UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2008

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

For the transition period from                      to                     

BLACK GAMING, LLC

(Exact Name of Registrant as Specified in its Charter)

Nevada		20-8160036
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification Number)
10777 West Twain Avenue, Las Vegas, NV		89135
(Address of Principal Executive Offices)		(Zip Code)

(702) 318-6888
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o		Accelerated Filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if smaller reporting company)

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

Number of shares of common stock outstanding of Virgin River Casino Corporation as of November 1, 2008: 100 shares of common stock.

Number of shares of common stock outstanding of B & B B, Inc. as of November 1, 2008: 16.75 shares of common stock.

 

 

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS		3
Condensed Consolidated Balance Sheets-September 30, 2008 (unaudited) and December 31, 2007		3
Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2008 and 2007		4
Condensed Consolidated Statements of Cash Flows (unaudited) for the Three and Nine Months Ended September 30, 2008 and 2007		5
Notes to Condensed Consolidated Financial Statements (unaudited)		7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		32
ITEM 4. CONTROLS AND PROCEDURES		32
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		34
ITEM 1A. RISK FACTORS		34
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		35
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		35
ITEM 5. OTHER INFORMATION		35
ITEM 6. EXHIBITS		36
SIGNATURES		37
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Black Gaming, LLC and Subsidiaries

Condensed Consolidated Balance Sheets
(in thousands)

		September 30, 2008				December 31, 2007
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	11,246			$	9,503
Accounts receivable, net			1,646				1,986
Related party receivables			270				327
Inventories			1,739				1,800
Property held for vacation interval sales			321				336
Prepaid expenses			4,013				4,180
Current portion of notes receivable			243				150
Total current assets			19,478				18,282
Property and equipment, net			118,959				131,480
Notes receivable, less current portion			191				537
Goodwill and other intangible assets, net			20,733				35,828
Deferred financing fees			5,208				6,259
Other assets			1,798				1,898
Total assets		$	166,367			$	194,284
Liabilities and Members’ Deficit
Current liabilities:
Bank overdraft		$	12			$	821
Current portion of gaming equipment financing			384				1,025
Current portion of long-term debt			14,795				9,500
Accounts payable			2,818				2,950
Accrued liabilities			14,618				17,605
Total current liabilities			32,627				31,901
Gaming equipment financing, less current portion			153				15
Long term debt			188,685				183,047
Total liabilities			221,465				214,963
Commitments and contingencies (Note 10)
Members’ deficit			(55,098	)			(20,679	)
Total liabilities and members’ deficit		$	166,367			$	194,284

The accompanying notes are an integral part of these condensed consolidated financial statements.

Black Gaming, LLC and Subsidiaries

Condensed Consolidated Statements of Operations (unaudited)
(in thousands)

		Three Months Ended								Nine Months Ended
		September 30, 2008				September 30, 2007				September 30, 2008				September 30, 2007
Revenues:
Casino		$	18,023			$	24,940			$	63,605			$	81,673
Food and beverage			7,048				9,746				25,055				31,497
Hotel			6,574				7,226				22,618				27,028
Other			2,857				4,123				13,116				15,363
Total revenues			34,502				46,035				124,394				155,561
Less—promotional allowances			(6,257	)			(9,073	)			(21,613	)			(30,277	)
Net revenues			28,245				36,962				102,781				125,284
Operating expenses:
Casino			10,998				13,685				33,023				40,668
Food and beverage			4,415				4,977				16,089				16,798
Hotel			1,775				1,609				5,630				4,808
Other			2,265				2,301				7,275				9,092
General and administrative			9,733				13,137				30,458				38,176
Depreciation and amortization			4,111				4,007				12,534				12,366
(Gain) loss on sale and disposal of assets			(6	)			5				198				103
Impairment of long lived assets			—				—				3,833				—
Goodwill impairment			—				—				12,497				—
Total operating expenses			33,291				39,721				121,537				122,011
Operating (loss) income			(5,046	)			(2,759	)			(18,756	)			3,273
Other (income) expense:
Other income			(315	)			—				(315	)			—
Interest expense, net			5,395				5,178				15,978				15,394
Net loss		$	(10,126	)		$	(7,937	)		$	(34,419	)		$	(12,121	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Black Gaming, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)

		Nine Months Ended
		September 30, 2008				September 30, 2007
Cash flows from operating activities:
Net loss		$	(34,419	)		$	(12,121	)
Depreciation and amortization			12,534				12,366
Loss on sale and disposal of assets			198				103
Impairment of long lived assets			3,833				—
Goodwill impairment			12,497				—
Amortization of deferred financing fees			1,201				1,201
Accretion of senior subordinated notes			5,638				4,982
Interest expense on gaming equipment financing			4				3
Cost of vacation interval sales			15				84
Change in operating assets and liabilities:
Accounts and related party receivables, net			397				1,066
Inventories			61				(126	)
Prepaid expenses			167				133
Notes receivable			253				428
Change in other assets			(66	)			(624	)
Accounts payable and accrued liabilities			(2,820	)			1,255
Net cash (used in) provided by operating activities			(507	)			8,750
Cash flows from investing activities:
Proceeds received from sale of assets			317				324
Capital expenditures			(814	)			(13,782	)
Net cash used in investing activities			(497	)			(13,458	)
Cash flows from financing activities:
Proceeds from issuance of long term debt			13,975				15,500
Payment of gaming equipment financing			(1,589	)			(3,644	)
Payment of long term debt			(8,680	)			(6,000	)
Payment of financing costs			(150	)			—
Decrease in bank overdraft			(809	)			(1,770	)
Net cash provided by financing activities			2,747				4,086
Net increase (decrease) in cash and cash equivalents			1,743				(622	)
Cash and cash equivalents at beginning of period			9,503				11,118
Cash and cash equivalents at end of period		$	11,246			$	10,496

