UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM 10-K
 
 x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      the fiscal year ended December 31, 2007ORo
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
 For
the transition period from
               
to
   Commission
File Number 333-88829
  Diamond
      Jo, LLC
              
              Peninsula
      Gaming, LLC
              
              Peninsula
      Gaming Corp.(Exact
      name of registrants as
                specified
      in their charter)
              
              (Exact
      name of registrants as
                specified
      in their charter)
              
              (Exact
      name of registrants as
                specified
      in their charter)Delaware
              
              Delaware
              
              Delaware(State
      or other jurisdiction
                of
      incorporation or
                organization)
              
              (State
      or other jurisdiction
                of
      incorporation or
                organization)
              
              (State
      or other jurisdiction
                of
      incorporation or
                organization)42-1483875
              
              20-0800583
              
              25-1902805(I.R.S.
      Employer
                Identification
      No.)
              
              (I.R.S.
      Employer
                Identification
      No.)
              
              (I.R.S.
      Employer
                Identification
      No.)
 
 3rd
Street Ice Harbor, PO Box 1750
 Dubuque,
Iowa 52001
 (563)
690-2100
 (Registrant’s
telephone number including area code)
 
 Securities
registered pursuant to Section 12 (g) of the Act:  None
   Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o  No x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes x  No o
  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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes  o  No x
   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. Yes x  No o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
    Large
      accelerated filer o
                Accelerated
      filer  o
                Non-accelerated
      filer  x
                Smaller
      reporting company o
 Indicate
by check mark if the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o  No x
  All of
the common equity interests of Peninsula Gaming, LLC (the “Company”) are held by
Peninsula Gaming Partners, LLC. All of the common equity interests of Diamond
Jo, LLC, The Old Evangeline Downs, L.L.C., Diamond Jo Worth Holdings, LLC and
Peninsula Gaming Corp. are held by the Company. All of the common equity
interests of Diamond Jo Worth, LLC and Diamond Jo Worth Corp. are held by
Diamond Jo Worth Holdings, LLC.
  
   
 TABLE
OF CONTENTS
  PagePART I
              
              
              3ITEM 1.
              BUSINESS
              
              3ITEM 1A.
              RISK FACTORS
              
              17ITEM
      1B
              UNRESOLVED STAFF
      COMMENTS
              
              27ITEM 2.
              PROPERTIES
              
              27ITEM 3.
              LEGAL PROCEEDINGS
              
              28ITEM 4.
              SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
              
              29PART II
              
              
              29ITEM 5.
              MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
              
              29ITEM 6.
              SELECTED FINANCIAL DATA
              
              30ITEM 7.
              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
              
              32ITEM 7A.
              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
              
              50ITEM 8.
              FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA
              
              51ITEM 9.
              CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE
              
              51ITEM 9A.
              CONTROLS AND PROCEDURES
              
              51ITEM 9B.
              OTHER INFORMATION
              
              52PART III
              
              
              52ITEM 10.
              DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT, AND
      CORPORATE GOVERNANCE
              
              52ITEM 11.
              EXECUTIVE COMPENSATION
              
              54ITEM 12.
              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
              
              67ITEM 13.
              CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
              
              69ITEM 14.
              PRINCIPAL ACCOUNTANT FEES AND SERVICES
              
              71PART IV
              
              
              72ITEM 15.
              EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES
              
              72SIGNATURES
              
              83
  2
   
 PART
I
  ITEM
      1.
              BUSINESS
  General
  Peninsula
Gaming, LLC, a Delaware limited liability company (“PGL” or the “Company”), was
formed in 2004 and is a holding company with no independent operations whose
primary assets are cash and its equity interests in its wholly owned
subsidiaries. The Company is a wholly owned subsidiary of Peninsula Gaming
Partners, LLC, a Delaware limited liability company (“PGP”). PGL’s direct and
indirect wholly owned operating subsidiaries consist of:
 
 ·
              Diamond
      Jo, LLC, a Delaware limited liability company (“DJL”), was formed in 1999
      and owns and operates the Diamond Jo riverboat casino in Dubuque,
      Iowa;
 ·
              The
      Old Evangeline Downs, L.L.C., a Louisiana limited liability company
      (“EVD”), which owns and operates the Evangeline Downs Racetrack and
      Casino, or “racino”, in St. Landry Parish, Louisiana, and four off-track
      betting (“OTB”) parlors in Louisiana;
and
 ·
              Diamond
      Jo Worth, LLC, a Delaware limited liability company (“DJW”), which owns
      and operates the Diamond Jo casino in Worth County,
  Iowa.
  In
addition, PGL is the parent of wholly owned Peninsula Gaming Corp., a Delaware
corporation (“PGC”), was formed in 2004 and has no assets or operations, and
wholly owned Diamond Jo Worth Holdings, LLC, a Delaware limited liability
company (“DJWH”), which has no independent operations and whose sole assets are
its equity interests in its wholly owned subsidiaries. DJWH’s subsidiaries are
DJW and Diamond Jo Worth Corp., a Delaware corporation (“DJWC”), which has no
assets or operations.
  As used
herein, unless otherwise stated or the context otherwise refers to PGL
individually, the terms “we”, “us”, “our” or the “Company” refer to PGL and its
subsidiaries.
  We
currently operate three reportable segments: (1) the gaming operations of
DJL, consisting of the Diamond Jo riverboat casino in Dubuque, Iowa (“Diamond
Jo”), (2) the gaming operations of EVD, consisting of the casino, racetrack
and OTBs operated by EVD in Louisiana (“Evangeline Downs”), and (3) the gaming
operations of DJW, consisting of the casino in Worth County, Iowa (“Diamond Jo
Worth”). See Note 11 to the consolidated financial statements for financial
information about our segments.
  Our
address is 3rd Street Ice Harbor, PO Box 1750, Dubuque, Iowa 52004-1750 and our
telephone number is (563) 690-2100. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, and
amendments to these reports, filed by us with the Securities and Exchange
Commission (“SEC”), are available on the SEC’s website at
http://www.sec.gov.
   3
  
  Business
  Diamond Jo.The Diamond Jo
operates from the Port of Dubuque, a waterfront development on the Mississippi
River in downtown Dubuque, Iowa and is accessible from each of the major
highways in the area. The Diamond Jo is a three-story, approximately 48,000
square foot riverboat casino, replicating a classic 19th century paddlewheel
riverboat. The Diamond Jo has an approved capacity for 1,394 patrons, features a
spacious two-story atrium and a 44-seat capacity deli and offers 777 slot
machines and 17 table games on approximately 19,600 square feet of gaming space.
Adjacent to the Diamond Jo is a two-story, approximately 36,000 square foot
dockside pavilion, featuring our 142-seat capacity Lighthouse Grill restaurant,
our 140-seat capacity High Steaks restaurant and our 25-seat capacity Club Wild
players lounge. Approximately 531 parking spaces are conveniently available to
our patrons, together with valet parking. The Diamond Jo is open seven days a
week and functions primarily as a dockside riverboat with continuous boarding
and no cruising requirements.
  To
facilitate DJL’s building of a new casino to expand its casino operations, on
September 27, 2006, DJL entered into an Offer to Purchase Real Estate,
Acceptance and Lease (the “Historical Society Agreement”) with the Dubuque
County Historical Society (the “Historical Society”). The Historical Society
Agreement provides for, among other things, (i) a charitable contribution by DJL
to the Historical Society of $1.0 million payable in equal annual installments
of $0.1 million for 10 years commencing June 2009 and (ii) the purchase by DJL
of 2.4 acres of real property (the “Expansion Tract”) for a purchase price of
$1.2 million plus an additional charitable contribution of $0.8 million which
was paid in June 2007, the date of the closing of the Expansion
Tract.
  The
Historical Society Agreement also provides for the Historical Society to lease
DJL’s existing dockside pavilion for 99 years at $1 per year and for DJL to
transfer all of its rights, title and interest in the existing Diamond Jo vessel
to the Historical Society at the Historical Society’s option. The lease and the
transfer of the vessel are conditioned upon DJL commencing operation of its new
casino.  During the fourth quarter of 2007, due primarily to DJL’s
obligations to the City of Dubuque, Iowa (“City”) discussed below, DJL
determined that it is remote that it will not commence operation of its new
casino and that the Historical Society will not accept receipt of the
Diamond Jo vessel and has, therefore, recorded a development expense for the
fair market value of the dockside pavilion and Diamond Jo vessel of $5.0 million
and $1.3 million, respectively.
  DJL’s new
casino facility is expected to include approximately 1,000 slot machines, 17
table games and a five-table poker room.  Additional amenities are
expected to include a bowling center, various restaurants and an entertainment
center.  The new casino project is expected to cost approximately
$82.5 million.  The Company expects to open the new casino in the fall
of 2008.
  On
October 1, 2007, DJL entered into the Amended and Restated Port of Dubuque
Public Parking Facility Development Agreement (“Development Agreement”) with the
City of Dubuque, Iowa (“City”) regarding, among other things, the design,
development, construction and financing of a public parking facility by the City
to be located adjacent to DJL’s proposed casino development.  In October
2007, the City entered into a guaranteed maximum price contract with a third
paty to construct the parking facility.  The total development cost of the
parking facility is estimated to be approximately $23 million. Under the terms
of the Development Agreement, the parking facility will be completed in two
phases with a required completion date of the first phase, consisting of the
first three levels of the north section of the facility, of
November
  4
  20, 2008
and the required completion date for the second phase, consisting of the fourth
level of the north section and all of the south section, of January 16, 2009.
The parking facility, which will be owned by the City, will provide
approximately 1,130 free parking spaces to the general public and was financed,
in part, by the City with the issuance in October 2007 of approximately $23
million principal amount of 7.5 % Urban Renewal Tax Increment Revenue Bonds,
Taxable Series 2007 (“City Bonds”) which become due in 2037. All of the City
Bonds were purchased by DJW on the date of issuance.  See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Cash Flow Activities."  The Development
Agreement also calls for (i) a minimum initial payment by DJL of $6.4 million to
the City to be used toward the cost of designing and constructing the public
parking facility, the balance of which was paid to the City in October 2007,
(ii) the payment by DJL of the reasonable and necessary actual operating costs
incurred by the City for the operation, security, repair and maintenance of the
public parking facility, and (iii) the payment by DJL to the City of $80 per
parking space in the public parking facility per year, which funds will be used
by the City for capital expenditures necessary to maintain the public parking
facility.
  DJL is required to construct a casino with a minimum cost of $45.0 million under
the Development Agreement. Also, on October 1, 2007, DJL entered into a Minimum
Assessment Agreement (the “Minimum Assessment Agreement”) with the City and the
City Assessor, pursuant to which DJL and the City agreed to a minimum actual
taxable value of certain real estate and planned improvements thereon of $57.9
million relating to DJL’s proposed casino development  (the “Minimum
Actual Value”). The Minimum Actual Value will be in effect upon the earlier of
substantial completion of the proposed casino construction or January 1, 2009.
DJL has agreed to pay to the City property taxes with respect to the development
property based upon the actual fair value of the property but not less than the
Minimum Actual Value. Scheduled payments of principal and interest on the City
Bonds will be funded through DJL’s payment obligations under the Minimum
Assessment Agreement. DJL is also obligated to pay any shortfall should property
taxes be insufficient to cover the principal and interest payments on the City
Bonds and the Company has guaranteed DJL’s obligations under the Minimum
Assessment Agreement.
  Due to
DJL’s expected use of the public parking facility and its obligations under the
Minimum Assessment Agreement combined with the Company’s guarantee, DJL will
record an obligation to the City as costs are incurred under the Development
Agreement.  As of December 31, 2007, the City incurred approximately
$5.6 million of costs related to the issuance of, and related interest on, the
City Bonds and construction of the parking facility which amount was offset
against DJL’s $6.4 million initial payment discussed above.  In the
future, when subsequent costs exceed DJL’s initial payment and the City begins
to use proceeds from the City Bonds to pay for future construction and interest
costs, DJL will record a related obligation and capital asset on its balance
sheet.  The obligation, along with related interest costs, will be
paid off over the life of the City Bonds through payments from DJL under the
Minimum Assessment Agreement as discussed above and the capital asset will be
depreciated over its estimated useful life of 40 years.  Any property
tax payments made by DJL exceeding the debt service on the City Bonds will be
expensed as incurred.
 
  Evangeline Downs.The
Evangeline Downs Racetrack and Casino is located in Opelousas, Louisiana. 
This facility has a southern Louisiana cajun roadhouse theme on the exterior,
with a complimentary regional Acadian atmosphere on the interior.  The
racino currently includes a casino with 1,627 slot machines, parking spaces for
approximately 2,544 cars and 5 buses, and several dining options.  Our
dining venues include a 312-seat cajun buffet, a 90-seat fine-dining
Blackberry’s restaurant, a 60-seat PO-Boys Food Court, a 90-seat Café 24/7 and a
202-seat Mojo’s sports bar with a 37-seat patio.  In addition a raised bar
and lounge area known as Zydeco’s occupies the center of our casino floor. 
In the Clubhouse, Silk’s Fine Dining offers a varied menu and the grandstand
area contains a concession and bar for our patrons’ convenience.  The
racino includes a one-mile dirt track, stables for 980 horses, a grandstand and
clubhouse seating for 1,295 patrons, and apron and patio space for an additional
3,000 patrons.  In addition, EVD is currently constructing a 7/8-mile turf
track which is
   5
  expected
to be completed in the second quarter of 2008 at a total cost of approximately
$3.0 million.  EVD is open twenty-four hours per day, seven days per
week.
  EVD is
currently developing an approximately 75,000 square foot, 100 room hotel
contiguous to its current casino.  Additional amenities for the hotel
include a fitness center, meeting space, a full in-house support laundry and a
guest business center. Adjoining the existing racino structure, the new hotel
will provide easy access to the casino and all of EVD’s existing
amenities.  EVD has engaged a local architect for the project and,
while it has not yet entered into a construction contract with respect to the
project, it is currently in negotiations with developers for the approximately
$15.0 million hotel.
 
 OTBs.  EVD currently
operates four OTBs: one in Port Allen, Louisiana; one in New Iberia, Louisiana;
one in Henderson, Louisiana; and one in Eunice, Louisiana.  Each of these
OTBs offers simulcast pari-mutuel wagering seven days a week and is equipped to
serve alcoholic and non-alcoholic beverages and food. The Port Allen OTB is
located immediately off Interstate 10, across the Mississippi River from Baton
Rouge. The two-story Port Allen facility offers off-track betting, 75 video
poker machines, a full-service bar, a cafe and a VIP lounge. During 2006 and
through January 2007, EVD operated the New Iberia OTB, located on U.S. Highway
182, approximately 20 miles outside Lafayette, Louisiana, which offered
off-track betting and a limited food offering. In February 2007, EVD’s New
Iberia OTB operations moved to a new facility which offers simulcast pari-mutuel
wagering seven days a week and is equipped to serve alcoholic and non-alcoholic
beverages and food.  The Henderson OTB, which opened on May 14,
2005, seats 60 patrons and features a restaurant and full service
bar.  In August 2007, we opened our approximately 1,250 square foot
expansion and began operating 46 video poker machines in Henderson. The
Eunice facility offers off-track betting, 68 video poker machines, a full
service bar and private parking for its patrons.  Under Louisiana’s racing
and off-track betting laws, we have a right of prior approval with respect to
any applicant seeking a permit to operate an OTB within a 55-mile radius of our
Evangeline Downs racetrack which effectively gives us the exclusive right, at
our option, to operate OTBs within a 55-mile radius of our horse racetrack,
provided that such OTB is not also within a 55-mile radius of another horse
racetrack.
  Diamond Jo
Worth.  The Diamond Jo Worth casino opened to the public in
April 2006 and is open seven days a week. On May 11, 2005, the Iowa Racing and
Gaming Commission granted us a gaming license to operate an excursion gambling
boat in Northwood, Iowa. Northwood is located in north-central Iowa, near the
Minnesota border and approximately 30 miles north of Mason City. Our casino is
situated on a 35-acre site approximately an equal distance between Minneapolis,
Minnesota and Des Moines, Iowa at the intersection of Interstate 35 and Highway
105. The exterior design of Diamond Jo Worth incorporates a regional gristmill
and riverboat theme, with a complementary riverside docking facility atmosphere
on the interior. On July 13, 2006, the Iowa Racing and Gaming Commission
approved DJW’s request to expand its new casino facility by approximately 30,000
square feet. As a result of the casino expansion, which opened to the public in
April 2007, the Diamond Jo Worth casino currently has 902 slot machines, 25
table games and 7 poker tables in operation, as well as parking spaces for
approximately 1,300 vehicles, a new 5,200 square foot event center, several
dining options, including a 190-seat buffet restaurant, a 114-seat steakhouse
restaurant, which opened in January 2008, and a coffee shop. In November 2006, a
100-room hotel development adjacent to the casino opened which is owned and
operated by a third party. DJW also operates a convenience store and gas station
at the site.
  Competition
  All of
our gaming properties face competition from other gaming operations. The
decision to visit one of our properties over that of a competitor is influenced
by a number of factors including, but not limited to, customer service,
slot
   6
  machine
payouts, slot loyalty programs and convenience. In addition, our competitors may
offer amenities that our properties may not have. Our competitors may also have
less debt than we do, which may allow them to be able to react more quickly than
we can to changes in their gaming market and the gaming industry.
  Diamond Jo.The Diamond Jo’s
principal competition is the only other licensed gaming facility in Dubuque, the
Dubuque Greyhound Park (the “DGP”). The DGP is located approximately three miles
north of the Port of Dubuque and offers slot machines, live and simulcast
greyhound racing and, on a limited basis, simulcast horse racing. In May 2005,
DGP expanded its facility to include 1,000 slot machines. In February 2006, DGP
replaced 82 slot machines with video poker and, in March 2006, added 16
table games and 4 poker tables. In addition, a group of private investors opened
a hotel adjacent to the DGP in October 2005. The DGP is owned and operated by
the Dubuque Racing Association (“DRA”). As a not-for-profit organization, the
DRA distributes a percentage of its cash flow to the City of Dubuque and local
charities.
  Riverboat
gaming licenses in the State of Iowa are granted to not-for-profit “qualified
sponsoring organizations” and can be issued jointly to a not-for-profit
qualified sponsoring organization and a boat operator. The granting of new
licenses requires regulatory approval, which includes, among other things,
satisfactory feasibility studies. The DRA is the not-for-profit qualified
sponsoring organization that, pursuant to a contract between the parties, holds
the excursion riverboat gaming license together with us as the boat
operator.
  The Iowa
Racing and Gaming Commission rescinded its rule limiting riverboat gaming
licenses in Iowa and in May 2005 granted four new gaming licenses (including
ours in Worth County). The closest of these licensees to the Diamond Jo is
located in Waterloo, Iowa which is located over 100 miles away from the Diamond
Jo.
  Evangeline Downs.The nearest
competitor to Evangeline Downs is a Native American casino located approximately
50 miles to the north of the racino, including several miles off the highway in
Marksville, Louisiana. Beyond that, patrons in Lafayette need to drive
approximately 75 miles to reach riverboat casinos in Baton Rouge and
approximately 100 miles to reach riverboat casinos in Lake Charles and a Native
American casino in Kinder. Because our competition in Marksville is situated
more than 20 miles off the highway, we believe that patrons of the Marksville
casino may find the ease of highway access to our racino more
convenient.
  Louisiana
law currently places limitations on the number and types of gaming facilities
that may operate in the state. Currently, there are only four horse racetracks
in Louisiana with licenses to conduct live racing. Under the Pari-Mutuel Act,
each of the four horse racetracks (including our racino) is permitted to install
slot machines at its facilities. The horse racetrack nearest to the racino site
that is allowed to have gaming operations is located in Vinton, Louisiana, near
Lake Charles, which is over 100 miles away from the racino. In addition, current
Louisiana law permits only 15 riverboat gaming licenses, all of which have
currently been awarded. Also, under current Louisiana law, the only non-Native
American land-based casino permitted to operate in the state is the land-based
casino currently operating in New Orleans, over 100 miles from Lafayette. Native
American gaming facilities operate pursuant to compacts with the State of
Louisiana. There currently are only four federally-recognized Native American
tribes in Louisiana and only three Native American casinos currently operating
in Louisiana, the closest being in Marksville, which is approximately 50 miles
from EVD. The fourth tribe, which to our knowledge currently does not have a
compact with the State of Louisiana, has proposed to develop a casino in DeSoto
Parish, over 150 miles from the racino.
  In August
2005, Hurricane Katrina hit southern Louisiana causing much of the New Orleans
and surrounding area’s
   7
  population
to move north toward Lafayette. In September 2005, Hurricane Rita hit southwest
Louisiana and caused the closure of many of Evangeline Downs’ competitors. The
resulting surge in the local population, coupled with the temporary reduction in
competition, helped improve operations at Evangeline Downs during the fourth
quarter of 2005 and the early part of 2006 and gave Evangeline Downs the
opportunity to generate new customers and grow its player database.
  Diamond Jo Worth.Diamond Jo
Worth’s primary competition is the Native American gaming operations in
Minnesota, the closest being approximately 110 miles from the Diamond Jo Worth
casino. In addition, a new casino in Emmetsburg, Iowa, approximately 90 miles
from Diamond Jo Worth casino, commenced operations in June 2006.  As
noted above, a new casino located in Waterloo, Iowa opened in the summer of
2007.  Waterloo, Iowa is approximately 120 miles from the Diamond Jo
Worth casino.
  Employees
  We
maintain a staff of approximately 270 to 300 full-time equivalent employees at
the Diamond Jo, a staff of approximately 550 to 675 full-time equivalent
employees at Evangeline Downs and a staff of approximately 360 to 400 full-time
equivalent employees at the Diamond Jo Worth, depending upon the time of the
year. None of our employees are covered by a collective bargaining agreement. We
have not experienced any labor problems resulting in a work stoppage, and
believe we maintain good relations withouremployees.
  Regulatory
      Matters
  We and
our subsidiaries are subject to regulation by the State of Iowa, the State of
Louisiana, and, to a lesser extent, by federal law. We and our subsidiaries are
subject to regulations that apply specifically to live racing facilities and the
gaming and pari-mutuel industry, in addition to regulations applicable to
businesses generally. Our racino is subject to the Pari-Mutuel Act and the
Louisiana Horse Racing Act. Laws and regulations applicable to our current
racetrack and our racino are administered by the Louisiana State Gaming Control
Board and the Louisiana State Racing Commission. Legislative or administrative
changes in applicable legal requirements, including legislation to prohibit
casino gaming, have been proposed in the past. It is possible that the
applicable requirements to operate an Iowa or Louisiana gaming facility will
become more stringent and burdensome, and that taxes, fees and expenses may
increase. It is also possible that the number of authorized gaming licenses in
Iowa or Louisiana may increase, which would intensify the competition that we
face. Our failure to comply with detailed regulatory requirements may be grounds
for the suspension or revocation of one or more of our respective licenses which
would have a material adverse effect on our respective businesses.
  Iowa
Riverboat Gaming Regulation
  Our
Diamond Jo and Diamond Jo Worth operations are subject to Chapter 99F of the
Iowa Code and the regulations promulgated under that Chapter and the licensing
and regulatory control of the Iowa Racing and Gaming Commission. Our license is
subject to annual renewal.
  Under
Iowa law, the legal age for gaming is 21, and wagering on a “gambling game” is
legal when conducted by a licensee on an “excursion gambling boat.” An
“excursion gambling boat” is an excursion boat or moored barge and a “gambling
game” is any game of chance authorized by the Iowa Racing and Gaming
Commission.
   8
  The
legislation permitting riverboat gaming in Iowa authorizes the granting of
licenses to “qualified sponsoring organizations.” A “qualified sponsoring
organization” is defined as a nonprofit corporation organized under Iowa law,
whether or not exempt from federal taxation, or a person or association that can
show to the satisfaction of the Iowa Racing and Gaming Commission that the
person or association is eligible for exemption from federal income taxation
under Sections 501(c)(3), (4), (5), (6), (7), (8), (10) or (19) of the
Internal Revenue Code. Such nonprofit corporation may operate the riverboat
itself, or it may enter into an agreement with another boat operator to operate
the riverboat on its behalf. A boat operator must be approved and licensed by
the Iowa Racing and Gaming Commission. DRA, a not-for-profit corporation
organized for the purpose of operating a pari-mutuel greyhound racing facility
in Dubuque, Iowa, first received a riverboat gaming license in 1990 and has
served as the “qualified sponsoring organization” of the Diamond Jo since
March 18, 1993. DRA subsequently entered into the DRA Operating Agreement
with Greater Dubuque Riverboat Entertainment Company, the previous owner and
operator of the Diamond Jo, authorizing Greater Dubuque Riverboat Entertainment
Company to operate riverboat gaming operations in Dubuque. The Iowa Racing and
Gaming Commission approved the DRA Operating Agreement on March 18, 1993.
The term of the DRA Operating Agreement expires on December 31, 2018. We
assumed the rights and obligations of Greater Dubuque Riverboat Entertainment
Company under the DRA Operating Agreement.
  During
2005, DJL’s operating agreement with the DRA (who holds a joint gambling license
with DJL to conduct gambling games under Iowa law) was amended to provide for,
among other things, the following:
  ·
              the
      authorization of the DRA to operate up to 1,000 slot machines and up to 20
      table games at the DGP;
  ·
              the
      extension of the operating agreement through December 31,
      2018;
  ·
              from
      February 2006 (the date that DGP commenced operation of table games)
      through August 31, 2006 (the date a competing casino facility opened to
      the public in Riverside, Iowa),  DRA was contractually obligated
      to pay to DJL $0.33 for each $1.00 of reduction in DJL’s adjusted gross
      gaming receipts, subject to a maximum 15% decline and certain payment
      deferral conditions. Beginning September 1, 2006 and continuing until the
      earlier of (i) DJL’s commencement of operations as a barge facility or
      (ii) December 31, 2008, DRA is contractually obligated to pay to DJL $0.33
      for each $1.00 of reduction in DJL’s adjusted gross gaming receipts above
      a 7% decline from the base period and subject to a maximum 21% decline and
      certain payment deferral conditions;
and
  ·
              a
      requirement that DJL continue to pay to the DRA the sum of $.50 for each
      patron admitted on the boat through 2008. During 2007, 2006 and 2005,
      these payments approximated $0.4 million, $0.4 million and $0.5 million,
      respectively. Commencing January 1, 2009, DJL is obligated pay to the DRA
      3% of DJL’s adjusted gross receipts. However, commencing on the date DJL
      moves its operations to a barge facility, DJL will be required to pay to
      the DRA 4.5% of DJL’s adjusted gross
receipts.
  During
2007 and 2006, DJL recorded other revenue of approximately $1.9 million and $1.6
million, respectively, related to this agreement, of which $2.5 million and $1.2
million has been recorded as a long-term receivable and is included in deposits
and other assets on the Company’s balance sheets in 2007 and 2006,
respectively.  For the year ended December 31, 2007, $0.3 million is
recorded as a short-term receivable on the Company’s balance sheet.
  In a
separate agreement with the City of Dubuque, we extended our leases for certain
real property, including various parking lots around the casino, through
December 2018.  The current lease calls for lease payments of
$25,000
  9
  annually
through 2008. Effective June 1, 2009, the lease payments increase to $250,000
annually. On the date DJL opens its new moored barge facility, the lease
payments increase to $500,000 annually. However, under DJL’s operating agreement
with the DRA, the DRA is required to reimburse DJL for all lease payments paid
to the City as described in this paragraph.
 
 The Worth
County Development Authority (“WCDA”), a not-for-profit corporation, was
organized on July 14, 2003 for the purpose of serving as a qualified sponsoring
organization for a gaming license to be held in Worth County, Iowa. Pursuant to
an operator’s agreement with the WCDA, DJW is entitled to own and operate an
excursion gambling boat in Worth County, Iowa. As the “qualified sponsoring
organization” for DJW, WCDA receives 5.76% of DJW’s adjusted gross receipts. In
2007 and 2006, DJW expensed $4.3 million and $2.8 million, respectively, under
this agreement.  The operating agreement with the WCDA expires on
March 31, 2015, but is subject to automatic three year renewal
periods.
  Under
Iowa law, a license to conduct gaming may be issued in a county only if the
county electorate has approved the gaming. The electorate of Dubuque County,
Iowa, which includes the City of Dubuque, approved gaming on May 17, 1994
by referendum, with 80% of the electorate voting in favor of gaming conducted by
DJL. The electorate of Worth County, Iowa, approved gaming on June 24, 2003 by
referendum, including gaming conducted by DJW, with 75% of the electorate voting
in favor. In addition, a referendum must be held every eight years in each of
the counties where gambling games are conducted and the proposition to continue
to allow gambling games in such counties must be approved by a majority of the
county electorate voting on the proposition. Such a referendum took place for
DJL on November 5, 2002 with 79% of the electorate voting on the
proposition favoring continued gaming on riverboats in Dubuque County. The next
referendum is scheduled for 2010. If any reauthorization referendum is defeated,
Iowa law provides that any previously issued gaming license will remain valid
and subject to renewal for a total of nine years from the date of original
issuance of the license, subject to earlier non-renewal or revocation under Iowa
law and regulations applicable to all licenses.
  Proposals
to amend or supplement Iowa’s gaming statutes are frequently introduced in the
Iowa state legislature. In addition, the state legislature sometimes considers
proposals to amend or repeal Iowa law and regulations, which could effectively
prohibit riverboat gaming in the State of Iowa, limit the expansion of existing
operations or otherwise affect our operations. Although we do not believe that a
prohibition of riverboat gaming in Iowa is likely, we can give no assurance that
changes in Iowa gaming laws will not occur or that the changes will not have a
material adverse effect on our business.
  Substantially
all of DJL’s and DJW’s material transactions are subject to review and approval
by the Iowa Racing and Gaming Commission. All contracts or business
arrangements, verbal or written, with any related party or in which the term
exceeds three years or the total value of the contract exceeds $100,000 are
agreements that qualify for submission to and approval by the Iowa Racing and
Gaming Commission subject to certain limited exceptions. The agreement must be
submitted within 30 days of execution and approval must be obtained prior
to implementation unless the agreement contains a written clause stating that
the agreement is subject to commission approval. Additionally, contracts
negotiated between DJL or DJW and a related party must be accompanied by
economic and qualitative justification.
  We must
submit detailed financial, operating and other reports to the Iowa Racing and
Gaming Commission. We must file weekly gaming reports indicating adjusted gross
receipts received from gambling games. Additionally, we must file annual
financial statements covering all financial activities related to our operations
for each fiscal year. We must also keep detailed records regarding our equity
structure and owners.
  Iowa has
a graduated wagering tax on riverboat gambling equal to 5% of the first one
million dollars of adjusted
   10
  gross
receipts, 10% on the next two million dollars of adjusted gross receipts and 22%
on adjusted gross receipts of more than three million dollars. In addition, Iowa
riverboats share equally in costs of the Iowa Racing and Gaming Commission and
related entities to administer gaming in Iowa. For the fiscal year ended
December 31, 2007, DJL’s and DJW’s share of such expenses were
approximately $0.7 million each. Further, DJL pays to the City of Dubuque a fee
equal to $.50 per passenger.
  In
accordance with legislation passed in 2004, all excursion gambling boat
licensees, including DJL, were assessed an amount based on the licensee’s
adjusted gross receipts to be deposited into the Rebuild Iowa Infrastructure
Fund. DJL’s total assessment was $2.1 million, which was paid in two equal
payments of $1.05 million on May 2005 and May 2006, respectively. DJL recorded
the payments as a long term deposit on its consolidated balance sheet. Beginning
in July 2010, we may offset gaming taxes in an amount equal to 20% of the
total assessment in each of the succeeding five fiscal years thereafter. DJW was
not included in this assessment as it was not licensed at the time of the
assessment.
  In
connection with obtaining its gaming license, DJW is required to pay under an
executory agreement a license fee of $5.0 million payable in five equal annual
installments of $1.0 million. DJW paid the first three installments in
June 2005, May 2006 and May 2007 with the remaining installments due in
May 2008 and May 2009.
  If the
Iowa Racing and Gaming Commission decides that a gaming law or regulation has
been violated, the Iowa Racing and Gaming Commission has the power to assess
fines, revoke or suspend licenses or to take any other action as may be
reasonable or appropriate to enforce the gaming rules and regulations. In
addition, renewal is subject to, among other things, continued satisfaction of
suitability requirements.
  We are
required to notify the Iowa Racing and Gaming Commission as to the identity of,
and may be required to submit background information regarding, each director,
corporate officer and owner, partner, joint venture, trustee or any other person
who has a beneficial interest of five percent or more, direct or indirect, in
DJL or DJW. The Iowa Racing and Gaming Commission may also request that we
provide them with a list of persons holding beneficial ownership interests in
DJL or DJW of less than five percent. For purposes of these rules, “beneficial
interest” includes all direct and indirect forms of ownership or control, voting
power or investment power held through any contract, lien, lease, partnership,
stockholding, syndication, joint venture, understanding, relationship, present
or reversionary right, title or interest, or otherwise. The Iowa Racing and
Gaming Commission may limit, make conditional, suspend or revoke the license of
a licensee in which a director, corporate officer or holder of a beneficial
interest is found to be ineligible as a result of want of character, moral
fitness, financial responsibility, or professional qualifications or due to
failure to meet other criteria employed by the Iowa Racing and Gaming
Commission.
  If any
gaming authority, including the Iowa Racing and Gaming Commission, requires any
person, including a holder of record or beneficial owner of securities, to be
licensed, qualified or found suitable, the person must apply for a license,
qualification or finding of suitability within the time period specified by the
gaming authority. The person would be required to pay all costs of obtaining the
license, qualification or finding of suitability. If a holder of record or
beneficial owner of any of the Company’s 8 3/4% senior secured notes due 2012
(the “Peninsula Gaming Notes”), DJW’s 11% senior secured notes due 2012 (the
“DJW Notes”), or any membership interest in PGL, PGP, DJL or DJW is required to
be licensed, qualified or found suitable and is not licensed, qualified or found
suitable by such gaming authority within the applicable time period, the
Peninsula Gaming Notes, DJW Notes, or membership interests, as the case may be,
would be subject to regulatory redemption procedures.
   11
  
  The
Horse Racing Act and The Pari-Mutuel Act
  The Horse
Racing Act has been in effect since 1968 and is the basis for the current
statutory scheme regulating live and off-track betting for horse racing. The
Horse Racing Act states, among other things, that certain policies of Louisiana
with respect to horse racing are to: (i) encourage the development of the
business of horse racing with pari-mutuel wagering on a high plane;
(ii) encourage the development of the breeding and ownership of race
horses; (iii) regulate the business of horse racing by licensed horse
racing tracks in the state and to provide the orderly conduct of racing;
(iv) provide financial assistance to encourage the business of racing
horses; and (iv) provide a program for the regulation, ownership,
possession, licensing, keeping and inoculation of horses.
  The
Pari-Mutuel Act became effective on July 9, 1997 and provides for numerous
controls and supervision over the operation of slot facilities and requires us
to comply with complex and extensive requirements. Failure to adhere to these
statutes and regulations will result in serious disciplinary action against us,
including monetary fines and suspension or revocation of our
licenses.
  The
Pari-Mutuel Act allows only one facility in each of St. Landry Parish, Bossier
Parish, Calcasieu Parish and Orleans Parish to be licensed to operate slot
machines at a live horse racing facility. EVD is presently the only “eligible
facility” in St. Landry Parish under the Pari-Mutuel Act. The Pari-Mutuel Act
requires (among other things) that two conditions be met prior to the opening
and operation of a slot machine casino at a live-racing venue. First, a
parish-wide referendum must approve the operation. In 1997, voters in St. Landry
Parish voted to approve the slot machine casino at the racino site. Secondly,
the Pari-Mutuel Act requires that an appropriate tax be levied on the slot
machine operation. In 2000, an 18.5% license tax was levied upon taxable net
slot machine proceeds. Therefore, we believe that both of the conditions
required by the Pari-Mutuel Act have been met with respect to the racino at our
site in Opelousas within St. Landry Parish.
  The
Pari-Mutuel Act also provides that the “designated gaming space” in any eligible
facility cannot exceed 15,000 square feet, that the licensee will not allow
underage gaming and that notice of toll-free telephone assistance for compulsive
gamblers will be posted at the facility. EVD currently complies with these
requirements.
  The
Pari-Mutuel Act requires that licensees supplement horse racing purses and pay
certain other fees from slot machine proceeds. The Pari-Mutuel Act also levies
taxes on the net slot machine proceeds. Licensees must pay 15% of gross slot
machine proceeds to supplement purses at their facilities, pay 2% to the
Louisiana Thoroughbred Breeders Association and also pay 1% to the Louisiana
Quarter Horse Breeders Association. In addition to these payments, we will pay
18.5% of the net slot machine proceeds (net of the payments described above) as
state taxes and 4% as local taxes. The effective rate of total taxes and fees is
therefore approximately 36.5% of our adjusted gross slot revenue. Additionally,
we also pay $0.25 for each patron who attends a live race at our horse
racetrack, enters the racino during non-racing season, from the hours of noon to
midnight, Thursday through Monday, or enters any one of our OTBs.
  To remain
an “eligible facility” under the Pari-Mutuel Act, each year we must, among other
things, have a minimum of 80 live racing days in a consecutive 20-week
period.
   12
  
  The
Louisiana State Gaming Control Board
  In 1996,
Louisiana created the Louisiana Gaming Control Board, which was granted all of
the regulatory authority, control and jurisdiction to license and monitor gaming
facilities in Louisiana, including our racino. To receive a gaming license an
applicant and its management must apply to the Louisiana Gaming Control Board
and be investigated by the Louisiana State Police prior to licensing. The
Louisiana Gaming Control Board and Louisiana State Police must determine that
the applicant is suitable to conduct the gaming operations, including that the
applicant (and its owners, officers, directors and key employees) is of good
character, honesty and integrity, that its prior activities, reputation and
associations pose no threat to the public interest or to the effective
regulation of the industry and that the applicant is capable of conducting the
operation of the slot machine facility. The Louisiana Gaming Control Board must
also determine that the applicant has adequate financing from a source suitable
and acceptable to the Louisiana Gaming Control Board.
  The
applicant for a gaming license, its directors, officers, key personnel,
partners, and persons holding a 5% or greater equity or economic interest in the
applicant will be required to be found suitable by the Louisiana Gaming Control
Board. To receive a license the applicant must file an extensive application
with the Louisiana Gaming Control Board, disclosing personal, financial,
criminal, business and other information. The applicant is required to pay all
costs of investigation. An application for a finding of suitability of a person
may be denied for any cause deemed reasonable by the Louisiana Gaming Control
Board. Any other person who is found to have a material relationship to or a
material involvement with a gaming company also may be required to be
investigated in order to be found suitable or be licensed as a business
associate of an applicant. Key employees, controlling persons or others who
exercise significant influence upon the management or affairs of a gaming
company may be deemed to have such a relationship or involvement.
  If the
Louisiana Gaming Control Board were to find a director, officer or key employee
of an applicant unsuitable for licensing purposes or unsuitable to continue
having a relationship with an applicant, the applicant would have to dismiss and
sever all relationships with such person. The applicant would have similar
obligations with regard to any person who refuses to file appropriate
applications. Each gaming employee must obtain a gaming employee permit which
may be revoked upon the occurrence of certain specified events.
  An
applicant must also demonstrate that the proposed gaming operation has adequate
financial resources generated from suitable sources and adequate procedures to
comply with the operating controls and requirements imposed by the laws and
regulations in the State of Louisiana. Additionally, the applicant must submit
plans and specifications of the gaming premises specifying the layout and design
of the gaming space. Proof of tax compliance, both state and federal, is also
required. This submission is followed by a thorough investigation by the
regulatory authorities of the applicant, its business probity, the premises and
other matters. An application for any gaming license, approval or finding of
suitability may be denied for any cause that the regulatory authorities deem
reasonable.
  We
received our gaming license to operate slot machines at our racino from the
Louisiana Gaming Control Board on January 21, 2003 and it was renewed on
December 18, 2007. Our renewed license has a term of five years through 2012 and
is renewable for succeeding five year periods upon application for such renewal.
The Louisiana Gaming Control Board retains absolute discretion over the right to
renew our license.
   13
  
  EVD’s
gaming license authorizes the use of 15,000 square feet of designated gaming
space. EVD submitted for approval its current layout for the casino, which
incorporates 1,627 slot machines. EVD’s layout was approved based on the type of
machines, which were all upright machines. Should EVD change the type and/or
design of its slot machines, it must once again seek and obtain approval of both
the Louisiana State Police and go before the Louisiana Gaming Control Board to
obtain approval for the new machines. Once any new machines are installed, they
must be inspected by regulators and tested prior to the approval of their
operation. The moving of the machines within the approved gaming area also
requires the approval of the Louisiana State Police with oversight of the
Louisiana Gaming Control Board.
  To
maintain our gaming license, each year we must remain an “eligible facility”
under the Pari-Mutuel Act. This means that we must, among other things, have a
minimum of 80 live racing days in a consecutive 20-week period each year of live
horse race meetings at the new horse racetrack and must be a licensed racing
association.
  Although
we have obtained our license to conduct slot machine operations, we continue to
be subject to ongoing monitoring and compliance requirements by the Louisiana
Gaming Control Board and the Louisiana State Police. We have obtained from the
Louisiana Gaming Control Board a video draw poker establishment license and
owner device license. The video draw poker establishment license allows us to
operate video draw poker devices at our approved OTB locations but not the
racino, and the owner device license allows us to own those machines.
Regulations require us to comply with rigorous accounting and operating
procedures, including the submission of detailed financial and operating
reports. Our accounting records must include accurate, complete and permanent
records of all transactions pertaining to revenue. Detailed ownership records
must be kept on site available for inspection. All records must be retained for
a period of five years. Audited financial statements are required to be
submitted to the Louisiana State Police. Internal controls have been approved
and in place beginning the first day of operation. These controls include
handling of cash, tips and gratuities, slot operations, and count room
procedures and management information systems. Each licensed facility is
required by the Louisiana Gaming Control Board to maintain cash or cash
equivalent amounts on site sufficient to protect patrons against defaults in
gaming debts owed by the licensee. In addition, licensees are subject to
currency transaction reporting regulations.
  We must
also strictly comply with mandated operating procedures and supply detailed
reports disclosing such compliance. Regulation of a casino’s methods of
operations is extensive and will include substantially all aspects of our casino
operation. Operating procedures that are subject to regulation include slot
machine maintenance and operation, cash management and cash procedures, cage
procedures, drop procedures, regulation of weapons in the casino, parking,
access to the premises and records by regulators, gaming credit and advertising,
surveillance and security standards, safeguards against underage gambling,
compulsive gambling programs, physical layout and progressive
jackpots.
  The
Louisiana Gaming Control Board retains the power to suspend, revoke, condition,
limit or restrict our license to conduct slot machine operations as a sanction
for violating licensing terms or for any cause they deem reasonable. In
addition, monetary fines for violations may be levied against us, and our gaming
operation revenues may be forfeited to the state under certain circumstances.
Initial enforcement actions against a licensee are brought by the Louisiana
State Police and are heard before an administrative law judge to whom the
Louisiana Gaming Control Board has delegated decision making power. Either party
may appeal the ruling of the administrative law judge before the full Louisiana
Gaming Control Board. Either party may further appeal the ruling of the
Louisiana Gaming Control Board in state court. The laws, regulations and
procedures pertaining to gaming are subject to the interpretation of the
regulatory authorities and may be amended. Any
   14
  changes
in such laws or regulations, or their current interpretations, could have a
material adverse effect on our business, financial condition, results of
operations and ability to meet our payment obligations under the Peninsula
Gaming Notes and our other indebtedness.
  The
Louisiana Gaming Control Board has broad regulatory power over securities
issuances and incurrence of indebtedness by gaming facilities. Substantially all
loans, leases, private sales of securities, extensions of credit, refinancings
and similar financing transactions entered into by a licensee must be approved
by the Louisiana Gaming Control Board. Pursuant to a letter dated
January 31, 2003, the Louisiana Gaming Control Board exempted the offering
of the Peninsula Gaming Notes (as defined herein) from any requirement for prior
approval by the Louisiana Gaming Control Board. However, at any time, any holder
of the Peninsula Gaming Notes may be called before the Louisiana Gaming Control
Board to undergo a suitability investigation in the event the Louisiana Gaming
Control Board determines that such holder exercises a material influence over us
or our operations.
  At any
time the Louisiana Gaming Control Board may investigate and require the finding
of suitability of any shareholder or beneficial shareholder (and if the
shareholder is a corporate or partnership entity, then the shareholders or
partners of the entity), officer, partner, member, manager or director of a
licensee if the Louisiana Gaming Control Board believes such holder exercises a
material influence over the licensee. Furthermore, all holders of more than a 5%
interest in the licensee, or proposed purchasers of more than a 5% interest are
automatically investigated and are required to submit to suitability
requirements of the Louisiana Gaming Control Board. Any sale or transfer of more
than a 5% interest in any gaming licensee is subject to the approval of the
Louisiana Gaming Control Board.
  If the
Louisiana Gaming Control Board finds that any security holder or proposed
security holder, including a holder of our debt securities or the debt
securities of our subsidiaries, is not qualified pursuant to existing laws,
rules and regulations, and if as a result it determines that the licensee
is no longer qualified to continue as a licensee, it can propose action
necessary to protect the public interest, including the suspension or revocation
of a license or permit. It may also issue, under penalty of revocation of
license, a condition of disqualification naming the person and declaring that
such person may not (a) receive dividends or interest on securities of the
licensee, (b) exercise any right conferred by securities of the licensee,
(c) receive remuneration or any other economic benefit from the licensee or
(d) continue in an ownership or economic interest in the licensee or remain
as a director, partner, officer, or manager of the licensee. A security issued
by a licensee must generally disclose these restrictions.
  Louisiana
State Racing Commission
  Pari-mutuel
betting and the conducting of live horse race meets in Louisiana are strictly
regulated by the Louisiana State Racing Commission, which was created pursuant
to the Horse Racing Act. The Louisiana Racing Commission is comprised of ten
members. In order to be approved to conduct a live race meet and to operate
pari-mutuel wagering (including off-track betting), an applicant must show,
among other things: (i) racing experience; (ii) financial
qualifications; (iii) moral and financial qualifications of applicant and
applicant’s partners, officers and officials; (iv) the expected effect on
the breeding and horse industry; and (v) the expected effect on the State’s
economy.
  In 2000,
we received from the Louisiana State Racing Commission a license to conduct live
race meets and to operate pari-mutuel wagering at our prior facility. The
initial term of this license is ten years subject to renewal in 2010. On
December 19, 2002, we received approval to transfer our operations under
our license from Lafayette Parish to St. Landry
   15
  Parish
upon completion of our new horse racetrack. As a condition to the approval of
our racing license, we are required to offer pari-mutuel wagering in the defined
casino gaming space at the time we begin conducting slot machine gaming. Our
racino includes monitors and other equipment to facilitate live and simulcast
wagering within the casino area in compliance with this condition.
  The
Louisiana State Racing Commission promulgates rules, regulations and conditions
for the holding, conducting and operating of all racetracks in the state.
Failure to adhere to these regulations may result in substantial fines or the
suspension or revocation of our racing license. A revocation or suspension of
the racing license would, in turn, result in the revocation or suspension of our
gaming license to conduct slot machine operations. Any alteration in the
regulation of these activities could have a material adverse effect on our
operations.
  Federal
Regulation of Slot Machines
  We are
required to make annual filings with the United States Attorney General in
connection with the sale, distribution or operation of slot machines. We are
currently in compliance with such filing requirements.
  Potential
Changes in Tax and Regulatory Requirements
  In the
past, federal and state legislators and officials have proposed changes in tax
law, or in the administration of the laws, affecting the gaming industry.
Regulatory commissions and state legislatures sometimes consider limitations on
the expansion of gaming in jurisdictions where we operate and other changes in
gaming laws and regulations. Proposals at the national level have included a
federal gaming tax and limitations on the federal income tax deductibility of
the cost of furnishing complimentary promotional items to customers, as well as
various measures which would require withholding on amounts won by customers or
on negotiated discounts provided to customers on amounts owed to gaming
companies. Proposals at the state level include changes in the gaming tax rate
and a ban on smoking in public places, including in casinos.  It is
not possible to determine with certainty the likelihood of possible changes in
tax or other laws or in the administration of the laws. The changes, if adopted,
could have a material adverse effect on our financial results.
  Liquor
Regulations
  The sale
of alcoholic beverages by us in Iowa is subject to the licensing, control and
regulation by liquor agencies, which include the City of Dubuque, City of
Northwood and the Alcohol Beverage Control Division of the Iowa Department of
Commerce. The applicable Iowa liquor laws allow the sale of liquor during legal
hours which are Monday through Saturday from 6 a.m. to 2 a.m. the next
day and Sunday from 8 a.m. to 2 a.m. on Monday. Subject to few
exceptions, all persons who have a financial interest in us, by ownership, loan
or otherwise, must be disclosed in an application filed with, and are subject to
investigation by, Iowa’s liquor agencies. Persons who have a direct or indirect
interest in any Iowa liquor license, other than hotel or restaurant liquor
licenses, may be prohibited from purchasing or holding our Peninsula Gaming or
DJW Notes (as defined herein). All licenses are subject to annual renewal, are
revocable and are not transferable. The liquor agencies have the full power to
limit, condition, suspend or revoke any license or to place a liquor licensee on
probation with or without conditions. Any disciplinary action could, and
revocation would, have a material adverse effect upon the operations of our
business. Many of our owners, officers and managers must be investigated by the
liquor agencies in connection with our liquor permits. Changes in licensed
positions must be approved by the liquor agencies.
   16
  
  The sale
of alcoholic beverages by us in Louisiana is subject to the licensing, control
and regulation by the State of Louisiana, Department of Revenue, Office of
Alcohol and Tobacco Control, as well as the cities of Opelousas, New Iberia, and
Eunice, and the parishes of West Baton Rouge, Iberia, St. Landry and St.
Martin.  The applicable liquor laws in the city of Opelousas where the
racino is located allow the sale of liquor 24 hours a day, 7 days a
week.
  Iowa Department of Natural
Resources
  On
November 25, 2005, the United States Coast Guard approved our permanently moored
vessel status (“PMV”), which took effect on November 28, 2005. Under our PMV
status, we are regulated by the Iowa Department of Natural Resources (IDNR). The
IDNR has regulatory oversight over many of the issues previously controlled by
the United States Coast Guard.
  The St.
Louis Marine Safety Office (“MSO”) will re-evaluate risks to the PMV every two
years or sooner if there is, among other factors, a change of traffic or local
conditions. In addition, St. Louis MSO personnel will also periodically visit
the site to ensure that the vessel is being maintained in satisfactory
condition. If during one of these periodic reviews, the vessel is found to be
poorly maintained or to present an unreasonable risk to the safety and/or
security of the public, the MSO may reconsider the vessel’s PMV status. We
believe that the Diamond Jo is currently compliant with MSO regulations required
to maintain its PMV status.
  Other
Regulations
  We and
our subsidiaries are subject to federal, state and local environmental and
safety and health laws, regulations and ordinances that apply to non-gaming
businesses generally, such as the Clean Air Act, Federal Water Pollution Control
Act, Occupational Safety and Health Act, Resource Conservation Recovery Act, Oil
Pollution Act of 1990 and Comprehensive Environmental Response, Compensation and
Liability Act, each as amended. We have not incurred, and do not expect to
incur, material expenditures with respect to these laws. There can be no
assurances, however, that we will not incur material liability under these laws
in the future.
  
