**UNITED STATESSECURITIES AND EXCHANGE COMMISSION******

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**ý****                                ****ANNUALREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thefiscal year ended December 31, 2003**

 

**OR**

** **

**o****                                ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition periodfrom                       to                       **

 

**Commission File Number 333-105587**

 

| **The Old Evangeline Downs, L.L.C.**                             |   | **The Old Evangeline Downs Capital Corp.**                       |
|------------------------------------------------------------------|--------|------------------------------------------------------------------|
| (Exact  name of registrant as specified in its charter)          |   | (Exact  name of registrant as specified in its charter)          |
|                                                             |   |                                                             |
| **Louisiana**                                                    |   | **Delaware**                                                     |
| (State  or other jurisdiction of  incorporation or organization) |   | (State  or other jurisdiction of  incorporation or organization) |
|                                                             |   |                                                             |
| **72-1280511**                                                   |   | **25-1902805**                                                   |
| (I.R.S.  Employer Identification No.)                            |   | (I.R.S.  Employer Identification No.)                            |

 

**P.O. Box 2449Opelousas, Louisiana 70570-2449 (866) 472-2466 (563) 583-7005**(Address, including zip code, and telephone number, including area code, ofprincipal executive offices)

** **

Securitiesregistered pursuant to Section 12 (g) of the Act:  **None**

** **

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the precedingtwelve months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.   Yes  ý   No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.   Yes  o   No  ý

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theAct).   Yes  o   No  ý

 

All of the common equityinterests of The Old Evangeline Downs, L.L.C. are held by OED Acquisition,LLC.  The Old Evangeline Downs CapitalCorp. is a wholly-owned subsidiary of the The Old Evangeline Downs, L.L.C.

 

 

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**TABLE OF CONTENTS**

** **
| PART I   |     |
|----------|----------|
|     | ITEM 1.  | BUSINESS |   |
|     | ITEM 2.  | PROPERTIES |   |
|     | ITEM 3.  | LEGAL PROCEEDINGS |   |
|     | ITEM 4.  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |   |
|     |     |   |   |
| PART II  |     |
|     | ITEM 5.  | MARKET FOR THE REGISTRANT’S COMMON EQUITY AND  RELATED STOCKHOLDER MATTERS |   |
|     | ITEM 6.  | SELECTED FINANCIAL DATA |   |
|     | ITEM 7.  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   |
|     | ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK |   |
|     | ITEM 8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |   |
|     | ITEM 9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE |   |
|     | ITEM 9A. | CONTROLS AND PROCEDURES |   |
|     |     |
| PART III |     |
|     | ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT |   |
|     | ITEM 11. | EXECUTIVE COMPENSATION |   |
|     | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT |   |
|     | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |   |
|     | ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |   |
|     |     |   |   |
| PART IV  |     |
|     | ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND  REPORTS ON FORM 8-K |   |

 

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**PART I**

 

**ITEM 1****.****                                                    ****BUSINESS**

 

**Descriptionof the Business**

** **

**The Company**

 

The Old Evangeline Downs,L.L.C., a Louisiana limited liability company, is wholly owned by OEDAcquisition, LLC, a Delaware limited liability company (“OEDA”).  The Old Evangeline Downs Capital Corp.("OED Corp.") is our wholly owned subsidiary, has no assets oroperations and was formed solely to facilitate the offering of our 13% SeniorSecured Notes due 2010 with Contingent Interest (the “OED Notes”) in certainjurisdictions.  Unless otherwisespecified herein, references to “us,” “our,” “we” or the “Company” shall meanThe Old Evangeline Downs, L.L.C.

 

Our address is P.O. Box2449, Opelousas, Louisiana 70570-2449 and our telephone number is (866)472-2466.  Our Annual Report on Form10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, andamendments to these reports, filed by us with the SEC are available on theSEC’s website at http://www.sec.gov as soon as reasonably practicable.

 

**EvangelineDowns**

 

We own and operate theEvangeline Downs pari-mutuel horse racetrack and casino, or “racino,” nearLafayette, Louisiana.  Evangeline Downs,located approximately 20 miles north of Lafayette, Louisiana at theintersection of Interstate 49 and U.S. Highway 190, began casino operations inDecember 2003. Evangeline Downs’ new horse racetrack is expected to beginscheduling live racing meets in the second half of 2004, at which time ourexisting horse racetrack will cease operations. We believe, because of itsclose proximity to Lafayette and ease of access from major interstates andhighways, Evangeline Downs is the primary source of gaming entertainment forLafayette, our primary market.

 

Our new Evangeline Downsracino in Opelousas has a Southern Louisiana Cajun roadhouse theme on theexterior, with a complementary regional Acadian atmosphere in the interior. Theracino currently includes a casino with 1,627 slot machines, parking spaces forapproximately 1,900 cars and 5 buses, and several dining options. Our diningoptions include a 312-seat Cajun buffet, an 82-seat fine dining Evangeline’srestaurant, a 192-seat Lagniappe food court and a 202-seat Mojo’s sports barwith an additional 98-seat screened patio, in addition to a raised bar andlounge area with 120 seats, known as Zydeco’s, occupying the center of ourcasino floor. The single floor casino contains 15,000 square feet of definedregulated gaming space, which equates to a casino floor area of approximately40,000 square feet  We expect tocomplete construction of a one-mile dirt horse racetrack track with an inner  7/8-mile turf track toreplace our existing horse racetrack described below, stables for 920 horses, agrandstand and clubhouse with seating for 1,436 patrons, and apron and patiospace for an additional 3,000 patrons in the second half of 2004 for remainingcapital expenditures of $17.5 million as of December 31, 2003.

 

*OTBs.*  Wecurrently operate two off-track betting parlors (each, an “OTB”), one in PortAllen, Louisiana and one in New Iberia, Louisiana. Each of these OTBs offerssimulcast pari-mutuel wagering seven days a week and is equipped with a bar toserve alcoholic and non-alcoholic beverages and a kitchen that prepares shortorder food. The Port Allen OTB is located immediately off Interstate 10, acrossthe Mississippi river from Baton Rouge. The two-story Port Allen facilityoffers off-track betting, 100 video poker machines which began operating in May2003, a newly renovated bar, a cafe and a VIP lounge. The New Iberia OTB,located on U.S. Highway 182, approximately 20 miles outside Lafayette,Louisiana, offers off-track betting and a limited food offering. UnderLouisiana’s racing and off-track betting laws, we have a right of priorapproval with respect to any applicant seeking a permit to operate an OTBwithin a 55-mile radius of our horse racetrack. This effectively gives us theexclusive right, at our option, to operate OTBs within a 55-mile radius of ourhorse racetrack, provided that such OTB is not also within a 55-mile radius ofanother horse racetrack.

 

*Existinghorse racetrack.*  Our existing horse racetrack facility islocated approximately five miles north of Lafayette off Interstate 49 and iscomprised of a 94,200 square foot pari-mutuel wagering complex, an approximate

 

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2,000-space parking lot,  7/8-mile dirt track andstables for approximately 1,000 horses. The complex features an approximate750-seat grandstand, an approximate 3,000-person capacity apron and patio, anapproximately 850-seat restaurant, four concession stands and four bars. Thehorse racetrack offers live thoroughbred and quarter horse races a minimum of80 days a year from mid-April through October. The horse racetrack also offerssimulcast pari-mutuel wagering seven days a week year-round.

 

**Market**

 

*Lafayette andSurrounding Areas.*  Louisiana generated approximately $2.0billion of casino gaming revenue in 2003, excluding Native American casinos.That revenue grew at a compound annual rate of 8.7% from 1996 to 2001 and 6.0%since 2001. We believe that our centralized location in Louisiana will affordus the opportunity to participate in this large and growing market. There areapproximately 300,000 adults living within 35 miles of the racino site, mostlywithin the Lafayette metropolitan area, our primary market. In addition, thereare 1.5 million adults living within 100 miles of the racino site. This areaincludes secondary markets from which we believe we will attract patrons due toour ease of access from major interstates or highways compared to our competitorsin those areas, as well as our offering of pari-mutuel live horse racing.Approximately 39,000 vehicles per day pass through the intersection ofInterstate 49 and U.S. Highway 190 where the racino site is located. Inaddition, the racino site is located adjacent to a recently opened shoppingcenter, which currently includes a Wal-Mart Supercenter. A Lowe’s and a HomeDepot are currently under construction nearby. We believe these businesses willgive us an opportunity to attract additional patrons.

 

**OperatingStrategy**

 

*Maintain/DevelopLoyal Local Customer Base.*  We have implemented employeeincentives and training programs designed to provide a high level ofpersonalized service to our customers. Because we believe that Evangeline Downswill become one of the principal entertainment venues for the residents of theAcadian region, which includes Lafayette, Opelousas and their surroundingcommunities, we intend to utilize strategies for developing a loyal localcustomer base for Evangeline Downs. Our plans include an outdoor entertainmentvenue, which will promote headliner and regional acts, and provide for thestaging of holiday celebrations, such as 4th of July fireworks, classic carshows, and various festivals.

 

*MaximizeProfitability Through Target Marketing.*  Wehave developed marketing and promotional strategies designed to target andreward frequent gaming customers in our players’ club through mailings, gamingincentives, and food and beverage discounts. Our state-of-the-art electronicplayer tracking system allows us to monitor slot machine activity in real time,as well as the frequency and level of play for our players’ club members, ofwhich there are already over 40,000. This system enables us to focus ourmarketing efforts on our most valued customers, regularly adjust our overallgame mix to appeal to our target market, and increase revenues from ourexisting customer base.

 

*Focus onSlot Machine Play.*  All of our casino gaming revenues aregenerated from slot machines. Slot machines are typically both the highestmargin and most predictable component of the gaming industry. Slot machines donot have the staffing requirements of table games nor do they have thevariation in hold percentages attributable to “luck” which characterize thetable game side of the casino business and, accordingly, we believe affords usa more stable and predictable revenue stream, than those facilities primarilycharacterized by table game operations.

 

**Competition**

 

The nearest competitor toEvangeline Downs is a Native American casino located approximately 50 miles tothe south of Lafayette and several miles off the highway. Beyond that, patronsin Lafayette need to drive approximately 50 miles to reach riverboat casinos inBaton Rouge and approximately 70 miles to reach riverboat casinos in LakeCharles and Native American casinos in Marksville and Kinder. Because ourcompetition in Marksville is situated more than 20 miles off the highway, webelieve that patrons of the Marksville casino may find the ease of highway accessto our racino more convenient.

 

Louisiana law currentlyplaces limitations on the number and types of gaming facilities that mayoperate in the State. Currently, there are only four horse racetracks inLouisiana with licenses to conduct live racing. Under the Pari-Mutuel Act, eachof the four horse racetracks (including our racino) is permitted to installslot machines at its facility.

 

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The horse racetrack nearest to the racinosite that is allowed to have gaming operations is located in Vinton, Louisiana,near Lake Charles, which is over 100 miles away. In addition, current Louisianalaw permits only 15 riverboat gaming licenses to be awarded. The fifteenth andlast license was recently awarded to operate a riverboat casino to beconstructed in Lake Charles. Also, under current Louisiana law, the onlynon-Native American land-based casino permitted to operate in the State is theland-based casino currently operating in New Orleans, over 100 miles fromLafayette.

 

Native American gamingfacilities operate pursuant to compacts with the State of Louisiana. Therecurrently are only four federally-recognized Native American tribes inLouisiana and only three Native American casinos currently operating in Louisiana,the closest being in Marksville and Kinder which are approximately 50 milesfrom the racino site. The fourth tribe, which does not have a compact with theState of Louisiana as of the date of this filing, has proposed to develop acasino in DeSoto Parish, over 150 miles from the racino.

 

**Employees**

 

We maintain a staff ofapproximately 820 to 880 full-time equivalent employees depending upon the timeof the year. None of our employees are covered by a collective bargainingagreement. We have not experienced any labor problems resulting in a workstoppage, and believe we maintain good relations with our employees.

 

**RegulatoryMatters**

 

We and our subsidiaries aresubject to regulation by the State of Louisiana, and, to a lesser extent, byfederal law. We and our subsidiaries are subject to regulations that applyspecifically to live racing facilities and the gaming and pari-mutuel industry,in addition to regulations applicable to businesses generally. Our racino issubject to the Pari-Mutuel Act and the Louisiana Horse Racing Act. Laws andregulations applicable to our current racetrack and our racino are administeredby the Louisiana State Gaming Control Board and the Louisiana State RacingCommission. Legislative or administrative changes in applicable legalrequirements, including legislation to prohibit casino gaming, have beenproposed in the past.  Our failure tocomply with detailed regulatory requirements may be grounds for the suspensionor revocation of one or more of our respective licenses which would have amaterial adverse effect on our respective businesses.

 

**The HorseRacing Act and The Pari-Mutuel Act**

 

The Horse Racing Act hasbeen in effect since 1968 and is the basis for the current statutory schemeregulating live and off-track betting for horse racing. The Horse Racing Actstates, among other things, that certain policies of Louisiana with respect tohorse racing are to encourage the development of the business of horse racingwith pari-mutuel wagering on a high plane; to encourage the development of thebreeding and ownership of race horses; to regulate the business of horse racingby licensed horse racing tracks in the state and to provide the orderly conductof racing; to provide financial assistance to encourage the business of racinghorses; and to provide a program for the regulation, ownership, possession,licensing, keeping and inoculation of horses.

 

The Pari-Mutuel Act becameeffective on July 9, 1997, and provides for numerous controls and supervisionover the operation of slot facilities and requires us to comply with complexand extensive requirements. Failure to adhere to these statutes and regulationswill result in serious disciplinary action against us, including monetary finesand suspension or revocation of our licenses.

 

The Pari-Mutuel Act allowsonly one facility in each of St. Landry Parish, Bossier Parish, CalcasieuParish and Orleans Parish to be licensed to operate slot machines at a livehorse racing facility. We are presently the only “eligible facility” in St. LandryParish under the Pari-Mutuel Act. The Pari-Mutuel Act requires (among otherthings) that two conditions be met prior to the opening and operation of a slotmachine casino at a live racing venue. First, a parish-wide election mustapprove the operation. In 1997, voters in St. Landry Parish voted to approvethe slot machine casino at the racino site. Secondly, the Pari-Mutuel Actrequires that an appropriate tax be levied on the slot machine operation. In2000, 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-MutuelAct have been met with respect to the racino at our site in Opelousas withinSt. Landry Parish.

 

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The Pari-Mutuel Act alsoprovides that the “designated gaming space” in any eligible facility cannotexceed 15,000 ft2, that the licensee will not allow underage gamingand that notice of toll-free telephone assistance for compulsive gamblers willbe posted at the facility.

 

The Pari-Mutuel Act requiresthat licensees supplement horse racing purses and pay certain other fees fromslot machine proceeds. The Pari-Mutuel Act also levies taxes on the net slotmachine proceeds. Licensees must pay fifteen percent (15%) of gross slotmachine proceeds to supplement purses at their facilities, pay two percent (2%)to the Louisiana Thoroughbred Breeders Association and also pay one percent(1%) to the Louisiana Quarter Horse Breeders Association. In addition to thesepayments, we will pay eighteen and one-half percent (18.5%) of the net slotmachine proceeds (net of the payments described above) as state taxes and fourpercent (4%) as local taxes. The effective rate of total taxes and fees istherefore approximately thirty-six and one-half percent (36.5%) of our adjustedgross slot revenue. Additionally, we are required to pay $0.25 to the LouisianaState Racing Commission for each patron attending a live race at our horseracetrack from noon to midnight on Thursday through Monday during thenon-racing season and in respect of each patron at our OTBs at all times.

 

To remain an “eligiblefacility” under the Pari-Mutuel Act, we must, among other things, have aminimum of 80 live racing days in a consecutive 20-week period each year oflive horse race meetings at the new horse racetrack.

 

**TheLouisiana State Gaming Control Board**

 

In 1996, Louisiana createdthe Louisiana Gaming Control Board, which was granted all of the regulatoryauthority, control and jurisdiction to license and monitor gaming facilities inLouisiana, including our planned racino. To receive a gaming license anapplicant and its management must apply to the Louisiana Gaming Control Boardand be investigated by the Louisiana State Police. The Louisiana Gaming ControlBoard and Louisiana State Police must determine that the applicant is suitableto conduct the gaming operations, including that the applicant (and its owners,officers, directors and key employees) is of good character, honesty andintegrity, that its prior activities, reputation and associations pose nothreat to the public interest or to the effective regulation of the industryand that the applicant is capable of conducting the operation of the slotmachine facility. The Louisiana Gaming Control Board must also determine thatthe applicant has adequate financing from a source suitable and acceptable tothe Louisiana Gaming Control Board.

 

The applicant for a gaminglicense, its directors, officers, key personnel, partners, and persons holdinga five percent (5%) or greater equity or economic interest in the applicantmust be found suitable by the Louisiana Gaming Control Board. To receive alicense, the applicant must file an extensive application with the LouisianaGaming Control Board, disclosing personal, financial, criminal, business andother 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 anycause deemed reasonable by the Louisiana Gaming Control Board. Any other personwho is found to have a material relationship to or a material involvement witha gaming company also may be investigated or required to be licensed as abusiness associate of an applicant. Key employees, controlling persons orothers who exercise significant influence upon the management or affairs of agaming company may be deemed to have such a relationship or involvement.

 

If the Louisiana GamingControl Board were to find a director, officer or key employee of an applicantunsuitable for licensing purposes or unsuitable to continue having arelationship with an applicant, the applicant would have to sever allrelationships with such person. The applicant would have similar obligationswith regard to any person who refuses to file appropriate applications. Eachgaming employee must obtain a gaming employee permit which may be revoked uponthe occurrence of certain specified events.

 

An applicant must alsodemonstrate that the proposed gaming operation has adequate financial resourcesgenerated from suitable sources and adequate procedures to comply with theoperating controls and requirements imposed by the laws and regulations of theState of Louisiana. Additionally, the applicant must submit plans andspecifications of the gaming premises specifying the layout and design of thegaming space. Proof of tax compliance, both state and federal, is alsorequired. This submission is followed by a thorough investigation by theregulatory authorities of the applicant, its business probity, the premises andother matters. An application for any gaming license, approval or finding ofsuitability may be denied for any cause that the regulatory authorities deemreasonable.

 

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We received our gaminglicense to operate slot machines at our racino from the Louisiana GamingControl Board on January 21, 2003. Our license has a term of five years and isrenewable for succeeding five year periods upon application for such renewal.The Louisiana Gaming Control Board retains absolute discretion over the renewalof our license upon the termination of its initial term and any renewal term.

 

Our gaming licenseauthorizes the use of 15,000 square feet of designated gaming space. OnFebruary 18, 2003, we submitted for approval our layout for the casino, whichincorporated 1,631 slot machines. Our layout was approved based on the type ofmachines which were all upright machines. Should we change the manufacturer,type and/or design of our slot machines prior to installation, we must seekapproval from the Louisiana Gaming Control Board for the new machines. Once themachines are installed, they must be inspected by regulators and tested priorto the approval of their operation. Moving the machines also requires theLouisiana Gaming Control Board’s approval.

 

Maintaining our gaminglicense is contingent in certain respects on our horse racetrack operations atour planned racino. First, our failure to complete construction of the horseracetrack at the racino or to establish a schedule of live racing meets at thenew horse racetrack by January 21, 2005, will result in the cancellation of ourgaming license. While Louisiana allows us to operate slot machines at theracino prior to completion of the new horse racing facility and thecommencement of live racing at the new horse racetrack, Louisiana gamingregulations and our gaming license require that the racino must be constructedand a schedule of live racing meets at the new horse racetrack be establishedby January 21, 2005, or two years from the date of the grant of our gaminglicense. Second, to maintain our gaming license, we must remain an “eligiblefacility” under the Pari-Mutuel Act. This means that we must, among otherthings, have a minimum of 80 live racing days in a consecutive 20-week periodduring each year of live horse race meetings at the new horse racetrack andmust be a licensed racing association.

 

Although we have obtainedour license to conduct slot machine operations, we continue to be subject toongoing monitoring and compliance requirements by the Louisiana Gaming ControlBoard and the Louisiana State Police. We have obtained from the LouisianaGaming Control Board a video draw poker establishment license and owner devicelicense. The video draw poker establishment license allows us to operate videodraw poker devices at our approved OTB locations but not the racino, and theowner device license allows us to own those machines. Regulations require us tocomply with rigorous accounting and operating procedures, including thesubmission of detailed financial and operating reports. Our accounting recordsmust include accurate, complete and permanent records of all transactionspertaining to revenue. Detailed ownership records must be kept on site andavailable for inspection. All records must be retained for a period of fiveyears. Audited financial statements are required to be submitted to theLouisiana State Police. Internal controls have been approved and will be inplace beginning the first day of operation. These controls will includehandling of cash, tips and gratuities, slot operations, and count roomprocedures and management information systems. Each licensed facility isrequired by the Louisiana Gaming Control Board to maintain cash or cashequivalent amounts on site sufficient to protect patrons against defaults ingaming debts owed by the licensee. In addition, licensees are subject tocurrency transaction report regulations.

 

We must also strictly complywith mandated operating procedures and supply detailed reports disclosing suchcompliance. Regulation of a casino’s methods of operations is extensive andwill include substantially all aspects of our casino operation. Operatingprocedures that are subject to regulation include slot machine maintenance andoperation, cash management and cash procedures, cage procedures, dropprocedures, regulation of weapons in the casino, parking, access to thepremises and records by regulators, gaming credit and advertising, surveillanceand security standards, safeguards against underage gambling, compulsivegambling programs, physical layout and progressive jackpots.

