**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington,D.C.  20549

** **

**FORM 10-K**

 
| **ý**                                                                                                                                                                                                                   | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT OF 1934**     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                         |       |                                                                                                     |
| **For the fiscal year ended December 31,  2004**                                                                                                                                                                        |
| ** **                                                                                                                                                                                                                   |
| **OR**                                                                                                                                                                                                                       |
| ** **                                                                                                                                                                                                                   | ** ** | ** **                                                                                               |
| **o**                                                                                                                                                                                                                        | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                         |       |                                                                                                     |
| **For the transition period from                  to                ** |

 

**Commission File Number 333-88829**

** **
| **Diamond  Jo, LLC**                                              |   | **Peninsula  Gaming, LLC**                                        |   | **Peninsula  Gaming Corp.**                                                                                               |
|-------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|
| (Exact name  of registrants as  specified in their charter)       |   | (Exact name  of registrants as  specified in their charter)       |   | (formerly  known as The Old  Evangeline Downs Capital  Corp.)  (Exact name of registrants as  specified in their charter) |
|                                                              |   |                                                              |   |                                                                                                                      |
| **Delaware**                                                      |   | **Delaware**                                                      |   | **Delaware**                                                                                                              |
| (State or  other jurisdiction  of incorporation or  organization) |   | (State or  other jurisdiction  of incorporation or  organization) |   | (State or  other jurisdiction  of incorporation or  organization)                                                         |
|                                                              |   |                                                              |   |                                                                                                                      |
| **42-1483875**                                                    |   | **20-0800583**                                                    |   | **25-1902805**                                                                                                            |
| (I.R.S.  Employer  Identification No.)                            |   | (I.R.S.  Employer  Identification No.)                            |   | (I.R.S.  Employer  Identification No.)                                                                                    |

** **
| **3rd Street Ice Harbor, PO Box 1750**                                                      |
|---------------------------------------------------------------------------------------------|
| **Dubuque, Iowa 52001**                                                                     |
| **(563) 583-7005**                                                                          |
| (Registrant’s  telephone number including area code)                                   |
| ** **                                                                                  |
| **Securities  registered pursuant to Section 12 (g) of the Act:  **None |

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding twelve months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý  No o

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained 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 tothis Form 10-K. Yes o  No ý

 

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

 

All of the commonequity interests of Peninsula Gaming, LLC (the “Company”) are held by PeninsulaGaming Partners, LLC.  All of the commonequity interests of Diamond Jo, LLC, The Old Evangeline Downs, L.L.C. andPeninsula Gaming Corp. are held by the Company.

 

 

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**TABLE OFCONTENTS**

 
| 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,  RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |   |
|          |      |   |   |   |
|          | 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 |   |
|          |      |   |   |   |
|          | ITEM  9B. |   | OTHER  INFORMATION |   |
|          |      |   |   |   |
| PART III |      |
|          |      |   |   |   |
|          | ITEM 10.  |   | DIRECTORS  AND EXECUTIVE OFFICERS OF REGISTRANT |   |
|          |      |   |   |   |
|          | ITEM 11.  |   | EXECUTIVE  COMPENSATION |   |
|          |      |   |   |   |
|          | ITEM 12.  |   | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS |   |
|          |      |   |   |   |
|          | ITEM 13.  |   | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS |   |
|          |      |   |   |   |
|          | ITEM 14.  |   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES |   |
|          |      |   |   |   |
| PART IV  |      |
|          |      |   |   |   |
|          | ITEM  15. |   | EXHIBITS  AND FINANCIAL STATEMENT SCHEDULES |   |

 

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**PART I**

 

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

 

**General**

** **

Peninsula Gaming, LLC, aDelaware limited liability company (“PGL” or the “Company”), through its whollyowned subsidiaries, Diamond Jo, LLC, a Delaware limited liability company (“DJL”)and The Old Evangeline Downs, L.L.C.,  aLouisiana limited liability company (“OED”), owns and operates (i) theDiamond Jo riverboat casino in Dubuque, Iowa, (ii) The Evangeline DownsRacetrack and Casino, a “racino” comprised of a casino and horse racetracklocated in Opelousas, Louisiana, and (iii) off-track betting parlors inPort Allen and New Iberia, Louisiana.

 

OnJune 16, 2004,a corporate restructuring occurred, which is retroactively reflected in theseconsolidated financial statements,pursuant to which PGL, became a new direct parent company of DJL, OED andPeninsula Gaming Corp. (formerly known as The Old Evangeline Downs CapitalCorp. (PGC”)), a Delaware limited liability company with no assets oroperations and formed solely to facilitate the offering of the Company’s 8 3/4%Senior Secured Notes due 2012 (the “Peninsula Gaming Notes”).  PGL is a wholly owned subsidiary of PeninsulaGaming Partners, LLC, a Delaware limited liability company (“PGP”).  In connection with the corporaterestructuring, OED Acquisition, LLC, a Delaware limited liability company (OEDA”)became a sister company to PGL and a wholly owned subsidiary of PGP in a corporatespin-off which was recorded as a distribution on June 30, 2004.  PGL, DJL and PGC are co-issuers of the Peninsula Gaming Notes whichare registered with the U.S. Securities and Exchange Commission (the “SEC”). OED is a guarantor of the Peninsula Gaming Notes and its stock has beenpledged to secure the obligations under the Peninsula Gaming Notes and oursenior secured credit facility.

 

Diamond Jo Worth, LLC, aDelaware limited liability company (“DJW”), was formed on October 20, 2004as a wholly owned subsidiary of PGL for the purpose of obtaining a gaminglicense in Worth County, Iowa. On November 10, 2004, the Company submittedan application to the Iowa Racing and Gaming Commission to operate a mooredbarge in Worth County, Iowa.  The Companyanticipates the Iowa Racing and Gaming Commission to award licenses in theSpring of 2005.  The Company’s proposedfacility is expected to contain approximately 500 slot machines, 12 table gamesand 5 poker tables.  In addition, theproposed facility is expected to include a restaurant, two fast food outletsand a bar with entertainment space.

 

Asused herein, the terms “we”, “us”, “our”, or the “Company” refers to,collectively, PGL, DJL and OED and their respective subsidiaries unless thecontext indicates otherwise.

 

We currently operate two reportable segments: (1) Iowaoperations, consisting of the Diamond Jo riverboat casino in Iowa, and (2) Louisianaoperations, consisting of the casino, racetrack and off-track betting parlors (“OTB’s”)operated by OED in Louisiana. Prior to the acquisition of OED in 2002, theCompany operated under one reportable segment. See Note 13 to the consolidated financial statements for financialinformation about our segments.

 

Ouraddress is 3rd Street Ice Harbor, PO Box 1750, Dubuque, Iowa, 52004-1750 and our telephone number is (563) 583-7005.  Our Annual Report on Form 10-K,quarterly reports on Form 10-Q and current reports on Form 8-K,and amendments to these reports, filed by us with the SEC, are available on theSEC’s website at http://www.sec.gov.

 

**Business**

** **

*DiamondJo.*  The Diamond Jo isa three-story, approximately 48,000 square foot riverboat casino, replicating aclassic 19th century paddlewheelriverboat. The Diamond Jo has an approved capacity for 1,394 patrons, featuresa spacious two-story atrium and a 44-seat capacity deli and offers 749slot machines and 17 table games on approximately 19,000 square feet of gamingspace.  In addition, the Diamond Jo isplanning to add two poker tables in April 2005.  Adjacent to the Diamond Jo is a two-story,approximately 36,000 square foot dockside pavilion, featuring our 142-seatcapacity Lighthouse Grill restaurant, our 140-seat capacity High Steaksrestaurant, our 25-seat capacity Club Wild players lounge and our 205-seatcapacity Harbor View Room, a full service banquet facility.  Approximately 1,200 convenient parking spacesare available to our patrons and we offer valet parking. The Diamond Jo is openseven days a week and functions primarily as a dockside riverboat withcontinuous boarding and no cruising requirements.

 

*EvangelineDowns.*  EvangelineDowns Racetrack and Casino (“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 

 

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casino with 1,627slot machines, parking spaces for approximately 2,229 cars, 60 semis and 5buses, and several dining options. Our dining options include a 312-seatCajun Buffet, a 104-seat fine dining Blackberry’s restaurant, a 92-seatLagniappe food court, a 95-seat Café 24/7 café and a 202-seat Mojossports bar with an additional 98-seat screened patio, in addition to araised bar and lounge area with 120 seats, known as Zydeco’s, occupying thecenter of our casino floor.  We recentlycompleted construction of a one-mile dirt track, stables for 980 horses, agrandstand and clubhouse with seating for 1,295 patrons, and apron and patiospace for an additional 3,000 patrons. Consistent with our regulatoryrequirements, we also expect to continue construction on our turf track duringfiscal 2005. In December 2003 we opened the casino portion of theracino.  In December 2004, horseracing operations that were conducted at our nearby pari-mutuel wagering complexin Lafayette, Louisiana were transferred to our new horse racetrack.

 

*OTBs.*  We currently operate two off-track bettingparlors (“OTB”), one in Port Allen, Louisiana and one in New Iberia, Louisiana.Each of these OTBs offers simulcast pari-mutuel wagering seven days a week andis equipped with a bar to serve alcoholic and non-alcoholic beverages and akitchen that prepares short order food. The Port Allen OTB is locatedimmediately off Interstate 10, across the Mississippi river from Baton Rouge.The two-story Port Allen facility offers off-track betting, 100 video pokermachines which began operating in May 2003, 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 usthe exclusive right, at our option, to operate OTBs within a 55-mileradius of our horse racetrack, provided that such OTB is not also within a 55-mileradius of another horse racetrack.  TheCompany is currently in the process of constructing an OTB with video pokermachines at a location near Henderson, Louisiana, which is expected to open inthe second quarter of 2005.  Relatedconstruction costs are expected to be approximately $1.6 million.  In addition to the Henderson location, theCompany is looking at potentially opening two additional OTBs during the thirdquarter of 2005.

 

**Markets**

** **

*Dubuque,Iowa*.  The Diamond Jooperates from the Port of Dubuque, a waterfront development on the MississippiRiver in downtown Dubuque and is accessible from each of the major highways inthe area. On average, more than 30,000 vehicles pass the Diamond Jo per day.The Port of Dubuque is the site of the City of Dubuque’s $188 millionredevelopment project, known as the America’s River Project. The America’sRiver Project is on a 90-acre site on the Dubuque riverfront that features the National Mississippi River Museum &Aquarium, the Grand River Center for conferences and events, the Grand Harbor Resortand Waterpark, the Alliant Energy Amphitheater, and the Mississippi Riverwalk.This project, which was substantially completed in 2003, was designed toenhance the attractiveness of the Port of Dubuque as a community center andtourist destination, and has led to, and should continue to generate, increasedfoot traffic around the site of, and increased admissions to the Diamond Jo.

 

The Diamond Jo currentlydraws approximately 90% of its gaming revenues from patrons living within a 100-mileradius of Dubuque, an area of approximately 2.4 million residents. Dubuqueis situated at the intersection of Illinois, Iowa and Wisconsin, acts asthe region’s trade hub and has a diverse employer base.  In addition to the America’s River Project,Dubuque contains several tourist attractions, drawing more than one millionvisitors annually, and Galena, Illinois, a historic community located 15 mileseast of Dubuque, also draws more than one million visitors annually.

 

*Opelousas,Louisiana and Surrounding Areas.* Louisiana generatedapproximately $2.2 billion of casino gaming revenue in 2004, excludingNative American casinos, up from approximately $2.0 billion in 2003.  We believe that our centralized location inLouisiana will afford us the opportunity to participate in this large andgrowing market. There are approximately 300,000 adults living within 35 milesof the racino site, mostly within the Lafayette metropolitan area, our primarymarket. In addition, there are approximately 1.5 million adults living within100 miles of the racino site. This area includes secondary markets from whichwe believe we will attract patrons due to our ease of access from majorinterstates and highways compared to our competitors in those areas, as well asour offering of pari-mutuel live horse racing.

 

**Operating** Strategy

 

*Maintain/DevelopLoyal Local Customer Base.* We believe that the Diamond Jo and Evangeline Downs are among theprincipal entertainment venues for residents in Eastern Iowa and South CentralLouisiana. In order to maintain and enhance goodwill within the area, wesponsor numerous community events, including concerts and holiday celebrations.We have also implementedemployee incentives and training programs designed to provide a high level ofpersonalized service to our customers.

 

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*MaximizeProfitability Through Target Marketing.*  We have developed marketing and promotionalstrategies designed to target and reward frequent gaming customers in ourplayers’ club through mailings, gaming incentives, and food and beveragediscounts. Our electronic player tracking system allows us to monitor slotmachine activity in real time, as well as the frequency and level of play forour players’ club members, of which there are more than 190,000 at the DiamondJo and already over 90,000 at Evangeline Downs. This system enables us to focusour marketing efforts on our most valued customers,regularly adjust our overall game mix to appeal to our target market, andincrease revenues from our existing customer base.

 

*Focuson Slot Machine Play.*  Approximately89% of the Diamond Jo’s gaming revenue is generated from slot machines, and allof Evangeline Downs casino gaming revenues are generated from slot machines.Slot machines are typically both the highest margin and most predictablecomponent of the gaming industry. Slot machines do not have the staffingrequirements of table games nor do they have the variation in hold percentagesattributable to “luck” which characterize the table game side of the casinobusiness. We believe that this affords us a more stable and predictable revenuestream than those at facilities characterized primarily by table gameoperations. The Diamond Jo has added ticket-in ticket-out technology to 100% of its slot machines andEvangeline Downs has added ticket-in ticket-out technology to over 95% of its slotmachines. We believe this technology enhances customer service, producesoperating efficiencies, allows for players to continue to play during mostjackpots and eliminates hopper fills and the down time associated with them.

 

**Competition**

** **

*DiamondJo.*  The Diamond Jo’sprincipal competition is the only other licensed gaming facility in Dubuque,the Dubuque Greyhound Park (the “DGP”). The DGP is located approximately threemiles north of the Port of Dubuque and currently offers 600 slot machines, liveand simulcast greyhound racing and, on a limited basis, simulcast horseracing.  Furthermore, the DGP ispermitted to operate up to 1,000 slot machines and is in the process ofexpanding its facilities to accommodate additional machines, which expansion isanticipated to be completed by June 2005. In addition, a group of privateinvestors is currently constructing a hotel adjacent to the DGP, which isexpected to be completed in August 2005. The DGP is owned and operated bythe Dubuque Racing Association, or DRA. As a not-for-profit organization, theDRA distributes a percentage of its cash flow to the City of Dubuque and localcharities. Legislation recently passed allows the DGP to offer table games andvideo games that simulate table games, subject to DJL and the DGP filing withthe Iowa Gaming Commission an agreement with respect thereto that also allowsDJL to operate as a permanently moored barge.

 

Riverboat gaming licensesin the State of Iowa are granted to not-for-profit “qualified sponsoringorganizations” and can be issued jointly to a not-for-profit qualifiedsponsoring organization and a boat operator. The granting of new licensesrequires regulatoryapproval, which includes, among other things, satisfactory feasibility studies.The DRA is the not-for-profit qualified sponsoring organization that, pursuantto a contract between the parties, holds the excursion riverboat gaming licensetogether with us as the boat operator.

 

The Iowa GamingCommission recently rescindedits rule limiting riverboat gaming licenses in Iowa to its existing numberand ten proposals have been submitted, including ours for Worth County (asdiscussed above). A rule still exists that prohibits existing licenseesfrom increasing the number of gaming positions at their gaming facilitieswithout prior Iowa Gaming Commission approval.

 

The Dubuque gaming marketborders otherneighboring gaming markets. These neighboring markets include:

 

(1)           Elginand Aurora, Illinois to the east;

 

(2)           Marquette,Iowa and Native American gaming in Wisconsin and Minnesota to the north;

 

(3)           DesMoines, Iowa and Native American gaming in Tama, Iowa to the west; and

 

(4)           Clinton,Iowa and the Quad Cities (Bettendorf and Davenport, Iowa and Moline and RockIsland, Illinois) to the south.

 

We believe that the Diamond Jo competes only indirectlywith gaming facilities in these neighboring markets. Illinois enactedlegislation providing for dockside gaming in 1999. Illinois limits the numberof dockside gaming licenses to ten. Nine of the ten licenses have already beenissued.  The tenth license is currentlypending.

 

*EvangelineDowns.*  The nearestcompetitor to Evangeline Downs is a Native American casino located approximately50 miles to the south of Lafayette, including several miles off the highway inMarksville. Beyond that, patrons in Lafayette need to drive 

 

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approximately 50miles to reach riverboat casinos in Baton Rouge and approximately 70 miles toreach riverboat casinos in Lake Charles and Native American casinos inMarksville and Kinder. Because our competition in Marksville is situated morethan 20 miles off the highway, we believe that patrons of the Marksville casinomay find the ease of highway access to 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 in Louisianawith licenses to conduct live racing. Under the Pari-Mutuel Act, each of thefour horse racetracks (including our racino) are permitted to install slotmachines at their facilities. The horse racetrack nearest to the racino sitethat is allowed to have gaming operations is located in Vinton, Louisiana, nearLake Charles, which is over 100 miles away. In addition, current Louisiana lawpermits only 15 riverboat gaming licenses, all of which have currently beenawarded.  Also, under current Louisianalaw, the only non-Native American land-based casino permitted to operate in theState is the land-based casino currently operating in New Orleans, over 100miles from Lafayette. Native American gaming facilities operate pursuant tocompacts with the State of Louisiana. There currently are only four federally-recognizedNative American tribes in Louisiana and only three Native American casinoscurrently operating in Louisiana, the closest being in Marksville and Kinderwhich are approximately 50 miles from the racino site. The fourth tribe, whichto our knowledge currently does not have a compact with the State of Louisiana,has proposed to develop a casino in DeSoto Parish, over 150 miles from theracino.

 

**Worth** County, Iowa

** **

On November 11,2003, DJW entered into an exclusive agreement with the Worth County DevelopmentAuthority pursuant to which the parties agreed to jointly submit an applicationfor a license to operate a gaming facility in Worth County, Iowa. Under thisagreement, we have agreed to design, construct, operate and manage a casinowith no less than 700 gaming positions (on an approved body of water ofsufficient size to meet state requirements) and a two phase 100-roomhotel development (upon obtaining an acceptable third-party investment). In addition,the proposed facility is expected to include a restaurant, two fast food outlets and a bar withentertainment space.  The estimated costof the project is expected to be approximately $40.4 million.  If a license is granted to the Company by theIowa Racing and Gaming Commission, the Company intends to finance the projectthrough operating cash flow, borrowings under its senior credit facility andvendor equipment financing.  Based on a schedule setby the Iowa Racing and Gaming Commission, any licenses granted are expected tobe granted at a meeting on May 11, 2005. If we are able to obtain a license at such meeting, we plan on havingthe facility open by the third quarter of 2006. Worth County is located on the border of Minnesota and Iowa, approximately200 miles from the Diamond Jo.

 

**Employees**

** **

Wemaintain a staff of approximately 325 to 375 full-time equivalent employees atthe Diamond Jo and staff approximately 575 to 650 full-time equivalentemployees at Evangeline Downs, depending upon the time of the year. None of ouremployees are covered by a collective bargaining agreement. We have notexperienced any labor problems resulting in a work stoppage, and believe wemaintain good relations with****our****employees.

 

**Regulatory Matters**

** **

We and our subsidiaries are subject to regulationby the State of Iowa, 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. It is possible that the applicable requirements tooperate an Iowa or Louisiana gaming facility will become more stringent andburdensome, and that taxes, fees and expenses may increase. It is also possiblethat the number of authorized gaming licenses in Iowa or Louisiana may increase,which would intensify the competition that we face. Our failure to comply withdetailed regulatory requirements may be grounds for the suspension orrevocation of one or more of our respective licenses which would have amaterial adverse effect on our respective businesses.

 

**Iowa** Riverboat Gaming Regulation

** **

Our Diamond Jo operationsare subject toChapter 99F of the Iowa Code and the regulations promulgated under that Chapterand the licensing and regulatory control of the Iowa Gaming Commission.  Our license is subject to annual renewal.

 

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Under Iowa law, the legalage for gaming is 21, and wagering on a “gambling game” is legal when conductedby a licensee on an “excursion gambling boat.” An “excursion gambling boat” isan excursion boat or moored barge and a “gambling game” is any game of chanceauthorized by the Iowa Gaming Commission. Permanent dockside casino gaming wasrecently authorized by the Iowa Legislature.

 

The legislationpermitting riverboat gaming in Iowa authorizes the granting of licenses to “qualifiedsponsoring organizations.” A “qualified sponsoring organization” is defined asa nonprofit corporation organized under Iowa law, whether or not exempt fromfederal taxation, or a person or association that can show to the satisfactionof the Iowa Gaming Commission that the person or association is eligible forexemption from federal income taxation under Sections 501(c)(3), (4), (5), (6),(7), (8), (10) or (19) of the Internal Revenue Code. Such nonprofitcorporation may operate the riverboat itself, or it may enter into an agreementwith another boat operator to operate the riverboat on its behalf. A boatoperator must be approved and licensed by the Iowa Gaming Commission. DRA, anot-for-profit corporation organized for the purpose of operating a pari-mutuel greyhoundracing facility in Dubuque, Iowa, first received a riverboat gaming license in1990 and has served as the “qualified sponsoring organization” of the DiamondJo since March 18, 1993. DRA subsequently entered into the DRA OperatingAgreement with Greater Dubuque Riverboat Entertainment Company, the previousowner and operator of the Diamond Jo, authorizing Greater Dubuque RiverboatEntertainment Company to operate riverboat gaming operations in Dubuque. TheDRA Operating Agreement was approved by the Iowa Gaming Commission on March 18,1993. The term of the DRA Operating Agreement expires on December 31,2008. We assumed the rights and obligations of Greater Dubuque Riverboat EntertainmentCompany under the DRA Operating Agreement.

 

Even though our operatingagreement with the DRA is scheduled to terminate in 2008 and the DRA, subjectto satisfying necessary licensing requirements, is permitted to operate ariverboat itself, we expect that we will be able to renew our agreement withthe DRA. In order to operate a riverboat itself, the DRA would be required toobtain approval of the Iowa Gaming Commission to operate independently of theDiamond Jo and acquire or construct a boat or barge at a qualifying locationwithin Dubuque county (generally required to be on a lake, the riverfront orwithin 1,000 feet of the river’s high-water mark). We believe the economicincentive to the DRA of being Diamond Jo’s qualified sponsoring organization,the potential operating and licensing challenges the DRA would face if it wereto seek to operate independently of the Diamond Jo and certain benefits to theDubuque community to have an existing riverboat continue to operate itsbusiness, support the likelihood that we will renew our operating agreementwith the DRA. In addition, legislation recently passed allows the DGP to offertable games and video games that simulate table games, subject to DJL and theDGP filing with the Iowa Gaming Commission an agreement that also allows DJL tooperate as a barge. In the event, however, that our DRA Operating Agreement isnot renewed, we believe that we would be able to reach an agreement with areplacement qualified sponsoring organization and renew our gaming license tocontinue our operations. We can not assure you that we will successfully reachan agreement to renew the DRA Operating Agreement, find a replacement qualifiedsponsoring organization, or renew our gaming license.

 

Under Iowa law, a licenseto conduct gaming may be issued in a county only if the county electorate hasapproved the gaming. The electorate of Dubuque County, Iowa, which includes theCity of Dubuque, approved gaming on May 17, 1994 by referendum, includinggaming conducted by the Diamond Jo. In addition, a referendum must be heldevery eight years in each of the counties where gambling games are conductedand the proposition to continue to allow gambling games in such counties mustbe approved by a majority of the county electorate voting on the proposition.Such a referendum took place on November 5, 2002 with 79% of the electorate voting on theproposition favoring continued gaming on riverboats in Dubuque County. The nextreferendum is scheduled for 2010. If any reauthorization referendum isdefeated, Iowa law provides that any previously issued gaming license willremain valid and subject to renewal for a total of nine years from the date oforiginal issuance of the license, subject to earlier non-renewal or revocationunder Iowa law and regulations applicable to all licenses.

 

Proposals to amend orsupplement Iowa’s gaming statutes are frequently introduced in the Iowa statelegislature. In addition, the state legislature sometimes considers proposalsto amend or repeal Iowa law and regulations, which could effectively prohibit riverboat gaming in the State of Iowa,limit the expansion of existing operations or otherwise affect our operations.Although we do not believe that a prohibition of riverboat gaming in Iowa islikely, we can give no assurance that changes in Iowa gaming laws will notoccur or that the changes will not have a material adverse effect on ourbusiness.

 

The Gaming Commissionadopted in 1998 a rule that prohibits licensees, including the Diamond Jo,from increasing the number of gaming positions without Iowa Gaming Commissionapproval. This approval is based on several factors, including whether theincrease will:

 

(1)           positivelyimpact the community in which the licensee operates,

 

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(2)           resultin permanent improvements and land-based developments, and

 

(3)           havea detrimental impact on the financial viability of other licensees operating inthe same market.

 

As a result of this rule, we may be unable toincrease the number of gaming positions on the Diamond Jo.

 

Substantially all of theDiamond Jo’s material transactions are subject to review and approval by theIowa Gaming Commission. All contracts or business arrangements, verbal or written, withany related party or in which the term exceeds three years or the total valueof the contract exceeds $100,000 are agreements that qualify for submission toand approval by the Iowa Gaming Commission subject to certain limitedexceptions. The agreement must be submitted within 30 days of executionand approval must be obtained prior to implementation unless the agreementcontains a written clause stating that the agreement is subject to commissionapproval. Additionally, contracts negotiated between the Diamond Jo and a relatedparty must be accompanied by economic and qualitative justification.

 

We must submit detailedfinancial, operating and other reports to the Iowa Gaming Commission. We mustfile weekly gaming reports indicating adjusted gross receipts received fromgambling games. Additionally, we must file annual financial statements coveringall financial activities related to our operations for each fiscal year. Wemust also keep detailed records regarding our equity structure and owners.

 

Iowa has a graduatedwagering tax on riverboat gambling equal to five percent of the first onemillion dollars of adjusted gross receipts, ten percent on the next two milliondollars of adjusted gross receipts and twenty two percent on adjusted grossreceipts of more than three million dollars. In addition, there will be twoassessments due on June 1, 2005 and June 1, 2006 in an amount equalto 2.152% of the licensee’s adjusted gross receipts for fiscal year 2004. Theseassessments will be used against future state gaming taxes paid by the licenseewith a credit for 20% of the assessments paid allowed each year for fiveconsecutive years beginning July 1, 2010. In addition, Iowa riverboatsshare equally in costs of the Iowa Gaming Commission and related entities toadminister gaming in Iowa. For the fiscal year ended December 31, 2004,our share of such expenses was approximately $548,000. Further, the Diamond Jopays to the City of Dubuque a fee equal to $.50 per passenger.

 

If the Iowa GamingCommission decides that a gaming law or regulation has been violated, the IowaGaming Commission has the power to assess fines, revoke or suspend licenses orto take any other action as may be reasonable or appropriate to enforce thegaming rules and regulations. In addition, renewal is subject to, amongother things, continued satisfaction of suitability requirements.

 

We are required to notifythe Iowa Gaming Commission as to the identity of, and may be required to submitbackground information regarding, each director, corporate officer and owner, partner,joint venture, trustee or any other person who has a beneficial interest offive percent or more, direct or indirect, in DJL. The Iowa Gaming Commissionmay also request that we provide them with a list of persons holding beneficialownership interests in DJL of less than five percent. For purposes of theserules, “beneficial interest” includes all direct and indirect forms ofownership or control, voting power or investment power held through anycontract, lien, lease, partnership, stockholding, syndication, joint venture,understanding, relationship, present or reversionary right, title or interest,or otherwise.  The Iowa Gaming Commissionmay limit, make conditional, suspend or revoke the license of a licensee inwhich a director, corporate officer or holder of a beneficial interest in theperson includes or involves any person or entity which is found to beineligible as a result of want of character, moral fitness, financialresponsibility, or professional qualifications or due to failure to meet othercriteria employed by the Iowa Gaming Commission.

 

If any gaming authority,including the Iowa Gaming Commission, requires any person, including a recordor beneficial owner of the securities, to be licensed, qualified or foundsuitable, the person must apply for a license, qualification or finding ofsuitability within the time period specified by the gaming authority. Theperson would be required to pay all costs of obtaining the license,qualification or finding of suitability. If a record or beneficial owner of anyof the Peninsula Gaming Notes or any membership interest in PGL,  PGP or DJL is required to be licensed,qualified or found suitable and is not licensed, qualified or found suitable bysuch gaming authority within the applicable time period, the Peninsula GamingNotes or membership interests, as the case may be, would be subject toregulatory redemption procedures.

 

**The Horse Racing 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: (i) encourage the development of the business ofhorse racing with pari-mutuel wagering on a high plane; (ii) encourage thedevelopment of the breeding and ownership of race horses; (iii) regulatethe business of horse racing by licensed horse racing tracks in the

 

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state and toprovide the orderly conduct of racing; (iv) provide financial assistanceto encourage the business of racing horses; and (iv) provide a program forthe regulation, ownership, possession, licensing, keeping and inoculation ofhorses.

 

The Pari-Mutuel Actbecame effective on July 9, 1997 and provides for numerous controls andsupervision over the operation of slot facilities and requires us to complywith complex and extensive requirements. Failure to adhere to these statutesand regulations will result in serious disciplinary action against us,including monetary fines and suspension or revocation of our licenses.

 

The Pari-Mutuel Actallows only one facility in each of St. Landry Parish, Bossier Parish,Calcasieu Parish and Orleans Parish to be licensed to operate slot machines ata live horse racing facility. OED is presently the only “eligible facility” inSt. Landry Parish under the Pari-Mutuel Act. The Pari-Mutuel Act requires(among other things) that two conditions be met prior to the opening andoperation of a slot machine casino at a live racing venue. First, a parish-wideelection must approve the operation. In 1997, voters in St. Landry Parish votedto approve the slot machine casino at the racino site. Secondly, thePari-Mutuel Act requires that an appropriate tax be levied on the slot machineoperation. In 2000, an 18.5% license tax was levied upon taxable net slotmachine proceeds. Therefore, we believe that both of the conditions required bythe Pari-Mutuel Act have been met with respect to the racino at our site inOpelousas within St. Landry Parish.

 

The Pari-Mutuel Act alsoprovides that the “designated gaming space” in any eligible facility cannotexceed 15,000 square feet, that the licensee will not allow underage gaming andthat notice of toll-free telephone assistance for compulsive gamblers will beposted at the facility.  OED currently complieswith these requirements.

