These risks and uncertainties include, but are not limited to, statements we make regarding: (i) the potential adverse impact of the Chapter 11 filing on our operations, management and employees; (ii) customer response to the Chapter 11 filing; (iii) the adequacy of cash flows from operations, available cash and available amounts under our credit facility to meet future liquidity needs; (iv) expectations regarding the operation of slot machines in chain stores, bars, restaurants and convenience stores (“slot route operations”) and casino properties; or (v) our continued viability, our operations and results of operations.  Additional important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and include the following:

·                  the recently completed bankruptcy proceedings may adversely affect our business, including our relationships with customers and suppliers;

·                  the recession, and in particular the economic downturn in Nevada and California, may continue to adversely affect our business;

·                  our debt service requirements may adversely affect our operations and ability to compete;

·                  our ability to generate cash to service our substantial indebtedness depends on many factors that are beyond our control;

·                  the success of our slot route operations will be dependent on our ability to renew slot route operations contracts;

·                  we may experience a loss of revenue or market share due to intense competition;

·                  we face extensive regulation from gaming and other government authorities;

·                  changes to applicable gaming and tax laws could have a material adverse effect on our financial condition; and

·                  other factors that are described in “Risk Factors.”

Any forward-looking statement made by us in this document speaks only as of the date of this document.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.

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PART I

ITEM 1.                             BUSINESS.

Overview

We are a diversified gaming company that focuses on two business lines: casino operations and slot route operations.  Unless otherwise noted or indicated by the context, the terms the “Company,” “Successor,” “we,” “us,” “our” and “Herbst Gaming” refer to Herbst Gaming, LLC and its subsidiaries.

As of December 31, 2010, our casino operations consisted of 15 casinos, 12 of which are located in Nevada.  Five of these casinos focus on local gaming patrons in Southern Nevada, and include the ownership and operation of Terrible’s Hotel & Casino in Las Vegas, Nevada (“Terrible’s Las Vegas”) and four other small casinos in Southern Nevada that consist of Terrible’s Town Casino in Pahrump, Nevada (“Town Casino”), Terrible’s Lakeside Casino & RV Park in Pahrump, Nevada (“Lakeside”), Terrible’s Town Casino & Bowl in Henderson, Nevada (“Casino & Bowl”), and Terrible’s Searchlight Casino in Searchlight, Nevada (“Searchlight”).  We also operate the following four casinos in Northern Nevada, all of which were acquired by Predecessor (as defined below) in January 2007:

·                  Sands Regency Casino Hotel in downtown Reno, Nevada (“Sands”);

·                  Terrible’s Rail City Casino in Sparks, Nevada (“Rail City”);

·                  Terrible’s Gold Ranch Casino & RV Resort in Verdi, Nevada (“Gold Ranch”); and

·                  Terrible’s Dayton Depot Casino (“Dayton Casino” and together with Sands, Rail City and Gold Ranch, the “Sands Regent Casinos”) in Dayton, Nevada.

In addition, we operate the following three casinos in Primm, Nevada, all of which were acquired by Predecessor in April 2007:

·                  Primm Valley Resort and Casino (“Primm Valley”);

·                  Buffalo Bill’s Hotel and Casino (“Buffalo Bill’s”); and

·                  Whiskey Pete’s Hotel and Casino (“Whiskey Pete’s”, and together with Primm Valley and Buffalo Bill’s, the “Primm Casinos”).

As of December 31, 2010, the casinos in Nevada contained an aggregate of approximately 6,120 slot machines and 109 table games.

Our casino operations outside of Nevada consist of Terrible’s St. Jo Frontier Casino in St. Joseph, Missouri (“St. Jo”), Terrible’s Mark Twain Casino in LaGrange, Missouri (“Mark Twain”) and Terrible’s Lakeside Casino Resort in Osceola, Iowa (“Lakeside Iowa”).  As of December 31, 2010, these three Casinos contained an aggregate of approximately 2,230 slot machines and 39 table games.

Our slot route operations involve the exclusive installation and operation of a limited number of slot machines in certain strategic, high-traffic, non-casino locations, such as grocery stores, drug stores, convenience stores, bars and restaurants.  We currently have approximately 6,000 slot machines in our slot route business and are one of the largest slot route operators in Nevada.

Herbst Gaming LLC was organized in Nevada on March 29, 2010.  We are a Nevada limited liability company that was formed to acquire substantially all of the assets of Herbst Gaming, Inc. and its subsidiaries, (“HGI” or “Predecessor”), pursuant to their amended joint plan of reorganization under Chapter 11 of the Bankruptcy Code.

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Our principal executive offices are located at 3440 West Russell Road, Las Vegas, Nevada 89118 and our telephone number is (702) 889-7695.

Emergence from Chapter 11 Reorganization

On March 22, 2009, Predecessor filed voluntary petitions for relief (the “Chapter 11 Cases”) under Chapter 11 of the Bankruptcy Code in order to preserve its assets and the value of its estates, (Nevada Bankruptcy Court case numbers 09-50746-GWZ through 09-50763-GWZ).  This filing was predicated upon:

·                  Predecessor’s significant leverage;

·                  sharply declining gaming and hotel revenues as a result of a severe nationwide recession, high unemployment and reduced consumer spending;

·                  significant declines in slot route revenues caused by the enactment of the Nevada Clean Indoor Air Act, which prohibited smoking in indoor places of employment, including but not limited to bars and taverns that serve food, grocery stores, malls and other retail establishments; and

·                  constrained credit markets, particularly with respect to the gaming industry.

From March 22, 2009 through February 5, 2010, Predecessor operated the business and managed the properties as debtors-in-possession, subject to the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

Prior to March 22, 2009, HGI and certain of the lenders (the “Consenting Lenders”) under its $860.0 million senior credit facility (the “HGI Credit Facility”) entered into a lockup agreement (as amended and restated on June 29, 2009, the “Lockup Agreement”), which set forth the material terms of Predecessor’s restructuring.  In exchange for Predecessor agreeing to meet certain timing milestones and to file a plan of reorganization and supporting disclosure statement satisfactory to Consenting Lenders holding at least two-thirds the amount of the HGI Credit Facility claims held by all of the Consenting Lenders, the Consenting Lenders agreed to vote in support of a plan of reorganization with the terms and conditions described therein during the bankruptcy balloting process.  On July 22, 2009, Predecessor filed with the Bankruptcy Court an amended joint plan of reorganization.  On January 22, 2010, the Bankruptcy Court issued an Amended Order Confirming Debtors’ First Amended Joint Plan of Reorganization (the “Order”), confirming the amended joint plan of reorganization, as modified by the Findings of Fact and Conclusions of Law in Support of Order Confirming Debtors’ First Amended Joint Plan of Reorganization (the “Findings of Fact”) entered contemporaneously with the Order (the amended joint plan of reorganization as modified by the Findings of Fact, the “Bankruptcy Plan”).  The Bankruptcy Plan became effective on February 5, 2010, but was not fully implemented until December 31, 2010, after applicable regulatory approvals were obtained (the “Emergence Date”).

On December 31, 2010, (i) we acquired substantially all of the assets of Predecessor in consideration for $350.0 million in aggregate principal amount of senior secured loans (the “Senior Secured Loans”) and the issuance to Predecessor of all of our membership interests (the “Common Units”), (ii) the Senior Secured Loans and Common Units were distributed by Predecessor to the lenders (“Lenders”) under the HGI Credit Facility on a pro rata basis in accordance with the Bankruptcy Plan, (iii) all of Predecessor’s approximately $1.1 billion in outstanding long-term debt obligations consisting of borrowings under the HGI Credit Facility, $160.0 million of outstanding principal amount of 8.125% senior subordinated notes (the “8.125% Notes”) and $170.0 million of outstanding principal amount of 7% senior subordinated notes (the “7% Notes”) were terminated and (iv) 100% of the existing equity in Predecessor was cancelled (clauses (i) through (iv) referred to herein as the “Restructuring Transactions”).  From and after the transfer of Predecessor’s assets to us, all of Predecessor’s subsidiaries (other than E-T-T Enterprises L.L.C. and Corral Coin, Inc., which have been dissolved) are wholly-owned by us.

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Fresh Start Accounting

As required by accounting principles generally accepted in the United States (“GAAP”), we adopted fresh start accounting effective December 31, 2010 following the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852, Reorganizations (“FASB ASC 852”).  The financial statements for the periods ended prior to December 31, 2010 do not include all of the effects of any changes in our capital structure or changes in the fair value of assets and liabilities as a result of fresh start accounting.  See Note 2 to our consolidated financial statements for a detailed explanation of the impact of emerging from Chapter 11 and applying fresh start accounting on our financial position.

Management Changes and Operational Changes

As a condition to the Lockup Agreement, Predecessor appointed David D. Ross as the Chief Operating Officer/Gaming and a member of the Office of the Chief Executive Officer.  Beginning in the fourth quarter 2009, Predecessor began implementing cost savings measures designed to improve operating performance.  We have continued and expect to continue to concentrate on these cost savings measures, which include the continued focus on EBITDA (as defined in the Credit Agreement) stability in each of the regions we operate with the new executive team.

 On January 7, 2011, we appointed David D. Ross, 46, as Chief Executive Officer.  Prior to his appointment as our Chief Executive Officer, Mr. Ross served as the Chief Operating Officer/Gaming and as a member of the Office of the Chief Executive Officer for Predecessor.  Prior to joining Predecessor, Mr. Ross spent 25 years with Coast Casinos, a division of Boyd Gaming Corp., serving in a variety of management positions.  Most recently he served as Coast Casinos’ Chief Operating Officer from 2004-2008.

On January 7, 2011, we also appointed Donna Lehmann, 41, as Senior Vice President and Chief Financial Officer.  Prior to her appointment as our Chief Financial Officer, Ms. Lehmann served as treasurer for BH/RE, L.L.C., parent company of OpBiz, LLC (the licensed operator of Planet Hollywood Resort and Casino), and as Chief Financial Officer of OpBiz, LLC, each from 2004-2010.

On January 7, 2011, we appointed Ferenc Szony, 55, as President.  Mr. Szony previously served as President of Predecessor and his employment contract was assumed by us in connection with the Restructuring Transactions.  Prior to joining Predecessor, Mr. Szony served as President and Chief Executive Officer of the Sands Regency Casino Hotel from 1997 until its acquisition by Predecessor in January 2007.

On February 4, 2011, we appointed Marc H. Rubinstein, 49, as Senior Vice President, General Counsel and Secretary.  Prior to his appointment as Senior Vice President, General Counsel and Secretary, and since July 2008, Mr. Rubinstein served as Senior Vice President, Law and Administration, and Secretary for Tropicana Entertainment Inc.

Credit Facility

On December 31, 2010, we entered into a credit agreement with Wilmington Trust Company, as administrative agent, and the lender parties from time to time thereto (the “Credit Agreement”).  The Credit Agreement (i) provides for $350.0 million principal amount of Senior Secured Loans, (ii) is secured by substantially all of our assets and the assets of our existing or subsequently acquired direct or indirect subsidiaries, other than such assets that may not be pledged pursuant to applicable gaming laws, and (iii) is guaranteed by each such subsidiary.  The Senior Secured Loans will bear interest at the rate of, at our election, either (i) the LIBOR plus a margin of 7.0% or (ii) the alternative base rate plus a margin of 6.5%.  Both LIBOR and the alternative base rate are subject to a fixed floor of 3% and 4%, respectively.  The principal amount of the Senior Secured Loans is payable on the maturity date, which shall be the earlier of December 31, 2015 or the acceleration of the Senior Secured Loans in accordance with the terms of the Credit Agreement.

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Recent Developments

We believe the restructuring strengthened our liquidity and capital structure.  Long-term debt was reduced by approximately $808.8 million.  In accordance with accounting standards for companies that have emerged from bankruptcy, our balance sheet at December 31, 2010 reflects our assets and liabilities at fair value, and a new equity value was established.  All common stock and preferred stock of Herbst Gaming Inc. were cancelled and we issued 20,000,001 Common Units to Predecessor, who distributed the Common Units to the lenders under the HGI Credit Facility on a pro rata basis in accordance with the Bankruptcy Plan.  With our improved liquidity and capital levels, we are working on our business plan and strategy.  In addition, we have built a new senior management team, including a new board of directors (the “Board” or “Board of Directors”), Chief Executive Officer, Chief Financial Officer and Senior Vice President, General Counsel and Secretary.  As a result of these developments, our business, financial condition, and strategy changed significantly, and the information contained in this annual report about us following our emergence from bankruptcy, including the financial statements and other information for the year ended December 31, 2010, which reflects fresh start accounting, are not necessarily comparable with information provided for prior periods.