 

The Louisiana Gaming ControlBoard retains the power to suspend, revoke, condition, limit or restrict ourlicense to conduct slot machine operations as a sanction for violatinglicensing terms or for any cause they deem reasonable. In addition, monetaryfines for violations may be levied against us, and our gaming operationrevenues may be forfeited to the state under certain circumstances. Initialenforcement actions against a licensee are brought by the Louisiana StatePolice and are heard before an administrative law judge to whom the LouisianaGaming Control Board has delegated decision making power. Either party mayappeal the ruling of the administrative law judge before the full LouisianaGaming Control Board. Either party may further appeal the ruling of theLouisiana Gaming Control Board in state court. The laws, regulations andprocedures pertaining to gaming are subject to the interpretation of theregulatory authorities and may be amended. Any changes in such laws orregulations, or their current interpretations, could have a material adverseeffect on our business, financial condition and results of operations.

 

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The Louisiana Gaming ControlBoard has broad regulatory power over securities issuances and incurrence ofindebtedness by gaming facilities. Substantially all loans, leases, privatesales of securities, extensions of credit, refinancings and similar financingtransactions entered into by a licensee must be approved by the LouisianaGaming Control Board. Pursuant to a letter dated January 31, 2003, theLouisiana Gaming Control Board exempted the offering of the OED Notes from anyrequirement for prior approval by the Louisiana Gaming Control Board. However,at any time, any holder of the OED Notes may be called before the LouisianaGaming Control Board to undergo a suitability investigation in the event theLouisiana Gaming Control Board determines that such holder exercises a materialinfluence over us or our operations.

 

At any time the LouisianaGaming Control Board may investigate and require the finding of suitability ofany shareholder or beneficial shareholder (and if the shareholder is acorporate or partnership entity, then the shareholders or partners of theentity), officer, partner, member, manager or director of a licensee if theLouisiana Gaming Control Board believes such holder exercises a materialinfluence over the licensee. Furthermore, all holders of more than a 5%interest in the licensee, or proposed purchasers of more than a 5% interest areautomatically investigated and are required to submit to suitabilityrequirements of the Louisiana Gaming Control Board. Any sale or transfer ofmore than a 5% interest in any riverboat or slot project is subject to theapproval of the Louisiana Gaming Control Board.

 

Although the Pari-Mutuel Actdoes not specifically require debt holders to be licensed or to be foundsuitable, the Louisiana Gaming Control Board, in its sole discretion, mayrequire the holders of debt securities to file applications and obtainsuitability certificates from it. Furthermore, if the Louisiana Gaming ControlBoard finds that any holder exercises a material influence over the gamingoperations, a suitability certificate will be required from such holder.

 

If the Louisiana GamingControl Board finds that any security holder or proposed security holder,including a holder of the OED Notes, is not qualified pursuant to the existinglaws, rules and regulations, and if as a result it determines that the licenseeis no longer qualified to continue as a licensee, it can propose actionnecessary to protect the public interest, including the suspension orrevocation of a license or permit. It may also issue, under penalty ofrevocation of the license, a condition of disqualification naming the personand declaring that such person may not (a) receive dividends or interest onsecurities of the licensee, (b) exercise any right conferred by securities ofthe licensee, (c) receive remuneration or any other economic benefit from thelicensee or (d) continue in an ownership or economic interest in the licenseeor remain as a director, partner, officer, or manager of the licensee. Asecurity issued by a licensee must generally disclose these restrictions.

 

**LouisianaState Racing Commission**

 

Pari-mutuel betting and theconducting of live horse race meets in Louisiana are strictly regulated by theLouisiana State Racing Commission, which was created pursuant to the HorseRacing Act. The Louisiana Racing Commission is comprised of ten members and isdomiciled in New Orleans, Louisiana. In order to be approved to conduct a liverace meet and to operate pari-mutuel wagering (including off-track betting), anapplicant must show, among other things: racing experience; financialqualifications; moral and financial qualifications of the applicant and theapplicant’s partners, officers and officials; the expected effect on thebreeding and horse industry; and the expected effect on the State’s economy.

 

In 2000, we received fromthe Louisiana State Racing Commission a license to conduct live race meets andto operate pari-mutuel wagering at our existing horse racetrack. The initialterm 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 fromLafayette Parish to St. Landry Parish upon completion of the new horseracetrack. As a condition to the approval of our racing license, we arerequired to offer pari-mutuel wagering in the defined casino gaming space atthe time we begin conducting slot machine gaming. Our racino includes monitorsand other equipment to facilitate live and simulcast wagering within the casinoarea in compliance with this condition.

 

The Louisiana State RacingCommission promulgates rules, regulations and conditions for the holding,conducting and operating all racetracks in the state. Failure to adhere tothese regulations may result in substantial fines or the suspension orrevocation of our racing license. A revocation or suspension of the racinglicense would, in turn, result in the revocation or suspension of our gaminglicense to conduct slot machine operations. Any alteration in the regulation ofthese activities could have a material adverse effect on our operations.

 

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**FederalRegulation of Slot Machines**

 

We are required to makeannual filings with the U.S. Attorney General in connection with the sale,distribution or operation of slot machines. We are currently in compliance withsuch filing requirements.

 

**PotentialChanges in Tax and Regulatory Requirements**

 

In the past, federal andstate legislators and officials have proposed changes in tax laws affecting thegaming industry or the administration of those laws. Regulatory commissions andstate legislatures sometimes consider limitations on the expansion of gaming injurisdictions where we operate and other changes in gaming laws andregulations. Proposals at the national level have included a federal gaming taxand limitations on the federal income tax deductibility of the cost offurnishing complimentary promotional items to customers, as well as various measureswhich would require withholding on amounts won by customers or on negotiateddiscounts provided to customers on amounts owed to gaming companies. It is notpossible to determine with certainty the likelihood of possible changes in taxor other laws affecting our industry or in the administration of those laws.Certain changes, if adopted, could have a material adverse effect on ourfinancial results.

 

**LiquorRegulations**

 

Our sale of alcoholicbeverages in Louisiana is subject to licensing, control and regulation by theState of Louisiana, Department of Revenue, Office of Alcohol and TobaccoControl, as well as the cities of Opelousas, Carencro, Port Allen, New Iberiaand the parish of West Baton Rouge. The applicable liquor laws in the city ofOpelousas where the racino is located allow the sale of liquor 24 hours a day 7days a week.

 

**OtherRegulations**

 

We and our subsidiaries aresubject to federal, state and local environmental and safety and health laws,regulations and ordinances that apply to non-gaming businesses generally, suchas the Clean Air Act, Federal Water Pollution Control Act, Occupational Safetyand Health Act, Resource Conservation Recovery Act, Oil Pollution Act of 1990and Comprehensive Environmental Response, Compensation and Liability Act, eachas amended. We have not incurred, and do not expect to incur, materialexpenditures in complying with these laws. There can be no assurances, however,that we will not incur material liability under these laws in the future.

 

**ITEM 2****.****                                                    ****PROPERTIES**

 

We lease the land on whichour existing horse racetrack in Lafayette is located and own the relatedbuilding and improvements. The ground lease annual rent is $0 per year, and thelease term expires on the earlier of December 31, 2004 or the first day we opena new racetrack facility for business in St. Landry Parish, Louisiana.

 

Our new racino sits onapproximately 649 acres of owned land located in Opelousas that we purchased in2002 and 2003.

 

Subsequent to the initialacquisition of approximately 532 aces of land in 2002, in May 2003 we executedthree separate purchase agreements to purchase approximately 10.78 acres ofland adjacent to the new racino for a total cost of $842,466.

 

In October 2003, we executedtwo separate purchase agreements to purchase approximately 106 acres of landadjacent to the new racino. Under the first purchase agreement, we purchasedapproximately 13 acres for a total cash purchase price of $550,000. Under thesecond purchase agreement, we purchased an additional 93 acres of land, dividedinto seven approximately equal parcels, for a total purchase price of$3,850,000 which was financed by our issuing a $3,850,000 note payable to theseller. The note is payable in seven equal annual installments of $550,000beginning October 24, 2004 and bears interest at a rate of 4.75% of the unpaidbalance due monthly in arrears on the fifth day of each month beginning onDecember 5, 2003. The note is collateralized by a mortgage on the property.Simultaneously with the payment of each $550,000 annual installment discussedabove, the seller is required to release one of the remaining parcels from themortgage.

 

7

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In addition to our existinghorse racetrack and new racino, we own the land, building and improvements ofour Port Allen OTB and lease the facility that comprises our New Iberia OTB.

 

**ITEM 3****.****                                                    ****LEGAL PROCEEDINGS**

 

Neither we nor oursubsidiaries are parties to, and none of our nor our subsidiaries’ property isthe subject of, any pending legal proceedings other than litigation arising inthe normal course of business. We do not believe that adverse determinations inany or all such litigation would have a material adverse effect on ourfinancial condition, results of operations or cash flows.

** **

**ITEM 4****.****                                                    ****SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS**

 

None.

 

8

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**PART II**

 

**ITEM 5****.****                                                    ****MARKET FOR THE REGISTRANT’SCOMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

There is no establishedpublic trading market for any of the Company’s common equity securities.  As of March 15, 2004, OEDA was the onlyholder of record of the common equity of the Company.

 

**ITEM 6****.****                                                    ****SELECTED FINANCIAL DATA**

 

The selected historicalfinancial data at December 31, 2003 and 2002 and for the year ended December31, 2003 and the period August 31 to December 31, 2002 (Successor), at December31, 2001 and for the period January 1 to August 30, 2002 and the year endedDecember 31, 2001 (Predecessor) have been derived from our audited financialstatements included elsewhere in this document. The selected historicalfinancial data at December 31, 2000 have been derived from our auditedfinancial statements not included elsewhere in this document. The selectedhistorical financial data at and for the year ended December 31, 1999 have beenderived from our unaudited financial statements. The unaudited financialstatements have been prepared by us on a basis consistent with the auditedfinancial statements and include all normal recurring adjustments necessary fora fair presentation of information set forth therein. The data presented belowis a summary only, should be read in conjunction with, and is qualified in itsentirety by reference to, the section entitled “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and our financialstatements and the notes thereto appearing elsewhere in this document.

 
|                                         |   | **Successor**                |        | **Predecessor**                       |      |
|----------------------------------------------|--------|------------------------------|-------------|---------------------------------------|-----------|
|                                         |   | **Year Ended  December 31,** |        | **August 31,  through  December 31,** |      | **January 1,  through  August 30,** |   | **Year ended  December 31,** |   |
|                                         |   | **2003(1)**                  |        | **2002(1)**                           |      | **2002(1)** |   | **2001(1)** |   | **2000(1)** |   | **1999(1)** |   |
| ***STATEMENTS OF OPERATIONS DATA:***         |   |                         |        |                                  |      |   |   |   |   |   |   |   |   |
| Revenues                                     |   |                         |        |                                  |      |   |   |   |   |   |   |   |   |
| Casino                                       |   | $                            | 3,227,477   |                                  |      |   |   |   |   |   |   |   |   |   |
| Racing                                       |   | 17,773,481                   |        | $                                     | 3,947,568 |   | $ | 13,349,589 |   | $ | 18,211,237 |   | $ | 18,333,395 |   | $ | 18,622,457 |   |
| Food and beverage                            |   | 1,538,374                    |        | 185,215                               |      | 971,238 |   | 1,113,044 |   | 1,190,624 |   | 1,253,011 |   |
| Other                                        |   | 167,361                      |        |                                  |      |   |   |   |   |   |   |   |   |
| Less: promotional allowances                 |   | (209,147                     | )           |                                  |      |   |   |   |   |   |   |   |   |
| Total net revenues                           |   | 22,497,546                   |        | 4,132,783                             |      | 14,320,827 |   | 19,324,281 |   | 19,524,019 |   | 19,875,468 |   |
|                                         |   |                         |        |                                  |      |   |   |   |   |   |   |   |   |
| Operating Expenses                           |   |                         |        |                                  |      |   |   |   |   |   |   |   |   |
| Casino                                       |   | 1,908,730                    |        |                                  |      |   |   |   |   |   |   |   |   |
| Racing                                       |   | 14,646,351                   |        | 3,224,763                             |      | 10,725,678 |   | 14,364,494 |   | 14,448,293 |   | 14,354,988 |   |
| Food and beverage                            |   | 1,500,065                    |        | 187,438                               |      | 886,708 |   | 1,131,499 |   | 1,148,970 |   | 1,194,011 |   |
| Other                                        |   | 59,934                       |        |                                  |      |   |   |   |   |   |   |   |   |
| General and administrative                   |   | 3,277,507                    |        | 490,466                               |      | 1,169,074 |   | 1,695,351 |   | 1,895,298 |   | 1,571,249 |   |
| Depreciation and amortization                |   | 823,944                      |        | 77,806                                |      | 138,166 |   | 655,194 |   | 659,963 |   | 727,626 |   |
| Pre-opening expense                          |   | 3,256,963                    |        |                                  |      |   |   |   |   |   |   |   |   |
| Management fee                               |   | 480,000                      |        | 160,000                               |      | 64,644 |   |   |   |   |   |   |   |
| Litigation settlements                       |   | 1,600,000                    |        |                                  |      |   |   | 5,946 |   | 76,776 |   |   |   |
| Bad debts                                    |   |                         |        |                                  |      |   |   | 434 |   | 92,847 |   | 648 |   |
| Loss on abandoned assets                     |   |                         |        |                                  |      |   |   | 12,801 |   | 12,067 |   | 44,409 |   |
| Relocation expense                           |   |                         |        |                                  |      |   |   | 404,738 |   | 511,031 |   | 597,536 |   |
| Impairment charges on long-lived assets      |   |                         |        |                                  |      |   |   | 4,361,134 |   |   |   |   |   |
| Total operating expenses                     |   | 27,553,494                   |        | 4,140,473                             |      | 12,984,270 |   | 22,631,591 |   | 18,845,245 |   | 18,490,467 |   |
| Income (loss) from operations                |   | (5,055,948                   | )           | (7,690                                | )         | 1,336,557 |   | (3,307,310 | ) | 678,774 |   | 1,385,001 |   |
|                                         |   |                         |        |                                  |      |   |   |   |   |   |   |   |   |
| Other Income (Expenses)                      |   |                         |        |                                  |      |   |   |   |   |   |   |   |   |
| Earnings (losses) from equity affiliate      |   |                         |        |                                  |      |   |   | 58,862 |   | (14,209 | ) | (14,725 | ) |
| Interest expense, net of amounts capitalized |   | (14,151,163                  | )           | (748,787                              | )         | (769,163 | ) | (1,121,835 | ) | (1,157,239 | ) | (1,192,255 | ) |
| Interest income                              |   | 440,003                      |        | (4,979                                | )         | 9,243 |   | 10,720 |   | 27,657 |   | 38,423 |   |
| Total other expense                          |   | (13,711,160                  | )           | (753,766                              | )         | (759,920 | ) | (1,052,253 | ) | (1,143,791 | ) | (1,168,557 | ) |
|                                         |   |                         |        |                                  |      |   |   |   |   |   |   |   |   |
| Income (loss) before income taxes            |   | (18,767,108                  | )           | (761,456                              | )         | 576,637 |   | (4,359,563 | ) | (465,017 | ) | 216,444 |   |
| Income tax benefit (expense)                 |   |                         |        |                                  |      |   |   |   |   | (221,343 | ) | 9,138 |   |
| Net income (loss)                            |   | $                            | (18,767,108 | )                                     | $         | (761,456 | ) | $ | 576,637 |   | $ | (4,359,563 | ) | $ | (686,360 | ) | $ | 225,582 |   |

 

9

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|                                 |   | **Successor**                |       | **Predecessor**                       |   |
|--------------------------------------|--------|------------------------------|------------|---------------------------------------|--------|
|                                 |   | **Year Ended  December 31,** |       | **August 31,  through  December 31,** |   | **January 1,  through  August 30,** |   | **Year ended  December 31,** |   |
|                                 |   | **2003(1)**                  |       | **2002(1)**                           |   | **2002(1)** |   | **2001(1)** |   | **2000(1)** |   | **1999(1)** |   |
| ***OTHER DATA:***                    |   |                         |       |                                  |   |   |   |   |   |   |   |   |   |
| Cash flows from operating activities |   | $                            | (5,603,786 | )                                     | $      | 1,069,663 |   | $ | 456,126 |   | $ | 431,953 |   | $ | 395,325 |   | $ | 1,867,172 |   |
| Cash flows from investing activities |   | (93,587,907                  | )          | (4,794,646                            | )      | (706,128 | ) | (68,621 | ) | (247,770 | ) | (847,189 | ) |
| Cash flows from financing activities |   | 106,731,695                  |       | 4,033,794                             |   | (90,987 | ) | (411,230 | ) | (788,240 | ) | (596,965 | ) |
|                                      |        |                              |            |                                       |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                                 |   | **At  December 31,** |      |
|--------------------------------------|--------|----------------------|-----------|
|                                 |   | **Successor**        |      | **Predecessor** |   |
|                                 |   | **2003(1)**          |      | **2002(1)** |   | **2001(1)** |   | **2000(1)** |   | **1999(1)** |   |
|                                 |   |                 |      |   |   |   |   |   |   |   |   |
| ***BALANCE SHEET  DATA:***           |   |                 |      |   |   |   |   |   |   |   |   |
| Cash and cash equivalents            |   | $                    | 8,502,654 |   | $ | 962,652 |   | $ | 994,830 |   | $ | 1,042,728 |   | $ | 1,683,413 |   |
| Property, plant and equipment, net   |   | 87,463,052           |      | 8,796,268 |   | 1,495,802 |   | 6,030,483 |   | 6,808,916 |   |
| Total assets                         |   | 176,815,227          |      | 42,741,843 |   | 7,208,712 |   | 12,161,060 |   | 14,073,632 |   |
| Long-term debt                       |   | 139,460,948          |      | 0 |   | 10,527,560 |   | 10,981,852 |   | 11,393,082 |   |
| Total debt(2)                        |   | 142,959,170          |      | 20,125,000 |   | 10,981,852 |   | 11,393,082 |   | 11,765,333 |   |
| Total members’ equity (deficit) |   | (4,471,508           | )         | 14,470,600 |   | (5,900,646 | ) | (1,541,083 | ) | 461,266 |   |
|                                      |        |                      |           |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)                                  As a result of OEDA’s acquisition of us thatwas accounted for using the purchase method of accounting and due to a practiceknown as “push down” accounting, as of August 31, 2002, the date on which OEDAacquired 100% of us, we adjusted our consolidated assets and liabilities totheir estimated fair values based upon an independent valuation andmanagement’s estimates. Therefore, the financial statements presented for thepost-acquisition period are not comparable to the financial statementspresented for the pre-acquisition periods.

 

(2)                                  Total debt includes short-term and long-termborrowings (net of applicable discounts), and current maturities of long-termdebt, and excludes intercompany payables.

 

10

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**ITEM 7****.****                                                    ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

** **

*Thefollowing discussion should be read in conjunction with, and is qualified inits entirety by, our Selected Financial Data and the financial statements andthe related notes thereto appearing elsewhere in this document.*

** **

**ForwardLooking Statements**

 

Some statements contained in“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” constitute “forward-looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995.  Forward-looking statements include the words “may,” “will,”“estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate” andother similar words.  Theseforward-looking statements generally relate to plans and objectives for futureoperations and are based upon management’s reasonable estimates of futureresults or trends.  Although we believethat the plans and objectives reflected in or suggested by such forward-lookingstatements are reasonable, such plans or objectives may not be achieved.  Actual results may differ from projectedresults due, but not limited, to unforeseen developments, includingdevelopments relating to the following:

 

•                  the availability and adequacy of our cashflow to satisfy our obligations, including payment of the OED Notes andadditional funds required to support capital improvements and development,

 

•                  economic, competitive, demographic, businessand 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 thirdparties, including customers, suppliers, competitors, members and shareholders,as well as legislative, regulatory, judicial and other governmentalauthorities,

 

•                  changes in business strategy, capitalimprovements, development plans, including those due to environmentalremediation concerns, or changes in personnel or their compensation, includingfederal, state and local minimum wage requirements,

 

•                  the loss of any license or permit, includingthe failure to obtain an unconditional renewal of a required gaming license ona timely basis,

 

•                  the loss of our land-based facilities due tocasualty, weather, mechanical failure or any extended or extraordinarymaintenance or inspection that may be required,

 

•                  potential exposure to environmental liabilities,changes or developments in the laws, regulations or taxes in the gaming orhorse racing industry or a decline in the public acceptance of gaming or horseracing and other unforeseen difficulties associated with a new venture,

 

•                  other factors discussed in our other filingswith the Securities and Exchange Commission.

 

**Results ofOperations**

 

The results of operationsfor the year ended December 31, 2003 discussed below represent the consolidatedresults of operations of the successor company. The results of operations for2002 include the consolidated results of operations for the period January 1 toAugust 30, 2002 for the predecessor company and our consolidated results ofoperations for the period August 31 to December 31, 2002 for the successor company.The results of operations for the year ended December 31, 2001 represent theconsolidated results of operations of the predecessor company.  As a result of the substantially differentcapital structure of our company in comparison to that of the predecessorcompany, and of the applications of purchase accounting in connection with theacquisition, our results of operations may not be comparable to the results ofoperations of the predecessor company.

 

11

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**TwelveMonths Ended December 31, 2003 Compared to Twelve Months Ended December 31,2002**

 

Net revenues increased 21.9%to $22.5 million for the year ended December 31, 2003 from $18.5 million forthe year ended December 31, 2002.  Themajority of the increase in our net revenues was due to an increase in casinorevenue of $3.2 million derived from our new racino which opened its doors tothe public on December 19, 2003 and an increase in racing revenues of $0.5million due primarily to an increase in video poker revenues of approximately$0.6 million at our renovated OTB in Port Allen, Louisiana where we installed100 video poker machines during 2003.