  ITEM
      1A.
              RISKFACTORS
  Future Operating Performance—Our future operating
performance could be adversely affected by disruptions in operations and reduced
patronage of our properties as a result of poor economic conditions, severe
weather and other factors.
  Our
future operating performance could be adversely affected by disruptions and
reduced patronage of our properties as a result of poor economic conditions,
severe weather and other factors. The impact of these factors will be
more significant to us than it would be to a more diversified gaming company or
to a gaming company that does not depend on seasonal earnings from racing. Any
or all of our properties could be completely or partially closed due to, among
other things, severe weather, casualty, mechanical failure, including the
failure of our slot machines, physical damage or extended or extraordinary
maintenance or inspection. Severe or inclement weather may also cause the
closure of, or limit the travel on, highways which provide access to our
properties and could reduce the number of people visiting these facilities. In
addition, to maintain our gaming license for our racino, we must have a minimum
of 80 live racing days in a consecutive 20-week period each year of
   17
  live
horse race meetings at the racetrack, and poor weather conditions may make it
difficult for us to comply with this requirement. Although we maintain insurance
policies, insurance proceeds may not adequately compensate us for all economic
consequences of any such event.
  We are
also vulnerable to any adverse changes in general political, financial and
economic conditions (including as a result of international conflict) and any
negative economic, competitive, demographic or other conditions affecting the
States of Iowa and Louisiana, the cities of Dubuque and Northwood, Iowa, and
Opelousas, Louisiana and the surrounding areas from which we expect to attract
patrons. If the economy of any of these areas suffers a downturn or if any of
these areas’ larger employers lay off workers, we may be adversely affected by
the decline in disposable income of affected consumers. Any of the foregoing
factors could limit or result in a decrease in the number of patrons at any of
our properties or a decrease in the amount that patrons are willing to
wager.
  Debt
— Our substantial indebtedness could adversely affect our business, financial
condition and results of operations and prevent us from fulfilling our
obligations under our senior credit facilities, the Peninsula Gaming Notes and
DJW Notes.
  As of
December 31, 2007, we had approximately $381.0 million of total debt
outstanding. Our significant indebtedness could have important consequences such
as:
  ·
              limiting
      our ability to obtain additional financing to fund our working capital
      requirements, capital expenditures, debt service, costs to complete the
      various development projects at DJL, DJW, and EVD and general corporate or
      other obligations;
  ·
              limiting
      our ability to use operating cash flow in other areas of our business
      because we must dedicate a significant portion of these funds to make
      principal and interest payments on our
  indebtedness;
  ·
              increasing
      our interest expense if there is a rise in interest rates, because a
      portion of our borrowings may be under our senior credit facilities and,
      as such, we will have interest rate periods with short-term durations
      (typically 30 to 180 days) that require ongoing resetting at the then
      current rates of interest;
  ·
              causing
      our failure to comply with the financial and restrictive covenants
      contained in the indentures that govern the Peninsula Gaming Notes and the
      DJW Notes and our senior credit facilities, which could cause a default
      under those instruments and which, if not cured or waived, could have a
      material adverse effect on us;
  ·
              placing
      us at a competitive disadvantage to our competitors who may not be as
      highly leveraged; and
  ·
              increasing
      our vulnerability to and limiting our ability to react to changing market
      conditions, changes in our industry and economic
  downturns.
  Any of
the factors listed above could have a material adverse effect on our business,
financial condition and results of operations.  In addition, we have
the capacity to issue additional indebtedness, including the ability to incur
additional indebtedness under the revolving portion of our senior credit
facilities, subject to the limitations imposed by the agreements covering our
indebtedness.
  In
addition, the loan and security agreement among DJL, EVD and Wells Fargo
Foothill, Inc., as arranger and agent (the "PGL Credit Facility") is scheduled
to terminate in June 2008.  We are currently working with Wells Fargo
Foothill, Inc. to extend or renew the PGL Credit Facility under similar economic
terms.  However, there can be no assurances that we will be able to
extend or renew the PGL Credit Facility prior to its expiration or on
economically favorable terms, if at all.  Failure to extend or renew
the PGL Credit Facility could
   18
  have a
material adverse effect on our business, financial condition and our ability to
meet our payment obligations, including those under the notes and our other
indebtedness.
  Failure
to Complete Construction Projects on Time and Within Budget - If we fail to
complete construction projects on time and within budget, it could have a
material adverse effect on our business, financial condition and results of
operations.
  We are
currently constructing a new gaming facility at DJL and working with the City of
Dubuque to construct a nearby parking garage.  In addition, we have
begun site work on the development and construction of a hotel at
EVD.
  There can
be no assurance that we will complete these construction projects on time or
within  budget.  Construction projects are subject to
development and construction risks, any of which could cause unanticipated costs
increases and delays.  Such risks include shortages of materials or
skilled labor, unforeseen engineering, environmental or geological problems,
work stoppages, weather interference and unanticipated cost increases. Most of
these factors are beyond our control.  Significant budget overruns or
delays with respect to expansion and development projects could adversely affect
our results of operations. In addition, difficulties or delays in obtaining any
of the requisite licenses, permits or authorizations from regulatory authorities
can increase the cost or delay the completion of an expansion or development.
Unexpected  changes or concessions required by local, state or federal
regulatory authorities could involve significant additional costs and delay the
scheduled opening of our expanded casino.
  While we
believe that the budgets for our various development projects are reasonable,
these development and other costs are estimates and actual costs may be higher
than expected.  For example, a delay in the commencement of
construction beyond the scheduled commencement date may increase the overall
budget for any of the projects and under certain circumstances we may be
responsible for the increased costs.  While we may in the future enter
into other agreements that may seek to limit our exposure to increases in costs
related to each of our development projects, the actual costs for these items
may exceed budgeted costs.
  If cash
flow from operations or the amounts we have raised through financing are not
sufficient, or if actual construction costs exceed expected
amounts,  we would be required to seek additional financing, modify
our construction plans or use cash from operations that would otherwise be used
for other purposes (including servicing our indebtedness).  There can
be no assurances that these alternatives would be available or that they would
not have a material adverse effect on our business, financial condition and
results of operations and our ability to meet our payment obligations under the
notes and our other indebtedness.
  Restrictive
Covenants - The indentures governing the Peninsula Gaming Notes and the DJW
Notes and our senior secured credit facilities contain covenants that
significantly restrict our operations.
  The
indentures governing the Peninsula Gaming Notes and the DJW Notes and the
agreements governing our senior secured credit facilities contain, and any other
future debt agreements may contain, numerous covenants imposing financial and
operating restrictions on our business. These restrictions may affect our
ability to operate our business, may limit our ability to take advantage of
potential business opportunities as they arise and may adversely affect the
conduct of our current business. These covenants place restrictions on our
ability and the ability of our subsidiaries to, among other things:
  ·
              pay
      dividends or make other distributions or restricted payments to
      PGP;
  ·
              redeem
      stock;
   19
  
  ·
              incur
      indebtedness or issue preferred membership
  interests;
  ·
              make
      certain investments;
  ·
              create
      liens;
  ·
              agree
      to payment restrictions affecting the subsidiary
    guarantors;
  ·
              consolidate
      or merge;
  ·
              sell
      or otherwise transfer or dispose of assets, including equity interests of
      our restricted subsidiaries;
  ·
              enter
      into transactions with our
affiliates;
  ·
              designate
      our subsidiaries as unrestricted subsidiaries;
  and
  ·
              use
      the proceeds of permitted sales of our
assets.
  Our PGL
Credit Facility limits DJL’s and EVD’s ability to pay dividends, make loans and
distributions to PGL and DJW and also requires DJL and EVD to meet, among other
things, certain minimum EBITDA and maximum capital expenditure requirements. Our
indenture governing the DJW Notes also limits DJW’s ability to make loans and
distributions to PGL. Due to these limitations on the payment of dividends,
making loans and other distributions, PGL may not, on its own, be able to
satisfy its obligations under the Peninsula Gaming Notes, which obligations must
therefore be satisfied by DJL, co-issuer of the Peninsula Gaming Notes, and EVD,
guarantor of the Peninsula Gaming Notes. In addition, due to the limitations
discussed above, DJW may not be able to receive dividends or distributions from
PGL or any of its restricted subsidiaries to help satisfy its obligations under
the DJW Notes or DJW Credit Facility.  Non-compliance with the
financial ratios and tests contained in our debt agreements may adversely affect
our ability to incur more debt, adequately finance our operations or capital
needs in the future or to pursue attractive business opportunities that may
arise in the future. Our 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. Our failure to comply with our debt-related obligations
could result in an event of default under the notes and our other
indebtedness.
  History of Net Losses—We have had net losses in recent
years and may experience net losses in the future.
  We had
net losses in 2007 and 2005 of $5.2 million and $3.4 million,
respectively.  As we continue to execute our business strategy, we may
experience net losses in the future, which could have an adverse affect on our
business, prospects, financial condition, results of operations and cash
flows.
  Licensing—If we fail to meet the minimum live
racing day requirements, our gaming license with respect to the racino will be
canceled and all slot machine gaming at the racino must
cease.
   20
  
  Louisiana
gaming regulations and our gaming license require that we, among other things,
have a minimum of 80 live racing days in a consecutive 20-week period each year
of live horse race meetings at the horse racetrack. Live racing days typically
vary in number from year to year and are based on a number of factors, many of
which are beyond our control, including the number of suitable race horses and
the occurrence of severe weather. If we fail to have the minimum number of live
racing days, our gaming license with respect to the racino may be canceled, and
the casino will be required to cease operations. Any cessation of our operation
would have a material adverse affect on our business, prospects, financial
condition, results of operations and cash flows.
  Reauthorization of Gaming in Iowa—The Dubuque County and
Worth County electorate must vote in 2010 and 2011, respectively, and every
eight years thereafter whether to continue to allow riverboat gaming in Dubuque
County and Worth County, Iowa. If riverboat gaming is discontinued, it is
unlikely that DJL or DJW will be able to conduct its gaming
operations.
  Under
Iowa law, a license to conduct gaming may be issued in a county only if the
county electorate has approved the gaming, and a reauthorization referendum
requiring majority approval must be held every eight years. On November 5,
2002, the electorate of Dubuque County, Iowa, which includes the City of
Dubuque, approved gaming by approximately 79% of the votes cast. On June 24,
2003, Worth County, Iowa approved gaming in the county by approximately 75% of
the votes cast. If any reauthorization referendum is defeated in either Dubuque
or Worth County, it is unlikely that DJL or DJW, respectively, would be able to
conduct gaming operations, and, in that case, we may not be able to continue to
service our indebtedness, including the Peninsula Gaming and DJW
Notes.
  Liquor Regulation—Revocation of any of our liquor
licenses, which are subject to extensive regulation, could have a material
adverse effect on our gaming operations.
  The sale
of alcoholic beverages at our properties is subject to licensing, control and
regulation by state and local agencies in Iowa and Louisiana. Subject to limited
exceptions, all persons who have a financial interest in DJL, EVD, PGL, or DJW
by ownership, loan or otherwise, must be disclosed in an application filed with,
and are subject to investigation by, Iowa and Louisiana liquor agencies. All
liquor licenses are subject to annual renewal, are revocable and are not
transferable. The liquor agencies have broad powers to limit, condition, suspend
or revoke any liquor license. Any disciplinary action with respect to any of our
liquor licenses could, and any failure to renew or revocation of our liquor
licenses would, have a material adverse effect on our business.
  Competition—We face intense competition in our
gaming markets and increased competition may have a material adverse effect on
our business, financial condition and results of operations.
  The
gaming industry is intensely competitive. If our existing competitors expand
and/or upgrade their facilities or operate more efficiently than we do, or new
gaming firms enter the markets in which we operate, we could lose market share,
our gaming markets could become saturated and new opportunities for expanding
our business could become limited. As a result, increased competition could have
a material adverse effect on our business, financial condition, results of
operations and cash flows.
   21
  
  In
Dubuque, Iowa, we face competition primarily from the DGP, which possesses
several competitive strengths. The DGP offers some amenities that Diamond Jo
does not have, including live and simulcast greyhound racing, and, on a limited
basis, simulcast horse racing. As a not-for-profit organization, the DGP has
developed strong relationships with the local community and city officials by
distributing a percentage of its cash-flow, through contributions, to the City
of Dubuque and local charities. In May 2005, DGP expanded its facility to
include 1,000 slot machines. In February 2006, DGP replaced 82 slot machines
with video poker and in March 2006 added 16 table games and 4 poker tables. In
addition, a group of private investors opened a hotel adjacent to the DGP in
October 2005. The DGP is owned and operated by the Dubuque Racing Association,
or DRA. Besides the DGP, we also currently face limited competition from other
gaming facilities located approximately 60 to 120 miles from our operations. In
May 2005, the Iowa Racing and Gaming Commission granted 4 new licenses
(including ours in Worth County). The closest of these licenses to the Diamond
Jo is one located in Waterloo, Iowa, approximately 70 miles to the west of
Dubuque, which opened in spring 2007.
  Our
primary competition at the Diamond Jo Worth casino is from the Native American
gaming operations in Minnesota, the closest being approximately 110 miles from
the Diamond Jo Worth casino. In addition, a new casino in Emmetsburg, Iowa,
located approximately 90 miles from Diamond Jo Worth casino, commenced
operations in June 2006.  As noted above, a new casino located in
Waterloo, Iowa opened in the spring of 2007 and is located approximately 120
miles from our casino.  Our competitors may offer amenities that the
Diamond Jo Worth casino will not have.
  In
Louisiana, the nearest competitor to Evangeline Downs is a Native American
casino located approximately 50 miles to the south of Lafayette, including
several miles off the highway in Marksville, Louisiana. We also face competition
from several other casinos and pari-mutuel gaming facilities located 50 to 100
miles from our racino, including Native American casinos in Kinder, Louisiana,
and riverboat casinos in Baton Rouge and Lake Charles, Louisiana. The nearest
horse racetrack to our racino that is allowed to have gaming operations is
located in Vinton, Louisiana. We also face competition from truck stop video
poker parlors and OTBs in the areas surrounding Lafayette and Opelousas,
Louisiana.
  We could
also face additional competition if Louisiana or Iowa or any of the states
bordering Iowa or Louisiana adopts laws authorizing new or additional
gaming.
  We also
compete to some extent with other forms of gaming on both a local and national
level, including state-sponsored lotteries, charitable gaming, on- and off-track
wagering, and other forms of entertainment, including motion pictures, sporting
events and other recreational activities. It is possible that these secondary
competitors could reduce the number of visitors to our facilities or the amount
they are willing to wager, which could have a material adverse effect on our
ability to generate revenue or maintain our profitability and cash
flows.
  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
facilities. 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 could be materially adversely
affected.
   22
  
  Governmental Regulation—Extensive gaming and racing-related
regulation continuously impacts our operations and changes in such laws may have
a material adverse effect on our operations by, among other things, prohibiting
or limiting gaming in the jurisdictions in which we operate.
  The
ownership, management and operation of our gaming facilities are subject to
extensive laws, regulations and ordinances which are administered by the Iowa
Racing and Gaming Commission, the Louisiana State Gaming Control Board, the
Louisiana State Racing Commission and various other federal, state and local
government entities and agencies. We are subject to regulations that apply
specifically to the gaming industry and horse racetracks and casinos, in
addition to regulations applicable to businesses generally. If current laws,
regulations or interpretations thereof are modified, or if additional laws or
regulations are adopted, it could have a material adverse effect on our
business.
  Legislative
or administrative changes in applicable legal requirements, including
legislation to prohibit casino gaming, have been proposed in the past. For
example, in 1996, the State of Louisiana adopted a statute in connection with
which votes were held locally where gaming operations were conducted and which,
had the continuation of gaming been rejected by the voters, might have resulted
in the termination of operations at the end of their current license terms.
During the 1996 local gaming referendums, Lafayette Parish voted to disallow
gaming in the Parish, whereas St. Landry Parish, the site of our racino, voted
in favor of gaming. All parishes where riverboat gaming operations are currently
conducted voted to continue riverboat gaming, but there can be no guarantee that
similar referenda might not produce unfavorable results in the future. Proposals
to amend or supplement the Louisiana Riverboat Economic Development and Gaming
Control Act and the Pari-Mutuel Act also are frequently introduced in the
Louisiana State legislature. In the 2001 session, a representative from Orleans
Parish introduced a proposal to repeal the authority of horse racetracks in
Calcasieu Parish (the site of Delta Downs) and St. Landry Parish (the site of
our racino) to conduct slot machine gaming at such horse racetracks and to
repeal the special taxing districts created for such purposes. If adopted, this
proposal would have effectively prohibited us from operating the casino portion
of our racino. In addition, the Louisiana legislature, from time to time,
considers proposals to repeal the Pari-Mutuel Act.
  Similarly,
in Iowa, the county electorate must reauthorize gaming every eight years. See
“Reauthorization of Gaming in Iowa.”
  To date,
we have obtained all governmental licenses, findings of suitability,
registrations, permits and approvals necessary for the operation of our
properties owned by DJL, EVD and DJW. However, we can give no assurance that any
additional licenses, permits and approvals that may be required will be given or
that existing ones will be renewed or will not be revoked. Renewal is subject
to, among other things, continued satisfaction of suitability requirements. Any
failure to renew or maintain our licenses or to receive new licenses when
necessary would have a material adverse effect on us.
  The
legislation permitting riverboat gaming in Iowa authorizes the granting of
licenses to “qualified sponsoring organizations.” Such “qualified sponsoring
organizations” may operate the riverboat itself, subject to satisfying necessary
licensing requirements, or it may enter into an agreement with a boat operator
to operate the excursion gambling boat on its behalf. An operator must be
approved and licensed by the Iowa Racing and Gaming Commission. The DRA, a
not-for-profit corporation organized for the purpose of operating a pari-mutuel
greyhound racing facility in Dubuque, Iowa, first received a riverboat gaming
license in 1990 and, pursuant to the Amended DRA Operating Agreement, has served
as the “qualified
   23
  sponsoring
organization” of the Diamond Jo since March 18, 1993. The term of the
Amended DRA Operating Agreement expires on December 31, 2018. WCDA,
pursuant to the WCDA Operating Agreement, serves as the “qualified sponsoring
organization” of Diamond Jo Worth. The term of the WCDA Operating Agreement
expires on March 31, 2015 which is subject to automatic three year renewal
periods. If the Amended DRA Operating Agreement or WCDA Operating Agreement were
to terminate, or if the DRA or WCDA were to otherwise discontinue acting as our
“qualified sponsoring organization” with respect to our operation of the Diamond
Jo and Diamond Jo Worth, respectively, and we were unable to obtain a license
from the Iowa Racing and Gaming Commission for an alternative “qualified
sponsoring organization” to act on our behalf, we would no longer be able to
continue our Diamond Jo or Diamond Jo Worth operations, which would materially
and adversely affect our business, results of operations and cash
flows.
  Legislative Changes—Changes in legislative rules and
regulations may have a material adverse effect on our
operations.
  Changes
in federal or state laws, rules and regulations, including tax laws, affecting
the gaming industry, or in the administration of such laws, could have a
material adverse affect on our business. Regulatory commissions and state
legislatures from time to time consider limitations on the expansion of gaming
in jurisdictions where we operate and other changes in gaming laws and
regulations. Proposals at the national level have included a federal gaming tax
and limitations on the federal income tax deductibility of the cost of
furnishing complimentary promotional items to customers, as well as various
measures which would require withholding on amounts won by customers or on
negotiated discounts provided to customers on amounts owed to gaming companies.
Proposals at the state level have included changes in the gaming tax rate and
the Iowa legislature is currently considering a ban on smoking in public places,
including in casinos.  It is not possible to determine with certainty
the likelihood of possible changes in tax or other laws affecting the gaming
industry or in the administration of such laws. The changes, if adopted, could
have a material adverse effect on our business, results of operations and cash
flows.
  Environmental Matters—We are subject to environmental laws
and potential exposure to environmental liabilities. This may affect our ability
to develop, sell or rent our property or to borrow money where such property is
required to be used as collateral.
  We are
subject to various federal, state and local environmental laws, ordinances and
regulations, including those governing discharges to air and water, the
generation, handling, management and disposal of petroleum products or hazardous
substances or wastes, and the health and safety of our employees. Permits may be
required for our operations and these permits are subject to renewal,
modification and, in some cases, revocation. In addition, under environmental
laws, ordinances or regulations, a current or previous owner or operator of
property may be liable for the costs of removal or remediation of some kinds of
hazardous substances or petroleum products on, under, or in its property,
without regard to whether the owner or operator knew of, or caused, the presence
of the contaminants, and regardless of whether the practices that resulted in
the contamination were legal at the time they occurred. In addition, as part of
our business in Worth County, Iowa, we operate a gas station, which includes a
number of underground storage tanks containing petroleum products. The presence
of, or failure to remediate properly, the substances may adversely affect the
ability to sell or rent the property or to borrow funds using the property as
collateral. Additionally, the owner of a site may be subject to claims by third
parties based on damages and costs resulting from environmental contamination
emanating from a site.
  We have
reviewed environmental assessments, in some cases including soil and groundwater
testing, relating to our currently owned and leased properties in Dubuque, Iowa,
and other properties we may lease from the City of Dubuque or
   24
  other
parties. As a result, we have become aware that there is contamination present
on some of these properties apparently due to past industrial activities. With
respect to parcels we currently own or lease, we believe, based on the types and
amount of contamination identified, the anticipated uses of the properties and
the potential that the contamination, in some cases, may have migrated onto our
properties from nearby properties, that any cost to clean up these properties
will not result in a material adverse effect on our earnings and cash flows. We
have also reviewed environmental assessments and are not aware of any
environmental liabilities related to our properties at EVD and DJW.
  We do not
anticipate any material adverse effect on our earnings, cash flows or
competitive position relating to existing environmental matters, but it is
possible that future developments could lead to material costs of environmental
compliance for us and that these costs could have a material adverse effect on
our business and financial condition, operating results and cash
flows.
  Taxation—An increase in the taxes and fees
that we pay could have a material adverse effect on us, and might reduce the
cash flow available to service our indebtedness.
  We are
subject to significant taxes and fees relating to our gaming operations, which
are subject to increase at any time. Currently, in Iowa, we are taxed at an
effective rate of approximately 21% of our adjusted gross receipts by the State
of Iowa, we pay each of the City of Dubuque and the DRA a fee equal to $0.50 per
patron and we pay a fee equal to 5.76% of adjusted gross receipts to the Worth
County Development Authority. Commencing on the date DJL moves its operations to
a barge facility, DJL will be required to pay to the DRA 4.5% of DJL’s adjusted
gross receipts and the $0.50 per patron fee will cease. In addition, all Iowa
riverboats share equally in costs of the Iowa Racing and Gaming Commission and
related entities to administer gaming in Iowa, which is currently approximately
$0.7 million per year per riverboat. Currently, in Louisiana, we are taxed at an
effective rate of approximately 36.5% of our adjusted gross slot revenue and pay
to the Louisiana State Racing Commission a fee of $0.25 for each patron who
enters the racino on live race days from the hours of 6:00 pm to midnight,
enters the racino during non-racing season from the hours of noon to midnight
Thursday through Monday, or enters any one of our OTBs. In addition, there have
been proposals in the past to tax all gaming establishments, including riverboat
casinos, at the federal level. Any material increase in taxes or fees, or in
costs of the Iowa Racing and Gaming Commission and related entities, would have
a material adverse affect on our business.
  Difficulty in Attracting and
Retaining Qualified Employees—If we are unable to attract and
retain a sufficient number of qualified employees or are required to
substantially increase our labor costs, our business, results of operations,
cash flows and financial condition will be materially adversely
affected.
  The
operation of our business requires qualified executives, managers and skilled
employees with gaming industry experience and qualifications to obtain the
requisite licenses. We may have difficulty attracting and retaining a sufficient
number of qualified employees and may be required to pay higher levels of
compensation than we have estimated in order to do so. If we are unable to
attract and retain a sufficient number of qualified employees for our current
operations or are required to substantially increase our labor costs, we may not
be able to operate our business in a cost effective manner or at
all.
  We are
dependent upon the available labor pool of unskilled and semi-skilled employees.
We are also subject to the Fair Labor Standards Act, which governs matters such
as minimum wage, overtime and other working conditions. In February 2007, the
State of Iowa passed a bill increasing the minimum wage for Iowa
workers.  Effective April 1, 2007, the
   25
  minimum
wage for the State of Iowa increased from $5.15 per hour to $6.20 per hour and
then to $7.25 effective January 1, 2008. Effective July 24, 2007, the federal
minimum wage increased to $5.85 and is scheduled to increase to $6.55 per hour
and $7.25 per hour, July 24, 2008 and 2009, respectively.  Current
Iowa law effectively requires that we pay Iowa employees 25% more than the
federally mandated minimum wage rates. While DJL and DJW currently pay all of
their employees more than the current minimum wage levels, these scheduled
changes in minimum wage laws could increase our payroll costs in the future and
have an adverse effect on our liquidity.  Further changes in
applicable state or federal laws and regulations, particularly those governing
minimum wages, could increase labor costs, which could have a material adverse
effect on the cash flow available to service our indebtedness.
  Energy
Costs — Our operations are affected by increases in energy costs.
  We are a
large consumer of electricity and other energy in connection with the operation
of our gaming properties. Accordingly, increases in energy costs may have a
negative impact on our operating results. Additionally, higher energy and
gasoline prices which affect our customers may result in reduced visitation to
our casinos and racino and a reduction in our revenues.
  Interested Party Matters—All of the Company’s
voting equity interests are indirectly beneficially owned in the aggregate by
managers and executive officers of PGP and such ownership may give rise to
conflicts of interest.
  All of
the Company’s voting equity interests are indirectly beneficially owned or
controlled in the aggregate by M. Brent  Stevens, Michael Luzich and
Terrance W. Oliver. Specifically, Mr. Stevens, our Chief Executive Officer,
is also the Chairman of the Board of Managers of PGP and the Chief Executive
Officer of PGP, DJL, EVD, PGL and DJW. Mr. Stevens indirectly beneficially
owns or controls (through his beneficial ownership or control of voting equity
interests in PGP) approximately 66.2% of the Company’s voting equity interests.
Mr. Luzich, our President and Secretary, is also a Manager of PGP and the
President and Secretary of PGP, PGL, DJL, EVD and DJW. Mr. Luzich
indirectly beneficially owns (through his ownership of voting equity interests
in PGP) approximately 32.3% of the Company’s voting equity interests. Mr.
Oliver, a Manager of PGP, indirectly beneficially owns (through his direct
ownership of interests in The Oliver Family Trust) approximately 1.5% of the
Company’s voting equity interests. Andrew Whittaker, a Manager of PGP,
indirectly beneficially owns (through his indirect ownership of voting equity
interests in PGP) approximately 4.2% (which is included in the calculation of
the 66.2% owned or controlled by Mr. Stevens) of the Company’s voting
equity interests. In addition, Mr. Stevens has the right to designate three
of the five members of PGP’s board of managers, including one of the two
independent managers, and Mr. Luzich has the right to designate two of the
five members of PGP’s board of managers, including one of the two independent
managers, for so long as Mr. Stevens and Mr. Luzich, respectively,
beneficially hold at least 5% of the voting equity interests of
PGP.
  Because
of their controlling interests, these individuals have the power to elect a
majority of our managers, appoint new management and approve any action
requiring the approval of holders of our equity interests, including adopting
amendments to our certificate of formation, approving mergers or sales of
substantially all of our assets or changes to our capital
structure.
  PGP is
primarily responsible for managing DJL, EVD and DJW operations as well as
supervising all development projects. Neither PGP nor any of its affiliates is
restricted from managing other gaming operations, including new gaming ventures
or facilities that may compete with ours, except that certain restrictions under
the Amended DRA Operating
   26
  Agreement
will terminate if we or any of our affiliates operate another facility in
Dubuque County or the adjoining counties of Illinois or Wisconsin. If PGP or any
of its affiliates decides to manage other gaming operations, such activities
could require a significant amount of attention from PGP’s officers and managers
and require them to devote less time to managing our operations. While we
believe that any new ventures will not detract from PGP’s ability to manage and
operate our business, there can be no assurance that such ventures would not
have a material adverse effect on us or on PGP.
  ITEM
      1B.
              UNRESOLVEDSTAFF
COMMENTS
  Not
applicable.
  ITEM
      2.
              PROPERTIES
  DJL owns
the approximately 36,000 square foot dockside pavilion, adjacent to the Diamond
Jo casino, and a walkway connecting the dockside pavilion to a ramp, leading to
where the Diamond Jo is moored. In addition, we own the tract of land in the
Port of Dubuque on which the new Diamond Jo casino is currently being
constructed.
  We
currently have approximately 531 parking spaces that are in close proximity to
the Diamond Jo located on properties that we own, lease or to which we are given
access at no cost pursuant to a non-exclusive use agreement with a third party.
Our property lease currently requires us to pay $25,000 per year as rent through
June 2009. Beginning in June 2009 through the remaining term of the lease we are
required to pay $250,000 per year (increasing each year by cost of living
index). Effective upon the opening of our new casino, the lease payments
increase to $500,000 annually.  All rent payments associated with this
lease are reimbursed to us by the DRA under the Amended DRA Operating Agreement
entered into in June 2005. In 2005, the terms of the DRA Operating Agreement and
our lease with the City of Dubuque were extended through December 31,
2018.
  The EVD
racino sits on and is bounded by approximately 649 acres of owned land located
in Opelousas, Louisiana that we purchased in 2002 and 2003. We have constructed
a 170,000 square foot building and a one mile dirt racetrack on this site. A
portion of the purchase price for certain parcels of such land was financed by
the seller of such parcels by EVD issuing a $3,850,000 note payable to the
seller. The note is payable in seven annual installments and bears interest at a
rate of 8.75%. The note is collateralized by a mortgage on the property.
Simultaneously with the payment of each annual installment, the seller agreed to
release from the mortgage one of seven parcels of land into which the land was
equally divided.  As of December 31, 2007, EVD has paid four of the
seven annual installments.
  In
addition, EVD owns the land, building and improvements of the Port Allen OTB and
leases the facilities that comprise the New Iberia, Henderson and Eunice
OTBs.
  The DJW
casino and convenience store is located on 35 acres of owned land in Worth
County, Iowa.  With the completion of the expansion project in 2007,
the casino building is now approximately 75,000 square feet.  We
currently have approximately 1,300 parking spaces that are in close proximity to
Diamond Jo Worth located on properties that we own or lease.  DJW
leases 10 acres of land north of the casino that require DJW to pay $52,000 per
year as rent through June 2016.  The property lease also allows for
the purchase of the leased land at the expiration of the lease for a total
purchase price of $750,000.
   27
  
  In
addition, DJW owns 268 acres of land approximately 10 miles northwest of the
casino in Emmons, Minnesota on which a member’s only 93 acre 9-hole golf course
and 9-station sporting clay course and 176 acre hunting facility, known as
Pheasant Links, is located, together with a 4,500 square foot
clubhouse.  DJW also leases 30 acres of adjacent land for $3,000 per
year through September 2010 for use as additional hunting land.
  ITEM
      3.
              LEGAL PROCEEDINGS
  In
October 2003, EVD filed a Petition for Declaratory Judgment in St. Landry
Parish, Louisiana, naming as opposing parties the Secretary of the Department of
Revenue and Taxation for the State of Louisiana (the “Department”), the St.
Landry Parish School Board and the City of Opelousas. EVD sought a judgment
declaring that sales taxes were not due to the defendants on purchases made by
EVD and its contractors in connection with the construction and furnishing of
the Evangeline Downs Racetrack and Casino, which was constructed in St. Landry
Parish in 2003-2004. EVD’s action was based on Louisiana statutory law which
provides that racetracks are not required to pay taxes and fees other than those
provided in the racing statutes, and that taxes and fees provided in the racing
statutes are in lieu of, among other things, all state and local sales taxes.
The St. Landry Parish School Board and the City of Opelousas questioned the
application of the racing statutes to the construction and furnishing of the
casino portion of the facility, thereby leading to the filing of this action.
Subsequently, the Department adopted a similar position as the St. Landry Parish
School Board and the City of Opelousas.
 
 EVD filed
a motion for summary judgment, which was scheduled for hearing in
July 2005. The defendants filed responses, generally arguing that the
exemption under the racing statutes should not extend to the purchase of goods,
materials and services which were unrelated to horse racing. Prior to the
hearing, it was discovered by EVD that EVD’s contractor (and the contractor’s
subcontractors) had paid sales taxes on many purchases related to the
construction of the new racetrack and casino, and that EVD, in its payments to
the contractor, had reimbursed the contractor for such sales taxes. In light of
this discovery, the parties agreed to continue indefinitely the hearing on the
motion for summary judgment so that EVD could prepare and file a refund claim
for the taxes paid by EVD’s contractor and the contractor’s subcontractors. In
November and December 2005, EVD filed refund claims totaling $0.6
million with the Department and St. Landry Parish related to these
taxes.
  In
October 2006, the Department notified EVD that additional taxes and
interest totaling approximately $0.4 million were due for the period
January 1, 2002 through December 31, 2004.  In November 2006, EVD
formally protested the additional proposed tax assessment with the Department;
the protest was denied by the Department. Accordingly, EVD accrued and
subsequently paid the additional taxes of approximately $0.4 million, but these
taxes were paid under protest. In December 2006, EVD filed suit in East Baton
Rouge Parish, Louisiana against the Department for recovery of these taxes paid
under protest. The Department answered this suit by generally denying EVD’s
right to recover the taxes paid under protest. During 2006, EVD accrued an
additional $1.1 million related to state sales taxes that the Company may be
required to pay for the years 2005 and 2006 and for local parish and city taxes
for the years 2002 through 2006. Of the total sales tax amount recorded,
approximately $0.7 million and $0.4 million was recorded in general and
administrative expense and interest expense, respectively, in the consolidated
statement of operations for 2006. The remaining balance, totaling approximately
$0.4 million, was capitalized in fixed assets. EVD also accrued another
$0.4 million and $0.1 million in 2007 for ongoing operating purchases and
interest, respectively.
   28
  
  On
February 20, 2008, EVD and the Department entered into a Settlement Agreement
(the “Settlement Agreement”) which settled certain tax disputes between EVD and
the Department arising out of audits conducted by the Department of the taxable
years ended December 31, 2002, 2003 and 2004 as discussed above.  As
part of the settlement, the Department agreed to refund to EVD, as a credit
against future sales or use taxes due to the State of Louisiana by EVD for tax
years beginning on or after January 2005, (a) approximately $0.1 million plus
accrued interest from December 11, 2006 and (b) approximately $0.1 million plus
accrued interest from November 28, 2005, in each case until the date the
Department provides notification that such credit has been applied for the
benefit of EVD.  The refunds were recorded in EVD’s 2007 financial
statements as a reduction to property and equipment of approximately $0.1
million and a reduction in general and administrative and interest expense of
approximately $0.1 million.
  The
Department and EVD also reached an agreement regarding the payment of additional
sales tax by EVD for tax years beginning on or after January
2005.  Based on this agreement, EVD reduced the liability recorded for
sales taxes for the years 2005 through 2007 by approximately $0.1 million. EVD’s
obligations related to sales tax with respect to future periods may be affected
by litigation involving the Department and other gaming companies. The
sales and use tax dispute with St. Landry Parish and the City of Opelousas
remains open. EVD has accrued management’s best estimate of all sales and use
taxes that may be due to the Department, St. Landry Parish or the City of
Opelousas as of December 31, 2007.
  In
October 2005, EVD filed a request to arbitrate certain claims against the
general contractor of its racino relating to improper construction of the horse
racetrack at the racino. EVD pursued a claim for damages of approximately $7.3
million against the general contractor to recoup its track reconstruction costs
and other related damages and contractual damages it is entitled to as a result
of the contractor’s failure to complete Phase II of the project by the
contractual substantial completion deadline. The contractor filed a
counterclaim for unpaid billings, earned completion bonus and amounts owed for
extra work performed totaling $1.6 million which was recorded on the
Company's consolidated balance sheet as of December 31, 2007. The contractor
also filed a counterclaim for an additional $1.7 million relating to an alleged
breach of contract subsequent to December 31, 2007.
    Other
than as described above, neither the Company nor its subsidiaries are parties to
any pending legal proceedings other than litigation arising in the normal course
of business. Management does not believe that adverse determinations in any or
all such other litigation would have a material adverse effect on the Company’s
financial condition, results of operations or cash flows.
 
 ITEM
4.                  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.
  PART II
  ITEM
      5.
              
              MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
    SECURITIES
 
  29
  
 There is
no established public trading market for any of PGL’s, DJL’s or PGC’s common
equity securities.
  As of
December 31, 2007, PGP was the only holder of record of the common equity
of PGL and DJL and PGC are wholly owned subsidiaries of PGL. In fiscal years
2007 and 2006, PGL and/or its subsidiaries paid monthly distributions totaling
for the year $6.4 million and $2.5 million, respectively, to PGP in respect of
(i) certain consulting and financial advisory services related to PGP
development, (ii) board fees and actual out-of-pocket expenses incurred by
members of the board of managers of PGP (the “Board of Managers”) in their
capacity as board members, and (iii) tax, accounting, legal and
administrative costs and expenses of PGP. These amounts were recorded as member
distributions.
  Significant
restrictions exist on our ability to make member distributions. See Note 4 to
the consolidated financial statements for information on such
restrictions.
  ITEM
6.                      SELECTEDFINANCIAL DATA
 
 The
following table represents selected consolidated financial data of PGL for the
five years ended December 31, 2007.
 