The accompanying notes are an integral part of these condensed consolidated financial statements.

Black Gaming, LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited) (continued)
(in thousands)

		Nine Months Ended
		September 30, 2008				September 30, 2007
Supplemental cash flow disclosure:
Cash paid for interest		$	12,000			$	11,790
Noncash investing and financing activities:
Acquisition of gaming assets with seller financing		$	1,082			$	254

The accompanying notes are an integral part of these condensed consolidated financial statements.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Basis of Presentation and Background

Black Gaming, LLC (“BG LLC”), through its wholly owned subsidiaries, B & B B, Inc. (doing business as Virgin River Hotel/Casino/Bingo) (“B&BB”) and Virgin River Casino Corporation (“VRCC”) and its wholly owned subsidiary RBG, LLC (doing business as CasaBlanca Resort/Casino/Golf/Spa) (“RBG”) and its wholly owned subsidiary CasaBlanca Resorts, LLC (doing business as Oasis Resort & Casino) (“Resorts LLC”) (collectively the “Company”) is engaged in the hotel casino industry in Mesquite, Nevada.

BG LLC was organized in Nevada on August 4, 2006 in anticipation of modifying B&BB’s and VRCC’s organizational structure through a holding company reorganization (“Reorganization”) for B&BB and VRCC. The Reorganization, which included a transfer of B&BB and VRCC shares for membership interests in BG LLC, was completed on December 31, 2006. As a result of the Reorganization, the Robert R. Black, Sr. Gaming Properties Trust (the “Black Trust”) owns 99.03% of the membership interests of BG LLC and Glenn Teixeira owns 0.97% of the membership interests of BG LLC. The members’ liability is limited to the amount of capital contributions they are required to make pursuant to BG LLC’s operating agreement.

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

	•		VRCC received 100 shares of R. Black, Inc. (“RBI”) from the Black Trust. The Black Trust owns 100% of the outstanding shares of VRCC. The 100 shares of RBI representing 100% of the outstanding capital stock of RBI, was exchanged for 3.68 shares of VRCC held by the Black Trust, representing 3.68% of the outstanding capital stock of VRCC. RBI does not have any material operations, liabilities or assets other than a 5.47% ownership in RBG. The transfer of shares of RBI to VRCC was accounted for at the historical cost of RBG as RBI and VRCC were under common control.
	•		VRCC received a 3.8% membership interest in RBG from the Black Trust in exchange for 2.57 shares of VRCC held by the Black Trust, representing 2.57% of the outstanding capital stock of VRCC. The transfer of membership interests of RBG to VRCC was accounted for at historical cost as the Black Trust and VRCC were under common control.
	•		VRCC received a 1.92% membership interest in RBG from Glenn Teixeira in exchange for 1.29 shares of VRCC held by the Black Trust, representing 1.29% of the outstanding capital stock of VRCC. The acquisition of the membership interests from RBG from Glenn Teixeira was accounted for at fair value as it was considered an acquisition of a minority interest of a subsidiary. Based upon an internal analysis the fair value of Glenn Teixeira’s interest approximated book value.

The accompanying balance sheet as of December 31, 2007 and the unaudited condensed consolidated financial statements for the three and nine month periods ended September 30, 2008 include the accounts of the Company and all of its majority-owned subsidiaries and are maintained in accordance with U.S. generally accepted accounting principles. The Reorganization, predicated on the transfer of shares of B&BB and VRCC for membership interests in BG LLC, represented a transaction between entities under common control and is accounted for in a manner similar to a pooling-of-interests. Accordingly, the contributed assets and assumed liabilities were recorded at B&BB and VRCC’s historical cost basis. As a result of the Reorganization, B&BB and VRCC became majority owned subsidiaries of BG LLC which owns 100%, directly or indirectly, in each subsidiary operating Company. Because of this majority ownership, the financial statements are consolidated.

The acquisition of Glenn Teixeira’s interest was presented as of the date the exchange occurred on December 31, 2006. All significant intercompany balances and transactions have been eliminated.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

1.

Basis of Presentation and Background (continued)

Interim Financial Statements — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments considered necessary for a fair presentation are included and are of a normal recurring nature. Our results of operations tend to be seasonal in nature and operating results for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

The balance sheet at December 31, 2007 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2007.

