MAJESTIC STAR CASINO LLC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

or

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

Commission file number: 333-06489

Indiana THE MAJESTIC STAR CASINO, LLC 43-1664986

Indiana THE MAJESTIC STAR CASINO CAPITAL CORP. 35-2100872

(State or other jurisdiction of (Exact name of registrant as specified in its charter) (I.R.S. Employer
incorporation or organization) Identification No.)

One Buffington Harbor Drive
Gary, Indiana
46406-3000
(219) 977-7823

(Registrant's address and telephone number, including area code)
Securities registered pursuant to section 12(b) of the act: None
Securities registered pursuant to section 12(g) of the act: None

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 filing requirements
for the past 90 days.

Yes X No ______
---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant: Not Applicable. The Company has no publicly traded equity
securities.

The number of shares of Common Stock issued and outstanding: Not Applicable.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

OMITTED ITEMS - The Registrant completed the acquisition of the assets of three
subsidiaries of Fitzgeralds Gaming Corporation on December 6, 2001. Financial
statements for the acquired businesses are not yet available in order to comply
with Rule 3-02 of Regulation S-X. Accordingly, reference to such financial data
in Item 6 and Item 7 is omitted from this Report, and such financial statements
are omitted from Item 8. Such information will be filed by amendment of this
Report.

THE MAJESTIC STAR CASINO, LLC
2001 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I

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

Item 2. Properties ..................................................................... 11

Item 3. Legal Proceedings .............................................................. 12

Item 4. Submission of Matters to a Vote of Security Holders ............................ 13

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .......... 13

Item 6. Selected Financial Data ........................................................ 13

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 14

Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..................... 29

Item 8. Financial Statements and Supplementary Data .................................... 30

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................... 30

PART III

Item 10 Directors and Executive Officers of Registrant ................................. 30

Item 11. Executive Compensation ......................................................... 31

Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ................................................ 32

Item 13. Certain Relationships and Related Transactions ................................. 32

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............... 33

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PART I

ITEM 1. BUSINESS

GENERAL

The Majestic Star Casino, LLC (the "Company" or the "Registrant," which
may also be referred to as "Majestic Star," "we," "us" or "our") was formed in
December 1993 as an Indiana limited liability company. The Company is a
multi-jurisdictional gaming company that owns and operates one riverboat gaming
facility located in Gary, Indiana and, through certain "unrestricted
subsidiaries," three Fitzgeralds-brand casino-hotels located in Tunica County,
Mississippi ("Fitzgeralds Tunica"), Black Hawk, Colorado ("Fitzgeralds Black
Hawk") and downtown Las Vegas, Nevada ("Fitzgeralds Las Vegas"). As of April 1,
2002, the riverboat casino and the Fitzgeralds properties collectively contain
approximately 4,348 slot machines, 115 table games and 1,145 hotel rooms.

In June 1999, the Company issued $130.0 million of 10 7/8% Senior
Secured Notes due 2006 (the "Majestic Star Senior Secured Notes"). The Majestic
Star Casino Capital Corp. ("Majestic Star Capital"), one of the Company's two
direct wholly-owned subsidiaries, was formed solely to serve as a co-issuer to
facilitate the offering of the Majestic Star Senior Secured Notes and has no
assets or operations. In August 1999, the Company entered into a $20.0 million
credit facility (the "Majestic Star Credit Facility"). The Majestic Star Senior
Secured Notes and the Majestic Star Credit Facility are secured by substantially
all current and future assets of the Company other than certain excluded assets
which excluded assets include the assets of the Company's unrestricted
subsidiaries.

The Company's other direct wholly-owned subsidiary, Majestic Investor,
LLC ("Investor"), was organized on September 12, 2000 as an "unrestricted
subsidiary" under the Company's Indenture relating to the Majestic Star Senior
Secured Notes (the "Majestic Star Indenture"). On November 22, 2000, Investor
entered into a definitive agreement to purchase Fitzgeralds Tunica, Fitzgeralds
Black Hawk and Fitzgeralds Las Vegas from Fitzgeralds Gaming Corporation
("Fitzgeralds") for approximately $149.0 million in cash, subject to
adjustments, plus the assumption of certain liabilities. On October 16, 2001,
Investor assigned all of its rights and obligations to purchase the Fitzgeralds
assets to Majestic Investor Holdings, LLC ("Investor Holdings"), a wholly-owned
subsidiary of Investor and also an "unrestricted subsidiary" under the Majestic
Star Indenture. The acquisition was consummated on December 6, 2001. The assets
of Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas are held
by Barden Mississippi Gaming, LLC ("Barden Mississippi"), Barden Colorado
Gaming, LLC ("Barden Colorado"), and Barden Nevada Gaming, LLC ("Barden
Nevada"), respectively. Each of such entities are direct wholly-owned
subsidiaries of Investor Holdings and "unrestricted subsidiaries" under the
Majestic Star Indenture.

On December 6, 2001, Investor Holdings issued $152.6 million 11.653%
Senior Secured Notes due 2007 (the "Investor Holdings Senior Secured Notes") to
finance the purchase of the Fitzgeralds assets. Majestic Investor Capital Corp.,
co-issuer of the Investor Holdings Senior Secured Notes and a wholly-owned
subsidiary of Investor Holdings, was formed specifically to facilitate the
offering of such notes and has no material assets or operations. Also on
December 6, 2001, Investor Holdings entered into a $15.0 million credit facility
(the "Investor Holdings Credit Facility").

The Investor Holdings Senior Secured Notes and the Investor Holdings
Credit Facility are secured by substantially all current and future assets of
Investor Holdings (including the Fitzgeralds assets) other than certain excluded
assets. Because each of Investor, Investor Holdings, Barden Mississippi, Barden
Colorado and Barden Nevada is an "unrestricted subsidiary" under the Majestic
Star Indenture, their assets, including Fitzgeralds Tunica, Fitzgeralds Black
Hawk and Fitzgeralds Las Vegas, are excluded from the collateral securing the
Majestic Star Senior Secured Notes and the Majestic Star Credit Facility.
Accordingly, the Majestic Star Senior Secured Notes and the Majestic Star Credit
Facility are secured

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primarily by the assets of the riverboat casino and gaming facility in Gary,
Indiana and Majestic Star's noteholders and lender have no recourse to the
Fitzgeralds assets. Similarly, the Investor Holdings Senior Secured Notes and
the Investor Holdings Credit Facility are secured primarily by the Fitzgeralds
assets and Investor Holdings' noteholders and lender have no recourse to the
Majestic Star assets. Majestic Star does not guarantee or otherwise have any
obligations under the Investor Holdings Senior Secured Notes or the Investor
Holdings Credit Facility. In addition, Investor Holdings and its subsidiaries
are prohibited from making distributions to the Company and its subsidiaries
except under certain prescribed conditions. The Company and certain of its
subsidiaries also are prohibited from engaging in transactions with Investor
Holdings and its subsidiaries other than on an arm's length basis and in
accordance with certain other prescribed conditions.

Because the Company's noteholders and lender have no recourse to the
Fitzgeralds assets, this Annual Report on Form 10-K focuses primarily on the
Company's consolidated operations and on the Company's riverboat gaming
operation, with limited information concerning the Fitzgeralds operations. For
additional information specific to the operation of the Fitzgeralds properties,
please refer to the Majestic Investor Holdings, LLC Annual Report on Form 10-K
from inception (September 14, 2001) through December 31, 2001, as filed with the
Securities and Exchange Commission (the "Investor Holdings 10-K").

THE RIVERBOAT CASINO AND GAMING FACILITY

The Company's riverboat casino and gaming facility, the Majestic Star
Casino, commenced operations in Gary, Indiana on June 7, 1996 pursuant to a
five-year riverboat owner's license granted to it by the Indiana Gaming
Commission (the "IGC"). On August 23, 2001, the Company's riverboat ownership
license was unanimously renewed by the IGC for a one-year period beginning June
7, 2001 (as under Indiana gaming laws, a licensee may only renew its original
license for one-year periods). As of April 1, 2002, the Company's vessel
contains approximately 43,000 square feet of casino space, 1,445 slot machines
and 52 table games on three decks. The Majestic Star Casino is part of a gaming
complex (the "Buffington Harbor Gaming Complex") developed at Buffington Harbor
in Gary, Indiana, and owned by Buffington Harbor Riverboats, L.L.C. ("BHR" or
the "BHR Joint Venture"), a joint venture which is owned equally (50%) by the
Company and Trump Indiana, Inc. (the "Joint Venture Partner"). The Company and
the Joint Venture Partner, the holder of a second gaming license to operate from
Gary, formed the BHR Joint Venture to own and operate certain common facilities
of the Buffington Harbor Gaming Complex such as a guest pavilion, vessel berths,
parking lots and other infrastructure. The Company and the Joint Venture Partner
each operate its own riverboat casino at the Buffington Harbor Gaming Complex on
a staggered cruise schedule, which reduces waiting times to board a riverboat
casino.

The executive offices of the Company are located at One Buffington
Harbor Drive, Gary, Indiana 46406-3000, and the Company's telephone number is
(219) 977-7823.

OPERATING STRATEGY

The principle elements of our operating strategy include:

Focus on Quality and Service at an Affordable Price. The Company's
casinos provide a high-quality casino entertainment experience at an affordable
price to attract middle income guests. We believe these middle income guests
constitute the largest segment of potential gaming customers who we can then
identify, qualify and target for direct marketing activities. The Company's
approach to business focuses on guest service and includes trained hosts to
personally assist guests; friendly employees; quality food, beverages and
lodging at a moderate price (except for the Gary riverboat casino and
Fitzgeralds Black Hawk, which do not include hotels); a mix of gaming machines
tailored to its customers; and personal attention through direct mail promotions
and targeted incentives.

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Management recognizes that consistent quality and a comfortable
atmosphere stem from the collective care and friendliness of each team member.
Toward this end, management takes a hands-on approach through active and direct
involvement with team members at all levels.

The Company believes that such an approach to business creates a
comfortable, familiar and friendly environment that promotes customer loyalty
and satisfaction, enhances playing time, leads to a high rate of repeat business
and is the basis for the further development of the Company's gaming brands and
its reputation for quality and service at an affordable price.

Promote Gaming Brands. The Company believes it is important to promote
its gaming brands to attract and retain customers. In February 2000, the Company
began a comprehensive integrated marketing campaign to brand the Majestic Star
Casino as "the place to play" for slot customers from the middle income segment.
The Company's registered tagline, "We've Got Your Slots"(R) has appeared in all
advertising venues including television, radio, print and outdoor media and will
allow the Company to enhance its slot leadership positioning among Chicago-area
gaming facilities. The Company intends to utilize this broad marketing technique
to attract middle income customers, who it is then able to qualify and target
for direct marketing activities.

The Fitzgeralds brand developed into what the Company believes to be a
nationally recognized gaming brand by using a consistent Irish Luck theme
throughout the casinos, hotels, restaurants and bars at all of its properties.
The Irish Luck theme incorporates various aspects of Irish folklore, such as
leprechauns, horseshoes, four-leaf clovers, the Blarney Stone and a pot of gold
at the end of a rainbow, as well as Irish music. The Company believes that this
theme creates an exciting and comfortable environment together with a
distinctive brand identity for customers.