 

Casino revenues of $3.2million consisted solely of revenues from slot machines at our recently openedracino. Casino win per position was $236 for the year ended December 31, 2003.

 

Racing revenues for the yearended December 31, 2003 were $17.8 million compared to $17.3 million for theyear ended December 31, 2002. The increase in racing revenues was primarilyrelated to an increase in video poker revenues of $0.6 million resulting fromour Port Allen OTB facility renovation and the installation of 100 video pokermachines during the second quarter of 2003.

 

Net food and beveragerevenues, other revenues and promotional allowances increased $0.3 millionduring the year ended December 31, 2003 compared to the year ended December 31,2002 due primarily to food & beverage revenues generated from our newracino.

 

Casino operating expenses of$1.9 million for the year ended December 31, 2003 relate primarily to pursesupplements and gaming taxes associated with net casino revenues and casinorelated payroll.  Racing expensesincreased 5.0% to $14.6 million for the year ended December 31, 2003 from $14.0million for the year ended December 31, 2002 due primarily to an increase inoperating expenses of $0.6 million related to the addition of 100 new videogaming devices at our renovated OTB in Port Allen, Louisiana. Food and beverageexpenses increased 39.7%, or $0.4 million, to $1.5 million for the year endedDecember 31, 2003 from $1.1 million for the year ended December 31, 2002 dueprimarily to food and beverage expenses related to the opening of our newracino.

 

Selling, general andadministrative expenses increased $1.6 million to $3.3 million for the yearended December 31, 2003 from $1.7 million for the year ended December 31, 2002.This increase was due primarily to payroll, marketing and other general andadministrative expenses associated with the new racino.

 

Pre-opening expenses of $3.3million for the year ended December 31, 2003 relate to payroll and otherexpenses incurred with respect to start-up activities surrounding the racinoproject. Management fees for the years ended December 31, 2003 and 2002 of $0.5million and $0.2 million, respectively, relate to pre-opening service feespayable to OEDA and Diamond Jo, LLC (parent company of OEDA) (“DJL”) inaccordance with a management services agreement. Litigation settlement of $1.6million for the year ended December 31, 2003 relates to OED’s settlement withthe Louisiana Horsemen’s Benevolent and Protective Association 1993, Inc. (the“LHBPA”) in February 2003.

 

Depreciation andamortization expenses increased $0.6 million to $0.8 million for the year endedDecember 31, 2003 from $0.2 million for the year ended December 31, 2002 dueprimarily to depreciation of property and equipment at our racino ofapproximately $0.3 million during the period December 19, 2003 (date at whichthe racino was opened to the public) through December 31, 2003 and depreciationrelated to our new video poker machines at our Port Allen, Louisiana OTB.

 

Net interest expenseincreased $12.2 million to $13.7 million for the year ended December 31, 2003from $1.5 million for the year ended December 31, 2002. This increase is dueprimarily to interest on the OED Notes and on our senior credit facilities withWells Fargo Foothill Inc. ("Wells Fargo Foothill"), the amortizationand write-off of deferred financing costs associated with our term loan withWells Fargo Foothill, the PGP Note (as defined below) and the WET2 Note (asdefined below) (all of which were repaid in February 2003 with the proceeds ofthe offering of the OED Notes). Interest expense of approximately $2.2 million and $0.1 million wascapitalized as part of our construction of the racino during 2003 and 2002,respectively. The “PGP Note” means the note payable to PGP, issued by OEDA,bearing interest at a rate of 7% until January 31, 2003, thereafter at 8% untilFebruary 28, 2003, thereafter at 9% until March 31, 2003, and thereafter at thegreater of 12% or the fixed rate on the OED Notes, and maturing on June 30,

 

12

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2003. The “WET2 Note” means the note payableto WET2, bearing interest at a rate of 7% until March 31, 2003, and thereafterat the greater of 12% or the fixed rate on the OED Notes, and maturing on June30, 2003.

*** ***

**TwelveMonths Ended December 31, 2002 Compared to Twelve Months Ended December 31,2001**

 

Net revenues decreased 4.5%to $18.5 million for the year ended December 31, 2002 from $19.3 million forthe year ended December 31, 2001.  Thedecrease in our net revenues was due to a decrease in racing revenues of approximately$0.9 million during the same periods. This decrease in racing revenues is a result of a 6.4% decrease inamounts wagered by our customers at our OTB locations attributable to a marketdecline consistent with other Louisiana OTBs and the impact of Hurricane Lili,which forced the closing of our Lafayette betting at the horse racetracklocations and our Port Allen facility for 3 days each, and our New Iberiafacility for 5 days.

 

Racing revenues decreased5.0% to $17.3 million in 2002 from $18.2 million in 2001.  This decrease in racing revenue is relatedto a decrease in amounts wagered at our OTB’s as discussed above.

 

Food and beverage revenuesincreased 3.9% to $1.2 million in 2002 from $1.1 million in 2001. This increaseis primarily attributed to our efforts to improve the menu and quality ofservice offered to our customers.

 

Racing expenses decreased2.9% to $14.0 million in 2002 from $14.4 million in 2001. This decrease isprimarily attributed to the decrease in off-track betting revenue stated above.

 

Food and beverage expensesand general and administrative expenses remained substantially unchanged at$1.1 million and $1.7 million, respectively, in 2002 and 2001.

 

Management fees of $0.2million accrued but not paid in 2002 relate to pre-opening service fees payableto OEDA and Diamond Jo, LLC in accordance with a management services agreement

 

Depreciation andamortization expense decreased 67.0% to $0.2 million in 2002 from $0.7 millionin 2001. This decrease is due to adoption of Statement of Financial AccountingStandards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” whichprovides that goodwill and certain indefinite lived intangible assets will nolonger be amortized but will be reviewed at least annually for impairment andwritten down and charged to income when their recorded value exceeds theirestimated fair value. Amortization of such assets were $0.4 million in 2001.

 

Relocation expenses in 2001of $0.4 million reflect lobbying, legal and other costs related to ourrelocation in connection with the racino project that cannot be capitalizedunder existing authoritative guidance and are recorded as an expense in theperiod incurred.

 

Impairment charges onlong-lived assets of $4.4 million were charged to income from operations in2001 and there were no such charges in 2002. In connection with our assessmentof the events surrounding the racino project, a review was performed of thecarrying values of long-lived assets, including the recorded balance of theline item “Other intangibles.” We determined that the sale of a 50% interest ofus to OEDA, which was consummated on February 15, 2002, significantly changedthe time period over which the horse racing facility in Lafayette, Louisianawould be used. This review was performed pursuant to the provisions ofStatement of Financial Accounting Standards (“*SFAS*”)No. 121, “Accounting for the Impairment of Long-Lived Assets to Be DisposedOf.” As a result of this review, we recorded a charge of $4.4 million in 2001to record the related assets at fair value based on the present value ofestimated expected future cash flows using a discount rate commensurate withthe risks involved.

 

Earnings from an equityaffiliate of $0.1 million relates to our 25% investment in Intertrack Partners,a Louisiana general partnership operating an OTB in Rapids Parish, Louisiana (“*Intertrack*”). As of December 31, 2000, werecorded a negative equity investment balance of $0.1 million representing ourestimate of our share of the partnership liabilities. Upon the satisfaction ofall liabilities to third parties in 2001, the equity method of accounting wassuspended and no additional loss was charged to operations. Accordingly, our2001 share of losses was not recorded; instead we recorded $0.1 million ofincome to reflect the recoupment of our negative capital account recorded as anestimate of partnership liabilities in 2000.

 

13

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*Netinterest expense*increased 36.2% to $1.5 million in 2002 from $1.1 million in 2001 primarily dueto the amortization of deferred financing costs of $0.3 million associated withour loan and security agreement with Wells Fargo Foothill, Inc. entered into onAugust 30, 2002 and an increase in interest expense of $0.1 million related toan increase in outstanding debt in 2002.

** **

**Liquidityand Capital Resources**

 

*Cash Flowsfrom Operating, Investing and Financing Activities*

 

Our cash balance increased$7.5 million during the year ended December 31, 2003 to $8.5 million from $1.0million at December 31, 2002.

 

Cash flows used in operatingactivities of $5.6 million for the year ended December 31, 2003 consisted of anet loss of $18.8 million increased by non-cash charges of $2.8 million,principally depreciation and amortization and write-off and amortization ofdeferred financing costs and an increase in working capital of $10.4 million.The change in working capital is primarily due to an increase in accruedinterest of approximately $5.3 million related to the OED Notes, an increase inaccounts payable to DJL and OEDA of approximately $1.6 million and an increaseof $1.2 million related to the unpaid portion of the LHBPA litigationsettlement.  The remaining net increaseis primarily related to the changes in working capital associated with theopening of our racino in December 2003.

 

Cash flows used in investingactivities for the year ended December 31, 2003 was $93.6 million consisting of(i) an increase in restricted cash-racino project and restricted investments of$43.9 million related to the investment of unused proceeds from the OED Notesinto interest bearing cash equivalents and investments whose distribution isrestricted as outlined in the Cash Collateral and Disbursement Agreement, (ii)approximately $55.3 million for construction, architecture fees and otherdevelopment costs associated with the racino project and the purchase of landat St. Landry Parish where the racino is being developed, (iii) approximately$1.8 million in development costs related to our acquisition and racing andgaming licenses and (iv) cash outflows of approximately $0.7 million used forcapital expenditures primarily related to the renovation of our Port Allen OTBto accommodate the purchase and installation of 100 video poker machines. Thesecash outflows were offset by cash proceeds from the maturity of restrictedinvestments of $8.1 million, the proceeds of which were used to make the firstinterest payment on the OED Notes due September 1, 2003.  We expect additional capital expenditures(other than the capital expenditures related to the racino project) to beapproximately $1.5 million for the year ended December 31, 2004.

 

Cash flows from financingactivities for the year ended December 31, 2003 of $106.7 million reflects thenet proceeds from the offering of the OED Notes of $120.7 million, proceedsfrom draws under our $15.0 million senior secured credit facility with WellsFargo Foothill dated June 24, 2003, as amended September 22, 2003, December 10,2003 and December 24, 2003 (the “Credit Facility”) and our $16.0 millionFF&E credit facility with Wells Fargo Foothill dated September 22, 2003(the “FF&E Facility”) of $17.6 million. These proceeds were offset by (i)principal payments to extinguish our obligations under our term loan with WellsFargo Foothill, the PGP Note and the WET2 Note totaling $20.1 million and (ii)deferred financing costs paid of $11.5 million associated with the issuance ofthe OED Notes, the Credit Facility and the OED FF&E Credit Facility.

 

As of December 31, 2003, wehad $5.1 million and $12.5 million outstanding under the Credit Facility andthe FF&E Facility, respectively. Approximately $24.2 million of the netproceeds from the sale of the OED Notes were deposited into an interest reserveaccount in order to pay the first three payments of fixed interest on the OEDNotes. Although our earnings for the year ended December 31, 2003 are notsufficient to cover our current fixed charges (which consist of interest on theOED Notes, including capitalized interest), we do have sufficient fundsdeposited in the interest reserve account to satisfy our obligations under theOED Notes until March 1, 2005, after which, we anticipate satisfying ourinterest obligations out of earnings from operations. In September 2003, $8.1million of the initial proceeds deposited into the interest reserve account,along with interest earned on those proceeds, were used to pay the first fixedinterest payment on the OED Notes.

 

*FinancingActivities*

 

                                                In order to provide funding for the racinoproject and to repay certain then existing indebtedness, on February 25, 2003,we completed a private placement of $123.2 million 13% Senior Secured Notes due2010 with

 

14

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Contingent Interest (the “Private OEDNotes”). On September 10, 2003, we exchanged the Private OED Notes for notesregistered with the Securities and Exchange Commission otherwise identical inall respects to the Private OED Notes (the “Registered OED Notes,” and togetherwith the Private OED Notes, the “OED Notes”).

 

The construction anddevelopment of the racino project is expected to be completed in two phases.The first phase involves the construction of the casino and related casinoamenities which was substantially completed and opened to the public onDecember 19, 2003. Construction of the second phase, which involves theconstruction of the horse racetrack and related facilities, is currentlyunderway. We expect to begin scheduling live racing meets at the racino inDecember 2004, at which time we expect to cease operations at our existinghorse racetrack.

 

The total remaining capitalexpenditures expected to complete the racino project as of December 31, 2003 isapproximately $17.5 million. The source of funds to complete construction anddevelopment of the racino will be (i) a portion of the proceeds from theoffering of the OED Notes, (ii) available borrowings under our $15.0 millionsenior secured credit facility, (iii) available borrowings under our $16.0million furniture, fixtures and equipment financing facility and (iv) cashflows from existing racetrack operations and future cash flows from futureracino operations. See Note 4 for further information about the OED Notes, thesenior credit facility and the furniture, fixtures and equipment financingfacility.

 

On June 24, 2003, we enteredinto the Credit Facility. The Credit Facility was amended by the partiesthereto on September 22, 2003, December 10, 2003 and December 24, 2003 (the“Credit Facility Amendments”). Our obligations under the Credit Facility aresecured by a lien on substantially all of our and our subsidiaries’ current andfuture assets, other than the construction disbursement, interest reserve,completion reserve and excess cash flow accounts and certain other excludedassets as well as a pledge by OEDA of the capital stock of the Company.Pursuant to the intercreditor agreement described below, the lien on thecollateral securing the Credit Facility is senior to the lien on suchcollateral securing the OED Notes.

 

The Credit Facility consistsof a revolving credit facility which permits us to request advances and lettersof credit to finance working capital and other general corporate needs.Pursuant to the Credit Facility Amendments, we had the ability to borrow up to$8.5 million (less amounts outstanding under letters of credit) at any one timeoutstanding during the period before the date that the casino portion of theracino has been completed and, among other things, is open for business to thegeneral public and construction costs for the casino have been paid in full or,if such payments are not yet due on such date, that sufficient funds remain inthe construction disbursement account to satisfy such payments in full (the“Phase I Completion Date”). All requirements under the definition of the Phase ICompletion Date were met on January 9, 2004. For the period after the Phase ICompletion Date but before the second anniversary of the Phase I CompletionDate (the “Second Anniversary”), the total amount of credit that will beavailable to us will be the lesser of $15.0 million and a specified borrowingbase (the “Borrowing Base”). For the purposes of the Credit Facility, theBorrowing Base is the lesser of 30% of the amount of certain costs incurred byus in connection with the construction of the racino project and 20% of theamount of the distressed-sale valuation of our and our subsidiaries’ operationsand assets. After the Second Anniversary, the total amount of credit that willbe available to us will be the greater of (i) the lesser of $10.0 million andthe Borrowing Base or (ii) the aggregate principal amount of all advancesoutstanding as of the Second Anniversary. At December 31, 2003, we hadoutstanding borrowings of $5.1 million and outstanding letters of credit of$3.2 million under the Credit Facility.

 

All revolving loans andletters of credit issued under the Credit Facility will mature on June 24,2006. Prior to the maturity date, funds borrowed under the Credit Facility maybe borrowed, repaid and reborrowed, without premium or penalty. Our borrowingsunder the Credit Facility will bear interest at a base rate (a Wells Fargoprime rate) plus a margin of 2.50%. The interest rate payable under the CreditFacility will increase by 2% per annum during the continuance of an event ofdefault. Under the Credit Facility, we are also required to pay to the lender aletter of credit fee equal to 2% per annum on the daily balance of the undrawnamount of all outstanding letters of credit and to the institution issuing aletter of credit a fronting fee, in each case payable in arrears on a monthlybasis.

 

The Credit Facilitycontains, among other things, covenants, representations and warranties andevents of default customary for loans of this type. The most significantcovenants include a minimum “EBITDA” (as defined therein) requirement and amaximum capital expenditure requirement. At December 31, 2003, we were incompliance with all such covenants.

 

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Concurrently with theclosing of the Credit Facility, the trustee under the indenture for the OEDNotes (as secured party) entered into an intercreditor agreement with WellsFargo Foothill as the lender under such credit facility, providing, among otherthings, that the lien securing the indebtedness under the Credit Facility issenior to the lien securing the indebtedness under the OED Notes (except thatthe construction disbursement, interest reserve, completion reserve and excesscash flow accounts are security only for the OED Notes).

 

On September 22, 2003, weentered into the FF&E Facility. Under the FF&E Facility, the lenderagrees to make a series of term loans, up to a maximum amount of $16.0 million,to finance the purchase of gaming equipment and other furniture, fixtures andequipment. Our obligations under the FF&E Facility are, subject to certainlimitations, secured by a first priority lien on all of the furniture, fixturesand equipment, and all proceeds and products thereof. At December 31, 2003, wehad outstanding borrowings of $12.5 million under the FF&E Facility.

 

Loans under the FF&EFacility are repayable in 48 equal monthly installments of principal,commencing on March 1, 2004, and continuing on the first day of each monththereafter until the unpaid balance of all loans are paid in full. Theoutstanding principal balance and all accrued and unpaid interest under allloans shall also be due and payable in full on March 1, 2008. Once borrowed,all loans may be prepaid in whole or in part without penalty or premium at anytime during the term of this agreement. Amounts borrowed and repaid may not bereborrowed. Our borrowings under the FF&E Facility bear interest at a baserate (a Wells Fargo prime rate) plus a margin of 2.50%, but at no time shallthe interest rate be less than 6%. The interest rate payable under the FF&EFacility will increase by 2% per annum during the continuance of an event ofdefault.

 

The FF&E Facilitycontains, among other things, covenants, representations and warranties andevents of default customary for loans of this type. The most significantcovenants include a minimum “EBITDA” (as defined therein) requirement and amaximum capital expenditure requirement. At December 31, 2003 we were incompliance with all such covenants.

 

In October 2003, we enteredinto purchase agreement to acquire 93 acres of land, divided into sevenapproximately equal parcels, for a total purchase price of $3,850,000. Thepurchase price under this second purchase agreement was financed by the sellerwith us issuing a $3,850,000 note payable to the seller. The note is payable inseven equal annual installments of $550,000 beginning October 24, 2004 andbears interest at a rate of 4.75% of the unpaid balance due monthly in arrearson the fifth day of each month beginning on December 5, 2003. The note iscollateralized by a mortgage on the property. Simultaneously with the paymentof each $550,000 annual installment discussed above, the seller agrees torelease one of the remaining parcels from the mortgage.

 

In March 2003, we enteredinto a participation agreement with a third party operator to own and operate100 video poker machines at our OTB in Port Allen, Louisiana. In December 2003,we obtained our license to own and operate video poker machines. In accordancewith the participation agreement, we assumed the remaining balance of anoriginal $663,700 promissory note payable in exchange for ownership of the 100video poker machines. The note bears interest at 9.5% and is payable in monthlyinstallments of principal and interest of $31,250 with the last payment dueJuly 1, 2005. The note is collateralized by a security interest in themachines.

 

*General*

 

On March 11, 2004, we, alongwith DJL, announced that we intend to refinance DJL’s 12 1/4% Senior SecuredNotes due 2006 (the “Peninsula Notes”) and the OED Notes with a proposedoffering of $230 million (which subsequently has been increased to $233million) of senior secured notes due 2012 (the “Notes”) and a new creditfacility.  As part of the Note offering,we are also seeking requisite regulatory approvals to effect a series ofcorporate transactions (the “Corporate Transactions”), including the creationof a new holding company to be our and DJC's new direct parent and a co-issuerof the Notes.  In the event regulatoryapproval of the Corporate Transactions is not obtained, we will stillconsummate the Note offering and use the proceeds of the offering to repurchaseand redeem the OED Notes and Peninsula Notes, respectively, and pay accrueddividends on DJL’s preferred membership interests.  In such event, however, we will not at such time effect theCorporate Transactions or enter into the new credit facility.

 

After the offering of theNotes, we will have the following sources of funds for our business: (i) cashflows from our existing racetrack operations and casino operations, and (ii)available borrowings under the Credity Facility or the new senior creditfacility, if entered into in connection with the refinancing of our existingsenior secured credit facilities.

 

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As part of the CorporateTransactions, we and DJL intend to enter into a new senior secured creditfacility in the amount of $35.0 million. We expect our obligations under the new senior secured credit facilitywill be (a) guaranteed by each of our and DJL's domestic subsidiaries, and (b)secured by a security interest in all of and our DJL's tangible and intangibleassets and those of our parent’s domestic subsidiaries (including, withoutlimitation, all of the shares of the capital stock of these subsidiaries) butexcluding contracts, agreements, licenses (including gaming, and liquorlicenses) and other rights that by their express terms prohibit the assignmentthereof or the grant of a security interest therein.

 

All of the net proceeds fromthe offering of the Notes and, if our new senior secured credit facility hasbeen entered into, $15.0 million of borrowings under such new senior securedcredit facility will be used, together with cash on hand, to consummate the abovetransactions and pay related fees and expenses.  We believe that cash generated from our and DJL's operations,together with remaining amounts available under existing credit facilities orthe new senior secured credit facility, as applicable, will be sufficient tosatisfy our working capital and capital expenditure requirements and satisfyour current debt service requirements, including interest payments on theNotes.  No assurances can be given,however, that our cash or equivalents on-hand or our ability to generate orborrow cash will be sufficient to meet our obligations. In such event, we mayhave to refinance our debt including the Notes, or sell some or all of ourassets (within the restrictions contained in the indenture governing ouroutstanding notes) to meet our obligations.