 

The Pari-Mutuel Actrequires that licensees supplement horse racing purses and pay certain otherfees from slot machine proceeds. The Pari-Mutuel Act also levies taxes on thenet slot machine proceeds. Licensees must pay fifteen (15%) percent of grossslot machine proceeds to supplement purses at their facilities, pay two (2%)percent to the Louisiana Thoroughbred Breeders Association and also pay one(1%) percent to the Louisiana Quarter Horse Breeders Association. In additionto these payments, we will pay eighteen and one-half (18.5%) percent of the netslot machine proceeds (net of the payments described above) as state taxes andfour (4%) percent as local taxes. The effective rate of total taxes and fees istherefore approximately 36.5% of our adjusted gross slot revenue. Additionally,we will also have to pay $0.25 for each patron who attends a live race at ourhorse racetrack, enters the racino during non-racing season, from the hours ofnoon to midnight, Thursday through Monday, or enters any one of our OTBs.

 

To remain an “eligiblefacility” under the Pari-Mutuel Act, each year we must, among other things,have a minimum of 80 live racing days in a consecutive 20-week period.

 

**The**Louisiana State Gaming Control Board

** **

In 1996, Louisianacreated the Louisiana Gaming Control Board, which was granted all of theregulatory authority, control and jurisdiction to license and monitor gamingfacilities in Louisiana, including our planned racino. To receive a gaminglicense an applicant and its management must apply to the Louisiana GamingControl Board and be investigated by the Louisiana State Police prior tolicensing. The Louisiana Gaming Control Board and Louisiana State Police mustdetermine that the applicant is suitable to conduct the gaming operations,including that the applicant (and its owners, officers, directors and keyemployees) is of good character, honesty and integrity, that its prioractivities, reputation and associations pose no threat to the public interestor to the effective regulation of the industry and that the applicant iscapable of conducting the operation of the slot machine facility. The LouisianaGaming Control Board must also determine that the applicant has adequatefinancing from a source suitable and acceptable to the Louisiana Gaming ControlBoard.

 

The applicant for agaming license, its directors, officers, key personnel, partners, and personsholding a five (5%) percent or greater equity or economic interest in theapplicant will be required to be found suitable by the Louisiana Gaming ControlBoard. To receive a license the applicant must file an extensive application withthe Louisiana Gaming Control Board, disclosing personal, financial, criminal,business and other information. The applicant is required to pay all costs ofinvestigation. An application for a finding of suitability of a person may bedenied for any cause deemed reasonable by the Louisiana Gaming Control Board.Any other person who is found to have a material relationship to or a materialinvolvement with a gaming company also may be required to be investigated inorder to be found suitable or be licensed as a business associate of anapplicant. Key employees, controlling persons or others who exercisesignificant influence upon the management or affairs of a gaming company may bedeemed 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 dismiss and severall relationships

 

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with such person.The applicant would have similar obligations with regard to any person whorefuses to file appropriate applications. Each gaming employee must obtain agaming employee permit which may be revoked upon the occurrence of certainspecified 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 in 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.

 

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 yearsand is renewable for succeeding five year periods upon application for suchrenewal. The Louisiana Gaming Control Board retains absolute discretion overthe right to renew our license upon the termination of its initial term.

 

OED’s gaming licenseauthorizes the use of 15,000 square feet of designated gaming space. On February 18,2003, OED submitted for approval its layout for the casino, which incorporated1,631 slot machines. OED’s layout was approved based on the type of machines,which were all upright machines. Should OED change the manufacturer, typeand/or design of its slot machines prior to installation, it must once again gobefore the Louisiana Gaming Control Board to obtain approval for the newmachines. Once the machines are installed, they must be inspected by regulatorsand tested prior to the approval of their operation. The moving of the machinesalso requires the approval of the Louisiana Gaming Control Board.

 

To maintain our gaminglicense, each year we must remain an “eligible facility” under the Pari-MutuelAct. This means that we must, among other things, have a minimum of 80 liveracing days in a consecutive 20-week period each year of live horse racemeetings at the new horse racetrack and must 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 siteavailable 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 in placebeginning the first day of operation. These controls include handling of cash,tips and gratuities, slot operations, and count room procedures and managementinformation systems. Each licensed facility is required by the Louisiana GamingControl Board to maintain cash or cash equivalent amounts on site sufficient toprotect patrons against defaults in gaming debts owed by the licensee. Inaddition, licensees are subject to currency transaction report regulations.

 

We must also strictlycomply with mandated operating procedures and supply detailed reportsdisclosing such compliance. Regulation of a casino’s methods of operations isextensive and will include substantially all aspects of our casino operation.Operating procedures that are subject to regulation include slot machinemaintenance and operation, cash management and cash procedures, cageprocedures, drop procedures, regulation of weapons in the casino, parking,access to the premises and records by regulators, gaming credit andadvertising, surveillance and security standards, safeguards against underagegambling, compulsive gambling programs, physical layout and progressivejackpots.

 

The Louisiana GamingControl Board retains the power to suspend, revoke, condition, limit orrestrict our license to conduct slot machine operations as a sanction forviolating licensing terms or for any cause they deem reasonable. In addition,monetary fines for violations may be levied against us, and our gamingoperation revenues may be forfeited to the state under certain circumstances.Initial enforcement actions against a licensee are brought by the LouisianaState Police and are heard before an administrative law judge to whom theLouisiana Gaming Control Board has delegated decision making power. Eitherparty may appeal the ruling of the administrative law judge before the fullLouisiana Gaming Control Board. Either party may further appeal the ruling ofthe Louisiana 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, results of operations and abilityto meet our payment obligations under the notes and our other indebtedness.

 

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The Louisiana GamingControl Board has broad regulatory power over securities issuances andincurrence of indebtedness by gaming facilities. Substantially all loans,leases, private sales of securities, extensions of credit, refinancings andsimilar financing transactions entered into by a licensee must be approved bythe Louisiana Gaming Control Board. Pursuant to a letter dated January 31,2003, the Louisiana Gaming Control Board exempted the notes offering from anyrequirement for prior approval by the Louisiana Gaming Control Board. However,at any time, any holder of the notes may be called before the Louisiana GamingControl Board to undergo a suitability investigation in the event the LouisianaGaming Control Board determines that such holder exercises a material influenceover 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-MutuelAct does 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.

 

If the Louisiana Gaming ControlBoard finds that any security holder or proposed security holder, including aholder of our debt securities or the debt securities or our subsidiaries, isnot qualified pursuant to existing laws, rules and regulations, and if asa result it determines that the licensee is no longer qualified to continue asa licensee, it can propose action necessary to protect the public interest,including the suspension or revocation of a license or permit. It may alsoissue, under penalty of revocation of license, a condition of disqualificationnaming the person and declaring that such person may not (a) receivedividends or interest on securities of the licensee, (b) exercise anyright conferred by securities of the licensee, (c) receive remuneration orany other economic benefit from the licensee or (d) continue in anownership or economic interest in the licensee or remain as a director,partner, officer, or manager of the licensee. A security issued by a licenseemust generally disclose these restrictions.

 

**Louisiana**State Racing Commission

** **

Pari-mutuel betting andthe conducting of live horse race meets in Louisiana are strictly regulated bythe Louisiana 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: (i) racing experience; (ii) financialqualifications; (iii) moral and financial qualifications of applicant andapplicant’s partners, officers and officials; (iv) the expected effect onthe breeding and horse industry; and (v) the expected effect on the State’seconomy.

 

In 2000, we received fromthe Louisiana State Racing Commission a license to conduct live race meets andto operate pari-mutuel wagering at our existing facility. The initial term ofthis 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 our 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 of 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.

 

**Federal**Regulation 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.

 

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**Potential**Changes in Tax and Regulatory Requirements

** **

In the past, federal andstate legislators and officials have proposed changes in tax law, or in theadministration of the laws, affecting the gaming industry. Regulatorycommissions and state legislatures sometimes consider limitations on theexpansion of gaming in jurisdictions where we operate and other changes ingaming laws and regulations. Proposals at the national level have included a federalgaming tax and limitations on the federal income tax deductibility of the costof furnishing complimentary promotional items to customers, as well as variousmeasures which would require withholding on amounts won by customers or onnegotiated discounts provided to customers on amounts owed to gaming companies.It is not possible to determine with certainty the likelihood of possiblechanges in tax or other laws or in the administration of the laws. The changes,if adopted, could have a material adverse effect on our financial results.

 

**Liquor**Regulations

 

The sale of alcoholicbeverages by us in Iowa is or will be subject to the licensing, control andregulation by liquor agencies, which include the City of Dubuque and theAlcohol Beverage Control Division of the Iowa Department of Commerce. Theapplicable Iowa liquor laws allow the sale of liquor during legal hours whichare Monday through Saturday from 6 a.m. to 2 a.m. the next day andSunday from 8 a.m. to 2 a.m. on Monday. Subject to few exceptions,all persons who have a financial interest in us, by ownership, loan orotherwise, must be disclosed in an application filed with, and are subject toinvestigation by, Iowa’s liquor agencies. Persons who have a direct or indirectinterest in any Iowa liquor license, other than hotel or restaurant liquorlicenses, may be prohibited from purchasing or holding our Existing Notes. Alllicenses are subject to annual renewal, are revocable and are not transferable.The liquor agencies have the full power to limit, condition, suspend or revokeany license or to place a liquor licensee on probation with or withoutconditions. Any disciplinary action could, and revocation would, have amaterial adverse effect upon the operations of our business. Many of our owners,officers and managers must be investigated by the liquor agencies in connectionwith our liquor permits. Changes in licensed positions must be approved by theliquor agencies.

 

The sale of alcoholicbeverages by us in Louisiana is subject to the licensing, control andregulation by the State of Louisiana, Department of Revenue, Office of Alcoholand Tobacco Control, as well as the cities of Opelousas, Carencro, Port Allen,New Iberia and the parish of West Baton Rouge. The applicable liquor laws inthe city of Opelousas where the racino is located allow the sale of liquor24 hours a day 7 days a week.

 

**United States**Coast Guard

** **

The Diamond Jo is alsoregulated by the United States Coast Guard, whose regulations affect boatdesign and stipulate on-board facilities, equipment and personnel, includingrequirements that each vessel be operated by a minimum complement of licensedpersonnel, in addition to restricting the number of persons who can be aboardthe boat at any one time. Our riverboat must hold, and currently possesses, aCertificate of Inspection (“COI”) and a Certificate of Documentation from theUnited States Coast Guard. Loss of the COI would preclude our use of theDiamond Jo as an operating riverboat. In addition, the riverboat is subject toUnited States Coast Guard regulations requiring periodic hull inspections. TheUnited States Coast Guard, upon our request, allowed us to conduct anunderwater hull inspection instead of the traditional out of water dry dockinspection. We completed the underwater inspection in March 2003. Theunderwater hull inspection did not result in any loss of services of theriverboat. We will be required to perform another hull inspection within60 months from the date of the completion of the underwater hull inspection.At that time, we may again seek approval from the Coast Guard for an underwaterhull inspection in order to avoid any loss of services of the riverboat,although no assurances can be given that the Coast Guard will agree to ourrequest.

 

Due to changes in Iowalaw, we may operate a gaming vessel that is not required to cruise, without aCOI. We have received our Permanently Moored Vessel (PMV) permit from the USArmy Corp of Engineers.  We are currentlyworking closely with the Coast Guard to give up our COI and become a PMV. Theprocess of becoming a PMV is expected to take at least six months and, ifgranted, will allow us to reduce our marine personnel to a level fitting of anon-cruising vessel.

 

All of our marineemployees employed on United States Coast Guard regulated vessels, even thosewho have nothing to do with the actual operation of the vessel, such asdealers, cocktail hostesses and security personnel, may be subject to maritimelaw at certain times of the year, which, among other things, exempts thoseemployees from state limits on workers’ compensation awards. We maintainworkers’ compensation insurance in compliance with applicable Iowa law.

 

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**The**Maritime Transportation Security Act and Homeland Security

** **

The MaritimeTransportation Security Act was passed and signed into law following the eventsof September 11, 2001. The Coast Guard has published regulationsimplementing the Act, requiring covered vessels and associated shore facilitiesto develop and implement comprehensive security plans for preventing andresponding to potential terrorist threats. We are in the process ofimplementing an Alternative Security Plan at the Diamond Jo developed by theAmerican Gaming Association to satisfy the Coast Guard regulations. However, itis not possible to predict the precise impact of these regulations, or otherregulations relating to homeland security contemplated by the Coast Guard, uponaccess to our facility or gaming operations.

 

**The**Shipping Act of 1916; The Merchant Marine Act of 1936

** **

The Shipping Act of 1916,and the Merchant Marine Act of 1936, and applicable regulations containprovisions which would prevent persons who are not citizens of the UnitedStates from holding in the aggregate more than 25% of our outstandingmembership interests, directly or indirectly. DJL’s and PGP’s respectiveoperating agreements contain prohibitions against any purchase or transfer ofthe Company’s, DJL’s or PGP’s respective membership interests to any person orentity if, following the purchase or transfer, more than 25% of DJL’smembership interests are owned, directly or indirectly, by persons who are notcitizens of the United States. Any such purchase or transfer in violation ofthe Company’s, DJL’s or PGP’s respective operating agreements is null and void,and the Company’s, DJL and PGP will not recognize the purchaser, transferee orpurported beneficial owner as a direct or indirect holder of an interest in theCompany, DJL or PGP, respectively, for any purpose. To the extent required bymaritime laws, the managing member, managers and the officers of the Company,DJL and PGP must be citizens of the United States.

 

**Other Regulations**

** **

We and our subsidiariesare subject to federal, state and local environmental and safety and healthlaws, regulations and ordinances that apply to non-gaming businesses generally,such as the Clean Air Act, Federal Water Pollution Control Act, OccupationalSafety and Health Act, Resource Conservation Recovery Act, Oil Pollution Act of1990 and Comprehensive Environmental Response, Compensation and Liability Act,each as amended. We have not incurred, and do not expect to incur, materialexpenditures with respect to these laws. There can be no assurances, however,that we will not incur material liability under these laws in the future.

 

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

 

DJL owns a fee interestin the dockside pavilion, adjacent to the Diamond Jo casino, consisting ofapproximately 36,000 square feet, a surface parking lot within close proximityto the dockside pavilion, and a walkway connecting the dockside pavilion to aramp, leading to where the Diamond Jo is moored.

 

In addition to theproperties we purchased, we currently lease property used as surface parkingconsisting of approximately 194 parking spaces that are in close proximity tothe Diamond Jo. This leased property is currently owned by the City of Dubuqueand leased to DRA, which in turn subleases this property to us. The subleaserequires us to pay one dollar per year as rent. The terms of the DRA lease withthe City of Dubuque and our sublease with the DRA have each been extendedthrough December 31, 2008.

 

DJL is are also party toa parking agreement by and among the City of Dubuque, DRA, the Dubuque CountyHistorical Society and the Spirit of Dubuque, which governs the use ofadditional parking spaces we currently use. This parking agreement gives ourpatrons the right to use the approximately 194 parking spaces currentlysubleased from DRA. The agreement also gives our patrons and employees thenon-exclusive right to use approximately 633 additional parking spaces that areowned by the City of Dubuque and the Dubuque County Historical Society and arelocated in close proximity to the Diamond Jo. In exchange for these parking rightsand the extension of the sublease with the DRA, we are required, under somecircumstances, to share costs of maintaining the subleased parking lots.

 

Our new racino sits onand is bounded by approximately 649 acres of owned land located in Opelousas thatwe purchased in 2002 and 2003.  We haveconstructed a 170,000 square foot building and a one mile dirt racetrack onthis site.  A portion of the purchaseprice for certain parcels of such land was financed by the seller of suchparcels by OED issuing a $3,850,000 note payable to the seller. The note waspayable in seven equal annual installments of $550,000 beginning October 24,2004 and initially bore interest at a rate of 4.75% of the unpaid balance duemonthly in arrears on the fifth day of each month beginning on December 5,2003. The note is collateralized by a mortgage on the property. Simultaneouslywith the payment of each $550,000 annual installment, seller agreed to releasefrom the mortgage one of seven parcels of land into which the land was equallydivided.  In December 2004, OEDamended the mortgage and promissory note, which agreements are pending beforethe Louisiana Gaming Control Board to, among other things, allow for thepostponement of the first principal payment to February 2005 and anincrease in the interest rate to 8.75% per annum.

 

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The holder of thepromissory note filed for suitability qualification with Louisiana gamingauthorities, which application is also pending.

 

In addition to our newracino, OED owns the land, building and improvements of the Port Allen OTB andleases the facility that comprises the New Iberia OTB.

 

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

 

InOctober 2003, OED filed a Petition for Declaratory Judgment in state court inSt. Landry Parish, Louisiana, naming the Secretary of the Department of Revenueand Taxation for the State of Louisiana, the St. Landry Parish School Board andthe City of Opelousas, seeking a definitive ruling on the extent of its taxliability and seeking to prevent Louisiana state and local governmentalauthorities from assessing sales taxes in connection with its construction andequipping of the Evangeline Downs casino and racetrack. Louisiana law providesthat racetracks are not required to pay taxes other than those provided in theracing statutes and that taxes and fees provided in the racing statutes are inlieu of, among other things, all other state and local taxes, including salestaxes. In response to a request by OED for clarification of its tax status, theState of Louisiana Department of Revenue delivered a letter to OED, dated April9, 2001, confirming that all purchases of tangible personal property andtaxable services by pari-mutuel racetracks and off-track betting facilities areexempt from the payment of sales tax. In a response filed by the City ofOpelousas with the district court in February 2005, the City of Opelousas hasgenerally argued that the exemption under the racing statutes should not extendto the purchase of goods, materials and services for non-racing operations,which include, for example, the operation of slot machines, restaurants,lounges and shops.

 

OEDhas paid all applicable sales taxes relating to the purchase of slot machinesat the casino, but has not paid sales taxes relating to the construction of thefacility or the purchase of other tangible personal property in connectiontherewith. OED’s motion for summary judgment is currently pending before thedistrict court, and a hearing on the motion is scheduled for April 2005. Basedon the advice of outside regulatory counsel, OED is optimistic that thedistrict court will agree with the position articulated by the Department ofRevenue and Taxation and render summary judgment in OED’s favor. If the issue,however, is ultimately determined adversely to OED, and OED is required to paysales taxes on its non-racing related activities, based upon current estimatesand depending on how the issue is ultimately resolved, such taxes could rangefrom $1.5 million to $8 million.

 

Otherthan as described above, neither we nor our subsidiaries are a party to, andnone of our nor our subsidiaries’ property is the subject of, any other pendinglegal proceedings other than litigation arising in the normal course of business. We do not believe thatadverse determinations in any or all such other litigation would have amaterial adverse effect on our financial condition, results of operations orcash flows.

 

**ITEM 4****.****                 SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

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**PART II**

 

**ITEM 5****.****                 MARKETFOR THE REGISTRANT’S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES**

 

There is no established public trading market for any of PGL’s, DJL’s or PGC’scommon equity securities.

 

As of March 15, 2005, PGP was the only holder ofrecord of the common equity of PGL.  In May 2004,PGP repurchased 147,553 units of its convertible preferred membership interestsfrom an unrelated third party for approximately $4.5 million.  The repurchase was funded by a distributionof cash to PGP from DJL.  In fiscal years2004, 2003 and 2002, PGL and/or its subsidiaries paid distributions of $2,530,706,$1,557,143 and $1,260,012, respectively, to PGP in respect of (i) compensationfor certain consulting and financial advisory services related to PGPdevelopment expenses, (ii) board fees and actual out-of-pocket expensesincurred by members of the board of managers of PGP in their capacity as boardmembers, and (iii) tax, accounting, legal and administrative costs andexpenses of PGP.  These amounts wererecorded as member distributions.

 

Significant restrictions exist on our ability to makemember distributions.  See Note 4 to theconsolidated financial statements for information on such restrictions.

 

**ITEM 6****.****                 SELECTEDFINANCIAL DATA**

 

The following table represents selected consolidatedfinancial data of PGL for the five years ended December 31, 2004.

 

The selected historical financial data for the fiveyears ended December 31, 2004 are derived from audited financialstatements of the Company and its subsidiaries. The selected financial data set forth below should be read inconjunction with, and is qualified in its entirety by reference to, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” andthe Company’s financial statements and the related notes included elsewhere inthis document.

 
| ** **                                                                   | ** ** | **2004**                   | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                                                   | ** ** | **(Dollars in thousands)** | ** ** |
| **Statement  of Operations Data**                                            |       |                       |       |     |       |     |       |     |       |     |       |
| REVENUES:                                                                    |       |                       |       |     |       |     |       |     |       |     |       |
| Casino                                                                       |       | $                          | 119,921    |     | $          | 56,795   |       | $        | 48,262     |     | $          | 47,710 |   | $ | 45,519 |   |
| Racing                                                                       |       | 20,001                     |       | 17,774   |       | 15,510   |       |     |       |     |       |
| Food and  beverage                                                           |       | 11,464                     |       | 4,565    |       | 3,886    |       | 2,745    |       | 2,663    |       |
| Other                                                                        |       | 1,434                      |       | 589      |       | 145      |       | 132      |       | 169      |       |
| Less  promotional allowances                                                 |       | (7,966                     | )          | (3,221   | )          | (2,615   | )          | (2,470   | )          | (2,599   | )          |
| Total net  revenues                                                          |       | 144,854                    |       | 76,502   |       | 65,188   |       | 48,117   |       | 45,752   |       |
| EXPENSES:                                                                    |       |                       |       |     |       |     |       |     |       |     |       |
| Casino                                                                       |       | 60,911                     |       | 24,092   |       | 20,992   |       | 20,812   |       | 19,954   |       |
| Racing                                                                       |       | 16,959                     |       | 14,646   |       | 12,651   |       |     |       |     |       |
| Food and  beverage                                                           |       | 9,218                      |       | 4,282    |       | 3,820    |       | 2,857    |       | 2,856    |       |
| Boat  operations                                                             |       | 2,231                      |       | 2,322    |       | 2,296    |       | 2,259    |       | 2,242    |       |
| Other                                                                        |       | 1,076                      |       | 443      |       | 27       |       | 22       |       | 37       |       |
| Selling,  general and administrative                                         |       | 21,405                     |       | 11,609   |       | 8,303    |       | 6,244    |       | 6,022    |       |
| Depreciation  and amortization                                               |       | 12,355                     |       | 3,324    |       | 2,950    |       | 3,963    |       | 3,571    |       |
| Pre-opening  expense                                                         |       | 367                        |       | 3,257    |       |     |       |     |       |     |       |
| Development  expense                                                         |       | 242                        |       | 102      |       |     |       |     |       |     |       |
| Management  severance and recruiting                                         |       | 593                        |       |     |       |     |       |     |       |     |       |
| Affiliate  management fees                                                   |       | 757                        |       | 175      |       |     |       |     |       |     |       |
| (Gain) loss  on disposal of assets                                           |       | (716                       | )          | 50       |       | 8        |       | 152      |       | 122      |       |
| Litigation  settlement                                                       |       |                       |       |     |       | 1,600    |       |     |       |     |       |
| Referendum                                                                   |       |                       |       |     |       | 771      |       |     |       |     |       |
| State of  Wisconsin government relations                                     |       |                       |       |     |       | 55       |       | 147      |       |     |       |
| Total  expenses                                                              |       | 125,398                    |       | 64,302   |       | 53,473   |       | 36,456   |       | 34,804   |       |
| Income from  operations                                                      |       | 19,456                     |       | 12,200   |       | 11,715   |       | 11,661   |       | 10,948   |       |
| OTHER INCOME  (EXPENSE):                                                     |       |                       |       |     |       |     |       |     |       |     |       |
| Interest  income                                                             |       | 170                        |       | 490      |       | 46       |       | 184      |       | 434      |       |
| Interest  expense, net of amounts capitalized                                |       | (26,775                    | )          | (25,072  | )          | (11,888  | )          | (9,640   | )          | (9,507   | )          |
| Loss on  early retirement of debt                                            |       | (37,566                    | )          |     |       |     |       |     |       |     |       |
| Interest  expense related to preferred members’ interest, redeemable(1) |       | (360                       | )          | (180     | )          |     |       |     |       |     |       |
| Total other  expense                                                         |       | (64,531                    | )          | (24,762  | )          | (11,842  | )          | (9,456   | )          | (9,073   | )          |
| Preferred  member distributions(1)                                           |       |                       |       | (180     | )          | (373     | )          | (386     | )          | (630     | )          |
| Minority  interest                                                           |       |                       |       |     |       | (232     | )          |     |       |     |       |
| Net income  (loss) to common members’ interests                         |       | $                          | (45,075    | )        | $          | (12,742  | )          | $        | (732       | )        | $          | 1,819 |   | $ | 1,245 |   |
|                                                                         |       |                       |       |     |       |     |       |     |       |     |       |
| Ratio of  earnings to fixed charges(2)                                       |       | 0.3                        | x          | 0.5      | x          | 0.9      | x          | 1.2      | x          | 1.1      | x          |
| Pro forma  ratio of earnings to fixed charges(3)                             |       | 0.7                        | x          |     |       |     |       |     |       |     |       |
|                                                                         |       |                       |       |     |       |     |       |     |       |     |       |
| **Other  Data**                                                              |       |                       |       |     |       |     |       |     |       |     |       |
| Cash flows  from/(used in) operating activities                              |       | $                          | (21,875    | )        | $          | 769      |       | $        | 11,784     |     | $          | 7,250 |   | $ | 4,951 |   |
| Cash flows  (used in) investing activities                                   |       | (6,786                     | )          | (94,695  | )          | (37,790  | )          | (2,816   | )          | (2,409   | )          |
| Cash flows  from/(used in) financing activities                              |       | 18,007                     |       | 104,575  |       | 28,993   |       | (5,273   | )          | (2,099   | )          |
| Distributions  to common members                                             |       | 7,031                      |       | 1,557    |       | 1,260    |       | 1,761    |       | 1,918    |       |

 

13

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| ** **                                       | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **Balance  Sheet Data**                          |       |     |       |     |       |     |       |     |       |     |       |
| Current  assets                                  |       | $        | 17,418     |     | $          | 40,227   |       | $        | 12,160     |     | $          | 8,034 |   | $ | 9,134 |   |
| Total assets                                     |       | 243,069  |       | 261,519  |       | 126,448  |       | 84,374   |       | 86,788   |       |
| Current  liabilities                             |       | 34,271   |       | 46,321   |       | 35,358   |       | 3,964    |       | 3,533    |       |
| Total  debt(1)                                   |       | 279,378  |       | 228,825  |       | 102,944  |       | 70,860   |       | 70,764   |       |
| Preferred  members’ interest, redeemable(1) |       |     |       |     |       | 4,000    |       | 4,000    |       | 7,000    |       |
| Total  members’ equity (deficit)            |       | (62,599  | )          | (10,629  | )          | 3,671    |       | 5,663    |       | 5,604    |       |
|                                                  |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

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(1)           InMay 2003, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 150, “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity” (“SFAS 150”).This statement 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 instrument embodiesan obligation of the issuer. As a result of the adoption of SFAS No. 150on July 1, 2003, we reclassified our $4 million mandatory redeemablepreferred members’ interest from the mezzanine section of the consolidatedbalance sheet to long-term debt. Further, preferred member distributions paidor accrued subsequent to adoption of SFAS No. 150 are required to bepresented as interest expense separately from interest due to other creditors. TheCompany was not required to record a cumulative effect of a change in anaccounting principle as the redeemable preferred members’ interest was recordedat fair value prior to July 1, 2003. We are precluded from reclassifyingprior period amounts pursuant to this standard.

 

(2)           Forpurposes of determining the ratio of earnings to fixed charges, earnings aredefined as net income (loss) to common members’ interests plus fixed charges.Fixed charges include interest expense on all indebtedness, including amountscapitalized, amortization of deferred financing costs and debt discount and preferredmember distributions. Earnings were 

 

14

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insufficient to cover fixed charges for theyears ended December 31, 2004, 2003 and 2002 by $46.1 million, $14.9million and $0.8 million, respectively.

 

(3)           Forpurposes of determining the pro forma ratio of earnings to fixed charges forthe year ended December 31, 2004, earnings are defined as net income(loss) to common members’ interests plus fixed charges, in each case, aftergiving effect to our debt refinancing as discussed in Note 16 to theconsolidated financial statements as if it had occurred on December 31,2003. Earnings were insufficient to cover fixed charges for the year ended December 31,2004 by $7.3 million.

 

**ITEM 7****.****                 MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussionand analysis should be read in conjunction with, and is qualified in itsentirety by, our “Selected Financial Data” and the financial statements and therelated notes thereto appearing elsewhere in this report.

 

**ForwardLooking Statements**

** **

Some statements containedin “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”and other 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 andadequacy of our cash flow to satisfy our obligations, including payment of thePeninsula Gaming Notes and additional funds required to support capitalimprovements and development;

 

•      economic, competitive,demographic, business and other conditions in our local and regional markets;

 

•      changes or developments inthe laws, regulations or taxes in the gaming and horse racing industry;

 

•      actions taken or omitted tobe taken by third parties, including customers, suppliers, competitors, membersand shareholders, as well as legislative, regulatory, judicial and othergovernmental authorities;

 

•      changes in businessstrategy, capital improvements, development plans, including those due toenvironmental remediation concerns, or changes in personnel or theircompensation, including federal, state and local minimum wage requirements;

 

•      the loss of any license orpermit, including the failure to obtain an unconditional renewal of a requiredgaming license on a timely basis;

 

•      the termination of ouroperating agreement with the Dubuque Racing Association, Ltd. or the failure ofthe Dubuque Racing Association, Ltd. to continue as our “qualified sponsoringorganization;”

 

•      the loss of our riverboatcasino or land-based facilities due to casualty, weather, mechanical failure orany extended or extraordinary maintenance or inspection that may be required;

 

•      potential exposure toenvironmental liabilities, changes or developments in the laws, regulations ortaxes in the gaming or horse racing industry or a decline in the public acceptanceof gaming or horse racing and other unforeseen difficulties associated with anew venture;

 

•      adverse circumstances,changes, developments or events relating to or resulting from our ownership andcontrol of OED and DJL; and

 

15

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•      other factors discussed inour other filings with the Securities and Exchange Commission.

 

**Overview**

** **

We own and operate (i) theDiamond Jo riverboat casino in Dubuque, Iowa with 749 slot machines and 17table games, (ii) the Evangeline Downs racino development with 1,627 slotmachines and a one-mile horse racetrack in Opelousas, Louisiana and (iii) twoOTBs, one in Port Allen, Louisiana and one in New Iberia, Louisiana. In December 2003we began casino operations at our new racino in Opelousas, Louisiana.  In December 2004, horse racingoperations that were conducted at our nearby pari-mutuel wagering complex inLafayette, Louisiana were transferred to our new racino.