Reclassifications — Certain previously reported amounts in the condensed consolidated financial statements have been reclassified to conform to the current period’s presentation.

Recently Issued Accounting Standards — In September 2006, the FASB issued SFAS 157, “Fair Value Measurements,” (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosure about fair value measurements. In February 2008, the FASB issued FASB Staff Position No. SFAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. In accordance with this interpretation, the Company has only adopted the provisions of SFAS 157 with respect to its financial assets and liabilities that are measured at fair value within the financial statements as of December 31, 2007. The provisions of SFAS 157 have not been applied to non-financial assets and non-financial liabilities. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations.” SFAS No. 141 (revised) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and noncontrolling interest in the acquiree and the goodwill acquired. The revision is intended to simplify existing guidance and converge rulemaking under U.S. GAAP with international accounting rules. This statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS No. 141 (revised) is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). This statement establishes accounting and reporting standards for ownership interest in subsidiaries held by parties other than the parent and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amount attributable to both the parent and the noncontrolling interests. The statement also establishes reporting requirements that provide sufficient disclosure that clearly identify and distinguish between the interest of the parent and those of the noncontrolling owners. This statement is effective for fiscal years beginning on or after December 15, 2008. The adoption of SFAS No. 160 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

1.

Basis of Presentation and Background (continued)

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133” (“SFAS 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. This statement is effective for fiscal years beginning after November 15, 2008. SFAS No. 161 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In April of 2008, the FASB issued FSP No. 142-3 (“FSP 142-3”) to improve consistency between the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets, and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007), Business Combinations, and other guidance under U.S. GAAP. This FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. FSP 142-3 is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS 162 (“SFAS 162”), “The Hierarchy of Generally Accepted Accounting Principles”, which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS 162 will become effective sixty days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of the provisions of SFAS 162 is not anticipated to materially impact the Company’s financial position, results of operations or cash flows.

In October 2008 the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active, (“FSP 157-3”) to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to our September 30, 2008 financial statements. The application of the provisions of FSP 157-3 did not materially affect our results of operations or financial condition as of and for the periods ended September 30, 2008.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

2.

Discontinued Operations

In October 2006, the Company moved forward with plans to dispose of the Palm’s Golf Course and Oasis Gun Club operations. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company accounted for this endeavor as discontinued operations. At December 31, 2007 the Company determined that it no longer met the criteria to continue to classify the operations as discontinued. As such, previously presented financial data for the three and nine month periods ended September 30, 2007 have been re-characterized and presented as part of continuing operations.

The following table sets forth the operations for the three and nine months ended September 30, 2007 related to Oasis Recreational Properties, Inc’s assets previously shown as held for sale that have been included as part of continuing operations (in thousands):

		For the Three Months Ended				For the Nine Months Ended
		September 30, 2007				September 30, 2007
Operating revenues		$	164			$	2,137
Operating expenses			559				2,148
Depreciation			45				135
Loss on sale and disposal of assets			3				3
Loss from discontinued operations		$	(443	)		$	(149	)

3.

Property and Equipment

Property and equipment consists of the following (in thousands):

		September 30, 2008				December 31, 2007
Land		$	32,812			$	32,812
Building			77,919				77,897
Land and leasehold improvements			18,110				17,940
Furniture and fixtures			84,396				83,922
Construction in progress			1,458				5,325
			214,695				217,896
Less: accumulated depreciation			(95,736	)			(86,416	)
Property and equipment, net		$	118,959			$	131,480

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

4.

Notes Receivable

Notes receivable consist of the following (in thousands):

		September 30, 2008				December 31, 2007
Vacation interval notes receivable		$	578			$	912
Allowance for possible credit losses			(144	)			(225	)
Total notes receivable			434				687
Less: current portion			(243	)			(150	)
Non-current notes receivable		$	191			$	537

Notes generated from the sale of vacation intervals generally bear interest at annual rates ranging from 12.75% to 14.75% and have terms of 5 to 7 years. The vacation interval notes receivable are collateralized by the right to use and deeds of trust on the vacation interval sold.

In January of 2006, the Company adopted the provisions of SFAS 152, “Accounting for Real Estate Time-Sharing Transactions.” SFAS 152 amends existing accounting guidance to reference the financial accounting and reporting guidance for real estate time-sharing transactions provided in AICPA Statement of Position 04-02, “Accounting for Real Estate Time-Sharing Transactions.” In determining the allowance for possible credit losses, the Company, in accordance with SFAS 152, uses a technique referred to as static pool analysis, which tracks uncollectible notes receivable based on each year’s sales over the entire life of those notes. The Company considers whether the historical economic conditions are comparable to current economic conditions. If current economic conditions differ from the economic conditions in effect when the historical experience was generated, the Company adjusts the allowance for possible credit losses to reflect the expected effects of current economic conditions on uncollectibility. The Company groups all notes receivables in one pool for analytical purposes based on historical collectibility and customer demographics.