Description of Business

Our business focuses on attracting and fostering repeat business from local gaming patrons in both our casino and slot route operations.  Local patrons are typically sophisticated gaming customers who seek high payouts and a pleasant atmosphere in locations convenient to their homes and businesses.

Casino Operations

Our casino operations consist of 12 casinos in Nevada, two casinos in Missouri and one casino in Iowa.  All of our casino properties focus on local customers, with an emphasis on slot machine play.  The following table summarizes our casino assets as of December 31, 2010:

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Southern Nevada Casinos

Terrible’s Hotel & Casino

Terrible’s Hotel & Casino in Las Vegas, Nevada has approximately 28,000 square feet of gaming space with approximately 954 slot machines, 9 table games, a race and sports book, a 196-seat bingo facility, a buffet and a 24-hour café.  There are currently 329 hotel rooms with standard amenities.  Terrible’s Las Vegas is conveniently located approximately one mile east of the Las Vegas Strip, which we believe appeals to locals who wish to avoid the congestion of the Las Vegas Strip.  Terrible’s Las Vegas favorable location has made it popular with Las Vegas Strip casino employees.  Although not a tourist destination due to the limited number of rooms, the property receives a certain amount of tourist traffic through the casino due to its location near the airport, the Las Vegas Strip and the Las Vegas Convention Center.

Terrible’s Town Casino

Terrible’s Town Casino in Pahrump, Nevada, which is approximately 60 miles from Las Vegas, has approximately 14,000 square feet of gaming space with approximately 344 slot machines, 6 table games, a race and sports book, a 120-seat bingo facility and a restaurant with a buffet.

Terrible’s Lakeside Casino & RV Park

Terrible’s Lakeside Casino & RV Park is located in Pahrump, Nevada and has approximately 10,000 square feet of gaming space with 194 slot machines, a race and sports book, 159 RV spaces and a restaurant with buffet.

Terrible’s Town Casino & Bowl

Terrible’s Town Casino & Bowl is located in Henderson, Nevada, a suburb southeast of Las Vegas.  The property has approximately 5,000 square feet of gaming space with approximately 95 slot machines, a 16-lane bowling alley and a 24-hour café.

Terrible’s Searchlight Casino

Terrible’s Searchlight Casino is located in Searchlight, Nevada which is approximately 50 miles from Las Vegas, and has approximately 4,000 square feet of gaming space with approximately 75 slot machines, a full-service truck stop and a 24-hour café.

Northern Nevada/Sands Regent Casinos

Sands Regency Casino Hotel

Sands Regency Casino Hotel in Downtown Reno, Nevada has approximately 26,000 square feet of gaming space, including approximately 536 slot machines and 15 table games, bingo, live poker and a sports book operated by an independent third party.  Additionally, the Sands has 833 hotel rooms and a spa.  Dining options at the Sands include Cabana Café, a coffee house/deli-style restaurant, a buffet and Copa Bar and Grill.  The property also has a Mel’s, the original, diner style restaurant, and an Arby’s restaurant, both of which are operated by third parties.  The facility also includes an entertainment cabaret, three cocktail lounges, a comedy club operated by a third party and approximately 12,000 square feet of convention and meeting space.  Third parties lease space from the Sands and operate a wedding chapel, a bicycle and ski rental shop, and a beauty shop.

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Terrible’s Rail City Casino

Terrible’s Rail City Casino in Sparks, Nevada has approximately 24,000 square feet of gaming space housing approximately 880 slots, 5 table games, including keno, a sports book operated by an independent party, a 24-hour family-style restaurant and an ale house and brew pub.  Rail City’s customer base comes primarily from Northern Nevada and a majority of its customers reside in close proximity to the casino.

Terrible’s Gold Ranch Casino & RV Resort

Terrible’s Gold Ranch Casino and RV Resort in Verdi, Nevada offers approximately 225 slot machines in an 8,000 square foot casino, a sports book operated by a third party, a family-style restaurant, a Jack-in-the-Box restaurant leased to and operated by a third-party, a bar, a 105-space RV park, a California lottery station, a gas station and a convenience store.  Gold Ranch attracts a majority of its customer base from traffic off Interstate 80, the major Nevada/California thoroughfare.

Terrible’s Dayton Depot Casino

Terrible’s Dayton Depot Casino is located in Dayton, Nevada.  The Dayton Casino has approximately 14,000 square feet of casino space, a family-style restaurant, 238 slot machines and a sports book operated by a third party.

Primm Casinos

We own the business and lease the real property on which Primm Valley Resort and Casino, Buffalo Bill’s Hotel and Casino and Whiskey Pete’s Hotel and Casino are located in Primm, Nevada.  The Primm Casinos collectively own and manage three gas station/convenience stores, a Starbucks Coffee outlet and one California Lottery lotto store.  The Primm Casinos also lease and manages two 18-hole Tom Fazio golf courses with a full-service restaurant and club house.

Primm Valley Resort and Casino

Primm Valley offers approximately 906 slot machines, 28 table games and  a race and sports book operated by a third party.  Additionally Primm Valley has a 625 room hotel and 21,000 square feet of convention space.  Primm Valley has a full service coffee shop operated by a third party, a buffet and the GP Steakhouse.  The resort has a swimming pool, and a full service spa.  Primm Valley is connected to the “Fashion Outlets of Las Vegas,” a retail complex owned by a third party that houses over 100 designer outlet stores, including a Neiman Marcus “Last Call,” a Williams Sonoma Outlet store, and Coach, Tommy Bahama, Banana Republic and Versace factory outlet stores.

Buffalo Bill’s Hotel and Casino

Buffalo Bill’s offers approximately 952 slot machines, 33 table games and a race and sports book operated by a third party. In addition to a 1,243 room hotel, Buffalo Bill’s has a Denny’s operated by a third party,  a buffet and a “Tony Roma’s” restaurant. The western themed property also has extensive entertainment amenities including the 6,800 seat “Star of the Desert” arena that hosts headline entertainers throughout the year.  Buffalo Bill’s has a  roller coaster as well as water park log rides, a movie theater and a midway-style arcade.

Whiskey Pete’s Hotel and Casino

Whiskey Pete’s offers approximately 721 slot machines and 13 table games, a sports book and two full service bars.  Additionally Whiskey Pete’s has a 779 room hotel , a full service coffee shop operated by a third party, a weekend buffet, a McDonald’s restaurant, an 8,000 square feet special events and concert venue with 700 seats and a swimming pool.

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Midwest Casinos

Missouri

Terrible’s St. Jo Frontier Casino

St. Jo, a riverboat casino located in a man-made basin adjacent to the Missouri River in St. Joseph, Missouri, offers approximately 552 slot machines and 11 table games.  St. Jo offers a bar, a coffee shop style restaurant, a buffet and over 2,400 total square feet of modular conference and meeting space.  The casino and its amenities have a locally popular western theme that plays off St. Joseph’s heritage as the founding location and headquarters of the Pony Express.  St. Jo owns 40 acres of land, 32 acres of which are undeveloped.

Terrible’s Mark Twain Casino

Mark Twain, a riverboat casino located in a man-made basin adjacent to the Mississippi River in LaGrange, Missouri, offers approximately 656 slot machines and 14 table games.  Mark Twain offers a coffee shop style restaurant/bar and an additional bar in the casino.  The casino has a locally popular theme based on Mark Twain, who grew up in and wrote about nearby Hannibal, Missouri.

Iowa

Terrible’s Lakeside Casino Resort

Lakeside Iowa, a riverboat casino located on West Lake in Osceola, Iowa 40 miles west of Des Moines, offers approximately 1,023 slot machines and 14 table games.  Lakeside Iowa offers a 60-room, all-suite hotel, 10,000 square feet of modular conference and meeting facilities that may also be used for concerts, a fitness center, an outdoor pool and a gift shop.  In addition, Lakeside Iowa offers a coffee shop style restaurant/buffet and lounge located in the main lobby, two bars located in the casino, a convenience store and gas station that are located adjacent to the casino and 47 RV spaces with utility hookups.  Lakeside Iowa owns 121 acres of land, 88 acres of which are undeveloped.

Slot Route Operations

Our slot route operations involve the exclusive installation and operation of slot machines in chain store and street account locations.  At December 31, 2010, we operated approximately 6,000 slot machines throughout Nevada.  We define chain stores as grocery stores, drug stores, merchandise stores and convenience stores, each with more than five locations.  Our chain store contracts are primarily with large, national retailers such as Albertsons, Vons, Safeway, CVS and Smith’s, as well as Terrible Herbst gas stations and convenience stores.  Street accounts include local bars, restaurants and non-chain convenience stores.  Nevada law limits slot route operations to certain types of non-casino locations including bars, taverns, convenience stores, grocery stores and drug stores.  Most locations are limited to offering no more than 15 slot machines.

We generally enter into two types of slot route contracts: space lease arrangements and revenue-sharing arrangements.  Under space lease arrangements, which we principally enter into with chain stores, we pay a fixed monthly fee for each location in which we place slot machines and we keep the revenues generated by the slot machines.  Under revenue-sharing arrangements, which we typically enter into with street accounts, we pay the location owner a percentage of the revenues generated by our slot machines located at that particular street account.  In order to enter into a revenue-sharing arrangement, the location owner must hold a gaming license.  Both space lease and revenue-sharing arrangements typically involve long-term contracts that provide us with the exclusive right to install our slot machines at particular locations.  In the case of chain stores, our contracts also give us the exclusive right to install slot machines at stores opened in the future.

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Sales and Marketing

Nevada Market

Since we believe that a vast majority of our patrons at our casinos in Southern Nevada are locals, our marketing efforts are primarily focused on the local populations of Clark County and Nye County, Nevada.  Our marketing efforts seek to capitalize on repeat visitation from loyalty programs.  We have a state-of-the-art player’s club loyalty program, “the one card,” that combines the loyalty programs at all of our Nevada casinos.  Under the one card program, club customers are rewarded with points for playing at all of our casino locations in Nevada; club reward points may be redeemed for cash as well as free or discounted rooms, food or other goods or services provided at any such location. These marketing efforts seek to capitalize on the strong recognition and high level of quality and value associated with our properties.  We believe that the majority of our properties operate under strongly recognized local trade names, although the Terrible Herbst brand is currently used in our slot route and casino operations.  We have licensed the Terrible Herbst trade name from Terrible Herbst, Inc., a related party of Predecessor, through August 2011.  Subject to mutual consent as to the amount of the license fee and continued use, we may extend the term of the license agreement for five successive five-year periods.  However, there can be no assurance as to whether or when we will be able to renew the license agreement.

The customer base of the Sands Regent Casinos ranges from locals living in Northern Nevada, in the case of Rail City, to customers from Western Canada, the Pacific Northwest and Northern California, in the case of the Sands.  The marketing efforts for the Sands Regent Casinos are primarily focused on attracting locals and value-minded out-of-market visitors through aggressive promotions and customer loyalty programs.  A substantial portion of the Sands’ business, particularly its hotel customer base, is arranged through travel groups, both air and motor coach wholesalers, which offer economy rates, and are primarily from Western Canada, the Pacific Northwest and Northern California.

Gold Ranch’s guests include both tourists and local residents.  Gold Ranch attempts to attract local residents through mid-week promotions geared toward enhancing local play mainly through lottery, casino, and restaurant programs.  Tourist programs emphasize the RV Park, casino and restaurant cross-promotions.  Gold Ranch attempts to attract as much traffic as possible off Interstate 80, the major Nevada/California thoroughfare.

The customer base of the Primm Casinos consists of value oriented tourists from Southern California primarily from San Bernardino, Victorville and Barstow. The marketing efforts of the Primm Casinos prior to our acquisition were primarily focused on attracting value-minded out-of-market visitors through aggressive promotions and special events.  While continuing this focus, we have been expanding the marketing of these casinos into the Southern Nevada locals market.  Our promotional efforts leverage the amenities that the Primm Casinos offer including the golf course, adjacent outlet mall and entertainment events to attract visitors from the Las Vegas locals market and tourists from Southern California.

Midwest Market

Each of Lakeside Iowa, Mark Twain and St. Jo has a highly recognizable brand name within its respective community.  In addition, each of Lakeside Iowa, Mark Twain and St. Jo operates a slot player’s club loyalty program that rewards customers with points for every wager.  Points are redeemable for free play or cash (in the Missouri casinos) as well as food, valet or retail items.  Each of the three casinos also hosts blackjack and slot tournaments as well as other special events on the casino premises that seek to recognize and cultivate repeat visits by local casino patrons.

Business Strategy

Our business strategy for casino operations focus on the value oriented, high repeat patron from both local and drive-in tourist gaming markets.  With respect to local gaming markets, these consumers represent high potential repeat business, and generating customer satisfaction and loyalty is a critical component of our strategy.  Our business strategy for the slot route business primarily focuses on attracting and fostering repeat business from local gaming patrons.  Local patrons are typically sophisticated gaming customers who seek convenient locations, high payouts and a pleasant atmosphere.