 

**ContractualObligations and Contingent Liabilities and Commitments**

 

Our future contractualobligations related to long-term debt, capital leases and operating leases atDecember 31, 2003 were as follows (in millions of dollars):

 
|                               |   | **Payments  due by Period** |   |
|------------------------------------|--------|-----------------------------|--------|
| **Contractual Obligations**        |   | **Total**                   |   | **Less Than  1 Year** |   | **1-3 Years** |   | **4-5 Years** |   | **Thereafter** |   |
| Long-Term Debt                     |   | $                           | 145.2  |   | $ | 3.5 |   | $ | 12.7 |   | $ | 4.7 |   | $ | 124.3 |   |
| Operating Leases                   |   | 1.2                         |   | 0.6 |   | 0.6 |   | — |   | — |   |
| Litigation Settlement              |   | 1.2                         |   | 0.4 |   | 0.8 |   | — |   | — |   |
| Total Contractual Cash Obligations |   | $                           | 147.6  |   | $ | 4.5 |   | $ | 14.1 |   | $ | 4.7 |   | $ | 124.3 |   |

 

The following shows ourother contingent obligations at December 31, 2003 based on expiration dates (inmillions):

 

|                      |   | **Less Than  1 Year** |   | **1-3 Years** |   | **4-5 Years** |   | **Thereafter** |   |
|---------------------------|--------|-----------------------|--------|---------------|--------|---------------|--------|----------------|--------|
| Standby letters of credit |   | —                |   | $             | 3.2    |          | — |           | — |   |
|                           |        |                       |        |               |        |               |        |                |        |  |

 

**Off-BalanceSheet Transactions**

 

We do not maintain anyoff-balance sheet transactions, arrangements, obligations or otherrelationships with unconsolidated entities or others that are reasonable likelyto have a material current or future effect on our financial condition, changesin financial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources.

 

**Seasonalityand Inflation**

 

Our operations are subjectto seasonal fluctuations. Our operations are usually stronger during liveracing season which runs from April through October. In general, our payrolland general and administrative expenses are affected by inflation. Althoughinflation has not had a material effect on our business to date, we couldexperience more significant effects of inflation in future periods.

 

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**RecentAccounting Pronouncements**

 

In October 2001, the FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets”. SFAS No. 144 addresses financial accounting and reporting for theimpairment or disposal of long-lived assets. This statement supersedes SFAS No.121, “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to Be Disposed Of,” and the accounting and reporting provisions of APBOpinion No. 30, “Reporting the Results of Operations-Reporting the Effects ofDisposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions.” This new pronouncement alsoamends ARB No. 51 “Consolidated Financials Statements,” to eliminate theexception to consolidation for a subsidiary for which control is likely to betemporary. SFAS No. 144 requires that one accounting model be used forlong-lived assets to be disposed of by sale, whether previously held and usedor newly acquired and also broadens the presentation of discontinued operationsto include more disposal transactions. SFAS No. 144 is effective for fiscalyears beginning after December 15, 2001 and interim periods within those fiscalyears. Adoption of SFAS No. 144 on January 1, 2002, did not have any impact onour financial position or results of operations for the years ended December31, 2003 and 2002.

 

In July 2002, the FASBissued SFAS No. 146, “Accounting for Costs Associated with Exit or DisposalActivities”. This statement addresses financial accounting and reporting forcosts associated with exit or disposal activities and nullifies the previousguidance on the subject. This statement requires, among other things, that aliability for a cost associated with an exit or disposal activity be recognizedwhen the liability is incurred. The provisions for this statement are effectivefor exit or disposal activities that are initiated after December 31, 2002. Theadoption of SFAS No. 146 did not have a material effect on our results ofoperations or financial position for the year ended December 31, 2003.

 

In November 2002, the FinancialAccounting Standards Board (FASB) issued Interpretation No. 45, Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others (FIN 45). FIN 45 expands the disclosurerequirements related to certain guarantees, including product warranties, andrequires us to recognize a liability for the fair value of all guaranteesissued or modified after December 31, 2002. FIN 45 did not impact our financialposition or net income.

 

In May 2003, the FASB issuedStatement No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.” This statement establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity. It requiresthe issuer to classify a financial instrument that is within the scope of thestandard as a liability if such financial instrument embodies an obligation ofthe issuer. The adoption of SFAS No. 150 did not impact our financial positionor net loss available to common members’ interest.

 

In 2003, the FASB issuedInterpretation (FIN) No. 46, Consolidation of Variable Interest Entities, whichaddresses the consolidation and related disclosures of these entities bybusiness enterprises. These are entities in which either the equity investmentat risk is not sufficient to absorb the probable loss without additionalsubordinated financial support from other parties, or the investors with equityat risk lack certain essential characteristics of a controlling interest. Underthe Interpretation, we must consolidate any variable interest entities (VIEs)in which we hold variable interests and we are deemed the primary beneficiary.The effective date for the adoption of FIN 46 for interests in VIEs createdprior to February 1, 2003 was July 1, 2003 and applies immediately to variableinterest entities created after January 31, 2003, and to variable interestentities in which we obtain an interest after that date. The adoption of FIN 46did not impact our financial position or net loss available to common members’interest.

 

**CriticalAccounting Policies**

 

The preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amount of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting periods.Actual results could differ from those estimates. We periodically evaluate ourpolicies and the estimates and assumptions related to such policies. We alsoperiodically evaluate the carrying value of our assets in accordance withgenerally accepted accounting principles. We and our subsidiaries operate in ahighly regulated industry and are subject to regulations that describe andregulate operating and internal control procedures. The majority of ourrevenues are in the form of cash, which by its nature,

 

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does not require complex estimations. Inaddition, we made certain estimates surrounding our application of purchaseaccounting related to the acquisition and the related assignment of costs togoodwill and other intangible assets.

 

In addition, contingenciesare accounted for in accordance with SFAS No. 5, “Accounting forContingencies.” SFAS No. 5 requires that we record an estimated loss from aloss contingency when information available prior to issuance of our financialstatements indicates that it is probable that a liability has been incurred atthe date of the financial statements and the amount of the loss can bereasonably estimated. Accounting for contingencies such as legal mattersrequires us to use judgment. Many of these legal contingencies can take yearsto be resolved. Generally, as the time period increases over which theuncertainties are resolved, the likelihood of changes to the estimate of theultimate outcome increases. However, an adverse outcome could have a materialimpact on our financial condition and operating results.

 

**ITEM 7A.****                                           ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

We are exposed to certainmarket risks which are inherent in our financial instruments which arise fromtransactions entered into in the normal course of business. Market risk is therisk of loss from adverse changes in market prices and interest rates. We donot currently utilize derivative financial instruments to hedge market risk. Wealso do not hold or issue derivative financial instruments for tradingpurposes.

 

We are exposed to interestrate risk due to changes in interest rates with respect to our long-termvariable interest rate debt borrowing under our credit facilities. As ofDecember 31, 2003, we had $17.6 million in borrowings under loan and securityagreements with Wells Fargo Foothill that have variable interest rates. We haveestimated our market risk exposure using sensitivity analysis. We have definedour market risk exposure as the potential loss in future earnings and cash flowwith respect to interest rate exposure of our market risk sensitive instrumentsassuming a hypothetical increase in market rates of interest of one percentagepoint. Assuming we borrow the maximum amount allowed under the current loan andsecurity agreements with Wells Fargo Foothill (currently an aggregate amount of$31.0 million), if market rates of interest on our variable rate debt increasedby one percentage point, the estimated consolidated market risk exposure underthe credit facilities would be approximately $0.3 million.

 

We are also exposed to fairvalue risk due to changes in interest rates with respect to our long-term fixedinterest rate debt borrowing. Our fixed rate debt instruments are not generallyaffected by a change in the market rates of interest, and therefore, suchinstruments generally do not have an impact on future earnings. However, futureearnings and cash flows may be impacted by changes in interest rates related toindebtedness incurred to fund repayments as such fixed rate debt matures. Thefollowing table contains information relating to our fixed rate debt borrowings(dollars in millions):

 
| **Description**                                    |   | **Maturity**    |   | **Fixed  Interest  Rate** |   | **Cost** |   | **Fair Value** |   |
|----------------------------------------------------|--------|-----------------|--------|---------------------------|--------|----------|--------|----------------|--------|
| 13% Senior Secured Notes with Contingent  Interest |   | March 1, 2010   |   | 13                        | %      | $        | 123.2  |           | $      | 138.0 | * |
| Note Payable                                       |   | October 1, 2010 |   | 4 3/4                     | %      | $        | 3.9    |           | $      | 3.9 |   |
| Note Payable                                       |   | July 1, 2005    |   | 9 1/2                     | %      | $        | 0.5    |           | $      | 0.5 |   |

 

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*                 Represents fair value as of March 9, 2004based on information provided by an independent investment banking firm.

 

**ITEM 8****.****    ****FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

Audited financial statementsand the notes thereto are combined in pages F-1 through F-21.

 

**ITEM 9****.****                                                    ****CHANGES IN AND DISAGREEMENTSWITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

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**ITEM 9A****.****                                           ****CONTROLS AND PROCEDURES**

 

(a)                                  *Evaluation of disclosurecontrols and procedures.******* **The Company’sChief Executive Officer and Chief Financial Officer, after evaluating theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as ofa date within ninety days of the filing date of this Form 10-K, have concludedthat as of such date the Company’s disclosure controls and procedures wereadequate and effective and designed to ensure that material informationrelating to the Company and its subsidiaries would be made known to suchofficers on a timely basis.

 

*Changes ininternal controls*.  There have been no significant changes(including corrective actions with regard to significant deficiencies ormaterial weaknesses) in our internal controls or other factors that couldsignificantly affect these controls subsequent to the date of the evaluationreferenced in paragraph (a) above.

 

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**PART III**

 

**ITEM 10****.****                                             ****DIRECTORS AND EXECUTIVEOFFICERS OF REGISTRANT**

** **

**ExecutiveOfficers and Managers**

 

The following informationsummarizes the business experience during at least the past five years of eachof our officers and the board of managers of Peninsula Gaming Partners, LLC, aDelaware limited liability company (“PGP”). The PGP board of managers indirectlymanages our operations as a result of the corporate structure and ownership ofthe membership interests of PGP and its subsidiaries. We are managed by OEDA,our sole member. OEDA is managed by DJL, which is OEDA’s sole member, and DJLin turn is managed by its sole voting member, PGP.

 
| **Name**            |   | **Age** |   | **Position**                                                                         |
|---------------------|--------|---------|--------|--------------------------------------------------------------------------------------|
| M. Brent Stevens    |   | 43      |   | Chief Executive Officer of  the Company and Chairman of the Board of Managers of PGP |
| Michael  S. Luzich  |   | 49      |   | President and Secretary of  the Company and Manager of PGP                           |
| George T. Papanier  |   | 46      |   | Chief Operating Officer of  the Company                                              |
| Natalie  A. Schramm |   | 33      |   | Chief Financial Officer of  the Company                                              |
| Terrance W. Oliver  |   | 54      |   | Manager of PGP                                                                       |
| Andrew Whittaker    |   | 42      |   | Manager of PGP                                                                       |

 

**ManagementProfiles**

 

Following is a briefdescription of the business experience of each of the executive officers of theCompany and of the managers of PGP listed in the preceding table. Presently,PGP’s board of managers is comprised of five managers; however, the fifthmanager has not been appointed.

 

***M. Brent Stevens.***  Mr. Stevens is our ChiefExecutive Officer and is the Chairman of the Board of Managers of PGP. Since1990, Mr. Stevens has been employed by Jefferies & Company, Inc., andpresently is an Executive Vice President in the Investment Banking department.

 

***Michael S. Luzich.***  Mr.Luzich is our President and Secretary and a manager of PGP. Mr. Luzich is thefounder and President of the Cambridge Investment Group, LLC, an investment anddevelopment company located in Las Vegas, Nevada. Prior to October 1995, Mr.Luzich was a founding partner and director of Fitzgeralds New York, Inc. andFitzgeralds Arizona Management, Inc., which are development companiesresponsible for the Turning Stone Casino near Syracuse, New York for the OneidaTribe and the Cliff Castle Casino near Sedona, Arizona for the Yavapai-ApachiTribe, respectively.

 

***George T. Papanier.***  Mr. Papanier is our ChiefOperating Officer. Prior to joining the Company, Mr. Papanier was employed byResorts Casino Hotel in Atlantic City, New Jersey as Executive Vice Presidentand Chief Operating Officer from May 1997 to March 2000. Prior to that, Mr.Papanier served as Senior Vice President and Chief Financial Officer for SunInternational since March 1997 and Senior Vice President of Finance and Chief FinancialOfficer of Mohegan Sun Casino since October 1995. Mr. Papanier has been in thecasino industry for 20 years working for various casinos including Sands Hoteland Casino, Golden Nugget Casino Hotel, Bally’s Grand, Trump Plaza Hotel andCasino and Hemmeter Enterprises.

 

***Natalie A. Schramm.***  Ms.Schramm is our Chief Financial Officer. Ms. Schramm was formerly employed byAerie Hotels and Resorts in Oak Brook, Illinois as Corporate Accounting Managersince 1992. She was responsible for the corporate accounting functions of theSilver Eagle, the Eagle Ridge Inn and Resorts, located in Galena, Illinois andthe Essex Hotel, located in Chicago, Illinois. She served as Internal AuditManager for the Silver Eagle and was a member of a development team that successfullypursued a riverboat gaming license in Indiana.

 

***Terrance W. Oliver.***  Mr. Oliver is a manager ofPGP. Since 1993, Mr. Oliver has served as a director of and consultant toMikohn Gaming Corporation, a gaming equipment manufacturer headquartered in LasVegas. From

 

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1988 until 1993, Mr. Oliver served asChairman of the Board to the predecessor company of Mikohn. From 1984 until1996, Mr. Oliver was a founding shareholder, board member and executive officerof Fitzgeralds Gaming Corporation. Mr. Oliver retired as the Chief OperatingOfficer of Fitzgeralds Gaming Corporation in 1996.

 

***Andrew Whittaker.***  Mr. Whittaker is a manager ofPGP. Since 1990 Mr. Whittaker has been employed by Jefferies & Company,Inc. where he is presently a Vice Chairman.

 

**AuditCommittee**

 

Messers Oliver and Whittakerserve on the Company’s audit committee. The board of directors has carefully considered the definition of “auditcommittee financial expert” adopted by the Securities and Exchange Commissionand has determined that each of Messrs. Oliver and Whittaker is an auditcommittee financial expert.  The boardof directors has determined that Mr. Oliver is independent under Sections 303.01(B)(2)(a)and (3) of the NYSE’s listing standards.

 

**Code ofEthics**

 

We have adopted a code ofethics that applies to our chief executive officer, chief financial officer,controller or persons performing a similar function.  The code of ethics has been filed as an exhibit to this AnnualReport on Form 10-K. A copy of our code of ethics may be obtained, free ofcharge, upon written request to our principal place of business.

 

**ITEM 11****.****                                             ****EXECUTIVE COMPENSATION**

 

None of our executiveofficers were directly compensated by us or any of our subsidiaries in thefiscal years ended 2003, 2002 and 2001. However, our executive officersreceived compensation from our parent, DJL, and/or PGP, the parent of DJL inthe fiscal years ended 2003, 2002 and 2001. For a description of thiscompensation, see the section entitled “Certain Relationships and Related PartyTransactions”.

 

**Compensationof Managers**

 

All managers serving on theboard of managers of PGP are reimbursed for their travel and out-of-pocketexpenses related to their attendance at board of managers meetings and receiveannual payments of $25,000 (other than Mr. Stevens who receives $175,000annually per gaming property).

 

**CompensationCommittee Interlocks and Insider Participation**

 

We have no standingcompensation committees. All compensation decisions are made by the executivecommittee of the board of managers of PGP.

 

**ITEM 12****.****                                             ****SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

All of our membershipinterests are owned by our parent, OEDA, which is in turn wholly-owned by DJL.PGP is the sole managing member of DJL and owns 100% of the voting membershipinterests of DJL. We are the sole shareholder of OED Corp.

 

Unless otherwise indicated,the address of each manager or executive officer of PGP is c/o Diamond Jo, LLC,3rd Street Ice Harbor, P.O. Box 1750, Dubuque, IA 52004-1750.

 

The table below sets forthinformation regarding the beneficial ownership of the voting common membershipinterests of PGP by:

 

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(a)                                  each person or entity known by us to ownbeneficially 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 asa group.

 

The following information ishelpful to an understanding of, and qualifies the beneficial ownership datacontained in, the table set forth below. Mr. Stevens holds 248,334 PGP commonmembership interests directly and 413,333 PGP common membership interestsindirectly through PGP Investors, LLC. Mr. Stevens is the sole managing memberof PGP Investors, LLC and exercises voting and investment power over the PGPcommon membership interests owned by PGP Investors, LLC. Mr. Stevens and Mr.Whittaker, managers of PGP, are an Executive Vice President and a ViceChairman, respectively, of the Initial Purchaser. In addition, the InitialPurchaser and some of its affiliates, officers and employees are members of PGPInvestors, LLC. Mr. Whittaker holds an economic interest in approximately41,667 PGP common membership interests indirectly through his membership in PGPInvestors, LLC, but does not exercise voting or investment power with respectto these PGP common membership interests. Mr. Oliver holds his interest throughThe Oliver Family Trust. The total holdings of all managers and executiveofficers as a group includes the 413,333 PGP common membership interests heldby PGP Investors, LLC, over which Mr. Stevens exercises voting and investmentpower.

 
| **Name and Address of Beneficial Owner**                                                            |   | **Voting  Common  Membership Interests  Beneficially Owned** |   | **Percent of  Class** |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|-----------------------|--------|
| M. Brent  Stevens  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004   |   | 661,667                                                      |   | 66.17                 | %      |
|                                                                                                |   |                                                         |   |                  |   |
| 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                 | %      |
|                                                                                                |   |                                                         |   |                  |   |
| 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                  | %      |
|                                                                                                |   |                                                         |   |                  |   |
| All managers and executive officers as a  group (6 persons)                                         |   | 1,000,000                                                    |   | 100.00                | %      |

 

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(1)                                  These interests are attributable to Mr.Stevens and are included in the calculation of his beneficial ownership andpercentage of ownership data.

 

**ITEM 13****.****                                             ****CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS**

 

Andrew R. Whittaker, a ViceChairman of Jefferies & Company, Inc., is also a manager of PGP. M. BrentStevens, our Chief Executive Officer and an Executive Vice President ofJefferies & Company, Inc., is also a manager and Chief Executive Officer ofPGP and the Chief Executive Officer of OED. Due to these relationships, thoseindividuals may indirectly receive money from us for management fees and otheramounts paid by us to DJL.

 

Mr. Stevens is also entitledto receive certain payments from DJL and/or PGP in connection with certainservices provided to DJL and PGP. Mr. Stevens received $175,000 per propertyfor his services as a manager for the board of managers of PGP, in addition toreimbursement for certain out-of-pocket expenses related to attendance at boardof managers’ meetings. Mr. Stevens also is the sole managing member of PGPAdvisors, LLC. Under the terms of PGP’s operating agreement, PGP Advisors, LLCmay render financial advisory and consulting services to PGP, although it doesnot currently, and will be entitled to receive commercially reasonable feesfrom PGP for these services consistent with industry practices.

 

We are party to a managementservices agreement with OEDA and DJL (together, the “Operators”) under whichthe Operators will assist us in developing and managing our racino. The termsof the agreement are described below under the section entitled “ManagementServices Agreement.”

** **

**Employmentand Consulting Agreements**

* *

*Michael S.Luzich—President and Secretary*

 

In January 2003, CambridgeCapital Advisors, LLC, which is 99% owned directly by Mr. Luzich, our Presidentand Secretary, entered into an amended consulting agreement with PGP and theCompany. Under the terms of this amended consulting agreement, Mr. Luzich isentitled 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 during the preceding calendaryear, plus (b) 2.5% of OED’s earnings before interest, taxes, depreciation,amortization and other non-recurring charges during the preceding calendar yearcommencing on the first day of the month succeeding the month in which theCompany commences gaming operations. Mr. Luzich is also entitled to additionalcommercially reasonable compensation consistent with the level of compensationpayable under his agreement for consulting services rendered in respect of eachriverboat or land-based casino or gaming operation acquired, directly orindirectly, by PGP in the future. The consulting agreement has a one-year termand, subject to the occurrence of various termination events, is renewableautomatically for successive one-year terms. Under this agreement, Mr. Luzichis also entitled to reimbursement of reasonable business expenses as approvedby the board of managers of PGP. For the years ended 2003, 2002 and 2001, Mr.Luzich received $289,153, $336,829 and $327,128, respectively, under hisconsulting agreement.

* *

*George T.Papanier—Chief Operating Officer*

 

In July 2000, Mr. Papaniercommenced employment with DJL. Under the terms of his employment, Mr. Papanieris entitled to receive a base annual salary in an amount determined by theBoard of Managers of PGP each year. Mr. Papanier’s base annual salary for the2003 fiscal year was $375,000. Until the Board of Managers determines Mr.Papanier’s annual base salary for the 2004 fiscal year, he will receive a prorata portion of his annual base salary for the 2003 fiscal year. Mr. Papanierreceived a salary from DJL of $375,000, $350,046 and $299,489 in the fiscal yearsended 2003, 2002 and 2001, respectively. In addition to his base salary, Mr. Papanier is entitled to receive anannual cash bonus based on specified performance criteria with respect to theprior fiscal year and determined by the Board of Managers of PGP. Mr. Papanierreceived a bonus of $630,000 and $190,000 in 2003 and 2002, respectively. Mr.Papanier was paid a bonus of $200,000 in February of 2004 in respect ofperformance in the 2003 fiscal year. Mr. Papanier received other annualcompensation (including club membership fees and automobile allowances) of$9,350, $12,465 and $13,150 in the fiscal years ended 2003, 2002 and 2001,respectively. Additionally, Mr. Papanier received compensation of $6,000,$5,500 and $5,250 in the fiscal years ended 2003,

 

24

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2002 and 2001, respectively, in each caserepresenting matching contributions made by DJL to DJL’s 401(k) plan.  Mr. Papanier is not party to a writtenemployment agreement with us.