 

**Results** of Operations

** **

Our results of operationsdiscussed below include the consolidated results of operations of the Companyand DJL for the years ended December 31, 2004, 2003 and 2002, the resultsof operations of OED for the years ended December 31, 2004 and 2003 andthe period February 15, 2002 (the date OED was acquired) through December 31,2002 and the results of operations of OEDA for the period January 1, 2004through June 30, 2004 (the date which OEDA was spun-off) and the yearsended December 31, 2003 and 2002.

 

*Statement of Operations Data*

 
| ** **                         | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------|------------|----------------------------------|------------|
| ** **                         | ** ** | **2004**                         | ** ** | **2003** | ** ** | **2002** | ** ** |
| General  corporate                 |       | $                                | (1,276,007 | ) |   |   |   |   |
| Diamond Jo                         |       | 14,225,426                       |       | $ | 15,351,014 |   | $ | 12,011,923 |   |
| Evangeline  Downs (including OEDA) |       | 6,506,366                        |       | (3,150,948 | ) | (297,306 | ) |
| Income from  operations            |       | $                                | 19,455,785 |   | $ | 12,200,066 |   | $ | 11,714,617 |   |

 
| ** **                               | ** ** | **Diamond Jo**                   | ** ** | **Evangeline Downs**             | ** ** |
|------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **Year Ended December 31,** | ** ** | **Year Ended December 31,** | ** ** | **Period from  February 15,  2002 to  December 31,** | ** ** |
| ** **                               | ** ** | **2004**                         | ** ** | **2003**                         | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| * *                                 |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| *Revenues:*                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Casino                                   |       | $                                | 50,964,152 |                             | $          | 53,567,052 |   | $ | 48,262,485 |   | $ | 68,956,783 |   | $ | 3,227,477 |   |   |   |
| Racing                                   |       |                             |       |                             |       |   |   | 20,000,703 |   | 17,773,481 |   | $ | 15,509,989 |   |
| Food and  beverage                       |       | 2,896,792                        |       | 3,027,064                        |       | 2,806,118 |   | 8,567,302 |   | 1,538,374 |   | 1,080,208 |   |
| Other                                    |       | 487,765                          |       | 421,907                          |       | 144,817 |   | 946,370 |   | 167,361 |   |   |   |
| Less  promotional allowances             |       | (2,633,454                       | )          | (3,011,987                       | )          | (2,615,355 | ) | (5,332,330 | ) | (209,147 | ) |   |   |
| Net revenues                             |       | 51,715,255                       |       | 54,004,036                       |       | 48,598,065 |   | 93,138,828 |   | 22,497,546 |   | 16,590,197 |   |
| *Expenses:*                              |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Casino                                   |       | 22,831,003                       |       | 22,182,740                       |       | 20,992,183 |   | 38,079,749 |   | 1,908,730 |   |   |   |
| Racing                                   |       |                             |       |                             |       |   |   | 16,958,738 |   | 14,646,351 |   | 12,650,996 |   |
| Food and  beverage                       |       | 2,641,480                        |       | 2,781,945                        |       | 2,822,160 |   | 6,576,865 |   | 1,500,065 |   | 998,205 |   |
| Boat  operations                         |       | 2,231,223                        |       | 2,322,126                        |       | 2,295,771 |   |   |   |   |   |   |   |
| Other                                    |       | 390,134                          |       | 383,030                          |       | 27,471 |   | 685,730 |   | 59,934 |   |   |   |
| Selling,  general and administrative     |       | 6,921,574                        |       | 8,331,577                        |       | 6,847,903 |   | 13,556,447 |   | 3,277,507 |   | 1,454,476 |   |
| Depreciation  and amortization           |       | 2,678,488                        |       | 2,499,597                        |       | 2,766,543 |   | 9,677,015 |   | 823,944 |   | 183,826 |   |
| Pre-opening  expense                     |       |                             |       |                             |       |   |   | 367,488 |   | 3,256,963 |   |   |   |
| Management  severance and recruiting     |       | 293,637                          |       |                             |       |   |   | 191,480 |   |   |   |   |   |
| Affiliate  management fees               |       |                             |       |                             |       |   |   | 757,430 |   | 175,000 |   |   |   |
| Development  expense                     |       |                             |       | 102,272                          |       |   |   |   |   |   |   |   |   |
| (Gain) loss  on disposal of assets       |       | (497,710                         | )          | 49,735                           |       | 8,000 |   | (218,480 | ) |   |   |   |   |
| Litigation  settlement                   |       |                             |       |                             |       |   |   |   |   |   |   | 1,600,000 |   |
| Referendum                               |       |                             |       |                             |       | 771,111 |   |   |   |   |   |   |   |
| State of  Wisconsin government relations |       |                             |       |                             |       | 55,000 |   |   |   |   |   |   |   |
| Total expenses                           |       | 37,489,829                       |       | 38,653,022                       |       | 36,586,142 |   | 86,632,462 |   | 25,648,494 |   | 16,887,503 |   |
| Income  (loss) from operations           |       | $                                | 14,225,426 |                             | $          | 15,351,014 |   | $ | 12,011,923 |   | $ | 6,506,366 |   | $ | (3,150,948 | ) | $ | (297,306 | ) |

 

16

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*2004 Compared to 2003*

 

Net revenues increased $68.4million, or 89.3%, to $144.9 million for the year ended December 31,2004 from $76.5 million for the year ended December 31, 2003. Themajority of this increase is due to an increase in OED’s casino revenues of$65.8 million to $69.0 million for the year ended December 31, 2004 from$3.2 million for the year ended December 31, 2003 as a result of theopening of the casino portion of the racino in December 2003.  Daily casino win per position at OED was $119for the year ended December 31, 2004. Diamond Jo’s casino revenues decreased $2.6 million, or 4.9%, to $51.0for the year ended December 31, 2004 from $53.6 million for the yearended December 31, 2003.  Diamond Jo’sslot revenue decreased $1.7 million, or 3.6%, for the year ended December 31,2004 compared to the year ended December 31, 2003, primarily due to adecrease in coin-in of 5.0% over the same period. Diamond Jo’s table gamerevenue decreased $0.9 million, or 14.0%, for the year ended December 31,2004 compared to the year ended December 31, 2003, primarily due to a 6.6%decrease in table drop and a decrease in hold percentage to 18.6% for the yearended December 31, 2004 compared to 20.2% for the year ended December 31,2003.  Management believes that asignificant portion of the decrease in slot and table game revenues can beattributed to the re-opening of a Native American casino approximately 125miles southwest of the Diamond Jo on January 1, 2004.  This casino was closed from mid May 2003through December 2003.

 

Casino gaming win in the entireDubuque market decreased 3.6% to $93.8 million for the year ended December 31,2004 from $97.2 million for the year ended December 31, 2003. Webelieve this decrease was primarily attributed to the re-opening of a nearbyNative American casino as discussed above. Our share of the Dubuque market casinogaming win decreased to 54.4% for the year ended December 31, 2004 from55.1% for the year ended December 31, 2003. Casino revenues at the DiamondJo were derived 88.8% from slot machines and 11.2% from table games for theyear ended December 31, 2004 compared to 87.6% from slot machines and 12.4%from table games for the year ended December 31, 2003. Consistent with adecrease in casino revenue, our casino win per gaming position per day at theDiamond Jo decreased to $159 for the year ended December 31, 2004 from$171 for the year ended December 31, 2003. For the year ended December 31,2004, our share of the Dubuque market casino admissions increased to 52.2% from50.7% for the year ended December 31, 2003. For the year ended December 31,2004, our casino win per admission at the Diamond Jo decreased to $49 from $51for the year ended December 31, 2003.

 

Racing revenues at OEDfor the year ended December 31, 2004 were $20.0 million compared to$17.8 million for the year ended December 31, 2003. The increase inracing revenues was attributed to an increase in video poker revenues of $2.0 millionat OED’s Port Allen OTB facility.  During2003, OED completed a renovation and the installation of 100 video pokermachines at the Port Allen facility. Until OED received its video poker license, the machines were operatedby an independent third party who shared in a portion of the video pokerproceeds.  After receiving its videopoker license, OED took over operation of the video poker machines in late 2003and, as a result, began receiving 100% of the revenues.

 

Net food and beveragerevenues, other revenues and promotional allowances increased $3.0 millionduring the year ended December 31, 2004 compared to the year ended December 31,2003 due primarily to food and beverage revenues generated from OED’s newracino.

 

17

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Casino operating expensesincreased $36.8 million to $60.9 million for the year ended December 31,2004 from $24.1 million for the year ended December 31, 2003 dueprimarily to an increase in casino expenses at OED of $36.1 millionprimarily related to purse supplements and gaming taxes which are based on netcasino revenues and casino related payroll.

 

Racing expenses increased15.8% to $17.0 million for the year ended December 31, 2004 from$14.6 million for the period ended December 31, 2003 due primarily to(i) an increase in operating expenses of $1.0 million at OED’s Port AllenOTB related to the addition of 100 new video gaming devices as discussed aboveand (ii) an increase in live horse racing expenses of approximately $1.0million primarily due to the addition of live quarter horse meets held in September andOctober of 2004.

 

Food and beverageexpenses increased $4.9 million to $9.2 million for the year ended December 31,2004 from $4.3 million for the year ended December 31, 2003 dueprimarily to food and beverage expenses at OED related to the opening of OED’snew racino. Boat operation expenses at the Diamond Jo decreased$0.1 million to $2.2 million for the year ended December 31,2004 from $2.3 million for the year ended December 31, 2003. Otherexpenses increased $0.6 million primarily due to costs associated with OED’soutdoor entertainment venue.

 

Selling, general andadministrative expenses increased $9.8 million to $21.4 million for theyear ended December 31, 2004 from $11.6 million for the year ended December 31,2003. This increase was due to an increase in general and administrativeexpenses at OED of $10.3 million due primarily to payroll, marketing andother general and administrative expenses associated with the new racino offsetby a decrease in non-corporate general and administrative expenses at theDiamond Jo of approximately $0.6 million due primarily to a decrease inmanagement compensation at the Diamond Jo of $0.2 million and a decreaseof $0.4 million related to a charitable giving agreement with an Iowanon-for-profit organization which was expensed in 2003.

 

Depreciation andamortization expenses increased to $12.4 million for the year ended December 31,2004 from $3.3 million for the year ended December 31, 2003 dueprimarily to an increase in depreciation of property and equipment at OED ofapproximately $8.9 million due to the casino opening on December 19,2003.  During the first quarter of 2002,2003 and 2004, we performed our annual impairment test on goodwill andindefinite lived intangible assets and determined that the estimated fair valueexceeded its carrying value as of that date. Based on that review, managementdetermined that there was no impairment of goodwill and indefinite livedintangible assets .

 

Pre-opening expenses of $0.4million and $3.3 million for the years ended December 31, 2004 and2003, respectively, relate to payroll and other expenses incurred by OED withrespect to start-up activities surrounding the racino project. Development expensesof approximately $0.2 million and $0.1 million for the years ended December 31,2004 and 2003, respectively, relate to expenses incurred relative to usentering into an exclusive agreement with the Worth County DevelopmentAuthority pursuant to which the parties agreed to jointly submit an applicationfor a license to operate a gaming facility in Worth County, Iowa. Under thisagreement, we have agreed to design, construct, operate and manage a casinowith no less than 700 gaming positions (on an approved body of water ofsufficient size to meet state requirements) and a two phase 100-roomhotel development (upon obtaining an acceptable third-party investment). Managementseverance and recruiting expenses of $0.6 million relate to severance costsincurred by the Company in relation to turnover of upper management and variousfees and expenses incurred in finding new management personnel.  Affiliate management fees of $0.8 millionduring the year ended December 31, 2004 relate to management fees torelated parties primarily related to a consulting agreement at OED for theracino.

 

Gain on disposal ofassets of $0.7 million for the year ended December 31, 2004 relatesprimarily to the disposal of slot machines during the fourth quarter of 2004.

 

Income from operationsincreased $7.3 million to $19.5 million for the year ended December 31,2004 from $12.2 million for the year ended December 31, 2003.  OED’s income from operations increased by $9.7million due to the new racino operation as discussed above offset by lower incomefrom operations of $2.4 million at Diamond Jo and corporate due primarily tolower net gaming revenues as described above.

 

Net interest expense,including loss on early retirement of debt and interest expense related to DJL’sredeemable preferred member interests, increased $39.7 million to $64.5 millionfor the year ended December 31, 2004 from $24.8 million for the yearended December 31, 2003. This increase is primarily due to the loss onearly retirement of debt of $37.6 million related to our debt refinancingactivities discussed below under “Liquidity and Capital Resources”.  The remaining difference is primarily relatedto the timing the offering by OED of its 13% Senior Secured Notes due 2010 withContingent Interest (the “OED Notes”), which occurred on February 25, 2003,and lower capitalized interest as the racino project was nearing completion.  Interest expense of approximately 

 

18

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$1.3 millionand $2.2 million was capitalized as part of our construction of the racinoduring the years ended December 31, 2004 and 2003, respectively.

 

*2003 Compared to 2002*

 

Net revenues increased17.4% to $76.5 million for the year ended December 31, 2003 from$65.2 million for the year ended December 31, 2002. The majority ofthis increase is due to an increase in the Diamond Jo’s slot revenue of 10.7%,or $4.5 million, for the year ended December 31, 2003 compared to theyear ended December 31, 2002, primarily due to an increase in coin-in of9.5% over the same period. We believe this increase in slot revenue was largelyattributable to the recent economic development in the Port of Dubuque known asthe America’s River Project, where the Diamond Jo is located, which includesthe opening of a new riverwalk and related amenities, a new riverfront hotel,which includes an indoor water park and the National Mississippi River Museumand Aquarium. The increase in slot revenue was also attributable to (i) theconstruction of our new outdoor entertainment venue featuring nationallyrecognized musicians weekly from June through September, (ii) adecrease in competition in the Eastern Iowa market due to the temporary closingof a Native American casino approximately 125 miles southwest of the Diamond Joand (iii) internal factors such as targeted promotions to capitalize onopportunities related to the Port of Dubuque development and reducedcompetition noted above as well as our continued focus on targeted players clubpromotions and maintenance of our slot mix, which includes the addition of 47nickel slot machines. In addition, our table game revenue at the Diamond Joincreased 13.3%, or $0.8 million, for the year ended December 31,2003 compared to the year ended December 31, 2002, primarily due to anincrease in the total table game drop of 6.0% and a 1.3 percentage pointincrease in our table game hold percentage over the same period. The majorityof the remaining increase in our net revenues was due to an increase in netrevenues at OED. Net revenues at OED increased due primarily to an increase incasino revenue of $3.2 million derived from OED’s new racino which openedits doors to the public on December 19, 2003 and an increase in racingrevenues of $2.3 million due primarily to the fact that we did not acquirea 50% interest in OED until February 15, 2002, as well as an increase invideo poker revenues of approximately $0.6 million at OED’s renovated OTBin Port Allen, Louisiana. Our results of operations during the period ended December 31,2002 only include ten and one-half months of OED operations compared to a fulltwelve months of operations during the year ended December 31, 2003.

 

Casino gaming win in theDubuque market increased 9.6% to $97.2 million for the year ended December 31,2003 from $88.7 million for the year ended December 31, 2002. Webelieve this increase was primarily due to our ability to capitalize on therecent economic development in the Port of Dubuque, a decrease in competitionin the Eastern Iowa market, strategic use of targeted players club promotionsand a continued focus on maintenance of our slot mix as noted above combinedwith a continued focus by operators at the DGP on maintenance of their slot mixduring such periods as well as benefiting from the reduced competition in theEastern Iowa market as noted above. Our share of the Dubuque market casinogaming win increased to 55.1% for the year ended December 31, 2003 from54.4% for the year ended December 31, 2002. Our casino revenues at theDiamond Jo increased 11.0% to $53.6 million for the year ended December 31,2003 from $48.3 million for the year ended December 31, 2002. Thispercentage increase was the third highest percentage increase in casinorevenues for all thirteen casinos in the State of Iowa as reported to the IowaGaming Commission for the year ended December 31, 2003 compared to theyear ended December 31, 2002. This increase was due to a 10.7% increase inslot revenues and a 13.3% increase in table game revenues as discussed above.Casino revenues at the Diamond Jo were derived 87.6% from slot machines and12.4% from table games for the year ended December 31, 2003 compared to87.8% from slot machines and 12.2% from table games for the year ended December 31,2002. Consistent with an increase in casino revenue, our casino win per gamingposition per day at the Diamond Jo increased 9.1% to $171 for the year ended December 31,2003 from $157 for the year ended December 31, 2002. Admissions to thecasinos in the Dubuque market increased 6.1% to 2,080,000 for the year ended December 31,2003 from 1,960,000 for the year ended December 31, 2002. For the yearended December 31, 2003, our share of the Dubuque market casino admissionsincreased to 50.7% from 50.5% for the year ended December 31, 2002. Ouradmissions at the Diamond Jo for the year ended December 31, 2003 increased6.5% to 1,054,000 from 990,000 for the year ended December 31, 2002. Forthe year ended December 31, 2003 our casino win per admission at theDiamond Jo increased 4.2% to $50.81 from $48.76 for the year ended December 31,2002. Casino revenues of $3.2 million at OED consisted solely of revenuesfrom slot machines at OED’s recently opened racino. Casino win per position atOED was $236 for the year ended December 31, 2003.

 

Racing revenues at OEDfor the year ended December 31, 2003 were $17.8 million compared to$15.5 million for the period February 15, 2002 (the date OED wasacquired) to December 31, 2003. The increase in racing revenues wasdirectly related to the timing of the acquisition of OED as discussed above andan increase in video poker revenues of $0.6 million resulting from OED’sPort Allen OTB facility renovation and the installation of 100 video pokermachines during the second quarter of 2003.

 

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Net food and beveragerevenues, other revenues and promotional allowances increased $0.5 millionduring the year ended December 31, 2003 compared to the year ended December 31,2002 due primarily to food & beverage revenues generated from OED’snew racino and revenues from the Diamond Jo’s new outdoor entertainment venueas discussed above.

 

Casino operating expensesincreased 15.3%, or $3.2 million, to $24.1 million for the year endedDecember 31, 2003 from $20.9 million for the year ended December 31,2002 due primarily to (i) casino expenses at OED of $1.9 millionprimarily related to purse supplements and gaming taxes which are based on netcasino revenues and casino related payroll and (ii) an increase in gamingtaxes at the Diamond Jo of $1.1 million associated with our increasedcasino revenues. Racing expenses increased 15.8% to $14.6 million for theyear ended December 31, 2003 from $12.7 million for the period ended December 31,2002 due primarily to (i) timing of the acquisition of OED in 2002 asdiscussed above and (ii) an increase in operating expenses of$0.6 million related to the addition of 100 new video gaming devices atOED’s renovated OTB in Port Allen, Louisiana.

 

Food and beverageexpenses increased 12.1%, or $0.5 million, to $4.3 million for theyear ended December 31, 2003 from $3.8 million for the year ended December 31,2002 due primarily to food and beverage expenses at OED related to the openingof OED’s new racino. Boat operation expenses at the Diamond Jo weresubstantially unchanged at $2.3 million for the year ended December 31,2003 and 2002. Other expenses increased $0.4 million primarily due tocosts associated with the Diamond Jo’s new outdoor entertainment venue asdiscussed above.

 

Selling, general andadministrative expenses increased 39.8% to $11.6 million for the yearended December 31, 2003 from $8.3 million for the year ended December 31,2002. This increase was due to (i) an increase in general andadministrative expenses at OED of $2.0 million due primarily to payroll,marketing and other general and administrative expenses associated with the newracino and the timing of the acquisition of OED (as discussed above), includingan increase in professional fees at OED of approximately $0.2 million andan increase in insurance expense at OED of approximately $0.2 million, and(ii) an increase in general and administrative expenses at the Diamond Joof approximately $1.6 million due primarily to an increase in managementcompensation at the Diamond Jo of $0.6 million, an increase in donationsof $0.3 million related to a charitable giving agreement with an Iowanon-for-profit organization and an increase in insurance expense at the DiamondJo of $0.1 million.

 

Depreciation andamortization expenses increased 12.6% to $3.3 million for the year ended December 31,2003 from $3.0 million for the year ended December 31, 2002 dueprimarily to depreciation of property and equipment at OED’s racino ofapproximately $0.3 million during the period December 19, 2003 (dateat which the racino was opened to the public) through December 31, 2003.During the first quarter of 2002, we performed a transitional impairment teston goodwill in accordance with Statement of Financial Accounting Standards (“SFAS”)No. 142 “Goodwill and Other Intangible Assets” and determined theestimated fair value of the Company exceeded its carrying value as of thatdate. During the first quarter of 2003, we performed its annual impairment teston goodwill in accordance with SFAS No. 142 and determined that theestimated fair value the Company exceeded its carrying value as of that date.Based on that review, management determined that there was no impairment ofgoodwill.

 

Pre-opening expenses of$3.3 million for the year ended December 31, 2003 relate to payrolland other expenses incurred by OED with respect to start-up activitiessurrounding the racino project. Development costs of approximately$0.1 million related to expenses incurred relative to us entering into anexclusive agreement with the Worth County Development Authority pursuant towhich the parties agreed to jointly submit an application for a license tooperate a gaming facility in Worth County, Iowa.  Litigation settlement of $1.6 million forthe year ended December 31, 2002 relates to OED’s settlement with theLouisiana Horsemen’s Benevolent and Protective Association 1993, Inc. (the“LHBPA”) in February 2003. Referendum costs of $0.8 million duringthe year ended December 31, 2002 relate to various advertising andpromotional expenses to promote the approval of continued gaming on riverboatsin Dubuque County in 2002. During 2002, we incurred expenses of $55,000 relatedto a governmental relations services agreement with respect to gaming issuesand developments in the State of Wisconsin which might affect us and our gamingoperations. We do not plan to incur any additional expenses to provide suchgovernmental relations services relative to the State of Wisconsin.

 

Income from operationsincreased $0.5 million to $12.2 million for the year ended December 31,2003 from $11.7 million for the year ended December 31, 2002.

 

Net interest expense,including interest expense related to our redeemable preferred memberinterests, increased 109.1% to $24.8 million for the year ended December 31,2003 from $11.8 million for the year ended December 31, 2002. Thisincrease is due to (i) an increase in net interest expense at OED of$12.7 million primarily associated with interest on the OED Notes and onOED’s senior credit facilities with Wells Fargo Foothill, the amortization andwrite-off of deferred financing costs associated with OED’s term loan withWells Fargo Foothill and certain notes payable by OEDA (all of which wererepaid in February 2003 with the proceeds 

 

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of the offering ofthe OED Notes) and timing of the OED acquisition as discussed above, (ii) ouradoption of FASB Statement No. 150 on July 1, 2003 which requiresthat interest expense associated with our redeemable preferred members interestbe included in interest expense (prior to July 1, 2003, this amount wasincluded as a separate line item above “Net income for common members’ interest”and not included in “Total other expenses” with interest expense) and (iii) interestassociated with our senior secured credit facility with Wells Fargo Foothilldated February 23, 2001 (the “DJL Credit Facility”), $12.0 million ofwhich was drawn down by DJL on February 15, 2002 to consummate theacquisition of OED, resulting in twelve months of interest during the yearended December 31, 2003 compared to only ten and one-half months ofinterest during the year ended December 31, 2002. Interest expense ofapproximately $2.2 million and $0.1 million was capitalized as partof our construction of the racino during 2003 and 2002, respectively.

 

**Liquidity and**Capital Resources

** **

*Cash Flows from Operating, Investing andFinancing Activities*

 

Our cash balancedecreased $10.7 million during the year ended December 31, 2004 to$10.5 million from $21.2 million at December 31, 2003.

 

Cash flows from operatingactivities declined by $22.7 million to a use of $21.9 million for theyear ended December 31, 2004 compared to proceeds of $0.8 million for theyear ended December 31, 2003.  Thedecline is primarily due to tender and call premiums and consent fees paid onearly retirement of debt of $23.1 million.

 

Cash flows used ininvesting activities for the year ended December 31, 2004 was $6.8 millionconsisting of cash inflows of (i) draws from restricted cash accounts heldby the trustee of the OED Notes of approximately $20.0 million and (ii) cashproceeds from the maturity and sale of restricted investments of$15.8 million. These cash inflows were offset by (i) payments ofapproximately $38.2 million for construction, architecture fees and otherdevelopment costs associated with the racino project and (ii) net cashoutflows of approximately $5.1 million used for capital expendituresmainly related to the purchase of new slot machines at DJL and conversions ofslot machines at OED to incorporate ticket-in, ticket-out technology, which webelieve enhances customer service, produces operating efficiencies andeliminates hopper fills and the down time associated with them.  These expenditures combined with a noncashmanufacturer financed purchase of 763 slot machines, of which 346 wereinstalled at the Diamond Jo and 417 were installed at OED, equipped withticket-in, ticket-out technology have resulted in having ticket-in, ticket-outtechnology installed in 100% of the slot machines at the Diamond Jo and in over95% of the slot machines at OED.

 

Cash flows from financingactivities for the year ended December 31, 2004 of $18.0 millionreflects (i) net proceeds from the offering of the Peninsula Gaming Notesof approximately $229.7 million, (ii) proceeds from advances under the revolverportion of the PGL Credit Facility of approximately $19.9 million, (iii) proceedsfrom the initial draw under the Term Loan portion of the PGL Credit Facility ofapproximately $14.7 million and (iv) proceeds from OED’s draws under theOED FF&E Facility of $3.5 million. These proceeds were offset by (i) redemptionof $71.0 million aggregate principal amount of DJL’s 12 1/4%  senior Secured Notes due 2006 (the “DJL Notes”),(ii)  redemption of $116.3 million aggregate principal amount of OEDNotes, (iii) aggregate principal payments on borrowings under OED’sFF&E credit facility with Wells Fargo Foothill (the “OED FFE&E Facility”)of $16.0 million, (iv) aggregate principal payments on borrowingsunder the DJL Credit Facility of $11.3 million, (v) aggregateprincipal payments on borrowings under OED Credit Facility of$5.0 million, (vi) aggregate principal payments on borrowings underthe revolver portion of the PGL Credit Facility of $6.0 million, (vii) aggregateprincipal payments under the term loan portion of the PGL Credit Facility of $2.0million, (viii) aggregate principal payments on notes payable of $1.0million, (ix) payment of fees and expenses associated with the offering ofthe Peninsula Gaming Notes and the consummation of the PGL Credit Facility ofapproximately $14.2 million and (x) member distributions of approximately $7.0million.

 

As of December 31,2004, the Company had $13.9 million and $12.7 million outstanding underthe revolver portion and term loan portion of the PGL Credit Facility,respectively.  In addition, as of December 31,2004, the Company had outstanding letters of credit of approximately $4.0million.

 

*Financing Activities*

 

On February 25,2003, OED completed the private placement of $123.2 million aggregateprincipal amount of OED Notes, of which $116.3 million principal amount wasredeemed in March 2004 as described below. The OED Notes bear interest at arate of 13% per year which is payable semi-annually on March 1 and September 1of each year, beginning September 1, 2003. Contingent interest began accruingon the OED Notes in the first full fiscal year after the casino beganoperations in an amount equal to 5.0% of OED’s cash flow for the applicableperiod, subject to certain limitations.

 

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OED may deferpaying a portion of contingent interest under certain circumstances set forthin the indenture governing the OED Notes. Neither the Company nor DJL is anobligor under the OED Notes or is required to provide credit support withrespect to OED’s payment obligations thereunder.

 

In March 2003, OEDentered into a participation agreement with a third party operator to own andoperate 100 video poker machines at OED’s OTB in Port Allen, Louisiana. In December 2003,OED obtained its license to own and operate video poker machines. In accordancewith the participation agreement, OED 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 due July 1,2005. The note is collateralized by a security interest in the machines.

 

In October 2003, OEDentered into a purchase agreement to acquire 93 acres of land, divided intoseven approximately equal parcels, for a total purchase price of $3,850,000.The purchase price under this purchase agreement was financed by the sellerwith OED issuing a $3,850,000 promissory note to the seller. The note was payablein seven equal annual installments of $550,000 beginning October 24, 2004and bore interest at a rate of 4.75% on the unpaid balance due monthly inarrears on the fifth day of each month beginning on December 5, 2003. Thenote is collateralized by a mortgage on the property. Simultaneously with thepayment of each $550,000 annual installment discussed above, the seller willrelease one of the remaining parcels from the mortgage.  In December 2004, OED amended the mortgageand promissory note to provide among other things, for the postponement of thefirst principal payment to February 2005 and an increase in the interestrate to 8.75% per annum, which agreements are pending before the LouisianaGaming Control Board. The holder of the promissory note filed for suitabilityunder Louisiana law, which application is also pending before the LouisianaGaming Control Board.

 

On March 9, 2004,OED commenced a tender offer and consent solicitation to repurchase all of itsoutstanding OED Notes and to solicit consents to certain proposed amendments tothe indenture governing the OED Notes as set forth in OED’s Offer to Purchaseand Consent Solicitation Statement, dated March 9, 2004.  On March 19, 2004, the expiration dateof the consent solicitation, OED received the requisite consents and tendersfrom holders of a majority of the aggregate principal amount of the outstandingOED Notes.  The tender offer expired on April 5,2004, and OED redeemed approximately $116.3 million principal amount of the OEDNotes.  At December 31, 2004, $6.9million principal amount of OED Notes were outstanding.

 

On April 16, 2004,DJL and PGC completed a Rule 144A private placement of $233 millionprincipal amount of Peninsula Gaming Notes. The Peninsula Gaming Notes were issued at a discount of approximately$3.3 million.  Interest on the PeninsulaGaming Notes is payable semi-annually on April 15 and October 15 ofeach year, beginning on October 15, 2004. Upon the corporate restructuring, PGL also became a co-issuer of thePeninsula Gaming Notes.