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Casino Operations

Our casino operations strategy is to offer high quality gaming, hotel and dining experiences at affordable prices.  Our primary target market consists of value oriented, local, middle-market gaming patrons who gamble frequently.  We believe that we attract our targeted customers and that they return to our casinos because of our high value orientation, as well as convenient locations, great food, ample parking and high slot machine payout rates.  Because locals demand variety and quality in their slot and video poker machine play, our locals casino properties offer the latest in slot and video poker technology.  Although perceived value initially attracts a customer to our casino properties, actual value generates customer satisfaction and loyalty.  Primarily all of our business is generated from drive-in tourists.  As part of our commitment to providing a quality entertainment experience for our patrons, we are dedicated to ensuring a high level of customer satisfaction and loyalty by providing attentive customer service in a friendly, casual atmosphere.  We recognize that consistent quality and a comfortable atmosphere stem from the collective care and friendliness of each employee.

Slot Route Operations

We believe that slot route patrons choose to play slot machines near their homes.  We attract and retain these players by installing state-of-the-art slot machines with popular games, offering a high level of customer service and providing an attractive, comfortable atmosphere at our slot route locations.  We actively manage our slot route locations in much the same manner as we do our casinos.  For example, we extend patrons’ slot play by offering free snacks and beverages at some of our slot route locations.  We place our gaming machines in locations where they will receive maximum customer traffic, generally near a store’s entrance.  In addition, we utilize a game tracking system and other technology to monitor the play of our patrons.  Upon reviewing and analyzing our customer play, we adjust the types of games available.

We also maximize profitability through cost-saving technologies.  For example, our multi-denominational, multi-game machines, which allow patrons to tailor their gaming experience to their personal game preferences, may be upgraded by exchanging a computer chip instead of replacing the entire machine.  Other technologies also allow patron jackpot payments on site and help to reduce the need for slot route technicians to drive to locations to fill slot machines with coins or to pay jackpots.

Intellectual Property

The development of intellectual property is part of our overall business strategy, and we regard our intellectual property to be an important element of our success. While our business as a whole is not substantially dependent on any one patent or combination of our patents or other intellectual property, we seek to establish and maintain our proprietary rights in our business operations and technology through the use of patents, copyrights, trademarks and trade secret laws. We file applications for and obtain patents, copyrights and trademarks in the United States.  We also seek to maintain our trade secrets and confidential information by nondisclosure policies and through the use of appropriate confidentiality agreements.

E-T-T, Inc. (“E-T-T”), a subsidiary of Predecessor which converted to E-T-T, LLC as part of the Restructuring Transactions, is the owner of technology and pending patents for a casino player payment system. These inventions are referred to as the “Secure Safe System” and “Safe Patents.” This technology became the subject of two lawsuits, both of which have been settled and E-T-T has retained ownership of its technology and pending patents.

On December 31, 2010, in connection with the Restructuring Transactions, we acquired all of the trademark rights owned by Predecessor. This included trademarks licensed to Predecessor pursuant to a Trademark License Agreement (the “Trademark License”) between Predecessor and Terrible Herbst, Inc., dated August 24, 2001, for the trademarks “Terrible Herbst”; “Terrible’s”; and the “bad guy logo.” This license is for exclusive use of the marks in the states of Nevada, Missouri and Iowa in the gaming and casino industry. The Trademark License has an initial term ending on August 24, 2011, and we have the right to extend the term for additional five year periods, subject to compliance with the license, and an agreement on license fees. Additionally, we were assigned trademark rights owned by Predecessor for the following trademarks and the respective design logos: “Buffalo Bill’s Resort & Casino”; “Desperado”; “Pioneer Pete’s”; “Primm Center”; “Primm Rewards Players Club”; “Primm Valley Casino Resorts”; “Primm Valley Lotto Store”; “Primm Valley Resort”; “Primm Valley Resort & Casino”; “Star of the Desert Area”; “Whiskey Pete’s”; “Whiskey Pete’s Hotel Casino”; “Rail City”; and “Rail City Ale House.”

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We consider all of these marks, and the associated name recognition, to be valuable to our business, and we are not aware of any third party claims against the use or registration of our trademarks at this time.

Competition

Nevada Market

With respect to our casino operations in Las Vegas, Terrible’s Las Vegas competes for local gaming customers with other locals-oriented casino-hotels in Las Vegas.  We do not believe that we are in direct competition with many of the resort-casino properties on the Las Vegas Strip, which focus primarily on attracting tourist players.  Instead, we believe that our principal competitors in our casino operations are other local casinos located near our properties.  We compete with other local casinos on the basis of the desirability of location, payout rates, personalized approach, casino promotions, comfort and value of restaurants and hotel rooms and the variety and value of entertainment.  The construction of new casinos or the expansion of existing casinos near our casinos could have a negative impact on our casino operations.

Our casino operations in Pahrump, Henderson, and Searchlight, Nevada face competition from other casinos located in the vicinity of these properties.

Competition among casinos in the markets in which the Sands Regent Casinos are located, particularly the Reno/Sparks market, is intense. The expansion and maturation of Native American gaming in Northern California, the Pacific Northwest, and British Columbia has had an adverse impact on total gaming revenues of the greater Reno area.  Native American casinos in Northern California offer most of the amenities that casinos in Reno offer, including big name entertainment and hotel rooms. In addition, Thunder Valley, on the Interstate-80 corridor in California, has grown to be one of the country’s busiest and most profitable casinos and recently expanded its hotel and casino. More Native American casinos and expansions to other existing casinos are planned in Northern California and many are partnering with existing gaming companies that have financial resources to promote their facilities.  In addition, many of our direct competitors in the Reno market have greater financial and other resources than we do.

The Primm Casinos face competition from Native American gaming in Southern California, other casinos outside of Las Vegas, such as casinos located in Jean, Laughlin and Mesquite, Nevada, as well as value oriented casinos located in the Las Vegas market.

With respect to our slot route operations, this business is subject to substantial direct competition for our revenue-sharing and fixed space lease locations from two significant large operators and several smaller operators, located principally in Las Vegas, Nevada.  The principal method of competition for slot route operators includes the economic terms of the revenue-sharing or space lease arrangement, the services provided and the reputation of the slot route operator.  Price competition for revenue-sharing or space lease arrangements is intense and we believe that price competition among slot route operators will continue.

Midwest Market

Each of Lakeside Iowa, Mark Twain and St. Jo competes for local gaming customers with other casinos in their respective markets.

Lakeside Iowa is located along Interstate 35, approximately 40 miles southwest of Des Moines, Iowa.  The primary competitors of Lakeside Iowa are the Prairie Meadows Casino, the Riverside Casino and Golf Resort and the Meskwaki Bingo Casino Hotel.  The Prairie Meadows Casino is located approximately 60 miles from Lakeside Iowa east of Des Moines.  Riverside Casino and Golf Resort is located in Riverside, Iowa, approximately 175 miles from Osceola.  The Meskwaki Bingo Casino Hotel is located in Tama, Iowa and is approximately 110 miles from Lakeside Iowa.

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Mark Twain is the only casino in northeast Missouri and is approximately 15 miles from Quincy, Illinois and approximately 25 miles from Hannibal, Missouri. The closest casino to Mark Twain is the Catfish Bend Casino, located in Burlington, Iowa, which is approximately 75 miles from LaGrange.

St. Jo is approximately 50 miles north of Kansas City, Missouri. St. Jo primarily targets residents of St. Joseph, Missouri and is the only casino in St. Joseph.  However, St. Jo competes indirectly with four riverboats in Kansas City, Missouri and to a lesser extent with several Native American casinos, the closest of which is approximately 45 miles from St. Joseph.

Certain states have recently legalized, and other states are considering legalizing, casino gaming in certain areas.  In addition, states such as Illinois and Kansas have awarded additional gaming licenses or are expanding permitted gaming.  In addition, Iowa is considering awarding additional gaming licenses in the State.  The award of one or more additional licenses in Iowa or in other locations close to Lakeside Iowa, Mark Twain or St. Jo would be expected to adversely affect our results of operations and financial condition.

Seasonality

We do not believe that our business as a whole is seasonal to any significant degree.  However, our casinos in the Midwest and in Northern Nevada do experience some business interruption during the winter months.

Environmental Laws

Compliance with federal, state and local laws enacted for the protection of the environment to date had no material effect upon our capital expenditures, earnings or competitive position and we do not anticipate any material adverse effects in the future based on the nature of our operations.

Governmental Regulation

The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations.  Each of our casinos is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where it is located.  These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations.  Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions.

Our businesses are subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising.  Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted.  Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

Nevada

The ownership and operation of casino gaming facilities and slot routes in Nevada are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder, or the Nevada Act, and various local regulations.

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, and the Cities of Las Vegas, Reno, Henderson and other local regulatory authorities (collectively, the “Nevada Gaming Authorities”).

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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;

·                  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 gaming operations.

Limited liability companies and other entities that operate casinos or slot routes 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.  Herbst Gaming is registered by the Nevada Gaming Commission as a publicly traded corporation (a “registered corporation”).  As a registered corporation, we are required periodically to submit detailed financial and operating reports to the Nevada Gaming Commission and furnish any other information that the Nevada Gaming Commission may require.  Herbst Gaming has been found suitable by the Nevada Gaming Commission to own the membership interests of various licensed limited liability companies that own and operate casinos or slot machine operating routes licensed by the Nevada Gaming Commission (all of which are collectively referred to as the “Gaming Subsidiaries”).  No person may become a member of, or receive any percentage of the profits from any of the Gaming Subsidiaries without first obtaining licenses and approvals from the Nevada Gaming Authorities.  Herbst Gaming and all of its Gaming Subsidiaries have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in the various gaming businesses that each respectively operates in Nevada.

The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, Herbst Gaming or any of the Gaming Subsidiaries in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors, managers and certain key employees of Herbst Gaming or any of the Gaming Subsidiaries 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 any change in corporate position.

If the Nevada Gaming Authorities were to find an officer, director, manager 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.

Herbst Gaming and the Gaming Subsidiaries 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 Herbst Gaming and its Gaming Subsidiaries must be reported, to and/or approved by, the Nevada Gaming Commission.

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If it were determined that Herbst Gaming or any of its Gaming Subsidiaries 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, Herbst Gaming, the Gaming Subsidiaries 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 appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect our operations.

Any beneficial holder of Herbst Gaming’s voting or non-voting securities, regardless of the number of shares owned, may be required to file an application, be investigated and have his or her suitability as a beneficial holder of Herbst Gaming’s voting or non-voting securities determined if the Nevada Gaming Commission has reason to believe that such ownership would be inconsistent with the declared policies of the State of Nevada.  If such beneficial holder who must be found suitable is a corporation, limited liability company, partnership or trust, it must submit detailed business and financial information including a list of its beneficial owners.  The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in connection with conducting such investigation.

The Nevada Act requires any person who acquires more than 5% of a registered corporation’s voting securities to report the acquisition to the Nevada Gaming Commission.  The Nevada Act requires 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 such filing.  However, an “institutional investor,” as defined in the Nevada Act, that beneficially owns more than 10%, but not more than 11%, of a registered corporation’s voting securities as a result of a stock repurchase by the registered corporation may not be required to file such an application.  Further, an institutional investor that acquires more than 10%, but not more than 25%, of a registered corporation’s voting securities may apply to the Nevada Gaming Commission for a waiver of a finding of suitability if that institutional investor holds the voting securities for investment purposes only.  An institutional investor that has obtained a waiver may hold more than 25%, but not more than 29%, of a registered corporation’s voting securities and maintain its waiver if the additional ownership results from a stock repurchase by the registered corporation.  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 the board of directors of the registered corporation, any change in the corporate charter, bylaws, management, policies or operations of the registered corporation, or any of its gaming affiliates or any other action which the Nevada Gaming Commission finds to be inconsistent with holding the registered corporation’s voting securities for investment purposes only.  Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include:

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

·                  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;

·                  providing a source of state and local revenues through taxation and licensing fees;

·                  voting on all matters voted on by stockholders;

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·                  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.

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 by 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.  Herbst Gaming and the Gaming Subsidiaries 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 Herbst Gaming or the Gaming Subsidiaries, Herbst Gaming:

·                  pays that person any dividend or interest upon voting securities;

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

·                  pays remuneration in any form to that person for services rendered or otherwise; or

·                  fails 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 entity controlling a gaming license.