 

*Natalie A.Schramm—Chief Financial Officer*

 

In April 2000, Ms. Schrammentered into an employment agreement with DJL. Under the terms of thisemployment agreement, Ms. Schramm is entitled to receive from DJL a base annualsalary that is reviewed on an annual basis and adjusted upward annually by notless than five percent (5%) of the prior year’s compensation. Ms. Schrammreceived a salary from DJL of $149,531, $136,955, $129,567 in the fiscal yearsended 2003, 2002 and 2001, respectively. In addition to the base salary, Ms.Schramm is entitled to receive an annual cash bonus payable by DJL based on herperformance during the previous employment year, which is consistent with DJL’sbonus plan for department directors. Ms. Schramm received a bonus of $42,500,$40,000 and $19,328 in the fiscal years ended 2003, 2002 and 2001,respectively. Ms. Schramm was paid a bonus of $80,000 in February of 2004 forher performance in the 2003 fiscal year. Ms. Schramm received other annualcompensation of $3,360, $3,408 and $4,200 in the fiscal years ended 2003, 2002and 2001, respectively, in each case representing club membership fees.Additionally, Ms. Schramm received compensation of $6,000, $5,500 and $5,082 inthe fiscal years ended 2003, 2002 and 2001, respectively, in each case representingmatching contributions made by DJL to DJL’s 401(k) plan.  The employment agreement has an initial termof three years and, subject to the occurrence of various termination events, isrenewable automatically for successive one-year terms.

 

**Indemnification**

 

Under our operatingagreement, we have agreed, subject to few exceptions, to indemnify and holdharmless our members, officers, employees, trustees and agents, as the case maybe, from liabilities incurred as a result of their positions within the Company.

 

**OperatingAgreement of PGP**

 

Under PGP’s operatingagreement, the management of PGP is vested in an executive committee consistingof Messrs. Michael Luzich and M. Brent Stevens. The executive committee of PGPmanages our operations. The executive committee meets weekly or as otherwiseagreed upon between Messrs. Luzich and Stevens.

 

In accordance with PGP’soperating agreement, the board of managers of PGP is composed of fiveindividuals, two of whom must be independent managers. At any time that M.Brent Stevens, together with any entity controlled by Mr. Stevens, beneficiallyholds at least 5% of the voting common membership interests of PGP, Mr. Stevensis entitled to designate three of PGP’s managers, including one of the twoindependent managers. The two independent managers are required to serve asmembers of the independent committee. Under PGP’s operating agreement, PGPAdvisors, LLC, a Delaware limited liability company, of which Mr. Stevens isthe sole managing member, may render financial advisory and consulting servicesto PGP and is entitled to receive commercially reasonable fees for the servicesconsistent with industry practices. To date, PGP has not entered into any sucharrangements with Mr. Stevens. At any time that Michael Luzich, together withany entity controlled by Mr. Luzich, beneficially holds at least 5% of thevoting common membership interests of PGP, Mr. Luzich is entitled to designatetwo of PGP’s managers, including the other independent manager. Inconsideration for their execution of personal guarantees to provide creditsupport for OED’s credit facilities, each of Messrs. Luzich and Stevens weregranted profits interests of 1.5% of PGP’s fully diluted membership interestsby PGP’s board of managers. Messrs. Stevens and Luzich are entitled to receivedistributions on liquidation in respect of such profits interests only to theextent of any appreciation in the fair market value of PGP interests since thedate of grant of such profits interests.

 

Presently, PGP’s board ofmanagers is composed of four managers. If not appointed earlier, a fifthmanager will be appointed by Mr. Stevens at a future meeting of managers. Amanager may resign at any time, and the member who designates a manager mayremove or replace that manager from the board of managers at any time.

 

On May 21, 2003, PGP’soperating agreement was amended to create an executive committee consisting ofMessrs. Luzich and Stevens. Under the amendment, the executive committeemanages our business and affairs. The executive committee meets weekly or asotherwise agreed upon between Messrs. Luzich and Stevens. Other than withrespect to any officers whose responsibilities include any project or realestate development, all executive

 

25

----

 

officers of PGP and OED shall report to theChief Executive Officer of PGP. The executive committee shall, subject to theapproval of the board of managers of PGP, unanimously approve the engagement ofall of our executive officers (whose compensation exceeds $100,000 annually),attorneys and accountants. In the event that the executive committee is unableto reach a unanimous determination as to any such engagement within areasonable period of time, the executive committee shall submit the prospectiveengagement to the independent managers of PGP’s board, whose determinationshall be final.

 

**ManagementServices Agreement**

 

DJL and OEDA (together, the“Operators”) manage and operate OED’s racino near Lafayette, Louisiana andOED’s OTBs in New Iberia and Port Allen, Louisiana pursuant to a managementservices agreement. Although the Operators may obtain services from affiliatesto the extent necessary to perform their obligations, the Operators are fullyresponsible for all obligations under the agreement. Fees under the managementservices agreement are shared between DJL and OEDA, with DJL receiving 75% andOEDA receiving 25% of such fees.

 

Pursuant to the terms of themanagement services agreement, the Operators are entitled to receive pre-openingservice fees equal to $40,000 per month, commencing June 27, 2001. Payments inrespect of these pre-opening service fees have been accrued but not yet beenpaid. The Operators are also entitled to be reimbursed for all reasonable anddocumented out-of-pocket expenses permitted to be incurred under the managementservices agreement, including, but not limited to, tax preparation, accounting,legal and administrative fees and expenses. The Operators are also entitled toreceive 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 (asdefined below);

 

•                                          4.0% of the amount in excess of $25.0 millionbut less than $30.0 million of EBITDA; and

 

•                                          5.0% of the amount in excess of $30.0 millionof EBITDA.

 

Under the managementservices agreement, “EBITDA” is defined as earnings before interest, incometaxes, depreciation and amortization. In calculating earnings, the basicmanagement fee, the incentive fee and reimbursables payable under themanagement services agreement are excluded.

** **

**ITEM 14****.****                                             ****PRINCIPAL ACCOUNTANT FEESAND SERVICES**

** **
|               |   | **2003** |    | **2002** |   |
|--------------------|--------|----------|---------|----------|--------|
| Audit fees         |   | $        | 321,755 |     | $      | 157,720 |   |
| Audit-related fees |   | 8,200    |    | —   |   |
| Tax fees           |   | 39,138   |    | —   |   |
| All other fees (1) |   | 55,634   |    | —   |   |
|                    |        |          |         |          |        |  |  |

----

(1) All other fees consistof fees for professional services related to network security testing.

 

In accordance with ourinternal policies, all fees related to services rendered by our independentaccountants are required to be approved by our audit committee.  In addition, all of the services describedabove in this Item 14 for the year ended December 31, 2003 have been approvedby our audit committee.

 

26

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**PART IV**

 

**ITEM 15****.****                                             ****EXHIBITS, FINANCIALSTATEMENT SCHEDULES, AND REPORTS ON FORM 8-K**

 

(a)                                  The following documents are filed as a partof this report:

 

(1)                                  Financial Statements - see Index to FinancialStatements appearing on page F-1.

 

(2)                                  Exhibits:

 
| 1.1*   |   | Purchase Agreement, dated  February 19, 2003, between The Old Evangeline Downs, L.L.C. and Jefferies  & Company, Inc.                                                                                                                          |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                               |
| 2.1*   |   | Purchase Agreement, dated  June 27, 2001, by and among Peninsula Gaming Partners, LLC., a Delaware  limited liability company, The Old Evangeline Downs, LC, a Louisiana limited  company and BIM3 Investments, a Louisiana partnership.           |
|   |   |                                                                                                                                                                                                                                               |
| 2.2*   |   | First Amendment to  Purchase Agreement, dated January 1, 2002, by and among BIM3 Investments, a  Louisiana partnership, The Old Evangeline Downs, LC, a Louisiana limited  company and OED Acquisition, LLC, a Delaware limited liability company. |
|   |   |                                                                                                                                                                                                                                               |
| 3.1*   |   | Amended and Restated  Articles of Organization of The Old Evangeline Downs, L.L.C., dated as of  February 19, 2003.                                                                                                                                |
|   |   |                                                                                                                                                                                                                                               |
| 3.2*   |   | Amended and Restated  Operating Agreement of The Old Evangeline Downs, L.L.C., dated as of January  30, 2003, between The Old Evangeline Downs, L.L.C. and OED Acquisition, LLC.                                                                   |
|   |   |                                                                                                                                                                                                                                               |
| 3.3*   |   | First Amendment to Amended  and Restated Operating Agreement of The Old Evangeline Downs, L.L.C., dated  as of May 21, 2003                                                                                                                        |
|   |   |                                                                                                                                                                                                                                               |
| 3.4*   |   | Certificate of  Incorporation of The Old Evangeline Downs Capital Corp.                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                               |
| 3.5*   |   | By-laws of The Old  Evangeline Downs Capital Corp.                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                               |
| 4.1*   |   | Indenture, dated February  25, 2003, by and among The Old Evangeline Downs, L.L.C., The Old Evangeline  Downs Capital Corporation and U.S. Bank National Association.                                                                              |
|   |   |                                                                                                                                                                                                                                               |
| 4.2*   |   | Registration Rights  Agreement, dated February 25, 2003, by and among The Old Evangeline Downs,  L.L.C., The Old Evangeline Downs Capital Corporation and Jefferies &  Company, Inc.                                                           |
|   |   |                                                                                                                                                                                                                                               |
| 4.3*   |   | Form of 13% Senior Secured  Note due 2010                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                               |
| 5.1*   |   | Opinion of Mayer, Brown,  Rowe & Maw LLP                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                               |
| 8.1*   |   | Tax Opinion of Mayer,  Brown, Rowe & Maw LLP                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                               |
| 10.1*  |   | 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 Diamond Jo, LLC  (formerly known as Peninsula Gaming Company, LLC).                   |
|   |   |                                                                                                                                                                                                                                               |
| 10.2*  |   | Standard Form of Agreement  between Owner and Contractor, dated February 25, 2003, by and between The Old  Evangeline Downs, L.L.C. and W.G. Yates & Sons Construction Company.                                                                |
|   |   |                                                                                                                                                                                                                                               |
| 10.3*  |   | Standard Form of Agreement  between Owner and Architect and Standard Form of Architect’s                                                                                                                                                      |

 

27

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|       |   | Services, dated January  31, 2003, by and between The Old Evangeline Downs, L.L.C. and KGA  Architecture.                                                                                                                                                                             |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.4**     |   | Cash Collateral and  Disbursement Agreement, dated as of February 25, 2003, by and among The Old  Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corporation, U.S.  Bank National Association and Abacus Project Management, Inc.                                         |
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.5**     |   | Loan and Security  Agreement, dated as of June 24, 2003, by and among The Old Evangeline Downs,  L.L.C., The Old Evangeline Downs Capital Corp. and Wells Fargo Foothill, Inc.                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.6**     |   | Stock Pledge Agreement,  dated as of June 24, 2003, by and among The Old Evangeline Downs, L.L.C., OED  Acquisition, LLC and Wells Fargo Foothill, Inc.                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.7**     |   | Intercreditor Agreement,  dated as of June 24, 2003, by and among U.S. Bank National Association and  Wells Fargo Foothill, Inc.                                                                                                                                                      |
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.8**     |   | Intercompany Subordination  Agreement, dated as of June 24, 2003, by and among The Old Evangeline Downs,  L.L.C., The Old Evangeline Downs Capital Corp., OED Acquisition, LLC and  Wells Fargo Foothill, Inc.                                                                        |
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.9**     |   | Management Fees  Subordination Agreement, dated as of June 24, 2003, by and among The Old  Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corp., OED  Acquisition, LLC, Diamond Jo, LLC (formerly known as Peninsula Gaming  Company, LLC) and Wells Fargo Foothill, Inc. |
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.10**    |   | Collateral Access  Agreement, dated as of June 24, 2003, by and among Beau Se Jour Company,  L.L.C., The Old Evangeline Downs, L.C. and Foothill Capital Corporation.                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.11**    |   | Bank One Deposit Account  Control Agreement, dated as of June 24, 2003, by and among The Old Evangeline  Downs, L.L.C., Wells Fargo Foothill, Inc., U.S. Bank National Association and  Bank One, NA.                                                                                 |
|       |   |                                                                                                                                                                                                                                                                                  |
| 10.12**    |   | American Trust Deposit  Account Control Agreement, dated as of June 24, 2003, by and among The Old  Evangeline Downs, L.L.C., Wells Fargo Foothill, Inc., U.S. Bank National  Association and American Trust and Savings Bank.                                                        |
|       |   |                                                                                                                                                                                                                                                                                  |
| 12.1† |   | Computation of ratio of  earnings to fixed charges                                                                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                                  |
| 14.1† |   | Code of Ethics                                                                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                  |
| 21.1† |   | Subsidiaries of the  Registrant                                                                                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                  |
| 23.1**     |   | Consent of Deloitte &  Touche, LLP dated July 7, 2003                                                                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                                  |
| 23.2*      |   | Consent of Mayer, Brown,  Rowe & Maw LLP (included in Exhibit 5.1)                                                                                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                  |
| 24.1**     |   | Power of Attorney  (included as part of signature page hereto)                                                                                                                                                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                  |
| 25.1*      |   | Form T-1 of Trustee under  Indenture.                                                                                                                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                                  |
| 31.1† |   | Certification of M. Brent  Stevens, Chief Executive Officer, pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 and Rule 15d-14 of the Securities Exchange Act, as  amended.                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                  |
| 31.2† |   | Certification of Natalie  A. Schramm, Chief Financial Officer, pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 and Rule 15d-14 of the Securities Exchange Act, as  amended.                                                                                                |

 

28

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| 99.1*  |   | Form of Letter of Transmittal          |
|--------|--------|----------------------------------------|
|   |   |                                   |
| 99.2*  |   | Form of Notice of  Guaranteed Delivery |
|   |   |                                   |
| 99.3*  |   | Form of Letter to Clients              |
|   |   |                                   |
| 99.4*  |   | Form of Letter to DTC  Participants    |

 

----

†                  Filed herewith.

 

*                 Previously filed as an exhibit to theregistration statement on Form S-4 (Registration Number 333-105587) of The OldEvangeline Downs, L.L.C. and The Old Evangeline Downs Capital Corp. on May 27,2003.

 

**          Previously filed as an exhibit to the registration statement onAmendment No.1 to Form S-4 (Registration Number 333-105587) of The Old EvangelineDowns, L.L.C. and The Old Evangeline Downs Capital Corp. on July 15, 2003.

 

(b)                                 Reports on Form 8-K.

 

On March 17, 2004, theCompany filed a current report on Form 8-K dated March 9, 2004, in which theCompany announced that it had commenced a tender offer and consent solicitationwith respect to the OED Notes, intended to refinance its existing debt with theproceeds of a note offering, and disclosed certain information to potentialinvestors.

 

29

----

 

**SIGNATURES**

 

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized, in the City of Dubuque, State of Iowa on March 30,2004.

 
|   | THE OLD EVANGELINE DOWNS,  L.L.C.       |
|--------|-----------------------------------------|
|   |                                    |
|   | By:                                     | /s/ M. Brent Stevens |   |
|   |                                    | M. Brent Stevens |
|   |                                    | *Chief  Executive Officer* |
|   |                                    |   |
|   | By:                                     | /s/ Natalie A. Schramm |   |
|   |                                    | Natalie A. Schramm |
|   |                                    | *Chief  Financial Officer* |
|   |                                    |   |
|   | THE OLD EVANGELINE DOWNS  CAPITAL CORP. |
|   |                                    |
|   | By:                                     | /s/ M. Brent Stevens |   |
|   |                                    | M. Brent Stevens |
|   |                                    | *President  and Treasurer* |
|   |                                    |   |
|   | By:                                     | /s/ Michael S. Luzich |   |
|   |                                    | Michael S. Luzich |
|   |                                    | *Vice  President* |

** **

**Pursuant tothe requirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons in the capacities and on the datesindicated.**

 
|                 | PENINSULA GAMING PARTNERS,  LLC                        |
|----------------------|--------------------------------------------------------|
|                 | *Managing  Member of The Old Evangeline Downs, L.L.C.* |
|                 |                                                   |   |
| Date: March 30, 2004 | By:                                                    | /s/ M. Brent Stevens |   |
|                 |                                                   | M. Brent Stevens |
|                 |                                                   | *Chief  Executive Officer and Manager* |
|                 |                                                   |   |
| Date: March 30, 2004 | By:                                                    | /s/ Michael S. Luzich |   |
|                 |                                                   | Michael S. Luzich |
|                 |                                                   | *President,  Secretary and Manager* |
|                 |                                                   |   |
| Date: March 30, 2004 | By:                                                    | /s/ Terrance W. Oliver |   |
|                 |                                                   | Terrance W. Oliver |
|                 |                                                   | *Manager  of Peninsula Gaming Partners* |
|                 |                                                   |   |
| Date: March 30, 2004 | By:                                                    | /s/ Andrew R. Whittaker |   |
|                 |                                                   | Andrew R. Whittaker |
|                 |                                                   | *Manager  of Peninsula Gaming Partners* |

 

30

----

 

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**CONSOLIDATED FINANCIAL STATEMENTS OF THE OLD EVANGELINEDOWNS, L.L.C.**

** **
| Independent Auditors’  Reports                                                                                                                                                                                                                                                          | F-2         |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|
|                                                                                                                                                                                                                                                                                         |        |
| Consolidated Balance Sheets  at December 31, 2003 and December 31, 2002 (Successor)                                                                                                                                                                                                          | F-4         |
|                                                                                                                                                                                                                                                                                         |        |
| Consolidated  Statements of Operations for the Year Ended December 31, 2003 and the period  August 31, 2002 through December 31, 2002 (Successor) and the period January  1, 2002 through August 30, 2002 and the Year ended December 31, 2001  (Predecessor)                                | F-5

  |
|                                                                                                                                                                                                                                                                                         |        |
| Consolidated  Statements of Changes in Members’ Equity (Deficit) for the Year Ended  December 31, 2003 and the period August 31, 2002 through December 31, 2002  (Successor) and the period January 1, 2002 through August 30, 2002 and the  Year ended December 31, 2001 (Predecessor) | F-6         |
|                                                                                                                                                                                                                                                                                         |        |
| Consolidated  Statements of Cash Flows for the Year Ended December 31, 2003 and the period  August 31, 2002 through December 31, 2002 (Successor) and the period January  1, 2002 through August 30, 2002 and the Year ended December 31, 2001  (Predecessor)                                | F-7         |
|                                                                                                                                                                                                                                                                                         |        |
| Notes to  Consolidated Financial Statements                                                                                                                                                                                                                                                  | F-8         |
|                                                                                                                                                                                                                                                                                         |        |
| Schedule II: Valuation  and Qualifying Accounts                                                                                                                                                                                                                                              | F-20        |

 

F-1

----

 

**INDEPENDENT AUDITORS’ REPORT**

 

To the Members of

The Old EvangelineDowns, L.L.C.

Opelousas, Louisiana

 

Wehave audited the accompanying consolidated balance sheets of The Old EvangelineDowns, L.L.C. (a wholly-owned subsidiary of OED Acquisition, LLC) andsubsidiaries (the “Successor Company”) as of December 31, 2003 and 2002, andthe related consolidated statements of operations, changes in members’ equity(deficit), and cash flows for the year ended December 31, 2003 and the periodAugust 31, 2002 through December 31, 2002. Our audits also included thefinancial statement schedule listed in the Index to the Financial Statements atF-20. These financial statements and financial statement schedule are theresponsibility of the Successor Company’s management. Our responsibility is toexpress an opinion on these financial statements and financial statementschedule based on our audits.

 

Weconducted our audits in accordance with auditing standards generally acceptedin the United States of America. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

Inour opinion, such financial statements present fairly, in all material respects,the financial position of The Old Evangeline Downs, L.L.C. as of December 31,2003 and 2002, and the results of its operations and its cash flows for theyear ended December 31, 2003 and the period August 31, 2002 through December31, 2002 in conformity with accounting principles generally accepted in theUnited States of America. Also, in our opinion, such financial statementschedule, when considered in relation to the basic financial statements takenas a whole, presents fairly in all material respects the information set forththerein.

 

 

DELOITTE & TOUCHELLP

 

 

Cedar Rapids, Iowa

March 10, 2004

 

F-2

----

 

**INDEPENDENT AUDITORS’ REPORT**

 

To the Members of The Old Evangeline Downs, L.C. Lafayette, Louisiana

 

We have audited theaccompanying consolidated statements of operations, changes in members’ equity(deficit), and cash flows for the period January 1, 2002 through August 30,2002 and the year ended December 31, 2001 of The Old Evangeline Downs, L.C.(the “Predecessor Company”). Our audits also included the financial statementschedule listed in the Index to the Financial Statements at F-20.  Thesefinancial statements and financial statement schedule are the responsibility ofthe Predecessor Company’s management. Our responsibility is to express anopinion on these financial statements and financial statement schedule based onour audits.