5.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

		September 30, 2008				December 31, 2007
Accrued management fees		$	495			$	863
Accrued taxes			768				1,072
Accrued insurance			1,426				1,212
Accrued slot program			4,197				4,299
Accrued wages, benefits and other personnel costs			3,197				2,043
Accrued interest			2,466				5,343
Accrued other			2,069				2,773
Total accrued liabilities		$	14,618			$	17,605

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

6.

Gaming Equipment Financing

Gaming equipment financing consists of the following (in thousands):

		September 30, 2008				December 31, 2007
Gaming equipment financing to purchase 478 games, no payments for one year and monthly payments of $251 for 24 months beginning February 2006		$	—			$	248
Gaming equipment financing to purchase 68 games, no payments for one year and monthly payments of $43 for 24 months beginning January 2006			—				43
Gaming equipment financing to purchase 70 games, no payments for one year and monthly payments of $39 for 24 months beginning March 2006			—				38
Gaming equipment financing to purchase 80 games, monthly payments of $27 for 36 months beginning April 2005			—				165
Gaming equipment financing to purchase 64 games, no payments for one year and monthly payments of $26 for 24 months beginning February 2006			—				52
Gaming equipment financing to purchase 38 games, monthly payments of $13 for 36 months beginning April 2005			—				37
Gaming equipment financing to purchase 55 games, no payments for one year and monthly payments of $16 for 24 months beginning January 2006			—				282
Gaming equipment financing, monthly payments of $3 for 36 months beginning January 2005			—				1
Gaming equipment financing to purchase 4 games, monthly payments of $1 for 36 months beginning April 2005			—				8
Gaming equipment financing to purchase 6 games, no payments for one year and monthly payments of $6 for 24 months beginning February 2007			11				36
Gaming equipment financing, monthly payments of $1 for 36 months beginning July 2006			9				18
Gaming equipment financing, no payments for 18 months and monthly payments of $1 for 36 months beginning July 2006			5				104
Gaming equipment financing, monthly payments of $1 for 36 months and beginning on July 2006			4				8
Gaming equipment financing, monthly payments of $27 for 9 months and beginning April 2008			84				—
Gaming equipment financing, monthly payments of $12 for 11 months and beginning February 2008			35				—
Gaming equipment financing, monthly payments of $38 for 11 months and beginning February 2008			112				—
Gaming equipment financing, monthly payments of $2 for 9 months beginning April 2008			21				—
Gaming equipment financing, monthly payments of $10 for 28 months beginning October 2008			256				—
			537				1,040
Less: current portion			(384	)			(1,025	)
Gaming equipment financing, long-term portion		$	153			$	15

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

7.

Long-term Debt

Long-term debt consists of the following (in thousands):

		September 30, 2008				December 31, 2007
Revolving credit facility totaling $15 million with Wells Fargo Foothill, due June 30, 2011, at a margin above prime or LIBOR, as defined; collateralized by substantially all assets of the Company as defined		$	14,795			$	9,500
9% senior secured notes, interest payable semiannually, principal due January 15, 2012, callable January 15, 2009			125,000				125,000
12 3/4 % senior subordinated notes, non-cash interest will accrue at an annual rate of 12 3/4 % in the form of increased accreted value until January 15, 2009. Beginning July 15, 2009, interest payable semiannually, principal due January 15, 2013, callable January 15, 2009			63,685				58,047
			203,480				192,547
Less: current portion			(14,795	)			(9,500	)
Total long-term debt		$	188,685			$	183,047

Revolving Facility

The Wells Fargo Foothill, Inc. credit facility (“Foothill Facility”) is secured by substantially all the assets of the Company. During the life of the Foothill Facility, the Company may borrow up to the lesser of (1) $15.0 million less the Letter of Credit Usage, as defined, less the Bank Product Reserve, as defined, or (2) the Borrowing Base, as defined, less the Letter of Credit Usage.

Under the terms of the Foothill Facility, interest accrues on the outstanding principal balance at LIBOR plus the LIBOR Rate Margin, which is 3.5%, or the Base Rate, as defined, plus the Base Rate Margin, which is 2%. LIBOR was approximately 2.9% and prime was 5.0% at September 30, 2008. The Foothill Facility also contains certain financial and other covenants. These include a minimum trailing twelve-month Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of $15 million for the Company and limitations on other indebtedness and capital expenditures, as defined.

On June 20, 2008, the Company entered into a Second Amendment (“Second Amendment”) to the Foothill Facility. The Second Amendment extended the maturity date of the Foothill Facility from December 20, 2008 to June 30, 2011. The Second Amendment reduced the Company’s allowable capital expenditures and modified the definition of EBITDA. The Company was not in compliance with covenants of maintaining a minimum trailing twelve-month EBITDA set by the Foothill Facility at September 30, 2008. As a result on November 3, 2008, the Company entered into a Forbearance, Consent and Third Amendment to Credit Agreement (“Forbearance Agreement”) with respect to the amended Foothill Facility.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

7.