Herbst Gaming may be required to disclose to the Nevada State Gaming Control Board and the Nevada Gaming Commission the identities of all holders of its debt securities.  The Nevada Gaming Commission may, in its discretion, require the holder of any debt or similar security of a registered corporation to file applications, be investigated and be found suitable to own the debt or other security of a registered corporation.  If the Nevada Gaming Commission determines that a person is unsuitable to own the 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.

Herbst Gaming is required to maintain a current stock 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.

Herbst Gaming may not make a public offering of securities without the prior approval of the Nevada Gaming Commission if the proceeds from the offering are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for those purposes or similar transactions. 

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

The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defensive tactics affecting Nevada corporate gaming licensees and registered corporations that are affiliated with those operations may be injurious to stable and productive corporate gaming.  The Nevada Commission has established regulations to ameliorate the potentially adverse effects of these business practices upon Nevada’s gaming industry and to further Nevada’s policy to: (1) assure the financial stability of corporate gaming licensees and their affiliates; (2) preserve the beneficial aspects of conducting business in the corporate form; and (3) promote a neutral environment for the orderly governance of corporate affairs.  Approvals are, in certain circumstances, required from the Nevada Commission before the registered corporation can make exceptional repurchases of voting securities above the current market price and before a corporate acquisition opposed by management can be consummated.  The Nevada Act also requires prior approval of a plan of recapitalization proposed by the registered corporation’s board of directors in response to a tender offer made directly to the registered corporation’s stockholders for the purposes of acquiring control of the registered corporation.

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.

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Missouri

On November 3, 1992, a statewide referendum authorized gaming in the State of Missouri on the Missouri and the Mississippi Rivers.  On April 29, 1993, Missouri enacted revised legislation (as amended, the “Missouri Gaming Law”) which amended the existing legislation.  In a decision handed down on January 25, 1994, the Missouri Supreme Court held that games of chance were prohibited under the Missouri constitution.  In a statewide election held on November 8, 1994, Missouri voters approved the adoption of an amendment to the Missouri Constitution which permits the legislature to allow games of chance to be conducted on excursion boats and floating facilities on the Mississippi River and the Missouri River.  As a result of the amendment, games of chance are also permitted, subject to Missouri Gaming Law.  Pursuant to the Missouri Gaming Law, there are twelve operating riverboat gaming facility sites in Missouri: one in Caruthersville; one in Boonville; four in the St. Louis area; four in the Kansas City area; one in LaGrange; and one in St. Joseph. On November 8, 2008, voters in Missouri limited the number of licenses to thirteen.  The thirteenth license has not been issued; however, Cape Girardeau and its gaming partner have been given priority status for investigation and licensure by the Missouri Gaming Commission.

Opponents of gaming in Missouri have brought several legal challenges to gaming in the past and may possibly bring similar challenges in the future.  On November 25, 1997, the Missouri Supreme Court overturned a state lower court and held that a portion of the Missouri Gaming Law that authorized excursion gaming facilities in “artificial basins” up to 1,000 feet from the Mississippi or Missouri rivers was unconstitutional.  This ruling created uncertainty as to the legal status of several excursion gaming riverboat facilities in the state.  On November 3, 1998, a statewide referendum was held, whereby the voters amended the constitution to allow “artificial basins” for existing facilities, effectively overturning the above Missouri Supreme Court decision.  There can be no assurances that any future challenges, if brought, would not further interfere with gaming operations in Missouri, including the operations of St. Jo and Mark Twain.

Under the Missouri Gaming Law, the ownership and operation of riverboat gaming facilities in Missouri are subject to extensive state and local regulation.  Herbst Gaming, HGI—St. Jo, LLC, the subsidiary of Herbst Gaming that owns St. Jo and the current licensee and HGI—Mark Twain, LLC, the subsidiary of Herbst Gaming that owns Mark Twain and the current licensee, any subsidiaries, and some of their officers and employees are and will be subject to specific regulations, including ongoing licensing requirements.  As part of the application and licensing process for a gaming license, the applicant must submit detailed financial, operating and other reports to the Missouri Gaming Commission.  Each applicant has an ongoing duty to update the information provided to the Missouri Gaming Commission in the application, usually within seven days of a material change in the information on file with the Missouri Gaming Commission.  Each of St. Jo and Mark Twain has frequently updated its application materials since it was initially licensed.  In addition to the information required of the applicant, directors, officers, affiliated business entities and other defined “key persons” (which include individuals and companies designated by the Missouri Gaming Commission) must submit Personal Disclosure Forms, which include detailed financial information, and are subject to thorough investigations.  In addition, some officers and directors of Herbst Gaming, as well as Herbst Gaming itself, have submitted Personal Disclosure Forms and applications to the Missouri Gaming Commission.  All gaming employees must obtain an occupational license issued by the Missouri Gaming Commission.  Suppliers are also subject to licensing requirements of the Missouri Gaming Commission.  An institutional investor holding an interest of 20% or less in Herbst Gaming for only passive investment purposes, may be exempted from these licensure requirements by the Missouri Gaming Commission.

Effective May 30, 2008, certain amendments were made to Missouri’s gaming regulations that provide for the division of Missouri gaming licenses into Class A and Class B Licenses. Herbst Gaming now holds a Class A License which allows Herbst Gaming to operate the HGI-St. Jo and HGI-Mark Twain business entities. HGI-St. Jo and HGI-Mark Twain now hold Class B Licenses allowing them to operate the respective riverboat gaming operations in Missouri. Based on these amended regulations, HGI-St. Jo as operator of Terrible’s Frontier Casino facility and HGI-Mark Twain as operator of the Mark Twain Casino facility became Class B license holders.  Herbst Gaming, as the holding and parent company of HGI-St. Jo and HGI-Mark Twain, holds a Class A license.

Both the holding company Class A license and the operating Class B licenses remain issued through application to the Missouri Gaming Commission, which continues to require, among other things:

·                  suitability investigations into an applicant’s character, financial responsibility, experience and qualifications;

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·                  suitability investigations into each designated key person or affiliated business entity’s character, financial responsibility, experience and qualifications;

·                  disclosure of required financial (see above) and other personal information on each key person or designated affiliated business entity;

·                  disclosure of detailed information about the applicant’s history, business, affiliations, officers, directors and owners;

·                  an affirmative action plan for the hiring and training of minorities and women; and

·                  an economic development or impact report.

License fees cover all related costs of the Missouri Gaming Commission investigation and are a minimum of $50,000 for the initial application and $25,000 annually thereafter.  Each of Herbst Gaming, HGI—St. Jo and HGI—Mark Twain has undergone a full licensing investigation and hearing in connection with its licensing.

The Missouri Gaming Law and implementing regulations impose restrictions on the use of and do not permit the transfer of the gaming licenses as well as limitations on transactions engaged in by licensees.  The licenses issued by the Missouri Gaming Commission may not be transferred nor pledged as collateral.  The Missouri Gaming Law regulations bar a licensee from taking any of the following actions without prior notice to, and approval by, the Missouri Gaming Commission:

·                  any transfer or issuance of an ownership interest in a gaming licensee that is not a publicly held company;

·                  any transfer or issuance of an ownership interest of five percent or more of the issued and outstanding ownership interest of Herbst Gaming which is publicly traded and is a holding company;

·                  any private incurrence of debt by the licensee or any holding company of $1,000,000 or more;

·                  any public issuance of debt by a licensee or its holding company; and

·                  defined “significant related party transactions.”

In addition, the licensee must notify the Missouri Gaming Commission of other transactions that include the transfer of five percent or more of an ownership interest in the licensee or holding company if publicly held and any transaction of at least $1,000,000.

The restrictions on transfer of ownership apply to Herbst Gaming as well as the direct licensees, HGI—St. Jo and HGI—Mark Twain.  Gaming equipment may not be pledged.  Corporate stock of some licensees may not be pledged except in narrow circumstances and subject to regulatory conditions.

Missouri statutes and administrative rules contain detailed requirements and conditions concerning the operation of a licensed excursion gaming boat facility, including but not limited to the following:

·                  a charge of two dollars per gaming customer per excursion that licensees must either collect from each customer or pay itself to the Missouri Gaming Commission;

·                  minimum payouts;

·                  the payment of a 21% tax on adjusted gross receipts;

·                  prohibitions against providing credit to gaming customers;

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·                  the use of credit cards and cashing of checks by customers;

·                  providing security on the excursion gambling boat, including a requirement that each licensee reimburse the Missouri Gaming Commission for all costs of any Missouri Gaming Commission staff, including Missouri Highway Patrol Officers, necessary to protect the public on the licensee’s riverboat;

·                  the receipt of liquor licenses from the Missouri Gaming Commission and local jurisdictions; and

·                  the adoption of minimum control standards for the conduct of gaming and the operation of the facility approved by the Missouri Gaming Commission.

The Missouri Gaming Commission has the power, as well as broad discretion in exercising this power, to revoke or suspend gaming or occupational licenses and impose other penalties for violations of the Missouri Gaming Law and the rules and regulations promulgated thereunder, including without limitation, forfeiture of all gaming equipment used for improper gaming and fines of up to three times a licensee’s highest daily gross receipts during the preceding twelve months.

Although the Missouri Gaming Law provides no limit on the amount of riverboat space that may be used for gaming, the Missouri Gaming Commission is empowered to impose space limitations through the adoption of rules and regulations.

Previously, the Missouri Gaming Law imposed as to each customer a $500 loss limit per two-hour period established by each licensee with the approval of the Missouri Gaming Commission.  However, by vote of Missouri registered voters on November 8, 2008, the Missouri Gaming Law was amended to provide that the Missouri Gaming Commission shall not establish any regulations or policies that limit the amount of wagers, losses or buy-in amounts.

In addition, the Missouri Gaming Commission is empowered to determine on a city and county-specific basis where “dockside” or permanently-docked gaming is appropriate and may be permitted.  The Missouri Gaming Commission has authorized all twelve licensed sites to operate all or a portion of their facilities on a continuously docked basis.

On February 23, 2000, the Missouri Gaming Commission granted Mark Twain Casino, L.L.C., from which Herbst Gaming purchased the Mark Twain, the authority to permanently dock the excursion gambling riverboat facility known as the “Mark Twain Casino.” On February 15, 1996, the Missouri Gaming Commission granted St. Joseph Riverboat Partners, from which Herbst Gaming purchased St. Jo, the authority to permanently dock the excursion gambling riverboat facility known as the “Biloxi Bell, II.”

Iowa

In 1989, the State of Iowa legalized riverboat gaming on the Mississippi River and other waterways located in Iowa.  Under Iowa law, a license to conduct gaming may be issued in a county only if the county electorate has approved gaming.  The electorate of Clarke County, Iowa, approved gaming on February 28, 1995 by referendum.  Gaming conducted by the Lakeside Casino Resort was approved by referendum on November 18, 1997.  In addition, a referendum must be held every eight years in each of the counties where gambling games are conducted and the proposition to continue to allow gambling games in such counties must be approved by a majority of the county electorate voting on the proposition.  Such referenda took place on November 5, 2002 and November 2, 2010 with the majority of the electorate voting each time in favor of continued gaming in Clarke County.  The next referendum is scheduled for 2018.  If any reauthorization referendum is defeated, Iowa law provides that any previously issued gaming license will remain valid and subject to renewal for a total of nine years from the date of original issuance of the license, subject to earlier non-renewal or revocation under Iowa law and regulations applicable to all licenses.

In addition, Iowa law authorizes the granting of licenses to non-profit corporations that, in turn, are permitted to enter into operating agreements with qualified persons who also actually conduct riverboat gaming operations.  Such operators must likewise be approved and licensed by the Iowa Racing and Gaming Commission (the “Iowa Gaming Commission”).

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In July 1997, Clarke County Development Corporation, a non-profit corporation organized for the purpose of facilitating riverboat gaming in Osceola, Iowa, entered into an operator’s contract, since amended, for Lakeside Iowa for a term of up to 50 years.  Under the operator’s contract, as amended, Clarke County Development Corporation is to be paid a monthly fee equal to 1.5% of the adjusted gross gaming revenue of Lakeside Iowa.  Further, pursuant to a dock site agreement executed in August 1997 (which also has a term of up to 50 years), Lakeside Iowa is required to pay a monthly fee to the City of Osceola and the Water Works Board of Trustees equal to 1.25% of the adjusted gross gaming revenue of Lakeside Iowa and an annual fee, to be paid in equal monthly installments, equal to approximately $160,000, with such amount to increase each year by 1% until termination of the lease.  In September 2004, we entered into an agreement whereby upon the later of our obtaining approval from the Iowa Gaming Commission or our closing the transactions contemplated with Southern Iowa Gaming Company, Southern Iowa will immediately pay $3.2 million to the City of Osceola.  Beginning eight years from the date of such payment and continuing for so long as the operator’s contract, as amended, remains in effect, we will pay the City of Osceola an additional 1% of annual adjusted gross receipts from Lakeside Iowa.  We may, however, offset up to 50% of this 1% annual payment with any expenditures we have made for capital improvements (excluding gaming devices and improvements to the gaming facility, casino floor, development of a truck stop and general repairs and maintenance).