 

The Company used the netproceeds from the sale of the Peninsula Gaming Notes as follows (all paymentsbased on outstanding balances as of April 16, 2004):  (1) to irrevocably deposit funds into anescrow account to redeem all of the DJL Notes in an amount (including callpremium and accrued interest) of approximately $79.9 million; (2) torepurchase approximately $116.3 million principal amount of OED Notes for anaggregate amount (including tender premium, accrued interest and contingentinterest) of approximately $134.6 million; (3) to pay accrueddistributions on DJL’s outstanding preferred membership interests-redeemable ofapproximately $1.1 million; (4) to pay related fees and expenses ofapproximately $13.4 million; and (5) for general corporate purposes.  As a result of the issuance of the PeninsulaGaming Notes, DJL incurred a loss of approximately $8.7 million consisting ofthe write-off of deferred financing fees of approximately $2.0 million, thepayment of a call premium on the DJL Notes of approximately $5.7 million,interest on the DJL Notes of approximately $0.7 million and write-off of bonddiscount of approximately $0.3 million. In connection therewith, OED also incurred a loss of approximately $27.9million consisting of the write-off of deferred financing fees of approximately$8.4 million, the payment of a tender premium on the OED Notes of approximately$16.3 million, write-off of bond discount of approximately $2.1 million andconsent fees of approximately $1.1 million. In addition, OED and DJL wrote off $0.9 million of deferred financingfees related to the refinancing of the credit facilities discussed below.

 

On June 16, 2004,DJL and OED jointly entered into a loan and security agreement with Wells FargoFoothill, Inc. as the arranger and agent (the “PGL Credit Facility”). ThePGL Credit Facility consists of a revolving credit facility which permits DJLand OED to request advances and letters of credit up to the lesser of themaximum revolver amount of $35 million (less amounts outstanding under lettersof credit) and a specified borrowing base (the “Borrowing Base”). The BorrowingBase is the lesser of the combined EBITDA (as defined in the PGL CreditFacility) of OED and DJL for the twelve months immediately preceding thecurrent month end multiplied by 150% and the combined EBITDA of OED and DJL forthe most recent quarterly period annualized multiplied by 150%. At December 31,2004, the maximum revolver amount was $35.0 million.  Immediately upon the closing of the PGLCredit Facility, the Company borrowed approximately $15.9 million to refinanceoutstanding obligations under the DJL Credit Facility and the OED CreditFacility and pay financing related fees and expenses. Advances under the PGLCredit Facility bear an 

 

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interest ratebased on the borrower’s option of LIBOR plus a margin 3.0% -3.5% or WellsFargo prime rate plus a margin of 0.5% -1.0% (current rate of 6.25%)however, at no time shall the interest rate be lower than 4.0%.

 

The PGL Credit Facilityalso contains a term loan in the amount of $14,666,667.  The proceeds from the term loan were used torepay outstanding obligations under the FF&E Credit Facility. The term loanis secured by certain assets of OED and requires monthly payments of $333,333starting July 1, 2004 until the full balance is paid, with a maturity nolater than June 16, 2008. The term loan has an interest rate equal to theWells Fargo prime rate plus 2.5% (current rate of 7.75%) however, at no timeshall the interest rate be lower than 6.0%. Under the terms of the PGL CreditFacility, at closing the Company was required to issue a letter of credit inthe amount of $3.2 million in favor of Wells Fargo Foothill, Inc. relatedto the term loan.  This letter of creditis scheduled to be cancelled upon payment of the principal payment due April 1,2005.

 

In September 2004,we received a consent from Wells Fargo Foothill to increase the amount ofcapital expenditures (other than capital expenditures incurred to completeconstruction of the racino) permitted to be made in fiscal year 2004 under thePGL Credit Facility from $7.0 million to $15.5 million. This consentwas obtained to help consummate the purchase of additional slot machines asdescribed in “Cash Flows from Operating, Investing and Financing Activities”above. Approximately $8.0 million related to the purchase of these slotmachines was financed through a slot machine manufacturer. The terms of thisfinancing include thirty-six equal monthly principal payments plus accruedinterest with an interest rate of 0% for the first 24 months and 7.4% forthe remaining twelve months. An additional $1.2 million was financedthrough another slot machine manufacturer. The terms of this financing includetwelve equal monthly principal payments with no interest. We also purchased approximately$0.2 million of slot machines that was paid for from cash on hand.

 

*General*

 

In addition to our cashon hand, we currently have the following sources of funds for our business: (i) cashflows from OED’s racetrack operations and casino operations, (ii) cashflows from DJL’s casino operations, and (iii) available borrowings underthe PGL Credit Facility. The available borrowing amount at December 31,2004, after reductions for amounts borrowed and letters of credit outstandingat OED and DJL was $17.1 million.

 

We expect our capitalexpenditures in 2005, excluding any amounts related to the racino projectdevelopment, development of a new gaming property in Worth County, Iowa anddevelopment of new OTB facilities, to be approximately $4.4 million.  Remaining capital expenditures in 2005related to the racino project and the development of our new OTB near Henderson,Louisiana are expected to be approximately $0.6 million and $1.6 million,respectively.  Our debt maturities areexpected to be approximately $9.1 million in 2005.  Based on our cash on hand, expected cashflows from operations and our available sources of financing, we believe wewill have adequate liquidity to satisfy our operating needs and service ouroutstanding indebtedness for the next twelve months.

 

If we are successful inobtaining a license for Worth County, we plan to finance the estimated cost ofthe project of approximately $40.4 million through a permitted $15 millionincrease in available borrowings under our senior credit facility for a newgaming facility, equipment financing from manufacturers and lendinginstitutions and cash flows from operations. If cash flows from operations are not sufficient, we may need to seekadditional borrowings.

 

Our level of indebtednesswill have several important effects on our future operations including, but notlimited to, the following: (i) a significant portion of our cash flow fromoperations will be required to pay interest on our indebtedness and theindebtedness of our subsidiaries; (ii) the financial covenants containedin certain of the agreements governing such indebtedness will require us and/orour subsidiaries to meet certain financial tests and may limit our respectiveabilities to borrow additional funds or to dispose of assets; (iii) ourability to obtain additional financing in the future for working capital,capital expenditures, acquisitions or general corporate purposes may beimpaired; and (iv) our ability to adapt to changes in the gaming industrywhich affect the markets in which we operate could be limited.

 

**Contractual** Obligations and Contingent Liabilities and Commitments

 

Our future contractualobligations related to long-term obligations and operating leases at December 31,2004 were as follows (in millions of dollars):

 

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| ** **                          | ** ** | **Payments due by Period** | ** ** |
|-------------------------------------|------------|----------------------------|------------|
| **Contractual Obligations**         | ** ** | **Total**                  | ** ** | **Less Than  1 Year** | ** ** | **1 - 3 Years** | ** ** | **4 - 5 Years** | ** ** | **Thereafter** | ** ** |
|                                |       |                       |       |   |   |   |   |   |   |   |   |
| Long-Term  Debt                     |       | $                          | 283.3      |   | $ | 9.1 |   | $ | 18.0 |   | $ | 15.7 |   | $ | 240.5 |   |
| Interest on  Long-Term Debt         |       | 159.1                      |       | 23.6 |   | 45.4 |   | 43.2 |   | 46.9 |   |
| Operating  Leases                   |       | 1.7                        |       | 1.1 |   | 0.5 |   | 0.1 |   |   |   |
| Purchase  Commitments               |       | 1.1                        |       | 0.3 |   | 0.4 |   | 0.2 |   | 0.2 |   |
| Litigation  Settlement and Other    |       | 1.1                        |       | 0.5 |   | 0.5 |   | 0.1 |   |   |   |
| Total  Contractual Cash Obligations |       | $                          | 446.3      |   | $ | 34.6 |   | $ | 64.8 |   | $ | 59.3 |   | $ | 287.6 |   |

 

The following shows our contingentobligations at December 31, 2004 based on expiration dates (in millions):

 
| ** **                 | ** ** | **Less Than  1 Year** | ** ** | **1 - 3 Years** | ** ** | **4 - 5 Years** | ** ** | **Thereafter** | ** ** |
|----------------------------|------------|-----------------------|------------|-----------------|------------|-----------------|------------|----------------|------------|
|                       |       |                  |       |            |       |            |       |           |       |
| Standby  letters of credit |       | $                     | 4.0        |            |       |            |       |           |       |   |
|                            |            |                       |            |                 |            |                 |            |                |            |  |

 

**Off-Balance Sheet Transactions**

** **

Other than as disclosedabove, we do not maintain any off-balance sheet transactions, arrangements,obligations or other relationships with unconsolidated entities or others thatare reasonably likely to have a material current or future effect on our financialcondition, changes in financial condition, revenues or expenses, results ofoperations, liquidity, capital expenditures or capital resources.

 

**Seasonality** and Inflation

** **

Our operations aresubject to seasonal fluctuations. Our Iowa operations are typically weaker fromNovember through February as a result of adverse weather conditions,and are typically stronger from March through October. Our Louisianaoperations are also subject to seasonal fluctuations. Our horse racingoperations are usually stronger during live racing season which runs from April throughOctober. In general, our payroll and general and administrative expenses areaffected by inflation. Although inflation has not had a material effect on ourbusiness to date, we could experience more significant effects of inflation infuture periods.

 

**Recent** Accounting Pronouncements

** **

In May 2003, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardsNo. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity” (“SFAS 150”). This statementestablishes standards for how an issuer classifies and measures certainfinancial instruments with characteristics of both liabilities and equity. Itrequires the issuer to classify a financial instrument that is within the scopeof the standard as a liability if such financial instrument embodies anobligation of the issuer. As a result of the adoption of SFAS No. 150 on July 1,2003, DJL reclassified its $4 million mandatorily redeemable preferredmembers’ interest from the mezzanine section of the consolidated balancesheet to long-term debt. Further, preferred member distributions paid oraccrued subsequent to adoption of SFAS No. 150 are required to bepresented as interest expense separately from interest due to other creditors.DJL was not required to record a cumulative effect of a change in an accountingprinciple as the redeemable preferred members’ interest was recorded at fairvalue prior to July 1, 2003. The Company is precluded from reclassifyingprior period amounts pursuant to this standard.

 

**Critical** Accounting Policies

** **

The preparation offinancial statements in accordance with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amount of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the reportingperiods. We periodically evaluate our policies and the estimates andassumptions related to these policies. All of our subsidiary companies operatein a highly regulated industry. In our Iowa and Louisiana operations, we aresubject to regulations that describe and regulate operating and internalcontrol procedures. The majority of our casino revenue is in the form of cash,personal checks, credit cards

 

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or gaming chipsand tokens, which by their nature do not require complex estimations. Weestimate certain liabilities including our slot club liabilities, outstandinggaming chip, token and pari-mutuel ticket liability, self-insured medical andworkers compensation liabilities. We believe that these estimates arereasonable based on our past experience with the business and based upon ourassumptions related to possible outcomes in the future. Future actual resultswill likely differ from these estimates.

 

Understanding thecritical accounting policies discussed below and related risks is important inevaluating our financial conditions and results of operations.  We believe the following accounting policiesused in the preparation of the consolidated financial statements are criticalto our financial condition and results of operations as they involve asignificant use of management judgment on matters that are inherentlyuncertain.  If actual results differsignificantly from management’s estimates, there could be a material effect onour financial condition, results of operations and cash flows.  Management regularly discusses theidentification and development of these critical accounting policies with theAudit Committee of the Board of Managers.

 

*Goodwill,Intangible and Other Long-Lived Assets.*  We evaluate our goodwill, intangible andother long-lived assets for impairment on a periodic basis. For goodwill andintangible assets with indefinite lives, we review the carrying values comparedto fair values on an annual basis or sooner if an indication of impairmentexists. Other long-lived assets are reviewed for impairment when managementplans to dispose of assets or when events or circumstances indicate a possibleimpairment.  For assets to be disposedof, we recognize the asset at the lower of carrying value or fair market valueless costs of disposal, as estimated based on comparable asset sales, solicitedoffers, or a discounted cash flow model. For assets to be held and used, wereview for impairment whenever indicators of impairment exist. We then comparethe estimated future cash flows of the asset, on an undiscounted basis, to thecarrying value of the asset. If the undiscounted cash flows exceed the carryingvalue, no impairment is indicated. If the undiscounted cash flows do not exceedthe carrying value, then an impairment loss is recorded based on the fair valueof the asset, typically measured using a discounted cash flow model. Allrecognized impairment losses, whether for assets to be disposed of or assets tobe held and used, are recorded as operating expenses.

 

Our intangible assetsconsist of our tradename and our slot machine and electronic video game andhorse racing licenses related to our operations at OED. We intend to use theOED tradename for the foreseeable future and our licenses are renewable subjectto our compliance with state gaming and racing regulations. Our intangibleassets, therefore, have been determined to have indefinite lives and are notamortized. Should these assets in the future have finite lives because of our decisionto discontinue the use of the OED tradename or our inability to renew ourlicenses, the intangible assets could become impaired and require an impairmentcharge and any unimpaired amounts would be amortized over their remaininguseful lives.

 

There are severalestimates, assumptions and decisions in measuring impairments of long-livedassets. First, management must determine the usage of the asset. To the extentmanagement decides that an asset will be sold, it is more likely that animpairment may be recognized. Assets must be tested at the lowest level forwhich identifiable cash flows exist. This means that some assets must begrouped, and management has some discretion in the grouping of assets. Futurecash flow estimates are, by their nature, subjective and actual results maydiffer materially from our estimates. Our estimates of cash flows are based onthe current regulatory, social and economic climates, recent operatinginformation and budgets of the various properties where we conduct operations.These estimates could be negatively impacted by changes in federal, state orlocal regulations, economic downturns, or other events affecting various formsof travel and access to our properties.

 

Goodwill and intangibleassets are subject to impairment by, among other factors, significant changesin gaming tax rates, competition and regulatory requirements; lack of licenserenewals; lack of voter reapproval in Iowa; and changes in the way we use ourOED tradename. During the first quarter of 2004, 2003 and 2002, we completedthe impairment testing of all of our goodwill and intangible assets withindefinite lives and no impairments were indicated. In addition, SFASNo. 142 requires periodic analysis of our goodwill and intangible assetsin future accounting periods. If our ongoing estimates of future cash flows arenot met, we may have to record impairment charges in future accounting periods.

 

*Litigation.* An estimated loss from a losscontingency is recorded when information available prior to issuance of the 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 the use of 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. An adverse outcome could have a material impact onfinancial condition, operating results and cash flows.

 

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**ITEM 7A**.                                            QUANTITATIVEAND QUALITATIVE DISCLOSURES 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 tointerest rate risk due to changes in interest rates with respect to ourlong-term variable interest rate debt borrowing under the PGL Credit Facility.As of December 31, 2004, the Company had $26.6 million in outstandingborrowings under the PGL Credit Facility, including borrowings under the term loanportion of such facility, that have variable interest rates. We have estimatedour market risk exposure using sensitivity analysis. We have defined our marketrisk exposure as the potential loss in future earnings and cash flow withrespect to interest rate exposure of our market risk sensitive instrumentsassuming a hypothetical increase in market rates of interest of one percentagepoint. Assuming the Company borrows the maximum amount allowed under the PGLCredit Facility (currently an aggregate amount of $47.7 million), if marketrates of interest on our variable rate debt increased by one percentage point,the estimated additional annual interest expense would be approximately $0.5million.

 

We are also exposed tofair value risk due to changes in interest rates with respect to our long-termfixed interest rate debt borrowings. Our fixed rate debt instruments are notgenerally affected by a change in the market rates of interest, and therefore,such instruments generally do not have an impact on future earnings. However,future earnings and cash flows may be impacted by changes in interest ratesrelated to indebtedness incurred to fund repayments as such fixed rate debtmatures. The following table contains information relating to our fixed ratedebt borrowings as of December 31, 2004 (dollars in millions):

 
| **Description**                                           | ** ** | **Maturity**          | ** ** | **Interest  Rate** | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
|-----------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|---------------------|------------|-----------------|------------|
|                                                      |       |                  |       |               |       |                |       |            |       |
| 8 3⁄4% senior  secured notes                           |       | April 15, 2012   |       | 8 3⁄4           | %          | $                   | 229.9      |            | $          | 228.3 | * |
| 13% senior  secured notes with contingent interest of OED |       | March 1, 2010    |       | 13                 | %          | 6.8                 |       | 6.9             |       |
| Revolving  line of credit                                 |       | June 16, 2008    |       | 6 1⁄4           | %          | 13.9                |       | 13.9            |       |
| Term loan                                                 |       | June 16, 2008    |       | 7 3⁄4           | %          | 12.7                |       | 12.7            |       |
| Note payable                                              |       | October 1, 2010  |       | 8 3⁄4           | %          | 3.9                 |       | 3.9             |       |
| Note payable                                              |       | October 1, 2007  |       | 0                  | %          | 3.4                 |       | 3.7             |       |
| Note payable                                              |       | October 1, 2007  |       | 0                  | %          | 3.6                 |       | 3.9             |       |
| Note payable                                              |       | November 1, 2005 |       | 0                  | %          | 0.1                 |       | 0.1             |       |
| Note payable                                              |       | November 1, 2005 |       | 0                  | %          | 1.0                 |       | 1.0             |       |
| Note payable                                              |       | July 1, 2005     |       | 9 1⁄2           | %          | 0.2                 |       | 0.2             |       |
| Preferred  members’ interest, redeemable             |       | October 13, 2006 |       | 9                  | %          | 4.0                 |       | 4.0             |       |
|                                                           |            |                       |            |                    |            |                     |            |                 |            |  |  |

 

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*  Represents fair value as of December 31,2004 based on information provided by an independent investment banking firm.

 

**ITEM 8****.****                                                   FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

 

The report of independentregistered public accounting firm, financial statements and the notes thereto andthe financial statement schedule are included beginning on page F-1.

 

**ITEM 9****.****                                               CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A****.**                            CONTROLS ANDPROCEDURES

** **

***Evaluation of disclosure controls and procedures.***** The Company’s Chief ExecutiveOfficer and Chief Financial Officer, 

 

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**afterevaluating the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as defined in Exchange Act) as of December 31,2004, have concluded that as of such date the Company’s disclosure controls andprocedures were adequate and effective and designed to ensure that materialinformation relating to the Company and its subsidiaries would be made known**to such officers on a timely basis.

** **

*Changes in internal controls*. There have been no significant changes (including corrective actionswith regard to significant deficiencies or material weaknesses) in our internalcontrols over financial reporting that has materially affected or is reasonablylikely to materially affect our internal controls over financial reporting duringour fourth quarter.

 

**ITEM 9B.**                                            OTHERINFORMATION

** **

None.

 

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**PART III**

 

**ITEM 10****.****                                            DIRECTORSAND EXECUTIVE OFFICERS OF REGISTRANT**

 

**Executive Officers**and Managers

** **

PGP is the Company’s solemanaging member. The following table sets forth the names and ages of theexecutive officers of the Company, DJL and PGC and of the managers of PGP.

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                                         | ** ** |
|---------------------|------------|---------|------------|--------------------------------------------------------------------------------------|------------|
|                |       |    |       |                                                                                 |       |
| M. Brent  Stevens   |       | 44      |       | Chief Executive Officer of the Company and  Chairman of the Board of Managers of PGP |       |
| Michael S.  Luzich  |       | 50      |       | President and Secretary of the Company, DJL  and PGC and Manager of PGP              |       |
| Jonathan C.  Swain  |       | 39      |       | Chief Operating Officer of the Company, DJL  and PGC                                 |       |
| Natalie A.  Schramm |       | 34      |       | Chief Financial Officer of the Company, DJL  and PGC                                 |       |
| Marcia S.  Seligman |       | 51      |       | Corporate Legal Counsel of the Company, DJL  and PGC                                 |       |
| Terrance W.  Oliver |       | 55      |       | Manager of PGP                                                                       |       |
| Andrew Whittaker    |       | 43      |       | Manager of PGP                                                                       |       |

 

**Management Profiles**

** **

Following is a briefdescription of the business experience of each of the individuals listed in thepreceding table. Presently, PGP’s board of managers is comprised of fivemanagers; however, the fifth manager has not been appointed.

 

***M.Brent Stevens.*** Mr. Stevens is our Chief Executive Officer and is the Chairman ofthe Board of Managers of PGP, which offices he has held since 1999.Mr. Stevens also serves as Chief Executive Officer of DJL and OED. Since1990, Mr. Stevens has been employed by Jefferies &Company, Inc., and presently is an Executive Vice President in theInvestment Banking department.

 

***MichaelS. Luzich.*** Mr. Luzich is our President and Secretary and a manager of PGPsince 1999. Mr. Luzich also serves as President and Secretary of DJL andOED, which offices he has held since 1999. Mr. Luzich is the founder andPresident of the Cambridge Investment Group, LLC, an investment and developmentcompany located in Las Vegas, Nevada. Prior to October 1995,Mr. Luzich was a founding partner and director of Fitzgeralds NewYork, Inc. and Fitzgeralds Arizona Management, Inc., which aredevelopment companies responsible for the Turning Stone Casino near Syracuse,New York for the Oneida Tribe and the Cliff Castle Casino near Sedona, Arizonafor the Yavapai-Apachi Tribe, respectively.

 

***JonathanC. Swain.*** Mr. Swain was hired as Chief Operating Officer of PGL in July 2004.Mr. Swain served from 2000 through July 2004 as Vice President andGeneral Manager of three Station Casinos properties including, Palace Station,Santa Fe Station and Sunset Station, the largest property of StationCasinos Inc., a hotel and gaming company headquartered in Las Vegas,Nevada. In 1999 and 2000, Mr. Swain served as Vice President and GeneralManager of the Hard Rock Hotel and Casino in Las Vegas. From 1995 through 1999,Mr. Swain worked for the Aztar Resorts Inc., serving as the CorporateVice President of Marketing and President of the Las Vegas Tropicana. AztarResorts, Inc. is a hotel and gaming company headquartered in PhoenixArizona. From 1993 to 1995, Mr. Swain served as Vice President ofMarketing and as Executive Director of International Marketing with the TrumpTaj Mahal in Atlantic City, New Jersey.

 

***NatalieA. Schramm.*** Ms. Schramm is our Chief Financial Officer, which office she hasheld since 1999. Ms. Schramm also serves as Chief Financial Officer of DJLand OED. Ms. Schramm served as Assistant General Manager of DJL from April 1,2000 to December 31, 2002. On January 1, 2003, Ms. Schramm wasappointed General Manager of DJL. Ms. Schramm joined our predecessor,Greater Dubuque Riverboat Entertainment Company, L.C., in November 1996and was formerly employed by Aerie Hotels and Resorts in Oak Brook, Illinois asCorporate Accounting Manager since 1992. She was responsible for the corporateaccounting functions of the Silver Eagle, the Eagle Ridge Inn and Resorts,located in Galena, Illinois and the Essex Hotel, located in Chicago, Illinois.She served as

 

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Internal Audit Manager for the Silver Eagle and was a member of adevelopment team that successfully pursued a riverboat gaming license inIndiana.

 

***MarciaS. Seligman.***  Ms. Seligman is our VicePresident and Corporate Counsel, which office she has held since October 2004. Ms. Seligman was formerly in private practice with an emphasis in corporate andreal estate law from 1997 to 2004.  Prior to 1997, Ms. Seligman was VicePresident and General Counsel of Grand Casinos, Inc., a publicly held companythat owned casinos in Mississippi and managed Native American casinos inLouisiana, Minnesota and Mississippi.  Previous to her experience at GrandCasinos, Inc., Ms. Seligman served as Director of Legal Services of GeneralGrowth Management, Inc., a shopping center owner and developer based inChicago, Illinois.

 

***TerranceW. Oliver.*** Mr. Oliver is a manager of PGP, which office he has held since 1999.Since 1993, Mr. Oliver has served as a director of and consultant toMikohn Gaming Corporation, a gaming equipment manufacturer headquartered in LasVegas. From 1988 until 1993, Mr. Oliver served as Chairman of the Board tothe predecessor company of Mikohn. From 1984 until 1996, Mr. Oliver was afounding shareholder, board member and executive officer of Fitzgeralds GamingCorporation. Mr. Oliver retired as the Chief Operating Officer ofFitzgeralds Gaming Corporation in 1996.

 

***AndrewWhittaker.*** Mr. Whittaker is a manager of PGP, which office he has held since1999. Since 1990 Mr. Whittaker has been employed by Jefferies &Company, Inc., where he is presently a Vice Chairman.

 

**Audit**Committee

** **

Terrance A. Oliver andAndrew Whittaker serve on the Company’s audit committee.  The board of directors of the Company hasdetermined that each of Messrs. Oliver and Whittaker is an “audit committeefinancial expert” as that term is used in Item 401(h)(2) of Regulation S-Kadopted by the SEC.  Although the Companyis not a “listed issuer” within the meaning of Rule 10A-3 under the ExchangeAct, the board of directors of the Company has determined that Mr. Oliver wouldbe considered an “independent” director within the meaning of the rules of theNew York Stock Exchange for listed companies and within the meaning of Rule10A-3 under the Exchange Act.

 

**Code of Ethics**

** **

The Company has adopted acode of ethics that applies to our chief executive officer, chief financialofficer, controller or persons performing a similar function.  A copy of our code of ethics may be obtained,free of charge, upon written request to our principal place of business.

 

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**ITEM 11****.****                                            EXECUTIVECOMPENSATION**

 

**Summary**Compensation Table

** **

The following table setsforth information for the years indicated concerning the compensation paid toour Chief Executive Officer, all other executive officers and certain otherhighly paid key employees, for services rendered in all capacities to DJL andOED, as applicable, during such periods.

 
| ** **                      | ** ** | ** **       | ** ** | **Annual Compensation** | ** ** | ** **        | ** ** | ** **                         | ** ** |
|---------------------------------|------------|------------------|------------|-------------------------|------------|-------------------|------------|------------------------------------|------------|
| **Name and Principal Position** | ** ** | **Fiscal  Year** | ** ** | **Salary ($ )**    | ** ** | **Bonus ($) (1)** | ** ** | **Other Annual  Compensation ($)** | ** ** | **Long-term  Compensation** | ** ** | **All other  Compensation ($)** | ** ** |
|                            |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
| M. Brent Stevens                |       | 2004             |       | —                  |       | —            |       | —                             |       | — |   |   | (2) |
| *Chief Executive Officer*       |       | 2003             |       | —                  |       | —            |       | —                             |       | — |   |   | (2) |
|                            |       | 2002             |       | —                  |       | —            |       | —                             |       | — |   |   | (2) |
|                            |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
| Michael S. Luzich               |       | 2004             |       | —                  |       | —            |       | —                             |       | — |   |   | (2), (3) |
| *President and Secretary*       |       | 2003             |       | —                  |       | —            |       | —                             |       | — |   |   | (2), (3) |
|                            |       | 2002             |       | —                  |       | —            |       | —                             |       | — |   |   | (2), (3) |
|                            |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
| Jonathan C. Swain               |       | 2004             |       | $                       | 169,231    |              | $          | 210,000                            |       | $ | 4,069 | (4) | — |   | — |   |
| *Chief Operating Officer*       |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
| * *                        |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
| George T. Papanier              |       | 2004             |       | $                       | 206,044    |              |       |                               | $          | 1,307 | (5) | — |   | $ | 6,000 | (7) |
| *Chief Operating Officer*       |       | 2003             |       | 375,000                 |       | $                 | 200,000    |                               | 9,350      | (5) | — |   | 6,000 | (5) |
|                            |       | 2002             |       | 350,046                 |       | 630,000           |       | 9,350                              | (3)(6)     | — |   | 8,615 | (8) |
|                            |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
| Natalie A. Schramm              |       | 2004             |       | $                       | 187,923    |              | $          | 115,000                            |       | $ | 2,066 | (4) | — |   | $ | 9,360 | (8) |
| *Chief Financial Officer*       |       | 2003             |       | 149,531                 |       | 80,000            |       |                               |       | — |   | 9,360 | (8) |
|                            |       | 2002             |       | 136,955                 |       | 42,500            |       |                               |       | — |   | 8,408 | (8) |
|                            |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
| Marcia S. Seligman              |       | 2004             |       | $                       | 29,231     |              | $          | 5,000                              |       | — |   | — |   | — |   |
| *Corporate Legal Counsel*       |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
|                            |       |             |       |                    |       |              |       |                               |       |   |   |   |   |
| David Yount                     |       | 2004             |       | $                       | 158,669    |              | $          | 15,000                             |       | $ | 3,031 | (5) | — |   | $ | 2,672 | (9) |
| *Executive Director of Racing*  |       | 2003             |       | 150,000                 |       | —            |       | 6,795                              | (5)        | — |   | 2,322 | (9) |
|                            |       | 2002             |       | 96,638                  |       | 16,572            |       | 4,530                              | (5)        | — |   | 692 | (9) |

 

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(1)                                  Bonusamounts reflect compensation in the fiscal year earned regardless of the yearin which paid.  See “ExecutiveCompensation—Compensation of Managers”.

(2)                                  Mr. Stevensand Mr. Luzich receive board of manager fees for their services as managers onthe board of managers of PGP. See “Executive Compensation – Compensationof Managers.”

(3)                                  Mr.Luzich receives compensation pursuant to a consulting agreement with PGP andOED.  See “Executive Compensation — Employmentand Consulting Agreements”.

(4)                                  Representsautomobile allowances and premiums paid on life insurance.

(5)                                  Representsautomobile allowances.

 

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(6)                                  Inconnection with his relocation in 2000, DJL acquired Mr. Papanier’scurrent residence for which he paid all property taxes, utility expenses andother out-of-pocket costs related to maintaining such residence, excluding thefair market value equivalent of rental expense.

(7)                                  Representsmatching contributions made by DJL to our 401(k).

(8)                                  Representsmatching contributions made by DJL to our 401(k) plan and club membership fees.

(9)                                  Representsmatching contributions made by OED to our 401(k) plan

 

**Employmentand Consulting Agreements**

** **

**MichaelS. Luzich-President and Secretary**

** **

Mr. Luzich is partyto a consulting agreement with PGP and OED pursuant to which he is entitled toreceive compensation in an aggregate annual amount equal to (a) 2% of DJL ‘sunconsolidated earnings before interest, taxes, depreciation, amortization andother non-recurring charges, plus (b) 2.5% of OED’s earnings beforeinterest, taxes, depreciation, amortization and other non-recurring charges plus(c) 2.5% of earnings before interest, taxes, depreciation, amortization andother non-recurring charges of any future gaming operations acquired, directlyor indirectly, by PGP. The consulting agreement has a one-year term and,subject to the occurrence of various termination events, is renewableautomatically for successive one-year terms. Under this agreement,Mr. Luzich is also entitled to reimbursement of reasonable businessexpenses as approved by the board of managers of PGP. For the years ended 2004,2003 and 2002, Mr. Luzich received $439,524, $289,153 and $336,829, respectively,from PGP and $625,000 from OED during the year ended December 31, 2004 underhis consulting agreements.

