Herbst Gaming general counsel Sean Higgins called it "the perfect storm" -- the company's ambitious acquisition of properties in Primm and Reno last year, followed by the economic downturn.

A report filed with the Securities and Exchange Commission noted Herbst Gaming, owners of Terrible's Town Casino and Terrible's Lakeside and RV Park, may have to consider Chapter 11 bankruptcy if a debt reorganization plan can't be arranged.

"This is not an operational issue, this is a debt structure. There's no casino closings in the future," Higgins said.

All the options spelled out in the annual filing will be explored, he said.

"Right now, today, there's no plan to sell any of our assets," Higgins said. "The economy in the second half of the year simply was not there. Obviously in this tough financial time we are looking at the best use of our capital."

An independent auditor's report filed with the Securities and Exchange Commission for the year ending Dec. 31, 2007, expresses a "going concern" qualification, a default under the company's credit agreement, blamed on the downturn in the economy in southern California and Nevada.

"If we are unable to negotiate a forbearance with our lenders and they declare an event of default and require repayment of our credit agreement indebtedness, we may not be able to restructure or refinance our indebtedness," the SEC report states.

The SEC report states:

"To the extent the economies of southern California and Nevada do not improve in the near term and the results from our other businesses do not offset the decrease in results of the Primm Casinos and our route operations in the next several quarters, we will likely not be in compliance with the financial covenants in our credit agreement in future quarters."

Goldman, Sachs and Co. has been retained as a financial advisor to assist Herbst Gaming in evaluating financial and strategic alternatives. Those may include recapitalization, refinancing, restructuring or reorganization of obligations or a sale of some or all of their businesses.

If the company is not successful in completing a refinancing or restructuring, the report states, "We may be required to seek protection under Chapter 11 of the U.S. Bankruptcy Code."

The company recently elected not to build a hotel and theater complex at Terrible's Town Casino. The Terrible's Town 250 off-road race, an annual event in April based in Pahrump for the past nine years, was moved to Primm. Terrible's Lakeside amphitheater was the scene of national touring acts last summer, like B.J. Thomas and Juice Newton, but they won't be back again this summer.

The annual report included some statistical information on the Pahrump casinos:

Terrible's Town has 396 slot machines, six tables games, race and sports book and a 120-seat bingo facility in a 30,000-square-foot building sitting on three acres of land. The land is leased at $15,000 per month from the Herbst Family Limited Partnership under an arrangement that expires June 30, 2011.

Herbst Gaming Inc. owns the 30 acres where Terrible's Lakeside Casino and RV Park sits. It includes an 8,000-square-foot casino 291 slots, 159 RV spaces, a race and sports book, 192-seat bingo facility and seven-acre lake.

A Terrible's hotel and casino opened in Las Vegas Dec. 6, 2000; the company also owns the Terrible's Town Casino and Bowl in Henderson and Terrible's Searchlight Casino.

The company underwent a major expansion last year, almost doubling its long-term debt from $521 million to $1.13 billion.

In January 2007 Herbst Gaming acquired casinos in northern Nevada: Rail City in Sparks, the Sands Regency in Reno, Terrible's Gold Ranch Casino in Verdi and Terrible's Dayton Casino for $149 million in cash and outstanding securities. In April 2007, Herbst Gaming acquired Buffalo Bill's, Primm Valley Resort and Whiskey Pete's in Primm, on the California state line for a net cash purchase price of $394 million.

In addition, Herbst Gaming operates Midwestern casinos in Osceola, Iowa, La Grange and St. Joseph, Mo.

Herbst Gaming reported 8,700 employees as of the end of last year.

The annual report notes casino operations in Pahrump, Henderson and Searchlight face competition from other casinos in the vicinity.

"Results from the Primm casinos, Lakeside Iowa and the company's casinos located in Pahrump ... were below expectations," the report notes. "Revenues were flat or increased at our other casinos in Nevada, except at the two casinos in Pahrump. The decreases in the revenues at the casinos in Pahrump were due in part to refurbishments of our primary competitors by new owners, which made them more competitive."

Primm casinos also had lower than expected results from rising gas prices, according to the company.

Herbst Gaming is one of the largest slot machine operators in Nevada with 7,200 slot machines. The sub-prime mortgage crisis and the passage of anti-smoking legislation in Nevada with ballot question no. 5 in November 2006 is to blame for a 20 percent drop in slot play revenues in 2007 from $347 million to $276 million dropping from 58 percent of total revenues to 33 percent, the report states.

Casino revenues jumped from $237 million to $473 million, the acquisition of the Reno and Primm accounted for almost all of the increase. Revenues at the other, existing casinos increased 2.2 percent.

Casino operating costs rose from $152 million to $335 million -- from $181.1 million to $245.5 million in Nevada -- due largely to spending in Reno and Primm.

Herbst Gaming reported a net loss of $127.2 million in 2007, the report states. However, the company notes the acquisition of the new properties doesn't allow for a fair comparison of 2006 and 2007 figures.

Ed, Tim and Troy Herbst own all of the outstanding stock of Herbst Gaming. Ed Herbst, chief executive officer and chairman of the board of directors since the inception of the company in 1987, entered into a new employment agreement in March in which he will be paid an annual base salary of $973,845, his total compensation for 2007 was $4.26 million, the report states.

The report outlines a number of risk factors in the future: changes to tax laws, Indian gambling, winter weather in the north, water allowances in the Primm casinos, inability to obtain slot machines on a timely basis, risks of operating riverboats and the inability of new acquisitions to perform.