Iowa law permits gaming licensees to offer unlimited stakes gaming on games approved by the Iowa Gaming Commission on a 24-hour basis.  Dockside casino gaming is authorized by the Iowa Gaming Commission and the Iowa Legislature, subject to certain limitations not applicable to Lakeside Iowa, eliminated the requirement that gaming licensees cruise, effective May 6, 2004.  The legal age for gaming is 21.

Lakeside Iowa’s excursion gambling boat license was approved for renewal at a March 3, 2011 meeting of the Iowa Gaming Commission.  This license is not transferable and will need to be renewed annually and prior to the commencement of each subsequent annual renewal period.  In connection with its most recent renewal of the license, the Iowa Gaming Commission is requiring the Company to (i) appear at the June 2011 Iowa Gaming Commission meeting to present a detailed development plan for a hotel expansion project, which we expect will cost approximately $10.0 million, and (ii) commence construction of the hotel expansion project by October 2011.

The ownership and operation of gaming facilities in Iowa are subject to extensive state laws, regulations of the Iowa Gaming Commission and various county and municipal ordinances (collectively, the “Iowa Gaming Laws”), concerning the responsibility, financial stability and character of gaming operators and persons financially interested or involved in gaming operations.  Iowa Gaming Laws seek to:  (1) prevent unsavory or unsuitable persons from having direct or indirect involvement with gaming at any time or in any capacity; (2) establish and maintain responsible accounting practices and procedures; (3) maintain effective control over the financial practices of licensees (including the establishment of minimum procedures for internal fiscal affairs, the safeguarding of assets and revenues, the provision of reliable record keeping and the filing of periodic reports with the Iowa Gaming Commission); (4) prevent cheating and fraudulent practices; and (5) provide a source of state and local revenues through taxation and licensing fees.  Changes in Iowa Gaming Laws could have a material adverse effect on the Iowa gaming operations.

Gaming licenses granted to individuals must be renewed every year, and licensing authorities have broad discretion with regard to such renewals.  Licenses are not transferable.  The Iowa gaming operations must submit detailed financial and operating reports to the Iowa Gaming Commission.  Certain contracts of licensees in excess of $100,000, that exceed three years in term or that involve related parties must be submitted to and approved by the Iowa Gaming Commission.

Officers, directors, managers and employees of the Iowa gaming operations are required to be licensed by the Iowa Gaming Commission.  Employees associated with gaming must obtain a license and these licenses are subject to immediate suspension under specific circumstances.  In addition, anyone having a material relationship or involvement with the Iowa gaming operations may be required to be found suitable or to be licensed, in which case those persons would be required to pay the costs and fees of the Iowa Gaming Commission in connection with the investigation.  The Iowa Gaming Commission may deny an application for a license for any cause deemed reasonable.  In addition to its authority to deny an application for license, the Iowa Gaming Commission has jurisdiction to disapprove a change in position by officers or key employees and the power to require the Iowa gaming operations to suspend or dismiss officers, directors or other key employees or sever relationships with other persons who refuse to file appropriate applications or whom the Iowa Gaming Commission finds unsuitable to act in such capacities.

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The Iowa Gaming Commission may revoke a gaming license if the licensee:

·                  has been suspended from operating a gaming operation in another jurisdiction by a board or commission of that jurisdiction;

·                  has failed to demonstrate financial responsibility sufficient to meet adequately the requirements of the gaming enterprise;

·                  is not the true owner of the enterprise;

·                  has failed to disclose ownership of other persons in the enterprise;

·                  is a corporation 10% of the stock of which is subject to a contract or option to purchase at any time during the period for which the license was issued, unless the contract or option was disclosed to the Iowa Gaming Commission and the Iowa Gaming Commission approved the sale or transfer during the period of the license;

·                  knowingly makes a false statement of a material fact to the Iowa Gaming Commission;

·                  fails to meet a monetary obligation in connection with an excursion gaming boat;

·                  pleads guilty to, or is convicted of, a felony;

·                  loans to any person, money or other thing of value for the purpose of permitting that person to wager on any game of chance;

·                  is delinquent in the payment of property taxes or other taxes or fees or a payment of any other contractual obligation or debt due or owed to a city or county; or

·                  assigns, grants or turns over to another person the operation of a licensed excursion boat (this provision does not prohibit assignment of a management contract approved by the Iowa Gaming Commission) or permits another person to have a share of the money received for admission to the excursion boat.

If it were determined that the Iowa Gaming Laws were violated by a licensee, the gaming licenses held by a licensee could be limited, made conditional, suspended or revoked.  In addition, the licensee and the persons involved could be subject to substantial fines for each separate violation of the Iowa Gaming Laws in the discretion of the Iowa Gaming Commission.  Limitations, conditioning or suspension of any gaming license could (and revocation of any gaming license would) have a material adverse effect on operations.

The Iowa Gaming Commission may also require any individual who has a material relationship with the Iowa gaming operations to be investigated and licensed or found suitable.  The Iowa Gaming Commission, prior to the acquisition, must approve any person who acquires 5% or more of a licensee’s equity securities in the event that approval by the Iowa Gaming Commission is not otherwise contemplated by the operative acquisition document.  The applicant stockholder is required to pay all costs of this investigation.

Gaming taxes approximating 22% of the adjusted gross receipts above $3,000,000 will be payable by each licensee on its operations to the State of Iowa.  In addition, there was a prepaid assessment due on June 1, 2005 and another prepaid assessment paid on June 1, 2006, in an aggregate amount equal to 2.152% of each licensee’s estimated adjusted gross receipts for fiscal year 2004.  These assessments will be offset by future state gaming taxes paid by each licensee with a credit for 20% of the assessments paid allowed each year beginning July 1, 2010 for five consecutive years.  The state of Iowa is also reimbursed by the licensees for all costs associated with monitoring and enforcement by the Iowa Gaming Commission and the Iowa Department of Criminal Investigation.

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Employees

As of December 31, 2010, we employed 3,839 full-time employees and 1,259 part-time employees.  None of our current employees are covered by a collective bargaining agreement.  We believe that our relationship with our employees is good.

Available Information

A copy of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports, are available, without charge, through our website at www.herbstgaming.com or by sending a written request to Herbst Gaming, LLC, 3440 West Russell Road, Las Vegas, Nevada 89118, Attn:  Secretary.  These reports, and any amendments to these reports, are made available on our website as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the Securities and Exchange Commission (the “SEC”).  An overview of our investor relations department, our primary contact information and a list of our management team are each available free of charge through our website at www.herbstgaming.com.  References to our website in this Annual Report on Form 10-K are provided as a convenience and do not constitute an incorporation by reference of the information contained on, or accessible through, the website.  Therefore, such information should not be considered part of this Annual Report on Form 10-K.

ITEM 1A.                                            RISK FACTORS.

The following risk factors, among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in this Annual Report on Form 10-K.  If any of the following risks and uncertainties or other risks and uncertainties not currently known to us or not currently considered to be material actually occurs, our business, financial condition or operating results could be harmed substantially.

Our future financial results will be affected by the adoption of fresh start reporting and may not reflect historical trends.

We were formed pursuant to the Bankruptcy Plan to acquire substantially all of the assets of Predecessor.  The Restructuring Transactions resulted in us becoming a new reporting entity and adopting fresh start reporting in accordance with Accounting Standards Codification (“ASC”) 852-10-15.  As required by fresh start reporting, the Company caused Predecessor’s assets and liabilities to be adjusted to measured value, and certain assets and liabilities not previously recognized in Predecessor’s financial statements have been recognized under fresh start reporting.  Because the Restructuring Transactions were consummated on December 31, 2010, fresh start reporting was adopted and the consolidated financial statements included in this Annual Report on Form 10-K give effect to adjustments in the carrying values of assets or liabilities that were recorded under fresh start reporting rules.  Accordingly, our financial condition and results of operations from and after January 1, 2011 may not be comparable to the financial condition and results of operations reflected in Predecessor’s historical consolidated financial statements including those included herein.

The bankruptcy filing has had a negative impact on Predecessor’s image which may negatively impact our business going forward.

As a result of the Chapter 11 cases, Predecessor has been the subject of negative publicity which has had an impact on its image and the images of its casino and slot route operations.  This negative publicity may have an effect on the terms under which some customers and suppliers are willing to continue to do business with us and could materially adversely affect our business, financial condition and results of operations.

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Our operations, and the gaming industry as a whole, have been adversely affected by the recession.  Our gaming operations and casinos may be further adversely impacted if general economic conditions do not improve, which could lead to an adverse impact on our operations.

The results of operations of Predecessor’s slot route and casino businesses have been negatively impacted by the global financial recession, subprime mortgage crisis, volatile gasoline and energy prices, high unemployment and the general economic downturn, including a decrease in consumer confidence levels.  The gaming industry as a whole is currently experiencing reduced demand.  The demand for gaming is highly sensitive to consumers’ disposable incomes, and a general decline in economic conditions, including businesses downsizing their workforces, may lead to our potential customers having less discretionary income with which to wager.  Many of our customers have also experienced significant reductions in their savings as a result of recent investment losses.  The State of Nevada, one of our primary markets, has experienced a significant economic downturn.  According to the U.S. Bureau of Labor Statistics, Nevada had the second highest unemployment rate in the country in 2010 at 14.5% compared to the national average of 9.6%.  In addition, according to a report published by Realtytrac, Nevada ranked at number one in foreclosure rates in the country for 2010.  These developments have led, and are likely to continue to lead, to a reduction in the revenues and have materially adversely affected the operating results of Predecessor and we expect that our results of operations will also be negatively impacted.  Gaming industry revenues are sensitive to general economic conditions and are influenced by consumer confidence in the economy and other factors.  An extended period of reduced discretionary spending could significantly harm our operations and we may not be able to lower our costs rapidly enough, or at all, to offset a decrease in revenues.

We may be unable to generate sufficient cash flows to meet our debt obligations and finance all operating expenses, working capital needs and capital expenditures.

We may be unable to generate sufficient revenues and cash flows to service our debt obligations as they come due, finance capital expenditures and meet our operational needs.  Any one of these failures may preclude us from, among other things:

·                  maintaining or enhancing our current customer offerings;

·                  taking advantage of future opportunities;

·                  growing our businesses; or

·                  responding to competitive pressures.

Further, our failure to generate sufficient revenues and cash flows could lead to cash flow and working capital constraints, which may require us to seek additional working capital.  We may not be able to obtain such working capital when it is required.  Further, even if we were able to obtain additional working capital, it may only be available on unfavorable terms.  For example, we may be required to take on additional debt, the interest costs of which could adversely affect our results of operations and financial condition.  If any such required capital is obtained in the form of equity, the equity interests of the holders of the then-outstanding Common Units could be diluted.

Limited liquidity and working capital may also restrict our ability to maintain and update our facilities, which could put us at a competitive disadvantage to casinos offering more modern and better maintained facilities.

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A write-off of all or a part of our identifiable intangible assets or goodwill would hurt our operating results and reduce our net worth.

Under generally accepted accounting principles, we review our identifiable intangible assets, including goodwill, for impairment at least annually or when events or changes in circumstances indicate the carrying value may not be recoverable.  Factors that may be considered a change in circumstances, indicating that the carrying value of our goodwill or other identifiable intangible assets may not be recoverable, include a sustained decline in the value of our Common Units, reduced future cash flow estimates and slower growth rates in our industry.  We may be required to record a significant non-cash impairment charge in our financial statements during the period in which any impairment of our goodwill or other identifiable intangible assets is determined, negatively impacting our results of operations and stockholders’ equity.  As of December 31, 2010, we had $128.5 million of total identifiable intangible assets and $60.0 million of goodwill on our balance sheet, which represented approximately 32% of our total assets.  Intangible assets such as customer loyalty programs, the Terrible’s Trade name and slot route relationships that have a definite life are amortized based on estimated useful lives.  Identifiable intangible assets that have an indefinite useful life including gaming license rights in jurisdictions where a limited number of licenses are issued and local trade names are not amortized.  As of December 31, 2010, definite lived intangible assets totaled $8.3 million and indefinite lived intangible assets totaled $120.2 million.  Goodwill and indefinite lived intangible assets are tested annually and between annual tests if events occur or circumstances change that would, more likely than not, reduce the fair value of the amount reflected on the balance sheet. Because valuation methodologies include forecasted information and assumptions about future performance, the likelihood and severity of an impairment charge increases during periods of market volatility, such as the one that recently occurred as a result of the general weakening of the global economy.  As a result of our annual impairment test in the fourth quarter of 2010, we recognized an impairment loss of $80.1 million related to identifiable intangible assets.  The impairment charge included $46.4 million related to the gaming license at the Lakeside Casino in Iowa, $29.3 million related to the Primm Casinos trade name and $4.4 million related to the Sands Regency Casino trade name.  The Primm Casino trade name and Sands Regency Casino trade name impairments were primarily due to reduced revenue and cash flow projections while the impairment at the Lakeside Casino was primarily due to higher capital expenditure assumptions, lower free cash flow amounts and changes in the weighted average cost of capital, which reduced the fair value of the gaming license.  If we are unable to retain our existing customers, or if average customer spending or customer traffic decreases, we may incur future impairment charges.  In the event an impairment of indefinite lived intangible assets or goodwill is identified, a charge to earnings would be recorded.  Although it does not affect our cash flow, a write-off in future periods of all or a part of these assets would adversely affect our business, financial condition and results of operations.