 

**George T. Papanier-Former**Chief Operating Officer

** **

In July 2000,Mr. Papanier commenced employment with DJL. Under the terms of hisemployment, Mr. Papanier was entitled to receive a base annual salary inan amount determined by the Board of Managers of PGP each year.Mr. Papanier’s base annual salary for the 2003 fiscal year was $375,000.In addition to his base salary, Mr. Papanier was 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. Papanier was paid a bonus of $200,000 in February of 2004 inrespect of performance in the 2003 fiscal year. Mr. Papanier was not partyto a written employment agreement with us. Mr. Papanier resigned from theCompany effective June 20, 2004, and he received a pro rata portion of hisannual base salary for the 2003 fiscal year from the beginning of the 2004fiscal year through June 20, 2004.

 

**Jonathan C. Swain-Chief**Operating Officer

** **

In July 2004,Mr. Swain entered into an employment agreement with PGL to serve as ChiefOperating Officer. Under the terms of his employment agreement, Mr. Swainis entitled to receive from PGL a base annual salary of $400,000, plus a cashbonus of $30,000 upon commencing his employment and an additional $30,000 in October 2004.In addition to the base salary, Mr. Swain is entitled to receive an annualcash bonus payable by PGL based on his performance during the previous fiscalyear, which shall be consistent with the bonus plan in place for similarlysituated executive officers of PGL. Mr. Swain was paid a bonus of $150,000 in February of2005 for his performance in the 2004 fiscal year. Mr. Swain is alsoentitled to receive 2% of PGP’s outstanding capital interests which will vestover the term of his employment agreement. ** **Upon any termination of Mr. Swain’semployment, Mr. Swain is entitled at his option to cause the Company to redeemall vested capital interests granted to him under his employment agreement forcash at their fair market value at the time of termination of employment** **Mr. Swain and theCompany have agreed to amend Mr. Swain’s employment agreement to provide forthe right to receive profits interests under PGP’s 2004 Amended and RestatedIncentive Unit Plan representing 2% of PGP’s outstanding membership interestsin lieu of PGP’s outstanding capital interests as initially contemplated by hisemployment agreement.  See “ExecutiveCompensation—PGP Incentive Unit Plan”. Mr. Swain’s employment agreement has an initial term of three years.

 

**Natalie A. Schramm-**Chief Financial Officer

** **

In July 2004,Ms. Schramm entered into an employment agreement with PGL. Under the termsof her employment agreement, Ms. Schramm is entitled to receive from PGL abase annual salary of $230,000 in the twelve months beginning July 1,2004, which will be adjusted upward annually by not less than five percent (5%)of the prior year’s compensation. In addition to the base salary,Ms. Schramm is entitled to receive an annual cash bonus payable by PGLbased on her performance during the previous fiscal year, which shall beconsistent with the bonus plan in place for similarly situated executiveofficers of PGL. Ms. Schramm is also entitled to 

 

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receive a profitsinterest under PGP’s Amended and Restated 2004 Incentive Unit Plan equal to noless than 0.5% of PGP’s outstanding capital interests on a fully diluted basis,which vest over the term of her employment. Upon any termination of Ms. Schramm’s employment, Ms. Schramm isentitled at her option to cause the Company to redeem all vested profitsinterests granted to her under her employment agreement for cash at their fairmarket value at the time of termination of employment.  Ms. Schramm’s employment agreement has aninitial term of three years.

 

**Marcia S.Seligman-Corporate Legal Counsel**

 

In October 2004,Ms. Seligman entered into an employment agreement with PGL. Under theterms of her employment agreement, Ms. Seligman is entitled to receivefrom PGL a base annual salary of $140,000 in the twelve months beginning October 1,2004. In addition to the base salary, Ms. Seligman is entitled to receivean annual cash bonus payable by PGL based on her performance during theprevious fiscal year.

 

**Compensation** of Managers

** **

All managers serving onthe board 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).  Mr.Stevens received board of managers fees of $350,000, $350,000 and $175,000 in2004, 2003 and 2002, respectively.

 

**Compensation**Committee Interlocks and Insider Participation

** **

We have no standingcompensation committees. All compensation decisions are made by the board ofmanagers of PGP and the executive committee of the board of managers of PGP.

 

**PGP Incentive**Unit Plan

** **

PGP has adopted anincentive unit plan (as amended and restated, the “Plan”) to provide for thegrant of profits interests to existing and future executive officers, managers,employees, and members of PGP and its subsidiaries. Generally, profitsinterests granted under the Plan will be subject to terms and conditionscustomary for such plans, which may include vesting requirements, transferrestrictions, satisfaction of budget related performance criteria and similarconditions and qualifications, in each case, as approved by PGP’s board ofmanagers or a subcommittee thereof. Holders of profits interests issued underthe Plan will be entitled to receive distributions from operating profits on apro rata basis with holders of common units of PGP (but only to the extent ofprofits allocated to holders of profits interests after the date of grant), anddistributions on liquidation only to the extent of their pro rata share of anyundistributed operating profits allocated to holders of profits interests andany further appreciation in the fair market value of PGP after the date ofgrant.  Under the terms of the IUP, PGPmay grant profits interests from time to time representing up to twelve percent(12%) of its outstanding capital interests on a fully diluted basis.

 

At a meeting of the boardof managers of PGP held on February 25, 2005, PGP approved grants ofprofits interests under the Plan to certain executive officers of PGP and/orits subsidiaries aggregating 10.50% of the outstanding membership units of PGPon a fully diluted basis, of which 4% was awarded to Mr. Stevens, 4% wasawarded to Mr. Luzich, 2% was awarded to Mr. Swain and 0.5% was awarded to Ms.Schramm.  The terms of the awards includespecified vesting schedules, acceleration of vesting upon the occurrence ofcertain events, anti-dilution protection, transfer restrictions and othercustomary terms and provisions.  At suchmeeting, the board of managers of PGP also approved the grant of profitsinterests outside of the Plan (on terms substantially similar to those awardedunder the Plan) to each of Messrs. Stevens and Luzich representing 1.5% of  the outstanding membership units of PGP on afully diluted basis.

 

**Compensation Committee Interlocks and Insider Participation**

** **

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

 

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**ITEM 12****.****                                        SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

 

PGP currently owns all ofthe Company’s outstanding common membership interests and is the sole managingmember of the Company.

 

Greater Dubuque RiverboatEntertainment Company holds 100% of DJL’s issued and outstanding preferredmembership interests, which, subject to limited exceptions, have no votingrights, except as required by applicable law. On July 15, 1999, PGP issued499,982 convertible preferred membership interests, each of which is initiallyconvertible into one PGP non-voting common membership interest, representing inthe aggregate 33.33% of the fully diluted common membership interests of PGP onsuch date. In May 2004, PGP repurchased 147,553 of its convertiblepreferred membership interests from an unrelated third party. PGP does not haveoutstanding any of its non-voting common membership interests.

 

Unless otherwiseindicated, the address of each manager or executive officer of PGP is c/oDiamond Jo, LLC, 400 East Third Street, P.O. Box 1750, Dubuque, Iowa,52001-1750.

 

The table below setsforth, as of December 31, 2004, information regarding the beneficialownership of the voting common membership interests of PGP by:

 

(a)                                  eachperson or entity known by us to own beneficially 5% or more of the commonmembership interests of PGP;

 

(b)                                 eachmanager and executive officer of PGP; and

 

(c)                                  allmanagers and executive officers of PGP as a group.

 

The following informationis helpful to an understanding of, and qualifies the beneficial ownership datacontained in, the table set forth below. Mr. Stevens holds 248,334 PGPcommon membership interests directly and 413,333 PGP common membershipinterests indirectly through PGP Investors, LLC. Mr. Stevens is the solemanaging member of PGP Investors, LLC and exercises voting and investment powerover the PGP common membership interests owned by PGP Investors, LLC.Mr. Stevens and Mr. Whittaker, managers of PGP, are an Executive VicePresident and a Vice Chairman, respectively, of the Initial Purchaser. Inaddition, the Initial Purchaser and some of its affiliates, officers andemployees are members of PGP Investors, LLC. Mr. Whittaker holds aneconomic interest in approximately 41,667 PGP common membership interestsindirectly through his membership in PGP Investors, LLC, but does not exercisevoting or investment power with respect to these PGP common membershipinterests. Mr. Oliver holds his interest through The Oliver Family Trust.The total holdings of all managers and executive officers as a group includesthe 413,333 PGP common membership interests held by PGP Investors, LLC, overwhich Mr. Stevens exercises voting and investment power.

 
| **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                | %          |

 

33

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| 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 | %      |

 

----

(1)                                  Theseinterests are attributable to Mr. Stevens and are included in thecalculation of his beneficial ownership and percentage of ownership data.

 

**ITEM 13****.****                                            CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

**Relationship with Dubuque**Racing Association

** **

The DRA is a not-for-profitcorporation organized for the purpose of operating DGP, a pari-mutuel greyhoundracing facility in Dubuque, Iowa. On February 22, 1993, DRA entered intothe DRA Operating Agreement which authorizes us to operate riverboat gamingoperations in Dubuque. The DRA Operating Agreement has since been amendedseveral times and expires by its terms on March 31, 2008.

 

Under the DRA OperatingAgreement, subject to limited conditions, we are also required to pay the DRA,for the right to operate the Diamond Jo, an amount equal to the excess of 32%of the first $30 million of the combined gaming revenues of the DRA andthe Diamond Jo, plus 8% of the next $12 million of these total gamingrevenues, plus, if there are no competing gaming operations in neighboring countiesof Illinois and Wisconsin, 8% of the next $4 million of total gamingrevenues, over the DRA’s gaming revenues from DGP. Gaming revenues under thiscontract means adjusted gross receipts less gaming taxes. This formula issubject to change if the DRA ceases to operate DGP or if we operate a riverboatsmaller than the current Diamond Jo. We are currently not required to make anysuch payments to the DRA because the DRA’s revenues from DGP are greater thanthe specified percentage of our total gaming revenues. However, we do pay a feeto the DRA equal to $0.50 per patron.

 

**ManagingMember Indemnification**

** **

Under our operatingagreement and the operating agreement of PGP, we and PGP have agreed, subjectto few exceptions, to indemnify and hold harmless PGP and the members of PGP,as the case may be, from liabilities incurred as a result of their positions asour sole manager and as members of PGP.

 

**Operating**Agreement 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 ofPGP manages our operations. The executive committee meets weekly or asotherwise agreed upon between Messrs. Luzich and Stevens.

 

34

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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. Stevens is entitled to designate three of PGP’s managers, includingone of the two independent managers. The two independent managers are requiredto serve as members of the independent committee. Under PGP’s operatingagreement, PGP Advisors, LLC, a Delaware limited liability company, of whichMr. Stevens is the sole managing member, may render financial advisory andconsulting services to PGP and is entitled to receive commercially reasonablefees for the services consistent with industry practices. To date, PGP has notentered into any such arrangements with Mr. Stevens. At any time thatMichael Luzich, together with any entity controlled by Mr. Luzich, beneficiallyholds at least 5% of the voting common membership interests of PGP,Mr. Luzich is entitled to designate two of PGP’s managers, including theother independent manager. In consideration for their execution of personalguarantees to provide credit support for OED’s credit facilities, each ofMessrs. Luzich and Stevens were granted profits interests of 1.5% of PGP’sfully diluted membership interests by PGP’s board of managers.Messrs. Stevens and Luzich are entitled to receive distributions onliquidation in respect of such profits interests only to the extent of anyappreciation in the fair market value of PGP interests since the date of grantof 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.A manager 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.

 

OnMay 21, 2003, PGP’s operating agreement was amended to create an executivecommittee consisting of Messrs. Luzich and Stevens. Under the amendment, theexecutive committee manages our business and affairs. The executive committeemeets weekly or as otherwise agreed upon between Messrs. Luzich and Stevens.Other than with respect to any officers whose responsibilities include anyproject or real estate development, all executive officers of PGP and OED shallreport to the Chief Executive Officer of PGP. The executive committee shall,subject to the approval of the board of managers of PGP, unanimously approvethe engagement of all of our executive officers (whose compensation exceeds $100,000 annually), attorneys and accountants. Inthe event that the executive committee is unable to reach a unanimousdetermination as to any such engagement within a reasonable period of time, theexecutive committee shall submit the prospective engagement to the independentmanagers of PGP’s board, whose determination shall be final.

 

At a meeting of the boardof managers of PGP held on February 25, 2005, PGP approved certainamendments to its operating agreement to permit certain amendments to PGP’ s2004 Incentive Unit Plan, including increasing the percentage of profitsinterests issuable under such plan from 10% to 12% of PGP’s outstandingmembership interests on a fully diluted basis.

 

**Management Services**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 ofthe management services agreement, the Operators are entitled to receivepre-opening service fees equal to $40,000 per month, commencing June 27,2001. Payments in respect of these pre-opening service fees have been accruedbut not yet been paid. The Operators are also entitled to be reimbursed for allreasonable and documented out-of-pocket expenses permitted to be incurred underthe management services agreement, including, but not limited to, taxpreparation, accounting, legal and administrative fees and expenses. TheOperators are also entitled to receive in the aggregate a basic management feeequal to 1.75% of net revenue (less net food and beverage revenue) and anincentive fee equal to:

 

•                                          3.0%of the first $25.0 million of EBITDA (as defined below);

 

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

 

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

 

35

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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****.****                                            PRINCIPALACCOUNTANT FEES AND SERVICES**

 
| ** **          | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit fees          |       | $        | 601,949    |     | $          | 425,230 |   |
| Audit-related  fees |       | 90,160   |       | 28,625   |       |
| Tax fees            |       | 33,417   |       | 67,406   |       |
| All other  fees(1)  |       | —   |       | 90,951   |       |
|                     |            |          |            |          |            |  |  |

 

----

**(1) All other fees consist of feesfor professional services related to network security testing and fees paid forprofessional training workshops conducted by our principal accountants.**

** **

In accordance with ourinternal policies, all fees related to audit services rendered by ourindependent accountants are required to be pre-approved by our auditcommittee.  In addition, all of the auditservices described above in this Item 14 for the year ended December 31,2004 have been approved by our audit committee.

 

36

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**PART IV**

 

**ITEM 15.****                                            EXHIBITSAND FINANCIAL STATEMENT SCHEDULES**

 

**(a)**                                  The following documents are filedas a part of this report:

** **

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

 

(2)                                  FinancialStatement Schedules – see Index to Financial Statements appearing on page F-1.

 

(3)                                  Exhibits:

 

**INDEX TO EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description of Exhibit***                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 2.1                 |       | Certificate of Dissolution of Peninsula Gaming Corporation, dated June 17,  2004 — incorporated by reference to Exhibit 2.1 of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004 (With regard to applicable cross-references  in this Form 10-K, Peninsula Gaming, LLC’s Form S-4; Current, Quarterly and  Annual Reports were filed with the SEC under File No. 333-117800).                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.1A                |       | Certificate of  Formation of Peninsula Gaming Company, LLC-incorporated herein by reference  to Exhibit 3.1A of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,  1999. (With regard to applicable cross-references in this Form 10-K,  Peninsula Gaming Company, LLC’s Form S-4, Current, Quarterly and Annual  Reports were filed with the SEC under File No. 333-88829).                                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.1B                |       | Amendment to Certificate of Formation of Peninsula Gaming Company,  LLC-incorporated by reference to Exhibit 3.1B of Peninsula Gaming Company,  LLC’s Form S-4 filed October 12, 1999.                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.1C                |       | Certificate of Amendment to the Certificate of Formation of Peninsula  Gaming Company, LLC, dated March 10, 2004-incorporated herein by  reference to Peninsula Gaming Company, LLC’s Quarterly Report on Form 10-Q  filed May 14, 2004.                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.2                 |       | Amended and Restated Operating Agreement of Peninsula Gaming Company,  LLC-incorporated herein by reference to Exhibit 3.2 of Peninsula Gaming  Company, LLC’s Form S-4 filed on October 12, 1999.                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.3A                |       | Certificate of Formation of Peninsula Casinos, LLC, dated February 27,  2004 — incorporated by reference to Exhibit 3.3A of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.3B                |       | Certificate of Amendment to the Certificate of Formation of Peninsula  Casinos, LLC, dated March 9, 2004 — incorporated by reference to Exhibit  3.3B of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004                                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.4                 |       | Operating Agreement of Peninsula Gaming, LLC (formerly known as  Peninsula Casinos, LLC), dated June 14, 2004 — incorporated by reference  to Exhibit 3.4 of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.5A                |       | Certificate of Incorporation of The Old Evangeline Downs Capital  Corp., dated January 20, 2003-incorporated herein by reference to  Exhibit 3.4 of The Old Evangeline Downs Capital Corp.’s Form S-4 filed  May 28, 2003. (With regard to applicable cross-references in this  registration statement, The Old Evangeline Downs Capital Corp.’s Form S-4,  Current, Quarterly and Annual Reports were filed with the SEC under File No.  333-105587). |

 

37

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| **Exhibit  Number** | ** ** | **Description of Exhibit***                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.5B                |       | Certificate of Amendment to the Certificate of Incorporation of The  Old Evangeline Downs Capital Corp., dated June 17, 2004 — incorporated  by reference to Exhibit 3.5B of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004.                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.6                 |       | By-laws of The Old Evangeline Downs Capital Corp.—incorporated herein  by reference to Exhibit 3.5 of The Old Evangeline Downs Capital Corp.’s Form  S-4 filed May 28, 2003.                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.7                 |       | Amended and Restated Articles of Organization of The Old Evangeline  Downs, L.L.C. (formerly The Old Evangeline Downs, L.C.), dated February 19,  2003-incorporated herein by reference to Exhibit 3.1 of The Old Evangeline  Downs, L.L.C.’s Form S-4 filed May 28, 2003. (With regard to applicable  cross-references in this registration statement, The Old Evangeline Downs,  L.L.C.’s Form S-4 was filed with the SEC under File No. 333-105587). |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.8A                |       | Amended and Restated Operating Agreement of The Old Evangeline Downs,  L.L.C., dated as of January 30, 2003—incorporated herein by reference to  Exhibit 3.2 of The Old Evangeline Downs, L.L.C.’s Form S-4 filed May 28,  2003.                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.8B                |       | First Amendment to Amended and Restated Operating Agreement of The  Old Evangeline Downs, L.L.C., dated as of May 21, 2003-incorporated  herein by reference to Exhibit 3.3 of The Old Evangeline Downs, L.L.C.’s Form  S-4 filed May 28, 2003.                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.1                 |       | Specimen Certificate of Common Stock of Peninsula Gaming Corp.  (formerly known as The Old Evangeline Downs Capital Corp.) — — incorporated  by reference to Exhibit 4.1 of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004.                                                                                                                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.2A                |       | Indenture, dated July 15, 1999, by and among Peninsula Gaming  Company, LLC, Peninsula Gaming Corporation and Firstar Bank of Minnesota,  N.A., as trustee-incorporated herein by reference to Exhibit 4.2 of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.2B                |       | First Supplemental Indenture, dated January 14, 2002, by and  among Peninsula Gaming Company, LLC and Peninsula Gaming Corporation, as  Issuers, the Subsidiary Guarantors referred to therein and U.S. Bank National  Association, as trustee-incorporated herein by reference to Exhibit 4.3 of  Peninsula Gaming Company, LLC’s Form S-4 filed October 21, 1999.                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.3A                |       | Indenture, dated February 25, 2003, by and among The Old Evangeline  Downs, L.L.C., The Old Evangeline Downs Capital Corp. and U.S. Bank National  Association-incorporated herein by reference to Exhibit 4.1 of The Old  Evangeline Downs, L.L.C.’s Form S-4 filed May 28, 2003.                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.3B                |       | Supplemental Indenture, dated as of March 25, 2004, by and among  The Old Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corp. and  U.S. Bank National Association — incorporated by reference to Exhibit 4.3B of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.4A                |       | Indenture, dated as of April 16, 2004, by and among Diamond Jo,  LLC (formerly known as Peninsula Gaming Company, LLC), The Old Evangeline  Downs Capital Corp., the Subsidiary Guarantors named therein and U.S. Bank  National Association — — incorporated by reference to Exhibit 4.4A of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.4B                |       | Supplemental Indenture among Peninsula Gaming, LLC, Diamond Jo, LLC  (formerly known as Peninsula Gaming Company, LLC), The Old Evangeline Downs  Capital Corp. and U.S. Bank National Association, dated as of June 16,  2004 — — incorporated by reference to Exhibit 4.4B of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                             |

 

38

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| **Exhibit  Number** | ** ** | **Description of Exhibit***                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.5A                |       | Registration Rights Agreement, dated April 16, 2004, by and  among Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC), The  Old Evangeline Downs Capital Corp., the Guarantors named therein and  Jefferies & Company, Inc. — — incorporated by reference to Exhibit  4.5A of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.5B                |       | Joinder of Peninsula Gaming, LLC, dated June 16, 2004, to the  Registration Rights Agreement, dated April 16, 2004, by and among  Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC), The Old  Evangeline Downs Capital Corp., the Guarantors named therein and  Jefferies & Company, Inc. — incorporated by reference to  Exhibit 4.5B of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.6A                |       | Pledge and Security Agreement, dated as of April 16, 2004, among  Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC), The Old  Evangeline Downs Capital Corp., OED Acquisition, LLC, Peninsula Gaming  Corporation, The Old Evangeline Downs, L.L.C. and U.S. Bank National  Association — incorporated by reference to Exhibit 4.6A of Peninsula Gaming,  LLC’s Form S-4 filed July 30, 2004.                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.6B                |       | Supplement to Security Agreement by Peninsula Gaming, LLC, dated June 16,  2004 — incorporated by reference to Exhibit 4.6B of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.7                 |       | Trademark Security Agreement, dated April 16, 2004, by Diamond  Jo, LLC in favor of U.S. Bank National Association — incorporated by  reference to Exhibit 4.7 of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004.                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.8                 |       | Form of 83/4% Senior Secured Notes  due 2012 — incorporated by reference to Exhibit 4.8 of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.9A                |       | Intercreditor Agreement between U.S. Bank National Association and  Wells Fargo Foothill, Inc., dated April 16, 2004 — incorporated by  reference to Exhibit 4.9A of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004.                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.9B                |       | Acknowledgement of Peninsula Gaming, LLC, dated June 16, 2004,  to the Intercreditor Agreement between U.S. Bank National Association and  Wells Fargo Foothill, Inc., dated April 16, 2004 — incorporated by  reference to Exhibit 4.9B of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004.                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.1                |       | Employment Agreement, dated April 1, 2000, by and among Natalie  Schramm and Peninsula Gaming Company, LLC-incorporated herein by reference to  Exhibit 10.1 of Peninsula Gaming Company, LLC’s Form 8-K. Current Report  filed March 4, 2002.                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.2                |       | Indemnification Agreement, dated June 7, 1999, by and among Natalie  Schramm and AB Capital, L.L.C. and Peninsula Gaming Company, LLC-incorporated  herein by reference to Exhibit 10.2 of Peninsula Gaming Company, LLC’s Form  S-4 filed October 12, 1999.                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.3A               |       | Operating Agreement, dated February 22, 1993, by and among  Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment  Company, L.C.—incorporated herein by reference to Exhibit 10.9A of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.3B               |       | Amendment to Operating Agreement, dated February 22, 1993, by  and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9B  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                                                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.3C               |       | Amendment to Operating Agreement, dated March 4, 1993, by and  among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9C  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.3D               |       | Third Amendment to Operating Agreement, dated March 11, 1993, by  and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9D                                                                                                                                                                                                                   |

 

39

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| **Exhibit  Number** | ** ** | **Description of Exhibit***                                                                                                                                                                                                                                                                                                                                            |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
|                |       | of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,  1999.                                                                                                                                                                                                                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3E               |       | Fourth Amendment to Operating Agreement, dated March 11, 1993,  by and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9E  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3F               |       | Fifth Amendment to Operating Agreement, dated April 9, 1993, by  and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9F  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3G               |       | Sixth Amendment to Operating Agreement, dated November 29, 1993,  by and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9G  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3H               |       | Seventh Amendment to Operating Agreement, dated April 6, 1994,  by and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9H  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3I               |       | Eighth Amendment to Operating Agreement, dated April 29, 1994,  by and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9I  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3J               |       | Ninth Amendment to Operating Agreement, dated July 11, 1995, by  and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9J  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.3K               |       | Tenth Amendment to Operating Agreement, dated July 15, 1999, by  and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9K  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.4                |       | Operating Agreement Assignment, dated July 15, 1999, by and  among Greater Dubuque Riverboat Entertainment Company, L.C. and Peninsula  Gaming Company, LLC-incorporated herein by reference to Exhibit 10.10 of  Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.5                |       | First Preferred Ship Mortgage, dated July 15, 1999, by Peninsula  Gaming Company, LLC in favor of Firstar Bank of Minnesota, N.A., as  trustee —incorporated herein by reference to Exhibit 10/11 of  Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.6                |       | Mortgage, Leasehold Mortgage, Assignment of Rents, Security Agreement  and Fixture Financing Statement dated July 15, 1999, by Peninsula Gaming  Company, LLC in favor of Firstar Bank of Minnesota, N.A., as  trustee-incorporated herein by reference to Exhibit 10.12 of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999. |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.7                |       | Ice Harbor Parking Agreement Assignment dated July 15, 1999, by  and among Greater Dubuque Riverboat Entertainment Company, L.C. and Peninsula  Gaming Company, LLC-incorporated herein by reference to Exhibit 10.13 of  Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.8                |       | First Amendment to Sublease Agreement, dated July 15, 1999, by  and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.14  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                   |
| 10.9                |       | Sublease Assignment, dated July 15, 1999, by and among Greater  Dubuque Entertainment Company, L.C. and Peninsula Gaming Company,  LLC-incorporated herein by reference to Exhibit 10.15 of Peninsula Gaming                                                                                                                                                      |

 

40

----

 
| **Exhibit  Number** | ** ** | **Description of Exhibit***                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       | Company, LLC’s Form S-4 filed October 12, 1999.                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.10               |       | Iowa Racing and Gaming Commission Gaming License, dated July 15,  1999-incorporated herein by reference to Exhibit 10.16 of Peninsula Gaming  Company, LLC’s Form S-4 filed October 12, 1999.                                                                                                                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.11               |       | Assignment of Iowa IGT Declaration and Agreement of Trust, dated July 15,  1999 by and among Greater Dubuque Riverboat Entertainment Company, L.C. and  Peninsula Gaming Company, LLC-incorporated herein by reference to Exhibit  10.17 of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,  1999.                                                                         |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.12               |       | Agreement of Sale, dated August 30, 2002, by and among Peninsula  Gaming Partners, LLC, OED Acquisition, LLC, William E. Trotter II and William  E. Trotter II Family, LLC-incorporated herein by reference to Exhibit 10.3 of  Peninsula Gaming Company, LLC’s Form 10-Q Quarterly Report for the quarter  ended September 30, 2002.                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13A              |       | Loan and Security Agreement, dated February 23, 2001, by and  between Foothill Capital Corporation and Peninsula Gaming Company,  LLC-incorporated herein by reference to Exhibit 10.13 of Peninsula Gaming  Company, LLC’s Form 10-K Annual Report for the year ended December 31,  2002.                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13B              |       | Amendment Number One to Loan and Security Agreement, dated February 15,  2002, by and between Foothill Capital Corporation and Peninsula Gaming  Company, LLC-incorporated herein by reference to Exhibit 10.1 of Peninsula  Gaming Company, LLC’s Form 10-Q Quarterly Report for the quarter ended September 30,  2002.                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13C              |       | Amendment Number Two to Loan and Security Agreement, dated October 16,  2002, by and between Foothill Capital Corporation and Peninsula Gaming  Company, LLC-incorporated herein by reference to Exhibit 10.2 of Peninsula  Gaming Company, LLC’s Form 10-Q Quarterly Report for the quarter ended September 30,  2002.                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13D              |       | Amendment Number Three to Loan and Security Agreement, dated February 14,  2003, by and between Foothill Capital Corporation and Peninsula Gaming  Company, LLC-incorporated herein by reference to Exhibit 10.14 of Peninsula  Gaming Company, LLC’s Form 10-Q Quarterly Report for the quarter ended September 30,  2003.                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13E              |       | Amendment Number Four to Loan and Security Agreement dated November 6,  2003, by and between Peninsula Gaming Company, LLC and Wells Fargo Foothill,  Inc.—incorporated herein by reference to Exhibit 10.19 of Peninsula Gaming  Company, LLC’s Form 10-Q Quarterly Report for the quarter ended September 30,  2003.                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.14               |       | Purchase Agreement, dated June 27, 2002, by and among Peninsula  Gaming Partners, LLC, a Delaware limited liability company, The Old  Evangeline Downs, L.C., a Louisiana limited company and BIM3 Investments, a  Louisiana partnership-incorporated herein by reference to Exhibit 1.1 of  Peninsula Gaming Company, LLC’s Form 8-K Current Report filed March 4,  2002.            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.15               |       | First Amendment to Purchase Agreement, dated January 1, 2002, by  and among BIM3 Investments, a Louisiana partnership, The Old Evangeline  Downs, L.C., a Louisiana limited company and OED Acquisition, LLC, a Delaware  limited liability company-incorporated herein by reference to Exhibit 1.3 of  Peninsula Gaming Company, LLC’s Form 8-K Current Report filed March 4,  2002. |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.16               |       | Assignment Agreement, dated October 23, 2001, by and between  Peninsula Gaming Partners and OED Acquisition, LLC-incorporated herein by  reference to Exhibit 1.2 of Peninsula Gaming Company, LLC’s Form 8-K Current  Report filed March 4, 2002.                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.17A              |       | Loan and Security Agreement, dated June 24, 2003, by and among  The Old Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corp., and  Wells Fargo Foothill, Inc.—incorporated herein by reference to Exhibit  10.16 of Peninsula Gaming Company, LLC’s Form 10-Q Quarterly Report for the  quarter ended September 30, 2003.                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.17B              |       | First Amendment, dated September 22, 2003, to Loan and Security  Agreement, dated June 24, 2003, by and among The Old Evangeline Downs,  L.L.C., The Old Evangeline Downs Capital Corp., and Wells Fargo  Foothill, Inc.—                                                                                                                                                        |

 

41

----

 
| **Exhibit  Number** | ** ** | **Description of Exhibit***                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                |       | incorporated herein by reference to Exhibit 10.18 of Peninsula Gaming  Company, LLC’s Form 10-Q Quarterly Report for the quarter ended September 30,  2003.                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.18               |       | Loan and Security Agreement, dated September 22, 2003, by and  among The Old Evangeline Downs, L.L.C., The Old Evangeline Downs Capital  Corp., and Wells Fargo Foothill, Inc.—incorporated herein by reference  to Exhibit 10.17 of Peninsula Gaming Company, LLC’s Form 10-Q Quarterly  Report for the quarter ended September 30, 2003.                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.19               |       | Loan and Security Agreement, dated as of June 16, 2004, by and  among Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC), The  Old Evangeline Downs, L.L.C. and Wells Fargo Foothill, Inc —  incorporated by reference to Exhibit 10.19 of Peninsula Gaming, LLC’s Form  S-4 filed July 30, 2004.                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.20               |       | Guarantor Security Agreement, dated as of June 16, 2004, by and  among Peninsula Gaming, LLC, The Old Evangeline Downs Capital Corp. and Wells  Fargo Foothill, Inc — — incorporated by reference to Exhibit 10.20 of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.21               |       | Intercompany Subordination Agreement, dated as of June 16, 2004,  by and among The Old Evangeline Downs, L.L.C., Diamond Jo, LLC (formerly  known as Peninsula Gaming Company, LLC), The Old Evangeline Downs Capital  Corp., Peninsula Gaming, LLC and Wells Fargo Foothill, Inc —  incorporated by reference to Exhibit 10.21 of Peninsula Gaming, LLC’s Form  S-4 filed July 30, 2004.    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22               |       | Management Fees Subordination Agreement, dated as of June 16, 2004,  by and among The Old Evangeline Downs, L.L.C., The Old Evangeline Downs  Capital Corp., Diamond Jo, LLC (formerly known as Peninsula Gaming Company,  LLC), OED Acquisition, LLC and Wells Fargo Foothill, Inc. — incorporated  by reference to Exhibit 10.22 of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004. |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.23               |       | Post Closing Letter, dated June 16, 2004, from Wells Fargo  Foothill, Inc. to The Old Evangeline Downs, L.L.C. and Diamond Jo, LLC  (formerly known as Peninsula Gaming Company, LLC) — — incorporated by  reference to Exhibit 10.23 of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004.                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.24               |       | Amended and Restated Management Services Agreement, dated as of February 25,  2003, by and among The Old Evangeline Downs, L.L.C., OED Acquisition, LLC and  Peninsula Gaming Company, LLC-incorporated herein by reference to Exhibit  10.15 of Peninsula Gaming Company, LLC’s Form 10-Q Quarterly Report for the  quarter ended September 30, 2003.                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.24               |       | Employment Agreement, dated July 14, 2004, by and between  Jonathan Swain and Peninsula Gaming, LLC — — incorporated by reference to  Exhibit 10.1B of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.25               |       | Form of Employment Agreement by and between Natalie A. Schramm and  Peninsula Gaming, LLC. — incorporated by reference to Exhibit 10.01A of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.26               |       | Guaranty by The Old Evangeline Downs Capital Corp. in favor of Wells  Fargo Foothill, Inc., dated June 16, 2004 — — incorporated by  reference to Exhibit 10.25 of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 12.1†          |       | Computation of ratio of earnings to fixed charges.                                                                                                                                                                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 21.1†          |       | Subsidiaries of the Registrants                                                                                                                                                                                                                                                                                                                                                                                       |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.1†          |       | Certification of M. Brent Stevens, Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 31.2†          |       | Certification of Natalie A. Schramm, Chief Financial Officer.                                                                                                                                                                                                                                                                                                                                                         |

 

 

----

*                                         Unless otherwise noted, exhibits have beenpreviously filed and are incorporated by reference.