Capitalize on Player Tracking and Extensive Guest Database. Direct
marketing to our guests is a key component of the Company's operating strategy.
Each of the Company's properties contains a player tracking system that permits
detailed player tracking at each individual property. The system uses the
Majestic and Fitzgeralds Cards to track individual or combined play at slot
machines, table games and keno, as well as food and beverage and hotel
expenditures at each individual property. This player tracking system allows us
to identify players and their gaming preferences and practices and to develop a
comprehensive customer database for marketing and guest services purposes. Our
player tracking program allows us to target our marketing programs to categories
of players, including through advertising programs, promotions, tournaments with
substantial cash prizes, special group and tour packages and other events and
incentives designed to promote customer loyalty and increase repeat business.
Our tracking system also allows us to better tailor our pricing, promotions,
gaming machine selection and other guest services to customer preferences. In
the future, we intend to fully integrate our tracking system data in order for
each property to share its data with other related properties and thereby
encourage customers of each individual property to patronize our other related
properties. On a consolidated basis, the Company currently has over 670,000
active players in its Majestic and Fitzgeralds database and over 118,000 active
players in its Majestic database.

In addition, the Company has established the Club Majestic and Club
Majestic Premier Slot Clubs ("Club Majestic"). Club Majestic enables the Company
to maintain a comprehensive database of information about its customers. The
Company also has an established strategy for recruiting and retaining higher
activity casino customers through the reward of certain promotional allowances,
such as direct mail cash back offers for slot customers, and complimentary food,
beverage and entertainment when gaming play warrants. Promotional allowances are
a relatively small percentage of the potential casino revenue obtainable from
these tracked high limit customers. The Company offers two VIP lounges for Club
Majestic guests. The Company has aggressively utilized its VIP lounges for
entertaining Club Majestic guests and for special events and promotions.
Majestic Star Casino management believes that its continued marketing efforts at
its riverboat gaming facility, combined with the amenities offered by its

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vessel and the extension of credit to customers, will allow the Company to
continue to increase its share of the middle and higher income market in the
greater Chicago metropolitan area.

Emphasis on Slot Play. The Company emphasizes slot machine wagering,
which it believes is the fastest growing and most profitable segment of the
casino entertainment business. The increasing popularity of slot machines is
due, in part, to the continuing rapid technological development that is
resulting in the replacement of older devices with advanced interactive
electronic games and bill acceptors. These newer games offer greater variety,
higher pay outs and longer periods of play for the casino entertainment dollar
relative to simple older devices. The Company continues to enhance and modify
its mix of slot machines to meet the demand of its customers. The Company
attempts to maintain payout percentages that are competitive to attract and
retain customers.

Emphasis on Attributes of Buffington Harbor. With respect to the
Majestic Star Casino, the Company emphasizes the attributes of the Buffington
Harbor Gaming Complex, including the ability to park once and play twice (at two
casinos) and direct highway access. In June 2000, the Company launched a
marketing campaign with its Joint Venture Partner whereby both entities jointly
advertise the attributes of the Buffington Harbor Gaming Complex principally
through billboards and print. The Buffington Harbor Gaming Complex also has
enhanced and expanded its food outlets. In 2000, three new food kiosks were
introduced including Harbor Treats and Shou Ki Sushi which are owned and
operated by third parties and Jackpot Java which is owned and operated by BHR.
Entertainment is also being provided in the Lakeshore lounge on weekends.
Currently, a 2,000 space covered parking structure is under construction at the
Buffington Harbor Gaming Complex, which is expected to be completed in May 2002.

GROWTH STRATEGY

The Company believes that there are substantial future growth
opportunities within each of the markets where its properties are located. With
respect to the Majestic Star Casino, the Company's expansion strategy is focused
on increasing the overall size of the Buffington Harbor Gaming Complex. Don H.
Barden, Chairman and CEO of the Company, through an affiliated company, Gary New
Century, LLC ("GNC"), purchased for $25.0 million approximately 190 acres
adjacent to Buffington Harbor in September 2000. A portion of this acreage was
subsequently sold by Mr. Barden to a joint venture, Buffington Harbor Parking
Associates, LLC ("BHPA") formed by the Joint Venture Partner and AMB Parking,
LLC ("AMB") (a company wholly-owned indirectly by Mr. Barden) in order to
jointly construct and operate a multi-level covered parking structure. The
parking structure is expected to provide customers with approximately 2,000
covered parking spaces and indoor access to the Buffington Harbor Gaming
Complex. Customers currently either park their automobiles in a remote
self-parking lot or use valet parking services. The parking project is estimated
to cost approximately $37.7 million including approximately $14.2 million for
the land. Approximately $20.9 million of the project costs for the parking
structure was financed with the balance of $16.8 million being funded by lease
payments from the Company and the Joint Venture Partner. The financing was
obtained pursuant to a Construction and Term Loan Agreement, dated June 19,
2001, between BHPA and US Bank, N.A., as agent. Upon completion of the parking
garage, the Company and the Joint Venture Partner each anticipate entering into
a lease with BHPA with lease payments in an amount sufficient to service the
debt on the BHPA financing. Each party will receive a credit of up to 50% of the
lease obligations if the other party (the Company or the Joint Venture Partner,
as the case may be) makes its lease payments. The Company believes that the
convenience of the new parking structure will attract a significant number of
new customers to Buffington Harbor, thereby providing opportunities for the
Company to increase its net revenues and cash flow.

The Buffington Harbor Gaming Complex is located on an approximately
100-acre site. The Company believes that this is only one of two locations in
the Chicago market with the capacity to significantly expand its land-based
facilities. In addition to the BHR Joint Venture property, GNC, an affiliate of
the Company, has entered into discussions with various parties concerning the
feasibility of developing the land adjacent to the BHR Joint Venture property.

4

There are a number of projects planned or in development with respect
to the Fitzgeralds properties, including a waterfront park being developed by
Tunica County adjacent to the Fitzgeralds Tunica property, infrastructure
developments in the Black Hawk market, and entertainment and retail projects in
Las Vegas. For further information regarding the Company's growth strategy for
each of the Fitzgeralds properties, please refer to the Investor Holdings 10-K.

We regularly evaluate possible expansion and acquisition opportunities.
We may undertake these opportunities either alone or with joint venture
partners. The Company's ability to expand will depend upon a number of factors
including, but not limited to: (i) the identification and availability of
suitable locations, and the negotiation of acceptable purchase, lease, joint
venture or other terms; (ii) securing required state and local licenses, permits
and approvals, which in some jurisdictions may be limited in number, (iii)
political factors; (iv) the risks typically associated with any new
construction; and (v) the availability of adequate financing or acceptable
terms, particularly in light of restrictive covenants contained in the
instruments relating to the Majestic Star Senior Secured Notes and the Majestic
Star Credit Facility (and the Investor Holdings Senior Secured Notes and
Investor Holdings Credit Facility with respect to Investor Holdings), which
limit the Company's and Investor Holdings', as the case may be, ability to
obtain such financing. As a result, there can be no assurance that the Company
will be able to expand either its current properties or to add any other
additional locations or, if such expansion occurs, that it will be successful.

COMPETITION

The Company faces intense competition in each of the markets in which
its gaming facilities are located. Many of the Company's competitors have
significantly greater name recognition and financial, marketing and other
resources. The Company's riverboat casino and Fitzgeralds properties compete
principally with other gaming properties in or near California, Illinois,
Indiana, Nevada, Michigan, Mississippi and Colorado, including gaming operations
on Native American lands. In addition to regional competitors, the Company
competes with gaming facilities nationwide, including land-based casinos in
Nevada and Atlantic City, not only for customers but also for employees and
potential future gaming sites.

The Company also competes, to some extent, with other forms of gaming
on both a local and national level, including state-sponsored lotteries,
Internet gaming, on- and off-track wagering and card parlors. The expansion of
legalized gaming to new jurisdictions throughout the United States has increased
competition faced by the Company and will continue to do so in the future.
Additionally, if gaming were legalized in jurisdictions near the Company's
properties where gaming currently is not permitted, the Company would face
additional competition. There can be no assurance that the Company will be able
to continue to compete successfully in its existing markets or that the Company
will be able to compete successfully against any such future competition.

The Majestic Star Casino is dependent primarily on adults residing
within 150 miles of the Buffington Harbor Gaming Complex, which includes the
Chicago metropolitan area. Illinois and Indiana state laws limit the total
number of gaming licenses issuable in the Chicago metropolitan area to ten. Nine
of the licenses are currently in operation and the number of licenses cannot be
increased without legislative action. The Company also expects to compete to a
lesser extent with six additional riverboats authorized to operate in southern
Indiana, of which five are currently operational. There can be no assurance that
Indiana or Illinois will not authorize additional gaming licenses in the future.
The authorization of additional gaming licenses could have a material adverse
effect on the Company.

Dockside gaming was approved in Illinois in June 1999. Since such
approval, the Illinois gaming market grew by approximately 8.1% and the
northwest Indiana gaming market grew by approximately 7.3%. Notwithstanding the
market growth, management is unable to predict whether increased competition in
the market from dockside gaming will have a negative impact on the Company's
revenues.

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At present, Harrahs is operating a barge-based casino in Illinois and Hollywood
is in the process of constructing its own barge-based casino.

Legislation has also been introduced in Illinois to provide for
land-based casinos in Chicago and to expand riverboat gaming, including
authorization of additional or existing operators to move to new sites. In 2002,
legislation was introduced in Indiana to provide for dockside gaming and to
allow riverboat gambling companies to own two of the state's ten gaming
licenses. To date, no such legislation has been enacted. The Company is unable
to predict whether any such legislation, in Illinois, Indiana or elsewhere, will
be enacted or whether, if passed, it would have a material adverse impact on the
results of operations or financial condition of the Company.

The Majestic Star Casino also competes with gaming operations on Native
American lands, including those located, or to be located, in Michigan,
Wisconsin and possibly northern Indiana. The Saginaw Chippewa Indian Tribe is
currently operating one of the largest Native American gaming complexes in the
United States in Mt. Pleasant, Michigan, approximately 250 miles northeast of
Gary, Indiana. The Pokagon Band of Potawatomi Indians have revenue-sharing and
infrastructure financing agreements with local officials in New Buffalo
Township, Michigan. These agreements advance the Band's goal of opening a
land-based gaming facility by December 2002. The Pokagons plan to have the
second largest casino in the Midwest, which would be substantially larger in
size than any of the riverboats currently operating in the Chicago metropolitan
area. The casino would be approximately 50 miles east of the Buffington Harbor
Gaming Complex.

The Company believes that the Majestic Star Casino's ability to compete
successfully in the riverboat gaming industry will be primarily based on the
quality and location of its gaming facilities, the effectiveness of its
marketing efforts, and overall levels of customer service and satisfaction. The
Company believes that the construction of the parking facility will provide
added competitive benefits to the Buffington Harbor Gaming Complex.

For information regarding competition specific to the Fitzgeralds
properties, please refer to the Investor Holdings 10-K.