 The
selected historical financial data for such periods are derived from our audited
consolidated financial statements. All years presented include DJL’s operations,
2003 also includes primarily only horse racing operations of EVD, 2004 — 2007
includes EVD’s gaming (casino operations opened December 2003) and horse racing
operations, and 2006 — 2007 includes DJW’s operations (casino opened in April
2006). The selected financial data set forth below should be read in conjunction
with, and is qualified in its entirety by reference to, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and our
consolidated financial statements and the related notes included elsewhere in
this document.
  30
  
 2007
              
              2006
              
              2005
              
              2004
              
              2003(Dollars in thousands)Statement of Operations DataREVENUES:Casino
              
              $ 222,147
              
              $ 200,734
              
              $ 146,790
              
              $ 120,190
              
              $ 57,001Racing
              
              19,146
              
              22,146
              
              17,578
              
              17,380
              
              17,051Video
      Poker
              
              4,533
              
              3,715
              
              2,339
              
              2,715
              
              722Food
      and beverage
              
              15,801
              
              15,315
              
              13,511
              
              11,464
              
              4,566Other
              
              11,501
              
              10,087
              
              2,710
              
              1,434
              
              589Less
      promotional allowances
              
              (19,935)
              
              (17,580)
              
              (13,855)
              
              (11,464)
              
              (4,626)Total
      net revenues
              
              253,193
              
              234,417
              
              169,073
              
              141,719
              
              75,303EXPENSES:Casino
              
              94,389
              
              84,971
              
              67,180
              
              58,079
              
              23,262Racing
              
              15,959
              
              18,579
              
              15,335
              
              14,010
              
              13,045Video
      poker
              
              3,751
              
              2,949
              
              1,767
              
              2,034
              
              654Food
      and beverage
              
              12,428
              
              11,701
              
              9,849
              
              9,218
              
              4,282Other
              
              7,080
              
              6,605
              
              1,720
              
              1,076
              
              443Selling,
      general and administrative
              
              49,770
              
              43,924
              
              28,454
              
              24,247
              
              14,509Depreciation
      and amortization
              
              20,728
              
              20,820
              
              16,249
              
              12,356
              
              3,324Pre-opening
      expense
              
              375
              
              966
              
              310
              
              367
              
              3,257Development
      expense
              
              8,041
              
              777
              
              575
              
              242
              
              102Management
      severance and recruiting
              
              —
              
              —
              
              —
              
              593
              
              —Affiliate
      management fees
              
              5,218
              
              4,516
              
              2,057
              
              757
              
              175(Gain)
      loss on disposal of assets
              
              2,731
              
              210
              
              (16)
              
              (716)
              
              50Total
      expenses
              
              220,470
              
              196,018
              
              143,480
              
              122,263
              
              63,103Income
      from operations
              
              32,723
              
              38,399
              
              25,593
              
              19,456
              
              12,200OTHER
      INCOME (EXPENSE):Interest
      income
              
              2,628
              
              955
              
              516
              
              170
              
              490Interest
      expense, net of amounts capitalized
              
              (40,505)
              
              (32,741)
              
              (29,133)
              
              (26,775)
              
              (25,072)Loss
      on early retirement of debt
              
              —
              
              —
              
              —
              
              (37,566)
              
              —Interest
      expense related to preferred member’s interest,
    redeemable(1)
              
              —
              
              (285)
              
              (360)
              
              (360)
              
              (180)Total
      other expense
              
              (37,877)
              
              (32,071)
              
              (28,977)
              
              (64,531)
              
              (24,762)Preferred
      member distributions(1)
              
              —
              
              —
              
              —
              
              —
              
              (180)Net
      income (loss) to common member’s interests
              
              $ (5,154)
              
              $ 6,328
              
              $ (3,384)
              
              $ (45,075)
              
              $ (12,742)Ratio
      of earnings to fixed charges(2)
              
              0.9
              x
              1.2
              x
              0.9
              x
              0.3
              x
              0.5
              x
  31
  
 Cash
      Flow Data2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003(Dollars in thousands)Cash
      flows from/(used in) operating activities
              
              $
              42,299
              
              
              $
              41,821
              
              
              $
              21,527
              
              
              $
              (21,875
              )
              
              $
              769Cash
      flows used in investing activities
              
              
              (50,555
              )
              
              
              (31,980
              )
              
              
              (52,142
              )
              
              
              (6,786
              )
              
              
              (94,695
              )Cash
      flows from (used in) financing activities
              
              
              (6,565
              )
              
              
              34,302
              
              
              
              32,889
              
              
              
              18,007
              
              
              
              104,574Distributions
      to common member
              
              
              (6,424
              )
              
              
              (2,494
              )
              
              
              (4,624
              )
              
              
              (7,031
              )
              
              
              (1,557
              )
 
  2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003Balance
      Sheet Data
              
              (Dollars in thousands)Current
      assets
              
              $
              52,288
              
              
              $
              67,231
              
              
              $
              24,731
              
              
              $
              17,418
              
              
              $
              40,227Total
      assets
              
              
              371,927
              
              
              
              353,810
              
              
              
              287,628
              
              
              
              243,069
              
              
              
              261,519Current
      liabilities
              
              
              45,379
              
              
              
              49,346
              
              
              
              47,886
              
              
              
              34,270
              
              
              
              46,321Total
      long-term obligations
              
              
              386,170
              
              
              
              360,965
              
              
              
              310,349
              
              
              
              271,398
              
              
              
              225,827Total
      member’s deficit
              
              
              (59,622
              )
              
              
              (56,501
              )
              
              
              (70,607
              )
              
              
              (62,599
              )
              
              
              (10,629
              )
  (1)
              In
      May 2003, the Financial Accounting Standards Board issued Statement
      of Financial Accounting Standards No. 150, “Accounting for Certain
      Financial Instruments with Characteristics of both Liabilities and Equity”
      (“SFAS 150”). This statement establishes standards for how an issuer
      classifies and measures certain financial instruments with characteristics
      of both liabilities and equity. It requires the issuer to classify a
      financial instrument that is within the scope of the standard as a
      liability if such financial instrument embodies an obligation of the
      issuer. As a result of the adoption of SFAS 150 on July 1, 2003, we
      reclassified our $4 million mandatory redeemable preferred member’s
      interest from the mezzanine section of the consolidated balance sheet
      to long-term debt. Further, preferred member distributions paid or accrued
      subsequent to adoption of SFAS 150 are required to be presented as
      interest expense separately from interest due to other creditors. We were
      not required to record a cumulative effect of a change in an accounting
      principle as the redeemable preferred member’s interest was recorded at
      fair value prior to July 1, 2003. We are precluded from reclassifying
      prior period amounts pursuant to this standard. The $4 million mandatory
      redeemable preferred member’s interest were repaid in
  2006.
  (2)
              For
      purposes of determining the ratio of earnings to fixed charges, earnings
      are defined as net income (loss) to common member’s interests plus fixed
      charges. Fixed charges include interest expense on all indebtedness,
      including amounts capitalized, amortization of deferred financing costs
      and debt discount,and preferred member’s interest redeemable, and loss on
      early retirement of debt. Earnings were insufficient to cover fixed
      charges for the years ended December 31, 2007, 2005, 2004 and 2003 by
      $6.0 million, $3.7 million, $46.3 million and $14.9 million,
      respectively.
  ITEM
      7.
              
              MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
 
 The
following discussion and analysis should be read in conjunction with, and is
qualified in its entirety by, our
   32
  “Selected
Financial Data” and the consolidated financial statements and the related notes
thereto appearing elsewhere in this report.
  Forward
Looking Statements
  Some
statements contained in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” constitute “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include the words “may,” “estimate,” “intend,”
“continue,” “believe,” “expect,” or “anticipate” and other similar words. These
forward-looking statements generally relate to plans and objectives for future
operations and are based upon management’s reasonable estimates of future
results or trends. Although we believe that the plans and objectives reflected
in or suggested by such forward-looking statements are reasonable, such plans or
objectives may not be achieved. Actual results may differ from projected results
due, but not limited, to unforeseen developments, including developments
relating to the following:
  ·
              the
      availability and adequacy of our cash flows to satisfy our obligations,
      including payment obligations under the Peninsula Gaming Notes, the DJW
      Notes, the PGL Credit Facility and the DJW Credit Facility and additional
      funds required to support capital improvements and
      development;
 
 ·
              economic,
      competitive, demographic, business and other conditions in our local and
      regional markets;
  ·
              changes
      or developments in the laws, regulations or taxes in the gaming and horse
      racing industry;
  ·
              actions
      taken or omitted to be taken by third parties, including customers,
      suppliers, competitors, members and shareholders, as well as legislative,
      regulatory, judicial and other governmental
  authorities;
  ·
              changes
      in business strategy, capital improvements, development plans, including
      those due to environmental remediation concerns, or changes in personnel
      or their compensation, including federal, state and local minimum wage
      requirements;
  ·
              the
      loss of any license or permit, including the failure to obtain an
      unconditional renewal of a required gaming license on a timely
      basis;
  ·
              the
      termination of our operating agreement with the Dubuque Racing
      Association, Ltd. and/or the Worth County Development Authority or the
      failure of the Dubuque Racing Association, Ltd. and/or the Worth County
      Development Authority to continue as our “qualified sponsoring
      organization;”
  ·
              the
      loss of our riverboat casino, moored barge or land-based facilities due to
      casualty, weather, mechanical failure or any extended or extraordinary
      maintenance or inspection that may be
required;
  ·
              the
      failure to complete our construction projects on time and within
      budget;
  ·
              changes
      in federal or state tax
obligations;
  ·
              potential
      exposure to environmental liabilities, changes or developments in the
      laws, regulations or taxes in the gaming or horse racing industry or a
      decline in the public acceptance of gaming or horse racing and other
      unforeseen difficulties associated with a new
  venture;
  ·
              adverse
      circumstances, changes, developments or events relating to or resulting
      from our ownership and control of DJL, EVD and DJW;
  and
  ·
              other
      factors discussed in our other filings with the
  SEC.
  Overview
  We own
and operate (i) the Diamond Jo riverboat casino in Dubuque, Iowa with 777
slot machines and 17 table games, (ii) the Evangeline Downs racino in
Opelousas, Louisiana with 1,627 slot machines and a one-mile dirt horse
racetrack and four OTBs located throughout south central Louisiana and (iii) the
Diamond Jo Worth casino in Worth County, Iowa with 902 slot machines, 25 table
games and 7 poker tables which opened to the public in April 2006 and
subsequently expanded in April 2007.
  Results
of Operations
  Our
results of operations discussed below include the consolidated results of
operations of PGL, DJL, EVD and DJW for the years ended December 31, 2007,
2006 and 2005.
  33
 Statement
of Operations Data
 (in
thousands)
 
 Year Ended December 31,2007
                
                2006
                
                2005General
      corporate
                
                $
      (14,820)
                
                $(11,035
                )
                $(3,967
                )Diamond
      Jo
                
                641
                
                9,996
                
                12,580Evangeline
      Downs
                
                26,073
                
                23,838
                
                17,297Diamond
      Jo Worth
                
                20,829
                
                15,600
                
                (317
                )Income
      from operations
                
                $32,723
                
                $38,399
                
                $25,593Diamond Jo
                
                Evangeline Downs
                
                Diamond Jo
                  WorthYear Ended December 31,
                
                Year Ended December 31,
                
                Year Ended December 31,2007
                
                2006
                
                2005
                
                2007
                
                2006
                
                2005
                
                2007
                
                2006
                
                2005Revenues:Casino
                
                $ 40,589
                
                $ 44,784
                
                $ 51,536
                
                $ 107,467
                
                $ 106,558
                
                $ 95,254
                
                $ 74,091
                
                $ 49,392Racing
                
                
                
                
                
                
                
                19,146
                
                22,146
                
                17,578Video
      Poker
                
                
                
                
                
                
                
                4,533
                
                3,715
                
                2,339Food
      and beverage
                
                2,425
                
                2,642
                
                2,720
                
                10,218
                
                10,803
                
                10,791
                
                3,158
                
                1,870Other
                
                2,373
                
                1,948
                
                310
                
                1,527
                
                1,308
                
                1,017
                
                7,601
                
                6,831
                
                $   1,383Less
      promotional allowances
                
                (4,723)
                
                (4,795)
                
                (4,459)
                
                (9,875)
                
                (9,478)
                
                (9,396)
                
                (5,337)
                
                (3,307)Net
      revenues
                
                40,664
                
                44,579
                
                50,107
                
                133,016
                
                135,052
                
                117,583
                
                79,513
                
                54,786
                
                1,383Expenses:Casino
                
                18,055
                
                18,844
                
                21,108
                
                50,409
                
                50,133
                
                46,072
                
                25,925
                
                15,994Racing
                
                
                
                
                
                
                
                15,959
                
                18,579
                
                15,335Video
      Poker
                
                
                
                
                
                
                
                3,751
                
                2,949
                
                1,767Food
      and beverage
                
                2,370
                
                2,455
                
                2,517
                
                7,475
                
                7,563
                
                7,332
                
                2,583
                
                1,683Other
                
                25
                
                39
                
                37
                
                273
                
                295
                
                305
                
                6,782
                
                6,271
                
                1,378Selling,
      general and administrative
                
                7,639
                
                8,387
                
                9,579
                
                15,317
                
                16,556
                
                15,549
                
                12,397
                
                8,241Depreciation
      and amortization
                
                4,448
                
                4,176
                
                4,136
                
                8,971
                
                13,094
                
                12,090
                
                7,265
                
                3,536
                
                23Pre-opening
      expense
                
                91
                
                
                
                
                
                70
                
                19
                
                171
                
                214
                
                947
                
                139Development
      expense
                
                7,974
                
                624
                
                147
                
                67
                
                109
                
                205
                
                
                
                44Affiliate
      management fees
                
                
                
                
                
                
                
                1,829
                
                1,839
                
                1,479
                
                3,030
                
                2,396
                
                160(Gain)
      loss on disposal of assets
                
                (579)
                
                58
                
                3
                
                2,822
                
                78
                
                (19)
                
                488
                
                74Total
      expenses
                
                40,023
                
                34,583
                
                37,527
                
                106,943
                
                111,214
                
                100,286
                
                58,684
                
                39,186
                
                1,700Income
      (loss) from operations
                
                $        641
                
                $ 9,996
                
                $ 12,580
                
                $ 26,073
                
                $ 23,838
                
                $ 17,297
                
                $   20,829
                
                $ 15,600
                
                $     (317)%
      of net revenues
                
                2%
                
                22%
                
                25%
                
                20%
                
                18%
                
                15%
                
                26%
                
                28%
                
                (23)%
   34
  2007
Compared to 2006
  Net
revenues increased $18.8 million, or 8%, to $253.2 million in 2007 from
$234.4 million in 2006. This increase was primarily related to an increase
in casino revenues at DJW of $24.7 million due primarily to 2007 being a full
year of operations and the expansion of the casino which opened to the public in
April 2007.  This increase is partially offset by a decrease in casino
revenues at DJL of $4.2 million as discussed below.
  DJL’s
casino revenues decreased by $4.2 million to $40.6 million in 2007 from $44.8
million in 2006. We believe this decrease was primarily related to the expansion
of a local competitor’s gaming facility from May 2005 to March 2006, which
resulted in an increase in the number of slot machines and the introduction of
video poker and table games at the competitor’s facility. In addition, DJL’s
operations were negatively impacted by adverse weather conditions during the
fourth quarter of 2007 which impacted revenue at DJL for 15 days in 2007
compared to only one day during the same period in 2006.  DJL’s slot
revenue decreased 6% to $37.8 million in 2007 from $40.2 million in 2006, and
DJL’s table game revenue decreased 39% to $2.8 million for 2007 compared to $4.6
million for 2006.  DJL’s casino win per gaming position per day
decreased to $123 in 2007 from $135 in 2006.
  DJW’s
casino revenues increased by $24.7 million, or 50%, to $74.1 million in 2007
compared to $49.4 million in 2006 due primarily to the timing of the initial
opening of the casino in April 2006 and the expansion in April 2007, which
increase was partially offset by adverse weather conditions during the fourth
quarter of 2007.  At DJW, adverse weather conditions siginficantly
impacted revenue for 15 days in 2007 compared to four days during the same
period in 2006.  DJW’s slot revenues increased 50% to $68.0 million in
2007 over 2006 while table game revenues increased 48% to $6.1 million in 2007
over 2006.  Consistent with a strong increase in casino revenues,
DJW’s win per gaming position per day increased to $294 for 2007 compared to
$271 for the period April 4, 2006 (date of opening the casino to the public)
through December 31, 2006.
  EVD
continued to show casino revenue growth in 2007 over 2006 despite a very strong
first half of 2006 which benefited from the effects of hurricanes Katrina and
Rita.  Casino revenue was up 1% to $107.5 million in 2007 compared to
2006.  EVD’s casino win per gaming position per day increased to $181
in 2007 from $179 in 2006.
  Racing
revenues at EVD for 2007 were $19.1 million compared to $22.1 million for 2006.
This decrease is primarily driven by a decrease in revenue earned from live
racing at the racino.  During the first quarter of 2006, EVD ran an
additional live race meet for another Louisiana racetrack which was damaged by
Hurricane Rita in late 2005.  EVD did not run any live meets during
the first quarter of 2007.
  Video
poker revenues at EVD for 2007 were $4.5 million compared to $3.7 million for
2006. The increase in video poker revenues is attributable to continued growth
and market penetration at our OTB in Eunice, Louisiana which added video poker
operations in April 2006, and to the addition of video poker at our OTB in
Henderson, Louisiana.
  Food and
beverage revenues, other revenues and promotional allowances increased primarily
due to the timing of the opening of the DJW casino and expansion.
   35
  
  Other
revenues, net of other expenses, increased $0.9 million due primarly to an
increase in other revenues at DJL associated with the DRA’s contractual
obligation under its operating agreement to pay DJL $0.33 for each $1.00
reduction in DJL’s adjusted gross receipts as well as an increase in commissions
earned at EVD and DJW.
  Casino
operating expenses increased $9.4 million to $94.4 million for 2007 from $85.0
million for 2006 due primarily to an increase in DJW casino expenses of $9.9
million due to timing of the opening of the casino and the casino
expansion.  This increase was partially offset by a $0.8 million
decrease in casino expenses at DJL primarily related to a decrease in gaming
taxes as a result of the decrease in casino revenues.
  Consistent
with a decrease in racing revenues as noted above, racing expenses decreased to
$16.0 million for 2007 from $18.6 million for 2006.
  Consistent
with an increase in video poker revenues as described above, video poker
expenses increased $0.9 million to $3.8 million for 2007 from $2.9 million for
2006.
  Selling,
general and administrative expenses increased $5.9 million to $49.8 million for
2007 from $43.9 million for 2006. This increase was due primarily to (i) a $4.2
million increase in expenses at DJW due primarily to the timing of the opening
of the casino and the casino expansion as well as an increase in the amount paid
to the WCDA which is based on casino revenues and (ii) a $1.7 million increase
in expenses associated with a non-cash charge related to an increase in the fair
value and percentage vested of PGP incentive units granted to certain executive
officers of the Company in 2005.  In December 2006, the employment
agreements of the executive officers to which PGP incentive units were granted
were amended to move the obligations under the incentive unit plan from PGL to
PGP.  As such, the liability associated with these incentive units was
assumed by PGP; however, the related expense associated with the increase in the
fair value and percentage vested is allocated to PGL and such expense is
reflected in PGL’s consolidated statement of operations.
  Depreciation
and amortization expenses decreased slightly to $20.7 million for 2007 from
$20.8 million for 2006.  Depreciation of buildings and equipment
related to DJW increased $3.7 million, primarily due to the timing of the
opening of the casino in April 2006 and the expansion of the casino in April
2007, while depreciation expense at EVD decreased $4.1 million.  The
decrease in depreciation expense at EVD is attributable to certain assets with a
three year depreciable life becoming fully depreciated in December 2006. Also
included in depreciation expense in 2006 at EVD is an impairment charge
associated with long-lived assets at EVD’s Alexandria OTB of approximately $0.4
million.  The $0.3 million increase in depreciation expense at DJL is
associated with accelerating depreciation on certain depreciable assets that
will either be contributed to the Historical Society or will not be utilized at
its new casino facility.  Accelerated depreciation on these assets
began during the fourth quarter of 2006 and DJL will continue to depreciate the
remaining net book value of those assets less their estimated fair market value
at the date of contribution or estimated net realizable value up to the date
that DJL estimates commencing operations at the new
facility.  Depreciation expense for 2007 and 2006 increased by
approximately $0.8 million and $0.2 million, respectively, as a result of
accelerated depreciation on these assets.  At December 31, 2007, we
performed our annual impairment test on goodwill and indefinite lived intangible
assets and determined that the estimated fair value exceeded its carrying value
as of that date. Based on that review, management determined that there was no
impairment of goodwill and indefinite lived intangible assets.
  36
  Pre-opening
expenses of $0.4 million for 2007 relate primarily to expenses incurred by DJW
with respect to its expansion. Pre-opening expenses of $1.0 million in 2006
relate primarily to expenses incurred by DJW with respect to start-up activities
surrounding the new casino development.
  In
relation to DJL’s new casino development, in 2007 DJL expensed $7.7 million to
development expense relating to certain of its unconditional obligations under
the Historical Society Agreement.  The obligations include the
contribution by DJL to the Historical Society of (i) the dockside pavilion
through a 99 year lease, (ii) the Diamond Jo vessel and (iii) cash.
  Affiliate
management fees of $5.2 million and $4.5 million for 2007 and 2006,
respectively, relate to management fees paid to related parties under various
management services and consulting agreements at EVD and DJW which are based on
net revenues and EBITDA.
  In 2007,
EVD expensed $2.6 million as a loss on disposal of assets related primarily to
the write-off of initial architectural and design costs related to the EVD hotel
project.  See Note 3 to the consolidated financial statements for
further discussion of this disposal.
  Interest
income of approximately $2.6 million for 2007 and $1.0 million for 2006 is
primarily related to interest earned on cash deposits invested in interest
bearing accounts. The increase is due to increased funds available for
investment due to the borrowings at the end of 2006, as discussed below, and
timing of capital expenditures.  Net interest expense, including
interest expense related to DJL’s redeemable preferred membership interests in
2006, increased $7.5 million to $40.5 million during 2007 from $33.0 million in
2006. This increase is primarily due to (i) an increase in interest of
approximately $6.1 million related to the additional issuance of DJW Notes in
the amount of $20.0 million in August 2006, $36.5 million in December 2006 and
$23.0 million in October 2007 and an increase in interest of approximately $1.8
million related to the additional issuance of Peninsula Gaming Notes in the
amount of $22.0 million in December 2006.
  
  2006
Compared to 2005
  Net
revenues increased $65.3 million, or 39%, to $234.4 million in 2006 from
$169.1 million in 2005. This increase was primarily related to an increase
in casino revenues at DJW of $49.4 million. Also contributing to the increase is
an increase in EVD’s casino revenues of $11.3 million to $106.6 million in 2006
from $95.3 million in 2005. This increase is attributed primarily to an
increase in admissions as well as an increase in the average amount spent by our
customers per trip, which we believe is attributable to our continued focus
during the period on marketing and player development programs and promotions.
Daily casino win per position at EVD was $179 in 2006 as compared to $160 in
2005.
  DJL’s
casino revenues decreased by $6.7 million to $44.8 million in 2006 from $51.5
million in 2005. We believe this decrease was primarily related to the expansion
of a local competitor’s gaming facility, which resulted in an increase in the
number of slot machines in May 2005, and the introduction of video poker in
February 2006 and table games in March 2006. In addition, a new casino
facility located approximately 110 miles from DJL’s casino opened to the public
on August 31, 2006, further increasing competition in the Eastern Iowa
market.  DJL’s slot revenue decreased to $40.2 million in 2006 from
$45.1 million in 2005, and DJL’s table game revenue decreased 28% to $4.6
million for 2006 compared to $6.4 million for 2005 primarily due to the
expansion of a competitor’s gaming facility as described above.  DJL’s
casino win per
   37
  gaming
position per day decreased to $135 in 2006 from $155 in 2005.
  DJW’s
casino revenues of $49.4 million for 2006 were comprised of slot revenues of
$45.3 million and table game revenues of $4.1 million.  DJW’s win per
gaming position per day was $266 for the period April 4, 2006 (date of opening
the casino to the public) through December 31, 2006.
  Racing
revenues at EVD for 2006 were $22.1 million compared to $17.6 million for 2005.
This increase is primarily attributable to EVD running 14% more live meets
during 2006 compared to 2005.  This increase in live meets was
necessitated due to damage at the Delta Downs racetrack caused by Hurricane Rita
in 2005.  The remaining increase in racing revenues is due to the
opening of new OTBs in the second quarter of 2005, fourth quarter of 2005, and
first quarter of 2006 as well as an increase in patronage at our Port Allen and
New Iberia OTB’s.  In July 2006, EVD closed the Alexandria
OTB.
  Video
poker revenues at EVD for 2006 were $3.7 million compared to $2.3 million for
2005. The increase in video poker revenues is attributable to the addition of
video poker in our new OTB in Eunice, Louisiana in April 2006 as well as an
increase in admissions at our Port Allen OTB.
  Net food
and beverage revenues, other revenues and promotional allowances increased $5.5
million during 2006 compared to 2005 due primarily to an increase in net food
and beverage revenues, other revenues and promotional allowances at DJW of $4.0
million due to the opening of the casino in April 2006 and the purchase of a
convenience store that was acquired in September 2005 in connection with the
purchase of the land on which the new casino was constructed and an increase in
other revenue at DJL of $1.6 million primarily related to the DRA’s contractual
obligation under its operating agreement to pay DJL $0.33 for each $1.00
reduction in DJL’s adjusted gross gaming receipts.
  Casino
operating expenses increased $17.8 million to $85.0 million for 2006 from $67.2
million for 2005 due primarily to DJW casino expenses of $16.0
million.  Also contributing to this increase was an increase in casino
expenses at EVD of $4.1 million primarily related to purse supplements and
gaming taxes which are based on net casino revenues. Casino expenses at the
Diamond Jo decreased $2.3 million primarily related to a decrease in gaming
taxes as a result of the decrease in casino revenues of approximately $1.5
million and a decrease in payroll and related expenses in response to a decrease
in casino revenues of approximately $0.7 million.
  Consistent
with an increase in racing revenues as noted above, racing expenses increased to
$18.6 million for 2006 from $15.3 million for 2005 offset partially by a
reduction in our tote system expense.
  Consistent
with an increase in video poker revenues as described above, video poker
expenses increased $1.1 million to $2.9 million for 2006 from $1.8 million for
2005.
  Food and
beverage expenses increased to $11.7 million for 2006 from $9.8 million for 2005
due primarily to DJW expenses of $1.7 million. Other expenses increased to $6.6
million for 2006 from $1.7 million for 2005 due primarily to an increase in
gasoline and merchandise sales at DJW’s convenience store of $4.9 million due to
the timing of the purchase of the store as discussed above.
  Selling,
general and administrative expenses increased $15.5 million to $43.9 million for
2006 from $28.4 million for 2005. This increase was due primarily to (i) $8.2
million in expenses at DJW and (ii) a $7.3 million increase in
expenses
   38
  associated
with an increase in the fair value and percentage vested of PGP incentive units
granted to certain executive officers of the Company in 2005.  In
December 2006, the employment agreements of the executive officers to which PGP
incentive units were granted were amended to move the obligations under the
incentive unit plan from PGL to PGP.  As such, the liability
associated with these incentive units was assumed by PGP; however, the related
expense associated with the increase in the fair value and percentage vested is
allocated to PGL and such expense is reflected in PGL’s consolidated statement
of operations.
  Depreciation
and amortization expenses increased to $20.8 million for 2006 from $16.2 million
for 2005 due primarily to (ii) depreciation of buildings and equipment related
to the opening of DJW’s casino in April 2006, (ii) depreciation related to the
opening of two new OTBs during 2005 and one during the first quarter of 2006 and
(iii) an increase in depreciation expense at DJL associated with accelerating
depreciation on certain depreciable assets that will either be contributed to
the Historical Society or will not be utilized at its new casino
facility.  Accelerated depreciation on these assets began during the
fourth quarter of 2006 and DJL will continue to depreciate the remaining net
book value of those assets less their estimated fair market value at the date of
contribution or estimated net realizable value up to the date that DJL estimates
commencing operations at the new facility.  Depreciation expense for
2006 increased by approximately $0.2 million as a result of accelerated
depreciation on these assets.  In addition, included in depreciation
expense for 2006 is an impairment charge associated with long-lived assets at
EVD’s Alexandria OTB of approximately $0.4 million.  At December 31,
2006, we performed our annual impairment test on goodwill and indefinite lived
intangible assets and determined that the estimated fair value exceeded its
carrying value as of that date. Based on that review, management determined that
there was no impairment of goodwill and indefinite lived intangible
assets.
  Pre-opening
expenses of $1.0 million for 2006 relate primarily to expenses incurred by DJW
with respect to start-up activities surrounding the new casino development in
Worth County, Iowa. Pre-opening expenses of $0.3 million in 2005 relate to
payroll and other expenses incurred by EVD with respect to start-up activities
surrounding the opening of two OTBs and expenses incurred by DJW with respect to
start-up activities surrounding the new casino development in Worth County,
Iowa. Affiliate management fees of $4.5 million and $2.1 million for 2006 and
2005, respectively, relate to management fees paid to related parties under
various management services and consulting agreements at EVD and DJW which are
based on net revenues and EBITDA.
  Interest
income of approximately $1.0 million for 2006 is primarily related to interest
earned on cash deposits invested in interest bearing
accounts.  Interest income of approximately $0.5 million for 2005 is
primarily related to interest earned on the undistributed net proceeds from the
offering of the DJW Notes in July 2005 which were deposited into interest
bearing accounts.  Net interest expense, including interest expense
related to DJL’s redeemable preferred membership interests, increased $3.5
million to $33.0 million during 2006 from $29.5 million in 2005. This increase
is primarily due to (i) timing of the original issuance of the DJW Notes which
occurred in July 2005, (ii) an increase in interest of approximately $0.7
million related to the issuance of $20 million principal amount of DJW Notes in
August 2006 and (iii) interest of approximately $0.4 million related to the
sales tax accrual at EVD as discussed in Note 7. Interest expense of
approximately $0.8 million and $0.4 million was capitalized as part of the DJW
casino development and other construction projects during 2006 and 2005,
respectively.  In October 2006, DJL redeemed all of the outstanding
redeemable preferred membership interests for $4.0 million plus accrued
interest.
  Seasonality
and Inflation
   39
  Our
operations are subject to seasonal fluctuations. Our Iowa operations are
typically weaker from November through February as a result of adverse
weather conditions, and are typically stronger from March through October.
Our Louisiana horse racing operations are also subject to seasonal fluctuations.
Our horse racing operations are usually stronger during live racing season which
generally runs from April through November. In general, our payroll and
general and administrative expenses are affected by inflation. Although
inflation has not had a material effect on our business to date, we could
experience more significant effects of inflation in future periods.
  
  Liquidity
and Capital Resources
  Cash Flow Activities
  Our cash
balance decreased $14.8 million to $42.1 million at December 31, 2007 from $56.9
million at December 31, 2006.
  Cash
flows from operating activities were $42.3 million in 2007, an increase of $0.5
million when compared to $41.8 million in 2006. This increase is due to
increased operating performance at DJW due to timing of the opening of the
casino in April 2006 and the casino expansion in 2007, as well as an increase in
operating performance at EVD, offset by a decrease in operating performance at
DJL due to increased competition from the expansion of a local competitor in
2006 as well as the effects of adverse weather conditions in the fourth quarter
of 2007 and an increase in general corporate payroll and operating
expenses.
  Cash
flows used in investing activities during 2007 was $50.6 million consisting of
cash outflows of (i) payments of approximately $34.4 million for
construction and other development costs associated with various projects
including the DJW casino expansion project, the DJL casino development project
and the EVD hotel development project, (ii) cash outflows of $14.7 million for
the purchase of the City Bonds by DJW, (iii) cash outflows of $6.5 million
used for general maintenance capital expenditures at DJL, EVD and DJW, (iv)
payments to long-term deposit of $6.4 million by DJL in accordance with the
Development Agreement with the City of Dubuque, Iowa and (v) business
acquisition and licensing costs of $1.5 million. These outflows were partially
offset by proceeds from our restricted cash balance designated for construction
and other development costs associated with the Worth County casino development
and expansion project of $13.0 million.
  Cash
flows used in financing activities during 2007 of $6.6 million reflects the
proceeds of $22.7 million from the offering of $23.0 million in additional DJW
Notes, partially offset by (i) aggregate principal payments on debt of $13.7
million, including principal payments under the term loan portion of the PGL
Credit Facility of $4.7 million, (ii) payment of deferred financing costs
of $9.1 million primarily related to the discount associated with the purchase
of the City Bonds by DJW with a corresponding non-cash contribution to
DJL and (iii) member distributions of approximately $6.4
million.
  Cash
flows from operating activities were $41.8 million in 2006, an increase of $20.3
million when compared to $21.5 million in 2005. The increase is primarily due to
the opening of the DJW casino as DJW had $21.0 million in cash flows from
operating activities in 2006 compared to $(0.7) million in
2005.
  40
  Cash
flows used in investing activities during 2006 was $32.0 million consisting of
cash outflows of (i) payments of approximately $23.6 million for
construction and other development costs associated with the Worth County casino
development and expansion project, (ii) net cash outflows of approximately
$12.7 million used for capital expenditures mainly related to the development of
our new OTB in Eunice, Louisiana, the acquisition of slot machines and slot
machine conversions and general maintenance capital expenditures at DJL, OED and
DJW, (iii) business acquisition and licensing costs of $1.5 million and
(iv) changes in cash surrender value of $0.3 million of key person life
insurance policies. These outflows were partially offset by a decrease in our
restricted cash balance designated for construction and other development costs
associated with the Worth County casino development and expansion project of
$6.1 million.
  Cash
flows from financing activities during 2006 of $34.3 million reflects
(i) proceeds from the offering of $56.5 million in additional DJW Notes,
(ii) net proceeds of $21.8 million from the offering of $22.0 million principal
amount of additional Peninsula Gaming Notes, net of discount, and (iii)
aggregate borrowings under the revolver portion of the PGL Credit Facility and
under the DJW Credit Facility of $29.7 million. These inflows were partially
offset by (i) aggregate principal payments under the revolver portion of the PGL
Credit Facility and DJW Credit Facility of $53.5 million, (ii) payment of
deferred financing costs associated with the issuance of the additional DJW
Notes and Peninsula Gaming Notes of $4.4 million, (iii) redemption by DJL of
preferred members interest — redeemable of $4.0 million, (iv) aggregate
principal payments under the term loan portion of the PGL Credit Facility of
$4.0 million, (v) aggregate principal payments on notes payable of $5.3
million and (vi) member distributions of approximately $2.5
million.
  As of
December 31, 2007, the Company had no outstanding balances under the revolver
portion and the term loan portion of the PGL Credit Facility, and outstanding
letters of credit of approximately $0.8 million. In addition, as of December 31,
2007, DJW had no outstanding balances under the DJW Credit Facility and
outstanding letters of credit of approximately $0.7 million.
  Financing
Activities
  On April
16, 2004, DJL and PGC completed a private placement of $233 million principal
amount of 8 3⁄4% senior secured notes due 2012 (the “Peninsula Gaming Notes”). The
Peninsula Gaming Notes were issued at a discount of approximately $3.3 million.
Interest on the Peninsula Gaming Notes is payable semi-annually on April 15 and
October 15 of each year, beginning on October 15, 2004. Upon a corporate
restructuring, the Company also became a co-issuer of the Peninsula Gaming
Notes.
  On
December 22, 2006, the Company, DJL, and PGC, as co-issuers, issued and
sold to a third party investor in a private placement $22.0 million aggregate
principal amount of Peninsula Gaming Notes (“Additional Peninsula Gaming
Notes”).  The Company used a portion of the net proceeds from this
issuance of the Additional Peninsula Gaming Notes to pay down borrowings under
its existing senior credit facility and to finance, in part, the construction of
the new casino at DJL and the development of the hotel at EVD.
  The
indenture governing the Peninsula Gaming Notes limits the Company’s ability to,
among other things, incur more debt; pay dividends or make other distributions
to PGP and DJW (for so long as DJW is an unrestricted subsidiary); redeem stock;
make certain investments; create liens; enter into transactions with affiliates;
merge or consolidate; and transfer or sell assets.
   41
  The
Peninsula Gaming Notes are full and unconditional obligations of DJL as a
co-issuer. PGL and PGC, also co-issuers, have no independent assets (other than
PGL’s cash and investment in its subsidiaries) or operations. The Peninsula
Gaming Notes are secured by substantially all the assets of PGL, DJL and EVD
subject to the prior lien of the PGL Credit Facility as discussed below. The
Peninsula Gaming Notes are also fully and unconditionally guaranteed, subject to
the prior lien of the PGL Credit Facility, by EVD. Further, EVD and DJL have
pledged their equity interests as collateral. All of DJL’s and EVD’s net assets
are restricted except for $5.1 million at December 31, 2007 under the Peninsula
Gaming Notes. The Peninsula Gaming Notes do not limit DJL’s or EVD’s ability to
transfer net assets between PGL, DJL and EVD.
  In
July 2005, DJW completed a private placement of $40.0 million aggregate
principal amount of DJW Notes. In connection with the offering of the DJW Notes,
DJW was designated an “unrestricted subsidiary” by the Company under the
indenture governing the Peninsula Gaming Notes, and DJW was released of its
obligations under the PGL Credit Facility. The DJW Notes bear interest at a rate
of 11% per year, payable semi-annually on April 15 and October 15 of
each year.
  The DJW
Notes are secured by a pledge of the equity of DJW and DJWC and substantially
all of DJW’s current and future assets. The lien on the collateral that secures
the DJW Notes is contractually subordinated to the liens securing up to $5.0
million of indebtedness under the DJW Credit Facility as discussed below. The
DJW Notes, which mature on April 15, 2012, are redeemable at the Company’s
option, in whole or in part at any time or from time to time, on and after
April 15, 2008 at certain specified redemption prices set forth in the
indenture governing the DJW Notes. The indenture governing the DJW Notes
contains a number of restrictive covenants and agreements, including covenants
that limit the ability of the Company and its subsidiaries to, among other
things: (1) pay dividends, redeem stock or make other distributions or
restricted payments; (2) incur indebtedness or issue preferred shares;
(3) make certain investments; (4) create liens; (5) consolidate
or merge; (6) sell or otherwise transfer or dispose of assets;
(7) enter into transactions with affiliates; (8) use proceeds of
permitted asset sales and (9) change its line of business. Specifically, DJW is
prohibited from making any dividends or other distributions to PGL, subject to
certain limited exceptions. DJW is permitted to make dividends or other
distributions to PGL to pay certain tax obligations. Further, DJW can make
dividends and other distributions to PGL to pay corporate overhead or similar
allocations or payments, including, but not limited to, tax preparation,
accounting, licensure, legal and administrative fees and expenses. Additionally,
DJW may make dividends and other distributions to PGL in respect of certain
payments under management agreements and to pay reasonable directors’ or
managers’ fees and expenses, so long as any payments with respect to any
management agreement or certain employee, consulting or similar agreements do
not, in the aggregate, in any fiscal year exceed (a) for 2006, $500,000, (b) for
2007, the product of 1.333333 multiplied by 4.0% of DJW’s Consolidated EBITDA
(as defined in the indenture governing the DJW Notes) for the nine months ended
December 31, 2006 and (c) for any fiscal year thereafter, 4.0% of DJW’s
Consolidated EBITDA for the preceding fiscal year. Finally, DJW can make
additional dividends and other distributions not to exceed $0.5 million. Subject
to the foregoing provisions, all of the net assets of DJW are
restricted.
  On August
31, 2006, DJW entered into the First Supplemental Indenture to the Indenture
dated as of July 19, 2005 (the “DJW First Supplemental Indenture”) which
permitted, among other things, the issuance by DJW on August 31, 2006 of an
additional $20 million principal amount of DJW Notes, the proceeds of which were
used in part to fund the current expansion of the DJW casino. In addition, the
DJW First Supplemental Indenture requires DJW to offer to buy back a portion of
the DJW Notes on a semi-annual basis, beginning March 31, 2007, with 50% of
Excess Cash Flow (as defined therein) at a premium of 7.5%. Such provision was
determined to be an embedded derivative and was fair valued and separated from
the DJW Notes at date of issuance since it was not clearly and closely related.
As of December 31, 2007 and December 31, 2006, the fair value of the put option
was approximately $1.3 million and $0.5 million, respectively. The fair value of
the put option
  42
  was
determined to be the present value of the estimated premium payments through the
maturity of the DJW Notes. The estimated premium payments were calculated using
estimated future cash flows developed by the Company to estimate the portion of
the DJW Notes that would be subject to the contingent put option, yields of
comparable financial instruments, the remaining date to maturity of the DJW
Notes and based on discussions with the holders of the notes as to whether the
contingent put option would be elected by the noteholders. The fair value of the
put option is revalued at the end of each reporting period with a corresponding
charge (benefit) to interest expense. During the year ended December 31, 2007,
the Company expensed $0.9 million as interest expense related to the change in
the fair value of the embedded derivative. In addition, DJW redeemed $2.4
million principal amount of DJW Notes in November 2007, plus the applicable
premium and accrued interest, based on the Excess Cash Flow
provision.
 
 On
December 21, 2006, DJW entered into the Second Supplemental Indenture to the
Indenture dated as of July 19, 2005 (the “DJW Second Supplemental Indenture”)
which permitted, among other things, the issuance by DJW on December 21, 2006 of
an additional $36.5 million principal amount of DJW Notes (“Additional DJW
Notes”) and the distribution of up to $35.0 million of the net proceeds of the
Additional DJW Notes to PGL.  The distribution was made to PGL in 2006
and was used to pay down borrowings under its existing senior credit facility
and to finance, in part, the current construction of the new casino at DJL and
the development of the hotel at EVD.
  On
October 16, 2007, DJW entered into the Third Supplemental Indenture to the
Indenture dated as of July 19, 2005 which permitted, among other things, the
issuance by DJW on October 16, 2007 of an additional $23.0 million principal
amount of DJW Notes at a purchase price of 98.5% of the principal amount
thereof, the proceeds of which were used to fund the purchase of DJW’s
investment in the City Bonds.
 
 On June
16, 2004, DJL and EVD jointly entered into a loan and security agreement with
Wells Fargo Foothill, Inc. as the arranger and agent which was later amended in
November 2004, July 2005 and December 2006 (as amended, the “PGL Credit
Facility”). The PGL Credit Facility consists of a revolving credit facility
which permits DJL and EVD to request advances and letters of credit up to the
lesser of the maximum revolver amount of $65.0 million (less amounts outstanding
under letters of credit) and a specified borrowing base (the “Borrowing Base”).
The Borrowing Base is the lesser of the combined EBITDA (as defined in the PGL
Credit Facility) of EVD and DJL for the twelve months immediately preceding the
current month end multiplied by 150% and the combined EBITDA of EVD and DJL for
the most recent quarterly period annualized multiplied by 150%. At December 31,
2007, the maximum revolver amount was $65.0 million. The borrowings under the
revolver portion of the PGL Credit Facility bear interest at a rate equal to the
Wells Fargo prime rate plus a margin of 0.25%, or 7.5% at December 31, 2007. The
available borrowing amount at December 31, 2007, after reductions for amounts
borrowed and letters of credit outstanding at DJL and EVD, was $64.2 million. As
of December 31, 2007, there were no outstanding advances under the revolver
portion of the PGL Credit Facility and outstanding letters of credit of
approximately $0.8 million.
  The PGL
Credit Facility also contained a term loan, the balance of which was paid off in
November 2007.
  DJL and
EVD are jointly and severally liable under the PGL Credit Facility and such
borrowings are collateralized by substantially all of the assets of EVD and DJL.
Borrowings under the PGL Credit Facility are guaranteed by PGL and
PGC.
  The PGL
Credit Facility contains a number of restrictive covenants, including covenants
that limit DJL’s and EVD’s
   43
  ability
to, among other things: (1) incur more debt; (2) create liens; (3) enter into
any merger, consolidation, reorganization, or recapitalization, or reclassify
its capital stock; (4) dispose of certain assets; (5) guarantee the debt of
others; (6) pay dividends or make other distributions; (7) make investments; and
(8) enter into transactions with affiliates. The PGL Credit Facility also
contains financial covenants including a minimum combined EBITDA (as defined by
the PGL Credit Facility) of DJL and EVD and limitations on capital expenditures
at DJL and EVD.
  Specifically,
DJL and EVD are prohibited from making any dividends or other distributions to
PGL or any of PGL’s unrestricted subsidiaries, subject to certain limited
exceptions.  For example, DJL and EVD are permitted to make dividends
or other distributions to PGL to pay certain tax obligations and to fund tax
preparation, accounting, legal and administrative fees and expenses.
Additionally, DJL and EVD may make dividends and other distributions to PGL in
respect of certain payments under management agreements and to pay reasonable
directors’ or managers’ fees and expenses, so long as such payments do not, in
the aggregate, in any fiscal year exceed the lesser of (a) 4.0% of DJL and EVD’s
combined EBITDA (as defined in the PGL Credit Facility) for the preceding fiscal
year and (b) $4.0 million. DJL and EVD may also make dividends or other
distributions to PGL so that PGL, subject to certain limitations, can
repurchase, redeem or otherwise acquire equity interests in PGL or its
restricted subsidiaries (as defined in the PGL Credit Facility) from its
respective employees, members or managers.
  During
the third quarter of 2007, certain conditions precedent to the effectiveness of
all remaining provisions (including the increase in available borrowings under
the revolver portion of the facility to $65.0 million and the ability to make
additional capital expenditures in connection with the proposed casino project
at DJL) of the fourth amendment to the PGL Credit Facility were
satisfied.
 