†                                          Filed herewith.

 

42

----

 

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Actof 1934, each of the registrants has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized, on March 30,2005.

 
|   | PENINSULA GAMING, LLC  |
|--------|------------------------|
|   |                   |   |
|   | By:                    | /s/ M. Brent Stevens |   |
|   |                   | M. Brent Stevens |   |
|   |                   | *Chief  Executive Officer* |   |
|   |                   |   |   |
|   | PENINSULA GAMING CORP. |   |
|   |                   |   |   |
|   | By:                    | /s/ M. Brent Stevens |   |
|   |                   | M. Brent Stevens |   |
|   |                   | *Chief  Executive Officer* |   |
|   |                   |   |   |
|   | DIAMOND JO, LLC        |   |
|   |                   |   |   |
|   | By:                    | /s/ M. Brent Stevens |   |
|   |                   | M. Brent Stevens |   |
|   |                   | *Chief  Executive Officer* |   |
|        |                        |  |  |  |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of each of the registrants and in the capacities indicated onMarch 30, 2005.

 
|   | PENINSULA GAMING, LLC |
|--------|-----------------------|
|   |                  |   |
|   | By:                   | /s/ M. Brent Stevens |   |
|   |                  | M. Brent Stevens |
|   |                  | *Chief  Executive Officer and Manager* |
|   |                  | *(principal  executive officer)* |
|   |                  |   |
|   | By:                   | /s/ Natalie A. Schramm |   |
|   |                  | Natalie A. Schramm |
|   |                  | *Chief  Financial Officer* |
|   |                  | *(principal  financial and principal accounting officer)* |
|   |                  |   |   |
|   | By:                   | /s/ Michael S. Luzich |   |
|   |                  | Michael S. Luzich |
|   |                  | *President,  Secretary and Manager* |
|   |                  |   |   |
|   | By:                   | /s/ Terrance W. Oliver |   |
|   |                  | Terrance W. Oliver |
|   |                  | *Manager* |   |
|   |                  | * * |   |
|   | By:                   | /s/ Andrew Whittaker |   |
|   |                  | Andrew Whittaker |
|   |                  | *Manager* |   |

 

43

----

 
|   | PENINSULA GAMING CORP. |
|--------|------------------------|
|   |                   |   |   |
|   | By:                    | /s/ M. Brent Stevens |   |
|   |                   | M. Brent Stevens |
|   |                   | *Chief  Executive Officer and Manager* |
|   |                   | *(principal  executive officer)* |
|   |                   |   |   |
|   | By:                    | /s/ Natalie A. Schramm |   |
|   |                   | Natalie A. Schramm |
|   |                   | *Chief  Financial Officer* |
|   |                   | *(principal  financial and principal accounting officer)* |
|   |                   |   |   |
|   | By:                    | /s/ Michael S. Luzich |   |
|   |                   | Michael S. Luzich |   |
|   |                   | *President,  Secretary and Manager* |
|   |                   |   |   |
|   | By:                    | /s/ Terrance W. Oliver |   |
|   |                   | Terrance W. Oliver |   |
|   |                   | *Manager* |   |
|   |                   |   |   |
|   | By:                    | /s/ Andrew Whittaker |   |
|   |                   | Andrew Whittaker |   |
|   |                   | *Manager* |   |
|   |                   |   |   |
|   |                   |   |   |
|   | DIAMOND JO, LLC        |   |
|   |                   |   |   |
|   | By:                    | /s/ M. Brent Stevens |   |
|   |                   | M. Brent Stevens |   |
|   |                   | *Chief  Executive Officer and Manager* |
|   |                   | *(principal  executive officer)* |
|   |                   |   |   |
|   | By:                    | /s/ Natalie A. Schramm |   |
|   |                   | Natalie A. Schramm |   |
|   |                   | *Chief  Financial Officer* |   |
|   |                   | *(principal  financial and principal accounting officer)* |
|   |                   |   |   |
|   | By:                    | /s/ Michael S. Luzich |   |
|   |                   | Michael S. Luzich |   |
|   |                   | *President,  Secretary and Manager* |
|   |                   |   |   |
|   | By:                    | /s/ Terrance W. Oliver |   |
|   |                   | Terrance W. Oliver |   |
|   |                   | *Manager* |   |
|   |                   |   |   |
|   | By:                    | /s/ Andrew Whittaker |   |
|   |                   | Andrew Whittaker |   |
|   |                   | *Manager* |   |
|        |                        |  |  |  |  |

 

44

----

 

**INDEX TO CONSOLIDATEDFINANCIAL STATEMENTS**

 
| **Consolidated Financial Statements of  Peninsula Gaming, LLC:**                                                                      |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|
| Report of Independent Registered Public  Accounting Firm                                                                              | F-2    |
| Consolidated Balance Sheets – December 31, 2004 and 2003                                                                    | F-3    |
| Consolidated Statements of Operations –  Years Ended December 31, 2004, 2003 and 2002                                       | F-4    |
| Consolidated Statements of Changes in  Members’ Equity (Deficit) – Years Ended December 31, 2004, 2003 and 2002        | F-5    |
| Consolidated Statements of Cash Flows –  Years Ended December 31, 2004, 2003 and 2002                                       | F-6    |
| Notes to Consolidated Financial Statements                                                                                            | F-7    |
| Financial Statement Schedule –  Valuation and Qualifying Accounts – Years Ended December 31, 2004, 2003  and 2002 | S-1    |

 

F-1

----

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Peninsula Gaming, LLC

Dubuque, Iowa

 

We have audited the accompanying consolidatedbalance sheets of Peninsula Gaming, LLC and subsidiaries (the “Company”) as of December 31,2004 and 2003, and the related consolidated statements of operations, changesin members’ equity (deficit), and cash flows for each of the three years in theperiod ended December 31, 2004. Our audits also included the financialstatement schedule listed in the Index to Financial Statements. Thesefinancial statements and financial statement schedule are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and financial statement schedule basedon our audits.

 

We conducted our audits in accordance withstandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit also includes examining,on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, 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, such financial statementspresent fairly, in all material respects, the financial position of PeninsulaGaming, LLC and subsidiaries as of December 31, 2004 and 2003, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2004 in conformity with accountingprinciples generally accepted in the United States of America. Also, in ouropinion, such financial statement schedule, when considered in relation to thebasic financial statements taken as a whole, presents fairly in all materialrespects the information set forth therein.

 

 
| /s/ DELOITTE & TOUCHE LLP |   |
|------------------------------------|--------|
|                               |
| Cedar Rapids, Iowa                 |
| March 29, 2005                |

 

F-2

----

 

PENINSULA GAMING, LLC

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

 
| ** **                                                                                       | ** ** | **2004**    | ** **  | **2003**    | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| **ASSETS**                                                                                       |       |        |        |        |       |
| CURRENT  ASSETS:                                                                                 |       |        |        |        |       |
| Cash and  cash equivalents                                                                       |       | $           | 10,504,016  |        | $          | 21,158,295 |   |
| Restricted  cash-purse settlements                                                               |       | 3,671,331   |        | 1,589,125   |       |
| Restricted  investments                                                                          |       |        |        | 15,778,883  |       |
| Accounts  receivable, less allowance for doubtful accounts of $47,426 and $61,922,  respectively |       | 816,058     |        | 482,222     |       |
| Inventories                                                                                      |       | 243,336     |        | 403,376     |       |
| Prepaid  expenses                                                                                |       | 2,183,711   |        | 815,009     |       |
| Total  current assets                                                                            |       | 17,418,452  |        | 40,226,910  |       |
| RESTRICTED  CASH-RACINO PROJECT                                                                  |       |        |        | 20,013,291  |       |
| PROPERTY AND  EQUIPMENT, NET                                                                     |       | 126,163,076 |        | 102,477,345 |       |
| OTHER  ASSETS:                                                                                   |       |        |        |        |       |
| Deferred  financing costs, net of amortization of $1,437,903 and $5,288,572,  respectively       |       | 13,311,935  |        | 12,702,387  |       |
| Goodwill                                                                                         |       | 53,083,429  |        | 53,083,429  |       |
| Licenses and  other intangibles                                                                  |       | 32,562,289  |        | 32,257,963  |       |
| Deposits and  other assets                                                                       |       | 530,159     |        | 757,789     |       |
| Total other  assets                                                                              |       | 99,487,812  |        | 98,801,568  |       |
| TOTAL                                                                                            |       | $           | 243,069,340 |        | $          | 261,519,114 |   |
| **LIABILITIES  AND MEMBERS’ EQUITY (DEFICIT)**                                              |       |        |        |        |       |
| CURRENT  LIABILITIES:                                                                            |       |        |        |        |       |
| Accounts  payable                                                                                |       | $           | 3,801,985   |        | $          | 2,972,608 |   |
| Construction  payable–Racino project                                                        |       | 4,711,861   |        | 20,156,591  |       |
| Purse  settlement payable                                                                        |       | 5,040,312   |        | 1,589,125   |       |
| Accrued  payroll and payroll taxes                                                               |       | 2,615,915   |        | 2,788,224   |       |
| Accrued  interest                                                                                |       | 4,973,545   |        | 9,904,778   |       |
| Other  accrued expenses                                                                          |       | 4,396,194   |        | 4,811,106   |       |
| Payable to  affiliate                                                                            |       | 100,973     |        |        |       |
| Current  maturity of long-term debt                                                              |       | 8,630,008   |        | 4,098,222   |       |
| Total  current liabilities                                                                       |       | 34,270,793  |        | 46,320,654  |       |
| LONG-TERM  LIABILITIES:                                                                          |       |        |        |        |       |
| 8 3/4%  senior secured notes, net of discount                                                    |       | 229,945,650 |        |        |       |
| 12 1/4%  senior secured notes, net of discount                                                   |       |        |        | 70,616,221  |       |
| 13% senior  secured notes, net of discount                                                       |       | 6,796,576   |        | 120,923,436 |       |
| Senior secured  credit facilities                                                                |       | 13,887,764  |        | 15,754,301  |       |
| Term loan                                                                                        |       | 8,666,667   |        | 9,921,557   |       |
| Notes  payable                                                                                   |       | 7,451,248   |        | 3,511,654   |       |
| Other  accrued expenses                                                                          |       | 650,000     |        | 1,100,000   |       |
| Preferred  members’ interest, redeemable                                                    |       | 4,000,000   |        | 4,000,000   |       |
| Total  long-term liabilities                                                                     |       | 271,397,905 |        | 225,827,169 |       |
| Total  liabilities                                                                               |       | 305,668,698 |        | 272,147,823 |       |
| COMMITMENTS  AND CONTINGENCIES MEMBERS’ EQUITY (DEFICIT)                                    |       |        |        |        |       |
| Common  members’ interest                                                                   |       | 9,000,000   |        | 9,000,000   |       |
| Accumulated  deficit                                                                             |       | (71,599,358 | )           | (19,628,709 | )          |
| Total  members’ equity (deficit)                                                            |       | (62,599,358 | )           | (10,628,709 | )          |
| TOTAL                                                                                            |       | $           | 243,069,340 |        | $          | 261,519,114 |   |

 

See notes to consolidatedfinancial statements.

 

F-3

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

 
| ** **                                                                                             | ** ** | **2004**    | ** **  | **2003**    | ** ** | **2002**    | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|-------------|------------|
|                                                                                                   |       |        |        |        |       |        |       |
| REVENUES:                                                                                              |       |        |        |        |       |        |       |
| Casino                                                                                                 |       | $           | 119,920,935 |        | $          | 56,794,529  |       | $ | 48,262,485 |   |
| Racing                                                                                                 |       | 20,000,703  |        | 17,773,481  |       | 15,509,989  |       |
| Food and  beverage                                                                                     |       | 11,464,094  |        | 4,565,438   |       | 3,886,326   |       |
| Other                                                                                                  |       | 1,434,135   |        | 589,268     |       | 144,817     |       |
| Less  promotional allowances                                                                           |       | (7,965,784  | )           | (3,221,134  | )          | (2,615,355  | )          |
| Total net  revenues                                                                                    |       | 144,854,083 |        | 76,501,582  |       | 65,188,262  |       |
| EXPENSES:                                                                                              |       |        |        |        |       |        |       |
| Casino                                                                                                 |       | 60,910,752  |        | 24,091,470  |       | 20,992,183  |       |
| Racing                                                                                                 |       | 16,958,738  |        | 14,646,351  |       | 12,650,996  |       |
| Food and  beverage                                                                                     |       | 9,218,345   |        | 4,282,010   |       | 3,820,365   |       |
| Boat  operations                                                                                       |       | 2,231,223   |        | 2,322,126   |       | 2,295,771   |       |
| Other                                                                                                  |       | 1,075,864   |        | 442,964     |       | 27,471      |       |
| Selling,  general and administrative                                                                   |       | 21,404,627  |        | 11,609,084  |       | 8,302,379   |       |
| Depreciation  and amortization                                                                         |       | 12,355,503  |        | 3,323,541   |       | 2,950,369   |       |
| Pre-opening  expense                                                                                   |       | 367,488     |        | 3,256,963   |       |        |       |
| Development  expense                                                                                   |       | 241,691     |        | 102,272     |       |        |       |
| Management  severance and recruiting                                                                   |       | 592,827     |        |        |       |        |       |
| Affiliate  management fees                                                                             |       | 757,430     |        | 175,000     |       |        |       |
| (Gain) loss  on disposal of assets                                                                     |       | (716,190    | )           | 49,735      |       | 8,000       |       |
| Litigation  settlement                                                                                 |       |        |        |        |       | 1,600,000   |       |
| Referendum                                                                                             |       |        |        |        |       | 771,111     |       |
| State of  Wisconsin government relations                                                               |       |        |        |        |       | 55,000      |       |
| Total  expenses                                                                                        |       | 125,398,298 |        | 64,301,516  |       | 53,473,645  |       |
| INCOME FROM  OPERATIONS                                                                                |       | 19,455,785  |        | 12,200,066  |       | 11,714,617  |       |
| OTHER INCOME  (EXPENSE):                                                                               |       |        |        |        |       |        |       |
| Interest  income                                                                                       |       | 170,411     |        | 489,800     |       | 46,475      |       |
| Interest  expense, net of amounts capitalized (including related party interest of  $829,319 for 2002) |       | (26,775,110 | )           | (25,071,656 | )          | (11,887,979 | )          |
| Loss on  early retirement of debt                                                                      |       | (37,566,234 | )           |        |       |        |       |
| Interest  expense related to preferred members’ interest, redeemable                              |       | (360,000    | )           | (180,000    | )          |        |       |
| Total other  expense                                                                                   |       | (64,530,933 | )           | (24,761,856 | )          | (11,841,504 | )          |
| NET LOSS  BEFORE PREFERRED MEMBER DISTRIBUTIONS AND MINORITY INTEREST                                  |       | (45,075,148 | )           | (12,561,790 | )          | (126,887    | )          |
| LESS  PREFERRED MEMBER DISTRIBUTIONS                                                                   |       |        |        | (180,544    | )          | (373,050    | )          |
| LESS  MINORITY INTEREST                                                                                |       |        |        |        |       | (232,056    | )          |
| NET LOSS TO  COMMON MEMBERS’ INTEREST                                                             |       | $           | (45,075,148 | )           | $          | (12,742,334 | )          | $ | (731,993 | ) |

 

See notes to consolidatedfinancial statements.

 

F-4

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

 
| ** **                                 | ** ** | **COMMON  MEMBERS’  INTEREST** | ** ** | **ACCUMULATED  DEFICIT** | ** ** | **TOTAL  MEMBERS’  EQUITY  (DEFICIT)** | ** ** |
|--------------------------------------------|------------|-------------------------------------|------------|--------------------------|------------|---------------------------------------------|------------|
|                                       |       |                                |       |                     |       |                                        |       |
| BALANCE, DECEMBER 31,  2001           |       | $                                   | 9,000,000  |                     | $          | (3,337,227                                  | )          | $ | 5,662,773 |   |
| Net loss to  common members’ interest |       |                                |       | (731,993                 | )          | (731,993                                    | )          |
| Member  distributions                      |       |                                |       | (1,260,012               | )          | (1,260,012                                  | )          |
| BALANCE, DECEMBER 31,  2002           |       | 9,000,000                           |       | (5,329,232               | )          | 3,670,768                                   |       |
| Net loss to  common members’ interest |       |                                |       | (12,742,334              | )          | (12,742,334                                 | )          |
| Member  distributions                      |       |                                |       | (1,557,143               | )          | (1,557,143                                  | )          |
| BALANCE, DECEMBER 31,  2003           |       | 9,000,000                           |       | (19,628,709              | )          | (10,628,709                                 | )          |
| Net loss to  common members’ interest |       |                                |       | (45,075,148              | )          | (45,075,148                                 | )          |
| Member  distributions                      |       |                                |       | (7,030,706               | )          | (7,030,706                                  | )          |
| Spin off of  OED Acquisition, LLC          |       |                                |       | 135,205                  |       | 135,205                                     |       |
| BALANCE, DECEMBER 31,  2004           |       | $                                   | 9,000,000  |                     | $          | (71,599,358                                 | )          | $ | (62,599,358 | ) |

 

See notes to consolidatedfinancial statements.

 

F-5

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

 
| ** **                                                                                                                                                | ** ** | **2004**     | ** **  | **2003**    | ** ** | **2002**    | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|-------------|-------------|------------|-------------|------------|
|                                                                                                                                                      |       |         |        |        |       |        |       |
| CASH FLOWS  FROM OPERATING ACTIVITIES:                                                                                                                    |       |         |        |        |       |        |       |
| Net loss                                                                                                                                                  |       | $            | (45,075,148 | )           | $          | (12,742,334 | )          | $ | (731,993 | ) |
| Adjustments  to reconcile net loss to net cash flows from operating activities:                                                                           |       |         |        |        |       |        |       |
| Depreciation  and amortization                                                                                                                            |       | 12,355,503   |        | 3,323,541   |       | 2,950,369   |       |
| Provision  for doubtful accounts                                                                                                                          |       | 105,900      |        | 149,214     |       | 138,751     |       |
| Amortization  of deferred financing costs and bond discount (including $13.8 million of  write-off of deferred financing costs and bond discount in 2004) |       | 16,409,620   |        | 3,161,023   |       | 1,493,671   |       |
| (Gain) loss  on disposal of assets                                                                                                                        |       | (716,190     | )           | 49,735      |       | 8,000       |       |
| Minority  interest                                                                                                                                        |       |         |        |        |       | 232,056     |       |
| Changes in  operating assets and liabilities:                                                                                                             |       |         |        |        |       |        |       |
| Restricted  cash–purse settlements                                                                                                                   |       | (2,082,206   | )           | (748,759    | )          | 639,655     |       |
| Receivables                                                                                                                                               |       | (439,736     | )           | (355,614    | )          | (91,398     | )          |
| Payable to  affiliate                                                                                                                                     |       | 236,178      |        |        |       |        |       |
| Inventories                                                                                                                                               |       | 160,040      |        | (264,972    | )          | 5,285       |       |
| Prepaid  expenses and other assets                                                                                                                        |       | (1,141,072   | )           | (1,071,419  | )          | (27,301     | )          |
| Accounts  payable                                                                                                                                         |       | 4,280,564    |        | 2,183,072   |       | 60,088      |       |
| Accrued  expenses                                                                                                                                         |       | (5,568,454   | )           | 7,485,459   |       | 5,506,627   |       |
| Litigation  settlement                                                                                                                                    |       | (400,000     | )           | (400,000    | )          | 1,600,000   |       |
| Net cash  flows from operating activities                                                                                                                 |       | (21,875,001  | )           | 768,946     |       | 11,783,810  |       |
| CASH FLOWS  FROM INVESTING ACTIVITIES:                                                                                                                    |       |         |        |        |       |        |       |
| Acquisition  of subsidiary, net of cash acquired                                                                                                          |       |         |        |        |       | (29,275,862 | )          |
| Business  acquisition and licensing costs                                                                                                                 |       | (304,326     | )           | (1,781,746  | )          | (1,503,944  | )          |
| Racino  project development costs                                                                                                                         |       | (38,227,251  | )           | (55,303,006 | )          | (5,315,279  | )          |
| Proceeds  from (deposits to) restricted cash – racino project, net                                                                                   |       | 20,013,291   |        | (20,013,291 | )          |        |       |
| Purchase of  restricted investments                                                                                                                       |       |         |        | (23,922,971 | )          |        |       |
| Maturity and  sale of restricted investments                                                                                                              |       | 15,778,883   |        | 8,144,088   |       |        |       |
| Purchase of  property and equipment                                                                                                                       |       | (5,147,577   | )           | (2,206,388  | )          | (1,695,075  | )          |
| Proceeds  from sale of property and equipment                                                                                                             |       | 1,100,661    |        | 387,906     |       |        |       |
| Net cash  flows from investing activities                                                                                                                 |       | (6,786,319   | )           | (94,695,408 | )          | (37,790,160 | )          |
| CASH FLOWS  FROM FINANCING ACTIVITIES:                                                                                                                    |       |         |        |        |       |        |       |
| Deferred  financing costs                                                                                                                                 |       | (14,158,934  | )           | (11,516,099 | )          | (1,703,706  | )          |
| Principal  payments on debt                                                                                                                               |       | (228,553,935 | )           | (20,725,000 | )          | (318,379    | )          |
| Proceeds  from senior secured notes                                                                                                                       |       | 229,728,680  |        | 120,736,000 |       |        |       |
| Proceeds  from senior credit facilities                                                                                                                   |       | 19,887,762   |        | 5,104,301   |       | 20,450,000  |       |
| Proceeds  from FF&E credit facility                                                                                                                   |       | 3,467,507    |        | 12,532,493  |       |        |       |
| Proceeds  from term loan                                                                                                                                  |       | 14,666,667   |        |        |       |        |       |
| Proceeds  from notes payable                                                                                                                              |       |         |        |        |       | 11,825,000  |       |
| Member  distributions                                                                                                                                     |       | (7,030,706   | )           | (1,557,143  | )          | (1,260,012  | )          |
| Net cash  flows from financing activities                                                                                                                 |       | 18,007,041   |        | 104,574,552 |       | 28,992,903  |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                                                     |       | (10,654,279  | )           | 10,648,090  |       | 2,986,553   |       |
| CASH AND  CASH EQUIVALENTS AT BEGINNING OF YEAR                                                                                                           |       | 21,158,295   |        | 10,510,205  |       | 7,523,652   |       |
| CASH AND  CASH EQUIVALENTS AT END OF YEAR                                                                                                                 |       | $            | 10,504,016  |        | $          | 21,158,295  |       | $ | 10,510,205 |   |
|                                                                                                                                                      |       |         |        |        |       |        |       |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                                                                                       |       |         |        |        |       |        |       |
| Cash paid  during the year for interest                                                                                                                   |       | $            | 30,692,977  |        | $          | 18,331,536  |       | $ | 5,701,057 |   |
| 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  additions previously accrued which were paid                                                                                                    |       | $            | 15,444,730  |        |       |        |       |   |
| Property and  equipment purchased in exchange for indebtedness                                                                                            |       | 8,495,607    |        | 4,398,940   |       |        |       |
| Exchange of  private OED notes for registered OED notes                                                                                                   |       |         |        | 123,200,000 |       |        |       |
| Exchange of  private PGL notes for registered PGL notes                                                                                                   |       | 233,000,000  |        |        |       |        |       |
| Spin-off of  OED Acquisition, LLC                                                                                                                         |       | 135,205      |        |        |       |        |       |

 

See notes to consolidatedfinancial statements

 

F-6

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PENINSULA GAMING, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

Diamond Jo, LLC, aDelaware limited liability company (“DJL”), owns and operates the Diamond Joriverboat  casino in Dubuque,  Iowa, and, prior to the corporate restructuring described below, was a whollyowned subsidiary of Peninsula Gaming Partners, LLC, a Delaware limited liability company (“PGP”). DJL had two directwholly owned  subsidiaries,  (i) Peninsula Gaming Corp.,  which had no assets or operations  and was formed  solely to facilitate  the offering of DJL’s121⁄4 % senior secured notes (the “DJL Notes”), and (ii) OED Acquisition,  LLC, a Delaware limited liability company (“OEDA”),and the parent company of The Old Evangeline Downs,  L.L.C., a Louisiana  limited liability company (“OED”),  that owns and operates  the Evangeline DownsRacetrack and Casino, or  racino, in St.Landry Parish, Louisiana and two off-track betting (“OTB”) parlors in Louisiana.  The Old Evangeline Downs Capital Corp., aDelaware limited liability company, was a wholly owned subsidiary of OED, hasno assets or operations and was formed solely to facilitate the offering by OEDof its 13% senior secured notes (the “OED Notes”). Following the redemption ofthe DJL Notes in April 2004, Peninsula Gaming Corp. was dissolved.

 

On June 16,  2004, a corporate  restructuring  occurred, which is retroactively reflected in these consolidated  financial statements,  pursuant to whichPeninsula Gaming, LLC, a Delaware limited liability  company (the “Company” or “PGL”),  became a new direct parent company of DJL,OED and Peninsula Gaming Corp. (“PGC”, formerly known as The Old Evangeline Downs Capital Corp.). The Companyis a wholly owned subsidiary of PGP. In  connection  with the corporate  restructuring,  OEDA became a sister  company tothe  Company  and a wholly owned  subsidiary of PGP in a corporate  spin-off which was recorded as a distributionon June 30, 2004.

 

Diamond Jo Worth, LLC, aDelaware limited liability company (“DJW”), was formed on October 30, 2004as a wholly onwed subsidiary of PGL for the purpose of obtaining a gaminglicense in Worth County, Iowa. On November 10, 2004, the Company submittedan application to the Iowa Racing and Gaming Commission to operate a mooredbarge in Worth County, Iowa.  DJW did nothave any assets or operations as of December 31, 2004 and the period October 20,2004 to December 31, 2004.  TheCompany anticipates the Iowa Racing and Gaming Commission to award licenses inthe Spring of 2005.  The Company’sproposed facility is expected to contain approximately 500 slot machines, 12table games and 5 poker tables.  Inaddition, the proposed facility is expected to include a restaurant, two fastfood outlets and a bar with entertainment space.

 

The Company, DJL and PGCare  co-issuers  of 8 3⁄4% senior  secured notes due 2012 (the  “Peninsula Gaming  Notes”)  which are registered with the U.S. Securities and Exchange Commission (the “SEC”).  Also, OED is a guarantor of the PeninsulaGaming Notes and its stock is pledged as collateral securing obligations underthe Peninsula Gaming Notes and under our senior secured credit facility.

 

OED’s results ofoperations and cash flows for the years ended December 31, 2004 and 2003and the period from February 15, 2002 (date of acquisition) to December 31,2002 have been consolidated into the Company’s consolidated financialstatements. During the period from February 15, 2002 to August 30,2002, the Company had substantive control of OED and recorded a minorityinterest related to the portion not owned. On August 31, 2002, OED becamea wholly owned subsidiary of the Company.

 

**Racino Development**

** **

In order to providefunding for the racino project and to repay certain then existing indebtedness,on February 25, 2003, OED completed a private placement of$123.2 million of its 13% senior secured notes due 2010 (the “Private OEDNotes”). On September 10, 2003, OED exchanged the Private OED Notes fornotes registered with the SEC otherwise identical in all respects to thePrivate OED Notes (the “Registered OED Notes,” and together with the PrivateOED Notes, the “OED Notes”).

 

The construction anddevelopment of the racino project was completed in two phases. The first phaseinvolved the construction of the casino and related casino amenities which wassubstantially completed and opened to the public on December 19, 2003.Construction of the second phase, which involved the construction of the dirthorse racetrack and related facilities, is substantially complete and opened tothe public on November 22, 2004.