 

We conducted our auditsin accordance with auditing standards generally accepted in the United Statesof America. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the results of the Predecessor Company operations and itscash flows for the period January 1, 2002 through August 30, 2002 and the yearended December 31, 2001 in conformity with accounting principles generallyaccepted in the United States of America.  Also, in our opinion, suchfinancial statement schedule, when considered in relation to the basic financialstatements taken as a whole, presents fairly in all material respects theinformation set forth therein.

 

As described in Note 2to the consolidated financial statements, in 2002 the Predecessor Companychanged its method of accounting for goodwill and intangible assets to conformto Statement of Accounting Standard No. 142 *Goodwilland Other Intangible Assets.*

 

Cedar Rapids, IowaMarch 10, 2004

 

F-3

----

 

**THE OLD EVANGELINE DOWNS, L.L.C.**

** **

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER 31, 2003 and 2002**

 
|                                                                                    |   | **December 31,** |        |
|-----------------------------------------------------------------------------------------|--------|------------------|-------------|
|                                                                                    |   | **2003**         |        | **2002** |   |
| **CURRENT ASSETS:**                                                                     |   |             |        |   |   |
| Cash and cash  equivalents                                                              |   | $                | 8,502,654   |   | $ | 962,652 |   |
| Restricted cash-purse  settlements                                                      |   | 1,589,125        |        | 840,366 |   |
| Restricted investments                                                                  |   | 15,778,883       |        |   |   |
| Accounts receivable                                                                     |   | 229,099          |        | 176,120 |   |
| Interest receivable                                                                     |   | 173,034          |        |   |   |
| Inventory                                                                               |   | 290,107          |        | 29,736 |   |
| Prepaid expenses                                                                        |   | 244,446          |        | 48,885 |   |
| Total current assets                                                                    |   | 26,807,348       |        | 2,057,759 |   |
| RESTRICTED CASH-RACINO  PROJECT                                                         |   | 20,013,291       |        |   |   |
| PROPERTY AND  EQUIPMENT, NET                                                            |   | 87,463,052       |        | 8,796,268 |   |
| OTHER ASSETS:                                                                           |   |             |        |   |   |
| Deferred financing  costs, net of amortization of $1,335,172 and $339,937, respectively |   | 10,185,806       |        | 484,851 |   |
| Other intangibles                                                                       |   | 32,257,963       |        | 31,329,834 |   |
| Deposits and other assets                                                               |   | 87,767           |        | 73,131 |   |
| Total other assets                                                                      |   | 42,531,536       |        | 31,887,816 |   |
| TOTAL                                                                                   |   | $                | 176,815,227 |   | $ | 42,741,843 |   |
|                                                                                    |   |             |        |   |   |
| **LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)**                                      |   |             |        |   |   |
| CURRENT LIABILITIES:                                                                    |   |             |        |   |   |
| Accounts payable                                                                        |   | $                | 2,168,027   |   | $ | 1,237,603 |   |
| Construction  payable-St. Landry Parish                                                 |   | 20,156,591       |        | 2,376,494 |   |
| Purse settlement  payable                                                               |   | 1,589,125        |        | 846,778 |   |
| Accrued payroll and  payroll taxes                                                      |   | 1,219,000        |        | 131,170 |   |
| Accrued interest                                                                        |   | 5,472,306        |        | 327,953 |   |
| Other accrued expenses                                                                  |   | 2,067,312        |        | 187,253 |   |
| Current maturity of  long-term debt                                                     |   | 3,498,222        |        |   |   |
| Accounts payable to  DJL and OEDA                                                       |   | 4,855,204        |        | 3,038,992 |   |
| Notes payable                                                                           |   |             |        | 4,500,000 |   |
| Term loan payable                                                                       |   |             |        | 8,300,000 |   |
| Note payable to parent                                                                  |   |             |        | 7,325,000 |   |
| Total current liabilities                                                               |   | 41,025,787       |        | 28,271,243 |   |
| LONG-TERM LIABILITIES:                                                                  |   |             |        |   |   |
| 13% Senior secured  notes, net of discount                                              |   | 120,923,436      |        |   |   |
| Senior secured  facility                                                                |   | 5,104,301        |        |   |   |
| FF&E credit  facility                                                               |   | 9,921,557        |        |   |   |
| Notes payable                                                                           |   | 3,511,654        |        |   |   |
| Other accrued expenses                                                                  |   | 800,000          |        |   |   |
| Total long-term  liabilities                                                            |   | 140,260,948      |        |   |   |
| Total liabilities                                                                       |   | 181,286,735      |        | 28,271,243 |   |
|                                                                                    |   |             |        |   |   |
| COMMITMENTS AND  CONTINGENCIES                                                          |   |             |        |   |   |
|                                                                                    |   |             |        |   |   |
| MEMBERS’ EQUITY  (DEFICIT)                                                         |   |             |        |   |   |
| Common members’ interest                                                           |   | 15,232,056       |        | 15,232,056 |   |
| Accumulated deficit                                                                     |   | (19,703,564      | )           | (761,456 | ) |
| Total members’ equity  (deficit)                                                   |   | (4,471,508       | )           | 14,470,600 |   |
| TOTAL                                                                                   |   | $                | 176,815,227 |   | $ | 42,741,843 |   |

 

See notes toconsolidated financial statements.

 

F-4

----

 

**THE OLD EVANGELINE DOWNS, L.L.C.**

** **

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

** **

**THE YEAR ENDED DECEMBER 31, 2003 AND THE PERIOD AUGUST 31 TODECEMBER 31, 2002 (SUCCESSOR COMPANY)**

**THE PERIOD JANUARY 1 TO AUGUST 30, 2002 AND THE YEAR ENDEDDECEMBER 31, 2001(PREDECESSOR COMPANY)**

 
|                                                |   | **Successor** |        | **Predecessor**                                         |      |
|-----------------------------------------------------|--------|---------------|-------------|---------------------------------------------------------|-----------|
|                                                |   | **2003**      |        | **Period from  August 31  through  December 31,  2002** |      | **Period from  January 1  through  August 30,  2002** |   | **2001** |   |
| REVENUES:                                           |   |          |        |                                                    |      |   |   |   |   |
| Casino                                              |   | $             | 3,227,477   |                                                    |      |   |   |   |   |   |
| Racing                                              |   | 17,773,481    |        | $                                                       | 3,947,568 |   | $ | 13,349,589 |   | $ | 18,211,237 |   |
| Food and beverage                                   |   | 1,538,374     |        | 185,215                                                 |      | 971,238 |   | 1,113,044 |   |
| Other                                               |   | 167,361       |        |                                                    |      |   |   |   |   |
| Less promotional  allowances                        |   | (209,147      | )           |                                                    |      |   |   |   |   |
| Total net revenues                                  |   | 22,497,546    |        | 4,132,783                                               |      | 14,320,827 |   | 19,324,281 |   |
| EXPENSES:                                           |   |          |        |                                                    |      |   |   |   |   |
| Casino                                              |   | 1,908,730     |        |                                                    |      |   |   |   |   |
| Racing                                              |   | 14,646,351    |        | 3,224,763                                               |      | 10,725,678 |   | 14,364,494 |   |
| Food and beverage                                   |   | 1,500,065     |        | 187,438                                                 |      | 886,708 |   | 1,131,499 |   |
| Other                                               |   | 59,934        |        |                                                    |      |   |   |   |   |
| Selling, general and  administrative                |   | 3,277,507     |        | 490,466                                                 |      | 1,169,074 |   | 1,714,532 |   |
| Depreciation and  amortization                      |   | 823,944       |        | 77,806                                                  |      | 138,166 |   | 655,194 |   |
| Pre-opening expense                                 |   | 3,256,963     |        |                                                    |      |   |   |   |   |
| Management fee                                      |   | 480,000       |        | 160,000                                                 |      | 64,644 |   |   |   |
| Litigation settlement                               |   | 1,600,000     |        |                                                    |      |   |   |   |   |
| Relocation expense                                  |   |          |        |                                                    |      |   |   | 404,738 |   |
| Impairment charges on  long-lived assets            |   |          |        |                                                    |      |   |   | 4,361,134 |   |
| Total expenses                                      |   | 27,553,494    |        | 4,140,473                                               |      | 12,984,270 |   | 22,631,591 |   |
|                                                |   |          |        |                                                    |      |   |   |   |   |
| INCOME (LOSS) FROM  OPERATIONS                      |   | (5,055,948    | )           | (7,690                                                  | )         | 1,336,557 |   | (3,307,310 | ) |
|                                                |   |          |        |                                                    |      |   |   |   |   |
| OTHER INCOME  (EXPENSE):                            |   |          |        |                                                    |      |   |   |   |   |
| Earnings from equity  affiliate                     |   | 58,862        |        |                                                    |      |   |   |   |   |
| Interest income                                     |   | 440,003       |        | (4,979                                                  | )         | 9,243 |   | 10,720 |   |
| Interest expense, net  of amounts capitalized       |   | (14,151,163   | )           | (748,787                                                | )         | (769,163 | ) | (1,121,835 | ) |
| Total other expense                                 |   | (13,711,160   | )           | (753,766                                                | )         | (759,920 | ) | (1,052,253 | ) |
|                                                |   |          |        |                                                    |      |   |   |   |   |
| NET INCOME (LOSS) TO  COMMON MEMBERS’ INTEREST |   | $             | (18,767,108 | )                                                       | $         | (761,456 | ) | $ | 576,637 |   | $ | (4,359,563 | ) |

 

See notes toconsolidated financial statements.

 

F-5

----

 

**THE OLD EVANGELINE DOWNS, L.L.C.**

 

**CONSOLIDATEDSTATEMENTS OF CHANGES IN MEMBERS’ EQUITY (DEFICIT)**

 

**THE YEAR ENDED DECEMBER 31, 2003 AND THE PERIOD AUGUST 31 TODECEMBER 31, 2002 (SUCCESSOR COMPANY)**

**THE PERIOD JANUARY 1 TO AUGUST 30, 2002 AND THE YEAR ENDEDDECEMBER 31, 2001 (PREDECESSOR COMPANY)**

 
|                                         |   | **PREDECESSOR  TOTAL  MEMBERS’  EQUITY  (DEFICIT)** |       |
|----------------------------------------------|--------|----------------------------------------------------------|------------|
|                                         |   |                                                     |       |
| BALANCE, DECEMBER 31,  2000                  |   | $                                                        | (1,541,083 | ) |
| Net loss to common  members’ interest   |   | (4,359,563                                               | )          |
|                                         |   |                                                     |       |
| BALANCE, DECEMBER 31,  2001                  |   | (5,900,646                                               | )          |
| Net income to common  members’ interest |   | 576,637                                                  |       |
|                                         |   |                                                     |       |
| BALANCE, AUGUST 30,  2002                    |   | $                                                        | (5,324,009 | ) |

 
|                                       |   | **SUCCESSOR  COMMON  MEMBERS’  INTEREST** |       | **SUCCESSOR  ACCUMULATED  DEFICIT** |     | **SUCCESSOR  TOTAL  MEMBERS’  EQUITY** |     |
|--------------------------------------------|--------|------------------------------------------------|------------|-------------------------------------|----------|---------------------------------------------|----------|
| BALANCE, AUGUST 31,  2002                  |   | $                                              | 15,232,056 |                                |     |                                        | $        | 15,232,056 |   |
| Net loss to common  members’ interest |   |                                           |       | $                                   | (761,456 | )                                           | (761,456 | ) |
| BALANCE DECEMBER 31,  2002                 |   | 15,232,056                                     |       | (761,456                            | )        | 14,470,600                                  |     |
| Net loss to common  members’ interest |   |                                           |       | (18,767,108                         | )        | (18,767,108                                 | )        |
| Member distributions                       |   |                                           |       | (175,000                            | )        | (175,000                                    | )        |
| BALANCE DECEMBER 31,  2003                 |   | $                                              | 15,232,056 |                                | $        | (19,703,564                                 | )        | $ | (4,471,508 | ) |

 

See notes to consolidatedfinancial statements.

 

F-6

----

 

**THE OLD EVANGELINE DOWNS, L.L.C.**

** **

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

** **

**THE YEAR ENDED DECEMBER 31, 2003 AND THE PERIOD AUGUST 31 TODECEMBER 31, 2002 (SUCCESSOR COMPANY)**

**THE PERIOD JANUARY 1 TO AUGUST 30, 2002 AND THE YEAR ENDEDDECEMBER 31, 2001 (PREDECESSOR COMPANY)**

 
|                                                                                                                                 |   | **Successor** |        | **Predecessor**                                         |      |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------|---------------------------------------------------------|-----------|
|                                                                                                                                 |   | **2003**      |        | **Period from  August 31  through  December 31,  2002** |      | **Period from  January 1  through  August 30,  2002** |   | **2001** |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                                                               |   |          |        |                                                    |      |   |   |   |   |
| Net income (loss)                                                                                                                    |   | $             | (18,767,108 | )                                                       | (761,456  | ) | $ | 576,637 |   | $ | (4,359,563 | ) |
| Adjustments to  reconcile net income (loss) to net cash flows provided by operating  activities:                                     |   |          |        |                                                    |      |   |   |   |   |
| Depreciation and  amortization                                                                                                       |   | 823,944       |        | 77,806                                                  |      | 138,166 |   | 655,194 |   |
| Amortization of  deferred financing costs and bond discount                                                                          |   | 1,974,401     |        | 339,937                                                 |      |   |   |   |   |
| Loss on sale of assets                                                                                                               |   |          |        |                                                    |      |   |   | 12,801 |   |
| Impairment charge on  long-lived assets                                                                                              |   |          |        |                                                    |      |   |   | 4,361,134 |   |
| Changes in operating  assets and liabilities:                                                                                        |   |          |        |                                                    |      |   |   |   |   |
| Restricted cash                                                                                                                      |   | (748,759      | )           | (832,297                                                | )         | 1,093,687 |   | (24,426 | ) |
| Receivables                                                                                                                          |   | (226,013      | )           | 1,305,897                                               |      | (1,394,560 | ) | 33,489 |   |
| Inventory                                                                                                                            |   | (260,371      | )           | 11,105                                                  |      | 5,439 |   | (2,782 | ) |
| Prepaid expenses and  other assets                                                                                                   |   | (210,197      | )           | 87,334                                                  |      | (97,903 | ) | (62,339 | ) |
| Accounts payable                                                                                                                     |   | 2,124,402     |        | 580,388                                                 |      | (255,764 | ) | (27,414 | ) |
| Accrued expenses                                                                                                                     |   | 6,844,704     |        | 260,949                                                 |      | 390,424 |   | (154,141 | ) |
| Accounts payable to  DJL and OEDA                                                                                                    |   | 1,641,211     |        |                                                    |      |   |   |   |   |
| Litigation settlement                                                                                                                |   | 1,200,000     |        |                                                    |      |   |   |   |   |
| Net cash flows from  operating activities                                                                                            |   | (5,603,786    | )           | 1,069,663                                               |      | 456,126 |   | 431,953 |   |
|                                                                                                                                 |   |          |        |                                                    |      |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                                                               |   |          |        |                                                    |      |   |   |   |   |
| Business acquisition  and licensing costs                                                                                            |   | (1,781,746    | )           | (438,932                                                | )         | (269,680 | ) |   |   |
| Racino project  development costs                                                                                                    |   | (55,303,006   | )           | (4,280,112                                              | )         | (382,159 | ) |   |   |
| Restricted cash-racino  project                                                                                                      |   | (20,013,291   | )           |                                                    |      |   |   |   |   |
| Purchase of restricted  investments                                                                                                  |   | (23,922,971   | )           |                                                    |      |   |   |   |   |
| Maturity of restricted  investments                                                                                                  |   | 8,144,088     |        |                                                    |      |   |   |   |   |
| Purchase of property  and equipment                                                                                                  |   | (710,981      | )           | (75,602                                                 | )         | (54,289 | ) | (68,621 | ) |
| Net cash flows from  investing activities                                                                                            |   | (93,587,907   | )           | (4,794,646                                              | )         | (706,128 | ) | (68,621 | ) |
|                                                                                                                                 |   |          |        |                                                    |      |   |   |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                                                                               |   |          |        |                                                    |      |   |   |   |   |
| Deferred financing  costs                                                                                                            |   | (11,516,099   | )           | (316,206                                                | )         |   |   |   |   |
| Principal payments on  debt                                                                                                          |   | (20,125,000   | )           | (150,000                                                | )         |   |   |   |   |
| Principal payments on  debt to related party                                                                                         |   |          |        |                                                    |      | (90,987 | ) | (411,230 | ) |
| Proceeds from senior  secured notes                                                                                                  |   | 120,736,000   |        |                                                    |      |   |   |   |   |
| Proceeds from senior  credit facility                                                                                                |   | 5,104,301     |        |                                                    |      |   |   |   |   |
| Proceeds from FF&E  credit facility                                                                                              |   | 12,532,493    |        |                                                    |      |   |   |   |   |
| Proceeds from notes  payable                                                                                                         |   |          |        | 4,500,000                                               |      |   |   |   |   |
| Net cash flows from  financing activities                                                                                            |   | 106,731,695   |        | 4,033,794                                               |      | (90,987 | ) | (411,230 | ) |
|                                                                                                                                 |   |          |        |                                                    |      |   |   |   |   |
| NET INCREASE  (DECREASE) IN CASH                                                                                                     |   | 7,540,002     |        | 308,811                                                 |      | (340,989 | ) | (47,898 | ) |
|                                                                                                                                 |   |          |        |                                                    |      |   |   |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                                                                    |   | 962,652       |        | 653,841                                                 |      | 994,830 |   | 1,042,728 |   |
|                                                                                                                                 |   |          |        |                                                    |      |   |   |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                                                                          |   | $             | 8,502,654   |                                                    | $         | 962,652 |   | $ | 653,841 |   | $ | 994,830 |   |
|                                                                                                                                 |   |          |        |                                                    |      |   |   |   |   |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                                                                  |   |          |        |                                                    |      |   |   |   |   |
| Cash paid during the  year for interest                                                                                              |   | $             | 8,594,283   |                                                    | $         | 267,995 |   | $ | 432,812 |   | $ | 1,125,262 |   |
| Cash paid during the  year for income taxes                                                                                          |   |          |        |                                                    |      |   |   | $ | 123,043 |   |
|                                                                                                                                 |   |          |        |                                                    |      |   |   |   |   |
| SUPPLEMENTAL SCHEDULE  OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                                                               |   |          |        |                                                    |      |   |   |   |   |
| Property additions  acquired on construction payable which were accrued, but not paid                                                |   | $             | 19,681,300  |                                                    | $         | 2,376,494 |   |   |   |   |   |
| Property and equipment  purchased in exchange for indebtedness                                                                       |   | $             | 4,398,940   |                                                    |      |   |   |   |   |   |
| Exchange of Private  OED Notes for Registered OED Notes                                                                              |   | $             | 123,200,000 |                                                    |      |   |   |   |   |   |
| Push down of OEDA note  payable to PGP                                                                                               |   |          |        | $                                                       | 7,325,000 |   |   |   |   |   |
| Assignment from OEDA  of term loan payable to Wells Fargo Foothill, Inc. (formerly known as  Foothill Capital Corporation)           |   |          |        | $                                                       | 8,450,000 |   |   |   |   |   |
| Push down of OEDA  intercompany accounts payable to DJL                                                                              |   |          |        | $                                                       | 2,484,140 |   |   |   |   |   |
| Push down of deferred  financing costs, Racino Project development costs, and business acquisition  and licensing costs paid by OEDA |   |          |        | $                                                       | 2,934,140 |   |   |   |   |   |

 

See notes to consolidatedfinancial statements

 

F-7

----

 

**THE OLD EVANGELINE DOWNS, L.L.C.**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1. ORGANIZATION, BUSINESS PURPOSE AND BASIS OF PRESENTATION**

 

In2002, The Old Evangeline Downs, L.C. was purchased by OED Acquisition, LLC(“OEDA”), a wholly-owned subsidiary of Diamond Jo, LLC (formerly known asPeninsula Gaming Company, LLC) (“DJL”) and was renamed The Old EvangelineDowns, L.L.C. (the “LLC”), a Louisiana limited liability company (the“Company”). Unless the context requires otherwise, references to the “Company,”“we,” “us” or “our” refer to The Old Evangeline Downs, LLC. We are wholly ownedby OED Acquisition, LLC, a Delaware limited liability company (“OEDA”). The OldEvangeline Downs Capital Corp. is a wholly owned subsidiary of us which has noassets or operations and was formed solely to facilitate the offering by us ofour 13% Senior Secured Notes due 2010 with Contingent Interest (the “OEDNotes”). We currently own and operate the Evangeline Downs Racetrack andCasino, or racino.  Our new racino in Opelousas has a Southern LouisianaCajun roadhouse theme on the exterior, with a complementary regional Acadianatmosphere on the interior. The racino currently includes a casino with 1,627slot machines, parking spaces for approximately 1,900 cars and 5 buses, andseveral dining options. Our dining options include a 312-seat Cajun Buffet, an82-seat fine dining Evangeline restaurant, a 192-seat Lagniappe food court anda 202-seat Mojos sports bar with an additional 98-seat screened patio, inaddition to a raised bar and lounge area with 120 seats, known as Zydeco’s,occupying the center of our casino floor. We expect to complete construction ofa one-mile dirt track with an inner 7/8-mile turf track,stables for 920 horses, a grandstand and clubhouse with seating for 1,436patrons, and apron and patio space for an additional 3,000 patrons in thesecond half of 2004 for remaining capital expenditures of $17.5 million as ofDecember 31, 2003. Pending completion of our new horse racetrack, horse racingoperations are conducted at our nearby pari-mutuel wagering complex inLafayette, Louisiana, whose operations will be transferred to our new horseracetrack upon completion. Our operations also include two off-track bettingparlors (“OTB”), one in New Iberia, and one in Port Allen, Louisiana. Our OTBin Port Allen, located on Interstate 10 across the Mississippi River from BatonRouge, Louisiana, also operates 100 video poker machines.