FINANCIAL INFORMATION ABOUT SEGMENTS

For financial information regarding the Company's business segments,
see Note 15 of the Notes to Consolidated Financial Statements.

EMPLOYEES AND UNIONS

At December 31, 2001, on a consolidated basis, the Company employed
approximately 3,482 persons and had collective bargaining contracts with unions
covering approximately 488 of its employees. The Company believes that its
overall relations with its employees are good.

At December 31, 2001, the Majestic Star Casino employed approximately
965 persons and the BHR Joint Venture employed approximately 366 persons. The
Majestic Star Casino and the BHR Joint Venture have collective bargaining
agreements with Local 1 of the Hotel Employees and Restaurant Employees
International Union ("H.E.R.E."), covering approximately 66 employees of the
Majestic Star Casino and approximately 173 employees of the BHR Joint Venture.
The Majestic Star Casino's H.E.R.E. members are exclusively in food and beverage
positions. The agreements expired on June 30, 2001 and are currently being
renegotiated. The BHR Joint Venture also has collective bargaining agreements
with the Operating Engineers Union, covering approximately 14 employees of its
facilities department. The agreement with the BHR Joint Venture expired on July
1, 2001 and a new agreement has been ratified and is in the process of being
signed. The Majestic Star Casino also has a collective bargaining agreement with
the Seafarers International Union that covers approximately 29 employees in the
marine operations department. The agreement expires on July 10, 2003.

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In recruiting personnel, the Company is obligated, under the terms of
an agreement with the City of Gary, to use its best efforts to have an employee
base which is comprised of 70% from racially minority groups, 52% females, 67%
residents of the City of Gary and 90% residents of Lake County, Indiana.

For information regarding employees specific to the Fitzgeralds
properties, please refer to the Investor Holdings 10-K.

TRADE NAMES, TRADEMARKS AND SERVICES MARKS

The Company owns certain trademarks which are integral to the business
and operation of its riverboat gaming facility. The most significant of these
are Majestic Star Casino (words and design), Majestic Star, Club Majestic, Club
Majestic Premier, Change Your Luck! and We've Got Your Slots. Majestic Star
Casino (words and design), Majestic Star and Club Majestic are currently
registered in the United States Patent and Trademark Office ("PTO") and
applications for registrations of the other above referenced trademarks have
been filed in the PTO. Generally, registrations with the PTO last for ten years
and may be renewed for additional ten-year periods.

With respect to the Fitzgeralds properties, as part of the Fitzgeralds
acquisition, Investor Holdings acquired proprietary rights in registered and
common law trade names, trademarks and service marks used in connection with the
business, including the "Fitzgeralds" mark. Fitzgeralds retained limited rights
to use the "Fitzgeralds" mark.

SEASONALITY

The gaming operations of the Company's properties may be seasonal and,
depending on the location and other circumstances, the effects of such
seasonality could be significant. The properties' results are affected by
inclement weather in relevant markets. For example, because of the climate in
the Chicago metropolitan area, the Majestic Star Casino's operations are
expected to be seasonal with stronger results generally expected during the
period from May through September. Fitzgeralds Black Hawk, located in the Rocky
Mountains of Colorado, is subject to snow and icy road conditions during the
winter months. Also, at Fitzgeralds Las Vegas, business levels are generally
weaker from Thanksgiving through the middle of January (except during the week
between Christmas and New Year's) and throughout the summer, and generally
stronger from mid-January through Easter and from mid-September through
Thanksgiving. At Fitzgeralds Tunica and Fitzgeralds Black Hawk, business levels
are typically weaker from Thanksgiving through the end of the winter and
typically stronger from mid-June to mid-November. Accordingly, the Company's
results of operations are expected to fluctuate from quarter to quarter and the
results for any fiscal quarter may not be indicative of results for future
fiscal quarters.

ENVIRONMENTAL MATTERS

The Company is subject to certain federal, state and local
environmental, safety and health laws, regulations and ordinances, including the
Clear Air Act, Clean Water Act, Occupational Safety and Health Act, Oil
Pollution Act, Resource Conservation Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"). The Company may incur material liability if contamination is
discovered on any of its properties.

For information regarding environmental matters specific to the
Fitzgeralds properties, please refer to the Investor Holdings 10-K.

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GOVERNMENTAL REGULATION

The ownership and operation of the Company's gaming facilities are
subject to various state and local laws and regulations in the jurisdictions
where they are located. The following is a summary of the provisions of the
Indiana laws and regulations applicable to the Company's riverboat gaming
facility and other laws and regulations applicable to the Company as a
registered holding company in Nevada and Mississippi. For information regarding
governmental regulations specific to the Fitzgeralds gaming facilities, please
refer to the Investor Holdings 10-K. The summary does not purport to be a full
description thereof and is qualified in its entirety by reference to such laws
and regulations.

Indiana Gaming Regulation

The ownership and operation of the Majestic Star Casino is subject to
regulation by the State of Indiana.

In 1993, the State of Indiana passed the Riverboat Gambling Act that
created the Indiana Gaming Commission (the "IGC"). The IGC is given extensive
powers and duties for the purposes of administering, regulating and enforcing
riverboat gaming in Indiana and was authorized to award up to eleven gaming
licenses to operate riverboat casinos in the State of Indiana, including five to
counties contiguous to Lake Michigan in northern Indiana, five to counties
contiguous to the Ohio River in southern Indiana and one to a county contiguous
to Patoka Lake in southern Indiana.

Referenda required by the Riverboat Gambling Act to authorize the five
licenses to be issued for counties contiguous to Lake Michigan have been
conducted and gaming has been authorized for the cities of Hammond, East
Chicago, and Gary in Lake County, Indiana, and for Michigan City in LaPorte
County, Indiana to the east of Lake County.

The IGC has jurisdiction and supervision over all riverboat gaming
operations in Indiana and all persons on riverboats where gaming operations are
conducted. These powers and duties include authority to (i) investigate all
applicants for riverboat gaming licenses, (ii) select licensees from competing
applicants, (iii) establish fees for licensees and (iv) prescribe all forms used
by applicants. The IGC is authorized to adopt rules for administering the gaming
statute and the conditions under which riverboat gaming in Indiana may be
conducted. The IGC may suspend or revoke the license of a licensee or impose
civil penalties, in some cases without notice or hearing, for any act in
violation of the Riverboat Gambling Act or for any other fraudulent act.

The Riverboat Gambling Act requires an extensive disclosure of records
and other information concerning an applicant, including disclosure of all
directors, officers and persons holding a five percent or more direct or
indirect beneficial interest in an applicant.

In determining whether to grant or renew an owner's license to an
applicant, the IGC considers a number of factors, including (i) the character,
reputation, experience and financial integrity of the applicant, (ii) the
facilities or proposed facilities for the conduct of riverboat gaming, (iii) the
prospective revenue to be collected by the state from the conduct of riverboat
gaming, (iv) the good faith affirmative action plan to recruit, train and
upgrade minorities in all employment classifications, (v) the financial ability
of the applicant to purchase and maintain adequate liability and casualty
insurance, (vi) whether the applicant has adequate capitalization to provide and
maintain the riverboat for the duration of the license and (vii) the extent to
which the applicant meets or exceeds other standards adopted by the IGC. The IGC
may also give favorable consideration to applicants for economically depressed
areas and applicants who provide for significant development of a large
geographic area. A person or entity holding a riverboat owner's license issued
by the IGC may not own more than a ten percent interest in another such
licensee. Legislation has been introduced during both the 2001 and 2002 Indiana
legislative sessions that would allow a person or entity to own not more than
two casinos. To date no such legislation has been enacted.

8

An owner's license expires five years after the effective date of the license
(unless earlier terminated or revoked) and may be renewed for one year periods
by the IGC upon satisfaction of certain statutory and regulatory requirements. A
gaming license is a revocable privilege and is not a property right pursuant to
the Riverboat Gambling Act. On June 3, 1996, the Majestic Star Casino obtained a
gaming license from the IGC. On August 23, 2001, the Company's riverboat
ownership license was unanimously renewed by the IGC for a one year period
beginning June 7, 2001.

Under IGC regulations, minimum and maximum wagers on games are left to
the discretion of the licensee. Wagering is required to be conducted with
tokens, chips or electronic cards instead of cash or coins. Each riverboat
gaming excursion is limited to a maximum duration of four hours unless a longer
excursion is expressly approved by the IGC. In January 2001, a bill providing
for dockside gaming as well as increased gross wagering taxes was passed by the
Indiana House of Representatives, one of the two legislative bodies of the
Indiana General Assembly. A similar bill providing for dockside gaming was
defeated by the Senate Rules Committee on March 28, 2001. In the 2002 regular
session of the Indiana General Assembly, legislation was introduced to, among
other things, authorize dockside gaming, authorize pari-mutuel pull tab gaming
at two Indiana horse racing facilities and certain off track betting facilities,
authorize a riverboat to be located in French Lick and West Baden, Indiana, make
certain changes to the admission taxes and wagering taxes collected by the State
of Indiana, allow a person or entity to own up to a 100% interest in not more
than two riverboats and make various other changes in the Riverboat Gambling
Act. Differing versions of this legislation passed each of the Indiana House of
Representatives and the Indiana Senate and the legislation was assigned to a
conference committee. The conference committee was unable to reconcile the
differences between the House and Senate versions of the legislation, and the
2002 regular session of the Indiana General Assembly adjourned on March 14,
2002, without enacting this legislation. To date no such legislation has been
enacted.

Effective November 1996, riverboat casinos operating on Lake Michigan
were granted an exemption to the Johnson Act, a federal statute which prohibits
casino gambling on federal waterways. Prior to November 1996 the riverboat
casinos operating on Lake Michigan, including the Majestic Star Casino, remained
dockside and simulated cruising. No gaming may be conducted while the boat is
docked except (i) for 30-minute time periods at the beginning and end of a
cruise while the passengers are embarking and disembarking, (ii) if the master
of the riverboat reasonably determines that specific weather or water conditions
present a danger to the riverboat, its passengers or crew, or other vessels on
the water, (iii) if either the vessel or the docking facility is undergoing
mechanical or structural repair, (iv) if water traffic conditions present a
danger to the riverboat, its passengers or crew, or other vessels on the water,
or (v) if the master has been notified that a condition exists that would cause
a violation of federal law if the riverboat were to cruise.

An Indiana admission tax of $3.00 for each person admitted to each
gaming excursion is imposed upon the license owner. Legislation has been
introduced in the past that would increase the admission tax to $5.00 per
person, and that would alter the way in which admission taxes are calculated,
but to date, no such legislation has been enacted. The Company is unable to
predict if this legislation will be reintroduced or if any other legislation
introduced in Indiana related to riverboat gaming will be enacted. If
legislation is enacted to increase the admission tax, the effect of such an
increase could have a material impact on the results of operations of the
Company. A 20% tax is imposed on the "adjusted gross receipts" received from
gaming operations, which is defined under the Riverboat Gambling Act as the
total of all cash and property received (including checks received by the
licensee whether or not collected), less the total of all cash paid out as
winnings to patrons and uncollected gaming receivables (not to exceed 2%).
Legislation has been introduced as recently as the 2002 Indiana General Assembly
session that would increase the tax and allow the riverboats to operate dockside
and/or barge facilities, but to date, no such legislation has been enacted. The
riverboat owner licensee must remit the admission and wagering taxes before the
close of business on the day following the day on which the taxes were incurred.
Indiana laws also permit the imposition of real property taxes on Indiana
riverboats at rates to be determined by local taxing authorities of the
jurisdiction in which a riverboat operates.