 In July
2007, DJL, EVD and Wells Fargo Foothill, Inc., entered into a Consent to Loan
and Security Agreement in which Wells Fargo Foothill, Inc. consented to capital
expenditures by DJL, in addition to capital expenditures permitted by the
original loan agreement and subsequent amendments, in an aggregate amount not to
exceed $80.0 million for the DJL casino project.  DJL and EVD expect to
enter into an amendment to the PGL Credit Facility in the second quarter of 2008
to allow for expected DJL casino project costs of $82.5 million.
 On
October 4, 2006, DJW and DJWC entered into a senior secured revolving credit
facility with American Trust & Savings Bank that was subsequently amended on
December 21, 2006 and October 16, 2007 (as amended, the “DJW Credit Facility”).
The DJW Credit Facility permits DJW to request advances and letters of credit of
up to $5.0 million. Advances under the DJW Credit Facility bear interest at a
rate equal to the greater of (i) at DJW’s option, either LIBOR plus a margin
1.85%-2.20% or the Wall Street Journal prime rate less a margin of 1.0%, or
6.25% at December 31, 2007, and (ii) 5%. The DJW Credit Facility expires on
March 1, 2010.  The available borrowing amount under such facility at
December 31, 2007, after reductions for amounts borrowed and letters of credit
outstanding at DJW, was $4.3 million. As of December 31, 2007, there were no
outstanding advances under the DJW Credit Facility and outstanding letters of
credit of approximately $0.7 million.
  The DJW
Credit Facility contains a number of restrictive covenants, including covenants
that limit DJW’s ability to, among other things, incur or guarantee more debt
and create liens. In addition, the DJW Credit Facility requires that, on an
annual basis, DJW repay all advances (other than amounts designated under
letters of credit) and such repayment of all advances must continue for a period
of five days, after which, DJW will be allowed to resume requesting advances.
The DJW Credit Facility also contains customary events of default, including
nonpayment of principal and interest when due, violation
   44
  of
covenants, material inaccuracy of representations and warranties, bankruptcy
events, and material judgments. Certain of the events of default are subject to
a grace period.
  DJW’s and
DJWC’s obligations under the DJW Credit Facility are secured by a security
interest in substantially all of DJW’s and DJWC’s tangible and intangible
assets. The DJW Credit Facility is secured by substantially the same assets that
secure the DJW Notes. Pursuant to an intercreditor agreement between DJW and
American Trust and Savings Bank, the lien on the collateral securing the DJW
Credit Facility is contractually senior to the lien on the collateral securing
the DJW Notes and the related guarantees. Our Chief Executive Officer agreed to
unconditionally guarantee DJW’s payment obligations to the lender under the DJW
Credit Facility.
  
  Liquidity
  In
addition to our cash on hand, we currently have the following sources of funds
for our business: (i) cash flows from operations, (ii) available borrowings
under the PGL Credit Facility and (iii) available borrowings under the DJW
Credit Facility. The available borrowing amount at December 31, 2007, after
reductions for amounts borrowed and letters of credit outstanding under the PGL
Credit Facility and the DJW Credit Facility was $64.2 million and $4.3 million,
respectively. Contractual restrictions and other provisions contained in the
agreements governing our consolidated indebtedness, including our senior credit
facilities and the indentures governing the Peninsula Gaming Notes and the DJW
Notes, limit or restrict our ability to use the funds available to us at each of
our gaming properties.
  In
September 2006, DJL announced its intent to develop and construct a new casino
and entertainment complex near its current casino facility.  The
development is currently under construction and is expected to include
approximately 1,000 slot machines, 17 table games, a five-table poker room,
various restaurants, a bowling center and an entertainment
center.  The project is expected to cost approximately $82.5 million
and is expected to open in the fall of 2008.
  On
October 1, 2007, DJL entered into the Development Agreement with the City
regarding, among other things, the design, development, construction and
financing of a public parking facility to be located adjacent to DJL’s proposed
casino development. The total development cost of the parking facility is
estimated to be approximately $23 million. In October 2007, the City entered
into a guaranteed maximum price contract with a third party to construct the
parking facility. As previously discussed, the City financed the expected
construction costs through the issuance of the City Bonds purchased by DJW and
an initial payment to the City by DJL of $6.4 million during
2007.  Based on this, we do not expect to make any further cash
payments in respect to the public parking facility in
2008.
 
 In
addition, EVD is currently developing a 75,000 square foot 100 room hotel
contiguous to its current casino.  Additional amenities for the hotel
include a fitness center, meeting space, a full in-house support laundry and a
guest business center. Adjoining the existing racino structure, the new hotel
will provide easy access to the casino and all of EVD’s existing
amenities.  EVD has engaged a local architect for the project and is
currently in negotiations with developers for the approximately $15.0 million
hotel.
 
 For DJL
and EVD, we expect our capital expenditures for the next twelve months,
excluding any amounts related to the casino development at DJL and the hotel
development at EVD, to be approximately $7.9 million. Capital expenditures for
the next twelve months related to the casino development at DJL and the hotel
development at EVD are expected to be approximately $69.3 million and $13.7
million, respectively. DJL and EVD’s debt maturities for the next twelve months
are
   45
  expected
to be approximately $0.6 million. DJL and EVD’s member distributions to PGP for
the next twelve months are expected to be approximately $2.0
million.  The Company plans to finance these expected cash
requirements with: (i) a portion of the available cash on hand at the Company,
DJL and EVD of $28.3 million at December 31, 2007, excluding amounts needed for
normal operations, (ii) cash generated from operations, (iii) available
borrowings under the PGL Credit Facility and (iv) available vendor and equipment
financing. There can be no assurances that such projects will be completed in
the estimated time frames or at the estimated costs.  The PGL Credit
Facility is scheduled to terminate in June 2008.  We are currently
working with Wells Fargo Foothill, Inc., the arranger and agent under the
current facility, to extend or renew the PGL Credit Facility under similar
economic terms.  The Company expects to be able to extend or renew the
PGL Credit Facility prior to its expiration.
  For DJW,
we expect our capital expenditures for the next twelve months to be
approximately $3.5 million, including the $1.0 million payment due in May 2008
relatd to DJW’s gaming license. DJW’s debt maturities for the next twelve months
are expected to be approximately $2.6 million. DJW’s member distributions to PGP
for the next twelve months are expected to be approximately $0.7
million.  The Company plans to finance these expected cash
requirements with: (i) a portion of the available cash on hand at DJW of $13.8
million at December 31, 2007, excluding amounts needed for normal operations and
(ii) cash generated from operations.
  Based on
our cash on hand, expected cash flows from operations and our available sources
of financing, we believe we will have adequate liquidity to satisfy our current
operating needs at each of our gaming properties and to service our outstanding
indebtedness for the next twelve months.
  Our level
of indebtedness will have several important effects on our future operations
including, but not limited to, the following: (i) a significant portion of
our cash flow from operations will be required to pay interest on our
indebtedness and the indebtedness of our subsidiaries; (ii) the financial
covenants contained in the agreements governing such indebtedness will require
us and/or our subsidiaries to meet certain financial tests and may limit our
respective abilities to borrow additional funds or to transfer or dispose of
assets; (iii) our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired; and (iv) our ability to adapt to changes in the
gaming or horse racing industries which affect the markets in which we operate
could be limited.
  Contractual
Obligations and Commitments and Contingent Liabilities
  Our
future contractual obligations and commitments at December 31, 2007
(including purchase commitments related to the construction of the new DJL
casino) were as follows (in millions of dollars):
  Payments due by PeriodContractual Obligations
              
              Total
              
              Less Than
                1 Year
              
              2 – 3 Years
              
              4 – 5 Years
              
              ThereafterLong-Term
      Debt
              
              $ 384.2
              
              $             3.3
              
              $             8.8
              
              $ 372.1
              
              $             —Interest
      on Long-Term Debt
              
              153.4
              
              36.4
              
              71.6
              
              45.4
              
              —Operating
      Leases
              
              2.8
              
              1.2
              
              0.9
              
              0.3
              
              0.4Purchase
      Commitments (1)
              
              97.4
              
              41.4
              
              4.6
              
              4.1
              
              47.3Other
      Long-Term Liabilities (2)
              
              8.3
              
              5.8
              
              1.1
              
              0.6
              
              0.8Total
      Contractual Obligations
              
              $ 646.1
              
              $             88.1
              
              $             87.0
              
              $ 422.5
              
              $             48.5
  46
  
 (1)           Includes
approximately $35.7 million related to DJL’s remaining minimum obligations to
build the new casino under the Development Agreement, approximately $50.0
million related to DJL’s future obligations under the Minimum Assessment
Agreement over a period of 30 years and approximately $3.6 million related to
DJL’s obligation for capital expenditures under the Development Agreement over
30 years.
  (2)           Included
in other long-term liabilities is our unconditional obligation to
contribute the dockside pavilion and Diamond Jo vessel of $5.5
million.  Such transfer is expected to occur in less than one year and
will represent a noncash payment of our obligation under the Historical Society
Agreement.  The obligation is classified as long-term because the
related assets are still in use by DJL and included in property and equipment,
net.
  The
following shows our contingent obligations at December 31, 2007 based on
expiration dates (in millions):
  Less Than
                1 Year
              
              1 – 3 Years
              
              4 – 5 Years
              
              ThereafterStandby
      letters of credit
              
              $           1.5
              
              $             —
              
              $           —
              
              $         —
  Off-Balance
Sheet Transactions
  Other
than as disclosed above, we do not maintain any off-balance sheet transactions,
arrangements, obligations or other relationships with unconsolidated entities or
others that are reasonably likely to have a material current or future effect on
our financial condition, cash flows, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
  Recent
Accounting Pronouncements
  In
December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007),
Business Combinations
(“SFAS 141R”). SFAS 141R significantly changes the way companies account for
business combinations and will generally require more assets acquired and
liabilities assumed to be measured at their acquisition-date fair value. Under
SFAS 141R, legal fees and other transaction-related costs are expensed as
incurred and are no longer included in goodwill as a cost of acquiring the
business. SFAS 141R also requires, among other things, acquirers to estimate the
acquisition-date fair value of any contingent consideration and to recognize any
subsequent changes in the fair value of contingent consideration in earnings. In
addition, restructuring costs the acquirer expected, but was not obligated, to
incur will be recognized separately from the business acquisition. This
accounting standard is effective for the Company’s year ending December 31,
2009. The Company is currently evaluating the impact of SFAS 141R on the
Company’s financial statements.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities
to choose to measure certain eligible financial assets and financial liabilities
at fair value (the fair value option). SFAS 159 also establishes presentation
and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the fair value
option is elected would be reported in earnings. SFAS 159 is effective for the
Company's year ending December 31, 2008. The Company is currently evaluating
whether to elect the fair
  47
  value
option for eligible financial assets and/or financial liabilities and the
impact, if any, of SFAS 159 on the Company’s financial statements.
  In
September 2006, the FASB issued SFASNo. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements. SFAS 157
indicates, among other things, a fair value measurement assumes that the
transaction to sell an asset or transfer a liability occurs in the principal
market for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability. SFAS 157 is effective for
the Company's year ending December 31, 2008, with the exception of certain
non-financial assets and liabilities for which the effective date is the
Company’s year ending December 31, 2009. The Company is currently evaluating the
impact of SFAS 157 on the Company's financial statements.
 
  Critical
Accounting Policies
  The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. We periodically evaluate our policies and the
estimates and assumptions related to these policies.
 
 Understanding
our critical accounting policies and related risks is important in evaluating
our financial condition and results of operations. The critical accounting
policies used in preparation of the Company’s financial statements involve a
significant use of management judgment on matters that are inherently uncertain
and are described below. If actual results differ significantly from
management’s estimates, there could be a material effect on our financial
condition, results of operations and cash flows. Management regularly discusses
the identification and development of these critical accounting policies with
the Audit Committee of the Board of Managers. There have been no significant
changes to the Company’s critical accounting policies during the year ended
December 31, 2007.
  Goodwill, Intangible and Other
Long-Lived Assets.We evaluate our goodwill,
intangible and other long-lived assets for impairment on a periodic basis. For
goodwill and intangible assets with indefinite lives, we compare the carrying
values to fair values on an annual basis or sooner if an indication of
impairment exists. Other long-lived assets are reviewed for impairment when
management plans to dispose of assets or when events or circumstances indicate a
possible impairment. For assets to be disposed of, we recognize the asset at the
lower of carrying value or fair market value less costs of disposal, as
estimated based on comparable asset sales, solicited offers, or a discounted
cash flow model. For assets to be held and used, we review for impairment
whenever indicators of impairment exist. We then compare the estimated future
cash flows of the asset, on an undiscounted basis, to the carrying value of the
asset. If the undiscounted cash flows exceed the carrying value, no impairment
is indicated. If the undiscounted cash flows do not exceed the carrying value,
then an impairment loss is recorded based on the fair value of the asset,
typically measured using a discounted cash flow model. All recognized impairment
losses, whether for assets to be disposed of or assets to be held and used, are
recorded as operating expenses.
  Our
goodwill is related to our DJL operations. Our intangible assets consist of our
tradename and our slot machine
   48
  and
electronic video game and horse racing licenses related to our operations at EVD
and our gaming license at DJW. We intend to use the EVD tradename for the
foreseeable future and our EVD and DJW licenses are renewable subject to our
compliance with state gaming and racing regulations and subject to voter
approval of gaming in Worth County, Iowa every eight years. Our intangible
assets, therefore, have been determined to have indefinite lives and are not
amortized. Should these assets in the future be determined to have finite lives
because of our decision to discontinue the use of the EVD tradename or our
inability to renew our licenses at EVD or DJW, the intangible assets could
become impaired and require an impairment charge and any unimpaired amounts
would be amortized over their remaining useful lives.
  There are
several estimates, assumptions and decisions in measuring impairments of
long-lived assets. First, management must determine the usage of the asset. To
the extent management decides that an asset will be sold, it is more likely that
an impairment may be recognized. Assets must be tested at the lowest level for
which identifiable cash flows exist. This means that some assets must be
grouped, and management has some discretion in the grouping of assets. Future
cash flow estimates are, by their nature, subjective and actual results may
differ materially from our estimates. Our estimates of cash flows are based on
the current regulatory, social and economic climates, recent operating
information and budgets of the various properties where we conduct operations.
These estimates could be negatively impacted by changes in federal, state or
local regulations, economic downturns, or other events affecting various forms
of travel and access to our properties.
  Goodwill
and intangible assets are also subject to impairment by, among other factors,
significant changes in gaming tax rates, competition and regulatory
requirements; lack of license renewals; lack of voter reapproval in Iowa; and
changes in the way we use our EVD tradename. At December 31, 2007, 2006 and
2005, we completed the annual impairment testing of all of our goodwill and
intangible assets with indefinite lives and no impairments were indicated. We
are required to perform an analysis of our goodwill and intangible assets at
least on an annual basis. If our ongoing estimates of future cash flows are not
met, we may have to record impairment charges in future accounting
periods.
  During
the quarter ended June 30, 2006, management determined the undiscounted future
cash flows of its Alexandria OTB did not support the recoverability of the fixed
assets attributable to the OTB’s operation. As such, the Company recognized an
impairment charge for the OTB’s assets that exceeded their estimated fair market
value. The impairment charge of $0.4 million is included in depreciation and
amortization in the consolidated statement of operations and is part of the
Evangeline Downs operating segment.
 
 Investment
Valuation
  Equity Based
Compensation.  Units granted by PGP to our employees under
PGP’s Incentive Unit Plan contain a put option exercisable by the
employee and are recorded at their estimated intrinsic value (which is the
increase in the fair market value of the units granted based on a market
multiple of forecasted total segment operating earnings) with a corresponding
expense recorded within the statement of operations based on the percentage
vested and any change in estimated intrinsic value at each reporting period.
Fair market value of the units can change due to numerous factors including
those previously mentioned under “Goodwill, Intangible and Other Long-Lived
Assets”, and slower than anticipated increases or declines in operating
revenues, unanticipated operating cost increases, construction delays, the
market’s perception of the economy in general, the gaming industry, risk,
interest rates, and alternative investments. Significant changes in estimates
and forecasts related to the calculation of the estimated intrinsic value of the
units may have a material effect on our results of operations in the period in
which the revised estimate is made.
   As of
December 31, 2007, there was approximately $6.3 million of compensation
expense related to nonvested awards which has not been recognized in the
consolidated statement of operations.  Based on the estimated
intrinsic value at
   49
   December
31, 2007, approximately $2.8 million of the unrecognized value of awards is
scheduled to vest over the next nine months unless vested earlier per the terms
of the awards.  The remaining $3.5 million is scheduled to vest upon a
change in control of the Company.
   A $1
change in the estimated intrinsic value of the units at December 31, 2007 would
increase or decrease compensation expense by $0.1 million for the year ended
December 31, 2007.
  Litigation.An estimated loss from a
loss contingency is recorded when information available prior to issuance of the
financial statements indicates that it is probable that a liability has been
incurred at the date of the financial statements and the amount of the loss can
be reasonably estimated. Accounting for contingencies such as legal matters
requires the use of judgment as to the probability of the outcome and the
amount. Many legal contingencies can take years to be resolved. An adverse
outcome could have a material impact on our financial condition, operating
results and cash flows.
  ITEM
      7A.
              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
  We are
exposed to certain market risks which are inherent in our financial instruments
which arise from transactions entered into in the normal course of business.
Market risk is the risk of loss from adverse changes in market prices and
interest rates. We do not currently utilize derivative financial instruments to
hedge market risk. We also do not hold or issue derivative financial instruments
for trading purposes.
  We are
exposed to interest rate risk due to changes in interest rates with respect to
our revolving variable interest rate debt borrowing under the PGL Credit
Facility and DJW Credit Facility. As of December 31, 2007, the Company had no
outstanding borrowings under the PGL Credit Facility and DJW Credit Facility. We
have estimated our market risk exposure using sensitivity analysis. We have
defined our market risk exposure as the potential loss in future earnings and
cash flows with respect to interest rate exposure of our market risk sensitive
instruments assuming a hypothetical increase in market rates of interest of 100
basis points. Assuming we borrow the maximum amount allowed under the PGL Credit
Facility and DJW Credit Facility (currently an aggregate amount of $70.0
million) and if market rates of interest on our variable rate debt increase by
100 basis points, the estimated additional annual interest expense would be
approximately $0.7 million.
  We are
also exposed to fair value risk due to changes in interest rates with respect to
our long-term fixed interest rate available for sale investment and debt
borrowings. Our fixed rate available for sale investment is recorded at fair
value, and therefore, is directly impacted by changes in interest rates and
market risks. Our fixed rate debt instruments are not generally affected by a
change in the market rates of interest, and therefore, such changes generally do
not have an impact on future earnings. However, future earnings and cash flows
may be impacted by changes in interest rates related to indebtedness incurred to
fund repayments as such fixed rate debt matures. The following table contains
information relating to our fixed rate available for sale investment and debt
borrowings as of December 31, 2007 (dollars in millions):
   50
  
  Description
              
              Maturity
              
              Interest
                Rate
              
              Carrying
                Value
              
              Fair
                ValueAvailable
      for sale investment
              
              2011
      - 2037
              
              7
      1⁄2
              %
              $                  12.5
              
              $                  12.5
              *8
      3⁄4% senior secured notes
              
              April 15,
      2012
              
              83⁄4
              %
              252.8
              
              254.4
              *13%
      senior notes with contingent interest of EVD
              
              March 1,
      2010
              
              13
              %
              6.9
              
              6.9
              *11%
      senior secured notes
              
              April
      15, 2012
              
              11
              %
              116.4
              
              117.1
              *Notes
      payable and capital lease obligations
              
              2008
      — 2011
              
              7
      1⁄4% - 83⁄4
              %
              5.0
              
              5.1
  *
              Represents
      fair value as of December 31, 2007 based on current market interest
      rates and estimates of market conditions for instruments with similar
      terms, maturities, and degrees of
risk.
  ITEM
      8.
              FINANCIALSTATEMENTS AND SUPPLEMENTARY
  DATA
  The
report of independent registered public accounting firm, consolidated financial
statements and the notes thereto and the consolidated financial statement
schedule are included beginning on page F-1.
  ITEM
      9.
              CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE
  None.
  ITEM
      9A.
              CONTROLSAND
PROCEDURES
  Disclosure Controls and
Procedures. We
maintain disclosure controls and procedures (as defined in Rule 13a-l 5(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms,
including controls and procedures designed to ensure that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Management necessarily applied its judgment in
assessing the costs and benefits of such controls and procedures, which, by
their nature, can provide only reasonable assurance regarding management’s
disclosure control objectives. Under the supervision and with the participation
of our management, we evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2007. Based on that evaluation, our Chief
Executive Officer and our Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2007.
 
 Internal Control Over Financial
Reporting.
 
 (a)
              Management’s
      Annual Report on Internal Control Over Financial
  Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934. Our internal control over
financial
   51
  reporting
is a process designed, under the supervision of the Chief Executive Officer and
Chief Financial Officer, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Our internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of our assets that could have a material effect on the
consolidated financial statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
  Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2007. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework. Based on this assessment,
management determined that we maintained effective internal control over
financial reporting as of December 31, 2007.
  This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual
report.
  (b)
              Changes
      in Internal Control Over Financial
Reporting
 
 During
the quarter ended December 31, 2007, we have undergone a comprehensive
effort to prepare for compliance with management’s required assessment of
internal control over financial reporting as of December 31,
2007.  This effort, under the direction of our senior management,
included documentation and testing of our general computer controls and business
process controls.  In addition, during the quarter ended December
31, 2007, we formalized and implemented an internal audit plan that included
performing a risk assessment, establishing a reporting methodology and testing
of internal controls and procedures over financial reporting.
  
 ITEM
      9B.
              OTHERINFORMATION
  None.
  PART
III
  ITEM
      10.
              DIRECTORS,EXECUTIVE OFFICERS OF THE REGISTRANT, AND
      CORPORATE GOVERNANCE
   52
  Executive
      Officers and Managers
  PGP is
our sole managing member. The following table sets forth the names and ages of
the executive officers of the Company, DJL and PGC and of the managers of
PGP.
  Name
              
              Age
              
              PositionM.
      Brent Stevens
              
              
              47
              
              Chief
      Executive Officer of the Company, DJL and PGC and Chairman of the Board of
      Managers of PGPMichael
      S. Luzich
              
              
              53
              
              President
      and Secretary of the Company, DJL and PGC and Manager of
    PGPJonathan
      C. Swain
              
              
              42
              
              Chief
      Operating Officer of the Company, DJL and PGCNatalie
      A. Schramm
              
              
              37
              
              Chief
      Financial Officer of the Company, DJL and PGCTerrance
      W. Oliver
              
              
              58
              
              Manager
      of PGPAndrew
      Whittaker
              
              
              46
              
              Manager
      of PGP
 
  Management
Profiles
  Following
is a brief description of the business experience of each of the individuals
listed in the preceding table. Presently, PGP’s board of managers is comprised
of five managers; however, the fifth manager has not been
appointed.
  M. Brent Stevens.Mr. Stevens is our Chief Executive Officer and is the Chairman of
the Board of Managers of PGP, which offices he has held since 1999.
Mr. Stevens also serves as Chief Executive Officer of PGC, DJL, EVD and
DJW. Since 1990, Mr. Stevens has been employed by Jefferies &
Company, Inc., and presently is an Executive Vice President in the
Investment Banking department.
  Michael S.
Luzich.Mr. Luzich is our President and Secretary and has been a
manager of PGP since 1999. Mr. Luzich also serves as President and
Secretary of PGC, DJL, EVD, and DJW. Mr. Luzich is the founder and
President of the Cambridge Investment Group, LLC, an investment and development
company located in Las Vegas, Nevada. Prior to October 1995,
Mr. Luzich was a founding partner and director of Fitzgeralds New
York, Inc. and Fitzgeralds Arizona Management, Inc., which are
development companies responsible for the Turning Stone Casino near Syracuse,
New York for the Oneida Tribe and the Cliff Castle Casino near Sedona, Arizona
for the Yavapai-Apachi Tribe, respectively.
  Jonathan C.
Swain.Mr. Swain was hired as Chief Operating Officer of PGL in
July 2004. Mr. Swain also serves as Chief Operating Officer of PGC,
DJL, EVD, and DJW. Mr. Swain served from 2000 through July 2004 as
Vice President and General Manager of Palace Station, Santa Fe Station and
Sunset Station, three properties of Station Casinos Inc., a hotel and
gaming company headquartered in Las Vegas, Nevada. In 1999 and 2000,
Mr. Swain served as Vice President and General Manager of the Hard Rock
Hotel and Casino in Las Vegas. From 1995 through 1999, Mr. Swain worked for
the Aztar Resorts Inc., serving as the Corporate Vice President of
Marketing and President of the Las Vegas Tropicana. Aztar Resorts, Inc. is
a hotel and gaming company headquartered in Phoenix Arizona. From 1993 to 1995,
Mr. Swain served as Vice President of Marketing and as Executive Director
of International Marketing with the Trump Taj Mahal in Atlantic City, New
Jersey.
   53
  Natalie A.
Schramm.Ms. Schramm is our Chief Financial Officer, which office
she has held since 1999. Ms. Schramm also serves as Chief Financial Officer
of PGC, DJL, EVD and DJW. Ms. Schramm served as Assistant General Manager
of DJL from April 1, 2000 to December 31, 2002. From January 1,
2003 to May 1, 2007, Ms. Schramm served as General Manager of DJL.
Ms. Schramm joined our predecessor, Greater Dubuque Riverboat Entertainment
Company, L.C., in November 1996 and was formerly employed by Aerie Hotels
and Resorts in Oak Brook, Illinois as Corporate Accounting Manager since 1992.
She was responsible for the corporate accounting functions of the Silver Eagle,
the Eagle Ridge Inn and Resorts, located in Galena, Illinois and the Essex
Hotel, located in Chicago, Illinois. She served as Internal Audit Manager for
the Silver Eagle and was a member of a development team that successfully
pursued a riverboat gaming license in Indiana.
  Terrance W.
Oliver.Mr. Oliver is a manager of PGP, which office he has held
since 1999. Since 1993, Mr. Oliver has served as a director of and
consultant to Mikohn Gaming Corporation, a gaming equipment manufacturer
headquartered in Las Vegas. From 1988 until 1993, Mr. Oliver served as
Chairman of the Board to the predecessor company of Mikohn. From 1984 until
1996, Mr. Oliver was a founding shareholder, board member and executive
officer of Fitzgeralds Gaming Corporation. Mr. Oliver retired as the Chief
Operating Officer of Fitzgeralds Gaming Corporation in 1996.
  Andrew Whittaker.Mr. Whittaker is a manager of PGP, which office he has held since
1999. Since 1990 Mr. Whittaker has been employed by Jefferies &
Company, Inc., where he is presently a Vice Chairman.
  Audit Committee
  Terrance
W. Oliver and Andrew Whittaker serve on the Company’s audit committee. Our board
of managers has determined that each of Messrs. Oliver and Whittaker is an
“audit committee financial expert” as that term is used in Item 401(h)(2) of
Regulation S-K adopted by the SEC. Although we are not a “listed issuer” within
the meaning of Rule 10A-3 under the Exchange Act, our board of managers has
determined that each of Messrs. Oliver and Whittaker would be considered an
“independent” director within the meaning of the rules of the New York Stock
Exchange for listed companies and within the meaning of Rule 10A-3 under the
Exchange Act.
  Compliance with
Section 16(a) of the Exchange Act.
  
  Code
of Ethics
  The
Company has adopted a code of ethics that applies to our Chief Executive
Officer, Chief Financial Officer or persons performing a similar function. A
copy of our code of ethics may be obtained, free of charge, upon written request
to our principal place of business.
  ITEM
      11.
              EXECUTIVECOMPENSATION
   54
  
  COMPENSATION
DISCUSSION AND ANALYSIS
  Overview
  This
compensation discussion and analysis describes the material elements of the
compensation awarded to, earned by, or paid to our executive officers who are
considered to be “named executive officers” during our last fiscal
year.  Named executive officers consist of the individuals who served
as our chief executive officer, chief financial officer, and our two most
highly compensated executive officers other than the chief executive
officer and chief financial officer who were serving as executive officers at
the end of 2007, whose names are set forth below in the table under
“Executive Compensation — Summary Compensation Table.”
  Compensation
Objectives
  Our
compensation program is designed to attract and retain talented and dedicated
executive officers, ensure executive compensation is aligned with our corporate
strategies and business objectives, promote the achievement of key strategic and
financial performance measures by linking short- and long-term cash and equity
incentives to the achievement of measurable corporate and individual performance
goals, and align executives’ incentives with the creation of equity-holder
value.
  To
achieve these objectives, we have designed and implemented incentive
compensation to primarily reward our executives for positive financial
performance.
   The
principal components of the compensation package for the Company’s executive
officers are:
   ·
              Base
      salary;
   ·
              Cash
      bonus; and
   ·
              Equity-based
      compensation awards under PGP’s Incentive Unit
  Plan.
  Overall,
our aim is to offer our executives total compensation opportunities that
represent a median compensatory level among a peer group of competitive
companies.  Accordingly, we seek to review the compensation that we
offer against that offered by peer group companies on an annual
basis.
  Processes
and Procedures for Determining Compensation
  PGP’s
operating agreement has delegated certain powers traditionally vested in the
Board of Managers to an executive committee consisting of the Chief Executive
Officer and President and Secretary.  Among the powers and
responsibilities delegated to the executive committee under the operating
agreement is the authority, subject to the approval of the Board of Managers, to
unanimously approve the engagement of all of our executive officers whose
compensation exceeds $100,000 annually.  In the event that the
executive committee is unable to reach a unanimous determination as to any such
engagement within a reasonable period of time, the executive committee submits
the prospective engagement to the
   55
  independent
managers of the Board of Managers, who then make a final
determination.  The Chief Executive Officer determines changes to
salary and bonus compensation of our executive officers.  The Company has
no compensation committee.
  The Board
of Managers administers PGP’s 2004 Amended and Restated Incentive Unit Plan,
referred to as the IUP.  Awards under the IUP are recommended by the
Chief Executive Officer and considered by the Board of Managers.  Our
Chief Executive Officer abstains from decisions made by the Board of Managers
relating to his compensation.
   Compensation
Components
   We
compensate our executives through a mix of base salary, cash bonus awards, and
equity-based compensation.
  Base
Salaries
  Base
salaries for our named executive officers are intended to be competitive with
industry peers and other comparable companies. We establish base salaries for
our executives based on the scope of their responsibilities, and take into
account competitive market compensation paid by companies in our competitive
peer group for similar positions.  Our Chief Executive Officer
evaluates executive performance and reaches base salary compensation decisions
based upon a subjective and careful analysis of each executive’s specific
contributions.  Our Chief Executive Officer takes into consideration
the level of responsibility and experience of each named executive officer and
the knowledge and skill required to perform such executive’s job
requirements.
  In the
case of certain named executive officers, base salaries were initially set in
employment agreements, which typically provide for a minimum increase in base
salary each year.  See “Executive Compensation — Employment and
Consulting Agreements.”  Neither Mr. Stevens, our Chief Executive
Officer, nor Mr. Luzich, our President and Secretary, receives compensation in
the form of a base salary.  Each year, based on each individual’s
performance and contribution and other factors described above, our Chief
Executive Officer reviews and, if appropriate, adjusts salary levels for
each of our other named executive officers.
   Cash
Bonuses
   Cash
bonuses for our named executive officers are intended to be competitive with
industry peers and other comparable companies.  Our named executive
officers can earn additional cash incentive compensation each year to provide
annual incentive for excellence in business and individual
performance.  Our cash bonuses, as opposed to our equity grants, are
designed to more immediately reward our executive officers for their performance
during the most recent year and are intended to reward the achievement of annual
corporate financial and individual performance goals. We believe the
immediacy of these cash bonuses, in contrast to our equity grants which vest
over a period of time, provides a significant incentive to our executives
towards achieving their respective individual objectives.  We believe
our cash bonuses are an important motivating factor to our executive officers,
in addition to being a significant factor in attracting and retaining certain of
our executive officers.  After reviewing individual performances and
industry peers, the Chief Executive Officer determines bonuses and other
incentive awards.  In those cases where a named executive officer has
an employment agreement, provision for the payment of a cash bonus is made on
terms consistent with our general cash bonus policy.  Mr. Luzich
received a one time cash bonus during 2006 related to the successful development
of our new Diamond Jo Worth
   56
   casino.  Mr.
Stevens does not receive compensation in the form of a cash bonus.
   Equity-Based
Compensation
   We
believe that positive long-term Company performance is best achieved through an
ownership culture that provides incentive to our executive officers through the
use of equity compensation.  PGP adopted the IUP to provide for the
grant of profits interests to certain employees, including our named executive
officers.  The IUP was adopted to, among other things: (i) align
compensation rewards with operating results and equity-holder value;
(ii) attract and retain qualified individuals; (iii) motivate
participants to achieve long-range goals; (iv) provide compensation
opportunities competitive with the Company’s industry peers and other comparable
companies; and (v) provide a higher return on equity by focusing award
participation on those individuals with a demonstrated capacity to increase
growth in equity value.  We believe that this strategy is consistent
with our business goals, including equity-holder return, employee retention, and
revenue and segment operating earnings growth.
  The Board of Managers, with the consultation and advice of the Chief Executive
Officer, selects the recipients and sets the terms of profits interests granted
under the IUP.  Generally, profits interests granted under the IUP
will be subject to terms and conditions customary for such plans, which may
include vesting requirements, transfer restrictions, satisfaction of
budget-related performance criteria and similar conditions and qualifications,
in each case, as approved by PGP’s Board of Managers or a subcommittee
thereof.  Holders of profits interests issued under the IUP are
entitled to receive distributions from operating profits on a pro rata basis
with holders of common units of PGP (but only to the extent of profits allocated
to holders of profits interests after the date of grant), and distributions on
liquidation only to the extent of their pro rata share of any undistributed
operating profits allocated to holders of profits interests and any further
appreciation in the fair market value of PGP after the date of
grant.  Under the terms of the IUP, PGP may grant profits interests
from time to time representing up to 15.5% of its outstanding capital interests
on a fully diluted basis. As of December 31, 2007, PGP granted profits interests
representing 15.5% of its outstanding capital interests on a fully diluted
basis, and no additional profits interests have been reserved for
future issuance under the IUP.
 
  In
determining the size of equity grants to our executive officers, our Board of
Managers considers our company-level performance, the applicable executive
officer’s performance, comparative equity ownership of our competitors and peer
group, the amount of equity previously awarded to the applicable executive
officer, the vesting of such awards and the recommendations of management and
any other consultants or advisors that our Board of Managers may choose to
consult.  We currently do not have any formal plan requiring us to
grant, or not to grant, equity compensation on specified dates.  We do
not have any equity ownership guidelines for our executive
officers.
  Benefits
and other Compensation
  We
maintain broad-based benefits that are provided to all employees, including
health and dental insurance, life and disability insurance, a deferred
compensation plan and a 401(k) plan.  Certain of these benefits
require the employee to pay a premium, with the Company paying the remainder of
the premiums.  These benefits are offered on the same basis to all
employees, except that the Company maintains $1 million life insurance policies
for each of our Chief Financial Officer and our Chief Operating
Officer, the beneficiary of which is named by the Chief Financial Officer
and Chief Operating Officer, respectively.  We also provide
supplemental health insurance
   57
  for
certain of our named executive officers that provides for payment of up to
$10,000 per claim and $100,000 in the aggregate per participant annually for
out-of-pocket expenses and deductible costs.
  Our
401(k) retirement plan is available to all eligible
employees.  Company matching contributions to the 401(k) plan are made
at the discretion of the Board of Managers.  In 2007 and 2006, the
Company matched elective employee-participant contributions of our participating
employees, including our named executive officers, on a basis of 50% of the
employee’s contribution up to 8% of their compensation.  Certain
employees, including the named executive officers, are eligible to receive
automobile allowance and membership fees of clubs and associations paid by
us.  In addition, we provide a deferred compensation plan under which
eligible employees may defer compensation and with respect to which we match
100% of any deferred compensation up to the first five percent of the employee’s
total compensation.
  Board
of Managers Report
  The Board
of Managers has reviewed the Compensation Discussion and Analysis and discussed
that analysis with management.  Based on its review and discussions
with management, the Board of Managers has recommended the inclusion of the
Compensation Discussion and Analysis in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
  
 
 
 
   58
 EXECUTIVE
COMPENSATION
  Summary
Compensation Table
  The
following table sets forth information for the years indicated concerning the
compensation paid to our named executive officers for services rendered in all
capacities to PGL, DJL, EVD and DJW, as applicable, during 2007 and
2006.  None of our named executive officers participate in or have
account balances in qualified or non-qualified defined benefit plans sponsored
by us.  Earnings on deferred compensation are not reflected in this
column because the return on earnings is calculated in the same manner and at
the same rate as earnings on externally managed publicly available mutual
funds.  See “Executive Compensation — Non-qualified Deferred
Compensation.”
  Name and Principal Position
              
              Year
              
              Salary
              
              Bonus
                (1)
              
              IUP
                Awards (2)
              
              All Other
                Compensation
              
              TotalM.
      Brent Stevens
              
              2007
              
              $               —
              
              $               —
              
              $               —
              
              $ 268,474
              (3)
              $ 268,474Chief
      Executive Officer
              
              2006
              
              —
              
              —
              
              —
              
              207,522
              (3)
              207,522Michael
      S. Luzich
              
              2007
              
              —
              
              —
              
              —
              
              1,787,097
              (4)
              1,787,097President
      and Secretary
              
              2006
              
              —
              
              145,000
              
              —
              
              1,683,112
              (4)
              1,828,112Jonathan
      C. Swain
              
              2007
              
              439,789
              
              500,000
              
              8,242,020
              
              127,793
              (5)
              9,309,602Chief
      Operating Officer
              
              2006
              
              417,692
              
              400,000
              
              6,751,819
              
              58,668
              
              7,628,179Natalie
      A. Schramm
              
              2007
              
              252,878
              
              225,000
              
              2,054,411
              
              53,440
              (6)
              2,585,729Chief
      Financial Officer
              
              2006
              
              240,173
              
              180,000
              
              1,732,955
              
              40,539
              
              2,193,667
   59
  
 (1)
              
              Bonus
      amounts reflect compensation in the fiscal year earned regardless of the
      year in which paid.(2)
              
              Amounts
      in this column reflect the dollar amount of IUP awards recognized for
      financial statement reporting purposes for the fiscal year ended December
      31, 2007 and 2006, in accordance with Statement of Financial Accounting
      Standards No. 123 (Revised 2004) Share-Based Payment. Assumptions used in
      the calculation of these amounts are included in Management’s Discussion
      and Analysis of Financial Condition and Results of Operations — Critical
      Accounting Policies included elsewhere in this Form
  10-K.(3)
              
              Mr.
      Stevens did not receive a cash salary or bonus from the Company in 2007 or
      2006. All Other Compensation represents compensation at PGP in respect of
      services allocable to the Company.  In addition to the above
      compensation, Mr. Stevens also receives annual board fees for serving on
      the Board of Managers of PGP, which fees are allocated between PGP and the
      Company.  See “Manager Compensation – Manager Compensation
      Table.”(4)
              
              Mr.
      Luzich did not receive a cash salary from the Company in 2007 or 2006. All
      Other Compensation represents fees earned pursuant to a consulting
      agreement with PGP and EVD. See “Executive Compensation — Employment and
      Consulting Agreements.”  In addition to the above compensation,
      Mr. Luzich also receives annual board fees for serving on the Board of
      Managers of PGP, which fees are allocated between PGP and the
      Company.  See “Manager Compensation – Manager Compensation
      Table.”(5)
              
              For
      2007, Mr. Swain received $1,157 in premiums paid on life insurance in
      excess of Internal Revenue Service limitations, $54,596 in housing
      allowance, $8,462 in automobile allowance, $8,426 in membership fees of
      clubs and associations, $7,913 in supplemental health insurance
      reimbursements, $7,750 in matching contributions to our 401(k) plan, and
      $39,489 in matching contributions to our deferred compensation
      plan.(6)
              
              In
      2007, Ms. Schramm received $1,041 in premiums paid on life insurance in
      excess of Internal Revenue Service limitations, $8,462 in automobile
      allowance, $4,343 in membership fees of clubs and associations, $10,200 in
      supplemental health insurance reimbursements, $7,750 in matching
      contributions to our 401(k) plan, and $21,644 in matching contributions to
      our deferred compensation plan.
 