 

*Predecessor Companies for the period January 1 to August 30,2002 and the year ended 2001-*Theaccompanying consolidated financial statements include the consolidatedaccounts of The Old Evangeline Downs, L.C. (the “L.C.”). The L.C. was organizedas a limited liability company under the provisions of the laws of the State ofLouisiana in October 1994 for the purpose of both acquiring through theBankruptcy Plan of Reorganization, and operating the Evangeline DownsRacetrack.

 

**Racino Development**

 

Inorder to provide funding for the racino project and to repay certain thenexisting indebtedness, on February 25, 2003, we completed a private placementof $123.2 million 13% Senior Secured Notes due 2010 with Contingent Interest(the “Private OED Notes”). On September 10, 2003, we exchanged the Private OEDNotes for notes registered with the Securities and Exchange Commissionotherwise identical in all respects to the Private OED Notes (the “RegisteredOED Notes,” and together with the Private OED Notes, the “OED Notes”).

 

Theconstruction and development of the racino project is expected to be completedin two phases. The first phase involves the construction of the casino andrelated casino amenities which was substantially completed and opened to thepublic on December 19, 2003. Construction of the second phase, which involvesthe construction of the horse racetrack and related facilities, is currentlyunderway. We expect to begin scheduling live racing meets at the racino inDecember 2004, at which time we expect to cease operations at our existinghorse racetrack.

 

Thetotal remaining capital expenditures expected to complete the racino project asof December 31, 2003 is approximately $17.5 million. The source of funds tocomplete construction and development of the racino will be (i) a portion ofthe proceeds from the offering of the OED Notes, (ii) available borrowingsunder our $15.0 million senior secured credit facility, (iii) availableborrowings under our $16.0 million furniture, fixtures and equipment financing

 

F-8

----

 

facility and (iv) cashflows from existing racetrack operations and future cash flows from futureracino operations. See Note 4 for further information about the OED Notes, thesenior credit facility and the furniture, fixtures and equipment financingfacility.

 

**2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

***Consolidation***-Theconsolidated financial statements include the financial information of theCompany and our wholly-owned direct subsidiary The Old Evangeline Downs CapitalCorp. All significant intercompany transactions have been eliminated.

 

***Cash and Cash Equivalents***-Weconsider all cash on hand and in banks, certificates of deposit and otherhighly liquid debt instruments purchased with original maturities of threemonths or less to be cash equivalents.

 

***Restricted Cash***-Restrictedcash represents amounts for purses to be paid during the live meet racingseason. Additionally, restricted cash includes entrance fees for a special futurityrace during the racing season, plus any interest earnings. These funds will beused to pay the purse for the race. A separate interest bearing bank account isrequired for these funds.

 

***Restricted Investments***-Asof December 31, 2003, we had approximately $15.8 million invested in governmentsecurities with original maturities of greater than 90 days from the date ofinitial investment. These investments have been classified as held-to-maturityand have contractual maturities of $8.0 million on both February 15, 2004 andAugust 15, 2004. Proceeds from the maturity of these investments will be usedto help make payments of fixed interest on the OED Notes due March 1, 2004 andSeptember 1, 2004 in accordance with the terms of the Cash Collateral and DisbursementAgreement, dated February 25, 2003, among us, U.S. Bank National Association(as trustee and disbursement agent) and an independent construction consultant(the “Cash Collateral and Disbursement Agreement”).

 

***Inventories***-Inventoriesconsisting principally of food, beverage, retail items, and operating suppliesare stated at the lower of first-in, first-out cost or market.

 

***Restricted Cash-Racino Project***-”Restrictedcash-racino project” represents unused proceeds from the sale of the OED Notes,the use and disbursement of which are restricted to the design, development,construction, equipping and opening of the racino in accordance with the CashCollateral and Disbursement Agreement. As of December 31, 2003, we had $14.4million in cash equivalents deposited in a construction disbursement account,$0.2 million in cash equivalents deposited in an interest reserve account thatwill be used toward payment of fixed interest on the OED Notes, $5.0 million incash equivalents deposited in a completion reserve account that will be used tofund potential cost overruns and contingency amounts with respect to thedesign, development, construction, equipping and opening of the racino and $0.4million in cash in a local financial institution. The funds deposited in theseaccounts are invested in cash or securities that are readily convertible tocash.

 

***Property and Equipment***-Propertyand equipment are recorded at cost and capitalized lease assets are recorded attheir fair market value at the inception of the lease. Major renewals andimprovements are capitalized, while maintenance and repairs are expensed asincurred. Depreciation and amortization are computed on a straight-line basisover the following estimated useful lives:

 
| Land improvements                   |   | 20-40  years |   |
|-------------------------------------|--------|--------------|--------|
| Building and building  improvements |   | 9-40  years  |   |
| Furniture, fixtures  and equipment  |   | 3-10  years  |   |
| Computer equipment                  |   | 3-5  years   |   |
| Vehicles                            |   | 5  years     |   |

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*We currently lease theland on which the building and leasehold improvements associated with the oldracetrack are located. The ground lease annual rental is $0 per year and thelease term expires on the earlier of December 31, 2004 or the first day we opena new racetrack facility for business in St. Landry Parish, Louisiana.

 

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***Long-Lived Assets***-EffectiveJanuary 1, 2002, we assessed the impairment of long-lived assets, excludinggoodwill and indefinite-lived intangible assets, in accordance with SFAS No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No.144 addresses financial accounting and reporting for the impairment or disposalof long-lived assets. This statement supersedes SFAS No. 121, “Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to be DisposedOf,” and the accounting and reporting provisions of APB Opinion No. 30,“Reporting the Results of Operations-Reporting the Effects of Disposal of aSegment of a Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions.” This new pronouncement also amends ARB No. 51“Consolidated Financials Statements,” to eliminate the exception toconsolidation for a subsidiary for which control is likely to be temporary.SFAS No. 144 requires that one accounting model be used for long-lived assetsto be disposed of by sale, whether previously held and used or newly acquiredand also broadens the presentation of discontinued operations to include moredisposal transactions. We evaluate the carrying value of long-lived assets whenevents and circumstances warrant such a review. If the carrying value of thelong-lived asset is considered impaired, a loss is recognized based on theamount by which the carrying value exceeds the fair market value of the asset.The adoption of SFAS No. 144 did not have an impact on our financial positionor results of operations for the years ended December 31, 2003 and 2002.

 

***Capitalized Interest***-Wecapitalize interest costs associated with debt incurred in connection with theracino project. When debt is specifically identified as being incurred inconnection with the development of the racino project, we capitalize intereston amounts expended on the racino project at our average cost of borrowedmoney. Capitalization of interest will cease when the project is substantiallycomplete. The amount capitalized during 2003 was $2.2 million and during theperiod August 31, 2002 through December 31, 2002 was $0.1 million.

 

***Deferred Financing Costs***-Costsassociated with the issuance of debt (see Note 4) have been deferred and arebeing amortized over the life of the related indenture/agreement using theeffective interest method.

 

***Goodwill and Other Intangible Assets***-Priorto the purchase of the predecessor company by the successor company during2002, the predecessor company had goodwill associated with the predecessorcompany’s adoption of “fresh-start” reporting in 1994.  The goodwill wasbeing amortized on a straight line basis over a period of 15 years.  Uponthe predecessor company’s adoption of SFAS No. 142 “Goodwill and OtherIntangible Assets” on January 1, 2002, amortization of the goodwillceased.  Assuming the non-amortization provision of SFAS No. 142 had beenadopted at the beginning of 2001, the predecessor company’s net loss to commonmembers interest would have been $(3,933,736).

 

AtDecember 31, 2003 and 2002, Other Intangible Assets consists of licensing costsand the acquired tradename associated with the purchase of the Company. As ofDecember 31, 2003, we had recorded approximately $3.8 million on our balancesheet for directly related legal and other incremental costs associated withthe acquisition of the Company and obtaining the relevant gaming licenses toconduct gaming operations associated with the racino project in Louisiana. Thesecosts are included as a cost of the acquisition and have been evaluated underSFAS No. 141 “Business Combinations” and SFAS No. 142. Intangible assets of$28.4 million acquired as part of the acquisition were identified and valued asfollows (in millions):

 
| Slot Machine and  Electronic Video Game Licenses |   | $ | 24.6 |   |
|--------------------------------------------------|--------|---|------|--------|
| Tradename                                        |   | $ | 2.5  |   |
| Horse Racing Licenses                            |   | $ | 1.3  |   |
| Total                                            |   | $ | 28.4 |   |

 

Forpurposes of the valuations set forth above, each of the identified intangibleassets were treated as having indefinite lives and valued separately. Themethodology employed by an independent valuation specialist to arrive at suchvaluations required evaluating the fair market value of the existing horseracing business on a stand-alone basis without taking into account any right toobtain slot machine and electronic video game licenses. Such valuation wasbased in part upon other transactions in the industry and our historicalresults of operations. A value was also derived for the tradename using marketbased royalty rates. A significant portion of the purchase price isattributable to the slot machine and electronic video game license rights,which were valued based upon the market value paid by other operators and uponprojected cash flows from operations. These valuations and related intangibleassets are subject to impairment by, among other things, significant changes inthe gaming tax rates in Louisiana, significant new competition which couldsubstantially reduce profitability, non-renewal of our racing or gaminglicenses due to

 

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regulatory matters,changes to our tradename or the way our tradename is used in connection withour business and regulatory changes that could adversely affect our businessby, for example, limiting or reducing the number of slot machines or videopoker machines that we are permitted to operate.

 

***Construction Payable-St. Landry Parish***-AtDecember 31, 2003 and 2002, we had $20.2 million and $2.4 million,respectively, in payables and accruals related to construction and developmentcosts associated with the racino project.

 

***Financial Instruments***-Thecarrying amount for financial instruments included among cash and cashequivalents, accounts receivable, restricted cash, accounts payable andsecurity deposits approximates their fair value based on the short maturity ofthose instruments.

 

***Revenue Recognition***-Inaccordance with common industry practice, our casino revenue is the net winfrom gaming activities, which is the difference between gaming wins and losses.Racing revenues include our share of pari-mutuel wagering on live races afterpayment of amounts returned as winning wagers, and our share of wagering fromimport and export simulcasting as well as our share of wagering from ouroff-track betting parlors.

 

***Promotional Allowances***-Food,beverage, and other items furnished without charge to customers are included ingross revenues at a value which approximates retail and then deducted aspromotional allowances to arrive at net revenues. The cost of suchcomplimentary services have been included as casino expenses on theaccompanying statements of operations. Such estimated costs of providingcomplimentary services allocated from the food and beverage and other operatingdepartments to the casino department were $71,222 and $792 for food andbeverage and other, respectively, in 2003.

 

***Income Taxes***-Weare a limited liability company. In lieu of corporate income taxes, the membersof a limited liability company are taxed on their proportionate share of ourtaxable income. Therefore, no provision or liability for federal income taxeshas been included in the financial statements.

 

***Use of Estimates***-Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting periods. Actual results could differ from those estimates.We periodically evaluate our policies and the estimates and assumptions relatedto these policies. We also periodically evaluate the carrying value of ourassets in accordance with generally accepted accounting principles. We operatein a highly regulated industry and are subject to regulations that describe andregulate operating and internal control procedures. The majority of ourrevenues are in the form of cash, which by its nature, does not require complexestimates. In addition, we made certain estimates surrounding our applicationof purchase accounting related to the acquisition and the related assignment ofcosts to goodwill and other intangible assets.

 

Inaddition, contingencies are accounted for in accordance with SFAS No. 5,“Accounting for Contingencies.” SFAS No. 5 requires that we record an estimatedloss from a loss contingency when information available prior to issuance ofour financial statements indicates that it is probable that a liability hasbeen incurred at the date of the financial statements and the amount of theloss can be reasonably estimated. Accounting for contingencies such as legalmatters requires us to use judgment. Many of these legal contingencies can takeyears to be resolved. Generally, as the time period increases over which theuncertainties are resolved, the likelihood of changes to the estimate of theultimate outcome increases. However, an adverse outcome could have a materialimpact on our financial condition and operating results.

 

***Concentrations of Risk***-TheCompany’s customer base consists of southwest Louisiana. Although we aredirectly affected by the economic viability of the area, management does notbelieve significant risk exists at December 31, 2003.

 

TheCompany maintains deposit accounts at two banks. At December 31, 2003 and 2002,and various times during the years then ended, the balance at the banksexceeded the maximum amount insured by the FDIC. Management believes any creditrisk related to the uninsured balance is minimal.

 

F-11

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***Reclassifications***-Certainprior year amounts have been reclassified to conform with current yearpresentation.

 

***Recently Issued Accounting Standards***-InJuly 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated withExit or Disposal Activities”. This statement addresses financial accounting andreporting for costs associated with exit or disposal activities and nullifiesthe previous guidance on the subject. This statement requires, among otherthings, that a liability for a cost associated with an exit or disposalactivity be recognized when the liability is incurred. The provisions for thisstatement are effective for exit or disposal activities that are initiatedafter December 31, 2002. The adoption of SFAS No. 146 did not have a materialeffect on our results of operations or financial position for the year endedDecember 31, 2003.

 

InNovember 2002, the Financial Accounting Standards Board (FASB) issuedInterpretation No. 45, Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).FIN 45 expands the disclosure requirements related to certain guarantees,including product warranties, and requires the Company to recognize a liabilityfor the fair value of all guarantees issued or modified after December 31,2002. FIN 45 did not impact our financial position or net income.

 

In2003, the FASB issued Interpretation (FIN) No. 46, Consolidation of VariableInterest Entities, which addresses the consolidation and related disclosures ofthese entities by business enterprises. These are entities in which either the equityinvestment at risk is not sufficient to absorb the probable loss withoutadditional subordinated financial support from other parties, or the investorswith equity at risk lack certain essential characteristics of a controllinginterest. Under the Interpretation, the Company must consolidate any variableinterest entities (VIEs) in which the Company holds variable interests and theCompany is deemed the primary beneficiary. The effective date for the adoptionof FIN 46 for interests in VIEs created prior to February 1, 2003 was July 1,2003 and applies immediately to variable interest entities created afterJanuary 31, 2003, and to variable interest entities in which the Companyobtains an interest after that date. The adoption of FIN 46 did not impact ourfinancial position or net loss available to common members’ interest.

 

InMay 2003, the FASB issued Statement No. 150, “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity.” Thisstatement establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities andequity. It requires the issuer to classify a financial instrument that iswithin the scope of the standard as a liability if such financial instrumentembodies an obligation of the issuer. The adoption of SFAS No. 150 did notimpact our financial position or net loss available to common members’interest.

 

**3.  PROPERTY AND EQUIPMENT**

 

Property and equipmentat December 31 is summarized as follows:

 
|                               |   | **2003**   |       | **2002**   |   |
|------------------------------------|--------|------------|------------|------------|--------|
| Land and land  improvements        |   | $          | 12,886,570 |       | $      | 310,000 |   |
| Building and  improvements         |   | 45,611,018 |       | 1,822,508  |   |
| Furniture, fixtures  and equipment |   | 21,212,716 |       | 1,169,935  |   |
| Computer equipment                 |   | 4,603,839  |       |       |   |
| Vehicles                           |   | 70,571     |       |       |   |
| Construction in  progress          |   | 5,864,340  |       | 7,455,885  |   |
| Subtotal                           |   | 90,249,054 |       | 10,758,328 |   |
| Accumulated  depreciation          |   | (2,786,002 | )          | (1,962,060 | )      |
| Property and  equipment, net       |   | $          | 87,463,052 |       | $      | 8,796,268 |   |

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* In December 2001, werecorded property impairment charges of $4,361,134 related to our horse racingfacility, see Note 10.

 

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**4.  DEBT**

 

Debt at December 31 issummarized as follows:

 
|                                                                                                                                                                                                                                                                                                                                              |   | **2003**    |        | **2002**    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|
| 13% Senior Secured  Notes due March 1, 2010 with Contingent Interest, net of discount of  $2,276,564, secured by certain assets of the Company.                                                                                                                                                                                                   |   | 120,923,436 |        |        |   |
|                                                                                                                                                                                                                                                                                                                                              |   |        |        |        |   |
| $15.0 million Loan and  Security Agreement with Wells Fargo Foothill, Inc., interest rate at Prime +  2.50% (current rate of 6.5%), maturing June 24, 2006, secured by certain  assets of the Company.                                                                                                                                            |   | 5,104,301   |        |        |   |
|                                                                                                                                                                                                                                                                                                                                              |   |        |        |        |   |
| $16.0 million Loan and  Security Agreement with Wells Fargo Foothill, Inc., interest rate at Prime +  2.50% (current rate of 6.5%), due in 48 equal monthly principal payments  beginning on March 1, 2004, secured by certain assets of the Company.                                                                                             |   | 12,532,493  |        |        |   |
|                                                                                                                                                                                                                                                                                                                                              |   |        |        |        |   |
| Promissory note  payable to third party, interest at 4.75% payable monthly in arrears, annual  principal payments of $550,000 due each October beginning in 2004, secured by  mortgage on certain real property of the Company.                                                                                                                   |   | 3,850,000   |        |        |   |
|                                                                                                                                                                                                                                                                                                                                              |   |        |        |        |   |
| Note payable to IGT,  interest rate at 9.5%, monthly payments of principal and interest of $31,250,  with final payment due July 1, 2005, secured by certain assets of the  Company.                                                                                                                                                              |   | 548,940     |        |        |   |
|                                                                                                                                                                                                                                                                                                                                              |   |        |        |        |   |
| Term loan with  Foothill Capital Corporation, interest at Prime + 3.75%, however, at no time  shall the interest rate be lower than 7.5% (current rate of 8.0%), maturing  the earlier of (a) June 30, 2003 or (b) the date on which we consummate our  financing of the racino project, secured by substantially all the assets of  the Company. |   |        |        | 8,300,000   |   |
|                                                                                                                                                                                                                                                                                                                                              |   |        |        |        |   |
| Note payable to PGP,  issued by OEDA, interest rate of 7% until January 31, 2003, thereafter 8%  until February 28, 2003, thereafter 9% until March 31, 2003, thereafter the  greater of 12% or the fixed rate on the notes expected to be issued to  finance the racino project, maturing on June 30, 2003.                                      |   |        |        | 7,325,000   |   |
|                                                                                                                                                                                                                                                                                                                                              |   |        |        |        |   |
| Note payable to WET2,  interest rate of 7% until March 31, 2003, thereafter the greater of 12% or  the fixed rate on the notes expected to be issued to finance the racino  project, maturing on June 30, 2003.                                                                                                                                   |   |        |        | 4,500,000   |   |
| Total debt                                                                                                                                                                                                                                                                                                                                        |   | 142,959,170 |        | 20,125,000  |   |
| Less current portion                                                                                                                                                                                                                                                                                                                              |   | (3,498,222  | )           | (20,125,000 | )      |
| Total long term debt                                                                                                                                                                                                                                                                                                                              |   | $           | 139,460,948 |        | $      | 0 |   |
|                                                                                                                                                                                                                                                                                                                                              |   |        |        |        |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                   |        |             |             |             |        |  |  |  |

 

OnFebruary 25, 2003, we completed the private placement of $123.2 millionaggregate principal amount of OED Notes. The OED Notes bear interest at a rateof 13% per year which is payable semi-annually on March 1 and September 1 ofeach year, beginning September 1, 2003. Contingent interest will accrue on theOED Notes beginning in the first full fiscal year after the casino beginsoperations. The amount of contingent interest will be equal to 5.0% of our cashflow for the applicable period, subject to certain limitations. We may deferpaying a portion of contingent interest under certain circumstances set forthin the indenture governing the OED Notes.

 

Atthe end of each six-month period after the casino portion of the racino beginsoperations, we are required under the indenture governing the OED Notes tooffer to purchase the maximum principal amount of OED Notes that may be purchased,with an amount equal to the sum of (i) 50% of our excess cash flow for suchperiod (if any) and (ii) the then available balance in an excess cash flowaccount, which account at any time shall not exceed $10.0 million. For 45 daysfollowing the expiration of each initial excess cash flow offer to purchase,the holders of the OED Notes

 

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have the right torequest that we make an offer to purchase OED Notes with the funds in theexcess cash flow account subject to certain limitations, including that weshall not be required to make more than one offer at any one time. All suchoffers to purchase OED Notes shall be made at 101% of the principal amount,plus accrued and unpaid interest.

 

TheOED Notes are secured by all of our current and future assets (with theexception of certain excluded assets), including the remaining unused proceedsfrom the offering of the OED Notes which have been deposited into ourconstruction disbursement, interest reserve and completion reserve accounts.The OED Notes, which mature on March 1, 2010, are redeemable at our option, inwhole or in part at any time or from time to time, on and after March 1, 2007at certain specified redemption prices set forth in the indenture governing theOED Notes. The indenture governing the OED Notes contains a number ofrestrictive covenants and agreements, including covenants that limit theability of us and our subsidiaries to, among other things: (1) pay dividends,redeem stock or make other distributions or restricted payments; (2) incurindebtedness or issue preferred shares; (3) make certain investments; (4)create liens; (5) agree to payment restrictions affecting the subsidiaryguarantors; (6) consolidate or merge; (7) sell or otherwise transfer or disposeof assets, including equity interests of subsidiaries; (8) enter intotransactions with affiliates; (9) designate subsidiaries as unrestrictedsubsidiaries; (10) use proceeds of permitted asset sales and (11) change itsline of business. At December 31, 2003, we were in compliance with all suchcovenants. The events of default under the indenture include provisions thatare typical of senior debt financings. Upon the occurrence and continuance ofcertain events of default, the trustee or the holders of not less than 25% inaggregate principal amount of outstanding OED Notes may declare all unpaidprincipal and accrued interest on all of the OED Notes to be immediately dueand payable. Upon the occurrence of a change of control (as defined in theindenture governing the OED Notes), each holder of OED Notes will have theright to require us to purchase all or a portion of such holder’s OED Notes ata purchase price equal to 101% of the principal amount thereof plus accrued andunpaid interest, if any, to the date of repurchase.