9

The IGC is authorized to license suppliers and certain occupations
related to riverboat gaming. Gaming equipment and supplies customarily used in
conducting riverboat gaming may be purchased or leased only from licensed
suppliers.

The Riverboat Gambling Act places special emphasis upon minority and
women business enterprise participation in the riverboat industry. The IGC is
directed by Indiana statute to establish annual goals for a riverboat owner
licensee for the use of minority and women business enterprises. Each riverboat
owner licensee is required to submit annually to the IGC a report that included
the total dollar value of contracts awarded for goods and services and the
percentage awarded to minority and women's business enterprises. The IGC may
suspend, limit or revoke an owner's gaming license or impose a fine for failure
to comply with these statutory requirements. For the calendar year ended
December 31, 2001, the Company has submitted unaudited reports to the IGC that
it believes meets these statutory requirements.

In addition, the Company and its affiliates are subject to restrictions
on the incurrence of debt. A riverboat licensee and its affiliates may enter
into debt transactions that total one million dollars or more only with the
prior approval of the Indiana Gaming Commission. Such approval is subject to
compliance with request procedures and a showing that each person with whom the
riverboat licensee and its affiliates enters into a debt transaction would be
suitable for licensure under the Indiana Riverboat Gambling Act. The Company and
Investor Holdings received such approval in mid-November 2001 in connection with
the purchase of the Fitzgeralds assets and the issuance of the Investor Holdings
Senior Secured Notes and a $15 million credit facility with Foothill Capital
Corporation ("Investor Holdings Credit Facility").

Other Gaming Regulation

The gaming licenses of the Fitzgerald Tunica and Fitzgerald Las Vegas
gaming facilities are held by Barden Mississippi and Barden Las Vegas,
respectively. Under the applicable gaming laws and regulations in Mississippi
and Nevada, each direct and indirect owner of such licenses is required to be
registered with the applicable gaming authorities and found suitable to own the
stock of its direct subsidiary. Accordingly, Barden Development, Inc., an
Indiana corporation and the sole owner and manager of the Company ("BDI"); the
Company, the owner of Investor; and Investor Holdings, the owner of each of
Barden Mississippi and Barden Nevada are "registered corporations" under and
subject to applicable Mississippi and Nevada law. Violation of applicable laws
and regulations by a registered corporation could subject such entity to
substantial fines and, under certain circumstances, forfeiture of earnings and
suspension or forfeiture of the gaming license.

Treasury Department Regulations

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

Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in some of the
domestic jurisdictions in which we operate casinos, require the reporting of
currency transactions in excess of $10,000 occurring within a gaming day,
including identification of the patron by name and social security number. This
reporting obligation began in May 1985 and may have resulted in the loss of
gaming revenues to jurisdictions outside the United States which are exempt from
the ambit of these regulations.

10

Compliance with Other Laws and Regulations

The Company's operations are also subject to extensive state and local
regulations in addition to the regulations described above, and, on a periodic
basis, we must obtain various other licenses and permits, including those
required to sell alcoholic beverages.

ITEM 2. PROPERTIES

The Company currently owns and operates the Majestic Star Casino in
Gary, Indiana, and through its indirect subsidiaries, Fitzgeralds Tunica in
Tunica County, Mississippi, Fitzgeralds Black Hawk in Black Hawk, Colorado, and
Fitzgeralds Las Vegas in Las Vegas, Nevada.

Buffington Harbor, Gary, Indiana
- --------------------------------

The Majestic Star Casino operates from the Buffington Harbor Gaming
Complex, which is shared with the Joint Venture Partner. Buffington Harbor is
located at the interchange of U.S. 12 and Indiana State Highway 912, just off of
I-80/94 and the Indiana Toll Road. The Buffington Harbor Gaming Complex is a
two-level, 90,000 square foot structure containing a 352-seat buffet, a 110-seat
steakhouse restaurant, several bars and lounges, gift shops and areas for
staging and ticketing. The complex features a grand entrance, granite and marble
floors, unique metallic finishes, two large fountains and a variety of lighting
effects.

The Buffington Harbor Gaming Complex is situated on an approximately
100-acre site, containing approximately 3,000 parking spaces, and offers valet
parking and convenient bus loading and unloading facilities. The Buffington
Harbor Gaming Complex includes a guest pavilion, vessel berths, parking lots and
other common area facilities. The Buffington Harbor Gaming Complex has three
food kiosks; Harbor Treats and Shou Ki Sushi, which are owned and operated by
third parties, and Jackpot Java, which is owned and operated by BHR.
Entertainment is also being provided in the Lakeshore lounge on weekends.
Buffington Harbor has the largest concentration of gaming positions in the
Chicago Market, offering patrons a total of approximately 3,500 gaming
positions, which is greater than the number of gaming positions that exist at
any other site in northwest Indiana. This number is also substantially greater
than the number of gaming positions allowed at any individual Illinois gaming
site, which is currently limited by Illinois gaming laws to 1,200. The Company
believes that it has achieved operating cost savings and marketing advantages
over its competitors as a result of the operation of two casinos at the same
location.

Buffington Harbor offers two cruising vessel casinos (one owned by the
Company and the other owned by the Joint Venture Partner) with a staggered
cruising schedule. As a result, patrons enjoy significantly reduced waiting
times to board a casino. Specifically, the maximum scheduled waiting time for
Buffington Harbor patrons is 30 minutes, compared to a maximum of 90 minutes in
all other northwest Indiana gaming locations. Further, gaming customers in the
Chicago area, Indianapolis, South Bend and Fort Wayne, Indiana, and Kalamazoo
and Grand Rapids, Michigan can conveniently access Buffington Harbor.

BHPA is constructing a parking garage which it intends to operate on
the land formerly leased from Lehigh Portland Cement Company and purchased from
GNC. The parking structure is expected to provide customers with approximately
2,000 covered parking spaces and indoor access to the Buffington Harbor Gaming
Complex. Customers currently either park their automobiles in a remote self
parking lot or use valet parking services. The Company believes that the
convenience of the new parking structure will attract a significant number of
new customers to Buffington Harbor, thereby providing opportunities to increase
its net revenues and cash flow. Upon completion of the parking garage, the
Company and the Joint Venture Partner each anticipate entering into identical
leases with BHPA with lease payments sufficient to service BHPA's debt. Each
party will receive a credit of up to 50% of the lease obligations if the other
party (the Company or the Joint Venture Partner, as the case may be) makes lease
payments. The Company expects the parking garage to open in May 2002.

11

All of the Company's assets related to the Majestic Star Casino,
including the vessel are subject to a lien in favor of the holders of the
Majestic Star Senior Secured Notes and the lender under the Majestic Star Credit
Facility.

Fitzgeralds Properties
- ----------------------

Fitzgeralds Tunica is located in north Tunica County, Mississippi,
approximately 30 miles from downtown Memphis, Tennessee, and is the focal point
of a heavily wooded, 50-acre site situated by the Mississippi River. Fitzgeralds
Black Hawk is located adjacent to the entrance to the downtown gaming area of
Black Hawk, Colorado, next to the Gilpin Casino and across the street from
Bullwhackers. Fitzgeralds Las Vegas is located on the city block bounded by
Fremont, Carson, Third and Fourth Streets at the Fremont Street Experience in
downtown Las Vegas. All of the Company's assets related to the Fitzgerald
properties are subject to a lien in favor of the holders of the Investor
Holdings Senior Secured Notes and the lender under the Investor Holdings Credit
Facility.

For further information regarding the Fitzgeralds properties, please
refer to the Investor Holdings 10-K.

ITEM 3. LEGAL PROCEEDINGS

Various legal proceedings are pending against the Company. Management
considers all such pending proceedings, comprised primarily of personal injury
and equal employment opportunity (EEO) claims, to be routine litigation
incidental to the Company's business. Management believes that the resolution of
these proceedings will not, individually or in the aggregate, have a material
effect on the Company's financial condition or results of operations.

On June 25, 1997, a complaint was filed in an Illinois Cook County
Court against Majestic Star Casino. The plaintiff, a former employee, was
injured during and as a result of a routine boat drill attempt and is requesting
compensatory and punitive damages totaling approximately $3.5 million. The suit
alleges that Majestic Star Casino failed to provide adequate safety measures to
their employees during these drills. The parties are in settlement negotiations.
The Company does not believe that the resolution of this suit will have a
material impact on the Company's financial position and results of operation.

On March 27, 1998, a complaint was filed in the Lake County Superior
Court in East Chicago, Indiana, against BHR, the Joint Venture Partner, and the
Company. The plaintiff, a former employee of the Company, claims to have been
assaulted in the BHR parking lot on June 25, 1997 and is requesting compensatory
and punitive damages totaling approximately $11.0 million. The suit alleges that
the Joint Venture Partner and the Company failed to provide adequate security to
prevent assaults. The Company intends to vigorously defend against such suit.
However, it is too early to determine the outcome of such suit and the effect,
if any, on the Company's financial position and results of operations.

On March 2, 2000, the Company was issued a notice of audit findings,
and on May 11 and 12, 2000, was issued notices of assessment by the Indiana
Department of Revenue for income tax withholding deficiencies for the years
ended 1996 and 1998. The Indiana Department of Revenue has taken the position
that wagering taxes should not be classified as an allowable deductible expense
for calculating state income taxes and therefore requires that wagering taxes be
added back to net income to determine the tax liability. The estimated tax
deficiency for 1996 is approximately $239,000 excluding interest and the
estimated tax deficiency for 1998 is approximately $315,000 excluding interest.
This same finding has been protested by other Indiana casinos. The Company has
filed an administrative protest and demand for hearing with the Indiana
Department of Revenue. However, it is too early to determine the outcome of such
a protest.

12

From time to time, the Company may be involved in routine
administrative proceedings involving alleged violations of certain provisions of
the Riverboat Gambling Act. Management believes that the outcome of any such
proceedings will not, either individually or in the aggregate, have a material
adverse effect on the Company or its ability to retain and/or renew any license
required under the Riverboat Gambling Act for the Company's operations. No such
proceedings are pending at this time.