  Grants
of Plan-Based Awards
  The
Company did not make any grants under its IUP in 2007 or 2006.
   60
  
  Outstanding
Equity Awards At Fiscal Year-End
  The
following table sets forth information regarding outstanding equity awards
(consisting solely of awards under the IUP) held by our named executive officers
as of December 31, 2007.
  Name
              
              
              
              Number of Units That
                Have Not Vested
                (#)
              
              Market Value of Units
                That Have Not Vested
                ($)(1)
              
              Number of Unearned Units
                or Other Rights
                That Have Not Vested
                (#)
              
              Market Value of
                Unearned Units or
                Other Rights That Have
                Not Vested
                ($)(1)M.
      Brent Stevens
              
              —
              
              
              $               —
              
              
              —
              
              
              $               —Michael
      S. Luzich
              
              —
              
              
              —
              
              
              —
              
              
              —Jonathan
      C. Swain
              
              26,549
              (2)
              
              5,512,347
              
              
              10,894
              (2)
              
              2,261,93213,275
              (3)
              
              2,756,173
              
              
              13,275
              (3)
              
              2,756,173Natalie
      A. Schramm
              
              6,637
              (2)
              
              1,378,087
              
              
              2,723
              (2)
              
              565,4833,319
              (3)
              
              689,043
              
              
              3,319
              (3)
              
              689,043
  (1)
              Represents
      estimated intrinsic value at December 31,
2007.
  (2)
              Units
      vest on September 12, 2008.
  (3)
              Units
      vest upon a change of control or recapitalization of the
      Company.
  At a
meeting of the Board of Managers of PGP held on February 25, 2005, PGP approved
grants of profits interests under the IUP to certain executive officers of PGP
and/or its subsidiaries aggregating 10.50% of the outstanding membership units
of PGP on a fully diluted basis, of which 2% was awarded to Mr. Swain and 0.5%,
awarded to Ms. Schramm and the balance awarded to Messrs. Stevens and Luzich as
incentive compensation to such individuals at PGP and thus not reflected in this
table.  The terms of the awards reflected in the table above include
specified vesting schedules, acceleration of vesting upon the occurrence of
certain events, anti dilution protection, transfer restrictions and other
customary terms and provisions.
  At a
meeting of the Board of Managers of PGP held on September 12, 2005, PGP granted
awards of profits interests under the IUP to certain executive officers of the
Company and its subsidiaries aggregating 5.0% of the outstanding membership
units of PGP on a fully diluted basis, of which 4% was awarded to Mr. Swain and
1.0% was awarded to Ms. Schramm, in each case subject to certain anti-dilution
provisions which are designed to preserve the percentage of profits interest
originally granted.
   61
  
  Under the
terms of the awards granted on September 12, 2005, 20% of the profits interests
vest on each of the first and second anniversaries of the grant date and an
additional 40% vest on the third anniversary, provided that in each of those
preceding years the Company and its subsidiaries achieves certain target
consolidated segment operating earnings set forth in the Company’s annual
budget. Such consolidated segment operating earning targets were met in each of
the three years. Upon a change of control or recapitalization, the remaining 20%
of the profits interests granted and any remaining unvested interests vest
immediately.  If the employee is terminated without cause, the profits
interests vest immediately.  All profits interests that do not vest in
accordance with their terms shall be forfeited and cancelled.
  Equity
Vested
  The
following table sets forth information regarding the vesting of equity awards
held by the named executive officers during the year ended December 31,
2007.
  IUP AwardsName
              
              
              
              Number of Units Acquired on Vesting
                (#)
              
              Value Realized on Vesting
                ($)(1)M.
      Brent Stevens
              
              —
              
              
              $                  —Michael
      S. Luzich
              
              —
              
              
              —Jonathan
      C. Swain
              
              21,567
              
              
              4,464,725Natalie
      A. Schramm
              
              5,392
              
              
              1,116,181
  (1)           Represents
estimated aggregate intrinsic value on the vesting date.
  Pension
Benefits
  None of
our named executive officers participate in qualified or non-qualified
defined benefit pension plans sponsored by us.  Our Board of Managers
may elect to adopt qualified or non-qualified defined benefit plans in the
future if it determines that doing so is in our best interests.
  Non-qualified
Deferred Compensation
  The
Peninsula Gaming, LLC - Executive Nonqualified Excess Plan, referred to as the
deferred compensation plan, is a non-qualified deferred compensation plan that
allows eligible executives, including certain named executive officers, and
other key-employees to defer up to 20% of their base salary and up to 80% of
their cash bonus compensation.  The following table illustrates the
amounts due to each of our named executive officers under the deferred
compensation plan as of December 31, 2007.  In addition, the table
shows contributions made under the deferred compensation plan by the named
executive officers and the Company in 2007 together with fiscal year end
balances.
   62
  
  Name
              
              
              Executive
                Contributions
                in Last Fiscal
                Year
              
              Registrant
                Contributions
                in Last Fiscal
                Year (1)
              
              Aggregate
                Earnings in
                Last Fiscal Year (2)
              
              Aggregate
                Balance at
                Last Fiscal
                Year End
                (3)M.
      Brent Stevens
              
              
              $     —
              
              
              $      —
              
              
              $      —
              
              
              $        —Michael
      S. Luzich
              
              
              —
              
              
              —
              
              
              —
              
              
              —Jonathan
      Swain
              
              
              39,489
              
              
              39,489
              
              
              (96)
              
              
              223,303Natalie
      A. Schramm
              
              
              21,644
              
              
              21,644
              
              
              (565)
              
              
              126,682
  (1)
              Contributions
      are included in the “All Other Compensation” column of the Summary
      Compensation Table.
  (2)
              No
      amounts shown in the "Aggregate Earnings in Last Fiscal
      Year" column are reported as compensation in the Summary Compensation
      Table.
  (3)
              Amounts
      shown represent all amounts due under the deferred compensation plan.
      At December 31, 2007, Mr. Swain's and Ms. Schramm’s entire aggregate
      balances under the deferred compensation plan were fully
      vested.
  Under the
deferred compensation plan, we match 100% of any deferred compensation up to the
first five percent of the employee’s total compensation deferred.  The
deferred compensation plan is not intended to provide for the payment of
above-market or preferential earnings on compensation deferred under the
plan.  Earnings on deferred compensation are calculated in the same
manner and at the same rate as earnings on certain externally managed publicly
available mutual funds. Employee deferrals are deemed to be invested in these
funds in accordance with the applicable employee’s
election.  Employees under the deferred compensation plan do not
actually own any share of the investment options he or she elects.
  All
employee contributions to the deferred compensation plan are fully vested at the
time of deferral.  All Company match contributions vest over a three
year period commencing on the employee’s first day of employment.  In
addition, all balances under the deferred compensation plan will become fully
vested upon the employee’s death, disability or reaching normal retirement age
or upon a change of control of the Company.  Qualifying distribution
events under the plan include, but are not limited to, the applicable employee’s
separation from service, disability or death, change in control of the Company
and hardship withdrawals.
  Employment
and Consulting Agreements
   63
  
  Michael
S. Luzich-President and Secretary
  Mr.
Luzich is party to a consulting agreement with PGP and EVD pursuant to which he
is entitled to receive compensation in an aggregate annual amount equal to (a)
2% of DJL’s unconsolidated earnings before interest, taxes, depreciation,
amortization and other non-recurring charges, plus (b) 2.5% of EVD’s and DJW’s
earnings before interest, taxes, depreciation, amortization and other
non-recurring charges plus (c) 2.5% of earnings before interest, taxes,
depreciation, amortization and other non-recurring charges of any future gaming
operations acquired, directly or indirectly, by PGP.  The consulting
agreement has a one-year term and, subject to the occurrence of various
termination events, is renewable automatically for successive one-year
terms.  Under this agreement, Mr. Luzich is also entitled to
reimbursement of reasonable business expenses as approved by the board of
managers of PGP.
  Jonathan
C. Swain-Chief Operating Officer
  In
September 2007, Mr. Swain entered into an amended and restated employment
agreement with PGL to serve as Chief Operating Officer.  Under the
terms of his employment agreement, Mr. Swain is entitled to receive from PGL a
base annual salary of $440,000, to be adjusted upward annually on January 1 of
each year of the term of the agreement by not less than 5% of prior year’s
compensation.  In addition to the base salary, Mr. Swain is entitled
to receive an annual cash bonus payable by PGL based on his performance during
the previous fiscal year determined on a basis consistent with bonuses paid to
similarly situated executive officers of PGL, but not less than
$100,000.  Mr. Swain has also been granted profits interest under the
IUP aggregating 6%, of which 3.6% are vested and 1.6% are scheduled to vest in
September 2008 with the remaining 0.8% vesting upon the occurrence of a change
of control or recapitalization of PGP.  For more information relating
to payment obligations of the Company upon termination of Mr. Swain’s
employment, see “Executive Compensation – Potential Payments Upon Termination or
Change of Control”.  Mr. Swain’s employment agreement has a term of
three years.  Mr. Swain’s 2008 salary is $498,050.
 
 Natalie
A. Schramm-Chief Financial Officer
  In
September 2007, Ms. Schramm entered into an amended and restated employment
agreement with PGL to serve as Chief Financial Officer.  Under the
terms of her employment agreement, Ms. Schramm is entitled to receive from PGL a
base annual salary of $253,755, to be adjusted upward annually on January 1 of
each year of the term of the agreement by not less than 5% of prior year’s
compensation.  In addition to the base salary, Ms. Schramm is entitled
to receive an annual cash bonus payable by PGL based on her performance during
the previous fiscal year determined on a basis consistent with bonuses paid to
similarly situated executive officers of PGL.  Ms. Schramm has also
been granted profits interest under the IUP aggregating 1.5%, of which 0.9% are
vested and 0.4% are scheduled to vest in September 2008 with the remaining 0.2%
vesting upon the occurrence of a change of control or recapitalization of
PGP.  For more information relating to payment obligations of the
Company upon termination of Ms. Schramm’s employment, see “Executive
Compensation – Potential Payments Upon Termination or Change of
Control”.  Ms. Schramm’s employment agreement has a term of three
years.  Ms. Schramm’s 2008 salary is $300,000.
 
 Potential
Payments Upon Termination or Change of Control
   64
  
  Michael
S. Luzich
  Mr.
Luzich’s consulting agreement does not provide for payments upon termination of
service or a change of control of the Company.
  Jonathan
C. Swain
  In the
event a change of control is consummated at any time during the term of Mr.
Swain’s employment agreement term, Mr. Swain is entitled to receive an amount
equal to twelve months’ pay based on the annual compensation provided, including
all benefits accrued and the average of the bonuses received in the two calendar
years immediately preceding the calendar year in which the change of control
occurs.  If Mr. Swain is terminated for any reason other than for
cause or as part of a mutual termination, as defined in his employment
agreement, he is entitled to receive as severance pay the greater of (a) the
balance of base compensation due to Mr. Swain for the reminder of the term or
(b) twelve months’ base compensation and a prorated share of the cash bonus to
which Mr. Swain would have been entitled to had his employment continued to the
end of the current calendar year.  Upon termination of Mr. Swain’s
employment or upon the occurrence of a change of control or recapitalization of
PGP, Mr. Swain is entitled at his option to cause the Company to redeem all
vested membership interests granted to him under the IUP for cash at the fair
market value at the time of the termination of employment.
 
 Natalie
A. Schramm
  In the
event a change of control is consummated at any time during the term of Ms.
Schramm’s employment agreement term, Ms. Schramm is entitled to receive an
amount equal to twelve months’ pay based on the annual compensation provided,
including all benefits accrued and the average of the bonuses received in the
two calendar years immediately preceding the calendar year in which the change
of control occurs.  If Ms. Schramm is terminated for any reason other
than for cause or as part of a mutual termination, as defined in her employment
agreement, she is entitled to receive as severance pay the greater of (a) the
balance of base compensation due to Ms. Schramm for the reminder of the term or
(b) twelve month’s base compensation and a prorated share of the cash bonus to
which Ms. Schramm would have been entitled to had her employment continued to
the end of the current calendar year.  Upon termination of Ms.
Schramm’s employment or upon the occurrence of a change of control or
recapitalization of PGP, Ms. Schramm is entitled at her option to cause the
Company to redeem all vested membership interests granted to her under the IUP
for cash at the fair market value at the time of the termination of
employment.
 
  MANAGER
COMPENSATION
  Manager
Compensation Table
  The
following table sets forth a summary of the compensation we paid to our Managers
in 2007:
   65
  
  Name
              
              
              Fees Earned
                or Paid in
                Cash
              
              TotalM.
      Brent Stevens
              
              $ 78,750
              
              $ 78,750Michael
      S. Luzich
              
              3,750
              
              3,750Terrance
      W. Oliver
              
              3,750
              
              3,750Andrew
      Whittaker
              
              3,750
              
              3,750
 
 All
managers serving on the Board of Managers receive annual board fees for serving
on the Board of Managers of PGP, which fees are allocated between PGP and the
Company (of which the portion allocated to the Company is reflected in the table
above), and are reimbursed for their travel and out-of-pocket expenses related
to their attendance at Board of Managers meetings.  The Audit
Committee of the Board of Managers consists of Messrs. Oliver and Whittaker,
neither of whom receive additional fees for service on such
committee.
  Compensation
Committee Interlocks and Insider Participation
  We have
no standing compensation committee.  All compensation decisions are
made by either the Chief Executive Officer, or in the case of compensation of
our Chief Executive Officer, the Board of Managers.
  
    66
  ITEM
      12.
              SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT ANDRELATED
      STOCKHOLDER MATTERS
 
  PGP
currently owns all of our outstanding common membership interests and is our
sole managing member.
  The table
below sets forth, as of December 31, 2007, information regarding the
beneficial ownership of outstanding membership interests of PGP by:
  (a)
              each
      person or entity known by us to own beneficially 5% or more of the common
      membership interests of PGP;
  (b)
              each
      manager and executive officer of PGP;
and
  (c)
              all
      managers and executive officers of PGP as a
  group.
  The
following information is helpful to an understanding of, and qualifies the
beneficial ownership data contained in, the table set forth below. PGP has three
outstanding classes of membership interests: (i) convertible preferred
interests, which are convertible at the option of the holder into non-voting
common membership interests; (ii) voting common membership interests; and (iii)
non-voting common membership interests, which outstanding interests consist of
awards under the IUP. Mr. Stevens holds 358,904 PGP membership interests
directly and 413,333 PGP common membership interests indirectly through PGP
Investors, LLC, a Delaware limited liability company. Mr. Stevens is the
sole managing member of PGP Investors, LLC and exercises voting and investment
power over the PGP common membership interests owned by PGP Investors, LLC.
Mr. Stevens and Mr. Whittaker, managers of PGP, are an Executive Vice
President and a Vice Chairman, respectively, of Jefferies & Company, Inc.
(“Jefferies”). In addition, Jefferies and some of its affiliates, officers and
employees are members of PGP Investors, LLC. Mr. Whittaker holds an
economic interest in approximately 41,667 PGP common membership interests
indirectly through his membership in PGP Investors, LLC, but does not exercise
voting or investment power with respect to these PGP common membership
interests. Mr. Oliver holds his interest through The Oliver Family Trust.
The total holdings of all managers and executive officers as a group includes
the 413,333 PGP common membership interests held by PGP Investors, LLC, over
which Mr. Stevens exercises sole voting and investment power. Unless
otherwise indicated, the address of each manager or executive officer of PGP is
c/o Diamond Jo, LLC, 400 East Third Street, P.O. Box 1750, Dubuque, Iowa,
52001-1750.
   67
  
  Name and Address of Beneficial Owner
              
              Voting Common
                Membership
                Interests
                Beneficially
                Owned
              
              Percent of
                Class
              
              Non-voting
                Common
                Membership
                Interests
                Beneficially
                Owned
              
              Percent of
                Class
              
              Convertible
                Preferred
                Membership
                Interests
                Beneficially
                Owned
              
              Percent of
                ClassM.
      Brent Stevens
                c/o
      Diamond Jo, LLC
                3rd
      Street Ice Harbor
                P.O.
      Box 1750
                Dubuque,
      Iowa 52004
              
              661,667
              
              66.17
              %
              91,248
              
              29.73
              %
              19,323
              
              6.09
              %PGP
      Investors, LLC(1)
                11100
      Santa Monica, 10th Floor
                Los
      Angeles, CA 90071
              
              413,333
              
              41.33
              %
              —
              
              —
              
              —
              
              —Michael
      S. Luzich
                c/o
      Diamond Jo, LLC
                3rd
      Street Ice Harbor
                P.O.
      Box 1750
                Dubuque,
      Iowa 52004
              
              323,333
              
              32.33
              %
              91,248
              
              29.73
              %
              19,323
              
              6.09
              %Terrance
      Oliver
                c/o
      Diamond Jo, LLC
                3rd
      Street Ice Harbor
                P.O.
      Box 1750
                Dubuque,
      Iowa 52004
              
              15,000
              
              1.50
              %
              —
              
              —
              
              —
              
              —Andrew
      Whittaker(1)
                c/o
      Diamond Jo, LLC
                3rd
      Street Ice Harbor
                P.O.
      Box 1750
                Dubuque,
      Iowa 52004
              
              41,667
              
              4.17
              %
              —
              
              —
              
              —
              
              —
 
  68
  
 Jonathan
      Swain (2)
                c/o
      Diamond Jo, LLC
                3rd
      Street Ice Harbor
                P.O.
      Box 1750
                Dubuque,
      Iowa 52004
              
              —
              
              —
              
              99,543
              
              32.43
              %
              —
              
              —Natalie
      Schramm (2)
                c/o
      Diamond Jo, LLC
                3rd
      Street Ice Harbor
                P.O.
      Box 1750
                Dubuque,
      Iowa 52004
              
              —
              
              —
              
              24,886
              
              8.11
              %
              —
              
              —All
      managers and executive officers as a group
(7 persons)
              
              1,000,000
              
              100.00
              %
              306,925
              
              100.00
              %
              38,646
              
              12.18
              %
  (1)
              These
      interests are attributable to Mr. Stevens and are included in the
      calculation of his beneficial ownership and percentage of ownership
      data.
  (2)
              Interests
      owned by Mr. Swain and Ms. Schramm are
  non-voting.
  ITEM
      13.
              CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
  DJW
Credit Facility Guarantee
  In
connection with entering into the DJW Credit Facility, our Chief Executive
Officer agreed to unconditionally guarantee DJW’s payment obligations to the
lender thereunder.  For more information regarding the DJW Credit Facility,
refer to “Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources”.
  Managing
Member Indemnification
  Under our
operating agreement and the operating agreement of PGP, we and PGP have agreed,
subject to few exceptions, to indemnify and hold harmless PGP and the members of
PGP, as the case may be, from liabilities incurred as a result of their
positions as our sole manager and as members of PGP.
  Operating
Agreement of PGP
  In
accordance with PGP’s operating agreement, the Board of Managers is composed of
five individuals, two of whom must be independent managers. At any time that M.
Brent Stevens, together with any entity controlled by Mr. Stevens,
beneficially holds at least 5% of the voting common membership interests of PGP,
Mr. Stevens is entitled to designate three of PGP’s managers, including one
of the two independent managers. The two independent managers are required to
serve as members of the independent committee. At any time that Michael Luzich,
together with any entity controlled by Mr. Luzich,
   69
  beneficially
holds at least 5% of the voting common membership interests of PGP,
Mr. Luzich is entitled to designate two of PGP’s managers, including the
other independent manager. In consideration for their execution of personal
guarantees to provide credit support for EVD’s credit facilities, each of
Messrs. Luzich and Stevens were granted profits interests of 1.5% of PGP’s
fully diluted membership interests by PGP’s board of managers.
Messrs. Stevens and Luzich are entitled to receive distributions on
liquidation in respect of such profits interests only to the extent of any
appreciation in the fair market value of PGP interests since the date of grant
of such profits interests.
  Presently,
the Board of Managers is composed of four managers. If not appointed earlier, a
fifth manager may be appointed by Mr. Stevens at a future meeting of
managers. A manager may resign at any time, and the member who designates a
manager may remove or replace that manager from the Board of Managers at any
time.
  On May
21, 2003, PGP’s operating agreement was amended to create an executive committee
consisting of Messrs. Luzich and Stevens. Under the amendment, the executive
committee manages our business and affairs. The executive committee meets weekly
or as otherwise agreed upon between Messrs. Luzich and Stevens. Other than with
respect to any officers whose responsibilities include any project or real
estate development, all executive officers of PGP and its subsidiaries shall
report to the Chief Executive Officer of PGP. The executive committee shall,
subject to the approval of the Board of Managers, unanimously approve the
engagement of all of our executive officers (whose compensation exceeds $100,000
annually), attorneys and accountants. In the event that the executive committee
is unable to reach a unanimous determination as to any such engagement within a
reasonable period of time, the executive committee shall submit the prospective
engagement to the independent managers the Board of Managers board, whose
determination shall be final.
  At a
meeting of the Board of Managers held on February 25, 2005, PGP approved
certain amendments to its operating agreement to permit certain amendments to
PGP’s 2004 Incentive Unit Plan, including increasing the percentage of profits
interests issuable under such plan from 10% to 12% of PGP’s outstanding
membership interests on a fully diluted basis. The Board of Managers approved an
additional amendment to its operating agreement on September 12, 2005 to
increase the percentage of profits interests issuable under the 2004 Incentive
Unit Plan to 15.5% of PGP’s outstanding membership interests on a fully diluted
basis.
  Management
Services Agreement — DJL, OEDA, and EVD
  DJL and
OEDA (together, the “Operators”) manage and operate EVD’s racino near Lafayette,
Louisiana and EVD’s OTBs pursuant to a management services agreement. Although
the Operators may obtain services from affiliates to the extent necessary to
perform their obligations, the Operators are fully responsible for all
obligations under the agreement. Fees under the management services agreement
are shared between DJL and OEDA, with DJL receiving 75% and OEDA receiving 25%
of such fees.
  Pursuant
to the terms of the management services agreement, the Operators are entitled to
receive in the aggregate a basic management fee equal to 1.75% of net revenue
(less net food and beverage revenue) and an incentive fee equal to:
  ·           3.0%
of the first $25.0 million of EBITDA (as defined below);
  ·           4.0%
of the amount in excess of $25.0 million but less than $30.0 million
of EBITDA; and
   70
  
  ·           5.0%
of the amount in excess of $30.0 million of EBITDA.
  Under the
management services agreement, “EBITDA” is defined as earnings before interest,
income taxes, depreciation and amortization. In calculating earnings, the basic
management fee, the incentive fee and reimbursables payable under the management
services agreement are excluded.  During 2007, 2006 and 2005 EVD
expensed affiliate management fees payable to OEDA of $0.8 million, $0.9 million
and $0.7 million, respectively, related to this agreement.
  The Board
of Managers of the Company unanimously approved the entry into the management
services agreement by DJL, OEDA and EVD.  The Board of Managers
considered whether the terms and conditions of the management services agreement
were on terms no less favorable than those that could be obtained on an
arms’-length basis from independent third parties.
  Management
Services Agreement — DJW and PGP
  In 2005,
DJW entered into a management services agreement (“MSA”) with PGP. Pursuant to
the terms of that agreement, PGP designed, developed, constructed, manages and
operates the new casino in Worth County, Iowa and provided certain pre-opening
services in connection therewith. Under the management services agreement, PGP
received a pre-opening service fee equal to $40,000 per month commencing in
September 2005 and ending in March 2006.  Commencing in April 2006
(commencement of operations at the new casino), PGP is entitled to receive a
basic management fee equal to 1.75% of net revenue (less net food and beverage
revenue) and an incentive fee equal to:
  ·           3.0%
of the first $25.0 million of EBITDA (as defined below);
  ·           4.0%
of EBITDA in excess of $25.0 million but less than $30.0 million of EBITDA;
and
  ·           5.0%
of EBITDA in excess of $30.0 million.
  “EBITDA”
is defined in the management services agreement as earnings before interest,
income taxes, depreciation and amortization; provided, however, that in
calculating earnings, the basic management fee, the incentive fee payable under
the management services agreement shall not be deducted. The management services
agreement will terminate on the later of (i) April 2014 or (ii) the date of sale
by PGP of its beneficial ownership of the DJW’s membership interests. During
2007, 2006 and 2005, the Company expensed affiliate management fees
of  $2.2 million, $1.7 million and $0.2 million, respectively, related
to this agreement.
  The Board
of Managers of the Company unanimously approved the entry into the management
services agreement by DJW.  The Board of Managers considered whether
the terms and conditions of the management services agreement were on terms no
less favorable than those that could be obtained on an arms’-length basis from
independent third parties.
  ITEM
      14.
              PRINCIPAL ACCOUNTANT FEES AND
  SERVICES
  The
aggregate fees billed by Deloitte & Touche LLP for the years ended December
31, 2007 and 2006 were as follows:
   71
  
  (in thousands):
              2007
              
              2006Audit
      fees
              $         608
              
              $       400Audit-related
      fees (1)
              235
              
              104Tax
      fees (2)
              54
              
              39All
      other fees
              —
              
              —
  (1)
              Quarterly
      and annual internal control procedures related to compliance with state
      gaming regulations and quarterly net slot machine proceeds
      audits.
 (2)
              Tax
      compliance services.
 
 In
accordance with our internal policies, all fees related to audit and permissible
non-audit services rendered by our independent accountants are required to be
pre-approved by our audit committee. In addition, all of the services described
above in this Item 14 for the years ended December 31, 2007 and 2006 have
been approved by our audit committee.
  PART
IV
  ITEM
      15.
              EXHIBITS AND FINANCIAL STATEMENT
  SCHEDULES
  (a)           The
following documents are filed as a part of this report:
  (1)
              Financial
      Statements—see Index to Consolidated Financial Statements and Schedule
      appearing on page F-1.
  (2)
              Financial
      Statement Schedules—see Index to Consolidated Financial Statements and
      Schedule appearing on
  page
      F-1.
  (3)
              Exhibits:
  INDEX
TO EXHIBITS
  
 Exhibit
                Number
              
              Description
      of Exhibit*3.1
              
              Certificate
      of Formation of Peninsula Gaming Company, LLC—incorporated herein by
      reference to Exhibit 3.1A of Peninsula Gaming Company, LLC’s Form S-4
      filed October 12, 1999. (With regard to applicable cross-references
      in this Form 10-K, Peninsula Gaming Company, LLC’s Form S-4, Current,
      Quarterly and Annual Reports were filed with the SEC under File No.
      333-88829).3.2
              
              Amendment
      to Certificate of Formation of Peninsula Gaming Company, LLC—incorporated
      by reference to Exhibit 3.1B of Peninsula Gaming Company, LLC’s Form S-4
      filed October 12, 1999.
  72
  
 3.3
              
              Certificate
      of Amendment to the Certificate of Formation of Peninsula Gaming Company,
      LLC, dated March 10, 2004—incorporated herein by reference to
      Peninsula Gaming Company, LLC’s Quarterly Report on Form 10-Q filed
      May 14, 2004.3.4
              
              Amended
      and Restated Operating Agreement of Peninsula Gaming Company,
      LLC—incorporated herein by reference to Exhibit 3.2 of Peninsula Gaming
      Company, LLC’s Form S-4 filed on October 12, 1999.3.5
              
              Certificate
      of Formation of Peninsula Casinos, LLC, dated February 27,
      2004—incorporated by reference to Exhibit 3.3A of Peninsula Gaming, LLC’s
      Form S-4 filed July 30, 2004.3.6
              
              Certificate
      of Amendment to the Certificate of Formation of Peninsula Casinos, LLC,
      dated March 9, 2004—incorporated by reference to Exhibit 3.3B of
      Peninsula Gaming, LLC’s Form S-4 filed July 30, 20043.7
              
              Operating
      Agreement of Peninsula Gaming, LLC (formerly known as Peninsula Casinos,
      LLC), dated June 14, 2004—incorporated by reference to Exhibit 3.4 of
      Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.3.8
              
              Certificate
      of Incorporation of The Old Evangeline Downs Capital Corp., dated
      January 20, 2003—incorporated herein by reference to Exhibit 3.4 of
      The Old Evangeline Downs Capital Corp.’s Form S-4 filed May 28, 2003.
      (With regard to applicable cross-references in this registration
      statement, The Old Evangeline Downs Capital Corp.’s Form S-4, Current,
      Quarterly and Annual Reports were filed with the SEC under File No.
      333-105587).3.9
              
              Certificate
      of Amendment to the Certificate of Incorporation of The Old Evangeline
      Downs Capital Corp., dated June 17, 2004—incorporated by reference to
      Exhibit 3.5B of Peninsula Gaming, LLC’s Form S-4 filed July 30,
      2004.3.10
              
              By-laws
      of The Old Evangeline Downs Capital Corp.—incorporated herein by reference
      to Exhibit 3.5 of The Old Evangeline Downs Capital Corp.’s Form S-4 filed
      May 28, 2003.4.1
              
              Specimen
      Certificate of Common Stock of Peninsula Gaming Corp. (formerly known as
      The Old Evangeline Downs Capital Corp.)—incorporated by reference to
      Exhibit 4.1 of Peninsula Gaming, LLC’s Form S-4 filed July 30,
      2004.4.2
              
              Indenture,
      dated February 25, 2003, by and among The Old Evangeline Downs,
      L.L.C., The Old Evangeline Downs Capital Corp. and U.S. Bank National
      Association—incorporated herein by reference to Exhibit 4.1 of The Old
      Evangeline Downs, L.L.C.’s Form S-4 filed May 28,
    2003.4.3
              
              Supplemental
      Indenture, dated as of March 25, 2004, by and among The Old
      Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corp. and U.S.
      Bank National Association—incorporated by reference to Exhibit 4.3B of
      Peninsula Gaming, LLC’s Form S-4 filed July 30,
  2004.
  73
  
 4.4
              
              Indenture,
      dated as of April 16, 2004, by and among Diamond Jo, LLC (formerly
      known as Peninsula Gaming Company, LLC), The Old Evangeline Downs Capital
      Corp., the Subsidiary Guarantors named therein and U.S. Bank National
      Association—incorporated by reference to Exhibit 4.4A of Peninsula Gaming,
      LLC’s Form S-4 filed July 30, 2004.4.5
              
              Supplemental
      Indenture among Peninsula Gaming, LLC, Diamond Jo, LLC (formerly known as
      Peninsula Gaming Company, LLC), The Old Evangeline Downs Capital Corp. and
      U.S. Bank National Association, dated as of June 16,
      2004—incorporated by reference to Exhibit 4.4B of Peninsula Gaming, LLC’s
      Form S-4 filed July 30, 2004.4.6
              
              Registration
      Rights Agreement, dated April 16, 2004, by and among Diamond Jo, LLC
      (formerly known as Peninsula Gaming Company, LLC), The Old Evangeline
      Downs Capital Corp., the Guarantors named therein and Jefferies &
      Company,  Inc.—incorporated by reference to Exhibit 4.5A of Peninsula
      Gaming, LLC’s Form S-4 filed July 30, 20044.7
              
              Joinder
      of Peninsula Gaming, LLC, dated June 16, 2004, to the Registration
      Rights Agreement, dated April 16, 2004, by and among Diamond Jo, LLC
      (formerly known as Peninsula Gaming Company, LLC), The Old Evangeline
      Downs Capital Corp., the Guarantors named therein and Jefferies &
      Company, Inc.—incorporated by reference to Exhibit 4.5B of Peninsula
      Gaming, LLC’s Form S-4 filed July 30, 20044.8
              
              Pledge
      and Security Agreement, dated as of April 16, 2004, among Diamond Jo,
      LLC (formerly known as Peninsula Gaming Company, LLC), The Old Evangeline
      Downs Capital Corp., OED Acquisition, LLC, Peninsula Gaming Corporation,
      The Old Evangeline Downs, L.L.C. and U.S. Bank National
      Association—incorporated by reference to Exhibit 4.6A of Peninsula Gaming,
      LLC’s Form S-4 filed July 30, 2004.4.9
              
              Supplement
      to Security Agreement by Peninsula Gaming, LLC, dated June 16,
      2004—incorporated by reference to Exhibit 4.6B of Peninsula Gaming, LLC’s
      Form S-4 filed July 30, 2004.4.10
              
              Trademark
      Security Agreement, dated April 16, 2004, by Diamond Jo, LLC in favor
      of U.S. Bank National Association—incorporated by reference to Exhibit 4.7
      of Peninsula Gaming, LLC’s Form S-4 filed July 30,
2004.4.11
              
              Form
      of 8 3¤4% Senior Secured Notes
      due 2012—incorporated by reference to Exhibit 4.8 of Peninsula Gaming,
      LLC’s Form S-4 filed July 30, 2004.4.12
              
              Intercreditor
      Agreement between U.S. Bank National Association and Wells Fargo
      Foothill, Inc., dated April 16, 2004—incorporated by reference
      to Exhibit 4.9A of Peninsula Gaming, LLC’s Form S-4 filed July 30,
      2004.
  74
  
 4.13
              
              Acknowledgement
      of Peninsula Gaming, LLC, dated June 16, 2004, to the Intercreditor
      Agreement between U.S. Bank National Association and Wells Fargo
      Foothill, Inc., dated April 16, 2004—incorporated by reference
      to Exhibit 4.9B of Peninsula Gaming, LLC’s Form S-4 filed July 30,
      2004.4.14
              
              Supplement
      to Security Agreement by Peninsula Gaming, LLC, dated June 30,
      2005—incorporated herein by reference to Exhibit 4.1 of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed November 14,
    2005.4.15
              
              Supplement
      to Security Agreement by Diamond Jo Worth Corp., dated June 30,
      2005—incorporated herein by reference to Exhibit 4.2 of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed November 14,
    2005.4.16
              
              Supplemental
      Indenture among Diamond Jo Worth Corp., Peninsula Gaming, LLC, Diamond Jo,
      LLC, Peninsula Gaming Corp. and U.S. Bank National Association, dated as
      of June 30, 2005—incorporated herein by reference to Exhibit 4.3 of
      Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14,
      2005.4.17
              
              Acknowledgement
      of Diamond Jo Worth Corp., dated June 30, 2005, to the Intercreditor
      Agreement between U.S. Bank National Association and Wells Fargo Foothill,
      Inc., dated April 16, 2004—incorporated herein by reference to Exhibit 4.4
      of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November
      14, 2005.4.18
              
              Supplement
      to Security Agreement by Diamond Jo Worth Holdings, LLC, dated June 30,
      2005—incorporated herein by reference to Exhibit 4.5 of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed November 14,
    2005.4.19
              
              Supplemental
      Indenture among Diamond Jo Worth Holdings, LLC, Peninsula Gaming, LLC,
      Diamond Jo, LLC, Peninsula Gaming Corp. and U.S. Bank National
      Association, dated as of June 30, 2005—incorporated herein by reference to
      Exhibit 4.6 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed
      November 14, 2005.4.20
              
              Acknowledgement
      of Diamond Jo Worth Holdings, LLC, dated June 30, 2005, to the
      Intercreditor Agreement between U.S. Bank National Association and Wells
      Fargo Foothill, Inc., dated April 16, 2004—incorporated herein by
      reference to Exhibit 4.7 of Peninsula Gaming, LLC’s Quarterly Report on
      Form 10-Q filed November 14, 2005.4.21
              
              Indenture
      among Diamond Jo Worth, LLC, Diamond Jo. Worth Corp. and U.S. Bank
      National Association, as Trustee, dated as of July 19, 2005—incorporated
      herein by reference to Exhibit 10.2 of Peninsula Gaming, LLC’s Quarterly
      Report on Form 10-Q filed August 16, 2005.4.22
              
              Pledge
      and Security Agreement, dated as of July 19, 2005, among Diamond Jo Worth,
      LLC, Diamond Jo Worth Corp., Diamond Jo Worth Holdings, LLC and U.S. Bank
      National Association, as Trustee—incorporated herein by reference to
      Exhibit 10.4 of Peninsula Gaming, LLC’s Form 10-Q filed August 16,
      2005.
  75
  
 4.23
              
              First
      Supplemental Indenture dated August 31, 2006 by and among Diamond Jo
      Worth, LLC, Diamond Jo Worth Corp. and US Bank National Association, as
      trustee—incorporated herein by reference to Exhibit 10.1 of Peninsula
      Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14,
      2006.4.24
              
              Second
      Supplemental Indenture dated December 21, 2006 by and among Diamond Jo
      Worth, LLC, Diamond Jo Worth Corp. and US Bank National Association, as
      trustee- incorporated by reference to Exhibit 4.24 of Peninsula Gaming,
      LLC’s Annual Report on Form 10-K filed April 2, 2007.4.25
              
              Third
      Amendment to Loan and Security Agreement and Consent, dated December 6,
      2006- incorporated by reference to Exhibit 4.25 of Peninsula Gaming, LLC’s
      Annual Report on Form 10-K filed April 2, 2007.4.26
              
              Fourth
      Amendment to Loan and Security Agreement and Consent, dated December 22,
      2006- incorporated by reference to Exhibit 4.26 of Peninsula Gaming, LLC’s
      Annual Report on Form 10-K filed April 2, 2007.4.27
              
              Consent
      to Loan and Security Agreement, dated as of July 30, 2007, by and between
      Diamond Jo, LLC, The Old Evangeline Downs, L.L.C. and Wells Fargo
      Foothill, Inc. – incorporated by reference to Exhibit 4.1 of Peninsula
      Gaming, LLC’s Quarterly Report on Form 10-Q filed November 13,
      2007.4.28†
              
              Third
      Supplemental Indenture dated October 16, 2007 by and among Diamond Jo
      Worth, LLC, Diamond Jo Worth Corp. and US Bank National Association, as
      trustee.10.1
              
              Operating
      Agreement, dated February 22, 1993, by and among Dubuque Racing
      Association, Ltd. and Greater Dubuque Riverboat Entertainment Company,
      L.C.—incorporated herein by reference to Exhibit 10.9A of Peninsula Gaming
      Company, LLC’s Form S-4 filed October 12, 1999.10.2
              
              Amendment
      to Operating Agreement, dated February 22, 1993, by and among Dubuque
      Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment
      Company, L.C.—incorporated herein by reference to Exhibit 10.9B of
      Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.3
              
              Amendment
      to Operating Agreement, dated March 4, 1993, by and among Dubuque
      Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment
      Company, L.C.—incorporated herein by reference to Exhibit 10.9C of
      Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.4
              
              Third
      Amendment to Operating Agreement, dated March 11, 1993, by and among
      Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.9D of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.5
              
              Fourth
      Amendment to Operating Agreement, dated March 11, 1993, by and among
      Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.9E of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.
 
  76
  
 10.6
              
              Fifth
      Amendment to Operating Agreement, dated April 9, 1993, by and among
      Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.9F of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.7
              
              Sixth
      Amendment to Operating Agreement, dated November 29, 1993, by and
      among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.9G of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.8
              
              Seventh
      Amendment to Operating Agreement, dated April 6, 1994, by and among
      Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.9H of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.9
              
              Eighth
      Amendment to Operating Agreement, dated April 29, 1994, by and among
      Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.9I of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.10
              
              Ninth
      Amendment to Operating Agreement, dated July 11, 1995, by and among
      Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.9J of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.11
              
              Tenth
      Amendment to Operating Agreement, dated July 15, 1999, by and among
      Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.9K of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.12
              
              Operating
      Agreement Assignment, dated July 15, 1999, by and among Greater
      Dubuque Riverboat Entertainment Company, L.C. and Peninsula Gaming
      Company, LLC—incorporated herein by reference to Exhibit 10.10 of
      Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.13
              
              Ice
      Harbor Parking Agreement Assignment dated July 15, 1999, by and among
      Greater Dubuque Riverboat Entertainment Company, L.C. and Peninsula Gaming
      Company, LLC—incorporated herein by reference to Exhibit 10.13 of
      Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.14
              
              First
      Amendment to Sublease Agreement, dated July 15, 1999, by and among
      Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
      Entertainment Company, L.C.—incorporated herein by reference to Exhibit
      10.14 of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.15
              
              Sublease
      Assignment, dated July 15, 1999, by and among Greater Dubuque
      Entertainment Company, L.C. and Peninsula Gaming Company, LLC—incorporated
      herein by reference to Exhibit 10.15 of Peninsula Gaming Company, LLC’s
      Form S-4 filed October 12, 1999.10.16
              
              Iowa
      Racing and Gaming Commission Gaming License, dated July 15,
      1999—incorporated herein by reference to Exhibit 10.16 of Peninsula Gaming
      Company, LLC’s Form S-4 filed October 12,
  1999.
  77
  
 10.17
              
              Assignment
      of Iowa IGT Declaration and Agreement of Trust, dated July 15, 1999
      by and among Greater Dubuque Riverboat Entertainment Company, L.C. and
      Peninsula Gaming Company, LLC—incorporated herein by reference to Exhibit
      10.17 of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,
      1999.10.18
              
              Amended
      and Restated Management Services Agreement, dated as of February 25,
      2003, by and among The Old Evangeline Downs, L.L.C., OED Acquisition, LLC
      and Peninsula Gaming Company, LLC—incorporated herein by reference to
      Exhibit 10.15 of Peninsula Gaming Company, LLC’s Form 10-Q Quarterly
      Report for the quarter ended September 30, 2003.10.19
              
              Loan
      and Security Agreement, dated as of June 16, 2004, by and among
      Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC, The Old
      Evangeline Downs, L.L.C. and Wells Fargo Foothill, Inc—incorporated
      by reference to Exhibit 10.19 of Peninsula Gaming, LLC’s Form S-4 filed
      July 30, 2004.10.20
              
              Guarantor
      Security Agreement, dated as of June 16, 2004, by and among Peninsula
      Gaming, LLC, The Old Evangeline Downs Capital Corp. and Wells Fargo
      Foothill, Inc—incorporated by reference to Exhibit 10.20 of Peninsula
      Gaming, LLC’s Form S-4 filed July 30, 2004.10.21
              
              Intercompany
      Subordination Agreement, dated as of June 16, 2004, by and among The
      Old Evangeline Downs, L.L.C., Diamond Jo, LLC (formerly known as Peninsula
      Gaming Company, LLC, The Old Evangeline Downs Capital Corp., Peninsula
      Gaming, LLC and Wells Fargo Foothill, Inc—incorporated by reference
      to Exhibit 10.21 of Peninsula Gaming, LLC’s Form S-4 filed July 30,
      2004.10.22
              
              Management
      Fees Subordination Agreement, dated as of June 16, 2004, by and among
      The Old Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corp.,
      Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC, OED
      Acquisition, LLC and Wells Fargo Foothill, Inc.—incorporated by
      reference to Exhibit 10.22 of Peninsula Gaming, LLC’s Form S-4 filed July
      30, 2004.10.23
              
              Post
      Closing Letter, dated June 16, 2004, from Wells Fargo
      Foothill, Inc. to The Old Evangeline Downs, L.L.C. and Diamond Jo,
      LLC (formerly known as Peninsula Gaming Company, LLC—incorporated by
      reference to Exhibit 10.23 of Peninsula Gaming, LLC’s Form S-4 filed July
      30, 2004.10.24
              
              Guaranty
      by The Old Evangeline Downs Capital Corp. in favor of Wells Fargo
      Foothill, Inc., dated June 16, 2004—incorporated by reference to
      Exhibit 10.25 of Peninsula Gaming, LLC’s Form S-4 filed July 30,
      200410.25
              
              Purchase
      Agreement among Diamond Jo Worth, LLC, Diamond Jo Worth Corp., Diamond Jo
      Worth Holdings, LLC, Diamond Jo, LLC and Jefferies & Company,
      Inc.—incorporated herein by reference to Exhibit 10.3 of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed August 16,
  2005.10.26
              
              Borrower
      Supplement No. 1 by Diamond Jo Worth, LLC, dated as of May 13,
      2005—incorporated herein by reference to Exhibit 10.2 of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed November 14,
    2005.
  78
  
 10.27
              
              Second
      Amendment to Loan and Security Agreement, dated as of July 12, 2005, by
      and among Diamond Jo, LLC, The Old Evangeline Downs, L.L.C., Diamond Jo
      Worth, LLC and Wells Fargo Foothill, Inc.—incorporated herein by reference
      to Exhibit 10.6 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q
      filed August 16, 2005.10.28
              
              Stock
      Pledge Agreement Supplement by Peninsula Gaming, LLC, dated as of May 13,
      2005—incorporated herein by reference to Exhibit 10.4 of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed November 14,
    2005.10.29
              
              Acknowledgement
      and Agreement by Diamond Jo Worth, LLC, dated July 12, 2005—incorporated
      herein by reference to Exhibit 10.5 of Peninsula Gaming, LLC’s Quarterly
      Report on Form 10-Q filed November 14, 2005.10.30
              
              Acknowledgment
      of Diamond Jo Worth, LLC, dated May 13, 2005—incorporated herein by
      reference to Exhibit 10.6 of Peninsula Gaming, LLC’s Quarterly Report on
      Form 10-Q filed November 14, 2005.10.31
              
              First
      Amendment to Intercompany Subordination Agreement, dated as of May 13,
      2005, by and among The Old Evangeline Downs, L.L.C., Diamond Jo Worth,
      LLC, Diamond Jo, LLC, Peninsula Gaming Corp., Peninsula Gaming, LLC, OED
      Acquisition, LLC and Wells Fargo Foothill, Inc.—incorporated herein by
      reference to Exhibit 10.7 of Peninsula Gaming, LLC’s Quarterly Report on
      Form 10-Q filed November 14, 2005.10.32
              
              Act
      of Second Amendment of Multiple Obligations Mortgage, dated as of July 12,
      2005, between The Old Evangeline Downs, L.L.C. and Wells Fargo Foothill,
      Inc.—incorporated herein by reference to Exhibit 10.8of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed November 14,
    2005.10.33
              
              Second
      Amendment to Iowa Shore Mortgage, dated as of July 12, 2005, between
      Diamond Jo, LLC and Wells Fargo Foothill, Inc.—incorporated herein by
      reference to Exhibit 10.9 of Peninsula Gaming, LLC’s Quarterly Report on
      Form 10-Q filed November 14, 2005.10.34
              
              Subordination
      Agreement, dated as of July 12, 2005, between Diamond Jo, LLC and U.S.
      Bank National Association, as Trustee—incorporated herein by reference to
      Exhibit 10.10 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q
      filed November 14, 2005.
 