 

As of December 31,2004, OED has ceased operations at its previous horse racetrack in Lafayette,Louisiana. All long lived assets at the existing horse racetrack that were notutilized at the new facility were fully depreciated as of December 31,2004 and had a net book value of zero. The Company is not contractually orlegally obligated to, and did not incur significant costs associated withabandoning the previous facility. Depreciation expense related to long livedassets at the previous horse racetrack facility that were not

 

F-7

----

 

utilized at thenew facility was approximately $0.4 million for the year ended December 31,2004 and $0.2 million for each of the years ended December 31, 2003and 2002.

 

Consistent with itsregulatory requirements, OED expects to continue construction on its turf trackduring fiscal 2005. The total remaining capital expenditures expected tocomplete the racino project as of December 31, 2004 is approximately $0.6 million.The source of funds to complete construction of the racino will be(i) available borrowings under PGL’s $35.0 million senior securedcredit facility and (ii) cash flows from existing casino and racetrackoperations.

 

**2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

***Consolidation—***The consolidatedfinancial statements include the financial information of the Company and itswholly owned subsidiaries DJL, OED , PGC and DJW. All significant intercompanytransactions have been eliminated.

 

***Cash and Cash Equivalents—***The Companyconsiders all certificates of deposit and other highly liquid debt instrumentspurchased with original maturities of three months or less to be cashequivalents.

 

***Restricted Cash-Purse Settlements—***Restrictedcash represents amounts restricted by regulation for purses to be paid duringthe live meet racing season at OED. Additionally, restricted cash includesentrance fees for a special futurity race during the racing season, plus anyinterest earnings. These funds will be used to pay the purse for the race. Aseparate interest bearing bank account is required for these funds.

 

***Restricted Investments—***As of December 31,2003, OED had approximately $15.8 million invested in governmentsecurities with original maturities of greater than 90 days from the dateof initial investment. These investments were classified as held-to-maturityand had contractual maturities of $7.9 million on both February 15, 2004and August 15, 2004.  Proceeds  from the maturity of the  investments on February 15, 2004 were used to help make the  payment of  interest  on the OED Notes due March 1, 2004in  accordance  with the  terms of the Cash  Collateral and  Disbursement Agreement,  dated February 25, 2003,  among OED, U.S. Bank National  Association (as trustee and disbursementagent) and an independent  construction  consultant (the  “Cash Collateral  and  Disbursement Agreement”).  As  a result  of  the refinancing of the OED Notes on April 16,2004 (see Note 4), the Cash Collateral and Disbursement  Agreement  was cancelled  and,  therefore,  the  restricted investments wereno longer required.  Therefore, duringMay 2004, the remaining restricted investments of approximately $7.9 millionwere redeemed.

 

***Allowance for Doubtful Accounts—***Theallowance for doubtful accounts is maintained at a level considered adequate toprovide for probable future losses.

 

***Inventories—***Inventories consistingprincipally of food, beverage, retail items, and operating supplies are statedat the lower of first-in, first-out cost or market.

 

***Restricted Cash–Racino Project—***Restrictedcash–racino project represented unused proceeds  from the sale of the OEDNotes,  the use and  disbursement of which were restricted to the design, development,  construction,  equipping and opening of the racino inaccordance  with the Cash  Collateral and  Disbursement Agreement.  As of December 31, 2003, OED had $14.4million in cash equivalents deposited in a construction   disbursement account, $0.2 million in cashequivalents deposited in an interest reserve account that were to be usedtoward payment of interest on the OED Notes, $5.0 million in cash equivalentsdeposited in a  completion  reserve account that were to be used to fund potential  cost overruns and  contingency amounts  with  respect to the  design, development, construction, equipping and opening of the racino and $0.4 million in cash in a localfinancial institution. The funds deposited in these accounts were invested incash or securities that were readily convertible to cash. As a result of therefinancing of the OED Notes on April 16, 2004 (see Note 4), the CashCollateral and Disbursement Agreement was terminated and, therefore,  the restricted cash - racino project was nolonger required.

 

***Property and Equipment—***Property andequipment 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:

 

F-8

----

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

 

***Capitalized Interest—***The Companycapitalizes 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, the Company capitalizesinterest on amounts expended on the racino project at the Company’s averagecost of borrowed money. Capitalization of interest ceases when each phase of theproject is substantially complete. The amount capitalized during 2004 and 2003was $1.3 million and $2.2 million, respectively.

 

***Deferred Financing Costs—***Costsassociated with the issuance of debt have been deferred and are being amortizedover the life of the related indenture/agreement using the effective interestmethod. These amortization costs are included in interest expense, net ofamounts capitalized on the consolidated statements of operations. As of  December 31,  2004, the Company  incurredapproximately  $12.7 million of fees andexpenses  related to the refinancing ofthe DJL  Notes  and the OED Notes and  approximately $1.4  million  of fees and expenses  related to the refinancing of (i) DJL’ssenior secured credit facility with Wells Fargo Foothill,  Inc. ( the “DJL CreditFacility”),  (ii) OED’s $15.0 millionsenior secured credit facility with Wells Fargo  Foothill (the  “OED Credit Facility”),  and (iii) OED’s$16.0 million FF&E credit facility with Wells Fargo Foothill (the “OEDFF&E Facility”) (see Note 4 for further discussion on the refinancings).

 

***Goodwill and Licenses and Other Intangible Assets—***Goodwilland licenses and other intangibles consists of goodwill and the acquiredlicenses and tradename associated with the purchase of the Diamond Jo riverboatcasino and OED.  Such assets haveindefinite lives.  To the extent thepurchase price exceeded the fair value of the net identifiable assets acquired,such excess was recorded as goodwill. Goodwill and indefinite lived intangible assets are not amortized butare reviewed at least annually for impairment and written down and charged toincome when their recorded value exceeds their estimated fair value.

 

As of December 31,2004 and 2003, the Company had approximately $32.6 million and $32.3 million, respectively,of licenses and other intangibles summarized as follows (in millions):

 
| ** **                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |
| Slot Machine  and Electronic Video Game Licenses |       | $        | 28.8       |     | $          | 28.5 |   |
| Tradename                                        |       | 2.5      |       | 2.5      |       |
| Horse Racing  Licenses                           |       | 1.3      |       | 1.3      |       |
| Total                                            |       | $        | 32.6       |     | $          | 32.3 |   |

 

Each of the identifiedintangible assets were valued separately when OED was purchased.  The methodology employed by an independentvaluation specialist to arrive at the initial valuations required evaluatingthe fair market value of the existing  horse racing business on a stand-alone  basiswithout taking into account any right to obtain slot  machine and electronic  video game  licenses. Such valuation was based in partupon other transactions in the industry and OED’s historical results of operations.  A value was also derived for the trade nameusing market based royalty rates.  Asignificant  portion of the purchaseprice was attributable  to the slot  machine and electronic  video game licenserights,  which were valued based upon themarket  value paid by other  operators and upon  projected cash flows from  operations.

 

On June 25, 2002,PGP entered into an agreement with William E. Trotter, II (“Trotter”) and William E. Trotter,  II Family L.L.C.,  (“WET2LLC”) to acquire(i) all of Trotter’s  interests in twopromissory notes issued by OED in connection with the Company’s  acquisition of OED, and (ii) all of  Trotter’s membership  interests  owned by WET2LLC  (together, the “Trotter  Purchase”).  On August 30, 2002, the Company consummatedthe 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 net slot  revenues generated  by OED’s racino  located in St.  Landry  Parish, Louisiana,  for a period  of ten years commencing  on December 19, 2003,  the date the racino’s  casino  opened to the general  public. This contingent fee is payable monthly in arrears and has been recordedas an adjustment to the purchase  priceof slot machine and electronic video game licenses of $304,326 and $13,879 forthe years ended December 31, 2004 and 2003, respectively.

 

F-9

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***Impairmentof Long-Lived Assets --- ***Long-livedassets are reviewed for impairment when management plans to dispose of assetsor when events or circumstances indicate that the carrying amount of along-lived asset may not be recoverable. Assets held for disposal are reported at the lower of the carrying amountor fair value less cost to sell.  Managementdetermines fair value using a discounted future cash flow analysis or otheraccepted valuation techniques. Long-lived assets held for use are reviewed for impairment by comparingthe carrying amount of an asset to the undiscounted future cash flows expectedto be generated by the asset over its remaining useful life.  If an asset is considered to be impaired, theimpairment to be recognized is measured as the amount by which the carryingamount of the asset exceeds its fair value.

 

Goodwill and intangibleassets are subject to impairment by, among other factors, significant changesin gaming tax rates, competition and regulatory requirements; lack of licenserenewals; lack of voter reapproval in Iowa; and changes in the way OED’stradename is used.  Goodwill andindefinite lived intangible assets are tested annually for impairment with morefrequent tests performed if indications of impairment exist.  The Company’s annual impairment testing dateis in the first quarter of each fiscal year. Impairment for intangible assets with indefinite lives exists if thecarrying value of the intangible asset exceeds its fair value.  Goodwill is potentially impaired if thecarrying value of a “reporting unit” exceeds its estimated fair value.  Management determines fair value using adiscounted future cash flow analysis and other accepted valuationtechniques.  The Company’s annualimpairment testing in 2004, 2003 and 2002 yielded no impairments.

 

***Construction Payable—Racino project—***AtDecember 31, 2004 and 2003, OED had $4.7 million and$20.2 million, respectively, in payables and accruals related toconstruction and development costs associated with the racino project.

 

***Debt Discount—***Debt discount associatedwith the issuance of debt is netted with the related debt obligations on thebalance sheets and is amortized over the life of the debt using the effectiveinterest method.  The amortization ofsuch discount is included in interest expense on the statements of operations.

 

***Revenue Recognition—***In accordance withindustry practice, casino revenue is the net win from gaming activities, whichis the difference between gaming wins and losses, conducted at the DJL casinoand the casino portion of OED’s new racino. Racing revenues include OED’s shareof pari-mutuel wagering on live races after payment of amounts returned aswinning wagers, and OED’s share of wagering from import and export simulcastingas well as OED’s share of wagering from its off-track betting parlors. Undercurrent Louisiana law, OED is not allowed to conduct video poker operations inthe casino portion of the racino. Rather, OED is allowed to conduct video pokeroperations only at its off-track betting parlors in a parish that has approvedsuch devices. Therefore, OED’s net win from video poker devices at its PortAllen off-track betting facility are included in racing revenues.

 

***Promotional Allowances—***Food, beverage,and other items furnished without charge to customers are included in grossrevenues at a value which approximates retail and then deducted as promotionalallowances to arrive at net revenues. The cost of such complimentary serviceshave been included in casino and racing expenses on the accompanying statementsof operations. Such estimated costs of providing complimentary services allocatedfrom the food and beverage and other operating departments to the casino andracing departments were $1,642,310 and $356,840 for food and beverage andother, respectively, in 2004, $689,972 and $35,642, respectively, in 2003 and$592,539 and $4,672, respectively, in 2002.

 

***Selling, General and Administrative—***InOctober 2002, DJL entered into a charitable giving agreement with an Iowanon-for-profit organization in which DJL agreed, subject to certaincontingencies, to give such organization a total contribution of $450,000. Theagreement calls for a payment of $50,000 upon the signing of the agreement and$50,000 on March 1 of each of the next seven years beginning on March 1,2003. The first two payments were made and expensed by DJL in October 2002and March 2003, respectively. As all significant contingencies surroundingthe agreement were met during the third quarter of 2003, DJL expensed theremaining unpaid contribution of $350,000. Such expense is included in selling,general and administrative expenses in the consolidated statement of operations.

 

***Advertising—***All costs associated withadvertising are expensed as incurred. Advertising expense was approximately $2.7 million in 2004 andapproximately $1.5 million in 2003.

 

***Development Expense—***During 2003, theCompany entered into an exclusive agreement with the Worth County DevelopmentAuthority pursuant to which the parties agreed to jointly submit an applicationfor a license to operate a gaming facility in Worth County, Iowa. Under thisagreement, the Company has agreed to design, construct, operate and manage acasino with no less than 700 gaming positions, (on an approved body of water ofsufficient size to meet state requirements) and a two phase 100-room hoteldevelopment (upon obtaining an acceptable third-party investment). During 2004and 2003, the Company incurred expenses of $241,691 and $102,272, respectivelyrelated to this agreement.

 

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***Referendum —***In accordance with Iowalaw, a referendum must be held every eight years in each of the counties wheregambling games are conducted and the proposition to continue to allow gamblinggames in such counties must be approved by a majority of the county electoratevoting on the proposition. Such a referendum took place on November 5,2002. During 2002, DJL incurred various advertising, promotional and otherreferendum related expenses totaling $771,111 to promote the approval ofcontinued gaming in Dubuque County. The measure was approved on November 5,2002 with 79% of the electorate voting on the proposition favoring continuedgaming on riverboats in Dubuque County. As DJL will not be required to be apart of another referendum until 2010, such referendum related costs are notexpected to be incurred in the future until that time.

 

***State of Wisconsin Government Relations—***During2002, DJL incurred expenses for a governmental relations services agreementwith respect to gaming issues and developments in Wisconsin which might affectthe Company and its gaming operations. Such expenses in 2002 totaled $55,000.

 

***Minority Interest—***Minority interest onthe consolidated statement of operations represents the 50% portion of netincome from OED allocated to the remaining 50% membership interest holder inOED during the period February 15, 2002 through August 30, 2002.

 

***Income Taxes—***The Company and itssubsidiaries are limited liability companies. In lieu of corporate incometaxes, the members of a limited liability company are taxed on theirproportionate share of the Company’s taxable income. Therefore, no provision orliability for federal income taxes has been included in the financialstatements.

 

***Use of Estimates—***The preparation offinancial statements in conformity with accounting principles generally acceptedin the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting periods. Actual results could differ from those estimates. Significantestimates involve the periodic review of the carrying value of assets forimpairment.  In addition, estimates weremade surrounding the application of purchase accounting related to theacquisition of OED and the related assignment of costs to intangible assets.

 

In addition, an estimatedloss from a loss contingency is recorded when information available prior toissuance of the financial statements indicates that it is probable that aliability has been incurred at the date of the financial statements and theamount of the loss can be reasonably estimated. Accounting for contingenciessuch as legal matters requires the use of judgment. Many of these legalcontingencies can take years to be resolved. Generally, as the time periodincreases over which the uncertainties are resolved, the likelihood of changesto the estimate of the ultimate outcome increases. An adverse outcome could havea material impact on financial condition, operating results, and cash flows.

 

***Concentrations of Risk—***The Company’scustomer base is concentrated in eastern Iowa and southwest Louisiana.

 

The Company maintainsdeposit accounts at three banks. At December 31, 2004 and 2003, andvarious times during the years then ended, the balance at the banks exceededthe maximum amount insured by the Federal Deposit Insurance Corporation. Creditrisk is managed by monitoring the credit quality of the banks.

 

***Reclassifications—***Certain prior yearamounts have been reclassified to conform with the current year presentation.  These reclasses did not have any effect on theCompany’s financial position or net loss to common members’ interest in 2004,2003 and 2002.

 

***Recently Issued Accounting Standards—***InMay 2003, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 150, “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). 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. As a result of the adoption of SFASNo. 150 on July 1, 2003, DJL reclassified its $4 millionmandatorily redeemable preferred members’ interest from the mezzanine section ofthe consolidated balance sheet to long-term debt. Further, preferred memberdistributions paid or accrued subsequent to adoption of SFAS No. 150 arerequired to be presented as interest expense separately from interest due toother creditors. DJL was not required to record a cumulative effect of a changein an accounting principle as the redeemable preferred members’ interest wasrecorded at fair value prior to July 1, 2003. The Company is precludedfrom reclassifying prior period amounts pursuant to this standard.

 

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**3. PROPERTY AND EQUIPMENT**

 

Property and equipment atDecember 31 is summarized as follows:

 
| ** **                         | ** ** | **2004**    | ** **  | **2003**    | ** ** |
|------------------------------------|------------|-------------|-------------|-------------|------------|
|                               |       |        |        |        |       |
| Land and  land improvements        |       | $           | 13,639,200  |        | $          | 13,686,570 |   |
| Buildings and  improvements        |       | $           | 78,477,066  |        | 51,991,698 |   |
| Riverboat  and improvements        |       | $           | 8,308,070   |        | 8,305,022  |   |
| Furniture,  fixtures and equipment |       | $           | 39,106,835  |        | 28,472,602 |   |
| Computer  equipment                |       | 5,817,263   |        | 5,196,966   |       |
| Vehicles                           |       | 176,236     |        | 176,235     |       |
| Construction  in progress          |       | 880,879     |        | 6,034,867   |       |
| Subtotal                           |       | 146,405,549 |        | 113,863,960 |       |
| Accumulated  depreciation          |       | (20,242,473 | )           | (11,386,615 | )          |
| Property and  equipment, net       |       | $           | 126,163,076 |        | $          | 102,477,345 |   |

 

Depreciation expense forthe years ended December 31, 2004, 2003 and 2002 was $12,355,503,$3,323,541 and $2,950,369, respectively.

 

**4. DEBT**

 

The debt of the Companyand its subsidiaries consists of the following at December 31:

 
| ** **                                                                                                                                                                                                                                                                                                                  | ** ** | **2004**   | ** **  | **2003**    | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-------------|-------------|------------|
|                                                                                                                                                                                                                                                                                                                        |       |       |        |        |       |
| 8 3/4%  senior secured notes due April 15, 2012, net of discount of $3,054,350,  secured by assets and stock of DJL and OED                                                                                                                                                                                            |       | $          | 229,945,650 |        |       |   |   |
| 121/4  % senior secured notes of DJL due July 1, 2006, net of discount of  $383,779, secured by assets of DJL.                                                                                                                                                                                                         |       |       |        |        | $          | 70,616,221 |   |
| 13% senior  secured notes of OED due March 1, 2010 with contingent interest, net of  discount of $113,424 and $2,276,564, secured by certain assets of OED.                                                                                                                                                            |       | 6,796,576  |        | 120,923,436 |       |
| $35.0  million revolving line of credit under a loan and security agreement of DJL  and OED with Wells Fargo Foothill, Inc. dated June 16, 2004, interest  rate at prime + a margin of 0.5 - 1.0% (current rate of 6.25%), maturing  June 16, 2008, secured by substantially all assets of DJL and OED.           |       | 13,887,764 |        |        |       |
| Term loan  under a loan and security agreement of DJL and OED with Wells Fargo Foothill,  Inc. dated June 16, 2004, interest rate at prime + 2.5% (current rate of  7.75%), due in equal monthly installments of $333,333 beginning July 1,  2004, maturing June 16, 2008, secured by certain assets of OED. |       | 12,666,667 |        |        |       |
| Line of credit  of DJL with Wells Fargo Foothill, Inc., (“DJL Credit Facility”), interest  rate at greater of LIBOR + 3% or prime + .75% (8.5% at December 31,  2003), secured by assets of DJL.                                                                                                             |       |       |        | 11,250,000  |       |
| $15.0  million loan and security agreement of OED with Wells Fargo Foothill, Inc.,  (“OED Credit Facility”), interest rate at prime + 2.50% (6.5% at  December 31, 2003), secured by certain assets of OED.                                                                                                  |       |       |        | 5,104,301   |       |
| $16.0  million loan and security agreement of OED with Wells Fargo Foothill, Inc.,  (“FF&E Credit Facility”), interest rate at prime + 2.50% (6.5% at  December 31, 2003), due in 48 equal monthly principal payments beginning  on March 1, 2004, secured by certain assets of OED.                |       |       |        | 12,532,493  |       |

 

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| ** **                                                                                                                                                                                                                                                                                                                                                         | ** ** | **2004**    | ** **  | **2003**    | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|-------------|------------|
| Promissory  note payable to third party, interest at 8.75% payable monthly in arrears,  annual principal payments of $1,100,000 in 2005 and $550,000 each year  thereafter, secured by mortgage on certain real property of OED.                                                                                                                                   |       | 3,850,000   |        | 3,850,000   |       |
| Note payable  to third party, 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 OED.                                                                                                                                                                          |       | 184,596     |        | 548,940     |       |
| Notes  payable to third party, net of discount of $673,370, interest rate at 0%  (discounted at 7.4%) for the first 24 months and 7.4% thereafter, monthly  payments of principal of $224,149 through October 2006 followed by  monthly payments of principal and interest of $233,236, through October 2007,  secured by certain assets of DJL and OED. |       | 6,952,242   |        |        |       |
| Notes  payable to third party, net of discount of $40,860, interest rate at 0%  (discounted at 7.4%), monthly payments of principal of $103,066, through November 2005,  secured by certain assets of DJL and OED.                                                                                                                                            |       | 1,094,418   |        |        |       |
| Preferred  membership interests–redeemable, interest at 9%, due October 13, 2006                                                                                                                                                                                                                                                                         |       | 4,000,000   |        | 4,000,000   |       |
| Total debt                                                                                                                                                                                                                                                                                                                                                         |       | 279,377,913 |        | 228,825,391 |       |
| Less current  portion                                                                                                                                                                                                                                                                                                                                              |       | (8,630,008  | )           | (4,098,222  | )          |
| Total long  term debt                                                                                                                                                                                                                                                                                                                                              |       | $           | 270,747,905 |        | $          | 224,727,169 |   |
|                                                                                                                                                                                                                                                                                                                                                                    |            |             |             |             |            |  |  |

 

Principal maturities ofdebt (excluding discount) for each of the years ended December 31 aresummarized as follows (dollars in thousands):

 
| 2005       |   | $       | 9,108   |   |
|------------|--------|---------|---------|--------|
| 2006       |   | 11,232  |    |
| 2007       |   | 6,805   |    |
| 2008       |   | 15,105  |    |
| 2009       |   | 550     |    |
| Thereafter |   | 240,460 |    |
|       |   | $       | 283,260 |   |

 

The weighted average interest rate on theCompany’s short-term borrowings consisting of its lines of credit outstandingas of December 31, 2004 and 2003 was 6.25% and 7.88% respectively.

 

On March 9, 2004,  OED commenced  a tender  offer and consent  solicitation to repurchase all of its outstanding OED Notes and to solicit  consentsto certain proposed  amendments  to the indenture  governing the OED Notesas set forth in OED’s Offer to Purchase and Consent Solicitation Statement,dated March 9, 2004. On March 19, 2004, the expiration date of theconsent solicitation, OED received the requisite consents and tenders fromholders of a majority of the aggregate principal amount of the outstanding OEDNotes. The tender offer expired on April 5, 2004, and OED redeemedapproximately $116.3 million principal amount of the OED Notes.

 

On April 16, 2004, DJL and PGC completeda Rule 144A private placement of $233 million principal amount of 83⁄4% seniorsecured notes due 2012 (the “Peninsula Gaming Notes”).  The Peninsula Gaming Notes were issued at adiscount of approximately $3.3 million. Interest on the Peninsula Gaming Notes is payable semi-annually on April 15and October 15 of each year, beginning on October 15, 2004. Upon thecorporate restructuring, PGL also became a co-issuer of the Peninsula Gaming Notes.

 

The Company used the net proceeds from thesale of the Peninsula Gaming Notes as follows (all payments based onoutstanding  balances as of April 16,2004):  (1) to irrevocably deposit fundsinto an escrow account to redeem all of the DJL Notes in an amount

 

F-13

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(including call premium and accrued interest) of approximately $79.9 million;(2) to repurchase  approximately $116.3million principal amount of OED Notes for an aggregate amount (including tenderpremium, accrued interest and contingent interest) of approximately  $134.6million; (3) to pay accrued distributions on DJL’s outstanding preferred membershipinterests-redeemable  of approximately$1.1 million; (4) to pay related fees and expenses of approximately $13.4million; and (5) for general corporate purposes. As a result of the issuance ofthe Peninsula Gaming Notes, the Company incurred a loss of approximately  $36.7 million consisting of the write-off ofdeferred financing fees of approximately $10.5 million, the payment of a call and tender premiums and consentfees on the DJL and OED Notes of approximately $23.1 million, interest on theDJL Notes of approximately $0.7 million and write-off of bond discount ofapproximately $2.4 million.  In addition,OED and DJL wrote off $0.9 million of deferred financing fees related to therefinancing of the credit facilities discussed below.

 

The indenture governing the Peninsula GamingNotes limits the Company’s ability and the ability of its restrictedsubsidiaries to, among other things:

 

•   incur more debt;

 

•   pay dividends or make other distributions toPGP;

 

•   redeem stock;

 

•   issue stock of restricted subsidiaries;

 

•   make investments;

 

•   create liens;

 

•   enter into transactions with affiliates;

 

•   merge or consolidate; and

 

•   transfer or sell assets.

 

The Peninsula Gaming Notes are full andunconditional obligations of DJL as a co-issuer.  PGL and PGC, also co-issuers, have noindependent assets (other than PGL’s investment in its subsidiaries) oroperations. The Peninsula Gaming Notes are also guaranteed, subject to theprior lien of the Company’s credit facility discussed below, by OED. Further, PGLhas pledged its equity interests in OED and DJL as collateral securityobligations under the Peninsula Gaming Notes. The Peninsula Gaming Notes do not limit DJL’s or OED’s ability totransfer net assets to PGL.

 

On June 16, 2004, DJL and OED jointlyentered into a loan and security agreement with Wells Fargo Foothill, Inc. asthe arranger and agent (the “PGL Credit Facility”).  The PGL Credit  Facility consists of a revolving credit  facility which  permits DJL and OED to request  advances and letters of credit up to the lesser of the maximum  revolver amount of $35 million (lessamounts  outstanding under letters ofcredit) and a specified  borrowing base(the “Borrowing Base”). The Borrowing Base is the lesser of the combined  EBITDA (as defined in the PGL Credit  Facility) of OED and DJL for the twelvemonths immediately preceding the current month end multiplied by 150% and the combined  EBITDA of OED and DJL for the most  recent quarterly  period annualized  multiplied by 150%.  At December 31,2004, the maximum revolver amount was $35.0 million.  The available borrowing amount at December 31,2004, after reductions for amounts borrowed and letters of credit outstandingat the Company was approximately $17.1 million. Immediately upon the closing ofthe PGL Credit Facility, the Company borrowed approximately $15.9 million torefinance outstanding obligations under the OED Credit Facility and the DJLCredit Facility and pay financing related fees and expenses.  Advances under the PGL Credit  Facilitybear an interest rate based on the borrower’s  option of LIBOR plus amargin  3.0% -3.5% or Wells  Fargo prime rate plus a margin of 0.5% -1.0%(current  rate of 6.25%)  however, at no time shall the interest rate be lower than 4.0%.

 

The PGL Credit Facility also contains a termloan in the amount of $14,666,667. The proceeds from the term loan were used torepay outstanding obligations under the FF&E Credit Facility.  The term loan is secured by certain assets ofOED and requires monthly payments of $333,333 starting July 1, 2004 untilthe full balance is paid, with a maturity no later than June 16, 2008. Theterm loan has an

 

F-14

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interest rate equal to the Wells Fargo prime rate plus 2.5% (currentrate of 7.75%) however, at no time shall the interest rate be lower than 6.0%.Under the terms of the PGL Credit Facility, at closing the Company was requiredto issue a letter of credit in the amount of $3.2 million in favor of WellsFargo Foothill, Inc. related to the term loan. The Company also has approximately $0.8 million of other letters ofcredit outstanding at December 31, 2004 for a total of $4.0 million.

 

OED and DJL are jointly and severally liableunder the PGL Credit Facility, including the term loan. Borrowings under thePGL Credit Facility are collateralized by substantially all assets of OED andDJL.  Borrowings under the PGL CreditFacility are guaranteed by PGL and PGC. As of December 31, 2004, theCompany had $13.9 million and $12.7 million outstanding under the revolverportion and Term Loan portion of the PGL Credit Facility, respectively.

 

The PGL  Credit  Facility contains a number of restrictivecovenants, including covenants that limit DJL’s and OED’s  ability to, among other things:  (1) incur more debt; (2) create liens; (3)enter into any merger, consolidation, reorganization,  or recapitalization,  or reclassify its capital stock;  (4) dispose of certain  assets; (5) guarantee the debt of others; (6)pay dividends or make other distributions; (7) make investments; and (8) enter into transactions withaffiliates.  The PGL Credit Facility alsocontains financial covenants including a minimum combined EBITDA (as defined bythe PGL Credit Facility) of OED and DJL and limitations on capital expendituresat OED and DJL.

 

Specifically, the PGL Credit Facilityprohibits DJL and OED from making loans to PGL except on an arm’s length basisand pursuant to an exception that permits DJL and OED to make unsecured loansto PGL in an aggregate principal amount not exceeding $10.0 million.  In addition, DJL and OED are prohibited frommaking any dividends or other distributions to PGL, subject to certain limitedexceptions. In addition, DJL and OED are permitted to make dividends or otherdistributions to PGL to pay certain tax obligations. Further, DJL and OED canmake dividends and other distributions to PGL to pay costs related to certaintax preparation, accounting, legal and administrative fees and expenses.  Additionally, DJL and OED may make dividends and other distributions  to PGL in respectof certain payments under management agreements and to pay reasonable  directors’ or managers’ fees andexpenses,  so long as any  payments with  respect to any  management agreement  or employee,consulting  or similar  agreement do not, in the  aggregate, in any fiscal year exceed the lesser of (a) 4.0% of DJL and OED’s  combined EBITDA (as  defined in thePGL  Credit  Facility) and (b)  $4.0  million. DJL and OED may  also  make dividends  or other  distributions  to PGL so that  PGL,  subject to  certain limitations, canrepurchase, redeem or otherwise acquire equity interests in PGL or its restricted  subsidiaries (as defined in the PGL CreditFacility) from its respective employees,  members  or managers.  Finally,  PGL and OED can  make dividends andother  distributions not to exceed (a) in2004, $7.5 million,  (b) in 2005,  $3.75 million plus any unused portion of theamount available in 2004, if any,  (c) in2006,  $3.75  million plus the  unused  portion of the  amount available  in 2005, if any,  (d) in 2007,  the unused  portion  of the amount available  in 2006,  if any, and (e) in 2008,  the unused portion of the amount available in 2007, if any. Subject to theforegoing provisions, all of the net assets of DJL and OED are restrictedassets. The Company was in compliance with such covenants, or had obtainedwaivers, as of December 31, 2004.

 

The DJL Credit Facility, the OED CreditFacility and the FF&E Credit Facility were terminated in connection withthe refinancing discussed above.