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

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company is a privately owned Indiana limited liability company and,
as such, there is no public market for the registrant's equity securities.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

(DOLLARS IN THOUSANDS)
Years Ended December 31,
2001 (1) 2000 1999 1998 1997
---- ---- ---- ---- ----

STATEMENT OF OPERATIONS DATA:
Net Operating Revenues (2) $129,593 $113,433 $ 117,172 $ 114,188 $ 94,393
Pre-opening Expenses 1,018 -- -- -- 1,254
Operating Income 17,024 10,920 18,932 13,685 607
Interest Expense, Net 15,628 14,105 14,605 14,991 11,046
Income (Loss)
Before Extraordinary Item (1,551) (5,367) 1,478 (4,473) (13,887)
Extraordinary Item -- (383) (15,238) -- --
Net Loss (1,551) (5,750) (13,760) (4,473) (13,887)

OTHER DATA
Adjusted EBITDA: (3) 27,045 21,223 27,307 23,219 12,701

At December 31,
BALANCE SHEET DATA: 2001 (1) 2000 1999 1998 1997
---- ---- ---- ---- ----

Cash and Cash Equivalents $ 25,925 $ 16,120 $ 20,145 $ 17,295 $ 8,084
Restricted Cash 1,000 2,000 7,358 -- 11,905
Investment in BHR, Net 33,899 43,924 38,146 40,749 43,542
Total Assets 291,060 126,597 133,150 125,261 134,762
Current Liabilities 37,144 21,795 21,311 11,109 11,699
Long-Term Debt 273,897 128,233 128,922 108,390 110,829
Total Liabilities 311,041 150,028 150,233 128,259 133,286
Members' Equity/(Deficit) (19,981) (23,431) (17,083) (2,998) 1,476

NOTES:
- -----
1. Includes 25 days of operations for the Fitzgeralds properties and balance
sheet data for the properties at December 31, 2001.

2. Net operating revenue is defined as gross revenues less promotional
allowances.

13

3 Adjusted EBITDA represents earnings before interest, taxes on income,
depreciation and amortization, and excludes: (i) $100,000 in costs
associated with an abandoned acquisition for 1999; (ii) loss on bond
redemption for 1999 and 2000; (iii) unused line of credit fees for 2000 and
2001; (iv) non-operating expenses associated with dockside lobbying
initiatives, economic development and extraordinary items of $772,000 in
2000; (v) loss on investment in BHR; (vi) pre-opening costs of $1,018,000
associated with the acquisition of Fitzgeralds; and (vii) losses on
disposals of assets. Adjusted EBITDA is a supplemental financial measurement
used by the Company in the evaluation of its gaming business and by many
gaming industry analysts. Adjusted EBITDA should only be read in conjunction
with all of the Company's financial data summarized above and its financial
statements prepared in accordance with generally accepted accounting
principles ("GAAP") appearing elsewhere herein, and should not be construed
as an alternative either to income from operations (as determined in
accordance with GAAP) as an indication of the Company's operating
performance or to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. The Company believes that
an analysis of Adjusted EBITDA enhances the understanding of the financial
performance of companies with substantial depreciation and amortization.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Statement on Forward-Looking Information
- ----------------------------------------

This report includes statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbor provisions of those sections and the Private
Securities Litigation Reform Act of 1995. Words such as "believes,"
"anticipates," "estimates" or "expects" used in the Company's press releases and
reports filed with the Securities and Exchange Commission are intended to
identify forward-looking statements. All forward-looking statements involve
risks and uncertainties. Although the Company believes its expectations are
based upon reasonable assumptions within the bounds of its current knowledge of
its business and operations, there can be no assurances that actual results will
not materially differ from expected results. The Company cautions that these and
similar statements included in this report and in previously filed periodic
reports are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements. Such
factors include, without limitation, the following: the construction of a
covered parking facility located at the Company's gaming complex; the risk of
the JV Partner not making its lease payments when due in connection with such
parking facility; the ability to fund planned development needs and to service
debt from existing operations; increased competition in existing markets or the
opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of the Company's gaming
license; increases in or new taxes imposed on gaming revenues; admission taxes;
taxes on gaming devices; a finding of unsuitability by regulatory authorities
with respect to the Company or its officers, or key employees; loss and/or
retirement of key executives; our inability to timely and cost effectively
integrate operations of the Fitzgeralds casinos; significant increase in fuel or
transportation prices; adverse economic conditions in the Company's markets;
severe and unusual weather in the Company's markets; non-renewal of the
Company's gaming license from the appropriate regulatory authorities; adverse
results of significant litigation matters; and the continuing effects of recent
terrorist attacks and any future occurrences of terrorist attacks or other
destabilizing events.

For more information on these and other factors, see "Factors that May
Affect Future Results." We caution readers not to place undue reliance on
forward-looking statements, which speak only as of the date thereof. All
subsequent written and oral forward-looking statements attributable to us are
expressly qualified in their entirety by the cautionary statements and factors
that may affect future results contained throughout
this report. The Company undertakes no obligation to publicly release any
revisions to such forward-looking statements to reflect events or circumstances
after the date hereof.

The following discussion should be read in conjunction with, and is
qualified in its entirety by, our financial statements, including the notes
thereto listed in Item 14(a).

14

Overview
- --------

The Majestic Star Casino has been owned and operated by the Company
since 1996. In December 2001, the Company, through a series of indirect
wholly-owned subsidiaries acquired Fitzgeralds Tunica, Fitzgeralds Black Hawk
and Fitzgeralds Las Vegas.

On a consolidated basis, gross revenues increased to $138.4 million in
2001 from $118.5 million in 2000, primarily as a result of the acquisition of
the Fitzgeralds casino properties on December 6, 2001 and a 10.9% increase in
slot revenue at Majestic Star Casino.

Casino operations provided approximately 95.8% and 97.5% of the
Company's gross revenues during 2001 and 2000, respectively, and substantially
all of its income from operations. Slot machine income has been the primary
component of the Company's gaming revenues, providing approximately 84.5% and
80.6% of such revenues during 2001 and 2000, respectively.

The discussion below focuses on the results of the Majestic Star Casino
as well as the Company and its subsidiaries on a consolidated basis, including
25 days of operations for the Fitzgeralds casino properties. For a discussion of
the results of the 25 days of operations for the Fitzgeralds casino properties,
please refer to the Investor Holdings 10-K.

Results of Operations
- ---------------------

The following table sets forth information derived from the Company's
statements of income expressed as a percentage of gross revenues.

Consolidated Statements of Income -- Percentage of Gross Revenues

For The Years Ended December 31,
2001 2000 1999
---- ---- ----
Revenues: (2)
- --------
Casino 95.8% 97.5% 97.6%
Rooms 0.8% 0.0% 0.0%
Food and beverage 2.4% 1.6% 1.6%
Other 1.0% 0.9% 0.8%
------------------------------------
100.0% 100.0% 100.0%
Less promotional allowances -6.3% -4.2% -2.5%
------------------------------------
Net revenues 93.7% 95.8% 97.5%
------------------------------------
Costs and Expenses: (2)
- ------------------
Casino 18.4% 17.9% 16.2%
Rooms 0.5% 0.0% 0.0%
Food and beverage 2.2% 2.0% 1.9%
Other 0.1% 0.0% 0.0%
Gaming taxes 25.1% 27.3% 27.3%
Advertising and promotions 5.7% 6.8% 5.7%
General and administrative 19.5% 21.8% 20.6%
Economic incentive - City of Gary 2.7% 2.7% 3.0%
Depreciation and amortization 6.5% 7.7% 7.0%
Pre-opening expenses 0.7% 0.0% 0.0%
Loss on disposal of assets 0.0% 0.4% 0.0%
------------------------------------
Total costs and expenses 81.4% 86.6% 81.7%
------------------------------------
Operating income (2) 12.3% 9.2% 15.8%
------------------------------------
Other Income (Expense):
- ---------------------

15

Loss on investment in
Buffington Harbor Riverboats, L.L.C. -2.0% -1.7% -2.4%
Interest income 0.3% 0.8% 0.9%
Interest expense -11.5% -12.8% -12.9%
Other nonoperating expense -0.1% -0.1% -0.1%
----------------------------
Total other income (expense) -13.3% -13.8% -14.5%
----------------------------
Income (loss) before extraordinary item -1.0% -4.6% 1.2%
- --------------------------------------- ----------------------------
Extraordinary item:
Loss on bond redemption 0.0% -0.3% -12.7%
Net loss: -1.0% -4.9% -11.5%
============================
Adjusted EBITDA: (in millions) (1) $ 27.0 $ 21.2 $ 27.3
- ---------------- ============================

(1) For a definition of Adjusted EBITDA, see Note 3 of Notes to Selected
Consolidated Financial Data contained in Item 6.

(2) New accounting guidance, effective January 1, 2001, requires that the cost
of the cash-back component of our Slot Club program, including promotional
coupons, be treated as a reduction of revenues. These costs had previously
been reflected in costs and expenses. The new guidance impacts only the
classification of these costs on our income statement. It does not impact
operating profit or EBITDA. The prior years' results have been reclassified
to reflect the impact of implementing this new guidance.

2001 Compared to 2000
- ---------------------

Consolidated gross revenues for the year ended December 31, 2001
amounted to approximately $138,367,000, an increase of $19,916,000 or 16.8% over
gross revenues recorded in the year ended December 31, 2000. Majestic Star, for
the year ended December 31, 2001, accounted for approximately $125,535,000
(90.7%), an increase of $7,084,000 compared to the year ended December 31, 2000.
The 6.0% increase in gross revenues at Majestic Star was primarily attributable
to a $10,114,000 or 10.9% increase in slot revenue partially offset by a
$3,374,000 or 15.1% decline in table game revenues as a result of a 11.7%
decrease in the table drop and a lower than anticipated table hold.

Consolidated casino revenues during the year ended December 31, 2001
totaled approximately $132,554,000, of which slot machines accounted for
approximately $112,211,000 (84.7%) and table games accounted for approximately
$20,343,000 (15.3%). Majestic Star's casino revenues during the year ended
December 31, 2001 totaled approximately $122,195,000, an increase of
approximately $6,740,000 or 5.8%, of which slot machines accounted for
approximately $103,200,000 (84.5%) and table games accounted for approximately
$18,995,000 (15.5%). The average number of slot machines in operation was 1,423
during the year ended December 31, 2001, compared to 1,435 during the year ended
December 31, 2000. The average win per slot machine per day increased to
approximately $199 for the year ended December 31, 2001, from approximately $177
during the year ended December 31, 2000. During the year ended December 31,
2001, slot machine coin-in and win increased by approximately 6.2% and 10.9%,
respectively, compared to the year ended December 31, 2000, resulting in a
higher win per slot machine per day. The percentage increases in slot coin-in
and win is partially attributed to an aggressive multi-media marketing campaign
(including direct mail) emphasizing the tag line "Change Your Luck" combined
with a reconfiguration of the casino gaming floor which optimized the available
space to accommodate the casino patrons. The average number of table games in
operation during the year ended December 31, 2001, decreased to 50 from 55
during the year ended December 31, 2000. The average win per table game per day
during the year ended December 31, 2001, decreased to approximately $1,033,
compared to approximately $1,108 during the year ended December 31, 2000. During
the year ended December 31, 2001, the decline in table games revenues was
attributable to a
decline of approximately $16,311,000 or 11.7% in table drop and a decrease in
the table hold from 16.0% to 15.4% in comparison to the prior year. The average
daily win per state passenger count was approximately $38 and the average daily
win per patron was approximately $67 during the year ended December 31, 2001,
compared to an average daily win per state passenger count of approximately $37
and an average daily win per patron of

16

approximately $68 during the year ended December 31, 2000.