 10.35
              
              Mortgage,
      Assignment of Rents, Security Agreement and Fixture Financing Statement,
      dated May 13, 2005, between Diamond Jo Worth, LLC and Well Fargo Foothill,
      Inc., as Agent —incorporated herein by reference to Exhibit 10.11 of
      Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14,
      2005.10.36
              
              Second
      Amendment to First Preferred Ship Mortgage, dated as of July 12, 2005,
      between Diamond Jo, LLC and Wells Fargo Foothill, Inc.—incorporated herein
      by reference to Exhibit 10.12 of Peninsula Gaming, LLC’s Quarterly Report
      on Form 10-Q filed November 14,
2005.
  79
  
 10.37
              
              Amended
      and Restated Mortgage, Assignment of Rents, Security Agreement and Fixture
      Financing Statement, dated July 19, 2005, between Diamond Jo Worth, LLC
      and Well Fargo Foothill, Inc., as Agent—incorporated herein by reference
      to Exhibit 10.5 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q
      filed August 16, 2005.10.38
              
              Assignment
      of Mortgage, Assignment of Rents, Security Agreement and Fixture Financing
      Statement by U.S. Bank National Association, dated July 19,
      2005—incorporated herein by reference to Exhibit 10.9 of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed November 14,
    2005.10.39
              
              Release
      of Real Estate Mortgage by Wells Fargo Foothill, Inc., dated July 19,
      2005—incorporated herein by reference to Exhibit 10.53 of Peninsula
      Gaming, LLC’s Annual Report on Form 10-K filed March 30,
    2006.10.40
              
              Cash
      Collateral and Disbursement Agreement, dated as of July 19, 2005, by and
      among Diamond Jo Worth, LLC, Diamond Jo Worth Corp. and U.S. Bank National
      Association, as Trustee and Disbursement Agent—incorporated herein by
      reference to Exhibit 10.14 of Peninsula Gaming, LLC’s Quarterly Report on
      Form 10-Q filed November 14, 2005.10.41
              
              Multi-Party
      Blocked Account Agreement, dated as of July 19, 2005, by and among Diamond
      Jo Worth, LLC, U.S. Bank National Association, as trustee, and U.S. Bank
      National Association, as securities intermediary—incorporated herein by
      reference to Exhibit 10.53 of Peninsula Gaming, LLC’s Annual Report on
      Form 10-K filed March 30, 2006.10.42
              
              Multi-Party
      Blocked Account Agreement, dated as of July 19, 2005, by and among Diamond
      Jo Worth, LLC, U.S. Bank National Association, as trustee, and U.S. Bank
      National Association, as securities intermediary—incorporated herein by
      reference to Exhibit 10.53 of Peninsula Gaming, LLC’s Annual Report on
      Form 10-K filed March 30, 2006.10.43
              
              Multi-Party
      Blocked Account Agreement, dated as of July 19, 2005, by and among Diamond
      Jo Worth, LLC, U.S. Bank National Association, as trustee, and American
      Trust and Savings Bank, as depositary—incorporated herein by reference to
      Exhibit 10.53 of Peninsula Gaming, LLC’s Annual Report on Form 10-K filed
      March 30, 2006.10.44
              
              Multi-Party
      Blocked Account Agreement, dated as of July 19, 2005, by and among Diamond
      Jo Worth, LLC, U.S. Bank National Association, as trustee, and American
      Trust and Savings Bank, as depositary—incorporated herein by reference to
      Exhibit 10.53 of Peninsula Gaming, LLC’s Annual Report on Form 10-K filed
      March 30, 2006.10.45
              
              Management
      Services Agreement, dated July 19, 2005, between Diamond Jo Worth, LLC and
      Peninsula Gaming Partners—incorporated herein by reference to Exhibit 10.1
      of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed August 16,
      2005.
  80
  
 10.46
              
              Eleventh
      Amendment to Operating Agreement, dated as of May 31, 2005, by and between
      Dubuque Racing Association, Ltd. And Diamond Jo, LLC—incorporated herein
      by reference to Exhibit 10.16 of Peninsula Gaming, LLC’s Quarterly Report
      on Form 10-Q filed November 14, 2005.10.47
              
              Standard
      Form of Agreement between Owner and Architect, dated March 1,
      2005, between Diamond Jo Worth, LLC and KGA Architecture—incorporated
      herein by reference to Exhibit 10.7 of Peninsula Gaming, LLC’s Quarterly
      Report on Form 10-Q filed August 16, 2005.10.48
              
              General
      Conditions of Standard Form of Agreement between Owner and Architect,
      dated March 1, 2005, between Diamond Jo Worth, LLC and KGA
      Architecture—incorporated herein by reference to Exhibit 10.8 of Peninsula
      Gaming, LLC’s Quarterly Report on Form 10-Q filed August 16,
      2005.10.49
              
              Standard
      Form of Agreement between Owner and Contractor, dated as of
      June 6, 2005, between Diamond Jo Worth, LLC and Henkel Construction
      Company—incorporated herein by reference to Exhibit 10.9 of Peninsula
      Gaming, LLC’s Quarterly Report on Form 10-Q filed August 16,
      2005.10.50
              
              Offer
      to Purchase Real Estate, Acceptance and Lease, dated September 27, 2006,
      between Diamond Jo, LLC and Dubuque County Historical Society—incorporated
      herein by reference to Exhibit 10.1 of Peninsula Gaming, LLC’s Quarterly
      Report on Form 10-Q filed November 14, 2006.10.51
              
              Closing
      Agreement, dated September 27, 2006, between Diamond Jo, LLC and Dubuque
      County Historical Society—incorporated herein by reference to Exhibit 10.1
      of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November
      14, 2006.10.52
              
              Real
      Estate Ground Lease, dated September 27, 2006, between Diamond Jo, LLC and
      Dubuque County Historical Society—incorporated herein by reference to
      Exhibit 10.1 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q
      filed November 14, 2006.10.53
              
              Amended
      and Restated Operator’s Agreement, dated November 5, 2004, by and
      among the Worth County Development Authority, an Iowa not-for-profit
      corporation, and Diamond Jo Worth, LLC- incorporated by reference to
      Exhibit 10.56 of Peninsula Gaming, LLC’s Annual Report on Form 10-K filed
      April 2, 2007.10.54
              
              PGP’s
      Amended and Restated 2004 Incentive Unit Plan- incorporated by reference
      to Exhibit 10.57 of Peninsula Gaming, LLC’s Annual Report on Form 10-K
      filed April 2, 2007.10.55
              
              Form
      of Incentive Unit Plan Agreement- incorporated by reference to Exhibit
      10.58 of Peninsula Gaming, LLC’s Annual Report on Form 10-K filed April 2,
      2007.10.56
              
              Construction
      Agreement, dated August 18, 2006, between Diamond Jo Worth, LLC and Henkel
      Construction Company- incorporated by reference to Exhibit 10.59 of
      Peninsula Gaming, LLC’s Annual Report on Form 10-K filed April 2,
      2007.
  81
  
 10.57
              
              Purchase
      Agreement among Peninsula Gaming LLC, Diamond Jo, LLC, Peninsula Gaming
      Corp., and Jefferies & Company, Inc., dated December 22, 2006-
      incorporated by reference to Exhibit 10.60 of Peninsula Gaming, LLC’s
      Annual Report on Form 10-K filed April 2, 2007.10.58
              
              Employment
      Agreement, dated September 7, 2007, by and between Peninsula Gaming,
      LLC and Jonathan Swain - incorporated by reference to Exhibit 10.1 of
      Peninsula Gaming, LLC’s Current Report on Form 8-K filed September 13,
      2007.10.59
              
              Employment Agreement,
      dated September 7, 2007, by and between Peninsula Gaming, LLC and
      Natalie Schramm - incorporated by reference to Exhibit 10.2 of Peninsula
      Gaming, LLC’s Current Report on Form 8-K filed September 13,
      2007.10.60
              
              General
      Conditions of the Contract for Construction, dated September 25, 2007,
      between Diamond Jo, LLC and Conlon Construction Company – incorporated by
      reference to Exhibit 10.3 of Peninsula Gaming, LLC’s Quarterly Report on
      Form 10-Q filed November 13, 2007.10.61
              
              Standard
      Form of Agreement Between Owner and Contractor, dated September 25, 2007,
      between Diamond Jo, LLC and Conlon Construction Company– incorporated by
      reference to Exhibit 10.4 of Peninsula Gaming, LLC’s Quarterly Report on
      Form 10-Q filed November 13, 2007.10.62
              
              Abbreviated
      Standard Form of Agreement Between Owner and Architect, dated May 21,
      2007, between Diamond Jo, LLC and Youngblood Wucherer Sparer Architects,
      Ltd. – incorporated by reference to Exhibit 10.5 of Peninsula Gaming,
      LLC’s Quarterly Report on Form 10-Q filed November 13,
    2007.10.63†
              
              Minimum
      Assessment Agreement, dated October 1, 2007, among Diamond Jo, LLC, the
      City of Dubuque, Iowa and the City Assessor of the City of Dubuque,
      Iowa.10.64†
              
              Bond
      Purchase Contract, dated October 1, 2007, among Diamond Jo, LLC, the City
      of Dubuque, Iowa and Robert W. Baird & Co.10.65†
              
              Amended
      and Restated Port of Dubuque Public Parking Facility Development
      Agreement, dated October 1, 2007, between the City of Dubuque, Iowa and
      Diamond Jo, LLC.12.1†
              
              Computation
      of ratio of earnings to fixed charges.21.1†
              
              Subsidiaries
      of the Registrants.31.1†
              
              Certification
      of M. Brent Stevens, Chief Executive Officer.31.2†
              
              Certification
      of Natalie A. Schramm, Chief Financial Officer.
  *
              Unless
      otherwise noted, exhibits have been previously filed and are incorporated
      by reference.
 †
              Filed
      herewith.
   82
   
 SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, each of the registrants has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 28,
2008.
  PENINSULA
      GAMING, LLCBy:
              /s/
      M. Brent StevensM.
      Brent StevensChief
      Executive OfficerPENINSULA
      GAMING CORP.By:
              /s/
      M. Brent StevensM.
      Brent StevensChief
      Executive OfficerDIAMOND
      JO, LLCBy:
              /s/
      M. Brent StevensM.
      Brent StevensChief
      Executive Officer
 
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of each of the registrants and
in the capacities indicated on March 28, 2008.
  PENINSULA
      GAMING, LLCBy:
              /s/
      M. Brent StevensM.
      Brent StevensChief
      Executive Officer and Manager(principal
      executive officer)By:
              /s/
      Natalie A. SchrammNatalie
      A. SchrammChief
      Financial Officer(principal
      financial and principal accounting officer)By:
              /s/
      Michael S. LuzichMichael
      S. LuzichPresident,
      Secretary and Manager
  83
  
 By:
              /s/
      Terrance W. OliverTerrance
      W. OliverManagerBy:
              /s/
      Andrew WhittakerAndrew
      WhittakerManager
 
   84
   PENINSULA
      GAMING CORP.By:
              /s/
      M. Brent StevensM.
      Brent StevensChief
      Executive Officer and Manager(principal
      executive officer)By:
              /s/
      Natalie A. SchrammNatalie
      A. SchrammChief
      Financial Officer(principal
      financial and principal accounting officer)By:
              /s/
      Michael S. LuzichMichael
      S. LuzichPresident,
      Secretary and ManagerBy:
              /s/
      Terrance W. OliverTerrance
      W. OliverManagerBy:
              /s/
      Andrew WhittakerAndrew
      WhittakerManagerDIAMOND
      JO, LLCBy:
              /s/
      M. Brent StevensM.
      Brent StevensChief
      Executive Officer and Manager(principal
      executive officer)By:
              /s/
      Natalie A. SchrammNatalie
      A. SchrammChief
      Financial Officer(principal
      financial and principal accounting officer)By:
              /s/
      Michael S. LuzichMichael
      S. LuzichPresident,
      Secretary and Manager
  By:
              /s/
      Terrance W. OliverTerrance
      W. OliverManagerBy:
              /s/
      Andrew WhittakerAndrew
      WhittakerManager
 
  
   85
  
  
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
  Consolidated
      Financial Statements and Schedule of Peninsula Gaming,
LLC:Report of Independent Registered Public Accounting
      Firm
              
              F-2Consolidated Balance Sheets — December 31, 2007 and
      2006
              
              F-3Consolidated Statements of Operations — Years Ended
      December 31, 2007, 2006 and 2005
              
              F-4Consolidated Statements of Changes in Member’s Deficit and
      Comprehensive Income (Loss) — Years Ended December 31, 2007, 2006 and
      2005
              
              F-5Consolidated Statements of Cash Flows — Years Ended
      December 31, 2007, 2006 and 2005
              
              F-6Notes to Consolidated Financial Statements
              
              F-7Consolidated Financial Statement Schedule — Valuation and
      Qualifying Accounts — Years Ended December 31, 2007, 2006 and
      2005
              
              S-1
 
   F-1
  
 REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Peninsula
Gaming, LLC
 Dubuque,
Iowa
  We have
audited the accompanying consolidated balance sheets of Peninsula Gaming, LLC
and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the
related consolidated statements of operations, changes in member’s deficit and
comprehensive income (loss), and cash flows for each of the three years in the
period ended December 31, 2007. Our audits also included the consolidated
financial statement schedule listed in the Index to Consolidated Financial
Statements and Schedule. These financial statements and financial statement
schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
  We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, such financial statements present fairly, in all material respects, the
financial position of Peninsula Gaming, LLC and subsidiaries as of
December 31, 2007 and 2006, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
2007, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
  /s/
      DELOITTE & TOUCHE LLPCedar
      Rapids, IowaMarch 27,
      2008
 
  F-2
   
 PENINSULA
GAMING, LLC
 CONSOLIDATED
BALANCE SHEETS
 DECEMBER 31,
2007 AND 2006
 (in
thousands)
  2007
              
              2006ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $ 42,100
              
              $ 56,921Restricted
      cash — purse settlements
              
              4,902
              
              4,619Accounts
      receivable, less allowance for doubtful accounts of $32 and $39,
      respectively
              
              3,000
              
              3,529Inventories
              
              911
              
              706Prepaid
      expenses and other assets
              
              1,375
              
              1,456Total
      current assets
              
              52,288
              
              67,231RESTRICTED
      CASH-WORTH PROJECT
              
              —
              
              12,981PROPERTY
      AND EQUIPMENT, NET
              
              188,812
              
              164,754OTHER
      ASSETS:Deferred
      financing costs, net of amortization of $10,325 and $6,603,
      respectively
              
              21,785
              
              16,224Goodwill
              
              53,083
              
              53,083Licenses
      and other intangibles
              
              37,016
              
              35,521Deposits
      and other assets
              
              6,452
              
              4,016Investment
      available for sale
              
              12,491
              
              —Total
      other assets
              
              130,827
              
              108,844TOTAL
              
              $ 371,927
              
              $353,810LIABILITIES
      AND MEMBER’S DEFICITCURRENT
      LIABILITIES:Accounts
      payable
              
              $ 3,489
              
              $     
       5,383Construction
      payable
              
              4,884
              
              5,531Purse
      settlement payable
              
              6,723
              
              6,265Accrued
      payroll and payroll taxes
              
              5,618
              
              4,575Accrued
      interest
              
              7,797
              
              7,437Other
      accrued expenses
              
              9,800
              
              9,026Payable
      to affiliates
              
              3,921
              
              2,484Current
      maturities of long-term debt and leases
              
              3,147
              
              8,645Total
      current liabilities
              
              45,379
              
              49,346LONG-TERM
      LIABILITIES:8
      3/4%
      senior secured notes, net of discount
              
              252,789
              
              252,38111%
      senior secured notes, net of discount
              
              116,358
              
              96,50013%
      senior secured notes, net of discount
              
              6,853
              
              6,831Term
      loan
              
              —
              
              667Notes
      and leases payable, net of discount
              
              1,887
              
              3,544Other liabilities
              
              8,283
              
              1,042Total
      long-term liabilities
              
              386,170
              
              360,965Total
      liabilities
              
              431,549
              
              410,311COMMITMENTS
      AND CONTINGENCIESMEMBER’S
      DEFICIT:Common
      member’s interest
              
              9,000
              
              9,000Accumulated
      deficit
              
              (66,424
              )
              (65,501
              )Accumulated
      other comprehensive loss
              
              (2,198
              )
              —Total
      member’s deficit
              
              (59,622
              )
              (56,501
              )TOTAL
              
              $ 371,927
              
              $353,810
 
  See notes
to consolidated financial statements.
   F-3
   
 PENINSULA
GAMING, LLC
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 YEARSENDED DECEMBER 31, 2007, 2006 AND 2005
 (in
thousands)
  2007
              
              
              2006
              
              
              2005REVENUES:Casino
              
              $
              222,147
              
              
              $
              200,734
              
              
              $
              146,790Racing
              
              
              19,146
              
              
              
              22,146
              
              
              
              17,578Video
      poker
              
              
              4,533
              
              
              
              3,715
              
              
              
              2,339Food
      and beverage
              
              
              15,801
              
              
              
              15,315
              
              
              
              13,511Other
              
              
              11,501
              
              
              
              10,087
              
              
              
              2,710Less
      promotional allowances
              
              
              (19,935
              )
              
              
              (17,580
              )
              
              
              (13,855
              )Total
      net revenues
              
              
              253,193
              
              
              
              234,417
              
              
              
              169,073EXPENSES:Casino
              
              
              94,389
              
              
              
              84,971
              
              
              
              67,180Racing
              
              
              15,959
              
              
              
              18,579
              
              
              
              15,335Video
      poker
              
              
              3,751
              
              
              
              2,949
              
              
              
              1,767Food
      and beverage
              
              
              12,428
              
              
              
              11,701
              
              
              
              9,849Other
              
              
              7,080
              
              
              
              6,605
              
              
              
              1,720Selling,
      general and administrative
              
              
              49,770
              
              
              
              43,924
              
              
              
              28,454Depreciation
      and amortization
              
              
              20,728
              
              
              
              20,820
              
              
              
              16,249Pre-opening
      expense
              
              
              375
              
              
              
              966
              
              
              
              310Development
      expense
              
              
              8,041
              
              
              
              777
              
              
              
              575Affiliate
      management fees
              
              
              5,218
              
              
              
              4,516
              
              
              
              2,057(Gain)
      loss on disposal of assets
              
              
              2,731
              
              
              
              210
              
              
              
              (16
              )Total
      expenses
              
              
              220,470
              
              
              
              196,018
              
              
              
              143,480INCOME
      FROM OPERATIONS
              
              
              32,723
              
              
              
              38,399
              
              
              
              25,593OTHER
      INCOME (EXPENSE):Interest
      income
              
              
              2,628
              
              
              
              955
              
              
              
              516Interest
      expense, net of amounts capitalized
              
              
              (40,505
              )
              
              
              (32,741
              )
              
              
              (29,133
              )Interest
      expense related to preferred member’s interest, redeemable
              
              
              —
              
              
              
              (285
              )
              
              
              (360
              )Total
      other expense
              
              
              (37,877
              )
              
              
              (32,071
              )
              
              
              (28,977
              )NET
      INCOME (LOSS)
              
              $
              (5,154
              )
              
              $
              6,328
              
              
              $
              (3,384
              )
 
  See notes
to consolidated financial statements.
   F-4
  
  PENINSULA
GAMING, LLC
 CONSOLIDATED
STATEMENTS OF CHANGES IN MEMBER’S DEFICIT
 AND COMPREHENSIVE INCOME (LOSS)
 YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005
 (in
thousands)
 
  COMMON
                MEMBER’S
                INTEREST
              
              
              ACCUMULATED
                DEFICIT
              
              
              ACCUMULATED
      OTHER COMPREHENSIVE LOSS
              
              
              TOTAL
                MEMBER’S
                DEFICIT
              
              
              COMPREHENSIVE
      INCOME (LOSS)BALANCE,
      JANUARY 1, 2005
              
              $
              9,000
              
              
              $
              (71,599
              )
              
              $
              —
              
              
              $
              (62,599
              )Net
      loss
              
              
              —
              
              
              
              (3,384
              )
              
              
              —
              
              
              
              (3,384
              )
              
              $
              (3,384
              )Member
      distributions
              
              
              —
              
              
              
              (4,624
              )
              
              
              —
              
              
              
              (4,624
              )
              
              
              -Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (3,384
              )BALANCE,
      DECEMBER 31, 2005
              
              
              9,000
              
              
              
              (79,607
              )
              
              
              —
              
              
              
              (70,607
              )Net
      income
              
              
              —
              
              
              
              6,328
              
              
              
              —
              
              
              
              6,328
              
              
              $
              6,328Member
      distributions
              
              
              —
              
              
              
              (2,494
              )
              
              
              —
              
              
              
              (2,494
              )
              
              
              -Member
      contributions
              
              
              —
              
              
              
              10,272
              
              
              
              —
              
              
              
              10,272
              
              
              
              -Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              6,328BALANCE,
      DECEMBER 31, 2006
              
              
              9,000
              
              
              
              (65,501
              )
              
              
              —
              
              
              
              (56,501
              )Net
      loss
              
              
              —
              
              
              
              (5,154
              )
              
              
              —
              
              
              
              (5,154
              )
              
              $
              (5,154
              )Unrealized
      loss on available for sale securities
              
              
              —
              
              
              
              —
              
              
              
              (2,198
              )
              
              
              (2,198
              )
              
              
              (2,198
              )Member
      distributions
              
              
              —
              
              
              
              (6,424
              )
              
              
              —
              
              
              
              (6,424
              )
              
              
              -Member
      contributions
              
              
              —
              
              
              
              10,655
              
              
              
              —
              
              
              
              10,655
              
              
              
              -Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (7,352
              )BALANCE,
      DECEMBER 31, 2007
              
              $
              9,000
              
              
              $
              (66,424
              )
              
              $
              (2,198
              )
              
              $
              (59,622
              )
 
  See notes
to consolidated financial statements.
   F-5
  
  PENINSULAGAMING, LLC
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005
 (in
thousands)
  2007
              
              
              2006
              
              
              2005CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              $
              (5,154
              )
              
              $
              6,328
              
              
              $
              (3,384
              )Adjustments
      to reconcile net income (loss) to net cash flows from operating
      activities:Depreciation
      and amortization
              
              
              20,728
              
              
              
              20,820
              
              
              
              16,249Non-cash
      interest
              
              
              4,314
              
              
              
              3,551
              
              
              
              3,140Non-cash
      equity based and other compensation
              
              
              10,655
              
              
              
              8,766
              
              
              
              1,208(Gain)
      loss on disposal of assets
              
              
              2,731
              
              
              
              210
              
              
              
              (16
              )Non-cash
      charitable contributions
              
              
              6,250
              
              
              
              —
              
              
              
              —Changes
      in operating assets and liabilities:Restricted
      cash — purse settlements
              
              
              (283
              )
              
              
              500
              
              
              
              (1,448
              )Receivables
              
              
              529
              
              
              
              (729
              )
              
              
              (1,798
              )Inventories
              
              
              (205
              )
              
              
              (213
              )
              
              
              (250
              )Prepaid
      expenses and other assets
              
              
              (1,163
              )
              
              
              (2,621
              )
              
              
              149Accounts
      payable
              
              
              (1,243
              )
              
              
              (669
              )
              
              
              2,791Accrued
      expenses
              
              
              3,703
              
              
              
              4,065
              
              
              
              4,018Payable
      to affiliates
              
              
              1,437
              
              
              
              1,813
              
              
              
              868Net
      cash flows from operating activities
              
              
              42,299
              
              
              
              41,821
              
              
              
              21,527CASH
      FLOWS FROM INVESTING ACTIVITIES:Increase
      in cash value of life insurance for premiums paid
              
              
              (157
              )
              
              
              (283
              )
              
              
              —Purchase
      of investment available for sale
              
              
              (14,659
              )
              
              
              —
              
              
              
              —Business
      acquisition and licensing costs
              
              
              (1,497
              )
              
              
              (1,520
              )
              
              
              (1,441
              )Proceeds
      from (deposits to) restricted cash
              
              
              12,981
              
              
              
              6,148
              
              
              
              (19,129
              )Payment
      to long-term deposit
              
              
              (6,350
              )
              
              
              —
              
              
              
              —Construction
      project development costs
              
              
              (34,418
              )
              
              
              (23,647
              )
              
              
              (25,949
              )Purchase
      of property and equipment
              
              
              (6,479
              )
              
              
              (12,725
              )
              
              
              (5,776
              )Proceeds
      from sale of property and equipment
              
              
              24
              
              
              
              47
              
              
              
              153Net
      cash flows from investing activities
              
              
              (50,555
              )
              
              
              (31,980
              )
              
              
              (52,142
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Deferred
      financing costs
              
              
              (9,123
              )
              
              
              (4,393
              )
              
              
              (3,283
              )Principal
      payments on debt
              
              
              (13,673
              )
              
              
              (9,291
              )
              
              
              (9,116
              )Redemption
      of preferred member’s interest
              
              
              —
              
              
              
              (4,000
              )
              
              
              —Proceeds
      from senior secured notes
              
              
              22,655
              
              
              
              78,280
              
              
              
              40,000Proceeds
      from senior credit facilities
              
              
              —
              
              
              
              29,685
              
              
              
              23,033Payments
      on senior credit facilities
              
              
              —
              
              
              
              (53,485
              )
              
              
              (13,121
              )Member
      distributions
              
              
              (6,424
              )
              
              
              (2,494
              )
              
              
              (4,624
              )Net
      cash flows from financing activities
              
              
              (6,565
              )
              
              
              34,302
              
              
              
              32,889NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (14,821
              )
              
              
              44,143
              
              
              
              2,274CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              
              56,921
              
              
              
              12,778
              
              
              
              10,504CASH
      AND CASH EQUIVALENTS AT END OF YEAR
              
              $
              42,100
              
              
              $
              56,921
              
              
              $
              12,778SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the year for interest
              
              $
              35,649
              
              
              $
              29,170
              
              
              $
              25,418SUPPLEMENTAL
      SCHEDULE OF NON-CASH INVESTING AND FINANCING
    ACTIVITIES:Property
      and equipment purchased, but not paid
              
              $
              3,910
              
              
              $
              4,764
              
              
              $
              5,046Property
      and equipment purchased in exchange for indebtedness
              
              
              3,471
              
              
              
              5,899
              
              
              
              22Property
      and equipment acquired in exchange for long-term deposit
              
              
              4,875
              
              
              
              —
              
              
              
              —Deferred
      financing costs incurred, but not paid
              
              
              137
              
              
              
              303
              
              
              
              —Deferred
      financing costs incurred in exchange for long-term
      deposit
              
              
              325
              
              
              
              —
              
              
              
              —Unrealized
      loss on available for sale investment
              
              
              2,198
              
              
              
              —
              
              
              
              —Assumption
      of equity based and other compensation liability by owner
              
              
              —
              
              
              
              1,506
              
              
              
              —Property
      and equipment returned for a reduction in construction
    payable
              
              
              —
              
              
              
              —
              
              
              
              162
 
  See notes
to consolidated financial statements.
   F-6
  
  PENINSULAGAMING, LLC
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  1.
ORGANIZATION AND BUSINESS PURPOSE
  Peninsula
Gaming, LLC (“PGL” or the “Company”), a Delaware limited liability company
organized in 1999, is a holding company with no independent operations whose
primary assets are cash and its equity interests in its wholly owned
subsidiaries. PGL’s subsidiaries consist of: (i) Diamond Jo, LLC, a
Delaware limited liability company (“DJL”), that owns and operates the Diamond
Jo riverboat casino in Dubuque, Iowa; (ii) The Old Evangeline Downs,
L.L.C., a Louisiana limited liability company (“EVD”), that owns and operates
the Evangeline Downs Racetrack and Casino, or racino, in St. Landry Parish,
Louisiana and four off-track betting (“OTB”) parlors in Louisiana;
(iii) Diamond Jo Worth Holdings, LLC, a Delaware limited liability company
(“DJWH”), and (iv) Peninsula Gaming Corp. (“PGC”), a Delaware corporation
with no assets or operations formed solely to facilitate the offering of the
Company’s 8
3/4% senior secured notesdue 2012 (the “Peninsula
Gaming Notes”) in March 2004. DJWH is a holding company with no independent
operations whose sole assets are its equity interests in its wholly owned
subsidiaries. DJWH’s subsidiaries consist of: (i) Diamond Jo Worth, LLC, a
Delaware limited liability company (“DJW”), that owns and operates the Diamond
Jo casino in Worth County, Iowa and (ii) DJW Corp. (“DJWC”), a Delaware
corporation with no assets or operations formed solely to facilitate the
offering by DJW of its 11% senior secured notes due 2012 (the “DJW Notes”) in
July 2005. The Company is a wholly owned subsidiary of Peninsula Gaming
Partners, LLC (“PGP”), a Delaware limited liability company.
  Recent
Developments
  To
facilitate DJL’s building of a new casino to expand its casino operations, on
September 27, 2006, DJL entered into an Offer to Purchase Real Estate,
Acceptance and Lease (the “Historical Society Agreement”) with the Dubuque
County Historical Society (the “Historical Society”). The Historical Society
Agreement provides for, among other things, (i) a charitable contribution by DJL
to the Historical Society of $1.0 million payable in equal annual installments
of $0.1 million for 10 years commencing June 2009 and (ii) the purchase by DJL
of 2.4 acres of real property (the “Expansion Tract”) for a purchase price of
$1.2 million plus an additional contribution of $0.8 million which was paid in
June 2007, the date of the closing of the Expansion Tract.
  The
Historical Society Agreement also provides for the Historical Society to lease
DJL’s existing dockside pavilion for 99 years at $1 per year and for DJL to
transfer all of its rights, title and interest in the existing Diamond Jo vessel
to the Historical Society at the Historical Society’s option. The lease and the
transfer of the vessel are conditioned upon DJL commencing operation of its new
casino.  During the fourth quarter of 2007, due primarily to DJL’s
obligations with the City of Dubuque, Iowa (“City”) discussed below, DJL
determined that it is remote that it will not commence operation of its new
casino and that the Historical Society will not accept receipt of the Diamond Jo
vessel and has, therefore, recorded a development expense for the fair market
value of the dockside pavilion and Diamond Jo vessel of $5.0 million and $1.3
million, respectively.
  DJL’s new
casino facility is expected to include approximately 1,000 slot machines, 17
table games and a five-table poker room.  Additional amenities are
expected to include a bowling center, various restaurants and an entertainment
center.  The new casino project is expected to cost approximately
$82.5 million. The Company expects to open the new casino in the Fall of
2008.
  On
October 1, 2007, DJL entered into the Amended and Restated Port of Dubuque
Public Parking Facility Development Agreement (“Development Agreement”) with the
City regarding, among other things, the design, development, construction and
financing of a public parking facility to be located adjacent to DJL’s proposed
casino development. The total development cost of the parking facility is
estimated to be approximately $23 million. In October 2007, the City entered
into a guaranteed maximum price contract with a third party to construct the
parking facility. Under the terms of the Development Agreement, the parking
facility will be completed in two phases with a required completion date of the
first phase, consisting of the first three levels of the north section of the
facility, of November 20, 2008 and the required completion date for the second
phase, consisting of the fourth level of the north section and all of the south
section, of January 16, 2009. The parking facility, which will be owned by the
City, will provide approximately 1,130 free parking spaces to the general public
and was financed, in part, by the City with the issuance in October 2007 of
approximately $23 million principal amount of 7.5 % Urban Renewal Tax Increment
Revenue Bonds, Taxable Series 2007 (“City Bonds”)
  F-7
  which
become due in 2011-2037. DJL is required to construct a casino with a minimum
cost of $45.0 million under the Development Agreement. Also, on October 1, 2007,
DJL entered into a Minimum Assessment Agreement (the “Minimum Assessment
Agreement”) with the City and the City Assessor, pursuant to which DJL and the
City agreed to a minimum actual taxable value of certain real estate and planned
improvements thereon of $57.9 million relating to DJL’s proposed casino
development  (the “Minimum Actual Value”). The Minimum Actual Value
will be in effect upon the earlier of substantial completion of the proposed
casino construction or January 1, 2009. DJL has agreed to pay property taxes to
the City with respect to the development property based upon the actual fair
value of the property but not less than the Minimum Actual Value. Scheduled
payments of principal and interest on the City Bonds will be funded through
DJL’s payment obligations under the Minimum Assessment Agreement. DJL is also
obligated to pay any shortfall should property taxes be insufficient to cover
the principal and interest payments on the City Bonds and the Company has
guaranteed DJL’s obligations under the Minimum Assessment Agreement. The
Development Agreement also calls for (i) a minimum initial payment by DJL of
$6.4 million to the City to be used toward the cost of designing and
constructing the public parking facility, the balance of which was paid to the
City in October 2007, (ii) the payment by DJL for the reasonable and necessary
actual operating costs incurred by the City for the operation, security, repair
and maintenance of the public parking facility and (iii) the payment by DJL to
the City of $80 per parking space in the public parking facility per year which
funds will be used by the City for capital expenditures necessary to maintain
the public parking facility.
 
 Due to
DJL’s expected use of the public parking facility and its obligations under the
Minimum Assessment Agreement combined with the Company’s guarantee, DJL will
record an obligation to the City as costs are incurred under the Development
Agreement.  As of December 31, 2007, the City incurred approximately
$5.6 million of costs related to the issuance of, and related interest on, the
City Bonds and construction of the parking facility which amount was offset
against DJL’s $6.4 million initial payment discussed above.  In the
future, when subsequent costs exceed DJL’s initial payment and the City begins
to use proceeds from the City Bonds to pay for future construction and interest
costs, DJL will record a related obligation and capital asset on its balance
sheet.  The obligation, along with related interest costs, will be
paid off over the life of the City Bonds through payments from DJL under the
Minimum Assessment Agreement as discussed above and the capital asset will be
depreciated over its estimated useful life of 40 years.  Any property
tax payments made by DJL exceeding the debt service on the City Bonds will be
expensed as incurred.
 
 In
addition, EVD is currently developing a 75,000 square foot, 100 room hotel
contiguous to its current casino.  Additional amenities for the hotel
include a fitness center, meeting space, a full in-house support laundry and a
guest business center. Adjoining the existing racino structure, the new hotel
will provide easy access to the casino and all of EVD’s existing
amenities.  EVD has engaged a local architect for the project and is
currently in negotiations with developers for the approximately $15.0 million
hotel.
 
 The
Company plans to finance these developments with the following: (i) cash on
hand, (ii) cash generated from operations, (iii) available borrowings under the
PGL Credit Facility and (iv) available vendor and equipment financing. There can
be no assurances that such projects will be completed in the estimated time
frames or at the estimated costs.
  2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Consolidation—The
consolidated financial statements include the financial information of the
Company and its wholly owned subsidiaries DJL, EVD, PGC and DJWH. All
significant intercompany balances and transactions are eliminated.
  Cash and Cash
Equivalents— The Company considers all certificates of deposit and other
highly liquid debt instruments purchased with original maturities of three
months or less to be cash equivalents.
  Restricted
Cash-Purse Settlements—Restricted cash represents amounts restricted by
regulation for purses to be paid during the live meet racing season at EVD.
Additionally, restricted cash includes entrance fees for a special futurity race
during the racing season, plus any interest earnings. These funds will be used
to pay the purse for the race. A separate interest bearing bank account is
required for these funds.
  Allowance for
Doubtful Accounts—The allowance for doubtful accounts is maintained at a
level considered adequate to provide for probable future losses.
  Inventories—Inventories
consisting principally of food, beverage, retail items, and operating supplies
are stated at the lower of first-in, first-out cost or market.
   F-8
  Restricted Cash -
Worth Project —Restricted cash at December 31, 2006 represents the
remaining unused proceeds from the issuance of $20.0 million of additional DJW
Notes in August 2006, the use and disbursement of which were restricted to the
design, development, construction, equipping and opening of the casino expansion
in Worth County, Iowa. All amounts were expended in 2007.
  Property and
Equipment—Property and equipment are recorded at cost. Major renewals and
improvements are capitalized, while maintenance and repairs are expensed as
incurred. Depreciation and amortization are computed on a straight-line basis
over the following estimated useful lives:
  Land
      improvements
              
              20-40
      yearsBuildings
      and building improvements
              
              3–40
      yearsRiverboat
      and improvements
              
              3–13
      yearsFurniture,
      fixtures and equipment
              
              3–10
      yearsComputer
      equipment
              
              3–5
      yearsVehicles
              
              3–5
      years
 
  Impairment of
Long-Lived Assets— Long-lived assets are reviewed for impairment when
management plans to dispose of assets or when events or circumstances indicate
that the carrying amount of a long-lived asset may not be recoverable. Assets
held for disposal are reported at the lower of the carrying amount or fair value
less cost to sell. Management determines fair value using a discounted future
cash flow analysis or other accepted valuation techniques. Long-lived assets
held for use are reviewed for impairment by comparing the carrying amount of an
asset to the undiscounted future cash flows expected to be generated by the
asset over its remaining useful life. If an asset is considered to be impaired,
the impairment to be recognized is measured as the amount by which the carrying
amount of the asset exceeds its fair value. During the quarter ended June 30,
2006, management determined the undiscounted future cash flows of its Alexandria
OTB did not support the recoverability of the property and equipment
attributable to the OTB’s operation. As such, the Company recognized an
impairment charge for the OTB’s assets that exceeded their estimated fair market
value. The impairment charge of $0.4 million is included in depreciation and
amortization on the consolidated statement of operations and is part of the EVD
operating segment.
  Capitalized
Interest— The Company capitalizes interest costs associated with debt
incurred in connection with significant construction projects. When debt is
incurred in connection with the development of the construction projects, the
Company capitalizes interest on amounts expended on the projects at each
applicable subsidiaries’ average cost of borrowed money. Capitalization of
interest ceases when the project is substantially complete. The amount
capitalized during 2007, 2006 and 2005 was $0.8 million, $0.8 million and $0.4
million, respectively.
  Deferred
Financing Costs— Costs associated with the issuance of debt have been
deferred and are being amortized over the life of the related
indenture/agreement using the effective interest method. These amortization
costs are included in interest expense on the statements of
operations.
  Goodwill and
Licenses and Other Intangible Assets— Goodwill represents the excess of
the purchase price over the fair value of the net identifiable assets acquired
in connection with the acquisition of the Diamond Jo riverboat casino
operations. Goodwill is not amortized but is reviewed at least annually for
impairment and written down and charged to income when its recorded value
exceeds its estimated fair value. At December 31 of 2007, 2006 and 2005, DJL
performed its annual impairment test on goodwill and determined that the
estimated fair value of the DJL reporting unit exceeded its carrying value as of
that date. Goodwill is subject to impairment by, among other things, significant
changes in the gaming tax rates in Iowa, significant new competition which could
substantially reduce profitability, non-renewal of DJL’s gaming license due to
regulatory matters or lack of approval of gaming by the county electorate at
scheduled referendums, and regulatory changes that could adversely affect DJL’s
business.
  Licenses
and other intangibles as of December 31, 2007 and 2006 consist of the acquired
licenses and tradename associated with the purchase of EVD and the first three
$1.0 million payments in June 2005, May 2006 and May 2007, respectively, for
DJW’s gaming license under an executory agreement with the State of Iowa. The
licenses and tradename have indefinite lives as the Company has determined that
there are no legal, regulatory, contractual, economic or other factors that
would limit their useful lives and the Company intends to renew and operate the
licenses and use the tradename indefinitely. In addition, other key factors in
the Company’s assessment that these licenses have an indefinite life include:
(1) the Company’s license renewal experience confirms that the renewal process
is perfunctory and renewals would not be
   F-9
  withheld
except under extraordinary circumstances; (2) the renewals related to these
licenses confirms the Company’s belief that the renewal process could be
completed without substantial cost and without material modification of the
licenses; (3) the economic performance of the operations related to the licenses
support the Company’s intention of operating the licenses indefinitely; and (4)
the continued limitation of gaming licenses in the States of Louisiana and Iowa
limits competition in the jurisdictions where these licenses are maintained.
Indefinite lived intangible assets are not amortized but are reviewed at least
annually for impairment and written down and charged to income when their
recorded value exceeds their estimated fair value. Licenses and other
intangibles at December 31 are summarized as follows (in
thousands):
  2007
              
              
              2006Slot
      machine and electronic video game licenses
              
              $
              30,233
              
              
              $
              29,735Tradename
              
              
              2,475
              
              
              
              2,478Horse
      racing licenses
              
              
              1,308
              
              
              
              1,308DJW
      gaming license
              
              
              3,000
              
              
              
              2,000Total
              
              $
              37,016
              
              
              $
              35,521
 
  Each of
EVD’s identified intangible assets were valued separately when the Company
was purchased. The valuations were updated by management as of December 31 of
2007, 2006 and 2005 indicating no impairment. In addition, management performed
an internal valuation of the DJW gaming license as of December 31 of 2007, 2006
and 2005 indicating no impairment. These intangible assets are subject to
impairment by, among other things, significant changes in the gaming tax rates
in Louisiana and Iowa, significant new competition which could substantially
reduce profitability, non-renewal of the racing or gaming licenses due to
regulatory matters or lack of county electorate approval in Iowa, changes to
EVD’s trade name or the way EVD’s trade name is used in connection with its
business and regulatory changes that could adversely affect the Company’s
business by, for example, limiting or reducing the number of slot machines or
video poker machines that the Company is permitted to operate.
  In
connection with PGL’s acquisition of EVD from a third party, EVD is required to
pay a contingent fee of one half of one percent (0.5%) of the net slot revenues
generated by EVD’s racino located in St. Landry Parish, Louisiana, for a period
of ten years commencing on December 19, 2003, the date the racino’s casino
opened to the general public. This contingent fee is payable monthly in arrears
and has been recorded as an adjustment to the purchase price allocated to slot
machine and video game licenses of $0.5 million and $0.5 million for the years
ended December 31, 2007 and 2006, respectively.
   Investment—As
discussed in Note 1, DJL entered into the Development Agreement with the City
that resulted in the issuance of the City Bonds.  DJW purchased the
bonds at the stated rate of 7.5% for $23.0 million on October 16,
2007.  This investment is the Company’s only investment, is classified
as available-for-sale, and is recorded at fair value.  Due to the
credit markets at the time of the purchase, DJW recorded a discount of $8.4
million on the bonds with a corresponding asset representing deferred
financing costs because the excess that DJW paid over the fair value of the
bonds was for the benefit of DJL.  The deferred financing
costs are being amortized using the effective interest method over the life
of the Minimum Assessment Agreement.  The discount is netted with
the investment on the balance sheet and is being accreted over the life of the
investment using the effective interest method. The accretion of such discount
is included in interest income on the statement of
operations.  Between the date of purchase and December 31, 2007, the
credit markets worsened which resulted in an unrealized loss of $2.2 million
which is reported in a separate component of member’s deficit.  The
fair value of the investment at December 31, 2007 is approximately $12.5
million.  The estimate of the fair value of the investment is based on
current market rates and estimates of market conditions for instruments with
similar terms, maturities, and degrees of risk.
  Future
maturities of the City Bonds, excluding the discount, at December 31, 2007 for
the years ended December 31 are summarized as follows (in
thousands):
  2008
                
                $
                -2009
                
                
                -2010
                
                
                -2011
                
                
                2852012
                
                
                305Thereafter
                
                
                22,435Total
                
                $
                23,025
  Debt
Discount—Debt discount associated with the issuance of debt is netted
with the related debt obligations on the balance sheets and is amortized over
the life of the debt using the effective interest method. The amortization of
such discount is included in interest expense on the statements of
operations.
  Derivative
Financial Instrument—The Company has a derivative financial instrument, a
contingent put option related to the DJW Notes.  Such derivative
financial instrument is recorded at fair market value and the change in fair
market value is recognized immediately through earnings as an adjustment to
interest expense.
  Revenue
Recognition and Promotional Allowances— In accordance with industry
practice, casino and video poker
   F-10
  revenue
is the net win from gaming activities, which is the difference between gaming
wins and losses. Racing revenues include EVD’s share of pari-mutuel wagering on
live races from commissions and breakage income which are set by the Louisiana
State Racing Commission, and EVD’s share of wagering from import and export
simulcasting as well as EVD’s share of wagering from its off-track betting
parlors. Pari-mutuel revenues are recognized upon occurrence of the live race
that is presented for wagering and after that live race is made official by the
state’s racing regulatory body. Food, beverage and other revenue is recognized
as services are performed. Revenues exclude sales taxes.
  Various
cash and free play incentive programs related to gaming play as well as the
retail value of food and beverage and other services furnished to guests without
charge are included in gross revenues and then deducted as promotional
allowances. These amounts were as follows (in thousands):
  Year Ended2007
              
              
              2006
              
              
              2005Cash
      and free play incentives
              
              $
              11,231
              
              
              $
              9,581
              
              
              $
              6,638Food
      and beverage
              
              
              7,801
              
              
              
              7,365
              
              
              
              6,876Other
              
              
              903
              
              
              
              634
              
              
              
              341Total
      promotional allowances
              
              $
              19,935
              
              
              $
              17,580
              
              
              $
              13,855
 
  The cost
of complimentary food and beverage and other services have been included in
casino and video poker expenses on the accompanying statements of operations.
Such estimated costs of providing complimentary services allocated from the food
and beverage and other operating departments to the casino and video poker
departments were as follows (in thousands):
  Year Ended2007
              
              
              2006
              
              
              2005Food
      and beverage
              
              $
              2,744
              
              
              $
              2,556
              
              
              $
              2,358Other
              
              
              359
              
              
              
              254
              
              
              
              149Total
      cost of complimentary services
              
              $
              3,103
              
              
              $
              2,810
              
              
              $
              2,507
 
  Slot Club
Awards—The Company provides slot patrons with incentives redeemable for
food, beverage or other services based on the dollar amount of play on slot
machines. A liability has been established based on an estimate of the cost of
honoring these outstanding incentives, utilizing the age of the award and prior
history of redemptions.
  Equity Based
Compensation— Effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123 (Revised 2004) Share-Based Payment (“SFAS
No. 123R”) which requires that compensation expense under equity based
awards be measured at fair value. As allowed under the provisions of SFAS
No. 123R the Company has applied SFAS No. 123R prospectively to new
awards and to awards modified, repurchased, or cancelled after the required
effective date. The Company continues to account for any portion of awards
outstanding at the date of initial application of SFAS No. 123R using the
accounting principles historically applied to those awards, the intrinsic value
method. The Company did not have any new awards and there were no modifications,
repurchases, or cancellations of awards issued prior to January 1, 2006
during the years ended December 31, 2007 and 2006. There were no payments to
employees related to equity based awards during the years 2007, 2006 and 2005.
As of December 31, 2007, there was approximately $6.3 million of
compensation expense related to nonvested awards which has not been recognized
in the consolidated statement of operations. Based on the intrinsic value at
December 31, 2007, approximately $2.8 million of the unrecognized value of
awards is scheduled to vest over the next nine months unless vested earlier
pursuant to the terms of the awards.  The remaining $3.5 million is
scheduled to vest upon a change in control of the Company.  See Note
10 for more information regarding the terms of outstanding equity
awards.
  Equity
based awards granted by PGP to Company employees contain a
put option exercisable by the employee and are recorded at their
intrinsic value (which is the increase in the fair market value of the units
granted based on a market multiple of forecasted total segment operating
earnings) and the percentage vested. The amount expensed each period is based
upon the change in intrinsic value and the percentage vested. As these awards
are issued by PGP, the awards represent a PGP liability and not a liability of
the Company although the expense associated with awards to Company employees is
recorded by the Company with a corresponding credit to member
contributions.
  Advertising—All
costs associated with advertising are expensed as incurred. Advertising expense
was approximately $2.8 million in 2007, $2.7 million in 2006 and $2.0 million in
2005.
   F-11
  Pre-Opening
Expense—Costs associated with start-up activities for new or expanded
operations are expensed as incurred.
  Development
Expense— Costs associated with new business opportunities are expensed as
incurred unless the cost is capitalizable and management believes it is probable
the project will be completed.  During the year ended December 31,
2007, as all significant contingencies surrounding the Historical Society
Agreement were met, DJL expensed $7.7 million as development expense primarily
related to the unconditional contribution obligation by DJL to the Historical
Society of (i) the dockside pavilion through a 99 year lease, (ii) the Diamond
Jo vessel and (iii) cash. In addition, DJL incurred approximately $0.3 million
of other expenses associated with the new casino development project in 2007.
During 2006 and 2005 the Company incurred development expenses
of  approximately $0.8 million and $0.6 million primarily related to
the development of DJL’s new casino and OED’s hotel development and other
potential real property developments.
  Income
Taxes— The Company is a limited liability company. In lieu of corporate
income taxes, the members of a limited liability company are taxed on their
proportionate share of the Company’s taxable income. Therefore, no provision or
liability for income taxes has been included in the financial
statements.
  Use of
Estimates—The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Significant estimates involve the fair values of equity based compensation, an
embedded derivative and the DJW investment in City Bonds, the periodic review of
the carrying value of assets for impairment, the estimated useful lives for
depreciable assets, and the estimated liabilities for the EVD sales tax
contingency, slot club awards, customer legal disputes and self insured medical
and workers compensation claims.
  In
addition, an estimated loss from a loss contingency is recorded when information
available prior to issuance of the financial statements indicates that it is
probable that a liability has been incurred at the date of the financial
statements and the amount of the loss can be reasonably estimated. Accounting
for contingencies such as legal matters requires the use of judgment. Many of
these legal contingencies can take years to be resolved. An adverse outcome
could have a material impact on financial condition, results of operations, and
cash flows.
  Concentrations of
Risk—The Company’s customer base is concentrated in southwest Louisiana,
north central and eastern Iowa, southern Minnesota, southwest Wisconsin and
northeast Illinois.
  The
Company maintains deposit accounts at three banks. At December 31, 2007 and
2006, and various times during the years then ended, the balance at the banks
exceeded the maximum amount insured by the Federal Deposit Insurance
Corporation. Credit risk is managed by monitoring the credit quality of the
banks.
  Recently Issued
Accounting Standards— In December 2007, the Financial Accounting
Standards Board (“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 141 (revised 2007), Business Combinations (“SFAS
141R”). SFAS 141R significantly changes the way companies account for business
combinations and will generally require more assets acquired and liabilities
assumed to be measured at their acquisition-date fair value. Under SFAS 141R,
legal fees and other transaction-related costs are expensed as incurred and are
no longer included in goodwill as a cost of acquiring the business. SFAS 141R
also requires, among other things, acquirers to estimate the acquisition-date
fair value of any contingent consideration and to recognize any subsequent
changes in the fair value of contingent consideration in earnings. In addition,
restructuring costs the acquirer expected, but was not obligated to incur, will
be recognized separately from the business acquisition. This accounting standard
is effective for the Company’s year ending December 31, 2009. The Company is
currently evaluating the impact of SFAS 141R on the Company’s financial
statements.
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities
to choose to measure certain eligible financial assets and financial liabilities
at fair value (the fair value option). SFAS 159 also establishes presentation
and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the fair value
option is elected would be reported in earnings. SFAS 159 is effective for the
Company's year ending December 31, 2008. The Company is currently evaluating
whether to elect the fair value option for eligible financial assets and/or
financial liabilities and the impact, if any, of SFAS 159 on the Company’s
financial statements.
  F-12
  
 In
September 2006, the FASB issued SFASNo. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements. SFAS 157
indicates, among other things, a fair value measurement assumes that the
transaction to sell an asset or transfer a liability occurs in the principal
market for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability. SFAS 157 is effective for
the Company's year ending December 31, 2008, with the exception of certain
non-financial assets and liabilities for which the effective date is the
Company’s year ending December 31, 2009. The Company is currently evaluating the
impact of SFAS 157 on the Company's financial statements.
  3.
PROPERTY AND EQUIPMENT
  Property
and equipment at December 31 is summarized as follows (in
thousands):
  2007
              
              
              2006Land
      and land improvements
              
              $
              18,170
              
              
              $
              16,773Buildings
      and improvements
              
              
              137,669
              
              
              
              114,823Riverboat
      and improvements
              
              
              8,442
              
              
              
              8,410Furniture,
      fixtures and equipment
              
              
              65,077
              
              
              
              56,721Computer
      equipment
              
              
              8,842
              
              
              
              8,185Vehicles
              
              
              379
              
              
              
              378Construction
      in progress
              
              
              18,188
              
              
              
              13,360Subtotal
              
              
              256,767
              
              
              
              218,650Accumulated
      depreciation
              
              
              (67,955
              )
              
              
              (53,896
              )Property
      and equipment, net
              
              $
              188,812
              
              
              $
              164,754
 
  Depreciation
and amortization expense for the years ended December 31, 2007, 2006 and
2005 was $20.7 million, $20.8 million and $16.2 million,
respectively.
  In
connection with DJL’s proposed casino development as discussed in Note 1, DJL
began accelerating depreciation on long-lived assets with a net book value of
approximately $4.5 million that will either be contributed to the Historical
Society or will not be utilized at its new casino
facility.  Accelerated depreciation on these assets began during the
fourth quarter of 2006 and DJL will continue to depreciate the remaining net
book value of those assets, less their estimated fair market value at the date
of contribution or estimated net realizable value, through the period that DJL
estimates commencing operations at the new facility.  Depreciation
expense for 2007 and 2006 increased by approximately $0.8 million and $0.2
million, respectively, as a result of accelerated depreciation on these
assets.
  During
the third quarter in 2007, in an effort to reduce the overall design and
construction costs of the hotel project, EVD entered into discussions with a new
contractor and architect to design, develop and construct an approximately 100
room hotel contiguous to EVD’s racino. Due to the entire redesign of the
project, EVD wrote off as a loss on disposal of assets approximately $2.6
million of previously capitalized costs related primarily to initial
architectural and design work that will not be utilized in the new project
design.
 