We face intense competition, including from Native American gaming operations, and may experience a loss of market share.

The gaming industry is highly competitive.  Our slot route operations are subject to substantial direct competition for our revenue-sharing and fixed space lease locations from one large slot route operator and numerous smaller operators, located principally in Las Vegas.  With respect to our casino operations in Nevada, we compete for local gaming customers with other locals-oriented casino-hotels and other casinos located in the vicinity of these properties.  Our casino operations in the Midwest face competitors that include land-based casinos, dockside casinos, riverboat casinos, casinos located on Native American reservations, and racing and pari-mutuel operations.

The largest sources of customers for the Sands Regency Casinos are California and the Pacific Northwest, including a large number of customers who drive to Reno from the San Francisco and Sacramento metropolitan areas, and the largest source of customers for the Primm Casinos are from Southern California, including a large number of customers who drive to Las Vegas from the San Bernardino and Barstow metropolitan areas.  The expansion of Native American casinos in California, Oregon and Washington continues to have an impact on casino revenues in Nevada in general, and such impact may be significant on the markets in which the Sands Regency Casinos and the Primm Casinos operate.

If our competitors operate more successfully, if their existing slot route operations or properties are enhanced or expanded, or if additional competitors are established in and around the locations in which we conduct business, we may lose market share.  In particular, the expansion of slot route operations or casino gaming in or near any geographic area from which we attract or expect to attract a significant number of our customers could have a material adverse effect on our business, financial condition and results of operations.

Some Native American casinos have a lower minimum age requirement for gambling, which may increase their market share at the expense of our market share.

Some Native American casinos in Southern California and Iowa allow customers at least 18 years old to gamble, whereas our gambling establishments require our customers to be at least 21 years old.  This could lead to a reduced market for us as those Native American casinos would have an earlier opportunity to create loyal customers. 

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If our competitors are able to retain these customers after they turn 21, thereby causing them to continue gambling at those establishments rather than try our establishments, we may experience reduced market share.

The success of our slot route and casino operations is dependent on our ability to renew our contracts and license agreements.

We will conduct our slot route operations under contracts with third parties, substantially all of which will expire prior to December 31, 2015.  Both contracts with chain and street accounts are renewable at the option of the owner of the respective chain store or street account.  As our slot route contracts expire, we will be required to compete for renewals.  If we are unable to renew a material portion of our slot route contracts because our competitors offer more favorable terms or for any other reason, including the greater financial stability of our competitors, our business, financial condition and results of operations would be adversely affected.  We cannot assure you that the current chain or street account contracts will be renewed or, if they are renewed, that any renewals will not be on terms less favorable to us.

In addition, the “Terrible Herbst” brand is currently used in our slot route and casino operations.  We have licensed the Terrible Herbst trade name from Terrible Herbst, Inc., a related party of Predecessor, through August 2011.  Subject to mutual consent as to the amount of the license fee and continued use, we may extend the term of the license agreement for five successive five-year periods.  However, there can be no assurance as to whether or when we will be able to renew the license agreement.  In the event that the license agreement is not renewed and we are unable to secure an effective alternative, the loss of the Terrible’s brand could have a material adverse effect on our business, financial condition and results of operations.

We depend upon our key employees and certain members of our management.

Our success is substantially dependent upon the efforts and skills of David D. Ross, our Chief Executive Officer, Ferenc Szony, our President, Donna Lehmann, our Senior Vice President and Chief Financial Officer and Marc. H. Rubinstein, our Senior Vice President, General Counsel and Secretary.  We have entered into employment agreements with Mr. Ross through December 2013, Mr. Szony and Ms. Lehmann through December 2011 and Mr. Rubinstein through February 2013.  The employment agreements with Messrs. Ross, Szony and Rubinstein automatically renew for successive one-year periods unless sooner terminated or unless either party to the respective agreements notifies the other in writing at least 60 days prior to the date the respective agreement is scheduled to expire.  If we were to lose the services rendered by these executives, our operations could be adversely affected.  In addition, we compete with other potential employers for employees, and we may not succeed in hiring and retaining the executives and other employees that we need.  An inability to hire quality employees could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to protect our customer’s credit card data, we could be exposed to data loss, litigation and liability and our reputation could be significantly harmed.

In connection with credit card sales, we transmit confidential credit card information securely over public networks and store it in our data warehouse.  Third parties may have the technology or know-how to breach the security of this customer information, and our security measures may not effectively prohibit others from obtaining improper access to this information.  If a person is able to circumvent our security measures, he or she could destroy or steal valuable information or disrupt our operations.  Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations, and any resulting negative publicity could significantly harm our reputation.

Recent changes to our senior management and Board of Directors may cause uncertainty in, or be disruptive to, our business.

We have recently experienced significant changes in our senior management and our Board of Directors.  On January 7, 2011, we appointed David D. Ross as Chief Executive Officer.  Prior to his appointment as our Chief Executive Officer, Mr. Ross served as the Chief Operating Officer/Gaming and as a member of the Office of the Chief Executive Officer for Predecessor.  On January 7, 2011, we also appointed Donna Lehmann as Senior Vice President and Chief Financial Officer.  On January 7, 2011, we appointed Ferenc Szony as President.  Mr. Szony previously served as President of Predecessor and his employment contract was assumed by us in connection with the Restructuring Transactions.  On February 4, 2011, we appointed Marc H. Rubinstein as Senior Vice President, General Counsel and Secretary.

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Predecessor’s Chief Financial Officer and Senior Vice President and General Counsel left Predecessor during 2010.  Predecessor’s Chief Executive Officer left Predecessor on December 31, 2010.

We have made strategic changes in addition to personnel changes, which are based on greater cost constraint and yield management, and plan to continue our cost containment strategy.

These changes in our senior management, Board of Directors and operations may be disruptive to our business and, during the transition period, there may be uncertainty among investors, employees and others concerning our future direction and performance.  Any such disruption or uncertainty could have a material adverse impact on our results of operations and financial condition.  In addition, we may not be able to achieve or fully implement our planned additional cost reduction measures without adversely impacting revenues or guest service.

We may be unable to obtain slot machines or related technology from our third party supplier on a timely, cost-effective basis.

We currently rely on International Game Technology, Inc. for a majority of our supply of slot machines and related technology, which are only available from a limited number of suppliers.  We expect to continue to rely primarily on International Game Technology, Inc. and cannot assure you that we will be able to obtain slot machines or related technology on a cost-effective basis.  As a result, we may be forced to incur significant unanticipated costs to secure alternative third party suppliers or adjust our operations.

We face extensive regulation from gaming and other government authorities.

As owners and operators of gaming facilities, we are subject to extensive state and local regulations in Nevada, Iowa and Missouri.  Certain approvals from gaming authorities must be obtained before we can take certain actions with respect to our properties in these jurisdictions.  In addition the Nevada Gaming Commission, the Iowa Gaming and Commission and the Missouri Gaming Commission require us and our subsidiaries to obtain gaming licenses and require our officers, key employees and business entity affiliates to demonstrate suitability to hold gaming licenses.  Such state and local government authorities may limit, condition, suspend or revoke a license for any cause deemed reasonable by the respective licensing agency.  They may also levy substantial fines against us or our subsidiaries or the individuals involved in violating any gaming laws or regulations.  The violation of any such state and local regulations could have a material adverse effect on our business, financial condition and results of operations.

In Nevada, the Nevada Gaming Commission could request that a state court appoint a supervisor to operate any non-restricted gaming establishment operated by us if the licenses held by us are revoked, suspended or otherwise lapse.  In such extraordinary circumstances, earnings generated by gaming operations during a supervisor’s appointment (except for reasonable rental value) could be forfeited to the State of Nevada.  The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

On February 28, 1995, the electorate of Clarke County, Iowa (the county in which the Lakeside Iowa Casino is located) approved an excursion boat gambling referendum permitting such gaming operations in Clarke County.  Every eight years a majority of the Clarke County electorate must reauthorize the excursion boat gambling referendum to allow gambling games to continue in Clarke County.  Such a referendum took place on November 2, 2010, with the electorate voting on the proposition favoring continued gaming on riverboats in Clarke County.  The next referendum is scheduled for November 2018.  If the reauthorization referendum is defeated it would have a material adverse effect on our operations and financial condition.

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In addition, Lakeside Iowa’s excursion gambling boat license was approved for renewal at a March 3, 2011 meeting of the Iowa Gaming Commission.  This license is not transferable and will need to be renewed annually and prior to the commencement of each subsequent annual renewal period.  In connection with its most recent renewal of the license, the Iowa Gaming Commission is requiring the Company to (i) appear at the June 2011 Iowa Gaming Commission meeting to present a detailed development plan for a hotel expansion project, which we expect will cost approximately $10.0 million, and (ii) commence construction of the hotel expansion project by October 2011.  If we fail to present a development plan or commence construction within the prescribed timeline, the Iowa Gaming Commission may not renew our gambling boat license in 2012, which could have a material adverse effect on our business, financial condition and results of operations.

Any future public offering of debt or equity securities by us will require review of and prior approval by the Nevada Gaming Commission, the Iowa Gaming Commission and the Missouri Gaming Commission.  The Missouri Gaming Commission also requires notice of the intended incurrence of any private debt exceeding $1,000,000 and reserves the right to elect to have prior review and approval.

Our operations are subject to numerous laws and regulations resulting from our diverse operating activities

We are subject to a variety of other rules and regulations, including zoning, environmental, construction and land-use laws, regulations and permits that govern the serving of alcoholic beverages.  Any changes to these laws could have a material adverse effect on our business, financial condition and results of operations.

Potential changes in legislation and regulation could negatively impact our gaming operations.

From time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations in the jurisdictions in which we operate.  Any such change to the regulatory environment or the adoption of new federal, state or local government legislation could have a material adverse effect on our business.

State gaming laws and regulations may require holders of our debt or equity securities to undergo a suitability investigation, and may result in redemption of their securities.

Many jurisdictions require any person who acquires beneficial ownership of debt or equity securities of a casino gaming company to apply for qualification or a finding of suitability.  Generally, any person who fails or refuses to apply for a finding of suitability or a license within the prescribed period after being advised by gaming authorities that it is required to do so may be denied a license or found unsuitable or unqualified, as applicable.  Any holder of securities that is found unsuitable or unqualified or denied a license, and who holds, directly or indirectly, any beneficial ownership of a gaming entity’s securities beyond such period of time as may be prescribed by the applicable gaming authorities may be guilty of a criminal offense.  Furthermore, a gaming entity may be subject to disciplinary action if such gaming entity, after receiving notice that a person is unsuitable to be a holder of securities or to have any other relationship with such gaming entity or any of its subsidiaries:

·                  pays that person any dividend or interest upon the securities;

·                  allows that person to exercise, directly or indirectly, any voting ownership right conferred through securities held by that person;

·                  pays remuneration in any form to that person for services rendered or otherwise; or

·                  fails to pursue all lawful efforts to require such unsuitable person to relinquish the securities including, if necessary, the immediate purchase of such securities for the lesser of fair value at the time of repurchase or fair value at the time of acquisition by the unsuitable holder.

In the event that disqualified holders fail to divest themselves of such securities, gaming authorities have the power to revoke or suspend the casino license or licenses related to the regulated entity that issued the securities.  In addition, the Operating Agreement of Herbst Gaming, LLC, dated as of December 31, 2010 (the “Operating Agreement”), by and among the Members identified on Schedule A attached thereto, provides that we may redeem our membership interests from an Unsuitable Member (as such term is defined in the Operating Agreement).

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The prior approval of the Nevada Gaming Commission, Iowa Gaming and Racing Commission and Missouri Gaming Commission is required for change of control transactions and certain acquisitions of equity interests in the Company.