Consolidated room revenues totaled $1,079,000 or 0.78% of the gross
revenue for the year ended December 31, 2001 and was attributed to the 25 days
of operations for the Fitzgeralds properties. Majestic Star does not operate a
hotel.

Consolidated food and beverage revenue for the twelve months ended
December 31, 2001 totaled approximately $3,319,000 or 2.4% of gross revenues,
compared to approximately $1,925,000 or 1.6% of gross revenues for the year
ended December 31, 2000. Majestic Star accounted for approximately

$2,129,000 or 64.1% of consolidated food and beverage revenue for the twelve
months ended December 31, 2001, an increase of $204,000 or 10.6% compared to the
year ended December 31, 2000.

Consolidated other revenues totaled approximately $1,416,000 or 1.0% of
consolidated gross revenues for the year ended December 31, 2001. Majestic Star
accounted for approximately $1,212,000 or 85.6% of other revenues, compared to
approximately $1,071,000 or 0.9% of gross revenues during the year ended
December 31, 2000. Other revenue at Majestic Star consisted primarily of
commission income.

Consolidated promotional allowances deducted from the Company's gross
revenues for the years ended December 31, 2001 and 2000, were approximately
$8,774,000 or 6.3% of gross revenues and $5,018,000 or 4.2% of gross revenues,
respectively. Of this amount Majestic Star accounted for $6,464,000 or 73.7% of
consolidated promotional allowances, an increase of $1,446,000 or 28.8% compared
to the year ended December 31, 2000. Promotional allowances provided to the
Majestic Star's gaming patrons at facilities located in, and/or owned by BHR for
the year ended December 31, 2001 and 2000, totaled approximately $805,000 and
$435,000, respectively, and are characterized in the financial statements as an
expense. BHR and other third-party operators of food kiosks invoice the Majestic
Star monthly for these promotional allowances at cost, which approximates retail
value.

Consolidated casino operating expenses for the year ended December 31,
2001, totaled approximately $25,517,000 or 18.4% of gross revenues and 19.3% of
casino revenues compared to approximately $21,180,000 or 17.9% of gross revenues
and 18.3% of casino revenues, respectively, for the year ended December 31,
2000. These expenses were primarily comprised of salaries, wages and benefits,
and operating expenses of the casino. Majestic Star accounted for approximately
$21,406,000 or 17.1% of Majestic Star gross revenues and 17.5% of Majestic Star
casino revenues compared to approximately $21,180,000 or 17.9% of gross revenues
and 18.3% of casino revenues, respectively, for the year ended December 31,
2000. The dollar increase of $226,000 in casino operating expenses is primarily
attributed to an increase of approximately $120,000 for gaming equipment rental
and other various casino operating expenses.

Consolidated gaming taxes totaled approximately $34,835,000 for the
year ended December 31, 2001, compared to approximately $32,350,000 during the
year ended December 31, 2000. Gaming taxes are levied on adjusted gross
receipts, as defined by Indiana gaming laws, at the rate of 20%, plus $3 per
passenger per the state passenger count. Majestic Star accounted for
approximately $34,026,000 and $32,350,000 of gaming taxes during the years ended
December 31, 2001 and 2000, respectively. An additional $3,667,000 was paid
during the year ended December 31, 2001, compared to approximately $3,231,000 in
the year ended December 31, 2000, to the City of Gary under an economic
incentive agreement whereby Majestic Star pays 3% of adjusted gross receipts
directly to the City.

Advertising and promotion expenses includes salaries, wages and
benefits of the marketing and casino service departments, as well as promotions,
advertising and special events. Consolidated advertising and promotion expenses
for the year ended December 31, 2001 totaled approximately $7,830,000 or 5.7% of
gross revenues, compared to $8,020,000 or 6.8% for the year ended December 31,
2000. Of this

17

amount, Majestic Star accounted for approximately $6,904,000 or 4.9% of gross
revenues for the year ended December 31, 2001 and approximately $8,020,000 or
6.8% of gross revenues for the year ended December 31, 2000. The $1,116,000 or
13.9% decrease in advertising and promotion expenses during the year ended
December 31, 2001 was primarily the result of a decrease in mass marketing
expenditures partially offset by an increase in operating supplies.

Consolidated general and administrative expenses for the year ended
December 31, 2001 were approximately $26,934,000 or 19.5% of gross revenues,
compared to $25,800,000 or 21.8% of gross revenues during the year ended
December 31, 2000. Majestic Star accounted for approximately $25,364,000 or
94.2% of the general and administrative expenses for the year ended December 31,
2001 and $25,800,000 for the year ended December 31, 2000. These expenses
included approximately $6,317,000 for berthing fees paid to BHR, $6,151,000 for
marine operations including housekeeping, and $2,693,000 for security and
surveillance operations during the year ended December, 31, 2001. The dollar
decrease of $436,000 in these expenses is primarily attributed to a reduction of
approximately $651,000 in berthing fees, partially offset by higher professional
fees and fees to the Indiana Gaming Commission.

Consolidated depreciation and amortization for the year ended December
31, 2001 was approximately $8,991,000 or 6.5% of gross revenues, compared to
approximately $9,114,000 or 7.7% of gross revenues during the year ended
December 31, 2000. Depreciation and amortization attributed to Majestic Star for
the year ended December 31, 2001 was approximately $8,070,000 compared to
approximately $9,114,000 during the year ended December 31, 2000. The dollar
decrease totaled approximately $1,044,000, of which approximately $491,000 is
depreciation expense and approximately $553,000 is amortization expense. The
decrease for the year ended December 31, 2001 is primarily attributable to
machinery and equipment being fully depreciated and deferred licensing fees
being fully amortized.

The consolidated operating income for the year ended December 31, 2001
was approximately $17,024,000 or 12.3% of gross revenues, compared to an
operating income for the year ended December 31, 2000 of $10,920,000 or 9.2% of
gross revenues. Operating income attributed to the Majestic Star for the year
ended December 31, 2001 was approximately $17,302,000 or 13.8% of gross Majestic
Star revenues. During the year ended December 31, 2001, Majestic Star had a net
loss on the disposition of assets totaling approximately $12,000. The $6,382,000
or 58.4% increase is attributed to a 6.0% increase in gross Majestic Star
revenues partially offset by increased expenses as previously discussed.

The consolidated net interest expense for the year ended December 31,
2001 was $15,628,000 or approximately 11.3% of gross revenues compared to
$14,105,000 or approximately 11.9% for the same period last year. Net interest
expense attributed to the Majestic Star for the year ended December 31, 2001 was
$14,636,000 or approximately 10.6% of gross revenues, compared to $14,105,000
for the same period last year. The $531,000 increase in net interest expense at
Majestic Star is primarily attributed to a $712,000 decrease in interest income,
partially offset by a $181,000 increase in interest expense associated with the
line of credit.

The Company's expense on the redemption of its 12-3/4% Senior Secured
Notes for the year ended December 31, 2000 was approximately $382,500 and is
classified as an extraordinary item. The loss relating to its investment in BHR
(primarily for depreciation and amortization) for the years ended December 31,
2001 and 2000 was approximately $2,798,000 and $2,059,000, respectively. Costs
of approximately $6,317,000 and $6,968,000 associated with operating BHR are
included in the operating expense line "General and Administrative" and are
fully reflected in operating income for the years ended December 31, 2001 and
2000, respectively. Other non-operating expenses of $149,000 and $125,000 for
the years ended December 31, 2001 and 2000, respectively, represent fees
associated with the line of credit.

As a result of the foregoing, the Company realized a consolidated loss
of approximately

18

$1,551,000 during the year ended December 31, 2001, compared to a loss (before
the extraordinary item) of $5,368,000 during the year ended December 31, 2000.
The Majestic Star realized a loss of $280,000 during the year ended December 31,
2001, compared to a loss (before the extraordinary item) of $5,368,000 during
the year ended December 31, 2000. The Majestic Star net losses were
approximately $280,000 and $5,750,000 during the years ended December 31, 2001,
and 2000, respectively.

2000 Compared to 1999
- ---------------------

Gross revenues for the year ended December 31, 2000 amounted to
approximately $118,451,000, a decrease of $1,726,000 over gross revenues
recorded in the year ended December 31, 1999. The 1.4% decrease in gross
revenues was primarily attributable to a $5,400,000 decline in table game
revenues primarily as a result of a 5.4% decrease in table drop and a lower than
anticipated table hold partially offset by a $3,600,000 or 4.0% increase in slot
revenues.

Casino revenues during the year ended December 31, 2000 totaled
approximately $115,455,000, of which slot machines accounted for approximately
$93,086,000 (80.6%) and table games accounted for approximately $22,369,000
(19.4%). The average number of slot machines in operation was 1,435 during the
year ended December 31, 2000, compared to 1,436 during the year ended December
31, 1999. The average win per slot machine per day increased to approximately
$177 for the year ended December 31, 2000, from approximately $171 during the
year ended December 31, 1999. During the year ended December 31, 2000, slot
machine coin-in and win increased by approximately 3.8% and 4.0%, respectively,
compared to the year ended December 31, 1999, resulting in a higher win per slot
machine per day. The percentage increases in slot coin-in and win is partially
attributed to an aggressive multi-media marketing campaign emphasizing the
registered tag line "We've Got Your Slots"(C) combined with a reconfiguration of
the casino gaming floor which optimized the available space to accommodate the
casino patrons. The average number of table games in operation during the year
ended December 31, 2000 decreased to 55 from 58 during the year ended December
31, 1999. The average win per table game per day during the year ended December
31, 2000 decreased to approximately $1,108, compared to approximately $1,314
during the year ended December 31, 1999. During the year ended December 31,
2000, the decline in table games revenues were attributable to a decline of
approximately $7,904,000 or 5.4% in table drop and a decrease in the table hold
from 18.8% to 16.0% in comparison to the prior year. The average daily win per
state passenger count was approximately $38 and the average daily win per patron
was approximately $67 during the year ended December 31, 2000, compared to an
average daily win per state passenger count of approximately $37 and an average
daily win per patron of approximately $67 for the year ended December 31, 1999.

Food and beverage revenues for the twelve months ended December 31,
2000 totaled approximately $1,925,000 or 1.6% of gross revenues, compared to
approximately $1,949,000 or 1.6% of gross revenues for the year ended December
31, 1999. Other revenues totaled approximately $1,071,000 or 0.9% of gross
revenues for the year ended December 31, 2000, consist primarily of commission
income, compared to approximately $960,000 during the year ended December 31,
1999.

Promotional allowances included in the Company's gross food and casino
revenues for the year ended December 31, 2000 and 1999 were approximately
$5,018,000 and $3,005,000, respectively. Promotional allowances provided to the
Company's gaming patrons at facilities located in, and/or owned by BHR for the
year ended December 31, 2000 and 1999 totaled approximately $435,000 and
$758,000, respectively, and are characterized in the financial statements as an
expense. BHR and other third-party operators of food kiosks invoice the Company
monthly for these promotional allowances at cost, which approximates retail
value.

