10-Q 1 nyc533008.txt FORM 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 333-114335 POSTER FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter) Nevada 56-2370836 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 129 E. Fremont Street, Las Vegas, Nevada (Address of principal executive offices) 89101 (Zip Code) (702) 385-7111 Registrant's telephone number, including area code N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer. Yes|_| No |X| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value, 100 outstanding shares as of May 16, 2005 ===============================================================================

Poster Financial Group, Inc. (A Wholly Owned Subsidiary of PB Gaming, Inc.) Notes to Unaudited Consolidated Financial Statements 1. Organization Poster Financial Group, Inc. ("Poster Financial" or the "Company") is a Nevada corporation, formed on June 2, 2003 as a holding corporation, for the purpose of completing the acquisition (the "Acquisition") of the Golden Nugget Group, as more fully described in Note 3. The Company is a wholly owned subsidiary of PB Gaming, Inc. ("PB Gaming" or the "Parent"). After completion of the Acquisition, the Company owns and operates the following entities: o The Golden Nugget--Las Vegas, a hotel-casino and entertainment resort located in downtown Las Vegas, Nevada and operated by GNLV, CORP., a Nevada corporation ("GNLV"). o The Golden Nugget--Laughlin, a hotel-casino resort located in Laughlin, Nevada and operated by GNL, CORP., a Nevada corporation ("GNL"). On November 8, 2004, the Company entered into an agreement to sell all the issued and outstanding capital stock of GNL. See Notes 2 and 7. GNLV also has a wholly owned subsidiary, Golden Nugget Experience, LLC ("GNE"), a Nevada limited liability company. GNE is a holding company that has an investment in The Fremont Street Experience Limited Liability Company, a Nevada limited liability company (the "Fremont Street Experience") organized to enhance tourism in downtown Las Vegas, Nevada. The Fremont Street Experience is owned by a group of unrelated casino operators in downtown Las Vegas, and operates retail malls, parking garages, entertainment venues and a pedestrian mall that encloses a city street (Fremont Street), located adjacent to the Golden Nugget--Las Vegas. GNE holds 17.65% of the voting units and 50.0% of the non-voting units of the Fremont Street Experience, and accounts for its investment utilizing the equity method of accounting. The Acquisition closed on January 23, 2004. The total purchase price for the Golden Nugget Group was approximately $216.7 million, comprised of a base purchase price of $215.0 million, adjusted for working capital of the Group at the date of closing (a decrease in the purchase price of approximately $1.8 million at closing) and transaction expenses of approximately $3.5 million. On February 4, 2005, Poster Financial entered into an agreement (the "Landry's Purchase Agreement") to sell the Golden Nugget Hotel-Casino Las Vegas to Houston, Texas-based Landry's Restaurants, Inc. ("Landry's") for approximately $140 million in cash, and an additional payment by Landry's for certain working capital liabilities. Under the terms of the transaction, PB Gaming agreed to sell all of the shares of Poster Financial to LSRI Holdings, Inc. ("LSRI"), a wholly owned subsidiary of Landry's. Landry's informed Poster Financial that on May 11, 2005, LSRI assigned to Landry's Gaming, Inc., a newly formed Nevada corporation and wholly owned subsidiary of Landry's ("Landry's Gaming"), all of LSRI's rights, interests and obligations in, to and under the Landry's Purchase Agreement, and Landry's Gaming accepted and assumed all rights, interests and obligations of LSRI under the Landry's Purchase Agreement and agreed to be bound by the terms of the Landry's Purchase Agreement as the assignee of LSRI. This assignment and assumption does not relieve LSRI of its obligations under the Landry's Purchase Agreement. Pursuant to the terms of the Landry's Purchase Agreement, LSRI deposited $25 million into an escrow account with Chicago Title of Nevada, Inc., the escrow agent, as a non-refundable deposit, except as otherwise expressly provided in the Landry's Purchase Agreement. Landry's Gaming may terminate the Landry's Purchase Agreement for any reason or no reason in its sole and absolute discretion. Under the terms of the Landry's Purchase Agreement, the outstanding 8 3/4% Senior Secured Notes due 2011 (the "Senior Notes") will remain outstanding obligations of Poster Financial following the closing. The consummation of the sale will result in a change of control of Poster Financial under the indenture governing the Senior Notes and, as a result, Poster Financial will be required within 30 days of such change of control to commence an offer to purchase all outstanding Senior Notes for 101% of the aggregate principal amount of the Senior Notes, plus any accrued and unpaid interest. Under the terms of the Landry's Purchase Agreement, amounts outstanding at closing under the Company's senior secured credit facility will be paid off by Landry's or Landry's will seek consent from the lender under such facility for such amounts to remain outstanding. 2. Significant Accounting Policies and Basis of Presentation The consolidated financial statements included of the Company as of March 31, 2005 and for the three month period then ended have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair presentation of the results for interim periods, have been made. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the Company as of December 31, 2004 and for the period from June 2, 2003 (inception) through December 31, 2003. Principles of Consolidation All inter-company accounts and transactions between the Company and GNLV and GNL are eliminated in consolidation. All inter-company accounts and transactions between GNLV and GNE are eliminated in consolidation. On November 8, 2004, the Company entered into an agreement to sell all of the issued and outstanding capital stock of GNL, which sale was not completed at March 31, 2005. At March 31, 2005, the Company anticipated the transaction to close in 2005. Consequently, the assets of GNL as of December 31, 2004 and March 31, 2005 are classified on the consolidated balance sheet as assets held for sale, and the liabilities of GNL are classified as liabilities related to assets held for sale. The results of operations for GNL are reflected in discontinued operations in the accompanying consolidated statements of operations for the three month periods ended March 31, 2004 (reflecting the period when GNL was owned by the Company, from January 23, 2004 through December 31, 2004) and March 31, 2005. See Note 7 - Discontinued Operations. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company extends credit to approved casino customers following background checks and investigations of creditworthiness. Trade receivables, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company's receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as historical collection experience and current economic and business conditions. Management believes that as of March 31, 2005, no significant concentrations of credit risk existed for which an allowance had not already been recorded. Inventories Inventories consisting of principally food and beverage, operating supplies and gift shop items are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method. Property and Equipment Property and equipment are stated at cost. Depreciation expense is computed utilizing the straight-line method over the estimated useful lives of the depreciable assets, as follows: Buildings and improvements 15 - 40 years Land improvements 15 - 40 years Equipment, furniture, fixtures and leasehold improvements 3 - 20 years Certain equipment held under capital leases are classified as property and equipment and amortized using the straight-line method over the lease term and the related obligations are recorded as liabilities. Costs of major improvements are capitalized; costs of normal repairs and maintenance are charged to expense as incurred. Gains or losses on dispositions of property and equipment are recognized in the consolidated statements of operations when incurred. Revenue Recognition and Promotional Allowances Casino revenue is the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs ("casino front money") and for chips in the customer's possession ("outstanding chip liability"). Casino revenues are recognized net of certain sales incentives in accordance with the Emerging Issues Task Force ("EITF") consensus on Issue 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." Under the guidance of the EITF, the Company recognizes sales incentives as a reduction of revenue. In addition, accruals for the cost of cash-back points in point-loyalty programs, such as points earned in slot players clubs, are recorded as a reduction of revenue. Hotel, food and beverage, entertainment and other operating revenues are recognized as services are performed. Advance deposits on rooms and advance ticket sales are recorded as accrued liabilities until services are provided to the customer. The retail value of accommodations, food and beverage, and other services furnished to hotel-casino guests without charge is included in gross revenue and then deducted as promotional allowances. The estimated cost of providing such promotional allowances is primarily included in casino expenses as follows: For the Three For the Three Months Ended Months Ended March 31, 2004 March 31, 2005 -------------- -------------- Rooms $2,163 $2,209 Food and beverage 6,303 6,331 Other 749 547 -------------- -------------- $9,215 $9,087 ============== ============== The estimated retail value of such promotional allowances is included in operating revenues as follows: For the Three For the Three Months Ended Months Ended March 31, 2004 March 31, 2005 -------------- -------------- Rooms $3,085 $3,369 Food and beverage 5,481 5,863 Other 630 375 -------------- -------------- $9,196 $9,607 ============== ============== 3. Golden Nugget Acquisition On January 23, 2004, the Company completed the Acquisition of the Golden Nugget Group from MGM MIRAGE. The purchase price for the Acquisition was approximately $213.7 million, reflecting a base purchase price of $215.0 million less an adjustment for working capital at the date of the closing of approximately $4.8 million plus acquisition related expenses of approximately $3.5 million. There are no contingent payments. The transaction has been accounted for as a purchase and accordingly, the purchase price has been allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of the Acquisition. Results of operations for the acquired companies have been reflected in the Company's financial statements from the day the acquisition closed. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of Acquisition. The allocation of the purchase price to the fair value of net assets acquired has been based on appraisals of the assets acquired (amounts in thousands):