 

OnJune 24, 2003, we entered into a new $15.0 million senior secured creditfacility with Wells Fargo Foothill, Inc. as lender (the “Credit Facility”). TheCredit Facility was amended by the parties thereto on September 22, 2003,December 10, 2003 and December 24, 2003 (the “Credit Facility Amendments”). Ourobligations under the Credit Facility are secured by a lien on substantiallyall of our and our subsidiaries’ current and future assets, other than the constructiondisbursement, interest reserve, completion reserve and excess cash flowaccounts and certain other excluded assets as well as a pledge by OEDA of ourcapital stock. Pursuant to the intercreditor agreement described below, thelien on the collateral securing the Credit Facility is senior to the lien onsuch collateral securing the OED Notes.

 

TheCredit Facility consists of a revolving credit facility which permits us torequest advances and letters of credit to finance working capital and other generalcorporate needs. Pursuant to the Credit Facility Amendments, we had the abilityto borrow up to $8.5 million (less amounts outstanding under letters of credit)at any one time outstanding during the period before the date that the casinoportion of the racino was completed and, among other things, is open forbusiness to the general public and construction costs for the casino have beenpaid in full or, if such payments are not yet due on such date, that sufficientfunds remain in the construction disbursement account to satisfy such paymentsin full (the “Phase I Completion Date”). All requirements under the definitionof the Phase I Completion Date were met on January 9, 2004. For the periodafter the Phase I Completion Date but before the second anniversary of thePhase I Completion Date (the “Second Anniversary”), the total amount of creditthat will be available to us will be the lesser of $15.0 million and aspecified borrowing base (the “Borrowing Base”). For the purposes of the CreditFacility, the Borrowing Base is the lesser of 30% of the amount of certaincosts incurred by us in connection with the construction of the racino projectand 20% of the amount of the distressed-sale valuation of our and oursubsidiaries’ operations and assets. After the Second Anniversary, the totalamount of credit that will be available to us will be the greater of (i) thelesser of $10.0 million and the Borrowing Base or (ii) the aggregate principalamount of all advances outstanding as of the Second Anniversary. At December31, 2003, we had outstanding borrowings of $5.1 million and outstanding lettersof credit of $3.2 million under the Credit Facility.

 

Allrevolving loans and letters of credit issued under the Credit Facility willmature on June 24, 2006. Prior to the maturity date, funds borrowed under theCredit Facility may be borrowed, repaid and reborrowed, without premium orpenalty. Our borrowings under the Credit Facility will bear interest at a baserate (a Wells Fargo prime rate) plus a margin of 2.50%. The interest ratepayable under the Credit Facility will increase by 2% per annum during thecontinuance of an event of default. Under the Credit Facility, we are alsorequired to pay to the lender a letter of credit

 

F-14

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fee equal to 2% perannum on the daily balance of the undrawn amount of all outstanding letters ofcredit and to the institution issuing a letter of credit a fronting fee, ineach case payable in arrears on a monthly basis.

 

TheCredit Facility contains, among other things, covenants, representations andwarranties and events of default customary for loans of this type. The mostsignificant covenants include a minimum EBITDA requirement and a maximumcapital expenditure requirement. At December 31, 2003, we were in compliancewith all such covenants.

 

Concurrentlywith the closing of the Credit Facility, the trustee under the indenture forthe OED Notes (as secured party) entered into an intercreditor agreement withWells Fargo Foothill, Inc. as the lender under such credit facility, providing,among other things, that the lien securing the indebtedness under the CreditFacility is senior to the lien securing the indebtedness under the OED Notes(except that the construction disbursement, interest reserve, completionreserve and excess cash flow accounts are security only for the OED Notes).

 

OnSeptember 22, 2003, we entered into a new $16.0 million senior secured creditfacility with Wells Fargo Foothill, Inc. as lender (the “FF&E Facility”).Under the FF&E Facility, the lender agrees to make a series of term loans,up to a maximum amount of $16.0 million, to finance the purchase of gamingequipment and other furniture, fixtures and equipment. Our obligations underthe FF&E Facility are, subject to certain limitations, secured by a firstpriority lien on all of the furniture, fixtures and equipment, and all proceedsand products thereof. At December 31, 2003, we had outstanding borrowings of$12.5 million under the FF&E Facility.

 

Loansunder the FF&E Facility shall be repayable in 48 equal monthly installmentsof principal, commencing on March 1, 2004, and continuing on the first day ofeach month thereafter until the unpaid balance of all loans are paid in full.The outstanding principal balance and all accrued and unpaid interest under allloans shall also be due and payable in full on March 1, 2008. Once borrowed,all loans may be prepaid in whole or in part without penalty or premium at anytime during the term of this agreement. Amounts borrowed and repaid may not bereborrowed. Our borrowings under the FF&E Facility will bear interest at abase rate (a Wells Fargo prime rate) plus a margin of 2.50%, but at no timeshall the interest rate be less than 6%. The interest rate payable under theFF&E Facility will increase by 2% per annum during the continuance of anevent of default.

 

TheFF&E Facility contains, among other things, covenants, representations andwarranties and events of default customary for loans of this type. The most significantcovenants include a minimum EBITDA requirement and a maximum capitalexpenditure requirement. At December 31, 2003 we were in compliance with allsuch covenants.

 

InOctober 2003, we entered into a purchase agreement to acquire 93 acres of land,divided into seven approximately equal parcels, for a total purchase price of$3,850,000. The purchase price under this purchase agreement was financed bythe seller with us issuing a $3,850,000 note payable to the seller. The note ispayable in seven equal annual installments of $550,000 beginning October 24,2004 and bears interest at a rate of 4.75% of the unpaid balance due monthly inarrears on the fifth day of each month beginning on December 5, 2003. The noteis collateralized by a mortgage on the property. Simultaneously with thepayment of each $550,000 annual installment discussed above, seller agrees torelease one of the remaining parcels from the mortgage.

 

InMarch 2003, we entered into a participation agreement with a third partyoperator to own and operate 100 video poker machines at our OTB in Port Allen,Louisiana. In December 2003, we obtained our license to own and operate videopoker machines. In accordance with the participation agreement, we assumed theremaining balance of an original $663,700 promissory note payable in exchangefor ownership of the 100 video poker machines. The note bears interest at 9.5%and is payable in monthly installments of principal and interest of $31,250with the last payment due July 1, 2005. The note is collateralized by asecurity interest in the machines.

 

Concurrentlywith the issuance of the OED Notes, our obligations under the Term Loan, thePGP Note and the WET2 Note were repaid in February 2003.

 

**5.  LITIGATION SETTLEMENT**

 

OnNovember 8, 1994, the Louisiana Horsemen’s Benevolent and ProtectiveAssociation 1993, Inc. (“LHBPA”) filed a lawsuit against all licensed horseracetracks in the State of Louisiana. The lawsuit alleged that LHBPA did notreceive the appropriate share of net revenues from video poker devices locatedat licensed horse

 

F-15

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racetracks. In February2003, we entered into a settlement agreement with LHBPA for $1.6 million. Theterms of the settlement agreement requires us to make payments of $400,000annually beginning in March 2003, with additional $400,000 payments due inMarch 2004 through 2006.

 

Inaccordance with Statement of Financial Accounting Standards No. 5 “Accountingfor Contingencies,” we recorded an expense and related accrual of $1.6 millionin the financial statements as of December 31, 2003. Of the total $1.6 millionaccrual, $0.4 million was paid in March 2003, $0.4 million has been included in“Other accrued expenses” in the “Current Liabilities” section with the remaining$0.8 million recorded under “Other accrued expenses” in the “Long-termliabilities” section of the Consolidated Balance Sheet.

 

**6.  EMPLOYEE BENEFIT PLAN**

 

OnJune 1, 2002, we implemented a new 401(k) Plan that covers any employee whowishes to participate, who was over age 21 and has given one year of service tothe Company. Contributions to the plan made by the employees are limited to 60%of their compensation and are partially matched by the Company based on aformula providing for 50% matching on the first 4% of compensation contributed.Our contributions to the plan for the year ended December 31, 2003, the periodAugust 31, 2002 to December 31, 2002 the period June 1, 2002 (date of planimplementation) to August 30, 2002 were $21,673, $5,954 and $3,635,respectively.

 

During2001 and through February 2002, we participated in a profit sharing 401(k) Plansponsored by the Moody Company which was implemented during 1996 that coveredany employee who wished to participate, who was over age 21 and had given oneyear of service to the Company. Contributions to the plan made by the employeeswere limited to 15% of their compensation and were partially matched by theCompany based on a formula providing for 1) 50% matching on the first 4% ofcompensation, and 2) an optional contribution of up to 15% of compensation,based on an annual decision of the Company’s managers. Our contributions to theplan were $2,995 and $18,895 for the period January 1 through the end of theCompany’s participation in the plan in February 2002 and the year endedDecember 31, 2001, respectively.

 

**7.  LEASING ARRANGEMENTS**

 

***Ground Lease-Lafayette***-Wecurrently lease the land on which the current racetrack is located. The groundlease annual rental is $0 per year and the lease term expires on the earlier ofDecember 31, 2004 or the first day we open a new racetrack facility forbusiness in St. Landry Parish, Louisiana.

 

***New Iberia***-Weare under a month-to-month contract for $5,000 per month to lease the NewIberia off-track betting parlor. The lease requires payment of property taxes,maintenance and insurance on the property. During the year ended December 31,2003, the period August 31 through December 31, 2002, the period January 1through August 30, 2002 and the year ended December 31, 2001, we paid $60,000,$20,000, $40,000 and $60,000, respectively, in rent for the New Iberiaoff-track betting parlor.

 

***Pari-Mutuel Processing Equipment***-Weentered into a five-year lease agreement commencing on February 15, 2001 forcomputerized pari-mutuel central processing equipment, terminals and certainassociated equipment. Additionally, the lease agreement provides us withpari-mutuel services whereby the leased equipment automatically registers andtotals the amounts wagered on the races held at the race track or simulcast toit and to its respective off-track wagering parlors, and displays the win poolodds, payoffs, and other pertinent horse racing information needed to operatelive meet horse racing and off-track betting. We pay 0.43% of the handle forthe services provided during both live meet racing days and off-track bettingracing days. The charges are subject to a minimum of $1,950 per live meet raceday and $1,150 per off-track betting race day. Additionally, if a race day is notcompleted, we must pay 50% of the minimum if less than four races are declaredofficial and 100% of the minimum if four or more races are declared official.In 2003, we had 87 live meet racing days and 223 off-track betting days. Wepaid $466,923, $116,308 , $308,972 and $429,357 during the year ended December31, 2003, the period August 31 through December 31, 2002, the period January 1through August 30, 2002 and the year ended December 31, 2001, respectively,related to the pari-mutuel processing equipment lease.

 

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In2004, we are scheduled to run 116 live meet racing days and 249 off-trackbetting days. The total minimum rental payments for the lease mentioned in thepreceding paragraph assuming 116 live meet racing days and 249 off-trackbetting days for each of the years ended December 31 are summarized as follows:

 
| 2004   |   | $       | 512,550   |   |
|--------|--------|---------|-----------|--------|
| 2005   |   | 512,550 |      |
| 2006   |   | 51,750  |      |
|   |   | $       | 1,076,850 |   |

 

Welease various other equipment under noncancelable operating leases. The leasesrequire fixed monthly payments to be made ranging from $1,600 to $2,553 andcertain other gaming machines require contingent monthly rental payments basedon usage of the equipment. The leases expire on various dates through 2007.Rent expense was $211,721, $8,208, $9,718 and $32,091 during the year endedDecember 31, 2003, the period August 31 through December 31, 2002, the periodJanuary 1 through August 30, 2002 and the year ended December 31, 2001,respectively.

 

Thefuture minimum rental payments required under these leases for the years endedDecember 31 are summarized as follows:

 
| 2004   |   | $      | 47,110  |   |
|--------|--------|--------|---------|--------|
| 2005   |   | 30,630 |    |
| 2006   |   | 30,630 |    |
| 2007   |   | 12,763 |    |
|   |   | $      | 121,133 |   |

 

**8.  COMMITMENTS AND CONTINGENCIES**

 

OnJune 25, 2002, Peninsula Gaming Partners, LLC, a Delaware limited liabilitycompany which holds all of the membership interests of DJL (“PGP”) entered intoan agreement with William E. Trotter, II (“Trotter”) and William E. Trotter, IIFamily L.L.C., a Louisiana limited liability company (“WET2LLC”) to acquire (i)all of Trotter’s interests in two promissory notes issued by us in connectionwith DJL’s acquisition of us, and (ii) all of Trotter’s membership interestsowned by WET2LLC (together, the “Trotter Purchase”). On August 30, 2002, OEDAconsummated the Trotter Purchase for a purchase price consisting of cash of$15,546,000, plus a contingent fee of one half of one percent (0.5%) of the netslot revenues generated by our racino located in St. Landry Parish, Louisiana, fora period of ten years commencing on December 19, 2003, the date the racino’scasino opened to the general public.

 

Weare not a party to, and none of our property is the subject of, any otherpending legal proceedings other than litigation arising in the normal course ofbusiness. We do not believe that adverse determinations in any or all suchother litigation would have a material adverse effect on our financialcondition, results of operations or cash flows.

 

**9.  TRANSACTIONS WITH RELATED PARTIES**

 

During2003, we had accrued member distributions of $175,000 payable to OEDA. Thisamount was paid in January 2004.

 

AtDecember 31, 2003 and 2002, the Company had accrued interest recorded of$330,209 payable to OEDA primarily related to OEDA’s purchase of a 50% interestin our long-term notes payable on February 15, 2002. Interest was accrued fromthe date of purchase of the notes until August 30, 2002, at which time theinterest in the notes was converted to members’ equity of the Company.

 

AtDecember 31, 2003 and 2002, we had intercompany accounts payable to DJL of$3,645,351 and $2,484,140 related to Racino Project development costs paid byDJL on behalf of us.

 

ManagementServices Agreement - In 2002, the Company entered into a management servicesagreement (“MSA”) with DJL and OEDA (together the “Operator”). Pursuant to theterms of that agreement, the Operator will

 

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manage and operate ourexisting horse racetrack and design, develop, construct, manage and operate thenew racino and provide certain pre-opening services in connection therewith.Under the management services agreement, the Operator is entitled to receive apre-opening service fee equal to $40,000 per month, retroactive to June 27,2001 which is not required to be paid until the earlier to occur ofcommencement of the operations of the casino or the Operating Deadline (asdefined in the MSA and applicable to the casino). The Operator is also entitledto be reimbursed for all reasonable and documented out-of-pocket expensespermitted to be incurred under the management services agreement, including,but not limited to tax preparation, accounting, legal and administrative feesand expenses incurred in connection with the Operator’s ownership of us. TheOperator will also 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 (asdefined below);

 

•                 4.0% of EBITDA in excess of $25.0 million butless than $30.0 million of EBITDA; and

 

•                 5.0% of EBITDA in excess of $30.0 million.

 

“EBITDA” is defined inthe 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 and reimbursables payable under themanagement services agreement shall not be deducted.

 

Themanagement services agreement will terminate on the later of (i) the date thatis eight years after the first date a revenue paying customer is admitted tothe new racino and (ii) the date of sale by DJL of its beneficial ownership ofthe Company’s membership interests.

 

Duringthe year ended December 31, 2003, the period August 31 to December 31, 2002 andthe period January 1 to August 30, 2002, we accrued management fee expenses of$480,000, $160,000 and $64,644, respectively.

 

Certainmembers of the Company are also managers of PGP.  Due to these relationships, those individuals may indirectlyreceive money from us for management fees and other amounts paid by us to DJL.

 

Duringthe period August 31 through December 31, 2002, the period January 1 throughAugust 30, 2002 and the year ended December 31, 2001, interest was paid toMoody-Trotter Investments and William E. Trotter in the amount of $96,156,$432,812 and $1,125,262, respectively.

 

**10.  IMPAIRMENT CHARGE**

 

Inconnection with our assessment of the events enumerated in Note 1 surroundingthe Racino Project, a review was performed of the carrying values of long-livedassets, including the recorded balance of the line item “Other intangibles”. Wedetermined that the sale of a 50% interest of the Company to OEDA, which was consummatedon February 15, 2002, significantly changed the time period over which thehorse racing facility in Lafayette, Louisiana would be used. This review wasperformed pursuant to the provisions of SFAS No. 121, Accounting for theImpairment of Long-Lived Assets to Be Disposed Of. As a result of this review,we recorded a charge of $4,361,134 in 2001 to record the related assets at fairvalue based on the present value of estimated expected future cash flows usinga discount rate commensurate with the risks involved.

 

**11.  SUBSEQUENT EVENTS (UNAUDITED)**

 

OnMarch 11, 2004, the Company and DJL announced that they intend to refinance theOED Notes and DJL’s 12 1/4 % Senior Secured Notes due 2006 (the “PeninsulaNotes”) with a proposed offering of $230 million (which subsequently has beenincreased to $233 million) of senior secured notes due 2012 and a new creditfacility.  As part of this note offering, they are also seeking requisiteregulatory approvals to effect a series of corporate transactions, includingthe creation of a new holding company to be the new direct parent of theCompany and DJL and a co-issuer of the new senior secured notes.  In theevent regulatory approval of the corporate transactions is not obtained, theCompany and DJL will still consummate the note offering and use the proceeds ofthe offering to repurchase and redeem the OED Notes and Peninsula Notes,respectively.  In such event, however, they will not at such time effectthe corporate transactions or enter into the new credit facility.

 

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OnMarch 9, 2004, the Company commenced a tender offer and consent solicitation torepurchase all of its outstanding OED Notes and to solicit consents to certainproposed amendments to the indenture governing the OED Notes as set forth inthe Company’s Offer to Purchase and Consent Solicitation Statement, dated March9, 2004 (the “Statement”).  As of March 19, 2004, the expiration date ofthe consent solicitation, the Company had received the requisite consents andtenders from holders of a majority of the aggregate principal amount of theoutstanding OED Notes, which consents and tenders are irrevocable subject tocertain limited exceptions set forth in the Statement.  The tender offer isscheduled to expire on April 5, 2004, unless extended or earlier terminated.

 

**12.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)**

 
|                   |   | **2003 Quarters Ended**    |   |
|------------------------|--------|----------------------------|--------|
|                   |   | **(Dollars in Thousands)** |   |
|                   |   | **March 31**               |   | **June 30** |   | **September 30** |   | **December 31** |   |
| Net revenues           |   | $                          | 3,817  |   | $ | 6,333 |   | $ | 5,542 |   | $ | 6,806 |   |
| Income from Operations |   | (1,432                     | )      | 4 |   | (640 | ) | (2,988 | ) |
| Net income (loss)      |   | $                          | (3,653 | ) | $ | (3,858 | ) | $ | (4,489 | ) | $ | (6,767 | ) |

 
|                   |   | **2002 Quarters Ended**    |   |
|------------------------|--------|----------------------------|--------|
|                   |   | **(Dollars in Thousands)** |   |
|                   |   | **March 31**               |   | **June 30** |   | **September 30** |   | **December 31** |   |
| Net revenues           |   | $                          | 3,710  |   | $ | 6,222 |   | $ | 5,348 |   | $ | 3,174 |   |
| Income from Operations |   | 447                        |   | 582 |   | 271 |   | 29 |   |
| Net income (loss)      |   | $                          | 182    |   | $ | 323 |   | $ | (156 | ) | $ | (534 | ) |

 

F-19

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**SCHEDULEII**

 

THEOLD EVANGELINE DOWNS, L.L.C

Forthe Year Ended December 31, 2003 and the Period from August 31, 2002 throughDecember 31, 2002 (Successor Company) and the Period from January 1, 2002through August 30, 2002 and the Year Ended December 31, 2001 (Predecessor Company)

(inthousands)

 
| **Description**                                    |   | **Balance at  Beginning  of Period** |   | **Charged to  Costs and  Expenses** |   | **Deductions(a)** |   | **Balance at  End of Period** |   |
|----------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|-------------------|--------|-------------------------------|--------|
| Year ended December  31, 2003:                     |   |                                 |   |                                |   |              |   |                          |   |
| Allowance for doubtful  accounts                   |   | $                                    | 0      |                                | $      | 35                |   | $                             | (35    | ) | $ | 0 |   |
| Period August 31, 2002  through December 31, 2002: |   |                                 |   |                                |   |              |   |                          |   |
| Allowance for doubtful  accounts                   |   | $                                    | 0      |                                | $      | 0                 |   | $                             | (0     | ) | $ | 0 |   |
| Period January 1, 2002  through August 30, 2002:   |   |                                 |   |                                |   |              |   |                          |   |
| Allowance for doubtful  accounts                   |   | $                                    | 0      |                                | $      | 0                 |   | $                             | (0     | ) | $ | 0 |   |
| Year ended December  31, 2001:                     |   |                                 |   |                                |   |              |   |                          |   |
| Allowance for doubtful  accounts                   |   | $                                    | 0      |                                | $      | 0                 |   | $                             | (0     | ) | $ | 0 |   |

 

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(a)                                 Amounts written off.

 

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