Long-term Debt (continued)

The Forbearance Agreement amends the Foothill Facility and provides that the lender will forbear from exercising certain rights and remedies under the amended Foothill Facility and other loan documents as a result of the existing default described above, and modifies certain financial covenants, calculations and rates of the Foothill Facility through January 15, 2009 (“Forbearance Period”) or earlier upon the occurrence of one or more events of default. The Forbearance Agreement provides, among other things, for the following:

	1.		The LIBOR Rate Margin has been increased to 5% from 3.50%, and the Base Rate Margin has been increased to 5% from 2%. Therefore, the interest rate premium payable in respect of loans available under the Credit Agreement has been increased accordingly;
	2.		The minimum EBITDA covenant has been reduced from $15.0 million to $10.0 million for the September 2008 through December 2008 reporting periods;
	3.		The Borrowing Base multiple has been increased from 1.0x to 1.5x from the execution of the Forbearance Agreement until January 15, 2009;
	4.		The Company has been allowed to temporarily shut down a currently operating casino during the Forbearance Period

At September 30, 2008, $14.8 million was drawn under the Foothill Facility, such amounts have been classified as current liabilities in the accompanying balance sheet. Accordingly, the availability under the Foothill Facility at September 30, 2008 was limited to approximately $0.2 million. The outstanding balance on the Foothill Facility is a joint and several obligation of the Company. The Company is continuing its evaluation of financial and strategic alternatives, which may include a recapitalization, refinancing, restructuring or reorganization of its obligations or a sale of some or all of its businesses. The Company and its advisors are actively working toward one or more such transactions that would address the decline in operating results and enhance the capital structure. The Company cannot assure you that it will be successful in undertaking any such alternatives in the near term, including prior to the expiration of the Forbearance Period.

Senior Secured and Senior Subordinated Notes

In December 2004, VRCC, RBG and B&BB (the “Issuers”) issued $125.0 million of 9% senior secured notes (“Senior Notes”) due on January 15, 2012 and $39.9 million in gross proceeds of 12³/4% senior subordinated notes (“Senior Sub Notes”) due January 15, 2013 (collectively the “Notes”). The Notes are joint and several obligations of the Issuers and all current and future subsidiaries of the Issuers. The Guarantors are all the wholly owned subsidiaries of the Issuers.

The Senior Notes pay interest semiannually while the Senior Sub Notes accrue interest in the form of increased accreted value until January 15, 2009, when the book value of the Senior Sub Notes reaches $66.0 million. Beginning on July 15, 2009 and thereafter, the Senior Sub Notes will pay interest semiannually similar to the Senior Notes.

The indentures governing the Notes (the “Indentures”) contain certain customary financial and other covenants, which limit the Company’s ability to incur additional debt. The Indentures provide that the Company may not incur additional indebtedness, other than specified types of indebtedness, unless the Consolidated Coverage Ratio, as defined, on a pro-forma basis after the incurrence of the additional indebtedness is at least 2.00 to 1.00. As of September 30, 2008, the Company has a Consolidated Coverage Ratio that is less than 2.00 to 1.00 and accordingly has incurred no additional indebtedness as defined.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

7.

Long-term Debt (continued)

The Indentures also contain other covenants which limit the ability of the Issuers and Guarantors, as defined, to pay dividends, redeem stock, or make other distributions, make investments, create certain liens, enter into certain transactions with affiliates, utilize proceeds from asset sales, transfer or sell assets, issue or sell equity interests of subsidiaries and enter into certain mergers and consolidations, as defined in the Indentures. There are no restrictions related to the transfer of funds between the Issuers, Guarantors and their respective subsidiaries. The Issuers were in compliance with these covenants at September 30, 2008 and December 31, 2007.

The Senior Notes are secured by substantially all existing and future assets of the Issuers and the Guarantors, as well as the equity interest of the Guarantors and the equity interests of the Black Trust in the Issuers.

The Senior Notes are subordinated to the security interests of the Foothill Facility. The Senior Sub Notes are subordinate to the Senior Notes and all other indebtedness of the Company.

8.

Related Party Transactions

Virgin River Foodmart, Inc., a Nevada corporation (“Foodmart”), is owned by former shareholders of VRCC. Participants in the Company’s slot club program are able to redeem their points for gasoline at the Foodmart. Foodmart charges the Company the retail amount of gas purchased with player points. Charges associated with the point redemption for gasoline at the Foodmart were $3,000, $18,000, $9,000 and $27,000 for the three and nine months ended September 30, 2008 and 2007, respectively.

Black & LoBello is a law firm managed by the daughter of Mr. Black. The Company retains Black & LoBello as outside legal counsel, and has incurred legal fees for legal services in the amount of $34,000, $78,000, $38,000 and $82,000 for the three and nine months ended September 30, 2008 and 2007, respectively.

Pursuant to the Indenture, Mr. Black is entitled to a management fee for his management of the Companies of up to 5% of EBITDA. The Company recognized expense of $68,000, $495,000, $216,000 and $799,000 during the three and nine months ended September 30, 2008 and 2007, respectively.

Gaming Research is a consulting firm that was retained to perform marketing research for the Company. The principal of Gaming Research is the father of the Company’s former chief operating officer. Gaming research received consulting fees of $0, $0, $44,000 and $133,000 for the three and nine months ended September 30, 2008 and 2007, respectively.