In the quarter ended September 30, 2004 the Company adjusted its initial purchase price allocation to reflect the results of a detailed cost segregation study of the GNLV buildings. The study resulted in a reduction in the net allocated cost to the building of approximately $4.7 million, offset by pro-rata adjustments to other long-lived assets, and is reflected in the amounts presented above. There was no goodwill resulting from the Acquisition. Had the Acquisition taken place on January 1, 2004, results of operations would have reflected the following pro forma amounts for the three month period ended March 31, 2004 (amounts in thousands): Three Months Ended March 31, 2004 --------------- Net revenues $ 56,151 --------------- Operating income $ 8,843 --------------- Net income from continuing operations $ 4,478 --------------- The principal differences between reported amounts and the pro forma amounts result from the addition of historical operating results for the Golden Nugget Group for the period January 1 through January 22, 2004; elimination of the MGM MIRAGE management fee, changes in depreciation and amortization resulting from the new basis in assets acquired, and elimination of the provision for income taxes due to the election of PB Gaming to have each of its subsidiaries treated as a qualified Subchapter S corporation subsidiary for income tax purposes. In addition, signing bonuses paid to key executives upon completion of the Acquisition of approximately $1.3 million are included in the actual results for the three months ended March 31, 2004 but have been excluded from the pro forma results presented above because such bonuses are non-recurring in nature, are directly related to the Acquisition, and are not reflective of the results of operations on a pro forma basis. 4. Supplemental information relating to Cash Flows The following is supplemental cash flow information relating to interest paid and distributions (for income taxes) to PB Gaming: For the Three For the Three Months Ended Months Ended March 31, 2004 March 31, 2005 -------------- -------------- (in thousands of dollars) ------------------------------- Interest paid $ 3 $716 -------------- -------------- Distributions for income taxes $ -- $ -- ============== ============== The following information presents supplemental cash flows information of assets acquired and liabilities assumed in connection with the Golden Nugget Acquisition (in thousands of dollars): Accounts receivable $4,219 Inventories 3,918 Prepaid expenses and other 4,646 Property and equipment 184,987 Tradename and other intangibles 17,023 Investment in joint venture 4,995 Deposits and other assets 4,786 Accounts payable (2,098) Other accrued liabilities (20,194) Notes payable (500) ------------- $201,782 Plus, cash acquired 11,942 ------------- Total purchase price and acquisition costs $213,724 ============= 5. Employee Benefit Plan Employees of the Company who are members of various unions are covered by union-sponsored, collective bargained, multi-employer health and welfare and defined benefit pension plans. The Company recorded an expense of $2.4 million for the three month period ended March 31, 2005 under such plans. The plans' sponsors have not provided sufficient information to permit the Company to determine its share of unfunded vested benefits, if any. However, based on available information, management does not believe that unfunded amounts attributable to its casino operations are material. The Company is self-insured for most health care benefits for its non-union employees. The liability for claims filed and estimates of claims incurred but not reported is included in the "Other accrued liabilities" caption in the accompanying consolidated balance sheets. The Company sponsors a retirement savings plan under Section 401(k) of the Internal Revenue Code covering its non-union employees. The plan is available to certain employees with at least three months of service. The plan allows eligible employees to defer, within prescribed limits, up to 20 percent of their income on a pre-tax basis through contributions to the plan. The Company matches, within prescribed limits, a portion of eligible employees' contributions up to a maximum of 2 percent of an employees' eligible compensation. The Company recorded charges for matching contributions of approximately $189,000 for the three month period ended March 31, 2005. 6. Fremont Street Experience The Company indirectly owns 17.65% of the voting units and 50.0% of the non-voting units of the Fremont Street Experience. This investment is accounted for under the equity method of accounting. Under the equity method, the carrying value of the investment is adjusted by the Company's share of earnings, losses, capital contributions and distributions. Activity relating to the Company's investment in the Fremont Street Experience for the period from the date of Acquisition through March 31, 2005 is as follows (in thousands of dollars): Acquisition of investment $5,105 Contributions 939 Equity in loss of joint venture (608) ----------- Investment Balance--end of period $5,436 =========== The investment balance reflects the Company's member's equity in Fremont Street Experience, comprised of cumulative contributions, adjusted for the Golden Nugget Group's proportional interest in profits or losses, as well as an additional $1.8 million contribution made by the Golden Nugget Group in 1995 on a voluntary basis, and used by the Fremont Street Experience to acquire additional fixed assets used in its operations. The $5.4 million member's equity carried by the Golden Nugget Group is approximately $0.3 million less than the proportional amount of members' capital reported by the Fremont Street Experience due to values assigned in the allocation of purchase price resulting from the Acquisition. The additional contribution of $1.8 million represents a non-voting interest which has been treated as a redeemable preferred member contribution of the Fremont Street Experience. The redeemable preferred member contribution does not have any profit distribution and must be repaid before any distributions are made on voting interests. Summarized financial information of the Fremont Street Experience is as follows: As of March 31, 2005 (in thousands of dollars) -------------- Current assets $1,695 Non-current assets 42,511 -------------- Total assets $44,206 ============== Current liabilities 215 Non-current liabilities 16,125 Preferred member contribution 3,040 Members' capital 24,826 -------------- Total liabilities and members' capital $44,206 ============== Three Months Ended March 31, 2005 -------------- Total revenues $1,252 Costs and expenses 2,574 -------------- Net loss $(1,322) ============== The proportionate share of the Company's loss of the Fremont Street Experience for the three months ended March 31, 2005 is approximately $150,000. 7. Discontinued Operations On November 8, 2004, Poster Financial entered into a stock purchase agreement (the "Barrick Purchase Agreement") to sell the Golden Nugget --Laughlin to Las Vegas-based gaming and real estate company, Barrick Gaming Corporation ("Barrick") for $31 million, plus working capital at the closing of the transaction as calculated under the Barrick Purchase Agreement. The transaction includes a 24-month license agreement for the limited use of the Golden Nugget--Laughlin name and brand. The parties previously agreed to extend the outside termination date of the Barrick Purchase Agreement from May 8, 2005 to May 31, 2005. On May 16, 2005, Poster Financial received a letter from Barrick's outside counsel purporting to terminate the Barrick Purchase Agreement on the grounds that Poster Financial and certain of its affiliates allegedly breached certain provisions of the Barrick Purchase Agreement. In addition, Barrick alleges that it is entitled to the $1 million it placed into escrow upon the execution of the Barrick Purchase Agreement. Poster Financial vigorously disputes any assertion that it has breached any of the provisions of the Barrick Purchase Agreement or that Barrick is entitled to any of the funds that were placed into the escrow account. Poster Financial does not believe that Barrick has the right to terminate the Barrick Purchase Agreement pursuant to the terms thereof. Poster Financial is currently considering all possible rights and remedies it might have against Barrick under the Barrick Purchase Agreement or otherwise. As of the date of this filing, Barrick has not secured gaming approval for the transaction nor has the transaction been placed on the agenda announcing the regularly scheduled May 2005 meeting of the Nevada Gaming Commission. The Nevada Gaming Commission has the authority to call a special meeting to consider items that are not placed on the agenda of a regularly scheduled meeting. Under Nevada law, the Nevada Gaming Commission would need to provide at least three working days public notice of any special meeting and the agenda items. As of the date of this filing, no special meeting of the Nevada Gaming commission has been scheduled or noticed to consider the transaction. As noted above, the transaction cannot close without the approval of the Nevada Gaming Commission. In light of the foregoing, we believe that Barrick will not be able to satisfy the closing conditions contained in the Barrick Purchase Agreement and therefore we do not believe that the sale of the Golden Nugget--Laughlin pursuant to the Barrick Purchase Agreement will be consummated. If the transaction has not closed by May 31, 2005, the Barrick Purchase Agreement will automatically terminate in accordance with its terms and thereafter will be of no further force and effect. The Landry's Purchase Agreement provides that if the sale of the Golden Nugget--Laughlin were consummated, Poster Financial would apply, within a reasonable time after the consummation of the transaction, the net proceeds from such transaction to pay any amounts due and payable, including accrued and unpaid interest, under the Credit Facility. In the event the Barrick Purchase Agreement terminates in accordance with its terms, Landry's Gaming would acquire the Golden Nugget--Laughlin in addition to the Golden Nugget--Las Vegas because the Golden Nugget--Laughlin would remain a wholly owned subsidiary of Poster Financial. Under the terms of the Landry's Purchase