 Included
in the total amount of depreciation and amortization expense for 2006 is an
impairment charge of approximately $0.4 million associated with long-lived
assets at EVD’s Alexandria OTB.  Based on historic and expected future
cash flows of the Alexandria OTB operations, the carrying value of the leasehold
improvements and certain other assets were not expected to be recovered by
future cash flows and were written down by the amount the carrying value of the
assets exceeded their estimated fair market value.  EVD closed the
Alexandria OTB in July of 2006 and recorded a lease termination loss of
approximately $0.1 million.
  4.
DEBT
   F-13
  Long-term
debt at December 31 consists of the following (in thousands):
  2007
              
              
              20068
      3/4%  senior secured notes due April 15, 2012, net of discount
      of $2,211 and $2,619, respectively, secured by substantially all the
      assets of PGL, DJL and EVD and the equity of DJL and EVD
              
              $
              252,789
              
              
              $
              252,38111%
      senior secured notes of DJW due April 15, 2012 (and related
      contingent put option in 2006), net of discount of $762 at December 31,
      2007, secured by substantially all the assets of DJW and a pledge of
      equity of DJW and DJWC
              
              
              116,358
              
              
              
              96,50013%
      senior secured notes of EVD due March 1, 2010 with contingent
      interest, net of discount of $57 and $79, respectively, secured by certain
      assets of EVD
              
              
              6,853
              
              
              
              6,831$65,000
      revolving line of credit under a loan and security agreement of DJL and
      EVD with Wells Fargo Foothill, Inc., interest rate at prime plus a margin
      of 0.25% (current rate of 7.5% at December 31, 2007), maturing June 16,
      2008, secured by substantially all assets of DJL and EVD
              
              
              —
              
              
              
              —$5,000
      revolving line of credit under a loan and security agreement of DJW with a
      bank, interest rate at prime less a margin of 1.0% (current rate of 6.25%
      at December 31, 2007), maturing March 1, 2010, secured by
      substantially all the assets of DJW and guaranteed by the Company’s Chief
      Executive Officer
              
              
              —
              
              
              
              —Term
      loan under a loan and security agreement of DJL and EVD with Wells Fargo
      Foothill, Inc., interest rate at prime plus 2.5% (10.75% at December 31,
      2006), secured by certain assets of DJL and EVD
              
              
              —
              
              
              
              4,667Notes
      payable and capital lease obligations, net of discount of $103 and $234,
      respectively, interest rate at 7 1⁄4% - 8 3⁄4%, due 2008 -
2011
              
              
              5,034
              
              
              
              8,189Total
      debt
              
              
              381,034
              
              
              
              368,568Less
      current portion
              
              
              (3,147
              )
              
              
              (8,645
              )Total
      long term debt
              
              $
              377,887
              
              
              $
              359,923
 
  Principal
maturities of debt (excluding discount) for the Company, and separately for DJW,
the Company's unrestricted subsidiary, for each of the years ended
December 31 are summarized as follows (in thousands):
  DJW
              
              
              Company2008
              
              $
              2,659
              
              
              $
              3,2442009
              
              
              660
              
              
              
              1,2442010
              
              
              55
              
              
              
              7,5382011
              
              
              -
              
              
              
              212012
              
              
              117,120
              
              
              
              372,120Thereafter
              
              
              -
              
              
              
              -$
              120,494
              
              
              $
              384,167
 
  Peninsula Gaming
Notes
  On April
16, 2004, DJL and PGC completed a private placement of $233 million principal
amount of 8 3⁄4% senior secured notes due 2012 (the “Peninsula Gaming Notes”). The
Peninsula Gaming Notes were issued at a discount of approximately $3.3 million.
Interest on the Peninsula Gaming Notes is payable semi-annually on April 15 and
October 15 of each year. Upon a corporate restructuring, the Company also became
a co-issuer of the Peninsula Gaming Notes.
  On
December 22, 2006, the Company, DJL, and PGC, as co-issuers, issued and
sold to a third party investor in a private placement $22.0 million aggregate
principal amount of Peninsula Gaming Notes (“Additional Peninsula Gaming
Notes”).  The Company used a portion of the net proceeds from this
issuance of the Additional Peninsula Gaming Notes to pay down borrowings under
its existing senior credit facility and to finance, in part, the construction of
the new casino at DJL and the development of the hotel at EVD.
  The
indenture governing the Peninsula Gaming Notes limits the Company’s ability to,
among other things, incur more debt; pay dividends or make other distributions
to PGP and DJW (for so long as DJW is an unrestricted subsidiary); redeem stock;
make certain investments; create liens; enter into transactions with affiliates;
merge or consolidate; and transfer or sell
   F-14
  assets.
  The
Peninsula Gaming Notes are full and unconditional obligations of DJL as a
co-issuer. PGL and PGC, also co-issuers, have no independent assets (other than
PGL’s cash and investment in its subsidiaries) or operations. The Peninsula
Gaming Notes are secured by substantially all the assets of PGL, DJL and EVD
subject to the prior lien of the PGL Credit Facility as discussed below. The
Peninsula Gaming Notes are also fully and unconditionally guaranteed, subject to
the prior lien of the PGL Credit Facility as discussed below, by EVD. Further,
EVD and DJL have pledged their equity interests as collateral. All of DJL’s and
EVD’s net assets are restricted except for $5.1 million at December 31, 2007
under the Peninsula Gaming Notes. The Peninsula Gaming Notes do not limit DJL’s
or EVD’s ability to transfer net assets between PGL, DJL and EVD.
  DJW
Notes
  In
July 2005, DJW completed a private placement of $40.0 million aggregate
principal amount of DJW Notes. In connection with the offering of the DJW Notes,
DJW was designated an “unrestricted subsidiary” by the Company under the
indenture governing the Peninsula Gaming Notes, and DJW was released of its
obligations under the PGL Credit Facility. The DJW Notes bear interest at a rate
of 11% per year, payable semi-annually on April 15 and October 15 of
each year.
  The DJW
Notes are secured by a pledge of the equity of DJW and DJWC and substantially
all of DJW’s current and future assets. The lien on the collateral that secures
the DJW Notes is contractually subordinated to the liens securing up to $5.0
million of indebtedness under the DJW Credit Facility as discussed below. The
DJW Notes, which mature on April 15, 2012, are redeemable at the Company’s
option, in whole or in part at any time or from time to time, on and after
April 15, 2008 at certain specified redemption prices set forth in the
indenture governing the DJW Notes. The holders of the DJW Notes also have the
right to require repayment upon a change in control. The indenture governing the
DJW Notes contains a number of restrictive covenants and agreements, including
covenants that limit the ability of DJW to, among other things: (1) pay
dividends, redeem stock or make other distributions or restricted payments;
(2) incur indebtedness or issue preferred shares; (3) make certain
investments; (4) create liens; (5) consolidate or merge; (6) sell
or otherwise transfer or dispose of assets; (7) enter into transactions
with affiliates; (8) use proceeds of permitted asset sales and (9) change
its line of business. Specifically, DJW is prohibited from making any dividends
or other distributions to PGL, subject to certain limited exceptions. DJW is
permitted to make dividends or other distributions to PGL to pay certain tax
obligations. Further, DJW can make dividends and other distributions to PGL to
pay corporate overhead or similar allocations or payments, including, but not
limited to, tax preparation, accounting, licensure, legal and administrative
fees and expenses. Additionally, DJW may make dividends and other distributions
to PGL in respect of certain payments under management agreements and to pay
reasonable directors’ or managers’ fees and expenses, so long as any payments
with respect to any management agreement or certain employee, consulting or
similar agreements do not, in the aggregate, in any fiscal year exceed (a) for
2006, $500,000, (b) for 2007, the product of 1.333333 multiplied by 4.0% of
DJW’s Consolidated EBITDA (as defined in the indenture governing the DJW Notes)
for the nine months ended December 31, 2006 and (c) for any fiscal year
thereafter, 4.0% of DJW’s Consolidated EBITDA for the preceding fiscal year.
Finally, DJW can make additional dividends and other distributions not to exceed
$0.5 million. Subject to the foregoing provisions, all of the net assets of DJW
are restricted.
  On August
31, 2006, DJW entered into the First Supplemental Indenture to the Indenture
dated as of July 19, 2005 (the “DJW First Supplemental Indenture”) which
permitted, among other things, the issuance by DJW on August 31, 2006 of an
additional $20 million principal amount of DJW Notes, the proceeds of which were
used in part to fund the expansion of the DJW casino. In addition, the DJW First
Supplemental Indenture requires DJW to offer to buy back a portion of the DJW
Notes on a semi-annual basis, beginning March 31, 2007, with 50% of Excess Cash
Flow (as defined therein) at a premium of 7.5%. Such provision was determined to
be an embedded derivative and was fair valued and separated from the DJW Notes
at date of issuance since it was not clearly and closely related. As of December
31, 2007 and December 31, 2006, the fair value of the put option was
approximately $1.3 million and $0.5 million, respectively. The fair value of the
put option was determined to be the present value of the estimated premium
payments through the maturity of the DJW Notes. The estimated premium payments
were calculated using estimated future cash flows developed by the Company to
estimate the portion of the DJW Notes that would be subject to the contingent
put option, yields of comparable financial instruments, the remaining date to
maturity of the DJW Notes and based on discussions with the holders of the notes
as to whether the contingent put option would be elected by the noteholders. The
fair value of the put option is revalued at the end of each reporting period
with a corresponding charge (benefit) to interest expense. During the year ended
December 31, 2007, the Company expensed $0.9 million as interest expense related
to the change in the fair value of the embedded derivative. In addition, DJW
redeemed $2.4 million principal amount of DJW Notes, plus applicable premium and
accrued interest, in November 2007 based on the Excess Cash Flow
provision.
   F-15
  On
December 21, 2006, DJW entered into the Second Supplemental Indenture to the
Indenture dated as of July 19, 2005 which permitted, among other things, the
issuance by DJW on December 21, 2006 of an additional $36.5 million principal
amount of DJW Notes (“Additional DJW Notes”) and the distribution of up to $35.0
million of the net proceeds of the Additional DJW Notes to PGL.  The
distribution was made to PGL in 2006 and was used to pay down borrowings under
the PGL Credit Facility and to finance, in part, the current construction of the
new casino at DJL and the development of the hotel at EVD.
  On
October 16, 2007, DJW entered into the Third Supplemental Indenture to the
Indenture dated as of July 19, 2005 which permitted, among other things, the
issuance by DJW on October 16, 2007 of an additional $23.0 million principal
amount of DJW Notes at a purchase price of 98.5% of the principal amount
thereof, the proceeds of which were used to fund the purchase of DJW’s
investment in the City Bonds.
  EVD
Notes
  Contingent
interest accrues on the 13% senior secured notes (the “EVD Notes”). The amount
of contingent interest is equal to 0.3% of EVD’s cash flow for the year, subject
to certain limitations. EVD may defer paying a portion of the contingent
interest under certain circumstances set forth in the indenture governing the
EVD Notes. EVD is the sole obligor under the EVD Notes.
  PGL Credit
Facility
  On June
16, 2004, DJL and EVD jointly entered into a loan and security agreement with
Wells Fargo Foothill, Inc. as the arranger and agent which was later amended in
November 2004, July 2005 and December 2006 (as amended, the “PGL Credit
Facility”). The PGL Credit Facility consists of a revolving credit facility
which permits DJL and EVD to request advances and letters of credit up to the
lesser of the maximum revolver amount of $65.0 million (less amounts outstanding
under letters of credit) and a specified borrowing base (the “Borrowing Base”).
The Borrowing Base is the lesser of the combined EBITDA (as defined in the PGL
Credit Facility) of EVD and DJL for the twelve months immediately preceding the
current month end multiplied by 150% and the combined EBITDA of EVD and DJL for
the most recent quarterly period annualized multiplied by 150%. At December 31,
2007, the maximum revolver amount was $65.0 million. The borrowings under the
revolver portion of the PGL Credit Facility bear interest at a rate equal to the
Wells Fargo prime rate plus a margin of 0.25%, or 7.5% at December 31, 2007. The
available borrowing amount at December 31, 2007, after reductions for amounts
borrowed and letters of credit outstanding at DJL and EVD, was $64.2 million. As
of December 31, 2007, there were no outstanding advances under the revolver
portion of the PGL Credit Facility and outstanding letters of credit of
approximately $0.8 million.
  The PGL
Credit Facility also contained a term loan, the balance of which was paid off in
November 2007.
  DJL and
EVD are jointly and severally liable under the PGL Credit Facility and such
borrowings are collateralized by substantially all of the assets of EVD and DJL.
Borrowings under the PGL Credit Facility are guaranteed by PGL and
PGC.
  The PGL
Credit Facility contains a number of restrictive covenants, including covenants
that limit DJL’s and EVD’s ability to, among other things: (1) incur more debt;
(2) create liens; (3) enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock; (4) dispose of certain
assets; (5) guarantee the debt of others; (6) pay dividends or make other
distributions; (7) make investments; and (8) enter into transactions with
affiliates. The PGL Credit Facility also contains financial covenants including
a minimum combined EBITDA (as defined by the PGL Credit Facility) of DJL and EVD
and limitations on capital expenditures at DJL and EVD.
  Specifically,
DJL and EVD are prohibited from making any dividends or other distributions to
PGL or any of PGL’s unrestricted subsidiaries, subject to certain limited
exceptions (such restrictions at December 31, 2007 are less restrictive than the
restrictions under the Peninsula Gaming Notes). DJL and EVD are permitted to
make dividends or other distributions to PGL to pay certain tax obligations and
to fund tax preparation, accounting, legal and administrative fees and expenses.
Additionally, DJL and EVD may make dividends and other distributions to PGL in
respect of certain payments under management agreements and to pay reasonable
directors’ or managers’ fees and expenses, so long as such payments do not, in
the aggregate, in any fiscal year exceed the lesser of (a) 4.0% of DJL and EVD’s
combined EBITDA (as defined in the PGL Credit Facility) for the preceding fiscal
year and (b) $4.0 million. DJL and EVD may also make dividends or other
distributions to PGL so that PGL, subject to certain limitations, can
repurchase, redeem or otherwise acquire equity interests
   F-16
  in PGL or
its restricted subsidiaries (as defined in the PGL Credit Facility) from its
respective employees, members or managers.
  During
the third quarter 2007, certain conditions precedent to the effectiveness of all
remaining provisions (including the increase in available borrowings under the
revolver portion of the facility to $65.0 million and the ability to make
additional capital expenditures in connection with the proposed casino project
at DJL) of the fourth amendment to the PGL Credit Facility were
satisfied.
 
 In July
2007, DJL and EVD entered into a Consent to Loan and Security Agreement in which
Wells Fargo Foothill, Inc. consented to capital expenditures by DJL, in addition
to capital expenditures permitted by the original loan agreement and subsequent
amendments, in an aggregate amount not to exceed $80.0 million for the DJL
casino project.  DJL and EVD expect to enter into an amendment to the PGL
Credit Facility in the second quarter of 2008 to allow for expected DJL casino
project costs of $82.5 million.
 
 DJW Credit
Facility
  On
October 4, 2006, DJW and DJWC entered into a senior secured revolving credit
facility with American Trust & Savings Bank that was subsequently amended on
December 21, 2006 and October 16, 2007 (as amended, the “DJW Credit Facility”).
The DJW Credit Facility permits DJW to request advances and letters of credit of
up to $5.0 million. Advances under the DJW Credit Facility bear interest at a
rate equal to the greater of (i) at DJW’s option, either LIBOR plus a margin of
1.85%-2.20% or the Wall Street Journal prime rate less a margin of 1.0%, or
6.25% at December 31, 2007, and (ii) 5%. The DJW Credit Facility expires on
March 1, 2010.  The available borrowing amount under such facility at
December 31, 2007, after reductions for amounts borrowed and letters of credit
outstanding at DJW, was $4.3 million. As of December 31, 2007, there were no
outstanding advances under the DJW Credit Facility and outstanding letters of
credit of approximately $0.7 million.
  The DJW
Credit Facility contains a number of restrictive covenants, including covenants
that limit DJW’s ability to, among other things, incur or guarantee more debt
and create liens. In addition, the DJW Credit Facility requires that, on an
annual basis, DJW repay all advances (other than amounts designated under
letters of credit) and such repayment of all advances must continue for a period
of five days, after which, DJW will be allowed to resume requesting advances.
The DJW Credit Facility also contains customary events of default, including
nonpayment of principal and interest when due, violation of covenants, material
inaccuracy of representations and warranties, bankruptcy events, and material
judgments. Certain of the events of default are subject to a grace
period.
  DJW’s and
DJWC’s obligations under the DJW Credit Facility are secured by a security
interest in substantially all of DJW’s and DJWC’s tangible and intangible
assets. The DJW Credit Facility is secured by substantially the same assets that
secure the DJW Notes. Pursuant to an intercreditor agreement between DJW and
American Trust and Savings Bank, the lien on the collateral securing the DJW
Credit Facility is contractually senior to the lien on the collateral securing
the DJW Notes and the related guarantees. The Company’s Chief Executive Officer
agreed to unconditionally guarantee DJW’s payment obligations to the lender
under the DJW Credit Facility.
  The
Company was in compliance with all debt covenants as of December 31,
2007.
  5.
EMPLOYEE BENEFIT PLANS
  PGL, DJL,
EVD and DJW each have a qualified defined contribution plan under
section 401(k) of the Internal Revenue Code for their respective employees.
Under the plans, eligible employees may elect to defer a portion of their
salary, subject to Internal Revenue Service limits. The Company may make a
matching contribution to each participant based upon a percentage set by the
Company, prior to the end of each plan year. Company matching contributions to
the plans were $0.3 million in each of 2007, 2006 and 2005.
  In
January 2005, the Company created a non-qualified deferred compensation
plan. Under the plan, certain eligible key employees of the Company may elect to
defer a portion of their compensation. The Company makes a matching contribution
to each participant based upon a percentage set by the Company. These matching
contributions vest over a three year period of service. Company matching
contributions were $0.1 million in 2007 and 2006 and less than $0.1 million in
2005.
  6.
LEASING ARRANGEMENTS
  The
Company leases three of its OTB facilities and other equipment under
noncancelable operating leases. The Company also leases certain gaming machines
and other equipment under cancelable leases. These cancelable leases require
either fixed monthly payments or contingent monthly rental payments based on
usage of the equipment. The leases expire on
   F-17
  various
dates through 2026. Rent expense was $6.9 million, $6.3 million and $4.6 million
during the years ended 2007, 2006 and 2005, respectively.
  Minimum
rental payments and contingent rental payments for the years ended December 31,
2007, 2006 and 2005 are summarized as follows (in thousands):
 
 Years ended
      December 31,2007
              
              
              2006
              
              
              2005Minimum
      rental payments
              
              $
              1,862
              
              
              $
              1,899
              
              
              $
              1,542Contingent
      rental payments
              
              
              5,000
              
              
              
              4,376
              
              
              
              3,038Total
              
              $
              6,862
              
              
              $
              6,275
              
              
              $
              4,580
 
  The
future minimum rental payments required under noncancelable leases with a
minimum original term in excess of one year at December 31, 2007 for the years
ended December 31 are summarized as follows (in thousands):
  2008
              
              $
              1,2142009
              
              
              7032010
              
              
              2372011
              
              
              1382012
              
              
              114Thereafter
              
              
              386Total
              
              $
              2,792
  7.
COMMITMENTS AND CONTINGENCIES
  Under the
Company’s and PGP’s operating agreements, the Company and PGP have agreed,
subject to a few exceptions, to indemnify and hold harmless PGP and PGP’s
members from liabilities incurred as a result of their positions as sole manager
of the Company and as members of PGP, respectively.
  In
October 2003, EVD filed a Petition for Declaratory Judgment in St. Landry
Parish, Louisiana, naming as opposing parties the Secretary of the Department of
Revenue and Taxation for the State of Louisiana (the “Department”), the St.
Landry Parish School Board and the City of Opelousas. EVD sought a judgment
declaring that sales taxes were not due to the defendants on purchases made by
EVD and its contractors in connection with the construction and furnishing of
the Evangeline Downs Racetrack and Casino, which was constructed in St. Landry
Parish in 2003-2004. EVD’s action was based on Louisiana statutory law which
provides that racetracks are not required to pay taxes and fees other than those
provided in the racing statutes, and that taxes and fees provided in the racing
statutes are in lieu of, among other things, all state and local sales taxes.
The St. Landry Parish School Board and the City of Opelousas questioned the
application of the racing statutes to the construction and furnishing of the
casino portion of the facility, thereby leading to the filing of this action.
Subsequently, the Department adopted a similar position as the St. Landry Parish
School Board and the City of Opelousas.
 
 EVD filed
a motion for summary judgment, which was scheduled for hearing in
July 2005. Prior to the hearing, it was discovered by EVD that EVD’s
contractor (and the contractor’s subcontractors) had paid sales taxes on many
purchases related to the construction of the new racetrack and casino, and that
EVD, in its payments to the contractor, had reimbursed the contractor for such
sales taxes. In light of this discovery, the parties agreed to continue
indefinitely the hearing on the motion for summary judgment so that EVD could
prepare and file a refund claim for the taxes paid by EVD’s contractor and the
contractor’s subcontractors.  In November and December 2005,
EVD filed refund claims totaling $0.6 million with the Department and S. Landry
Parish related to these taxes paid.
  In
October 2006, the Department notified EVD that additional taxes and
interest totaling approximately $0.4 million were due for the period
January 1, 2002 through December 31, 2004.  In November 2006, EVD
formally protested the additional proposed tax assessment with the Department;
the protest was denied by the Department. Accordingly, EVD accrued and
subsequently paid the additional taxes of approximately $0.4 million, but these
taxes were paid under protest. In December 2006, EVD filed suit in East Baton
Rouge Parish, Louisiana against the Department for recovery of these taxes paid
under protest. The Department answered this suit by generally denying EVD’s
right to recover the taxes paid under protest. During 2006, the Company accrued
an additional $1.1 million related to state sales taxes that the Company may be
required to pay for the years 2005 and 2006 and for local parish and city taxes
for the years 2002 through 2006. Of the total sales tax amount recorded,
approximately $0.7 million and $0.4 million was recorded in general and
administrative expense
   F-18
  and
interest expense, respectively, in the consolidated statement of operations for
2006. The remaining balance, totaling approximately $0.4 million, was
capitalized in fixed assets. EVD also accrued another $0.4 million and $0.1
million in 2007 for ongoing operating purchases and interest,
respectively.
  On
February 20, 2008, EVD and the Department entered into a Settlement Agreement
(the “Settlement Agreement”) which settled certain tax disputes between EVD and
the Department arising out of audits conducted by the Department of the taxable
years ended December 31, 2002, 2003 and 2004 as discussed above.  As
part of the settlement, the Department agreed to refund to EVD, as a credit
against future sales or use taxes due to the State of Louisiana by EVD for tax
years beginning on or after January 2005, (a) approximately $0.1 million plus
accrued interest from December 11, 2006 and (b) approximately $0.1 million plus
accrued interest from November 28, 2005, in each case until the date the
Department provides notification that such credit has been applied for the
benefit of EVD.  The refunds were recorded in EVD’s 2007 financial
statements as a reduction to property and equipment of approximately $0.1
million and a reduction in general and administrative and interest expense of
approximately $0.1 million.
  The
Department and EVD also reached an agreement regarding the payment of additional
sales tax by EVD for tax years beginning on or after January
2005.  Based on this agreement, EVD reduced the liability recorded for
sales taxes for the years 2005 through 2007 by approximately $0.1 million. EVD’s
obligations related to sales tax with respect to future periods may be affected
by litigation involving the Department and other gaming companies. The
sales and use tax dispute with St. Landry Parish and the City of Opelousas
remains open. EVD has accrued management’s best estimate of all sales and use
taxes that may be due to the Department, St. Landry Parish or the City of
Opelousas as of December 31, 2007.
  In
October 2005, EVD filed a request to arbitrate certain claims against the
general contractor of its racino relating to improper construction of the horse
racetrack at the racino. EVD pursued a claim for damages of approximately $7.3
million against the general contractor to recoup its track reconstruction costs
and other related damages and contractual damages it is entitled to as a result
of the contractor’s failure to complete Phase II of the project by the
contractual substantial completion deadline. The contractor filed a
counterclaim for unpaid billings, earned completion bonus and amounts owed for
extra work performed totaling $1.6 million which was recorded on the
Company's consolidated balance sheet as of December 31, 2007. The contractor
also filed a counterclaim for an additional $1.7 million relating to an alleged
breach of contract subsequent to December 31, 2007.
 Other
than as described above, neither the Company nor its subsidiaries are parties to
any pending legal proceedings other than litigation arising in the normal course
of business. Management does not believe that adverse determinations in any or
all such other litigation would have a material adverse effect on the Company’s
financial condition, results of operations or cash flows.
  On
September 25, 2007, DJL entered into a bonded construction contract
with Conlon Construction Co. (“Conlon”) for the construction of its
new casino.  The construction contract is based on a cost plus
fee arrangement and establishes a guaranteed maximum price of approximately
$19.3 million for site preparation and certain preliminary construction costs
for the project.   DJL has also entered into an agreement with YWS
Architects pursuant to which YWS Architects will serve as the casino
architect for a fee of approximately $2.9 million.
  In
connection with obtaining its gaming license, DJW is required to pay under an
executory agreement a license fee of $5.0 million due in five annual
installments of $1.0 million. DJW paid the first three $1.0 million installments
in June 2005, May 2006 and May 2007, respectively, with the remaining
installments due each May thereafter through 2009. Also, DJW is required to
pay its qualified sponsoring organization, who holds the joint gaming license
with DJW, 5.76% of the casino’s adjusted gross receipts on an ongoing
basis.  In 2007 and 2006, DJW expensed $4.3 million and $2.8 million,
respectively, related to this agreement. The agreement expires on March 31, 2015
but is subject to automatic three year renewal periods.
  The
Company’s future contractual obligations related to purchase commitments at
December 31, 2007, including approximately $35.7 million related to DJL’s
remaining minimum obligations to build the new casino under the Development
Agreement, approximately $50.0 million related to DJL’s future obligations under
the Minimum Assessment Agreement over a period of 30 years and approximately
$3.6 million related to DJL’s obligation for capital expenditures under the
Development Agreement over 30 years and excluding DJW’s and DJL’s variable
payments to their sponsoring organizations, are summarized as follows (in
thousands):
  2008
              
              $
              41,3772009
              
              
              1,9232010
              
              
              2,7102011
              
              
              2,0552012
              
              
              2,020Thereafter
              
              
              47,281Total
              
              $
              97,366
  8.
MEMBER’S EQUITY
  On
July 15, 1999, PGL authorized and issued $9.0 million of common
membership units. PGP, as the holder of all of the Company’s issued and
outstanding common membership interests, is entitled to vote on all matters to
be voted on by holders of common membership interests of the Company and,
subject to certain limitations contained in the Company’s operating agreement
and the indentures governing the Peninsula Gaming Notes, the DJW Notes, and the
PGL Credit Facility, is entitled to dividends and other distributions as and
when declared by the Company’s managers out of funds legally available
therefore.
  F-19
 9.
DUBUQUE RACING ASSOCIATION, LTD. CONTRACT
  Dubuque
Racing Association, Ltd. (“DRA”), a qualified sponsoring organization,
holds a joint license with DJL to conduct gambling games under Iowa statutes.
The DRA owns Dubuque Greyhound Park (“DGP”), a traditional greyhound racetrack
with 1,000 slot machines, 20 table games and amenities including a gift shop,
restaurant and clubhouse. During 2005, DJL entered into an amendment to its
operating agreement under the joint gambling license (the “Amended Operating
Agreement”) with the DRA. The Amended Operating Agreement provides for, among
other things, the following:
  ·
              The
      DRA is authorized to operate up to 1,000 slot machines and up to 20 table
      games at DGP.
  ·
              Extension
      of the operating agreement through December 31,
  2018.
  ·
              From
      February 2006 (the date that DGP commenced operation of table games)
      through August 31, 2006 (the date a competing casino facility opened to
      the public in Riverside, Iowa),  DRA was contractually obligated
      to pay to DJL $0.33 for each $1.00 of reduction in DJL’s adjusted gross
      gaming receipts, subject to a maximum 15% decline and certain payment
      deferral conditions. Beginning September 1, 2006 and continuing until the
      earlier of (i) DJL’s commencement of operations as a barge facility or
      (ii) December 31, 2008, DRA is contractually obligated to pay to DJL $0.33
      for each $1.00 of reduction in DJL’s adjusted gross gaming receipts above
      a 7% decline from the base period and subject to a maximum 21% decline and
      certain payment deferral conditions;
and
  ·
              DJL
      will continue to pay to DRA the sum of $.50 for each patron admitted on
      the boat through 2008. During 2007, 2006 and 2005, these payments
      approximated $0.4 million, $0.4 million and $0.5 million, respectively.
      Commencing January 1, 2009, DJL is obligated pay to the DRA 3% of DJL’s
      adjusted gross receipts. However, commencing on the date DJL moves its
      operations to a barge facility, DJL will be required to pay to the DRA
      4.5% of DJL’s adjusted gross
receipts.
  During
2007 and 2006, DJL recorded other revenue of approximately $1.9 million and $1.6
million, respectively, related to this agreement, of which $2.5 million and $1.2
million has been recorded as a long-term receivable and is in included in
deposits and other assets on the Company’s balance sheets in 2007 and 2006,
respectively.  For the year ended December 31, 2007, $0.3 million is
recorded as a short-term receivable on the Company’s balance sheet.
  10.
TRANSACTIONS WITH RELATED PARTIES
  In
November 2005, PGP repurchased 35,210 units of its convertible preferred
membership interest from an unrelated party for approximately $1.8 million which
was funded by a distribution of cash to PGP from the Company.
  During
2007, 2006 and 2005, the Company distributed $6.4 million, $2.5 million, and
$2.8 million, respectively, to PGP primarily for (i) certain consulting and
financial advisory services related to PGP development expenses, (ii) board
fees and actual out-of-pocket expenses incurred by members of the board of
managers of PGP in their capacity as a board member and (iii) tax,
accounting, legal and administrative costs and expenses related to PGP. These
amounts were recorded as
   F-20
  member
distributions.
  During
2007, 2006 and 2005, the Company expensed $0.4 million, $0.2 million and $0.4
million, respectively, as affiliate management fees, related to other
compensation and board fees payable to board members of PGP representing
services provided to PGL. In 2006 and subsequently, PGP assumed PGL’s liability
for such amounts which was recorded as a member contribution.
  In
accordance with a management services agreement between OED Acquisition LLC
(“OEDA”), a wholly owned subsidiary of PGP, and EVD, under which EVD pays to
OEDA a base management fee of 0.44% of net revenue (less net food and beverage
revenue) plus an incentive fee based on earnings before interest, taxes,
depreciation, amortization and other non-recurring charges, EVD expensed $0.8
million in affiliate management fees payable to OEDA in 2007, $0.9 million in
2006 and $0.7 million in 2005.
  In 2005,
DJW entered into a management services agreement with PGP under which DJW pays
to PGP a base management fee of 1.75% of net revenue (less net food and beverage
revenue) plus an incentive fee ranging from 3% to 5% based on earnings before
interest, taxes, depreciation, amortization and non-recurring charges. DJW
expensed management fees of $2.2 million, $1.7 million and $0.2 million in 2007,
2006 and 2005, respectively, related to this agreement.
  EVD and
PGP are parties to a consulting agreement with a board member of PGP. Under the
consulting agreement, EVD and DJW must each pay the board member a fee equal to
2.5% of EVD’s and DJW’s earnings before interest, taxes, depreciation,
amortization and non-recurring charges during the preceding calendar year
commencing on January 1, 2004 and April 1, 2006, respectively. Under the
consulting agreement, the board member is also entitled to reimbursement of
reasonable business expenses as approved by the board of managers of PGP. EVD
expensed $1.0 million, $1.0 million and $0.8 million of affiliate management
fees in 2007, 2006 and 2005 related to this agreement.  DJW expensed
$0.8 million and $0.7 million of affiliate management fees in 2007 and 2006,
respectively, related to this agreement.
  At a
meeting of the board of managers of PGP held on February 25, 2005, PGP
approved grants of profits interests under PGP’s Amended and Restated 2004
Incentive Unit Plan (the “IUP”) to two executive officers of PGL aggregating
2.50% of the outstanding membership units of PGP on a fully diluted basis. In
addition, at a meeting of the board of managers of PGP held on September 12,
2005, PGP approved additional grants under the IUP to the executive officers of
PGL aggregating 5% of the outstanding membership units of PGP on a fully diluted
basis. The terms of the awards include specified vesting schedules, acceleration
of vesting upon the occurrence of certain events, anti-dilution protection,
transfer restrictions and other customary terms and provisions. The profits
interests awarded under the IUP entitle the holders thereof to receive
distributions from operating profits on a pro rata basis with holders of common
units of PGP (but only to the extent of profits allocated to holders of profits
interests after the date of grant) and distributions on liquidation (but only to
the extent of their pro rata share of any undistributed operating profits
allocated to holders of profits interests and any further appreciation in the
fair market value of PGP after the date of grant). Upon any termination of their
employment, the respective officers are entitled at their option to cause the
Company to redeem all such vested profits interests granted to them for cash at
their fair market value at the time of termination of employment. Quarterly, the
Company estimates the fair value of the units and compares that value to the
value of the units at the date of grant. Any appreciation in the value of the
units is expensed based on the percentage of the grant vested. The Company
expensed $10.3 million in 2007, $8.5 million in 2006 and $1.2 million in 2005
with respect to these units. In 2006 and subsequently, PGP assumed PGL’s
liability under these agreements and recorded $10.3 million and $9.7 million as
member contributions in 2007 and 2006, respectively.
  11.
SEGMENT INFORMATION
  The
Company is organized around geographical areas and operates three reportable
segments: (1) Diamond Jo operations, which comprise the Diamond Jo
riverboat casino in Dubuque, Iowa, (2) Evangeline Downs operations, which
comprise the casino, racetrack and OTBs operated by EVD in Louisiana and (3)
Diamond Jo Worth operations, which comprise the Diamond Jo Worth casino
operations in Northwood, Iowa.
   F-21
  The
accounting policies for each segment are the same as those described in Note 2
above. The Company evaluates performance and allocates resources based upon,
among other considerations, segment operating earnings (as defined
below).
  The
tables below present information about reported segments as of and for the years
ended (in thousands):
  Net Revenues
      From External Customers2007
              
              
              2006
              
              
              2005Diamond
      Jo
              
              $
              40,664
              
              
              $
              44,579
              
              
              $
              50,107Evangeline
      Downs
              
              
              133,016
              
              
              
              135,052
              
              
              
              117,583Diamond
      Jo Worth
              
              
              79,513
              
              
              
              54,786
              
              
              
              1,383Total
              
              $
              253,193
              
              
              $
              234,417
              
              
              $
              169,073
 
 Segment Operating
                Earnings(1)2007
              
              
              2006
              
              
              2005General
      Corporate
              
              $
              (14,417
              )
              
              $
              (10,740
              )
              
              $
              (3,326
              )Diamond
      Jo
              
              
              12,575
              
              
              
              14,854
              
              
              
              16,866Evangeline
      Downs
              
              
              39,832
              
              
              
              38,977
              
              
              
              31,223Diamond
      Jo Worth
              
              
              31,826
              
              
              
              22,597
              
              
              
              5Total
      Segment Operating Earnings(1)
              
              
              69,816
              
              
              
              65,688
              
              
              
              44,768General
      Corporate:Development
      expense
              
              
              —
              
              
              
              —
              
              
              
              (223
              )Depreciation
      and amortization
              
              
              (44
              )
              
              
              (14
              )
              
              
              —Affiliate
      management fees
              
              
              (359
              )
              
              
              (281
              )
              
              
              (418
              )Interest
      income
              
              
              884
              
              
              
              47
              
              
              
              —Diamond
      Jo:Depreciation
      and amortization
              
              
              (4,448
              )
              
              
              (4,176
              )
              
              
              (4,136
              )Pre-opening
      expense
              
              
              (91
              )
              
              
              —
              
              
              
              —Development
      expense
              
              
              (7,974
              )
              
              
              (624
              )
              
              
              (147
              )(Loss)
      gain on disposal of assets
              
              
              579
              
              
              
              (58
              )
              
              
              (3
              )Interest
      expense, net
              
              
              (10,181
              )
              
              
              (9,349
              )
              
              
              (9,744
              )Evangeline
      Downs:Depreciation
      and amortization
              
              
              (8,971
              )
              
              
              (13,094
              )
              
              
              (12,089
              )Pre-opening
      expense
              
              
              (70
              )
              
              
              (19
              )
              
              
              (171
              )Development
      expense
              
              
              (67
              )
              
              
              (109
              )
              
              
              (205
              )Affiliate
      management fees
              
              
              (1,829
              )
              
              
              (1,839
              )
              
              
              (1,479
              )(Loss)
      gain on disposal of assets
              
              
              (2,822
              )
              
              
              (78
              )
              
              
              19Interest
      expense, net
              
              
              (16,668
              )
              
              
              (18,341
              )
              
              
              (17,833
              )Diamond
      Jo Worth:Depreciation
      and amortization
              
              
              (7,265
              )
              
              
              (3,536
              )
              
              
              (24
              )Pre-opening
      expense
              
              
              (214
              )
              
              
              (947
              )
              
              
              (139
              )Development
      expense
              
              
              —
              
              
              
              (44
              )
              
              
              —Affiliate
      management fees
              
              
              (3,030
              )
              
              
              (2,396
              )
              
              
              (160
              )Loss
      on disposal of assets
              
              
              (488
              )
              
              
              (74
              )
              
              
              —Interest
      expense, net
              
              
              (11,912
              )
              
              
              (4,428
              )
              
              
              (1,400
              )Net
      income (loss)
              
              $
              (5,154
              )
              
              $
              6,328
              
              
              $
              (3,384
              )
  (1)
              Segment
      operating earnings is defined as net income (loss) plus depreciation and
      amortization, pre-opening expense, development expense, affiliate
      management fees, loss on disposal of assets and interest expense (net)
      less gain on disposal of assets.
  Total Assets2007
              
              
              2006General
      Corporate
              
              $
              12,469
              
              
              $
              21,433Diamond
      Jo
              
              
              102,617
              
              
              
              88,896Evangeline
      Downs
              
              
              152,762
              
              
              
              156,130Diamond
      Jo Worth
              
              
              104,079
              
              
              
              87,351Total
              
              $
              371,927
              
              
              $
              353,810
 
  F-22
 Cash Expenditures for Additions to
                Long-Lived Assets2007
              
              
              2006
              
              
              2005General
      Corporate
              
              $
              4
              
              
              $
              130
              
              
              $
              —Diamond
      Jo
              
              
              10,018
              
              
              
              1,733
              
              
              
              1,754Evangeline
      Downs
              
              
              7,629
              
              
              
              6,753
              
              
              
              12,231Diamond
      Jo Worth
              
              
              24,743
              
              
              
              29,276
              
              
              
              19,181Total
              
              $
              42,394
              
              
              $
              37,892
              
              
              $
              33,166
  12.
FAIR VALUE OF FINANCIAL INSTRUMENTS
  The fair
value of the Company’s financial instruments consisting of cash and cash
equivalents, restricted cash, receivables, and payables approximate their
recorded amounts due to the short term nature of the instruments. The fair value
and recorded amounts for the Company’s investment and debt instruments at
December 31, 2007 and 2006 are as follows (in thousands):
    December 31, 2007
              
              
              December 31, 2006Fair Value
              
              
              Recorded Amount
              
              
              Fair Value
              
              
              Recorded AmountInvestment
      available for sale
              
              $
              12,491
              
              
              $
              12,491
              
              
              $
              -
              
              
              $
              -83⁄4%
      senior secured notes
              
              
              254,363
              
              
              
              252,789
              
              
              
              252,450
              
              
              
              252,38111%
      senior secured notes (and related contingent put option in
      2006)
              
              
              117,120
              
              
              
              116,358
              
              
              
              95,535
              
              
              
              96,50013%
      senior secured notes
              
              
              6,910
              
              
              
              6,853
              
              
              
              6,910
              
              
              
              6,831Term
      loan
              
              
              —
              
              
              
              —
              
              
              
              4,667
              
              
              
              4,667Notes
      payable and capital lease obligations
              
              
              5,137
              
              
              
              5,034
              
              
              
              8,423
              
              
              
              8,189
 
  Fair
value information is based on current market interest rates and estimates of
market conditions for instruments with similar terms, maturities, and degrees of
risk.
   F-23
  
  13.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
  2007 Quarters EndedMarch 31
              
              June 30
              
              September 30
              
              December 31
              (1)(Dollars in Thousands)Net
      revenues
              
              $ 58,339
              
              $ 66,990
              
              $ 67,559
              
              $ 60,305Income
      from operations
              
              9,345
              
              8,460
              
              10,513
              
              4,405Net
      income (loss)
              
              446
              
              (953
              )
              534
              
              (5,181
              )
   2006 Quarters EndedMarch 31
              
              June 30
              
              September 30
              
              December 31(Dollars in Thousands)Net
      revenues
              
              $ 50,729
              
              $ 64,547
              
              $ 62,798
              
              $ 56,343Income
      from operations
              
              9,380
              
              10,972
              
              10,980
              
              7,067Net
      income (loss)
              
              2,077
              
              2,926
              
              2,501
              
              (1,176
              )
  (1)
Includes $6.3 million non-cash development expense related to the unconditional
contribution obligation for the DJL dockside facility and Diamond Jo
vessel.
 