Resorts LLC provided management and other services to two related parties that manage and operate the home owners associations of the vacation intervals sold at the property. Included in the accompanying condensed consolidated balance sheet at September 30, 2008 and December 31, 2007, is a receivable for $270,000 and $327,000, respectively, related to amounts owed for those services.

During 2006, the Company entered into an agreement with Town Center Drive & 215, LLC to lease executive office space. The term of the lease is 84 months at a rate of approximately $11,508 a month. Mr. Black is the owner and manager of Town Center Drive & 215, LLC. The Company has expensed $41,000, $126,000, $34,000 and $45,000 during the three and nine months ended September 30, 2008 and 2007.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

In conjunction with the Company’s original plan to expand the Casablanca Hotel and Casino with a 180-room hotel tower, the Company incurred costs associated with the architectural design and planning of this project. These plans have since been re-evaluated and abandoned as of March 31, 2008. As a result, the Company has recognized a non-cash write-off of these assets of approximately $1.0 million which is included as a component of operating expenses under the caption “Impairment of long lived assets”.

During the second quarter of 2008 the Company re-assessed its plans to build a 37,000 square foot event center. As a result of the decision to indefinitely postpone the event center project the Company recognized non-cash write off of $2.9 million which is included as a component of operating expenses under the caption “Impairment of long lived assets”.

In accordance with Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), the Company performs an impairment test of goodwill on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The analysis of potential impairment of goodwill requires a two-step process. The first step is the estimation of fair value. If Step One indicates that impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.

Because such indicators existed for the Company during the period ended June 30, 2008, the Company performed impairment testing on its goodwill. Factors deemed by the Company to be collectively an indicator that a goodwill impairment test was required include record high fuel prices, operating losses and a softening U.S. economy.

For purposes of testing the Company’s goodwill, the Company estimated its fair value using a valuation technique based on discounted cash flows to substantiate the results of its enterprise value. The discounted cash flow approach is dependent on a number of critical management assumptions including appropriate discount rates and other relevant assumptions.

Step One indicated the fair value of the Company was less than its carrying value. Consequently, to confirm the existence of and to measure the amount of any impairment, the Company was required to perform Step Two of the SFAS 142 goodwill impairment testing methodology. In Step Two of the impairment testing, the Company determined the implied fair value of its goodwill estimating the current fair value of all of its assets and liabilities, including any recognized and unrecognized intangible assets. As a result of the Step Two testing, the Company determined that goodwill was fully impaired and therefore recorded a $12.5 million impairment charge during the period ended June 30, 2008 to eliminate the carrying value of its goodwill. This impairment charge is classified within “Goodwill impairment” in the Company’s condensed consolidated statements of income.

On March 27, 2008, in the matter captioned Sparks Nugget, Inc. vs. State ex rel. Department of Taxation, the Nevada Supreme Court ruled that complimentary meals provided to employees and patrons are not subject to Nevada use tax. On April 15, 2008, the Department of Taxation filed a motion for rehearing of the Supreme Court’s decision and in July 2008, the Court denied that motion for rehearing. Through June 2008, the Company paid use tax on these items and filed for refunds for the periods from July 2000 to June 2008. The amount subject to these refunds is approximately $1.8 million. As of September 30, 2008, the Company had not recorded a receivable related to this matter.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

At September 30, 2008, BG LLC and all of the Issuers, and Issuers’ subsidiaries, each of which is directly or indirectly wholly-owned by BG LLC, are guarantors under the Foothill Facility and the Indentures, see Note 7. These guarantees are full, unconditional and joint and several. The following tables represent the condensed consolidating balance sheets of BG LLC (“Parent”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of September 30, 2008 and December 31, 2007 and the related condensed consolidating statements of operations and cash flows for the three and nine months ended September 30, 2008 and 2007.

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

										Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
As of September 30, 2008
BALANCE SHEET (unaudited)
Current Assets, including intercompany accounts		$	4,652			$	74,044			$	—			$	(59,218	)		$	19,478
Property and equipment, net			226				118,733				—				—				118,959
Other Intangibles			—				20,733				—				—				20,733
Other assets excluding intercompany accounts			—				110,315				—				(103,118	)			7,197
Total Assets		$	4,878			$	323,825			$	—			$	(162,336	)		$	166,367
Current Liabilities, including intercompany accounts		$	8,579			$	83,266			$	—			$	(59,218	)		$	32,627
Long-term debt, less current portion			—				188,685				—				—				188,685
Gaming equipment financing, less current portion			—				153				—				—				153
Members’ (Deficit) Equity			(3,701	)			51,721				—				(103,118	)			(55,098	)
Total Liabilities & Members’ (Deficit) Equity		$	4,878			$	323,825			$	—			$	(162,336	)		$	166,367

										Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
As of December 31, 2007
BALANCE SHEET
Current Assets, including intercompany accounts		$	5,257			$	43,001			$	—			$	(29,976	)		$	18,282
Property and equipment, net			420				131,060				—				—				131,480
Goodwill and Other Intangibles			—				35,828				—				—				35,828
Other assets excluding intercompany accounts			—				111,812				—				(103,118	)			8,694
Total Assets		$	5,677			$	321,701			$	—			$	(133,094	)		$	194,284
Current Liabilities, including intercompany accounts		$	8,077			$	53,800			$	—			$	(29,976	)		$	31,901
Long-term debt, less current portion			—				183,047				—				—				183,047
Gaming equipment financing, less current portion			—				15				—				—				15
Members’ (Deficit) Equity			(2,400	)			84,839				—				(103,118	)			(20,679	)
Total Liabilities & Members’ (Deficit) Equity		$	5,677			$	321,701			$	—			$	(133,094	)		$	194,284

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

										Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
For the three months ending September 30, 2008
STATEMENT OF OPERATIONS (unaudited)
Net Revenues		$	—			$	29,820			$	—			$	(1,575	)		$	28,245
Operating Expenses:
Casino			—				10,998				—				—				10,998
Food and beverage			—				4,415				—				—				4,415
Hotel			—				1,775				—				—				1,775
Other			—				2,265				—				—				2,265
General and administrative			333				10,975				—				(1,575	)			9,733
Depreciation and amortization			12				4,099				—				—				4,111
Loss on disposal of assets			—				(6	)			—				—				(6	)
Impairment of long lived assets			—				—				—				—				—
Goodwill impairment			—				—				—				—				—
Operating loss			(345	)			(4,701	)			—				—				(5,046	)
Other (Income) Expense:
Other Income			—				(315	)			—				—				(315	)
Interest expense, net			—				5,395				—				—				5,395
Net loss		$	(345	)		$	(9,781	)		$	—			$	—			$	(10,126	)
STATEMENT OF CASH FLOWS
Net cash used in operating activities		$	—			$	(4,042	)		$	—			$	—			$	(4,042	)
Net cash used in investing activities			—				(128	)			—				—				(128	)
Net cash provided by financing activities			—				7,273				—				—				7,273

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

11.

Supplemental Guarantor Condensed Consolidating Financial Statements (continued)

										Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
For the nine months ending September 30, 2008
STATEMENT OF OPERATIONS (unaudited)
Net Revenues		$	—			$	107,506			$	—			$	(4,725	)		$	102,781
Operating Expenses:
Casino			—				33,023				—				—				33,023
Food and beverage			—				16,089				—				—				16,089
Hotel			—				5,630				—				—				5,630
Other			—				7,275				—				—				7,275
General and administrative			1,262				33,921				—				(4,725	)			30,458
Depreciation and amortization			37				12,497				—				—				12,534
Loss on disposal of assets			—				198				—				—				198
Impairment of long lived assets			—				3,833				—				—				3,833
Goodwill impairment			—				12,497				—				—				12,497
Operating loss			(1,299	)			(17,457	)			—				—				(18,756	)
Other (Income) Expense:
Other Income			—				(315	)			—				—				(315	)
Interest expense, net			2				15,976				—				—				15,978
Net loss		$	(1,301	)		$	(33,118	)		$	—			$	—			$	(34,419	)
STATEMENT OF CASH FLOWS
Net cash provided by (used in) operating activities		$	12			$	(519	)		$	—			$	—			$	(507	)
Net cash used in investing activities			(12	)			(485	)			—				—				(497	)
Net cash provided by financing activities			—				2,747				—				—				2,747

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

										Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
For the three months ending September 30, 2007
STATEMENT OF OPERATIONS (unaudited)
Net Revenues		$	—			$	38,537			$	—			$	(1,575	)		$	36,962
Operating Expenses:
Casino			—				13,685				—				—				13,685
Food and beverage			—				4,977				—				—				4,977
Hotel			—				1,609				—				—				1,609
Other			—				2,301				—				—				2,301
General and administrative			715				13,997				—				(1,575	)			13,137
Depreciation and amortization			5				4,002				—				—				4,007
Loss on disposal of assets			—				5				—				—				5
Operating (loss) income			(720	)			(2,039	)			—				—				(2,759	)
Other Expense:
Interest expense, net			—				5,178				—				—				5,178
Net loss		$	(720	)		$	(7,217	)		$	—			$	—			$	(7,937	)
STATEMENT OF CASH FLOWS
Net cash (used in) provided by operating activities		$	(36	)		$	1,056			$	—			$	—			$	1,020
Net cash provided by (used in) investing activities			36				(6,120	)			—				—				(6,084	)
Net cash provided by financing activities			—				3,947				—				—				3,947

Black Gaming, LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

										Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
For the nine months ended September 30, 2007
STATEMENT OF OPERATIONS (unaudited)
Net Revenues		$	—			$	130,009			$	—			$	(4,725	)		$	125,284
Operating Expenses:
Casino			—				40,668				—				—				40,668
Food and beverage			—				16,798				—				—				16,798
Hotel			—				4,808				—				—				4,808
Other			—				9,092				—				—				9,092
General and administrative			2,010				40,891				—				(4,725	)			38,176
Depreciation and amortization			13				12,353				—				—				12,366
Loss on disposal of assets			—				103				—				—				103
Operating (loss) income			(2,023	)			5,296				—				—				3,273
Other Expense:
Interest expense, net			—				15,394				—				—				15,394
Net loss		$	(2,023	)		$	(10,098	)		$	—			$	—			$	(12,121	)
STATEMENT OF CASH FLOWS
Net cash provided by operating activities		$	134			$	8,616			$	—			$	—			$	8,750
Net cash used in investing activities			(134	)			(13,324	)			—				—				(13,458	)
Net cash provided by financing activities			—				4,086				—				—				4,086