Agreement, there is no adjustment to the purchase price for the acquisition of the Golden Nugget--Laughlin because the net proceeds that would have been applied to outstanding balances under the Credit Facility would not have been received from Barrick. On March 24, 2005, in connection with the proposed sale of the Golden Nugget--Laughlin, we sold a motel formerly used by the Golden Nugget--Laughlin to an unrelated third party. The motel is located in Bullhead City, Arizona and occupies approximately two acres of land. Net proceeds from the sale were approximately $1.1 million and were used to pay down debt outstanding under the Credit Facility. The net consideration for the proposed sale of the Golden Nugget Laughlin and the estimated market value of the motel sold to a separate buyer exceed the carrying value of the related assets at March 31, 2005. Accordingly, no impairment is indicated and no adjustments have been reflected in the accompanying financial statements. GNL has previously been operated as a business segment of the Company. The results of GNL are reflected as discontinued operations in the accompanying Consolidated Statements of Operations for the three month periods ended March 31, 2005 and 2004, since the date GNL was acquired as part of the Acquisition. Net revenues of GNL for the period from January 23, 2004 (date of Acquisition) through March 31, 2004 were $44 million and income from continuing operations for the same period was $2,098. The following table summarizes the assets and liabilities of GNL as of March 31, 2005 that are included as assets and liabilities held for sale in the accompanying Consolidated Balance Sheet: As of March 31, 2005 (in thousands of dollars) --------------- Cash $9,192 Accounts receivable 222 Inventory 596 Prepaid expenses and other 1,410 --------------- Total current assets 11,420 Property and equipment, net 30,767 Other assets 795 --------------- Total assets 42,982 Accounts payable (1,798) Other current liabilities (2,516) --------------- Total liabilities (4,315) --------------- Net assets $38,667 =============== 8. Segment Information The Company owns and operates the Golden Nugget -- Las Vegas and the Golden Nugget Laughlin. The properties market in each of their segments primarily to middle-income guests. The major products offered in each segment are as follows: casino entertainment, hotel rooms, and food and beverage. The accounting policies of each business segment are the same as those described in the summary of significant accounting policies. There are minimal inter-segment sales. As a result of the pending sale of GNL, the results of the Company presented in continuing operations are a single segment. 9. Commitments and Contingences Licensing Contingency The Company conducts licensed gaming operations in Nevada. The Nevada gaming authorities control approval of ownership interests in gaming operations. On January 22, 2004, the Nevada Gaming Commission ("NGC") found the principal shareholders (the "Shareholders") of PB Gaming (who are also the Chief Executive Officer and Chief Operating Officer of Poster Financial) suitable as officers, directors and shareholders of PB Gaming and as officers and directors of Poster Financial, and issued licenses to them as officers and directors of GNLV and GNL. The findings of suitability and licenses issued to the Shareholders expire in January 2008. During the four-year period in which the findings of suitability and licenses are in effect, the Shareholders may apply for new unlimited findings of suitability and licenses. No assurance can be given that such applications would be granted without further limitation or at all. If the Shareholders were found unsuitable, they would be required to be removed from their positions as officers and directors and PB Gaming could be required to redeem the stock in PB Gaming held by them at a price equal to fair market value. Such an event could result in the liquidation of PB Gaming and the Company. Severance Payment On March 4, 2005, Poster Financial and each of its wholly owned subsidiaries entered into a Separation Agreement and General Release (the "Separation Agreement") with Maurice Wooden, the former Chief Operating Officer of Poster Financial. The Separation Agreement provides for Mr. Wooden's resignation, effective as of March 4, 2005, from his position as Chief Operating Officer and a director of Poster Financial and his resignation from all positions as an officer, director or manager of Poster Financial, each of Poster Financial's wholly owned subsidiaries and the Fremont Street Experience LLC (collectively, the "Poster Companies"). Under the terms of the Separation Agreement, Poster Financial has agreed to pay Mr. Wooden a separation payment equal to $1.25 million (the "Separation Payment"), less all applicable withholdings. Mr. Wooden has agreed to release PB Gaming, the Poster Companies, as well as LSRI and Landry's, and each of the foregoing entities' respective parents, subsidiaries and affiliates from all claims arising from the beginning of time to the date of the Separation Agreement, including but not limited to claims relating to (i) Mr. Wooden's employment relationship with the Poster Companies, (ii) all positions Mr. Wooden previously held with the Poster Companies, (iii) the termination of Mr. Wooden's employment relationship and positions with the Poster Companies and (iv) all claims arising under the Employment Agreement, dated as of October 29, 2003, by and between Poster Financial and Mr. Wooden, which employment agreement has been terminated as a result of the Separation Agreement. The Separation Agreement provides that Mr. Wooden, for the period commencing on March 4, 2005 and continuing until the earlier to occur of the one year anniversary of the Closing Date (as such term is defined in the Landry's Purchase Agreement) or October 31, 2006 (such period being referred to as the "Noncompete Period"), shall not be employed by or otherwise associated with any entity engaged in gaming in the State of Nevada or within a 150 mile radius of any jurisdiction in which any member of the Poster Companies is engaged in gaming during the Noncompete Period. Mr. Wooden has further agreed that in the event of his breach of such noncompete obligations, he will immediately become liable to the Company for a pro rata portion of the Separation Payment. The Separation Agreement also provides that Mr. Wooden, for the period commencing on March 4, 2005 and continuing until February 28, 2007, will not solicit customers, prospective customers or employees of the Poster Companies and, at all times, will not disclose any trades secrets or proprietary or other confidential information concerning any member of the Poster Companies. 10. Long-term debt Notes On December 3, 2003, the Company issued $155 million aggregate principal amount of the "Senior Notes" to finance a portion of the purchase price of the Acquisition. All payments with respect to the Senior Notes are fully, unconditionally and irrevocably guaranteed, jointly and severally, by all the Company's current and future restricted subsidiaries on a senior secured basis. The Company's "restricted subsidiaries," which are subject to many of the restrictive covenants in the indenture governing the Senior Notes, currently are GNLV and GNL the Company's wholly owned subsidiaries, and GNE, a wholly owned subsidiary of GNLV. The Senior Notes and the guarantees are secured by a pledge of capital stock of the Company's restricted subsidiaries and a security interest in substantially all of the Company's and the guarantors' current and future assets. Such security interest is junior to the security interest granted to the lenders under the Company's Credit Facility (as defined below). Interest on the Notes is payable on June 1 and December 1 of each year. Credit Facility On January 23, 2004, the Company entered into the Credit Facility, which was established pursuant to a loan and security agreement with Wells Fargo Foothill, Inc. as administrative agent. The Credit Facility consists of a $20.0 million amortizing term loan and a $15.0 million revolver (subsequently amended to $25.0 million). The Credit Facility contains covenants, including, among other things, financial covenants, limitations on the Company from disposing of assets, entering into mergers and certain acquisitions, incurring liens or indebtedness, and entering into transactions with affiliates. The Company's obligations under the Credit Facility are fully, unconditionally and irrevocably guaranteed, jointly and severally, by all the Company's subsidiaries. The Company's obligations under the Credit Facility are also secured by a pledge of capital stock of the Company's restricted subsidiaries and the Company's interest in the Fremont Street Experience, as well as a first priority lien on substantially all of the Company's and the guarantors' current and future assets. Interest on the Credit Facility accrues on all individual borrowings at an interest rate determined at the option of the Company, at either the LIBOR Index plus a 4% margin, or the Base Rate, defined as the bank's prime rate plus a 3% margin. At March 31, 2005, the Company failed to satisfy the financial covenants under the loan and security agreement. On March 31, 2005, the Company entered into a commitment letter arrangement with their lender, which on May 2, 2005, was formalized into an amendment to the loan and security agreement relating to its Credit Facility. The amendment modifies financial ratios and covenants to cure certain defaults (which had been previously waived by the lenders) and to permit the sale of the Golden Nugget -- Laughlin. The amendment changed the calculation of EBITDA by adding back to EBITDA severance costs of up to $2,500,000 and the $150,000 fee for the amendment. 11. Summarized Financial Information All payments with respect to the Senior Notes are fully, unconditionally and irrevocably guaranteed, jointly and severally, by all the Company's subsidiaries. The Senior Notes are also collateralized by a pledge of capital stock of the Company's subsidiaries and a security interest in substantially all of the Company's and the guarantors' current and future assets. Such security interest is junior to the security interest granted to the lenders under the Senior Credit Facility. Separate financial statements and other disclosures concerning each of the subsidiary guarantors are not presented below because management believes they are not material to investors. The following information represents the summarized financial information of the Company and the subsidiary guarantors on a consolidating basis as of March 31, 2005 and for the three months ended March 31, 2005.