Changes in the control of the Company through merger, consolidation, equity or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby that person obtains control, may not occur without the prior approval of the Nevada Gaming Commission, the Iowa Racing and Gaming Commission and the Missouri Gaming Commission.  The Nevada Gaming Commission, the Iowa Racing and Gaming Commission and the Missouri Gaming Commission may also require the equity holders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.

Under Nevada law, any person who acquires more than 5% of our voting securities will be required to report such acquisition to the Nevada Gaming Commission.  Any beneficial owner of more than 10% of our voting securities will be required to apply to the Nevada Gaming Commission for a finding of suitability.  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 by the Chair of the Nevada State Gaming Control Board may be found unsuitable.  Any equity holder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the equity 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 and the Company and the gaming subsidiaries may become subject to disciplinary action if, after receipt of notice that a person is unsuitable to be an equity holder or to have any other relationship with the Company or the gaming subsidiaries, the Company pays that person any dividend or interest upon voting securities, allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, pays remuneration in any form to that person for services rendered or otherwise; or fails to pursue all lawful efforts to require the unsuitable person to relinquish his voting securities for cash at fair market value.

Under Missouri law, institutional and passive investors that do not take an active role in management and own less than a 20% ownership interest and more than a 5% ownership interest in the Company may either file for a key person license or seek a waiver of licensure.  However, a passive investor owning more than a 5% ownership interest in the Company that desires to take an active role in the management or operations of the Company, or any investor that owns more than a 20% ownership interest in the Company, will be required to file an application for key person licensure.  If the investor is not found suitable, the investor will by required to divest its interest in the Company.  In addition, we will be required to provide the Missouri Gaming Commission with prior notice if we intend to transfer, issue, grant a security interest in, or pledge 5% or more of our equity.

Under Iowa law, any person who intends to acquire 5% or more of the equity securities of a licensed entity must, prior to such acquisition, obtain approval from the Iowa Gaming Commission.

Such requirement to be found suitable to hold our voting securities may discourage or delay change of control transactions.

Changes to applicable gaming laws could have a material adverse effect on our operations and financial condition.

Gaming laws are generally 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;

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

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·                  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;

·                  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 proposed gaming operations.

We may not realize any or all of our projected cost savings which would have a negative effect on our results of operations and financial condition.

Beginning in the fourth quarter of 2009, Predecessor initiated a company-wide cost savings plan in an effort to align expenses with revenue levels ,which we have continued.  While these efforts have allowed us to realize substantial savings since we initiated our cost savings plan, our continued reduction efforts may fail to achieve similar or continued savings.  Although we believe that additional cost savings have yet to be realized from these initiatives, we may not realize some or all of these projected savings without further impairing our revenues.  For example, cutting advertising expenses may have an unintended negative affect on our revenues.  Our cost savings plan is subject to numerous risks and uncertainties that may change at any time, and, therefore, our actual savings may differ materially from what we anticipate.  For example, our expected savings from procurement may be affected by unexpected increases in the cost of raw materials.

Our operations could be adversely affected due to the adoption of certain anti-smoking regulations.

Smoking is currently permitted at casino locations in Nevada, Missouri, and Iowa.  It is not possible to determine the manner, nature or likelihood of changes in the current laws relating to smoking in public places or the effect of regulations regarding secondhand smoke; however, new anti-smoking laws, if adopted, could have a material adverse effect on our business, financial condition and results of operations.

Changes to applicable tax laws could have a material adverse effect on our financial condition.

We expect to pay substantial taxes and fees in connection with our operations as a gaming company.  From time to time, federal, state and local legislators and other government officials have proposed and adopted changes in tax laws, or in the administration of those laws affecting the gaming industry.  For example, the Governor of Iowa has introduced legislation to increase the gross gaming revenue tax from 22% to 36%.  It is not possible to determine the likelihood of changes in tax laws or in the administration of those laws.  If adopted, changes to applicable tax laws could have a material adverse effect on our business, financial condition and results of operations.  Due to the continued pressures on the state legislatures to address shortfalls in their budgets associated with the current recession, there may be more support to look to increased taxation that could affect all our gaming properties.  Any increase in taxes would have a material adverse effect on our business, financial condition and results of operation.

Environmental legislations or regulations, if enacted, could lead to an adverse impact on our results of operations and financial condition if such legislations or regulations result in a smaller drive-in tourist market.

Global climate change issues have received an increased focus on the federal and state government levels, which could potentially lead to additional rules and regulations that impact how our drive-in tourist market is able to come to our facilities.  The ultimate impact on our business would be dependent upon the specific rules and regulations adopted and we cannot predict the effects of any such legislation at this time.  However, if such legislations or regulations result in increased costs to motor vehicle drivers, then we may as a result see fewer drive-in tourists, which could adversely impact our operations and financial condition.

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The business of the Primm Casinos may be adversely impacted if their use of water exceeds allowances permitted by federal and local governmental agencies or if such governmental agencies impose additional requirements in connection with such use of water, which in each case could lead to an adverse impact on our operations and financial condition.

The Primm Casinos are not served by a municipal water system.  As a result, the water supply of such casinos is dependent on rights they have been granted to water in various wells located on federal land in the vicinity of the Primm Casinos and permits that allow the delivery of water to the Primm Casinos.  These permits and rights are subject to the jurisdiction and ongoing regulatory authority of the U.S. Bureau of Land Management, the States of Nevada and California and local governmental units.  While we believe that adequate water for the Primm Casinos is available, the future water needs of the Primm Casinos may exceed the permitted allowance.  In such an event, future requests for additional water may not be approved or may be approved with terms or conditions that are more onerous.  Any such denial or any such additional terms and conditions may have a material adverse effect on the results of operations of the Primm Casinos, thereby adversely affecting our results of operations and financial condition.

Adverse winter weather conditions in the Midwest, the Sierra Nevada Mountains and Reno-Lake Tahoe area could have a material adverse effect on the results of operations and financial condition of our casinos, which could lead to an adverse impact on our results of operation and financial condition.

Adverse winter weather conditions, particularly snowfall, can deter customers of the Sands Regency Casinos and Midwest Casinos from travelling or make it difficult for them to frequent our facilities.  If these locations were to experience prolonged adverse winter weather conditions, the results of operations and financial condition of these casinos could also be materially adversely affected, thereby adversely affecting our overall results of operations and financial condition.  Although our facilities experienced mild weather conditions for most of 2010, the Midwest Casinos experienced severe weather conditions in December 2009 and the first quarter of 2010, which negatively impacted the results of operations at those facilities.

Riverboats and dockside facilities are subject to risks relating to weather or mechanical failure and must comply with applicable regulations.

We own and operate riverboat and dockside casino facilities, which are subject to risks in addition to those associated with land-based casinos, including loss of service due to casualty, mechanical failure, extended or extraordinary maintenance, flood or other severe weather.  Reduced patronage and the loss of a dockside or riverboat casino from service for any period of time could adversely affect our results of operations.  The riverboats are subject to inspection every year and were inspected in November 2009 in Missouri.  The Company’s only cruising vessel is the boat located in Lakeside, Iowa, and this boat had its turbines removed in late 2008, as riverboats in Iowa are no longer required to cruise.

The casino, hotel and resort industry is capital intensive and we may not be able to finance expansion and renovation projects, which could put us at a competitive disadvantage.

The casino properties have an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time, of furniture, fixtures and equipment.  Because of the bankruptcy, Predecessor had deferred renovations and capital improvements.  We may also need to make capital expenditures to comply with applicable laws and regulations.

Renovations and other capital improvements of the casino properties require significant capital expenditures.  In addition, renovations and capital improvements of the casino properties usually generate little or no cash flow until the projects are completed.  We may not be able to fund such projects solely from cash provided from operating activities.  Consequently, we may have to rely upon the availability of debt or equity capital to fund renovations and capital improvements, and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions.  No assurances can be made that we will be able to obtain additional equity or debt financing or that we will be able obtain such financing on favorable terms.  Our failure to renovate our casino properties may put us at a competitive disadvantage.

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Our operations may be adversely impacted by increases in energy prices.

The casino properties use significant amounts of electricity, natural gas and other forms of energy.  While no energy shortages have been experienced, the substantial increases in the cost of electricity, natural gas and gasoline in the United States in general, and in Southern and Northern California, Southern and Northern Nevada, South Central Iowa and Northeast and Northwest Missouri in particular, may negatively affect our operating results.  In addition, further energy price increases in such areas could result in a decline in disposable income of potential customers and a corresponding decrease in visitation and spending at our slot route and casino operations, which could negatively impact revenues.

Any increase in the price of gasoline may have an adverse impact on the results of our operations.

Most customers of the casino properties drive in to the casino properties.  As such, an increase in gasoline prices may have an adverse impact on our operations as it would increase the cost incurred by our customers to drive to our locations.  Though gasoline prices were somewhat more stable during 2010, gasoline prices began to rise during the fourth quarter of 2010 and the first quarter of 2011, and there can be no assurance that prices will not continue to rise, which may adversely affect our customer’s discretionary income and, ultimately, our revenue.

The transferability of our membership interests will be very limited and subject to the prior approval of our Board of Directors.

On December 31, 2010, we issued 20,000,001 Common Units to eligible debt holders as part of the Restructuring Transactions.  There is currently no established public trading market for our Common Units, and there are no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market for our Common Units.  In addition, our limited liability company agreement requires the approval of our Board of Directors prior to any transfer of our Common Units.  It is expected that the Board will not consent to transfers of our Common Units except in very limited circumstances.  Accordingly, we do not expect a public market will develop for our Common Units.

Issuance of Common Units to our executive officers and directors will dilute our equity holders.

On December 31, 2010, 5% of our Common Units, on a fully-diluted basis, have been reserved for issuance as grants of equity, restricted equity, options, or similar equity awards in connection with a management and director equity incentive program.  The issuance of the reserved Common Units will dilute the percentage ownership of any holders of our Common Units.

We may be subject to litigation resulting from our gaming, resort and dining operations which, if adversely determined, could result in substantial losses.

We will be, from time to time, during the ordinary course of operating our businesses, subject to various litigation claims and legal disputes, including contract, lease, employment and regulatory claims as well as claims made by visitors to our properties.  Certain litigation claims may not be covered entirely or at all by our insurance policies or our insurance carriers may seek to deny coverage.  In addition, litigation claims can be expensive to defend and may divert our attention from the operations of our businesses.  Further, litigation involving visitors to our properties, even if without merit, can attract adverse media attention.  As a result, litigation can have a material adverse effect on our businesses and, because we cannot predict the outcome of any action, it is possible that adverse judgments or settlements could significantly reduce our earnings or result in losses.

We may face potential successor liability.

As the successor to Predecessor, we may be subject to certain liabilities of Predecessor not provided for in the Bankruptcy Plan.  Such liabilities may arise in a number of circumstances, including those where:

·                  a creditor of Predecessor did not receive proper notice of the pendency of the bankruptcy case relating to the Bankruptcy Plan or the deadline for filing claims therein;

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·                  the injury giving rise to, or source of, a creditor’s claim did not manifest itself in time for the creditor to file the creditor’s claim;

·                  a creditor did not timely file the creditor’s claim in such bankruptcy case due to excusable neglect;

·                  we are liable for Predecessor’s tax liabilities under a federal and/or state theory of successor liability; or

·                  the order of confirmation for the Bankruptcy Plan was procured by fraud.

Although we have no reason to believe that we will become subject to liabilities of Predecessor that are not provided for in the Bankruptcy Plan, if we should become subject to such liabilities, it could materially adversely affect our business, financial condition and results of operations.

Risks Related to Our Indebtedness

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments.

As of December 31, 2010, we had $350.0 million in outstanding principal amount of Senior Secured Loans.  Our substantial indebtedness could:

·                  make it more difficult to satisfy obligations with respect to the instruments governing our then outstanding indebtedness;

·                  increase vulnerability to general adverse economic and industry conditions;

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

·                  limit flexibility in planning for, or reacting to, competitive pressures and changes in the business and the industry in which we operate;

·                  place us at a competitive disadvantage compared to our competitors that have less debt; or

·                  limit, along with the financial and other restrictive covenants in the indebtedness, among other things, our ability to borrow additional funds.

If current indebtedness increases, the related risks noted above that we now face could intensify.

Our Credit Agreement imposes restrictive covenants on us.

Our Credit Agreement has covenants that impose operational and financial restrictions on us.  The restrictions include, among other obligations, limitation on our ability to:

·                  incur additional debt;

·                  make payments on subordinated obligations;

·                  make distributions and repurchase equity;

·                  make investments;

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·                  retain cash above certain prescribed limits;

·                  grant liens on our property to secure debt;

·                  enter into certain transactions with affiliates;

·                  sell assets or enter into mergers or consolidations;

·                  sell equity interests in subsidiaries;

·                  create dividend and other payment restrictions affecting subsidiaries; and

·                  change the nature of our lines of business.