Casino operating expenses for the year ended December 31, 2000 totaled
approximately $21,180,000 or 17.9% of gross revenues and 18.3% of casino
revenues compared to approximately $19,443,000 or 16.2% of gross revenues and
16.6% of casino revenues for the year ended December 31,

19

1999. These expenses are primarily comprised of salaries, wages and benefits,
and operating expenses of the casino. The dollar increase of $1,737,000 in
casino operating expenses is primarily attributed to approximately $669,000 for
gaming equipment rental primarily for participation games including Wheel of
Fortune(C), Jeopardy(C) and Monopoly(C), approximately $400,000 associated with
Club Majestic and approximately $248,000 for repair and maintenance of gaming
equipment, primarily to upgrade bill validators and monitors on video games.

Gaming taxes totaled approximately $32,350,000 for the year ended
December 31, 2000, compared to approximately $32,900,000 for the year ended
December 31, 1999. These taxes are levied on adjusted gross receipts, as defined
by Indiana gaming laws, at the rate of 20% plus $3 per passenger per the state
passenger count. An additional $3,231,000 was paid during the year ended
December 31, 2000, compared to approximately $3,626,000 in the year ended
December 31, 1999, to the City of Gary under an economic incentive agreement
whereby the Company pays 3% of the adjusted gross receipts directly to the City.

Advertising and promotion expenses for the year ended December 31, 2000
totaled approximately $8,020,000 or 6.8% of gross revenues, compared to
approximately $6,816,000 or 5.7% of gross revenues during the year ended
December 31, 1999. Advertising and promotion expenses included salaries, wages
and benefits of the marketing and casino service departments, as well as
promotions, advertising and special events. The $1,204,000 or 17.7% increase in
advertising and promotion expenses during the year ended December 31, 2000 was
primarily the result of an increase of $456,000 in television advertising and
$414,000 in postage and direct mail advertising as part of undertaking an
aggressive and integrated brand image campaign that was conducted during the
first and second quarters of 2000.

General and administrative expenses for the year ended December 31,
2000 were approximately $25,800,000 or 21.8% of gross revenues, compared to
$24,738,000 or 20.6% of gross revenues during the year ended December 31, 1999.
These expenses included approximately $6,968,000 for berthing fees paid to BHR,
$6,402,000 for marine operations including housekeeping, and $2,608,000 for
security and surveillance operations during the year ended December 31, 2000.
The dollar increase of $1,062,000 in these expenses is primarily attributed to
approximately $380,000 in payroll and related expenses, an increase of
approximately $326,000 in insurance related expenses and approximately $250,000
for acquisition related expenses incurred by Majestic Investor, LLC, an
unrestricted subsidiary.

Depreciation and amortization for the year ended December 31, 2000 was
approximately $9,114,000 or 7.7% of gross revenues, compared to approximately
$8,375,000 or 7.0% of gross revenues, during the year ended December 31, 1999.
The dollar increase totaled approximately $739,000, of which approximately
$514,000 is depreciation expense and approximately $225,000 is amortization
expense. The dollar increase for the year ended December 31, 2000 is primarily
attributable to new machinery and equipment placed into service during the past
year and amortization of the debt issue costs associated with the June 1999
issuance of the 10 7-8% Senior Secured Notes.

Operating income for the year ended December 31, 2000 was approximately
$10,920,000 or 9.2% of gross revenues, compared to an operating income for the
year ended December 31, 1999 of $18,931,000, or 15.7% of gross revenues. During
the year ended December 31, 2000, the Company had a net loss on the disposition
of assets totaling approximately $417,000. The $8,011,000 or 42.3% decrease in
operating income is principally attributable to increased expenditures of
approximately $4,494,000 associated with casino operations, a decrease in gross
revenues of approximately $1,726,000 and approximately $1,062,000 in increased
general and administrative expenses including $125,000 in non-operating
expenses, and approximately $250,000 for acquisition related expenses incurred
by Majestic Investor, LLC, an unrestricted subsidiary, and an increase of
approximately $739,000 for depreciation and amortization as previously
discussed.

Net interest expense for the year ended December 31, 2000 was
$14,105,000 or approximately

20

11.9% of gross revenues, compared to $14,605,000 or approximately 12.2% for the
same period last year. The $500,000 decrease in net interest expense is
primarily attributable to the refinancing of the 12-3/4% Senior Secured Notes
with Contingent Interest and the repayment of the $8.8 million demand note to
BDI both of which occurred during the second quarter of 1999.

The Company's expense on the redemption of its 12-3/4% Senior Secured
Notes for the years ended December 31, 2000 and 1999 was approximately $382,500
and $15,238,000, respectively, and is classified as an extraordinary item. The
loss relating to its investment in BHR for the years ended December 31, 2000 and
1999 was approximately $2,059,000 and $2,848,000, respectively. Costs of
approximately $6,968,000 associated with operating BHR are included in the
operating expense line "General and Administrative" and are fully reflected in
operating income. Other non-operating expenses of $125,000 for the year ended
December 31, 2000 represent fees associated with the line of credit.

As a result of the foregoing, the Company realized a loss (before the
extraordinary item) of $5,368,000 during the year ended December 31, 2000,
compared to income (before the extraordinary item) of $1,478,000 in the year
ended December 31, 1999. Net losses were approximately $5,750,000 and
$13,760,000 during the years ended December 31, 2000 and 1999, respectively.

Earnings Before Interest, Income Taxes, Depreciation and Amortization

Adjusted EBITDA is presented solely as a supplemental disclosure and is
used by the Company to assist in the evaluation of the cash generating ability
of its gaming business. Consolidated Adjusted EBITDA during the twelve months
ended December 31, 2001 was approximately $27,045,000. Adjusted EBITDA
attributed to the Majestic Star during the twelve months ended December 31, 2001
was approximately $25,385,000 or 20.2% of gross Majestic Star revenues, compared
to approximately $21,223,000 or 17.9% of gross Majestic Star revenues during the
twelve months ended December 31, 2000. The $4,162,000 increase in Adjusted
EBITDA at Majestic Star is primarily the result of a decrease in operating
expenditures and an increase in casino revenue. Adjusted EBITDA during 2001
excludes pre-opening costs, loss on investment in BHR, line of credit fees and
loss on disposal of assets. Adjusted EBITDA during 2000 excludes loss on bond
redemption, loss on investment in BHR, line of credit fees, loss on disposal of
assets, and $772,000 of non-operating expenses associated with dockside lobbying
initiatives, economic development and extraordinary items.

Adjusted EBITDA should be viewed only in conjunction with all of the
Company's financial data and statements, and should not be construed as an
alternative either to income from operations (as an indicator of the Company's
operating performance) or to cash flows from operating activities as a measure
of liquidity.

Liquidity and Capital Resources

At December 31, 2001, the Company had cash and cash equivalents of
approximately $25.9 million. This amount included $17.7 million at Majestic
Investor Holdings, LLC and $8.2 million at Majestic Star. During the year ended
December 31, 2001, the Company's capital expenditures were approximately $5.0
million, which included approximately $2.5 million for vessel and barge
improvements, $2.2 million for slot machines and other gaming equipment,
$140,000 for furniture and equipment, and $132,000 for computer equipment and
software. These capital expenditures include an additional $2.2 million for the
settlement of disputed use tax payments associated with the chartered vessel and
the subsequent construction of the permanent vessel. The Company also made a
capital contribution of approximately $215,000 to BHR during the year ended
December 31, 2001.

The Company, including the accounts of Majestic Investor, LLC, has met
its capital requirements to date through net cash from operations, capital
contributions and equipment loans. For the year ended
December 31, 2001, net cash provided by operating activities totaled
approximately $12.4 million,

21

compared to net cash provided by operating activities of approximately $4.7
million during the year ended December 31, 2000. At Majestic Star for the year
ended December 31, 2001, net cash provided by operating activities totaled
approximately $8.8 million and cash used by investing activities totaled
approximately $4.4 million, compared to approximately $6.2 million provided by
operating activities and $19.8 million used in investing activities, during the
year ended December 31, 2000. At the Majestic Star for the year ended December
31, 2001, cash used by financing activities totaled approximately $8.8 million,
which included net repayments of $7.8 million under the line of credit facility,
compared to $6.0 million provided by financing activities during the year ended
December 31, 2000. As of April 1, 2002, there are no outstanding borrowings
under the Majestic Star Credit Facility.

Management believes that the Company's cash flow from operations and
its current lines of credit will be adequate to meet the Company's anticipated
future requirements for working capital, its capital expenditures and scheduled
payments of interest and principal on the Senior Secured Notes, lease payments
to BHPA and other permitted indebtedness for the year 2002. No assurance can be
given, however, that such proceeds and operating cash flow, in light of
increased competition, principally dockside gambling in Illinois and the
purchase of certain Indiana gaming facilities by larger more recognized brand
names, will be sufficient for such purposes. If necessary and to the extent
permitted under the Indenture, the Company will seek additional financing
through borrowings and debt or equity financing. There can be no assurance that
additional financing, if needed, will be available to the Company, or that, if
available, the financing will be on terms favorable to the Company. In addition,
there is no assurance that the Company's estimate of its reasonably anticipated
liquidity needs is accurate or that unforeseen events will not occur, resulting
in the need to raise additional funds.

New Accounting Principles

We have adopted Emerging Issues Task Force ("EITF") No. 00-14,
"Accounting for Certain Sales Incentives," EITF 00-22, "Accounting for `Points'
and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers
for Free Products or Services to Be Delivered in the Future," and EITF 00-25,
"Accounting for Consideration from a Vendor to a Retailer in Connection with the
Purchase or Promotion of the Vendor's Products," which required the cash-back
component of the Company's Slot Club reward program, including promotional
coupons, be classified as a reduction of revenues.

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires all
business combinations to be accounted for using the purchase method of
accounting. SFAS No. 141 is required to be implemented for all acquisitions
initiated after June 30, 2001, and all business combinations accounted for using
the purchase method for which the date of acquisition is July 1, 2001, or later.
We applied SFAS No. 141 for our acquisition of the Fitzgeralds assets.

Under SFAS No. 142, goodwill and other indefinite lived intangible
assets are no longer subject to amortization over their useful lives, rather,
they are subject to assessments for impairment at least annually. Also, under
SFAS No. 142, an intangible asset should be recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights or if the
intangible asset can be sold, transferred, licensed, rented or exchanged. Such
intangibles will be amortized over their useful lives. Under SFAS No. 142, our
acquisition of the Fitzgeralds assets was immediately subject to the provisions
of SFAS No. 142. We will test these assets for impairment at least annually.

Under SFAS No. 143, the fair value of a liability for an asset
retirement obligation is required to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 will be implemented by us on January 1, 2002.
Adoption of SFAS No. 143 is not anticipated to have a material impact on our
consolidated financial statements.

22

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and amends Accounting Principles Board ("APB") Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effect of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. Adoption of SFAS No. 144 will not have a material impact on
our consolidated financial statements.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, which
requires our management to make estimates and assumptions about the effects of
matters that are inherently uncertain. We have summarized our significant
accounting policies in Note 2 to our consolidated financial statements. Of our
accounting policies, we believe the following may involve a higher degree of
judgment and complexity.