_______________________ (a) To eliminate intercompany receivables and payables in consolidation. (b) To eliminate investment in subsidiaries in consolidation. (c) To eliminate notes payable and related debt issuance costs pushed down to GNLV to reflect the impact of the Acquisition, in accordance with the requirements of Staff Accounting Bulletin Topic 5(J) of the SEC.

_________________ (a) To eliminate equity in income of subsidiaries in consolidation. (b) To eliminate interest expense on the Notes and term loan pushed down to GNLV to reflect the impact of the Acquisition, in accordance with Staff Accounting Bulletin Topic 5(J) of the SEC. Poster Financial Group, Inc. (A Wholly Owned Subsidiary of PB Gaming, Inc.) Notes to Unaudited Consolidated Financial Statements CONSOLIDATING STATEMENT OF CASH FLOWS March 31, 2005

Golden Nugget Group (A division of MGM MIRAGE) Unaudited Combined Statements of Operations and Changes in Division Equity Period from January 1, 2004 to January 22, 2004 (Date Immediately Prior to Acquisition by Poster Financial) ------------------ (in thousands of dollars) Revenues Casino $7,890 Rooms 2,610 Food and beverage 2,491 Entertainment, retail and other 711 ---------------- Gross revenue 13,702 Promotional allowances (1,535) ---------------- Net revenues 12,167 ---------------- Costs and expenses Casino 4,144 Rooms 1,202 Food and beverage 1,749 Entertainment, retail and other 506 Provision for doubtful accounts 108 General and administrative 1,939 Depreciation 782 Management fee 685 ---------------- Total costs and expenses 11,115 ---------------- Operating income 1,052 ---------------- Other income (expense) Equity in loss of joint venture (26) Interest income 2 Interest expense (3) Intercompany interest expense (206) ---------------- Total other expense (233) ---------------- Income from continuing operations before income taxes 819 Income tax (provision) benefit (258) ---------------- Income from continuing operations 561 ---------------- Discontinued Operations Income from discontinued operations before income taxes 155 Income tax (provision) benefit (48) ---------------- Income from discontinued operations 107 ---------------- Net income (loss) 668 Division equity beginning of period 7,855 ---------------- Division equity end of period $8,523 ================ The accompanying notes are an integral part of these combined financial statements. Golden Nugget Group (A division of MGM MIRAGE) Unaudited Combined Statements of Cash Flows

Golden Nugget Group (A division of MGM MIRAGE) Notes to Unaudited Combined Financial Statements 1. Organization The Golden Nugget Group (the "Group") is a former operating division of MGM MIRAGE ("MGM MIRAGE" or "Parent"), a publicly held Delaware corporation. The Group is comprised of the following entities: o The Golden Nugget--Las Vegas, a hotel-casino and entertainment resort located in downtown Las Vegas, Nevada and operated by GNLV, CORP., a Nevada corporation wholly owned by MGM MIRAGE ("GNLV"). o The Golden Nugget--Laughlin, a hotel-casino resort located in Laughlin, Nevada and operated by GNL, CORP., a Nevada corporation wholly owned by MGM MIRAGE ("GNL"). o GNLV also has a wholly owned subsidiary, Golden Nugget Experience, LLC ("GNE"), a Nevada limited liability company. As more fully explained in Note 4, GNE is a holding company that has an investment in The Fremont Street Experience Limited Liability Company, a Nevada limited liability company (the "Fremont Street Experience") organized to enhance tourism in downtown Las Vegas, Nevada. The Fremont Street Experience is owned by a group of unrelated casino operators in downtown Las Vegas, and operates retail malls, parking garages, entertainment venues and a pedestrian mall that encloses a city street (Fremont Street), located adjacent to the Golden Nugget--Las Vegas. GNE holds 17.65% of the voting units and 50.0% of the non-voting units of the Fremont Street Experience, and accounts for its investment utilizing the equity method of accounting. The management of MGM MIRAGE has made all significant operational and financial decisions of the Group during the periods presented. On January 23, 2004, Poster Financial Group, Inc. ("Poster Financial"), a party unrelated to MGM MIRAGE, completed the acquisition of the Group from MGM MIRAGE (the "Acquisition"). The purchase price for the Acquisition was approximately $213.7 million, reflecting a base purpose price of $215.0 million less an adjustment for working capital at the date of the closing of approximately $4.8 million plus acquisition related expenses of approximately $3.5 million. 2. Significant Accounting Policies and Basis of Presentation The combined financial statements included of the Group for the period January 1, 2004 through January 22, 2004 have been prepared by the Group, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The preparation of the combined financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring items and estimates necessary for a fair presentation of the results for interim periods, have been made. The Acquisition described in Note 3 was accounted for as a purchase, and the accounting basis in the assets and liabilities of the Group were adjusted on January 23, 2004 to reflect the allocation of purchase price resulting from the Acquisition. The accompanying financial statements present results of operations and cash flows of the Group for the period from January 1, 2004 through January 22, 2004 (date immediately prior to the Acquisition) utilizing the historical pre-acquisition basis. Principles of Presentation All inter-company accounts and transactions between GNLV and GNE are eliminated in consolidation. All inter-company accounts and transactions between GNLV and GNL are eliminated in combination to arrive at the financial statements of the Group. The Group is not a separate reporting entity and has not previously presented financial statements on a stand-alone basis. Certain estimates, including allocations from the Parent, have been made to provide financial information for stand-alone reporting purposes. Management of the Group believes that the presentations and disclosures herein are adequate to make the information not misleading. In the opinion of management, all adjustments necessary to fairly state the financial statements have been reflected. Concentration of Credit Risk Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of casino accounts receivable. The Group extends credit to approved casino customers following background checks and investigations of creditworthiness. Trade receivables, including casino and hotel receivables, are typically noninterest bearing and are initially recorded at cost. Accounts are written off when management deems the account to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Group's receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as historical collection experience and current economic and business conditions. Management believes that as of January 22, 2004, no significant concentrations of credit risk existed for which an allowance had not already been recorded. Stock Based Compensation Certain employees are eligible to participate in the stock option plans of the Parent. The Group accounts for stock-based compensation, including employee stock option plans, in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and the Financial Accounting Standards Board's Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25", and discloses supplemental information in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"). The Group does not incur compensation expense for employee stock options when the exercise price is at least 100% of the market value of the Group's common stock on the date of grant. For disclosure purposes, employee stock options are measured at fair value, compensation is assumed to be amortized over the vesting periods of the options, and pro forma results are disclosed as if the Group had applied SFAS 123. Had the Group accounted for these plans under the fair value method allowed by SFAS 123, the Group's net income would have been reduced to recognize the fair value of employee stock options. The following are required disclosures under SFAS 123 and SFAS 148: Period from January 1, 2004 to January 22, 2004 (Date Immediately Prior to Acquisition by Poster Financial) ---------------------------- Net income (loss) as reported $668 Stock based compensation under SFAS 123 (56) ---------------------------- Pro Forma $612 ============================ There was no cost of employee stock-based compensation included in reported net income for the period presented. For purposes of computing the pro forma compensation, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: risk-free interest rates of 3% for the 2004 period; no expected dividend yields for the period presented; expected lives of 5 years for the period presented; and expected volatility of 42% for the 2004 period. There were no options granted in the 2004 period. 