In addition, the Senior Secured Loans impose various customary affirmative covenants on us and our subsidiaries, including among others, reporting covenants, covenants to maintain insurance, comply with laws, maintain properties and other covenants customary in senior credit financings of this type.  In addition, the Senior Secured Loans require us to comply with various restrictive financial covenants, including interest coverage and debt to EBITDA ratios, and capital spending limits.

Despite our substantial indebtedness, we may still be able to incur significantly more debt, which could intensify the risks described above.

Although the terms of the agreements governing our indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.

For example, as of December 31, 2010, our Credit Agreement allows for the incurrence of capital lease obligations and purchase money indebtedness for fixed or capital assets in an aggregate amount not to exceed $50 million (with such indebtedness being secured by the assets leased or acquired), and the incurrence of other indebtedness in an amount not to exceed $5 million, of which only $1 million may be secured by a lien on our property or assets.

The current state of the financial markets may impact our ability to obtain sufficient financing and credit on a going forward basis.

In addition to earnings and cash flows from operations, we may rely on borrowed money to finance our business, which may be constrained if we are unable to borrow additional capital or refinance existing borrowings on reasonable terms.  Recent developments in the financial markets that have led to unpredictable federal government intervention in the U.S. banking system, including the capital crisis in the banking system, a series of rating agency downgrades of subprime U.S. mortgage-related assets and significant provisions for loan losses recorded by major financial institutions have resulted in a severe tightening in the credit markets, a low level of liquidity in many financial markets and other adverse conditions for issuers in fixed income, credit and equity markets.  Over the past year, these markets have experienced disruption that has had a dramatic impact on the availability and cost of capital and credit.  The United States and other governments have enacted legislation and taken other actions to help alleviate these conditions, although there is no assurance that such steps will have the effect of easing the conditions in credit and capital markets.  Therefore, we have no assurance that such steps will facilitate our further access to credit or capital markets at desirable times or at rates that we would consider acceptable.  If we are unable to borrow funds, we may be unable to make capital expenditures that are necessary for us to compete with other casino and slot route operators.  As a result, the lack of such funding could have a material adverse effect on our business, results of operations and financial condition and our ability to service our indebtedness.

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ITEM 1B.                                            UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.          PROPERTIES.

Our principal properties consist of the following:

Nevada

Company Headquarters and Warehouse

We lease a four-acre site in Las Vegas and, pursuant to that lease, own the 50,000 square foot building where our executive offices and operational headquarters are located.   This facility houses our executive and administrative offices and is used for sub-assembly and warehouse space for our slot route operations.  The lease between The Herbst Family Limited Partnership II, a Nevada limited partnership and a related party of Predecessor, and us ends on June 30, 2017, with options to renew the lease for five additional successive terms of ten years each.

Office Space and Convenience Store

We lease a three-acre site and a 50,000 square foot building where our employment center and purchasing department are located.  The lease between Herbst Grandchildren’s Trust, a trust governed under the laws of the State of Nevada and a related party of Predecessor, and us ends on November 27, 2012, with options to renew the lease for five additional successive terms of ten years each.

Terrible’s Hotel & Casino

We own the ten-acre site in Las Vegas on which Terrible’s Las Vegas is located.

Terrible’s Town Casino

Town Casino in Pahrump, Nevada, which is approximately 60 miles from Las Vegas, comprises an approximately 30,000 square foot building on approximately three acres.  We lease the land from The Herbst Family Limited Partnership, a Nevada limited partnership and a related party of Predecessor.  The lease expires on June 30, 2011.  We also have an option to further extend the lease for three additional successive terms of five years through 2026.

Terrible’s Lakeside Casino & RV Park

We own 30 acres of land in Pahrump, Nevada on which Lakeside is located.

Terrible’s Town Casino & Bowl

We lease the land and building on which our Casino & Bowl is located in Henderson, Nevada from an unrelated third party.  The lease ends on February 9, 2014, with options to renew the lease for five additional successive terms of ten years each.  We own a 0.8-acre lot adjacent to Casino & Bowl that we are holding for possible future development.

Terrible’s Searchlight Casino

We sublease the land and building in which Searchlight is located in Searchlight, Nevada.  The space is subleased from Terrible Herbst, Inc., a related party of Predecessor and the sublease ends on June 30, 2022, with options to renew the sublease for five additional successive terms of ten years each, contingent on Terrible Herbst, Inc. renewing its lease of the property from an unrelated third party.

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Sands Regency Casino Hotel

We own 10.5 acres of land and building in Downtown Reno, Nevada on which the Sands is located.

Terrible’s Rail City Casino

We own the land and building on which Rail City is located in Sparks, Nevada. The Rail City Casino is approximately 7.5 acres.

Terrible’s Gold Ranch Casino & RV Park

We lease the land and building on which Gold Ranch is located in Sparks, Nevada from an unrelated third party.  The lease ends on January 1, 2022, with an option to renew the lease for four additional successive terms of five years each.  We possess the option to purchase the real property on which the Gold Ranch business assets are located.

Terrible’s Dayton Depot Casino

The Dayton Casino is located in Dayton, Nevada.  We own the building that houses the Dayton Casino and the 4.5 acres of real property on which the Dayton Casino is located, as well as a building and 0.5 acres of real property directly across the street which housed a small tavern that is not currently operating.

Buffalo Bill’s, Whiskey Pete’s and Primm Valley Resort Hotels and Casinos

We lease approximately 170 acres of land on which Buffalo Bill’s, Whiskey Pete’s and Primm Valley are located in Primm, Nevada.  The lease ends on June 30, 2043, with an option to renew the lease for one additional twenty-five year term.  We also lease and manage two 18-hole Tom Fazio golf courses with a full-service restaurant and club house.  The lease ends on January 1, 2014.

Midwest

Terrible’s St. Jo Frontier Casino

We own the land and building in St. Joseph, Missouri on which certain facilities of St. Jo are located, and own an additional 72 acres of land adjacent to, or nearby, the casino.

Terrible’s Mark Twain Casino

We own the land and building in LaGrange, Missouri on which certain facilities of Mark Twain are located, and own an additional 14 acres of land adjacent to or nearby the casino.

Terrible’s Lakeside Casino Resort

We own the land and building in Osceola, Iowa on which certain facilities of Lakeside Iowa are located, including the all-suite hotel, convention facilities, RV park and convenience store and own an additional 121 acres of land adjacent to, or nearby, the casino.  We lease the use of West Lake and certain real estate surrounding West Lake from the City of Osceola, Iowa.  This lease expires on May 19, 2014.  We have an option to extend this lease for seven additional successive terms of five years each.

ITEM 3.          LEGAL PROCEEDINGS.

On February 17, 2006, the Clark County District Court entered judgment of a jury verdict delivered on January 14, 2006 against E-T-T, a subsidiary of Predecessor, for $4.1 million in compensatory damages and $10.1 million in punitive damages.  The jury verdict was delivered in connection with an action brought by the family of an individual that alleged that E-T-T had negligently retained and negligently supervised a temporary employee who in 2001 stole a truck from E-T-T and, while drunk, hit and killed the individual.  The punitive damage award was subsequently lowered to $4.1 million in a post-trial ruling.  We believe the award of compensatory and punitive damages against E-T-T, the liability of E-T-T and the amount thereof, is not supportable in either law or in fact and have vigorously pursued all appropriate post-trial and other remedies, including exercising our right to appeal.  We appealed the decision and oral arguments were heard by a panel of the Supreme Court of Nevada on December 9, 2009. The panel upheld the District Court’s decision. E-T-T filed a motion for en banc hearing and on January 4, 2011, the full Supreme Court heard oral argument solely regarding the punitive damages award. A decision on that motion is pending.  Pursuant to a Bankruptcy Court order on May 3, 2010, we fully reserved for this potential liability including related interest.

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We are a party to an arbitration that was filed in 2008 in Las Vegas involving the termination of an employee.  The former employee alleged he was terminated without cause and was therefore due amounts pursuant to his employment agreement.  On March 10, 2009, the arbitrator awarded the former employee $1.3 million.  The arbitration award was appealed to the Clark County District Court. On April 21, 2010, the District Court issued findings of fact, conclusions of law and an order setting aside the award as arbitrary and capricious, and remanding the matter back to arbitration. The remanded arbitration is currently pending. Predecessor has fully reserved for the award and approximately $0.2 million for attorneys’ fees in fiscal year 2008, which reserves and liability the Company has assumed.

Predecessor and certain of its subsidiaries filed the Chapter 11 Cases in the Bankruptcy Court.  Predecessor and certain of its subsidiaries filed several emergency motions with the Bankruptcy Court, including a motion to have the Chapter 11 Cases jointly administered.  The information set forth under “Business—Emergence from Chapter 11 Reorganization” beginning on page 3 of this Annual Report on Form 10-K is incorporated by reference into this Item 3.

We are party to other ordinary and routine litigation incidental to our business. We do not expect the outcome of any pending litigation to have a material adverse effect on our consolidated financial position or results of operations.

ITEM 4.          REMOVED AND RESERVED

PART II

ITEM 5.          MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our outstanding Common Units are privately held and there is no established public trading market for our Common Units, and there are no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market in our Common Units.

Holders of Common Units

We had approximately 95 holders of record of our Common Units as of March 28, 2011.

Distributions

We have never declared or paid cash distributions on our Common Units.  We currently intend to retain all available funds and any future consolidated earnings to fund our operations and the development and growth of our business and therefore do not anticipate paying any cash distributions.

Restrictions imposed by our debt instruments, including the Senior Secured Loans, significantly restrict us from making dividends or distributions.  Specifically, we are restricted under the Credit Agreement governing the Senior Secured Loans from making certain “restricted payments” as defined in the Credit Agreement.  These restricted payments include the payment of distributions to any direct or indirect holders of our Common Units.  These restricted payments cannot be made unless certain financial and non-financial criteria have been satisfied.  In addition, the terms of our Operating Agreement contains similar restrictions.

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Issuer Purchases of Equity Securities

No purchases of equity securities were made during the fourth quarter and there were no shares that may yet be purchased under any repurchase plans or programs.

ITEM 6.          SELECTED FINANCIAL DATA.

The following tables set forth our selected historical consolidated financial and operating data as of the dates and for the periods indicated.  The selected historical consolidated financial data as of December 31, 2010 of Successor is derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.  The selected historical consolidated financial and operating data as of December 31, 2010 and December 31, 2009 and for the years ended December 31, 2010, December 31, 2009 and December 31, 2008 are derived from the audited consolidated financial statements of Predecessor included elsewhere in this Annual Report on Form 10-K.  The selected historical consolidated financial and operating data as of December 31, 2008, December 31, 2007 and December 31, 2006 and for the years ended December 31, 2007 and December 31, 2006 are derived from the audited consolidated financial statements of Predecessor not included in this Annual Report on Form 10-K.

Predecessor consummated the acquisition of the Sands Regent Casinos in January 2007 and the acquisition of the Primm Casinos in April 2007.  As a result, the period beginning January 1, 2007 may not be comparable to prior years.

On December 31, 2010, we acquired substantially all of the assets of Predecessor in the Restructuring Transactions in accordance with the Bankruptcy Plan.  On December 31, 2010, we adopted fresh start accounting in accordance with ASC 852-10-15.  As a result, the value of Predecessor’s assets, including intangible assets, and liabilities have been adjusted to their fair values with any excess of our enterprise value over our intangible and identifiable intangible assets and liabilities reported as goodwill on our consolidated balance sheet.  Because we conducted no business prior to December 31, 2010, we have presented the results of Predecessor in the select financial data below.  See Note 2 to our consolidated financial statements for a detailed explanation of the impact of emerging from Chapter 11 and applying fresh start accounting on our financial position.  The consolidated balance sheet of Predecessor is presented separately from the consolidated balance sheet of Successor.

The selected historical consolidated data presented below should be read in conjunction with the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes and other financial data included elsewhere in this Annual Report on Form 10-K.  The historical results set forth below do not indicate results expected for any future periods.  Our future results of operations will be subject to significant business, economic, regulatory and competitive uncertainties and contingencies, some of which are beyond our control.

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Segment EBITDA is a non-GAAP measure but is used by management to measure segment profits and losses in accordance with ASC Topic 280, “Segment Reporting” (“ASC Topic 280”).  Segment EBITDA has certain limitations because it does not take into account the impact of certain expenses, including the allocation of overhead.  We have tried to compensate for the limitations of the non-GAAP measures presented by providing the comparable GAAP measure with equal or greater prominence, financial statements prepared in accordance with generally accepted accounting principles, and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measures.  The following table reconciles Segment EBITDA to net income (loss) (in thousands):

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