Revenue Recognition - Casino revenues is the net win from gaming
activities, which is the difference between gaming wins and losses. Hotel and
other revenue is recognized at the time the related service is performed.

Goodwill - We have approximately $10.6 million of goodwill recorded on
our balance sheet at December 31, 2001 related to the acquisition of the
Fitzgeralds properties. We regularly evaluate our acquired businesses for
potential impairment indicators. Additionally, we adopted the provisions of SFAS
No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002, that
require us to perform impairment testing at least annually. Our judgments
regarding the existence of impairment indicators are based on, among other
things, the regulatory and market status and operational performance of each of
our acquired businesses. Future events could significantly impact our judgments
and any resulting impairment loss could have a material adverse impact on our
financial condition and results of operations.

Property and Equipment - At December 31, 2001, we have approximately
$170.2 million of net property and equipment recorded on our balance sheet.
Third-party valuations were obtained for property and equipment and intangible
assets acquired in connection with the Fitzgeralds acquisitions. We depreciate
our 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 are using certain assets requiring 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 Fitzgeralds 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 the Fitzgeralds
casinos' redemption history. This liability can be impacted by changes in the
program, increases in membership and changes in the redemption patterns of the
participants.

Litigation, Claims and Assessments - We also utilize estimates for
litigation, claims and assessments. These estimates are based upon our knowledge
and experience about past and current events and also upon reasonable future
events. Actual results may differ from those estimates.

23

Contractual Commitments:

The following table summarizes our obligations and commitments to make
future payments under certain contracts, including long-term debt obligations,
capitalized leases and operating leases at December 31, 2001.

-----------------------------------------------------------------------------------------------
Payments Due By Year
-----------------------------------------------------------------------------------------------
Contractual Obligations 2002 2003 2004 2005 2006 Thereafter Total
------------ ------------ ------------ ---------- --------------- -------------- --------------

Long-Term Debt $ - $ - $ - $ - $ 128,556,629 $145,085,432 $273,642,061
Capital Leases 156,574 133,066 84,346 37,460 - - 411,446
Operating Leases 1,422,407 1,254,338 972,948 811,604 774,092 774,092 6,009,481
------------ ------------ ------------ ---------- --------------- -------------- --------------
Total $1,578,981 $1,387,404 $1,057,294 $849,064 $ 129,330,721 $145,859,524 $280,062,988

-----------------------------------------------------------------------------------------
Payments Due By Year
-----------------------------------------------------------------------------------------
Other Commercial Commitments 2002 2003 2004 2005 2006 Thereafter Total
-------------- ---------- ----------- ----------- ----------- ----------- ---------------

Lines of Credit $ 6,500,000 $ - $ - $ - $ - $ - $ 6,500,000
Total $ 6,500,000 $ - $ - $ - $ - $ - $ 6,500,000

FACTORS THAT MAY AFFECT FUTURE RESULTS

Risks Related to Our Substantial Debt

Our significant indebtedness could adversely affect our financial health.

We have a significant amount of debt. We currently have outstanding
$130 million of long-term debt represented by the Majestic Star Senior Secured
Notes and $152.6 million of long-term debt represented by the Investor Holdings
Senior Secured Notes. In addition, the Majestic Star Indenture will permit us to
incur additional debt in certain circumstances, including to finance the
purchase of furniture and equipment.

Our high level of debt could have significant effects on our business.
For example, it could, among other things:

. make it more difficult for us to satisfy our obligations with
respect to the Majestic Star Senior Secured Notes and our
other outstanding indebtedness;

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

. result in an event of default if we fail to comply with the
financial and other restrictive covenants contained in the
Majestic Star Indenture or in the Majestic Star Credit
Facility, which event of default could result in all of our
indebtedness becoming immediately due and payable and would
permit some or all of our lenders to foreclose on our assets
securing such indebtedness;

. limit our ability to fund or obtain additional financing for
future working capital, capital expenditures and other
general financial requirements;

. require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working
capital, capital expenditures, development projects,
acquisitions and other general corporate purposes;

24

. limit our flexibility in planning for, or reacting to, changes
in our business and industry; and

. place us at a competitive disadvantage compared to our
competitors that have less debt.

The occurrence of any one of these events could have a material adverse
effect on our business, financial condition, results of operations and
prospects.

We may not be able to generate sufficient cash flow to service our debt.

We might not be able to generate sufficient cash flow to service our
debt, to repay the Majestic Star Senior Secured Notes when due or to meet
unanticipated capital needs or shortfalls in our projections. We plan to be able
to service our debt and repay the Majestic Star Senior Secured Notes when due
with cash from operations. Our ability to generate sufficient cash flow to
satisfy our obligations will depend on the future performance of our gaming
operations, which is subject to many economic, political, competitive,
regulatory and other factors that we are not able to control. However, if cash
flows from operations are not sufficient to satisfy our obligations, we may need
to seek additional financing in the debt or equity markets, refinance the
Majestic Star Senior Secured Notes, sell selected assets or reduce or delay
planned activities and capital expenditures. Any such financings or sale of
assets might not be available on economically favorable terms, if at all, and
may be difficult because of governmental restrictions on ownership. In the event
that we are left without sufficient liquidity to meet our debt service
requirements, an event of default would occur under the Majestic Star Indenture
and the Majestic Star Credit Facility. The Majestic Star Senior Secured Notes
and the Majestic Star Credit Facility are secured by substantially all of the
Majestic Star casino's current and future assets.

The Majestic Star Indenture and the Majestic Star Credit Facility contain
covenants that significantly restrict our operations.

The Majestic Star Indenture and the Majestic Star Credit Facility does,
and any other future debt agreement will, contain numerous covenants imposing
financial and operating restrictions on our business. These restrictions may
affect our ability to operate our business, limit our ability to take advantage
of potential business opportunities as they arise and adversely affect the
conduct of our current business. These covenants will place restrictions on our
ability and the ability of our subsidiaries to, among other things:

. incur more debt;

. pay dividends, redeem or repurchase our stock or make other
distributions;

. make acquisitions or investments;

. use assets as security in other transactions;

. enter into transactions with affiliates;

. merge or consolidate with others;

. dispose of assets or use asset sale proceeds;

. create liens on our assets; and

. extend credit.

The Majestic Star Credit Facility also requires us to meet a number of
financial ratios and tests. Our

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ability to meet these ratios and tests and to comply with other provisions
governing our indebtedness may be adversely affected by our operations and by
changes in economic or business conditions or other events beyond our control.

Risks Related to Our Business

We may be unable to successfully integrate the three Fitzgeralds casinos, and we
may not realize any of the anticipated benefits of the acquisition.

We acquired the three Fitzgeralds casino properties from Fitzgeralds
and certain of its affiliates on December 6, 2001. We cannot assure you that we
will be able to integrate or manage the Fitzgeralds properties effectively or
realize any of the anticipated benefits of the acquisition, including expected
cost reductions. Our ability to integrate the three Fitzgeralds casino
properties, to realize the expected cost reductions and to achieve our
objectives in connection with the Fitzgeralds acquisition is highly dependent
on, among other things, our ability to maintain effective senior management
teams at Fitzgeralds Tunica, Fitzgeralds Black Hawk and Fitzgeralds Las Vegas.
We plan to maintain such management through retention of certain current
executives, relocation of certain Majestic executives to the Fitzgeralds
properties and the attraction of new executives. If, for any reason, these
executives do not continue to be active in management after the acquisition, or
we fail to attract capable new executives, our operations after consummation of
the Fitzgeralds acquisition could be materially adversely affected. In addition,
certain of our executives provide management services to Investor Holdings and
its subsidiaries and to Majestic Star. Accordingly, such executives will not be
able to devote all of their time to Majestic Star.

We face significant competition in each market where we operate.

We face intense competition in each of the markets in which our gaming
facilities are located. Many of our competitors have significantly greater name
recognition and financial, marketing and other resources than we do. Our
properties compete principally with other gaming properties in or near
California, Illinois, Indiana, Nevada, Mississippi and Colorado. In some of
these jurisdictions, competition is expected to intensify as new gaming
operations enter these markets and existing competitors consolidate with one
another or expand or enhance their operations. In addition, we compete with
gaming facilities nationwide, including casinos located on Indian reservations
and other land-based casinos in Nevada and Atlantic City, as well as elsewhere,
not only for customers but also for employees and potential future gaming sites.
We also compete, to some extent, with other forms of gaming on both a local and
national level, including state-sponsored lotteries, Internet gaming, on-and
off-track wagering and card parlors. The expansion of legalized gaming to new
jurisdictions throughout the United States also has increased competition faced
by us and will continue to do so in the future. Additionally, if gaming were
legalized in jurisdictions near our properties where gaming currently is not
permitted, we would face additional competition.

Increased competition may require us to make substantial capital
expenditures to maintain and enhance the competitive positions of our
properties, including updating slot machines to reflect changing technology,
refurbishing rooms and public service areas periodically, replacing obsolete
equipment on an ongoing basis and making other expenditures to increase the
attractiveness and add to the appeal of our properties. Because we are highly
leveraged, after satisfying our obligations under our outstanding indebtedness,
there can be no assurance that we will have sufficient funds to undertake these
expenditures or that we will be able to obtain sufficient financing to fund such
expenditures. If we are unable to make such expenditures, our competitive
position and our results of operations could be materially adversely affected.

Extensive government regulation continuously impacts our operations.

The ownership, management and operation of gaming facilities is subject
to extensive laws, regulations and ordinances which are administered by various
federal, state and local government entities and
agencies. The gaming authorities located in the jurisdictions in which we
operate have broad authority and

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discretion to require us and our officers, directors, managers, members,
employees and certain security holders to obtain various licenses,
registrations, permits, findings of suitability and other approvals. To enforce
applicable gaming regulations, gaming authorities may, among other things,
limit, suspend or revoke the licenses of any gaming entity or individual, and
may levy fines or forfeiture of assets against us or individuals for violations
of gaming laws or regulations. Any of these actions would have a material
adverse effect on us.

Government regulations require us to:

. pay gaming fees and taxes in each state where we operate a casino;

. obtain a gaming license in each state where we operate a casino,
which we must have renewed periodically and which may be suspended
or revoked if we do not meet detailed regulatory requirements;

. receive and maintain federal and state environmental approvals; and

. receive and maintain local licenses to sell alcoholic beverages in
our casinos.

No assurances can be given that any new gaming licenses, liquor
licenses, registrations, findings of suitability, permits and approvals,
particularly those related to any proposed expansion, will be given or that
existing ones will be renewed when they expire. We know of no reason why our
existing gaming licenses would not be renewed or maintained, or why new licenses
would not be granted to us; however, any failure to renew or maintain our
licenses or receive new licenses when necessary would have a material adverse
effect on us.

The compliance costs associated with these laws, regulations and
licenses are significant. A change in the laws, regulations and licenses
applicable to our business or a violation of any current or future laws or
regulations of our gaming licenses could require us to make material
expenditures or could otherwise materially adversely affect our business or
financial results.

Legislation at local referenda on gaming may restrict or adversely impact our
operations.

The casino entertainment industry is subject to political and<