3. Golden Nugget Acquisition On January 23, 2004, Poster Financial, an unrelated third party, completed the Acquisition of the Group from MGM MIRAGE. The purchase price for the acquisition was approximately $213.7 million, reflecting a base purchase price of $215.0 million less an adjustment for estimated working capital at the date of closing of approximately $4.8 million plus acquisition related expenses of approximately $3.5 million. 4. Fremont Street Experience The Group owns 17.65% of the voting units and 50.0% of the non-voting units of the Fremont Street Experience. This investment is accounted for under the equity method of accounting. Under the equity method, the carrying value of the investment is adjusted by the Group's share of earnings, losses, capital contributions and distributions. Activity relating to the Group's investment in the Fremont Street Experience is as follows: Period from ---------------- January 1, 2004 to January 22, 2004 (Date Immediately Prior to Acquisition by Poster Financial) ---------------- (in thousands of dollars) Investment Balance--beginning of period $5,187 Contributions - Equity in loss of joint venture (26) ---------------- Investment Balance--end of period $5,161 ================ The investment balance reflects the Group's member's equity in Fremont Street Experience, comprised of cumulative contributions, adjusted for the Group's proportional interest in profits or losses, as well as an additional $1.8 million contribution made by the Group in 1995 on a voluntary basis, and used by the Fremont Street Experience to acquire additional fixed assets used in its operations. The additional contribution of $1.8 million represents a non-voting interest which has been treated as a redeemable preferred member contribution of the Fremont Street Experience. The redeemable preferred member contribution does not have any profit distribution and must be repaid before any distributions are made on voting interests. Summarized financial information of the Fremont Street Experience is as follows: Period from ---------------------- January 1, 2004 to January 22, 2004 (Date Immediately Prior to Acquisition by Poster Financial) ---------------------- Total revenues $274 Costs and expenses (423) ---------------------- Net loss $(149) ====================== 5. Segment Information The Group owns and operates the Golden Nugget--Las Vegas and the Golden Nugget--Laughlin. The major products offered in each segment are as follows: casino entertainment, hotel rooms, and food and beverage. The accounting policies of each business segment are the same as those described in the summary of significant accounting policies. There are minimal inter- segment sales. Corporate costs have historically been allocated to each business segment through management fees charged by MGM MIRAGE. A summary of the operations by business segment is presented below:

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains certain forward-looking statements regarding our future results of operations and performance. Important factors that could cause differences in results of operations include, but are not limited to, general economic conditions in the markets in which the Company operates, competition from other gaming operations, leverage, the inherent uncertainty and costs associated with litigation and governmental and regulatory investigations, and licensing and other regulatory risks. See "--Cautionary Statement Regarding Forward-Looking Statements." In this Quarterly Report on Form 10-Q, unless the context requires otherwise, the terms the "Company," "we," "us," and "our" refer to Poster Financial Group, Inc. and its subsidiaries and the term "Poster Financial" refers only to Poster Financial Group, Inc. and not its subsidiaries. In this Quarterly Report on Form 10-Q, our parent company, PB Gaming, Inc., is referred to as "PB Gaming." Overview The Company We own and operate the Golden Nugget--Las Vegas and the Golden Nugget--Laughlin hotel - casinos in Las Vegas and Laughlin, Nevada, respectively. The following table sets forth information about each of the Golden Nugget properties as of March 31, 2005: Slot Table Casino Space Property Machines Games (square feet) Hotel Rooms --------------------------------- -------- ------- -------------- ------------ Golden Nugget--Las Vegas......... 1,315 55 35,000 1,907 Golden Nugget--Laughlin.......... 955 20 32,000 300 -------- ------- -------------- ------------ Total............................ 2,270 75 67,000 2,207 ======== ======= ============== ============ We believe that the Golden Nugget brand name is one of the most recognized in the gaming industry and we expect to continue to capitalize on the strong name recognition and high level of quality and value associated with it. We target out-of-town customers at both of our properties while also catering to the local customer base. We believe that the Golden Nugget--Las Vegas is the leading downtown destination for out-of-town customers. The property offers the same complement of services as our Las Vegas Strip competitors, but we believe that our customers prefer the boutique experience we offer and the downtown environment. We emphasize the property's wide selection of amenities and provide a luxury room product and personalized services at an attractive value. At the Golden Nugget--Laughlin, we focus on providing a high level of customer service, a quality dining experience at an appealing value, a slot product with highly competitive pay tables and a superior player rewards program. As further discussed under the heading "-- Recent Developments," on November 8, 2004 we entered into an agreement to sell the Golden Nugget--Laughlin, and on February 4, 2005 we entered into an agreement to sell Poster Financial and the Golden Nugget--Las Vegas. We also have an investment in The Fremont Street Experience Limited Liability Company ("The Fremont Street Experience LLC"), the entity which owns and operates The Fremont Street Experience. The Fremont Street Experience is a unique entertainment attraction located in the center of downtown Las Vegas on Fremont Street, where the Golden Nugget--Las Vegas is located. The Golden Nugget Group The operations of the Golden Nugget Group consist of the Golden Nugget--Las Vegas and the Golden Nugget--Laughlin. Our business strategy is to create the best possible gaming and entertainment experience for our customers by providing a combination of comfortable and attractive surroundings with attentive service from friendly and experienced employees. In addition, the Golden Nugget properties offer a wide selection of high-quality amenities to complement their guests' gaming experience. Key gaming volume indicators are table game "drop" and slot machine "handle". Table game drop and slot machine handle are casino industry specific terms that are used to identify the amount wagered by patrons at a casino table game or slot machine, respectively. The revenues of the Golden Nugget properties can also be affected by the percentage of gaming volume retained by them, indicated by "win" or "hold" percentages, which we cannot fully control. Hold is calculated by dividing the amount won by the casino by the amount wagered by patrons. Hold percentages vary based on the mix of games on the floor. In addition, while hold percentage is reasonably predictable over periods greater than twelve months, it can fluctuate significantly over shorter periods of time, such as a fiscal quarter, which can affect comparability between periods. In the hotel operations of the Golden Nugget properties, key measures are occupancy rates (a volume indicator) and average daily room rate ("ADR," a price indicator). Revenues of the Golden Nugget Group can also be affected by economic and other factors. Domestic leisure travel is dependent on the national economy and the level of consumers' disposable income. Recent Developments Sale of Poster Financial On February 4, 2005, Poster Financial entered into an agreement (the "Landry's Purchase Agreement") to sell the Golden Nugget Hotel-Casino Las Vegas to Houston, Texas-based Landry's Restaurants, Inc. ("Landry's") for approximately $140 million in cash, and an additional payment by Landry's for certain working capital liabilities. Under the terms of the transaction, PB Gaming agreed to sell all of the shares of Poster Financial to LSRI Holdings, Inc. ("LSRI"), a wholly owned subsidiary of Landry's. Landry's informed Poster Financial that on May 11, 2005, LSRI assigned to Landry's Gaming, Inc., a newly formed Nevada corporation and wholly owned subsidiary of Landry's ("Landry's Gaming"), all of LSRI's rights, interests and obligations in, to and under the Landry's Purchase Agreement, and Landry's Gaming accepted and assumed all rights, interests and obligations of LSRI under the Landry's Purchase Agreement and agreed to be bound by the terms of the Landry's Purchase Agreement as the assignee of LSRI. This assignment and assumption does not relieve LSRI of its obligations under the Landry's Purchase Agreement. Pursuant to the terms of the Landry's Purchase Agreement, LSRI deposited $25 million into