  14.
CONSOLIDATING FINANCIAL INFORMATION
  The
Company, DJL and PGC (which has no assets or operations) are co-issuers of the
Peninsula Gaming Notes. EVD is a guarantor of the Peninsula Gaming Notes, and
the equity of DJL and EVD is pledged as collateral securing obligations under
the Peninsula Gaming Notes. In July 2005, in connection with the offering
of the DJW Notes, DJW was designated as an “unrestricted subsidiary” under the
indenture governing the Peninsula Gaming Notes and the liens on the assets and
equity of DJW under the Peninsula Gaming Notes were released. Consolidating
financial information of the co-issuers, the guarantor and the non-guarantor is
presented on the following pages.
   F-24
   
 
  CONSOLIDATING
BALANCE SHEETS
 (in
thousands)
  At December 31, 2007Parent
                Co-Issuer —
                PGL
              
              
              Subsidiary
                Co-Issuer —
                DJL
              
              
              Subsidiary
                Guarantor —
                EVD
              
              
              Subsidiary
                Non-Guarantor —DJW
              
              
              Consolidating
                Adjustments
              
              
              ConsolidatedASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              11,908
              
              
              $
              4,606
              
              
              $
              11,834
              
              
              $
              13,752
              
              
              
              
              
              $
              42,100Restricted
      cash-purse settlements
              
              
              
              
              
              
              
              
              
              
              4,902
              
              
              
              
              
              
              
              
              
              
              4,902Accounts
      receivable
              
              
              
              
              
              
              355
              
              
              
              1,932
              
              
              
              713
              
              
              
              
              
              
              3,000Receivables
      from affiliates
              
              
              
              
              
              
              1,198
              
              
              
              
              
              
              
              17
              
              
              $
              (1,215
              )Inventories
              
              
              
              
              
              
              218
              
              
              
              313
              
              
              
              380
              
              
              
              
              
              
              
              911Prepaid
      expenses and other assets
              
              
              23
              
              
              
              303
              
              
              
              697
              
              
              
              352
              
              
              
              
              
              
              
              1,375Total
      current assets
              
              
              11,931
              
              
              
              6,680
              
              
              
              19,678
              
              
              
              15,214
              
              
              
              (1,215
              )
              
              
              52,288PROPERTY
      AND EQUIPMENT, NET
              
              
              79
              
              
              
              25,935
              
              
              
              93,804
              
              
              
              68,994
              
              
              
              
              
              
              
              188,812OTHER
      ASSETS:Investment
      in subsidiaries
              
              
              (70,383
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              70,383Deferred
      financing costs
              
              
              
              
              
              
              12,356
              
              
              
              5,099
              
              
              
              4,330
              
              
              
              
              
              
              
              21,785Goodwill
              
              
              
              
              
              
              53,083
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              53,083Licenses
      and other intangibles
              
              
              
              
              
              
              
              
              
              
              33,995
              
              
              
              3,021
              
              
              
              
              
              
              
              37,016Deposits
      and other assets
              
              
              459
              
              
              
              5,761
              
              
              
              186
              
              
              
              46
              
              
              
              
              
              
              
              6,452Investment
      available for sale
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,491
              
              
              
              
              
              
              
              12,491Total
      other assets
              
              
              (69,924
              )
              
              
              71,200
              
              
              
              39,280
              
              
              
              19,888
              
              
              
              70,383
              
              
              
              130,827TOTAL
              
              $
              (57,914
              )
              
              $
              103,815
              
              
              $
              152,762
              
              
              $
              104,096
              
              
              $
              69,168
              
              
              $
              371,927LIABILITIES
      AND MEMBER’S DEFICITCURRENT
      LIABILITIES:Accounts
      payable
              
              $
              33
              
              
              $
              402
              
              
              $
              2,603
              
              
              $
              451
              
              
              
              
              
              
              $
              3,489Construction
      payable
              
              
              
              
              
              
              1,772
              
              
              
              2,465
              
              
              
              647
              
              
              
              
              
              
              
              4,884Purse
      settlement payable
              
              
              
              
              
              
              
              
              
              
              6,723
              
              
              
              
              
              
              
              
              
              
              
              6,723Accrued
      payroll and payroll taxes
              
              
              1,605
              
              
              
              1,309
              
              
              
              1,454
              
              
              
              1,250
              
              
              
              
              
              
              
              5,618Accrued
      interest
              
              
              
              
              
              
              1,925
              
              
              
              3,182
              
              
              
              2,690
              
              
              
              
              
              
              
              7,797Other
      accrued expenses
              
              
              70
              
              
              
              1,722
              
              
              
              5,460
              
              
              
              2,548
              
              
              
              
              
              
              
              9,800Payable
      to affiliates
              
              
              
              
              
              
              
              
              
              
              2,516
              
              
              
              2,620
              
              
              $
              (1,215
              )
              
              
              3,921Current
      maturity of long-term debt and leases
              
              
              
              
              
              
              14
              
              
              
              571
              
              
              
              2,562
              
              
              
              
              
              
              
              3,147Total
      current liabilities
              
              
              1,708
              
              
              
              7,144
              
              
              
              24,974
              
              
              
              12,768
              
              
              
              (1,215
              )
              
              
              45,379LONG-TERM
      LIABILITIES:8
      3⁄4% senior secured notes, net of discount
              
              
              
              
              
              
              101,671
              
              
              
              151,118
              
              
              
              
              
              
              
              
              
              
              
              252,78911%
      senior secured notes, net of discount
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              116,358
              
              
              
              
              
              
              
              116,35813%
      senior secured notes, net of discount
              
              
              
              
              
              
              
              
              
              
              6,853
              
              
              
              
              
              
              
              
              
              
              
              6,853Notes
      and leases payable, net of discount
              
              
              
              
              
              
              12
              
              
              
              1,166
              
              
              
              709
              
              
              
              
              
              
              
              1,887Other
      liabilities
              
              
              
              
              
              
              6,195
              
              
              
              
              
              
              
              2,088
              
              
              
              
              
              
              
              8,283Total
      long-term liabilities
              
              
              
              
              
              
              107,878
              
              
              
              159,137
              
              
              
              119,155
              
              
              
              
              
              
              
              386,170Total
      liabilities
              
              
              1,708
              
              
              
              115,022
              
              
              
              184,111
              
              
              
              131,923
              
              
              
              (1,215
              )
              
              
              431,549MEMBER’S
      DEFICIT
              
              
              (59,622
              )
              
              
              (11,207
              )
              
              
              (31,349
              )
              
              
              (27,827
              )
              
              
              70,383
              
              
              
              (59,622
              )TOTAL
              
              $
              (57,914
              )
              
              $
              103,815
              
              
              $
              152,762
              
              
              $
              104,096
              
              
              $
              69,168
              
              
              $
              371,927
  F-25
  
 At December 31, 2006Parent
                Co-Issuer —
                PGL
              
              
              Subsidiary
                Co-Issuer —
                DJL
              
              
              Subsidiary
                Guarantor —
                EVD
              
              
              Subsidiary
                Non-Guarantor —DJW
              
              
              Consolidating
                Adjustments
              
              
              ConsolidatedASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              20,999
              
              
              $
              13,069
              
              
              $
              8,889
              
              
              $
              13,964
              
              
              
              
              
              $
              56,921Restricted
      cash-purse settlements
              
              
              
              
              
              
              
              
              
              
              4,619
              
              
              
              
              
              
              
              
              
              
              4,619Accounts
      receivable
              
              
              
              
              
              
              79
              
              
              
              2,885
              
              
              
              565
              
              
              
              
              
              
              3,529Receivables
      from affiliates
              
              
              
              
              
              
              1,446
              
              
              
              
              
              
              
              
              
              
              $
              (1,446
              )Inventories
              
              
              
              
              
              
              155
              
              
              
              312
              
              
              
              239
              
              
              
              
              
              
              
              706Prepaid
      expenses
              
              
              18
              
              
              
              400
              
              
              
              755
              
              
              
              283
              
              
              
              
              
              
              
              1,456Total
      current assets
              
              
              21,017
              
              
              
              15,149
              
              
              
              17,460
              
              
              
              15,051
              
              
              
              (1,446
              )
              
              
              67,231RESTRICTED
      CASH — WORTH PROJECT
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,981
              
              
              
              
              
              
              
              12,981PROPERTY
      AND EQUIPMENT, NET
              
              
              119
              
              
              
              14,063
              
              
              
              98,474
              
              
              
              52,098
              
              
              
              
              
              
              
              164,754OTHER
      ASSETS:Investment
      in subsidiaries
              
              
              (76,896
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              76,896Deferred
      financing costs
              
              
              
              
              
              
              4,588
              
              
              
              6,502
              
              
              
              5,134
              
              
              
              
              
              
              
              16,224Goodwill
              
              
              
              
              
              
              53,083
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              53,083Licenses
      and other intangibles
              
              
              
              
              
              
              
              
              
              
              33,498
              
              
              
              2,023
              
              
              
              
              
              
              
              35,521Deposits
      and other assets
              
              
              297
              
              
              
              3,459
              
              
              
              196
              
              
              
              64
              
              
              
              
              
              
              
              4,016Total
      other assets
              
              
              (76,599
              )
              
              
              61,130
              
              
              
              40,196
              
              
              
              7,221
              
              
              
              76,896
              
              
              
              108,844TOTAL
              
              $
              (55,463
              )
              
              $
              90,342
              
              
              $
              156,130
              
              
              $
              87,351
              
              
              $
              75,450
              
              
              $
              353,810LIABILITIES
      AND MEMBER’S DEFICITCURRENT
      LIABILITIES:Accounts
      payable
              
              $
              19
              
              
              $
              783
              
              
              $
              4,039
              
              
              $
              542
              
              
              
              
              
              
              $
              5,383Construction
      payable
              
              
              
              
              
              
              307
              
              
              
              2,118
              
              
              
              3,106
              
              
              
              
              
              
              
              5,531Purse
      settlement payable
              
              
              
              
              
              
              
              
              
              
              6,265
              
              
              
              
              
              
              
              
              
              
              
              6,265Accrued
      payroll and payroll taxes
              
              
              999
              
              
              
              1,159
              
              
              
              1,537
              
              
              
              880
              
              
              
              
              
              
              
              4,575Accrued
      interest
              
              
              
              
              
              
              1,915
              
              
              
              3,310
              
              
              
              2,212
              
              
              
              
              
              
              
              7,437Other
      accrued expenses
              
              
              20
              
              
              
              1,936
              
              
              
              5,337
              
              
              
              1,733
              
              
              
              
              
              
              
              9,026Payable
      to affiliates
              
              
              
              
              
              
              
              
              
              
              2,022
              
              
              
              1,908
              
              
              $
              (1,446
              )
              
              
              2,484Current
      maturity of long-term debt and leases
              
              
              
              
              
              
              1,124
              
              
              
              5,728
              
              
              
              1,793
              
              
              
              
              
              
              
              8,645Total
      current liabilities
              
              
              1,038
              
              
              
              7,224
              
              
              
              30,356
              
              
              
              12,174
              
              
              
              (1,446
              )
              
              
              49,346LONG-TERM
      LIABILITIES:8
      3⁄4% senior secured notes, net of discount
              
              
              
              
              
              
              101,507
              
              
              
              150,874
              
              
              
              
              
              
              
              
              
              
              
              252,38111%
      senior secured notes, net of discount
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              96,500
              
              
              
              
              
              
              
              96,50013%
      senior secured notes, net of discount
              
              
              
              
              
              
              
              
              
              
              6,831
              
              
              
              
              
              
              
              
              
              
              
              6,831Term
      loan
              
              
              
              
              
              
              
              
              
              
              667
              
              
              
              
              
              
              
              
              
              
              
              667Notes
      and leases payable, net of discount
              
              
              
              
              
              
              38
              
              
              
              1,735
              
              
              
              1,771
              
              
              
              
              
              
              
              3,544Other
      liabilities
              
              
              
              
              
              
              150
              
              
              
              
              
              
              
              892
              
              
              
              
              
              
              
              1,042Total
      long-term liabilities
              
              
              
              
              
              
              101,695
              
              
              
              160,107
              
              
              
              99,163
              
              
              
              
              
              
              
              360,965Total
      liabilities
              
              
              1,038
              
              
              
              108,919
              
              
              
              190,463
              
              
              
              111,337
              
              
              
              (1,446
              )
              
              
              410,311MEMBER’S
      DEFICIT
              
              
              (56,501
              )
              
              
              (18,577
              )
              
              
              (34,333
              )
              
              
              (23,986
              )
              
              
              76,896
              
              
              
              (56,501
              )TOTAL
              
              $
              (55,463
              )
              
              $
              90,342
              
              
              $
              156,130
              
              
              $
              87,351
              
              
              $
              75,450
              
              
              $
              353,810
 
   F-26
   
 CONSOLIDATING
STATEMENTS OF OPERATIONS
 (in
thousands)
  Year Ended December 31, 2007Parent
                Co-Issuer —
                PGL
              
              
              Subsidiary
                Co-Issuer —
                DJL
              
              
              Subsidiary
                Guarantor —
                EVD
              
              
              Subsidiary
                Non-Guarantor —
                DJW
              
              
              Consolidating
                Adjustments
              
              
              ConsolidatedREVENUES:Casino
              
              
              
              
              $
              40,589
              
              
              $
              107,467
              
              
              $
              74,091
              
              
              
              
              
              $
              222,147Racing
              
              
              
              
              
              
              
              
              
              19,146
              
              
              
              
              
              
              
              
              
              
              19,146Video
      Poker
              
              
              
              
              
              
              
              
              
              4,533
              
              
              
              
              
              
              
              
              
              
              4,533Food
      and beverage
              
              
              
              
              
              2,425
              
              
              
              10,218
              
              
              
              3,158
              
              
              
              
              
              
              15,801Affiliate
      management fee income
              
              
              
              
              
              2,514
              
              
              
              
              
              
              
              
              
              
              $
              (2,514
              )Other
              
              
              
              
              
              2,373
              
              
              
              1,527
              
              
              
              7,601
              
              
              
              
              
              
              
              11,501Less
      promotional allowances
              
              
              
              
              
              (4,723
              )
              
              
              (9,875
              )
              
              
              (5,337
              )
              
              
              
              
              
              
              (19,935
              )Total
      net revenues
              
              
              
              
              
              43,178
              
              
              
              133,016
              
              
              
              79,513
              
              
              
              (2,514
              )
              
              
              253,193EXPENSES:Casino
              
              
              
              
              
              18,055
              
              
              
              50,409
              
              
              
              25,925
              
              
              
              
              
              
              
              94,389Racing
              
              
              
              
              
              
              
              
              
              15,959
              
              
              
              
              
              
              
              
              
              
              
              15,959Video
      Poker
              
              
              
              
              
              
              
              
              
              3,751
              
              
              
              
              
              
              
              
              
              
              
              3,751Food
      and beverage
              
              
              
              
              
              2,370
              
              
              
              7,475
              
              
              
              2,583
              
              
              
              
              
              
              
              12,428Other
              
              
              
              
              
              25
              
              
              
              273
              
              
              
              6,782
              
              
              
              
              
              
              
              7,080Selling,
      general and administrative
              
              $
              4,143
              
              
              
              7,639
              
              
              
              15,317
              
              
              
              12,397
              
              
              
              10,274
              
              
              
              49,770Depreciation
      and amortization
              
              
              44
              
              
              
              4,448
              
              
              
              8,971
              
              
              
              7,265
              
              
              
              
              
              
              
              20,728Pre-opening
      expense
              
              
              
              
              
              
              91
              
              
              
              70
              
              
              
              214
              
              
              
              
              
              
              
              375Development
      costs
              
              
              
              
              
              
              7,974
              
              
              
              67
              
              
              
              
              
              
              
              
              
              
              
              8,041Affiliate
      management fees
              
              
              359
              
              
              
              
              
              
              
              4,343
              
              
              
              3,030
              
              
              
              (2,514
              )
              
              
              5,218(Gain)
      loss on disposal of assets
              
              
              
              
              
              
              (579
              )
              
              
              2,822
              
              
              
              488
              
              
              
              
              
              
              
              2,731Corporate
      expense allocation
              
              
              
              
              
              
              3,505
              
              
              
              3,395
              
              
              
              3,374
              
              
              
              (10,274
              )Total
      expenses
              
              
              4,546
              
              
              
              43,528
              
              
              
              112,852
              
              
              
              62,058
              
              
              
              (2,514
              )
              
              
              220,470INCOME
      (LOSS) FROM OPERATIONS
              
              
              (4,546
              )
              
              
              (350
              )
              
              
              20,164
              
              
              
              17,455
              
              
              
              
              
              
              
              32,723OTHER
      INCOME (EXPENSE):Interest
      income
              
              
              884
              
              
              
              378
              
              
              
              305
              
              
              
              1,061
              
              
              
              
              
              
              
              2,628Interest
      expense, net of amounts capitalized
              
              
              
              
              
              
              (10,559
              )
              
              
              (16,973
              )
              
              
              (12,973
              )
              
              
              
              
              
              
              (40,505
              )Loss
      from equity investment in subsidiaries
              
              
              (1,492
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,492Total
      other expense
              
              
              (608
              )
              
              
              (10,181
              )
              
              
              (16,668
              )
              
              
              (11,912
              )
              
              
              1,492
              
              
              
              (37,877
              )NET
      INCOME (LOSS)
              
              $
              (5,154
              )
              
              $
              (10,531
              )
              
              $
              3,496
              
              
              $
              5,543
              
              
              $
              1,492
              
              
              $
              (5,154
              )
 F-27
  Year Ended December 31, 2006Parent
                  Co-Issuer —
                  PGL
                
                
                Subsidiary
                  Co-Issuer —
                  DJL
                
                
                Subsidiary
                  Guarantor —
                  EVD
                
                
                Subsidiary
                  Non-Guarantor —
                  DJW
                
                
                Consolidating
                  Adjustments
                
                
                ConsolidatedREVENUES:Casino
                
                
                
                
                
                $
                44,784
                
                
                $
                106,558
                
                
                $
                49,392
                
                
                
                
                
                
                $
                200,734Racing
                
                
                
                
                
                
                
                
                
                
                22,146
                
                
                
                
                
                
                
                
                
                
                
                22,146Video
      Poker
                
                
                
                
                
                
                
                
                
                
                3,715
                
                
                
                
                
                
                
                
                
                
                
                3,715Food
      and beverage
                
                
                
                
                
                
                2,642
                
                
                
                10,803
                
                
                
                1,870
                
                
                
                
                
                
                
                15,315Affiliate
      management fee income
                
                
                
                
                
                
                2,593
                
                
                
                
                
                
                
                
                
                
                $
                (2,593
                )Other
                
                
                
                
                
                
                1,948
                
                
                
                1,308
                
                
                
                6,831
                
                
                
                
                
                
                
                10,087Less
      promotional allowances
                
                
                
                
                
                
                (4,795
                )
                
                
                (9,478
                )
                
                
                (3,307
                )
                
                
                
                
                
                
                (17,580
                )Total
      net revenues
                
                
                
                
                
                
                47,172
                
                
                
                135,052
                
                
                
                54,786
                
                
                
                (2,593
                )
                
                
                234,417EXPENSES:Casino
                
                
                
                
                
                
                18,844
                
                
                
                50,133
                
                
                
                15,994
                
                
                
                
                
                
                
                84,971Racing
                
                
                
                
                
                
                
                
                
                
                18,579
                
                
                
                
                
                
                
                
                
                
                
                18,579Video
      Poker
                
                
                
                
                
                
                
                
                
                
                2,949
                
                
                
                
                
                
                
                
                
                
                
                2,949Food
      and beverage
                
                
                
                
                
                
                2,455
                
                
                
                7,563
                
                
                
                1,683
                
                
                
                
                
                
                
                11,701Other
                
                
                
                
                
                
                39
                
                
                
                295
                
                
                
                6,271
                
                
                
                
                
                
                
                6,605Selling,
      general and administrative
                
                $
                2,983
                
                
                
                8,387
                
                
                
                16,556
                
                
                
                8,241
                
                
                
                7,757
                
                
                
                43,924Depreciation
      and amortization
                
                
                14
                
                
                
                4,176
                
                
                
                13,094
                
                
                
                3,536
                
                
                
                
                
                
                
                20,820Pre-opening
      expense
                
                
                
                
                
                
                
                
                
                
                19
                
                
                
                947
                
                
                
                
                
                
                
                966Development
      costs
                
                
                
                
                
                
                624
                
                
                
                109
                
                
                
                44
                
                
                
                
                
                
                
                777Affiliate
      management fees
                
                
                281
                
                
                
                
                
                
                
                4,432
                
                
                
                2,396
                
                
                
                (2,593
                )
                
                
                4,516Loss
      on disposal of assets
                
                
                
                
                
                
                58
                
                
                
                78
                
                
                
                74
                
                
                
                
                
                
                
                210Corporate
      expense allocation
                
                
                
                
                
                
                2,879
                
                
                
                2,439
                
                
                
                2,439
                
                
                
                (7,757
                )Total
      expenses
                
                
                3,278
                
                
                
                37,462
                
                
                
                116,246
                
                
                
                41,625
                
                
                
                (2,593
                )
                
                
                196,018INCOME
      (LOSS) FROM OPERATIONS
                
                
                (3,278
                )
                
                
                9,710
                
                
                
                18,806
                
                
                
                13,161
                
                
                
                
                
                
                
                38,399OTHER
      INCOME (EXPENSE):Interest
      income
                
                
                47
                
                
                
                61
                
                
                
                126
                
                
                
                721
                
                
                
                
                
                
                
                955Interest
      expense, net of amounts capitalized
                
                
                
                
                
                
                (9,125
                )
                
                
                (18,467
                )
                
                
                (5,149
                )
                
                
                
                
                
                
                (32,741
                )Interest
      expense — preferred member interest
                
                
                
                
                
                
                (285
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (285
                )Gain
      from equity investment in subsidiaries
                
                
                9,559
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (9,559
                )Total
      other expense
                
                
                9,606
                
                
                
                (9,349
                )
                
                
                (18,341
                )
                
                
                (4,428
                )
                
                
                (9,559
                )
                
                
                (32,071
                )NET
      INCOME
                
                $
                6,328
                
                
                $
                361
                
                
                $
                465
                
                
                $
                8,733
                
                
                $
                (9,559
                )
                
                $
                6,328
 F-28
   
 Year Ended December 31, 2005Parent
                Co-Issuer —
                PGL
              
              
              Subsidiary
                Co-Issuer —
                DJL
              
              
              Subsidiary
                Guarantor —
                EVD
              
              
              Subsidiary
                Non-Guarantor —
                DJW
              
              
              Consolidating
                Adjustments
              
              
              ConsolidatedREVENUES:Casino
              
              
              
              
              $
              51,536
              
              
              $
              95,254
              
              
              
              
              
              
              
              
              $
              146,790Racing
              
              
              
              
              
              
              
              
              
              17,578
              
              
              
              
              
              
              
              
              
              17,578Video
      Poker
              
              
              
              
              
              
              
              
              
              2,339
              
              
              
              
              
              
              
              
              
              2,339Food
      and beverage
              
              
              
              
              
              2,720
              
              
              
              10,791
              
              
              
              
              
              
              
              
              
              13,511Affiliate
      management fee income
              
              
              
              
              
              2,097
              
              
              
              
              
              
              
              
              
              $
              (2,097
              )Other
              
              
              
              
              
              310
              
              
              
              1,017
              
              
              $
              1,383
              
              
              
              
              
              
              
              2,710Less
      promotional allowances
              
              
              
              
              
              (4,459
              )
              
              
              (9,396
              )
              
              
              
              
              
              
              
              
              
              
              (13,855
              )Total
      net revenues
              
              
              
              
              
              52,204
              
              
              
              117,583
              
              
              
              1,383
              
              
              
              (2,097
              )
              
              
              169,073EXPENSES:Casino
              
              
              
              
              
              21,108
              
              
              
              46,072
              
              
              
              
              
              
              
              
              
              
              
              67,180Racing
              
              
              
              
              
              
              
              
              
              15,335
              
              
              
              
              
              
              
              
              
              
              
              15,335Video
      Poker
              
              
              
              
              
              
              
              
              
              1,767
              
              
              
              
              
              
              
              
              
              
              
              1,767Food
      and beverage
              
              
              
              
              
              2,517
              
              
              
              7,332
              
              
              
              
              
              
              
              
              
              
              
              9,849Other
              
              
              
              
              
              37
              
              
              
              305
              
              
              
              1,378
              
              
              
              
              
              
              
              1,720Selling,
      general and administrative
              
              $
              1,420
              
              
              
              9,579
              
              
              
              15,549
              
              
              
              
              
              
              
              1,906
              
              
              
              28,454Depreciation
      and amortization
              
              
              
              
              
              
              4,136
              
              
              
              12,090
              
              
              
              23
              
              
              
              
              
              
              
              16,249Pre-opening
      expense
              
              
              
              
              
              
              
              
              
              
              171
              
              
              
              139
              
              
              
              
              
              
              
              310Development
      costs
              
              
              223
              
              
              
              147
              
              
              
              205
              
              
              
              
              
              
              
              
              
              
              
              575Affiliate
      management fees
              
              
              418
              
              
              
              
              
              
              
              3,576
              
              
              
              160
              
              
              
              (2,097
              )
              
              
              2,057Loss
      (gain) on disposal of assets
              
              
              
              
              
              
              3
              
              
              
              (19
              )
              
              
              
              
              
              
              
              
              
              
              (16
              )Corporate
      expense allocation
              
              
              
              
              
              
              1,034
              
              
              
              872
              
              
              
              
              
              
              
              (1,906
              )Total
      expenses
              
              
              2,061
              
              
              
              38,561
              
              
              
              103,255
              
              
              
              1,700
              
              
              
              (2,097
              )
              
              
              143,480INCOME
      (LOSS) FROM OPERATIONS
              
              
              (2,061
              )
              
              
              13,643
              
              
              
              14,328
              
              
              
              (317
              )
              
              
              
              
              
              
              25,593OTHER
      INCOME (EXPENSE):Interest
      income
              
              
              
              
              
              
              23
              
              
              
              70
              
              
              
              423
              
              
              
              
              
              
              
              516Interest
      expense, net of amounts capitalized
              
              
              
              
              
              
              (9,406
              )
              
              
              (17,904
              )
              
              
              (1,823
              )
              
              
              
              
              
              
              (29,133
              )Interest
      expense — preferred member interest
              
              
              
              
              
              
              (360
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (360
              )Loss
      from equity investment in subsidiaries
              
              
              (1,323
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,323Total
      other expense
              
              
              (1,323
              )
              
              
              (9,743
              )
              
              
              (17,834
              )
              
              
              (1,400
              )
              
              
              1,323
              
              
              
              (28,977
              )NET
      INCOME (LOSS)
              
              $
              (3,384
              )
              
              $
              3,900
              
              
              $
              (3,506
              )
              
              $
              (1,717
              )
              
              $
              1,323
              
              
              $
              (3,384
              )
 
   F-29
  CONSOLIDATING
STATEMENTS OF CASH FLOWS
  (in
thousands)
  Year Ended December 31, 2007Parent
                Co-Issuer —
                PGL
              
              
              Subsidiary
                Co-Issuer —
                DJL
              
              
              Subsidiary
                Guarantor —
                EVD
              
              
              Subsidiary
                Non-Guarantor —
                DJW
              
              
              Consolidating
                Adjustments
              
              
              ConsolidatedCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              $
              (5,154
              )
              
              $
              (10,531
              )
              
              $
              3,496
              
              
              $
              5,543
              
              
              $
              1,492
              
              
              $
              (5,154
              )Adjustments
      to reconcile net income to net cash flows from operating
      activities:Depreciation
      and amortization
              
              
              44
              
              
              
              4,448
              
              
              
              8,971
              
              
              
              7,265
              
              
              
              
              
              
              
              20,728Non-cash
      interest
              
              
              
              
              
              
              1,444
              
              
              
              1,813
              
              
              
              1,057
              
              
              
              
              
              
              
              4,314Non-cash
      equity based and other compensation
              
              
              10,655
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,655Corporate
      expense allocation
              
              
              (10,274
              )
              
              
              3,505
              
              
              
              3,395
              
              
              
              3,374(Gain)
      loss on disposal of assets
              
              
              
              
              
              
              (579
              )
              
              
              2,822
              
              
              
              488
              
              
              
              
              
              
              
              2,731Non-cash
      charitable contributions
              
              
              
              
              
              
              6,250
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,250Income
      from equity investment in subsidiaries
              
              
              1,492
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,492
              )Changes
      in operating assets and liabilities:Restricted
      cash — purse settlements
              
              
              
              
              
              
              
              
              
              
              (283
              )
              
              
              
              
              
              
              
              
              
              
              (283
              )Receivables
              
              
              
              
              
              
              (276
              )
              
              
              953
              
              
              
              (148
              )
              
              
              
              
              
              
              529Receivables
      from affiliates
              
              
              
              
              
              
              248
              
              
              
              
              
              
              
              (17
              )
              
              
              (231
              )Inventories
              
              
              
              
              
              
              (63
              )
              
              
              (1
              )
              
              
              (141
              )
              
              
              
              
              
              
              (205
              )Prepaid
      expenses and other assets
              
              
              (10
              )
              
              
              (1,170
              )
              
              
              68
              
              
              
              (51
              )
              
              
              
              
              
              
              (1,163
              )Accounts
      payable
              
              
              14
              
              
              
              (644
              )
              
              
              (583
              )
              
              
              (30
              )
              
              
              
              
              
              
              (1,243
              )Accrued
      expenses
              
              
              656
              
              
              
              686
              
              
              
              (66
              )
              
              
              2,427
              
              
              
              
              
              
              
              3,703Payable
      to affiliates
              
              
              
              
              
              
              
              
              
              
              494
              
              
              
              712
              
              
              
              231
              
              
              
              1,437Net
      cash flows from operating activities
              
              
              (2,577
              )
              
              
              3,318
              
              
              
              21,079
              
              
              
              20,479
              
              
              
              
              
              
              
              42,299CASH
      FLOWS FROM INVESTING ACTIVITIES:Increase
      in cash value of life insurance for premiums paid
              
              
              (157
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (157
              )Business
      acquisition and licensing costs
              
              
              
              
              
              
              
              
              
              
              (497
              )
              
              
              (1,000
              )
              
              
              
              
              
              
              (1,497
              )Proceeds
      from restricted cash
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,981
              
              
              
              
              
              
              
              12,981Payment
      to long-term deposit
              
              
              
              
              
              
              (6,350
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,350
              )Purchase
      of investment available for sale
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (14,659
              )
              
              
              
              
              
              
              (14,659
              )Construction
      project development costs
              
              
              
              
              
              
              (9,193
              )
              
              
              (3,639
              )
              
              
              (21,586
              )
              
              
              
              
              
              
              (34,418
              )Purchase
      of property and equipment
              
              
              (4
              )
              
              
              (825
              )
              
              
              (3,493
              )
              
              
              (2,157
              )
              
              
              
              
              
              
              (6,479
              )Proceeds
      from sale of property and equipment
              
              
              
              
              
              
              24
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              24Net
      cash flows from investing activities
              
              
              (161
              )
              
              
              (16,344
              )
              
              
              (7,629
              )
              
              
              (26,421
              )
              
              
              
              
              
              
              (50,555
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Deferred
      financing costs
              
              
              
              
              
              
              (341
              )
              
              
              (205
              )
              
              
              (8,577
              )
              
              
              
              
              
              
              (9,123
              )Principal
      payments on debt
              
              
              
              
              
              
              (1,126
              )
              
              
              (6,393
              )
              
              
              (6,154
              )
              
              
              
              
              
              
              (13,673
              )Proceeds
      from senior secured notes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              22,655
              
              
              
              
              
              
              
              22,655Member
      distributions
              
              
              (6,353
              )
              
              
              6,030
              
              
              
              (3,907
              )
              
              
              (2,194
              )
              
              
              
              
              
              
              (6,424
              )Net
      cash flows from financing activities
              
              
              (6,353
              )
              
              
              4,563
              
              
              
              (10,505
              )
              
              
              5,730
              
              
              
              
              
              
              
              (6,565
              )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (9,091
              )
              
              
              (8,463
              )
              
              
              2,945
              
              
              
              (212
              )
              
              
              
              
              
              
              (14,821
              )CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              
              20,999
              
              
              
              13,069
              
              
              
              8,889
              
              
              
              13,964
              
              
              
              
              
              
              
              56,921CASH
      AND CASH EQUIVALENTS AT END OF YEAR
              
              $
              11,908
              
              
              $
              4,606
              
              
              $
              11,834
              
              
              $
              13,752
              
              
              
              
              
              
              $
              42,100
  F-30
  
 Year Ended December 31, 2006Parent
                Co-Issuer —
                PGL
              
              Subsidiary
                Co-Issuer —
                DJL
              
              Subsidiary
                Guarantor —
                EVD
              
              Subsidiary
                Non-Guarantor —
                DJW
              
              Consolidating
                Adjustments
              
              ConsolidatedCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
              
              $                6,328
              
              $                361
              
              $                465
              
              $                8,733
              
              $                (9,559
              )
              $                6,328Adjustments
      to reconcile net income to net cash flows from operating
      activities:Depreciation
      and amortization
              
              14
              
              4,176
              
              13,094
              
              3,536
              
              
              
              20,820Non-cash
      interest expense
              
              
              
              1,146
              
              1,735
              
              670
              
              
              
              3,551Non-cash
      equity based and other compensation
              
              8,766
              
              
              
              
              
              
              
              
              
              8,766Corporate
      expense allocation
              
              (7,757
              )
              2,879
              
              2,439
              
              2,439Loss
      on disposal of assets
              
              
              
              58
              
              78
              
              74
              
              
              
              210Income
      from equity investment in subsidiaries
              
              (9,559
              )
              
              
              
              
              
              
              9,559Changes
      in operating assets and liabilities:Restricted
      cash — purse settlements
              
              
              
              
              
              500
              
              
              
              
              
              500Receivables
              
              (1
              )
              89
              
              (390
              )
              (427
              )
              
              
              (729
              )Receivables
      from affiliates
              
              
              
              5,205
              
              
              
              
              
              (5,205
              )Inventories
              
              
              
              (41
              )
              (54
              )
              (118
              )
              
              
              (213
              )Prepaid
      expenses and other assets
              
              11
              
              (2,238
              )
              (200
              )
              (194
              )
              
              
              (2,621
              )Accounts
      payable
              
              5
              
              (5
              )
              (978
              )
              309
              
              
              
              (669
              )Accrued
      expenses
              
              460
              
              170
              
              (793
              )
              4,228
              
              
              
              4,065Payable
      to affiliates
              
              
              
              
              
              (5,136
              )
              1,744
              
              5,205
              
              1,813Net
      cash flows from operating activities
              
              (1,733
              )
              11,800
              
              10,760
              
              20,994
              
              
              
              41,821CASH
      FLOWS FROM INVESTING ACTIVITIES:Increase
      in cash value of life insurance for premiums paid
              
              (283
              )
              
              
              
              
              
              
              
              
              (283
              )Business
      acquisition and licensing costs
              
              
              
              
              
              (495
              )
              (1,025
              )
              
              
              (1,520
              )Proceeds
      from restricted cash
              
              
              
              
              
              
              
              6,148
              
              
              
              6,148Construction
      project development costs
              
              
              
              
              
              
              
              (23,893
              )
              246
              
              (23,647
              )Purchase
      of property and equipment
              
              (130
              )
              (1,733
              )
              (6,258
              )
              (4,604
              )
              
              
              (12,725
              )Proceeds
      from sale of property and equipment
              
              
              
              271
              
              22
              
              
              
              (246
              )
              47Net
      cash flows from investing activities
              
              (413
              )
              (1,462
              )
              (6,731
              )
              (23,374
              )
              
              
              (31,980
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Deferred
      financing costs
              
              
              
              (806
              )
              (428
              )
              (3,159
              )
              
              
              (4,393
              )Principal
      payments on debt
              
              
              
              (1,309
              )
              (5,930
              )
              (2,052
              )
              
              
              (9,291
              )Redemption
      of preferred member’s interest
              
              
              
              (4,000
              )
              
              
              
              
              
              
              (4,000
              )Proceeds
      from senior secured notes
              
              
              
              14,520
              
              7,260
              
              56,500
              
              
              
              78,280Proceeds
      from senior credit facilities
              
              
              
              11,100
              
              17,200
              
              1,385
              
              
              
              29,685Payments
      on senior credit facilities
              
              
              
              (17,800
              )
              (34,300
              )
              (1,385
              )
              
              
              (53,485
              )Member
      distributions
              
              23,197
              
              (2,227
              )
              12,047
              
              (35,511
              )
              
              
              (2,494
              )Net
      cash flows from financing activities
              
              23,197
              
              (522
              )
              (4,151
              )
              15,778
              
              
              
              34,302NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              21,051
              
              9,816
              
              (122
              )
              13,398
              
              
              
              44,143CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              (52
              )
              3,253
              
              9,011
              
              566
              
              
              
              12,778CASH
      AND CASH EQUIVALENTS AT END OF YEAR
              
              $                20,999
              
              $                13,069
              
              $                8,889
              
              $                13,964
              
              $
              
              $                56,921
  
  F-31
   
 Year Ended December 31, 2005Parent
                Co-Issuer
                —PGL
              
              Subsidiary
                Co-Issuer
                —DJL
              
              Subsidiary
                Guarantor
                —EVD
              
              Subsidiary
                Non-Guarantor
                —DJW
              
              Consolidating
                Adjustments
              
              ConsolidatedCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              $                (3,384
              )
              $                3,900
              
              $                (3,506
              )
              $                (1,717
              )
              $                1,323
              
              $                (3,384
              )Adjustments
      to reconcile net income (loss) to net cash flows from operating
      activities:Depreciation
      and amortization
              
              
              
              4,136
              
              12,090
              
              23
              
              
              
              16,249Non-cash
      interest expense
              
              
              
              1,147
              
              1,817
              
              176
              
              
              
              3,140Non-cash
      equity based and other compensation
              
              1,208
              
              
              
              
              
              
              
              
              
              1,208Corporate
      expense allocation
              
              (1,906
              )
              1,034
              
              872Loss
      (gain) on disposal of assets
              
              
              
              3
              
              (19
              )
              
              
              
              
              (16
              )Loss
      from equity investment in subsidiaries
              
              1,323
              
              
              
              
              
              
              
              (1,323
              )Changes
      in operating assets and liabilities:Restricted
      cash-purse settlements
              
              
              
              
              
              (1,448
              )
              
              
              
              
              (1,448
              )Receivables
              
              
              
              (87
              )
              (1,573
              )
              (138
              )
              
              
              (1,798
              )Receivables
      from affiliates
              
              
              
              627
              
              
              
              
              
              (627
              )Inventories
              
              
              
              (8
              )
              (121
              )
              (121
              )
              
              
              (250
              )Prepaid
      expenses and other assets
              
              (40
              )
              (194
              )
              536
              
              (153
              )
              
              
              149Accounts
      payable
              
              (25
              )
              (24
              )
              2,697
              
              143
              
              
              
              2,791Accrued
      expenses
              
              210
              
              (30
              )
              2,873
              
              965
              
              
              
              4,018Payable
      to affiliates
              
              298
              
              
              
              (221
              )
              164
              
              627
              
              868Net
      cash flows from operating activities
              
              (2,316
              )
              10,504
              
              13,997
              
              (658
              )
              
              
              21,527CASH
      FLOWS FROM INVESTING ACTIVITIES:Business
      acquisition and licensing costs
              
              
              
              
              
              (441
              )
              (1,000
              )
              
              
              (1,441
              )Deposits
      to restricted cash
              
              
              
              
              
              
              
              (19,129
              )
              
              
              (19,129
              )Construction
      project development costs
              
              
              
              
              
              (7,768
              )
              (18,181
              )
              
              
              (25,949
              )Purchase
      of property and equipment
              
              
              
              (1,754
              )
              (4,022
              )
              
              
              
              
              (5,776
              )Proceeds
      from sale of property and equipment
              
              
              
              96
              
              53
              
              4
              
              
              
              153Net
      cash flows from investing activities
              
              
              
              (1,658
              )
              (12,178
              )
              (38,306
              )
              
              
              (52,142
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Deferred
      financing costs
              
              
              
              (368
              )
              (375
              )
              (2,540
              )
              
              
              (3,283
              )Principal
      payments on debt
              
              
              
              (1,423
              )
              (7,693
              )
              
              
              
              
              (9,116
              )Proceeds
      from senior secured notes
              
              
              
              
              
              
              
              40,000
              
              
              
              40,000Proceeds
      from senior credit facilities
              
              
              
              8,500
              
              13,333
              
              1,200
              
              
              
              23,033Payments
      on senior credit facilities
              
              
              
              (9,118
              )
              (4,003
              )
              
              
              
              
              (13,121
              )Member
      distributions
              
              2,265
              
              (6,618
              )
              (1,141
              )
              870
              
              
              
              (4,624
              )Net
      cash flows from financing activities
              
              2,265
              
              (9,027
              )
              121
              
              39,530
              
              
              
              32,889NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              (51
              )
              (181
              )
              1,940
              
              566
              
              
              
              2,274CASH
      AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              (1
              )
              3,434
              
              7,071
              
              
              
              
              
              10,504CASH
      AND CASH EQUIVALENTS AT END OF YEAR
              
              $                (52
              )
              $                3,253
              
              $                9,011
              
              $                566
              
              $
              
              $                12,778
 
  
  F-32
  CONSOLIDATEDFINANCIAL STATEMENT SCHEDULE
  PENINSULA
GAMING, LLC
 VALUATION
AND QUALIFYING ACCOUNTS
 For
the Years Ended December 31, 2007, 2006 and 2005
 (in
thousands)
  Description
              
              Balance at
                Beginning
                of Year
              
              
              Charged to
                Costs and
                Expenses
              
              
              Deductions(1)
              
              
              Balance at
                End of YearYear
      ended December 31, 2007:Allowance
      for doubtful accounts
              
              $
              39
              
              
              $
              65
              
              
              $
              (72
              )
              
              $
              32Year
      ended December 31, 2006:Allowance
      for doubtful accounts
              
              $
              73
              
              
              $
              145
              
              
              $
              (179
              )
              
              $
              39Year
      ended December 31, 2005:Allowance
      for doubtful accounts
              
              $
              47
              
              
              $
              136
              
              
              $
              (110
              )
              
              $
              73
  (1)           Amounts
written off.
   S-1