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the accompanying notes. This discussion contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected financial position, business and financing plans. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,” or other comparable terms. Forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statement, including those discussed herein and elsewhere in our Form 10-K for the year ended December 31, 2007, particularly under the heading “Risk Factors.” We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless the context indicates otherwise, all references to the “Company”, “Black Gaming”, “we”, “us” and “our” refer to Black Gaming, LLC and its direct and indirect wholly owned subsidiaries, Virgin River Casino Corporation, RBG, LLC, B & B B, Inc., Casablanca Resorts, LLC, Oasis Interval Ownership, LLC, Oasis Interval Management, LLC, Oasis Recreational Properties, Inc. and R. Black, Inc.

Overview

We own and operate the CasaBlanca Hotel & Casino (“Casablanca), the Oasis Hotel & Casino (“Oasis”) and the Virgin River Hotel & Casino (“Virgin River”) in Mesquite, Nevada, which is located approximately 80 miles north of Las Vegas. We own three of the four operating casinos in Mesquite and our properties have a dominant market share in Mesquite. Our properties are well established, each having been in operation for at least ten years, and serve as significant drive-in gaming and resort destinations. Our properties collectively feature approximately 2,115 slot machines, 70 table games, and 2,300 hotel rooms, and offer extensive amenities, including championship golf courses, full service spas, a bowling center, movie theaters, restaurants, and banquet and conference facilities. With each of our properties, we leverage our extensive value-oriented amenities and emphasis on slot play to target middle market gaming customers.

Our revenues are primarily derived from gaming revenues, which include revenues from slot machines, table games, live keno, race and sports book wagering and bingo. Gaming revenues are generally defined as gaming wins less gaming losses. In addition, we derive a significant amount of revenue from our hotel rooms and our food and beverage outlets. We also derive revenues from our golf courses, spa facilities, timeshare units, bowling center and other amenities. Promotional allowances consist primarily of hotel and food and beverages furnished gratuitously to customers. The retail value of such services is included in the respective revenue classifications and is then deducted as promotional allowances. We calculate operating income as net revenues less total operating costs and expenses. Operating income represents only those amounts that relate to our operations and excludes interest income, interest expense, and other non-operating income and expenses.

We are classified as a “flow-through” entity under the partnership or Subchapter S provisions of the Internal Revenue Code of 1986, as amended. Under those provisions, the owners of the companies pay or are responsible for reporting our taxable income on their separate returns. Accordingly, a provision for income taxes is not included in our financial data.

We were organized as a limited-liability company in Nevada on August 4, 2006 in anticipation of modifying B&BB’s and VRCC’s organizational structure through a holding company reorganization (“Reorganization”) for B&BB and VRCC. The Reorganization, which included a transfer of B&BB and VRCC shares for membership interests in us, was completed on December 31, 2006. As a result of the Reorganization, the Robert R. Black, Sr. Gaming Properties Trust (the “Black Trust”) owns 99.03% of our membership interests and Glenn Teixeira owns 0.97% of our membership interests. The transfer of shares of B&BB and VRCC for membership interests has been accounted for as a reorganization of entities under common control in a manner similar to a pooling-of-interests. Accordingly, the contributed assets and assumed liabilities were recorded at B&BB’s and VRCC’s historical cost basis.

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

•		VRCC received 100 shares of R. Black, Inc. (“RBI”) from the Black Trust. The Black Trust owns 100% of the outstanding shares of VRCC. The 100 shares of RBI, representing 100% of the outstanding capital stock of RBI, were exchanged for 3.68 shares of VRCC held by the Black Trust, representing 3.68% of the outstanding capital stock of VRCC. RBI does not have any material operations, liabilities or assets other than a 5.47% ownership in RBG. The transfer of shares of RBI to VRCC was accounted for at the historical cost of RBG as RBI and VRCC were under common control.
•		VRCC received a 3.8% membership interest in RBG from the Black Trust in exchange for 2.57 shares of VRCC held by the Black Trust, representing 2.57% of the outstanding capital stock of VRCC. The transfer of membership interests of RBG to VRCC was accounted for at historical cost as the Black Trust and VRCC were under common control.
•		VRCC received a 1.92% membership interest in RBG from Glenn Teixeira in exchange for 1.29 shares of VRCC held by the Black Trust, representing 1.29% of the outstanding capital stock of VRCC. The acquisition of the membership interests in RBG from Glenn Teixeira was accounted for at fair value as it was considered an acquisition of a minority interest of a subsidiary. Based upon an internal analysis the fair value of Glenn Teixeira’s interest approximated book value.