an escrow account with Chicago Title of Nevada, Inc., the escrow agent, as a non-refundable deposit, except as otherwise expressly provided in the Landry's Purchase Agreement. Landry's Gaming may terminate the Landry's Purchase Agreement for any reason or no reason in its sole and absolute discretion. Under the terms of the Landry's Purchase Agreement, our 8 3/4% Senior Secured Notes due 2011 (the "Senior Notes") will remain outstanding obligations of Poster Financial following the closing. The consummation of the sale will result in a change of control of Poster Financial under the indenture governing the Senior Notes and, as a result, Poster Financial will be required within 30 days of such change of control to commence an offer to purchase all outstanding Senior Notes for 101% of the aggregate principal amount of the Senior Notes, plus any accrued and unpaid interest. Under the terms of the Landry's Purchase Agreement, amounts outstanding at closing under our senior secured credit facility (the "Credit Facility") will be paid off by Landry's or Landry's will seek consent from the lenders under the Credit Facility for such amounts to remain outstanding. It is anticipated that the transaction will close within twelve months of February 4, 2005, subject to customary closing conditions contained in the Landry's Purchase Agreement, including receipt of all necessary governmental, gaming and other regulatory approvals. Sale of the Golden Nugget--Laughlin On November 8, 2004, Poster Financial entered into a stock purchase agreement (the "Barrick Purchase Agreement") to sell the Golden Nugget --Laughlin to Las Vegas-based gaming and real estate company, Barrick Gaming Corporation ("Barrick") for $31 million, plus working capital at the closing of the transaction as calculated under the Barrick Purchase Agreement. The transaction includes a 24-month license agreement for the limited use of the Golden Nugget--Laughlin name and brand. The parties previously agreed to extend the outside termination date of the Barrick Purchase Agreement from May 8, 2005 to May 31, 2005. On May 16, 2005, Poster Financial received a letter from Barrick's outside counsel purporting to terminate the Barrick Purchase Agreement on the grounds that Poster Financial and certain of its affiliates allegedly breached certain provisions of the Barrick Purchase Agreement. In addition, Barrick alleges that it is entitled to the $1 million it placed into escrow upon the execution of the Barrick Purchase Agreement. Poster Financial vigorously disputes any assertion that it has breached any of the provisions of the Barrick Purchase Agreement or that Barrick is entitled to any of the funds that were placed into the escrow account. Poster Financial does not believe that Barrick has the right to terminate the Barrick Purchase Agreement pursuant to the terms thereof. Poster Financial is currently considering all possible rights and remedies it might have against Barrick under the Barrick Purchase Agreement or otherwise. As of the date of this filing, Barrick has not secured gaming approval for the transaction nor has the transaction been placed on the agenda announcing the regularly scheduled May 2005 meeting of the Nevada Gaming Commission. The Nevada Gaming Commission has the authority to call a special meeting to consider items that are not placed on the agenda of a regularly scheduled meeting. Under Nevada law, the Nevada Gaming Commission would need to provide at least three working days public notice of any special meeting and the agenda items. As of the date of this filing, no special meeting of the Nevada Gaming commission has been scheduled or noticed to consider the transaction. As noted above, the transaction cannot close without the approval of the Nevada Gaming Commission. In light of the foregoing, we believe that Barrick will not be able to satisfy the closing conditions contained in the Barrick Purchase Agreement and therefore we do not believe that the sale of the Golden Nugget--Laughlin pursuant to the Barrick Purchase Agreement will be consummated. If the transaction has not closed by May 31, 2005, the Barrick Purchase Agreement will automatically terminate in accordance with its terms and thereafter will be of no further force and effect. The Landry's Purchase Agreement provides that if the sale of the Golden Nugget--Laughlin were consummated, Poster Financial would apply, within a reasonable time after the consummation of the transaction, the net proceeds from such transaction to pay any amounts due and payable, including accrued and unpaid interest, under the Credit Facility. In the event the Barrick Purchase Agreement terminates in accordance with its terms, Landry's Gaming would acquire the Golden Nugget--Laughlin in addition to the Golden Nugget--Las Vegas because the Golden Nugget--Laughlin would remain a wholly owned subsidiary of Poster Financial. Under the terms of the Landry's Purchase Agreement, there is no adjustment to the purchase price for the acquisition of the Golden Nugget--Laughlin because the net proceeds that would have been applied to outstanding balances under the Credit Facility would not have been received from Barrick. On March 24, 2005, in connection with the proposed sale of the Golden Nugget--Laughlin, we sold a motel formerly used by the Golden Nugget--Laughlin to an unrelated third party. The motel is located in Bullhead City, Arizona and occupies approximately two acres of land. Net proceeds from the sale were approximately $1.1 million and were used to pay down debt outstanding under the Credit Facility. Results of Operations Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2005 Net revenues for the three months ended March 31, 2005 amounted to $54.9 million, a decrease of $1.3 million, or 2.2%, over the three months ended March 31, 2004. The slight decrease in net revenues was attributable to a decrease in table games hold percentage, offset by strong increases in hotel and food and beverage revenues. These increases in non-casino revenues are the result of increased menu prices and room occupancy and ADR for the three months ended March 31, 2005 compared to the three months ended March 31, 2004. The following table presents detail of our net revenues: Golden Nugget--Las Vegas ----------------------------------------- Three Months Ended March 31, ----------------------------------------- Percentage 2004(1) 2005 Change -------------------------- -------------- (In thousands) Casino revenue, net: Table games $ 13,134 $ 9,129 -30.5% Slots 22,376 22,426 0.2% Other 1,057 2,169 105.2% ------------- ----------- Casino revenue, net 36,567 33,724 -7.8% ------------- ----------- Non-casino revenue: Rooms 12,171 13,880 14.0% Food and beverage 11,183 12,164 8.8% Entertainment, retail and other 3,358 2,743 -18.3% ------------- ----------- Non-casino revenue 26,712 28,787 7.8% ------------- ----------- 63,279 62,511 -1.2% Less: Promotional allowances (7,128) (7,591) 6.5% ------------- ----------- $ 56,151 $ 54,920 -2.2% ============= =========== (1) The information presented reflects the results of operations for (i) the first 22 days of January 2004, while the Golden Nugget--Las Vegas was owned by MGM MIRAGE and (ii) the remainder of the quarter through March 31, 2004 while the Golden Nugget--Las Vegas was owned by Poster Financial. A discussion of our operations for those discrete periods in 2004 is not meaningful when compared to the three months ended March 31, 2005. Accordingly, for purposes of "Management's Discussion and Analysis of Financial Condition and Results of Operations", we have presented the quarter ended March 31, 2004 on a combined basis. Casino Revenues Casino revenues during the three months ended March 31, 2005 totaled $33.7 million, a decrease of $2.9 million over the three months ended March 31, 2004. Slot machine revenues accounted for $22.4 million, or 66.5% of casino revenues, and table games revenues accounted for $9.1 million, or 27.0% of the casino revenues for the three months ended March 31, 2005. Average win per slot machine per day for the three months ended March 31, 2005 remained relatively flat as compared to the three months ended March 31, 2004. Slot machine handle also remained flat, and table game drop increased 10.3%, as compared to the three months ended March 31, 2004. Win per table game decreased 31.6% over the prior period as a result of a below normal hold. In light of the pending sale to Landry's, we have further reduced our table limits and odds, which resulted in reducing the credit lines issued to patrons. Non-Casino Revenues Room revenues totaled $13.9 million, or 25.3% of net revenues, for the three months ended March 31, 2005 compared to $12.2 million, or 21.7% of net revenues, for the three months ended March 31, 2004. Hotel occupancy during the period was 96.9%, compared to 99.1% for the three months ended March 31, 2004. Overall ADR increased 16.6% for the three months ended March 31, 2005, as compared to the three months ended March 31, 2004. Food and beverage revenues for the three months ended March 31, 2005 totaled $12.2 million, or 22.2% of net revenues, compared to $11.2 million, or 19.9% of net revenues, for the three months ended March 31, 2004. Food covers decreased 2.8% during the period, which is a direct result of the decrease in hotel rooms occupied. Average revenue per cover increased 8.9% compared to the three months ended March 31, 2004. Entertainment, retail and other revenues decreased $0.6 from $3.3 million for the three months ended March 31, 2004 to $2.7 million for the three months ended March 31, 2005. This decrease was the result of outsourcing our Retail facilities in mid 2004. We now lease the facilities to a third party and receive rental income, instead of operating the facilities directly. Promotional Allowances Promotional allowances provided to gaming patrons for the three months ended March 31, 2005 and 2004, totaled $7.6 million and $7.1 million, respectively, and are characterized in the financial statements as a reduction of gross revenues. The increase is consistent with the increase in gaming volumes and customer base as compared to the three months ended March 31, 2004. Operating Expenses Casino operating expenses for the three months ended March 31, 2005 totaled $20.6 million, or 61.1% of casino revenues, compared to $19.8 million, or 54.1% of casino revenues, for the three months ended March 31, 2004 (including the 22 days preceding the Acquisition for comparability purposes). Casino operating expenses were primarily comprised of salaries, benefits, gaming taxes, and other operating expenses of the casinos. The increase of $0.8 million, or 4.0%, in casino operating expenses is due primarily to increases in marketing commissions associated with gaming volumes. General and administrative expenses for the three months ended March 31, 2005 were $10.6 million, or 19.3% of net revenues, compared to $10.2 million, or 18.1% of net revenues, for the three months ended March 31, 2004 (including the 22 days preceding the Acquisition for comparability purposes). The increase in general and administrative expenses is attributed to costs associated with advertising. Income from Operations Operating income for the three months ended March 31, 2005 was $2.5 million, or 4.6% of net revenues, compared to $6.8 million, or 12.1% of net revenues, for the three months ended March 31, 2004 (including the 22 days preceding the Acquisition for comparability purposes). The decrease in operating income is primarily due to increases in marketing and advertising costs for the three months ended March 31, 2005, as well as the $1.3 million severance payment made during the three months ended March 31, 2005. Income from Discontinued Operations The Company recognized income from discontinued operations of $3.1 million for the three months ended March 31, 2005 and $1.6 million for the three months ended March 31, 2004 (including the 22 days preceding the Acquisition for comparability purposes). Discontinued operations reflect the results of the Company's Golden Nugget-Laughlin operation, which is held for sale. Other Income and Expense Other income and expense consists principally of interest expense on the Senior Notes and the Credit Facility and the equity in the loss of our joint venture investment in The Fremont Street Experience LLC. Interest expense for Poster Financial for the three months ended March 31, 2005 amounted to approximately $4.6 million compared to $4.0 million for the three months ended March 31, 2004. The interest expense resulted from the issuance of $155.0 million principal amount of the Senior Notes on December 3, 2004. The Company also incurred interest expense from the $20.0 million term loan under the Credit Facility (drawn on January 22, 2005 at the closing of the Acquisition) and from borrowings under the revolving portion of the Credit Facility. In 2004, the Golden Nugget Group also incurred approximately $0.2 million of interest expense, primarily on notes payable by Golden Nugget - Las Vegas to MGM MIRAGE, in the principal amount of $80.0 million. In connection with the closing of the Acquisition, the Golden Nugget--Las Vegas was relieved of its obligations to repay the note payable to the MGM MIRAGE. The Golden Nugget--Las Vegas accounts for its investment in The Fremont Street Experience LLC as a joint venture, using the equity method of accounting. The Golden Nugget--Las Vegas added to its investment through contributions of approximately $0.2 million for the three months ended March 31, 2005 and 2004, and its equity in the loss of The Fremont Street Experience LLC was approximately $0.2 million for the three months ended March 31, 2005 and approximately $0.1 million for the three months ended March 31, 2004, which losses were consistent with our expectations. The joint venture is primarily designed to increase visitation to downtown Las Vegas and it is expected to continue to incur losses each three months. GNLV has a 17.65% interest in the loss of The Fremont Street Experience LLC, which ownership and participation rate was consistent throughout 2004 and 2005. Liquidity and Capital Resources At March 31, 2005, Poster Financial had cash and cash equivalents of $17.3 million, had approximately $18.8 million outstanding under the Revolver portion of the Credit Facility, and $2.6 million drawn under Letters of Credit, which reduce total availability. Accordingly, remaining availability under the line of credit was approximately $3.5 million at March 31, 2005. Until the completion of the sale of Poster Financial to Landry's, we expect to fund our operating and capital needs, as currently contemplated, with operating cash flows. We currently anticipate capital expenditures for 2005 to be approximately $10.0 million. The majority of the budgeted expenditures for 2005 are expected to be spent on purchasing new gaming equipment and information services equipment. We spent approximately $15.0 million on capital expenditures in 2004 since the closing of the acquisition of the Golden Nugget Group. No expenditures are necessary or anticipated in 2005 to prepare the Golden Nugget--Laughlin for sale, other than for normal maintenance, which amounts are expected to be consistent with 2004 and are not material. Under the terms of the Landry's Purchase Agreement, the Senior Notes will remain outstanding obligations of Poster Financial following the closing. The consummation of the sale will result in a change of control of Poster Financial under the indenture governing the Senior Notes and, as a result, Poster Financial will be required within 30 days of such change of control to commence an offer to purchase all outstanding Senior Notes for 101% of the aggregate principal amount of the Senior Notes, plus any accrued and unpaid interest. Under the terms of the Landry's Purchase Agreement, amounts outstanding at closing under our Credit Facility will be paid off by Landry's or Landry's will seek consent from the lenders under the Credit Facility for such amounts to remain outstanding. It is anticipated that the Landry's transaction will close within the next twelve months, subject to customary closing conditions contained in the purchase agreement, including receipt of all necessary governmental, gaming and other regulatory approvals. For the three months ended March 31, 2005, net cash provided by operating activities totaled approximately $10.5 million and cash used for investing activities totaled $12.6 million. Cash flows provided by financing activities were $4.5 million in the three months ended March 31, 2005, of which $3.0 million was additional contributions of equity from PB Gaming. At March 31, 2005, the Company failed to satisfy the financial covenants under the Loan and Security Agreement. On March 31, 2005, the Company entered into a commitment letter arrangement with their lender, which on May 2, 2005, was formalized into an amendment to the loan and security agreement relating to its Credit Facility. The amendment modifies financial ratios and covenants to cure certain defaults (which had been previously waived by the lenders) and to permit the sale of the Golden Nugget--Laughlin. The amendment also changes the calculation of EBITDA by adding back to EBITDA severance costs of up to $2,500,000 and the $150,000 fee for the amendment. Off Balance Sheet Arrangements Our off balance sheet arrangements consist solely of our investment in an unconsolidated affiliate, which currently consists of our investment in Fremont Street Experience LLC. We have not entered into any transactions with special purpose entities, nor have we engaged in any derivative transactions or joint ventures. At March 31, 2005, we had outstanding letters of credit totaling $2.6 million. Contractual Obligations The following table summarizes the contractual obligations and commitments of Poster Financial (or the Golden Nugget Group prior to the Acquisition) to make future payments under certain contracts, including long-term debt obligations, and operating leases at March 31, 2005. We have significant obligations under the Senior Notes and the Credit Facility.

Critical Accounting Policies The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States, which requires management to make estimates and assumptions about the effects of matters that are inherently uncertain. We have summarized the significant accounting policies of the Company in Note 2 to the consolidated financial statements of Poster Financial. Of the accounting policies, we believe the following may involve a higher degree of judgment and complexity. Revenue Recognition. Casino revenues represent the net win from gaming activities, which is the difference between gaming wins and losses. Hotel and other revenues are recognized at the time the related service is performed. Property and Equipment. At December 31, 2004, the Company had approximately $152.8 million of net property and equipment recorded on its balance sheet. The Company depreciates its assets on a straight-line basis over their estimated useful lives. The estimate of the useful lives is based on the nature of the asset as well as our current operating strategy. Future events, such as property expansions, new competition and new regulations, could result in a change in the manner in which we use certain assets, which could require a change in the estimated useful lives of such assets. In assessing the recoverability of the carrying value of property and equipment, we must make assumptions regarding estimated future cash flows and other factors. If these estimates or the related assumptions change in the future, we may be required to record impairment charges for these assets. Slot Club Liability. The Golden Nugget casinos offer a program whereby participants can accumulate points for casino wagering that can currently be redeemed for cash, lodging, food and beverages and merchandise. A liability is recorded for the estimate of unredeemed points based upon redemption history at the Golden Nugget casinos. Changes in the program, increases in membership and changes in the redemption patterns of the participants can impact this liability. Self-Insurance. The Company maintains accruals for its self-insured health program, which are classified in other accrued liabilities in the combined balance sheet. Management determines the estimates of these accruals by periodically evaluating the historical expenses and projected trends related to these accruals. Actual results may differ from those estimates. Litigation, Claims and Assessments. The Company also utilizes estimates for litigation, claims and assessments. These estimates are based upon management's knowledge and experience about past and current events and also upon reasonable future events. Actual results may differ from those estimates. Recently Issued Accounting Pronouncements In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the disclosures to be made by a guarantor in its interim and an annual financial statement about its obligations under certain guarantees that it has issued. It also clarifies (for guarantees issued after January 1, 2003) that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligations undertaken in issuing the guarantee. At December 31, 2004 Poster Financial was not a guarantor of any third party indebtedness and the Golden Nugget Group was only a guarantor of indebtedness within the Poster Financial consolidated group. Prior to the Acquisition, the Golden Nugget Group was a guarantor of certain indebtedness of MGM MIRAGE and affiliates. A subsidiary's guarantee of debt owed to a third party by either its parent or another subsidiary of its parent is specifically excluded from the provisions of FIN 45 that require financial statement recognition and measurement. Accordingly, the adoption of FIN 45 did not have an impact on the Company's financial position, results of operations or cash flows. In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities ("VIEs"). The interpretation was also revised to December, 2003 ("FIN 46R"). This interpretation outlines requirements for business enterprises to combined related entities in which they are determined to be the primary economic beneficiary as a result of their variable economic interests. The interpretation is intended to provide guidance in judging multiple economic interests in an entity and in determining the primary beneficiary. The interpretation outlines disclosure requirements for VIEs in existence prior to January 31, 2003, and outlines combined requirements for VIEs created after January 31, 2003. The Golden Nugget Group has reviewed its major relationships and its overall economic interests with other companies consisting of related parties, companies in which it has an equity position and other suppliers to determine the extent of its variable economic interest in these parties. The adoption of FIN 46 did not have a material impact on Poster Financial's or the Golden Nugget Group's financial condition, results of operations or cash flows. The Company believes it has appropriately reported the economic impact and its share of risks of its commercial relationships through its equity accounting along with appropriate disclosure of its other commitments. In November 2003, the FASB Emerging Issues Task Force issued EITF Issue 03-16 ("Issue 03-16"). Issue 03-16 addresses whether a limited liability corporation ("LLC") should be viewed as a corporation or partnership for purposes of determining whether a non-controlling investment in an LLC should be accounted for using the cost method or the equity method of accounting. Issue 03-16 is effective for reporting periods beginning after June 15, 2004. Our non-controlling investment in The Fremont Street Experience LLC and subsidiaries is subject to the provisions of this Issue. The Company currently accounts for its investment in The Fremont Street Experience LLC on the equity method of accounting and believes that such accounting will continue to be appropriate following the adoption of Issue 03-16 because the Company's influence on The Fremont Street Experience LLC is not controlling, but is more than minor (as a result of its 17.65% voting interest), as that term is used in the related accounting literature. Accordingly, the Company does not expect that the adoption of Issue 03-16 will have a material impact on its financial position, results of operations or cash flows. In November 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151 ("SFAS 151"), "Inventory Costs-an amendment of ARB No. 43, Chapter 4". SFAS 151 amends ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 is effective for financial statements for fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of SFAS 151 will have a material impact on its financial position, results of operations or cash flows. In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153 ("SFAS 153"), "Exchanges of Nonmonetary Assets-an amendment of APB Opinion No. 29". SFAS 153 amends APB Opinion No. 29, "Accounting for Nonmonetary Transactions", to eliminate the exception for nonmonetary exchanges of similar productive assets and replace it with a general exception for exchanges of nonmonetary assets that do not have commercial substance (i.e., if the future cash flows of the entity are expected to change significantly as a result of the exchange). SFAS 153 is effective for financial statements for fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of SFAS 153 will have a material impact on its financial position, results of operations or cash flows. Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains "forward-looking statements," within the meaning of the Private Securities Litigation Reform Act of 1995, which involve known and unknown risks. Such forward-looking statements include statements as to the Company's anticipated financial performance; the impact of competition and current economic uncertainty; the sufficiency of funds to satisfy our cash requirements; and other statements containing words such as "believes," "anticipates," "estimates," "expects," "may," "intends" and words of similar import or statements of management's opinion. These forward-looking statements and assumptions involve known and unknown risks, uncertainties and other factors that may cause our actual results, market performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause differences in our results of operations include, but are not limited to, general economic conditions in the markets in which we operate, competition from other gaming operations, leverage, the inherent uncertainty and costs associated with litigation and governmental and regulatory investigations, licensing and other regulatory risks and other risks disclosed in our filings with the SEC. All forward-looking statements attributable to the Company or persons acting on behalf of the Company apply only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligation to update or revise forward-looking statements to reflect events or circumstances that may arise after the date of this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. We do not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. The table below provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents notional amounts and weighted average interest rates by contractual maturity dates for the remainder of 2005 and, for later years, for the twelve-month periods ended December 31:

ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective. Changes in Internal Controls Over Financial Reporting There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Part II - OTHER INFORMATION Item 1. Legal Proceedings - None. Item 2. Changes in Securities and Use of Proceeds - None. Item 3. Defaults Upon Senior Securities - None. Item 4. Submission of Matters to a Vote of Security Holders - None. Item 5. Other Information - None. Item 6. Exhibits No. 31.1 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. No. 31.2 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. No. 32.1 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. No. 32.2 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Poster Financial Group, Inc., Registrant DATE: May 16, 2005 /s/ Dawn Prendes ----------------------------- Dawn Prendes, Senior Vice President and Chief Financial Officer (Principal Accounting Officer)

POSTER FINANCIAL GROUP INC 10-Q