 

In September 2004, the Company enteredinto agreements with various slot machine manufacturers to finance the purchaseof 763 slot machines, of which 346 were installed at the Diamond Jo for a grosspurchase price of approximately $4.0 million ($3.7 million net of discount) and417 were installed at OED for a gross purchase price of approximately $5.2million ($4.8 million net of discount). Of the purchase  price for the slot machines,  $8.0 million was financed  through a slot machine vendor  with equal principal  payments  due over thirty-six  months  with zero percent  interest for the first  twenty-four  months and 7.4%  interest for the remaining twelvemonths.  The remaining $1.2 million ofthe purchase price of the slot machines was financed through another slotmachine vendor with equal principal payments over twelve months and zeropercent interest.  As there was no statedinterest rate for the first twenty-four months on some of the notes and nostated interest rate on the other notes, the Company used an imputed interestrate of 7.4% to establish the present value of the notes by discounting, at7.4%, all future interest and principal payments on the notes.  The Company considered the rates at which theCompany could obtain financing of a similar nature from other sources at thedate of the transaction and the stated interest rates, if any, within the slotmachine purchase agreements when determining the imputed interest rate.

 

On February 25, 2003, OED completed theprivate placement of $123.2 million aggregate principal amount of OEDNotes. As discussed above, $116.3 million of the OED Notes were redeemed as aresult of a corporate refinancing. The OED Notes bear interest at a rate of 13%per year which is payable semi-annually on March 1 and September 1 ofeach year, beginning September 1, 2003. Contingent interest began accruingon the OED Notes the first full fiscal year after the casino began operationsin an amount

 

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equal to 5.0% of OED’s cash flow for the applicable period, subject tocertain limitations. OED may defer paying a portion of contingent interestunder certain circumstances set forth in the indenture governing the OED Notes.Neither the Company nor any of its direct subsidiaries other than OED is anobligor under the OED Notes or is required to provide credit support withrespect to OED’s payment obligations thereunder.

 

In October 2003, OED entered into apurchase 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 purchase agreement was financed by the seller withOED issuing a $3,850,000 note payable to the seller. The note was payable inseven equal annual installments of $550,000 beginning October 24, 2004 andbore interest at a rate of 4.75% on 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 has agreed torelease one of the remaining parcels from the mortgage.  As of December 31, 2004, OED amended themortgage and promissory note to provide, among other things, for thepostponement of the first principal payment to February 2005 and anincrease in the interest rate to 8.75% per annum which agreements are pendingbefore the Louisiana Gaming Control Board. The holder of the promissory notefiled for suitability under Louisiana law, which application is also pending.

 

In March 2003, OED entered into aparticipation agreement with a third party operator to own and operate 100video poker machines at OED’s OTB in Port Allen, Louisiana. In December 2003,OED obtained its license to own and operate video poker machines. In accordancewith the participation agreement, OED 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 due July 1,2005. The note is collateralized by a security interest in the machines.

 

The holders of all of DJL’s preferredmembership interests are entitled to receive cumulative preferred distributionspayable semiannually at an annual rate of 9% of the original face amountthereof. Other than certain limited consent rights and as required by law,holders of DJL’s preferred membership interests have no voting rights. Thepreferred membership interests must be redeemed by DJL on October 13, 2006at a redemption price of $4.0 million, plus any accrued and unpaidpreferred interest through the date of redemption.

 

**5. LITIGATION SETTLEMENT**

 

On November 8, 1994, the LouisianaHorsemen’s Benevolent and Protective Association 1993, Inc. (“LHBPA”)filed a lawsuit against all licensed horse racetracks in the State ofLouisiana. The lawsuit alleged that LHBPA did not receive the appropriate shareof net revenues from video poker devices located at licensed horse racetracks.In February 2003, OED entered into a settlement agreement with LHBPA for$1.6 million. The terms of the settlement agreement requires OED to makepayments of $400,000 annually beginning in March 2003, with additional$400,000 payments due in March of 2004, 2005 and 2006.

 

In accordance with Statement of FinancialAccounting Standards No. 5 “Accounting for Contingencies,” the Company recordedan expense and related accrual of $1.6 million in the financials statements asof December 31, 2002.  Of the total$1.6 million accrual, $0.4 million was paid in March of 2003 and 2004,$0.4 million has been included in “Other accrued expenses” in the “CurrentLiabilities” section with the remaining $0.4 million recorded under “Otheraccrued expenses” in the “Long-term liabilities” section of theConsolidated Balance Sheet.

 

**6. EMPLOYEE BENEFIT PLANS**

 

DJL and OED each have a qualified definedcontribution plan under section 401(k) of the Internal Revenue Code for respectiveemployees. Under the plans, eligible employees may elect to defer up to 60% oftheir salary, subject to Internal Revenue Service limits. The Company may makea matching contribution to each participant based upon a percentage set by theCompany, prior to the end of each plan year. Company matching contributions tothe plans at the Diamond Jo and Evangeline Downs were $262,773, $234,002 and$227,351 in 2004, 2003 and 2002, respectively.

 

**7. LEASING ARRANGEMENTS**

 

***Off-TrackBetting Parlors—***OED was under a twelve-month leasewhich ran from September 1, 2002 through August 31, 2003 with leasepayments of $5,000 due each month, after which the lease reverted to amonth-to-month contract for $5,000 per month to lease the New Iberia off-trackbetting parlor. The lease requires payment of property taxes, maintenance andinsurance on the property. During

 

F-16

----

 

the years ended December 31, 2004 and 2003 and the period February 15,2002 (date of acquisition) to December 31, 2002, OED paid $60,000, $60,000and $52,321, respectively, in rent for the New Iberia off-track betting parlor.

 

In October 2004, OED entered into alease agreement to lease a building for its new off-track betting parlor nearHenderson, Louisiana.  The lease term isfor thirty six months commencing December 2004 with one option to renewfor an additional thirty six months with monthly lease payments of $6,000 duemonthly.  In addition, OED is responsiblefor payment of property taxes, maintenance and insurance on the property.

 

The future minimum rental payments requiredunder these off-track betting leases for the years ended December 31 aresummarized as follows:

 
| 2005   |   | $      | 77,000  |   |
|--------|--------|--------|---------|--------|
| 2006   |   | 72,000 |    |
| 2007   |   | 66,000 |    |
|   |   | $      | 215,000 |   |

 

***Pari-MutuelProcessing Equipment—***OED entered into a five-yearlease agreement commencing on February 15, 2001 for computerizedpari-mutuel central processing equipment, terminals and certain associatedequipment at OED. Additionally, the lease agreement provides the Company 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. The Company pays 0.43% of thehandle for the services provided during both live meet racing days andoff-track betting racing days. The charges are subject to a minimum of $1,950per live meet race day and $1,150 per off-track betting race day. Additionally,if a race day is not completed, the Company must pay 50% of the minimum if lessthan four races are declared official and 100% of the minimum if four or moreraces are declared official. In 2004, OED had 121 live meet racing days and 244off-track betting days. OED expensed $519,197, $466,923 and $378,204 during theyears ended December 31, 2004 and 2003 and the period February 15,2002 (date of acquisition) to December 31, 2002, respectively, related tothe pari-mutuel processing equipment lease.

 

In 2005, OED is scheduled to run 110 livemeet racing days and 254 off-track betting days. The total minimum rentalpayments for the lease mentioned in the preceding paragraph assuming 110 livemeet racing days and 254 off-track betting days for the year ended December 31,2005 and assuming 45 off-track betting days for the period January 1, 2005to February 14, 2006 are summarized as follows:

 
| 2005   |   | $      | 506,600 |   |
|--------|--------|--------|---------|--------|
| 2006   |   | 51,750 |    |
|   |   | $      | 558,350 |   |

 

***Other—***DJLand OED lease various other equipment under noncancelable operating leases. Theleases require fixed monthly payments to be made ranging from $150 to $5,292and certain gaming machines and tables require contingent monthly rentalpayments based on usage of the equipment. The leases expire on various datesthrough 2008. Rent expense in 2004, 2003 and 2002 was $3,446,084, $1,123,459,and $1,236,088, respectively.

 

The future minimum rental payments requiredunder these leases for the years ended December 31 are summarized asfollows:

 
| 2005   |   | $       | 508,166 |   |
|--------|--------|---------|---------|--------|
| 2006   |   | 240,656 |    |
| 2007   |   | 104,475 |    |
| 2008   |   | 50,201  |    |
|   |   | $       | 903,498 |   |

 

F-17

----

 

**8. COMMITMENTS AND CONTINGENCIES**

 

Under the Company’s and PGP’s operatingagreements, the Company and PGP have agreed, subject to a few exceptions, toindemnify and hold harmless PGP and PGP’s members from liabilities incurred asa result of their positions as sole manager of the Company and as members ofPGP, respectively.

 

In October 2003, OED filed a Petition forDeclaratory Judgment in state court in St. Landry Parish, Louisiana, naming theSecretary of the Department of Revenue and Taxation for the State of Louisiana,the St. Landry Parish School Board and the City of Opelousas, seeking adefinitive ruling on the extent of its tax liability and seeking to preventLouisiana state and local governmental authorities from assessing sales taxesin connection with its construction and equipping of the Evangeline Downscasino and racetrack. Louisiana law provides that racetracks are not requiredto pay taxes other than those provided in the racing statutes and that taxesand fees provided in the racing statutes are in lieu of, among other things,all other state and local taxes, including sales taxes. In response to arequest by OED for clarification of its tax status, the State of LouisianaDepartment of Revenue delivered a letter to OED, dated April 9, 2001,confirming that all purchases of tangible personal property and taxableservices by pari-mutuel racetracks and off-track betting facilities are exemptfrom the payment of sales tax. In a response filed by the City of Opelousaswith the district court in February 2005, the City of Opelousas has generallyargued that the exemption under the racing statutes should not extend to thepurchase of goods, materials and services for non-racing operations, whichinclude, for example, the operation of slot machines, restaurants, lounges andshops.

 

OED has paid all applicable sales taxesrelating to the purchase of slot machines at the casino, but has not paid salestaxes relating to the construction of the facility or the purchase of othertangible personal property in connection therewith. OED’s motion for summaryjudgment is currently pending before the district court, and a hearing on themotion is scheduled for April 2005. Based on the advice of outside regulatorycounsel, OED is optimistic that the district court will agree with the positionarticulated by the Department of Revenue and Taxation and render summaryjudgment in OED’s favor. If the issue, however, is ultimately determinedadversely to OED, and OED is required to pay sales taxes on its non-racingrelated activities, based upon current estimates and depending on how the issueis ultimately resolved, such taxes could range from $1.5 million to $8 million.

 

The Company was involved in a lawsuit with aformer employee. The Company reached a settlement with the former employeeduring the third quarter of 2004.  Thesettlement did not have a material adverse effect on the financial condition,results of operations or cash flows of the Company.

 

Other than as described above, the Company isnot a party to, and none of its property is the subject of, any other pendinglegal proceedings other than litigation arising in the normal course ofbusiness. Management does not believe that adverse determinations in any or allsuch other litigation would have a material adverse effect on the Company’sfinancial condition, results of operations or cash flows.

 

Our future contractual obligations related topurchase commitments at December 31, 2004 are summarized as follows:

 
| 2005       |   | $       | 362,892   |   |
|------------|--------|---------|-----------|--------|
| 2006-2007  |   | 434,500 |      |
| 2007-2009  |   | 222,305 |      |
| Thereafter |   | 107,087 |      |
| Total      |   | $       | 1,126,784 |   |

 

**9. MEMBERS’ EQUITY**

 

On July 15, 1999, PGL authorized andissued $9.0 million of common membership units. PGL, as the holder of allof the Company’s issued and outstanding common membership interests, isentitled to vote on all matters to be voted on by holders of common membershipinterests of the Company and, subject to certain limitations contained in theCompany’s operating agreement, the indenture governing the Peninsula Gaming Notesand the PGL Credit Facility, is entitled to dividends and other distributionsif, as and when declared by the Company’s managers out of funds legallyavailable therefore.

 

**10. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT**

 

Dubuque Racing Association, Ltd. (the “Association”),a qualified sponsoring organization, presently holds a joint license with DJLto conduct gambling games under Iowa statutes. The Association owns DubuqueGreyhound Park, a traditional greyhound racetrack with 600 slot machines and amenitiesincluding a gift shop, restaurant and clubhouse. DJL entered into a contract(the “Operating Agreement”) with the Association relating to the operation ofan excursion gambling riverboat for excursion seasons through December 31,2008, under the joint gambling license. Under the terms of the OperatingAgreement, subject to certain conditions, the

 

F-18

----

 

Association shall receive the greater of the Association’s gamingrevenues from the greyhound park for the period, or a percentage of the totalcombined gaming revenues of the Association from the greyhound park and DJL asfollows:

 

•32% of the first $30,000,000 of total combined gaming revenues, plus

 

•8% of the total combined gaming revenues over $30,000,000, but less than$42,000,000, plus

 

•8% of total combined gaming revenues between $42,000,000 and $46,000,000 duringany period for which no excursion gambling boat or land based gamblingoperation is carried on from a Wisconsin or Illinois gambling operation inGrant County, Wisconsin, or Joe Davies County, Illinois.

 

Gaming revenues under this contract meansadjusted gross receipts, less gaming taxes.

 

The Association’s gaming revenues from thegreyhound park in 2004, 2003 and 2002 were $33,427,579, $34,688,572, and$30,041,841, respectively, which are higher than the previously describedthresholds, therefore, no payments have been made to the Association in 2004,2003 and 2002 under the Operating Agreement.

 

Commencing April 1, 2000, DJL has beenobligated to pay, and has paid, the Association the sum of $.50 for each patronadmitted on the boat, which, based upon recent annual attendance, approximates$500,000 annually. During 2004, 2003 and 2002, these payments approximated$521,000, $527,000, and $495,000, respectively.

 

In the event DJL elects to sell or lease theexcursion gambling boat, its furnishings and gambling equipment and/or itsinterest in any ticket sale facility or other buildings located in the DubuqueIce Harbor used in connection with the operation of an excursion gambling boatto a third party that does not agree to operate these assets subject to theterms and conditions of the Operating Agreement, and obtains an acceptableoffer from such third party for the purchase or lease thereof, the Associationshall have the option to purchase or lease these assets on the same terms asthose offered by such third party.

 

**11. TRANSACTIONS WITH RELATED PARTIES**

 

In May 2004, PGP repurchased 147,553 units ofits convertible preferred membership interests from an unrelated third partyfor approximately $4.5 million.  Therepurchase was funded by a distribution of cash to PGP from DJL.

 

During 2004, 2003 and 2002, the Companydistributed $2,530,706, $1,557,143 and $1,260,012, respectively, to PGPprimarily for (i) certain consulting and financial advisory servicesrelated to PGP development expenses, (ii) board fees and actualout-of-pocket expenses incurred by members of the board of managers of PGP intheir capacity as a board member and (iii)  tax, accounting, legal andadministrative costs and expenses related to PGP. These amounts were recordedas member distributions.

 

In accordance with a management servicesagreement between OEDA and OED, under which OED pays a base management fee of0.44% of net revenue (less net food and beverage revenue) plus an incentive feebased on EBITDA to OEDA, OED expensed $236,178 in affiliate management feespayable to OEDA for the period from July 1, 2004 through December 31,2004 (the period subsequent to the spin-off of OEDA).

 

A board member of PGP is entitled to receivefrom OEDA board fees of $175,000 per year for services performed in hiscapacity as an OEDA board member.  Forthe years ended December 31, 2004 and 2003, OEDA expensed $87,500 and$175,000, respectively, related to these board fees (for the period prior tothe spin-off of OEDA).

 

OED is a party to a consulting agreement witha board member of PGP.  Under theconsulting agreement, OED must pay to the board member a fee equal to 2.5% ofOED’s earnings before interest, taxes, depreciation, amortization and othernon-recurring charges during the preceding calendar year commencing on January 1,2004.  Under the consulting agreement,the board member is also entitled to reimbursement of reasonable businessexpenses as approved by the board of managers of PGP.  OED expensed $433,752 of affiliate managementfees for the year ended December 31, 2004 related to this agreement.

 

During the period February 15, 2002through December 31, 2002, OED paid principal of $18,379 and interest of$297,536 to WET2 related to WET2’s 50% interest in the OED Notes. WET2, throughits affiliate WET2LLC, owned 50% of the membership interests of OED until August 30,2002.

 

F-19

----

 

During the period February 15, 2002through December 31, 2002, interest was paid to Moody-Trotter Investmentsand William E. Trotter in the amount of $96,156 and $435,627, respectively.

 

**12. SUBSEQUENT EVENTS**

 

In January 2005, the Company created anon-qualified deferred compensation plan. Under the plan, certain eligible key employees of the Company may electto defer a portion of their compensation. The Company makes a matching contribution to each participant based upona percentage set by the Company.  Thesematching contributions vest over a three year period of service.

 

At a meeting of the board of managers of PGP,held on February 25, 2005, PGP approved grants of profits interests underPGP’s Amended and Restated 2004 Incentive Unit Plan (the “IUP”) to twoexecutive officers of PGL aggregating 2.50% of the outstanding membership unitsof PGP on a fully diluted basis.  The terms of the awards includespecified vesting schedules, acceleration of vesting upon the occurrence ofcertain events, anti-dilution protection, transfer restrictions and othercustomary terms and provisions.  The profits interests awarded under theIUP entitle the holders thereof to receive distributions from operating profitson a pro rata basis with holders of common units of PGP (but only to the extentof profits allocated to holders of profits interests after the date of grant)and distributions on liquidation (but only to the extent of their pro ratashare of any undistributed operating profits allocated to holders of profitsinterests and any further appreciation in the fair market value of PGP afterthe date of grant).  Upon any termination of their employment, therespective officers are entitled at their option to cause the Company to redeemall such vested profits interests granted to them for cash at their fair marketvalue at the time of termination of employment. The board also authorized anadditional 1.5% units of profits interests for future grants under the IUP.

 

**13. SEGMENT INFORMATION**

 

The Company is organized around geographicalareas and operates two reportable segments: (1) Iowa operations, whichcomprise the Diamond Jo riverboat casino in Iowa and (2) Louisianaoperations, which comprise the casino, racetrack and OTB’s operated by OED inLouisiana.

 

The accounting policies for each segment arethe same as those described in Note 2 above. The Company evaluates performanceand allocates resources based upon, among other considerations, segmentoperating earnings (as defined below).

 

The tables below present information aboutreported segments as of and for the years ended (in thousands):

 
| ** **        | ** ** | **Net Revenues** | ** ** |
|-------------------|------------|------------------|------------|
| ** **        | ** ** | **2004**         | ** ** | **2003** | ** ** | **2002** | ** ** |
|              |       |             |       |   |   |   |   |
| Diamond Jo        |       | $                | 51,715     |   | $ | 54,004 |   | $ | 48,598 |   |
| Evangeline  Downs |       | 93,139           |       | 22,498 |   | 16,590 |   |
| Total             |       | $                | 144,854    |   | $ | 76,502 |   | $ | 65,188 |   |

 

F-20

----

 
| ** **                                 | ** ** | **Segment Operating  Earnings(1)** | ** ** |
|--------------------------------------------|------------|------------------------------------|------------|
| ** **                                 | ** ** | **2004**                           | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                       |       |                               |       |   |   |   |   |
| General  corporate                         |       | $                                  | (927       | ) |   |   |   |   |
| Diamond Jo                                 |       | 16,700                             |       | $ | 18,003 |   | $ | 15,558 |   |
| Evangeline  Downs                          |       | 17,282                             |       | 1,105 |   | 1,486 |   |
| Total  Segment Operating Earnings(1)       |       | 33,055                             |       | 19,108 |   | 17,044 |   |
| General  Corporate:                        |       |                               |       |   |   |   |   |
| Management  severance and recruiting       |       | (108                               | )          |   |   |   |   |
| Development  expense                       |       | (242                               | )          |   |   |   |   |
| Diamond Jo:                                |       |                               |       |   |   |   |   |
| Depreciation  and amortization             |       | (2,678                             | )          | (2,500 | ) | (2,767 | ) |
| Development  expense                       |       |                               |       | (102 | ) |   |   |
| Management  severance and recruiting       |       | (294                               | )          |   |   |   |   |
| Gain (loss)  on disposal of assets         |       | 498                                |       | (50 | ) | (8 | ) |
| Referendum                                 |       |                               |       |   |   | (771 | ) |
| Interest  expense, net                     |       | (19,089                            | )          | (11,050 | ) | (10,466 | ) |
| Preferred  member distributions            |       |                               |       | (181 | ) | (373 | ) |
| Evangeline  Downs:                         |       |                               |       |   |   |   |   |
| Depreciation  and amortization             |       | (9,677                             | )          | (824 | ) | (184 | ) |
| Pre-opening  expense                       |       | (367                               | )          | (3,257 | ) |   |   |
| Management  severance and recruiting       |       | (191                               | )          |   |   |   |   |
| Affiliate  management fees                 |       | (757                               | )          | (175 | ) |   |   |
| Gain on  disposal of assets                |       | 218                                |       |   |   |   |   |
| Litigation  settlement                     |       |                               |       |   |   | (1,600 | ) |
| Minority  interests                        |       |                               |       |   |   | (232 | ) |
| Interest  expense, net                     |       | (45,443                            | )          | (13,711 | ) | (1,375 | ) |
| Net loss to  common members’ interest |       | $                                  | (45,075    | ) | $ | (12,742 | ) | $ | (732 | ) |

 

----

(1)                                  Segmentoperating earnings is defined as net loss to common members’ interest plusdepreciation and amortization, pre-opening expense, development expense,management severance and recruiting, affiliate management fees, referendumexpenses, litigation settlement, minority interests, loss on disposal ofassets, interest expense (net) (including loss on early retirement of debt) andpreferred member distributions less gain on disposal of assets.

 
| ** **        | ** ** | **Total Assets** | ** ** |
|-------------------|------------|------------------|------------|
| ** **        | ** ** | **2004**         | ** ** | **2003** | ** ** |
|              |       |             |       |   |   |
| Diamond Jo        |       | $                | 82,257     |   | $ | 84,704 |   |
| Evangeline  Downs |       | 160,812          |       | 176,815 |   |
| Total             |       | $                | 243,069    |   | $ | 261,519 |   |

 
| ** **        | ** ** | **Cash Expenditures for Additions  to  Long-Lived Assets** | ** ** |
|-------------------|------------|------------------------------------------------------------|------------|
| ** **        | ** ** | **2004**                                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
|              |       |                                                       |       |   |   |   |   |
| Diamond Jo        |       | $                                                          | 2,576      |   | $ | 1,495 |   | $ | 1,400 |   |
| Evangeline  Downs |       | 41,103                                                     |       | 57,796 |   | 7,114 |   |
| Total             |       | $                                                          | 43,679     |   | $ | 59,291 |   | $ | 8,514 |   |

 

F-21

----

 

**14. FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

The fair value of the Company’s financialinstruments consisting of cash and cash equivalents, restricted cash andinvestments, receivables, and payables approximate their recorded amounts dueto the short term nature of the instruments. The fair value and recordedamounts for the Company’s debt instruments at December 31, 2004 and 2003are as follows:

 
| ** **                        | ** ** | **December 31, 2004** | ** **  | **December 31, 2003** | ** ** |
|-----------------------------------|------------|----------------------------|-------------|----------------------------|------------|
| ** **                        | ** ** | **Fair Value**             | ** **  | **Recorded Amount**        | ** ** | **Fair Value** | ** ** | **Recorded Amount** | ** ** |
| 83⁄4% senior  secured notes    |       | $                          | 228,340,000 |                       | $          | 229,945,650 |   |   |   |   |   |
| 121⁄4% senior  secured notes   |       |                       |        |                       |       | $ | 76,680,000 |   | $ | 70,616,221 |   |
| 13% senior  secured notes         |       | 6,910,000                  |        | 6,796,576                  |       | 137,984,000 |   | 120,923,436 |   |
| Senior  secured credit facilities |       | 13,887,764                 |        | 13,887,764                 |       | 16,354,301 |   | 16,354,301 |   |
| Term loan                         |       | 12,666,667                 |        | 12,666,667                 |       |   |   |   |   |
| Notes  payable                    |       | 12,081,256                 |        | 12,081,256                 |       | 4,398,940 |   | 4,398,940 |   |
|                                   |            |                            |             |                            |            |  |  |  |  |  |  |  |  |

 

Fair valueinformation is based on current market interest rates and estimates of marketconditions for instruments with similar terms, maturities, and degrees of risk.

 

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

 
| ** **                                      | ** ** | **2004 Quarters Ended**    | ** ** |
|-------------------------------------------------|------------|----------------------------|------------|
| ** **                                      | ** ** | **March 31**          | ** ** | **June 30(1)** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                                      | ** ** | **(Dollars in Thousands)** | ** ** |
|                                            |       |                       |       |   |   |   |   |   |   |
| Net revenues                                    |       | $                          | 35,565     |   | $ | 36,566 |   | $ | 37,291 |   | $ | 35,432 |   |
| Income from  operations                         |       | 5,105                      |       | 4,407 |   | 4,993 |   | 4,951 |   |
| Net loss  before preferred member distributions |       | (2,621                     | )          | (39,685 | ) | (1,182 | ) | (1,587 | ) |
| Net loss to  common members’ interest      |       | (2,621                     | )          | (39,685 | ) | (1,182 | ) | (1,587 | ) |
|                                                 |            |                            |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)  Includes a loss on earlyretirement of debt of approximately $37.6 million related to the Company’s debtrefinancings discussed in Note 4.

 
| ** **                                      | ** ** | **2003 Quarters Ended**    | ** ** |
|-------------------------------------------------|------------|----------------------------|------------|
| ** **                                      | ** ** | **March 31**          | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31(2)** | ** ** |
| ** **                                      | ** ** | **(Dollars in Thousands)** | ** ** |
|                                            |       |                       |       |   |   |   |   |   |   |
| Net revenues                                    |       | $                          | 15,670     |   | $ | 19,559 |   | $ | 21,016 |   | $ | 20,257 |   |
| Income from  operations                         |       | 3,078                      |       | 3,662 |   | 4,479 |   | 981 |   |
| Net loss  before preferred member distributions |       | (1,874                     | )          | (2,923 | ) | (2,170 | ) | (5,595 | ) |
| Net loss to  common members’ interest      |       | (1,965                     | )          | (3,013 | ) | (2,170 | ) | (5,594 | ) |
|                                                 |            |                            |            |  |  |  |  |  |  |  |  |  |  |

 

----

(2) Includes $2.5 million in pre-opening expenses related to theopening of OED’s new racino.

 

**16.  PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)**

 

The following pro forma condensedconsolidated statement of operations sets forth the results of operations forthe year ended December 31, 2004 on an actual basis and on a pro formabasis to give effect to the offering of the Peninsula Gaming Notes and theapplication of the net proceeds therefrom as if such transactions had occurredon December 31, 2003.

 

F-22

----

 
| ** **                                                                | ** ** | **Year Ended December 31,  2004** | ** **  |
|---------------------------------------------------------------------------|------------|----------------------------------------|-------------|
| ** **                                                                | ** ** | **Historical**                         | ** **  | **Pro Forma  Adjustments** | ** ** | **Pro Forma** | ** ** |
|                                                                      |       |                                   |        |   |   |   |   |
| NET REVENUES                                                              |       | $                                      | 144,854,083 |   |   |   | $ | 144,854,083 |   |
| EXPENSES                                                                  |       | 125,398,298                            |        |   |   | 125,398,298 |   |
| INCOME FROM  OPERATIONS                                                   |       | 19,455,785                             |        |   |   | 19,455,785 |   |
| OTHER INCOME  (EXPENSE):                                                  |       |                                   |        |   |   |   |   |
| Interest  income                                                          |       | 170,411                                |        |   |   | 170,411 |   |
| Interest  expense, net of amounts capitalized                             |       | (26,775,110                            | )           | $ | 1,228,514 (1 | ) | (25,546,596 | ) |
| Loss on  early retirement of debt                                         |       | (37,566,234                            | )           | 37,566,234  (2 | ) |   |   |
| Interest  expense related to preferred members’ interest, redeemable |       | (360,000                               | )           |   |   | (360,000 | ) |
| Total other  expense                                                      |       | (64,530,933                            | )           | 38,794,748 |   | (25,736,185 | ) |
| NET INCOME  (LOSS) TO COMMON MEMBERS’ INTEREST                       |       | $                                      | (45,075,148 | ) | $ | 38,794,748 |   | $ | (6,280,400 | ) |

 

----

(1)                                  Representsthe elimination of (a) $2.5 million of contractual, fixed rateinterest on the DJL Notes at 12 1⁄4%, (b) $4.4 million of contractual,fixed rate interest on the OED Notes at 13.0%, and (c) $0.8 millionof amortization of deferred financing costs and bond discount related toredeemed DJL Notes and OED Notes, offset by (y) $5.9 million ofcontractual, fixed rate interest on the Peninsula Gaming Notes at 8 3⁄4% and(z) $0.6 million of amortization of deferred financing costs and bonddiscount on the Peninsula Gaming Notes.

 

(2)                                  Representsthe elimination of the loss on early retirement of debt (including call andtender premiums and write-off of deferred financing costs and bond discounts)related to the early redemption of the DJL Notes and OED Notes.

 

F-23

----

 

**16.  CONSOLIDATINGFINANCIAL STATEMENTS**

 

CONSOLIDATING BALANCE SHEET

 
| ** **                                       | ** ** | **At December 31, 2004** | ** **  |
|--------------------------------------------------|------------|-------------------------------|-------------|
| ** **                                       | ** ** | **Parent  Co-Issuer -  PGL**  | ** **  | **Subsidiary  Co-Issuer -  DJL** | ** ** | **Subsidiary  Guarantor -  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                             |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                       |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| CURRENT  ASSETS:                                 |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| Cash and  cash equivalents                       |       | $                             | (1,211      | ) | $ | 3,433,915 |   | $ | 7,071,312 |   |   |   |   |   | $ | 10,504,016 |   |
| Restricted  cash-purse settlements               |       |                          |        |   |   | 3,671,331 |   |   |   |   |   | 3,671,331 |   |
| Receivables                                      |       |                          |        | 80,976 |   | 735,082 |   |   |   |   |   | 816,058 |   |
| Receivables  from affiliates                     |       |                          |        | 6,672,662 |   |   |   |   |   | $ | (6,672,662 | ) |   |   |
| Inventories                                      |       |                          |        | 105,607 |   | 137,729 |   |   |   |   |   | 243,336 |   |
| Prepaid  expenses                                |       |                          |        | 1,064,490 |   | 1,119,221 |   |   |   |   |   | 2,183,711 |   |
| Total  current assets                            |       | (1,211                        | )           | 11,357,650 |   | 12,734,675 |   |   |   | (6,672,662 | ) | 17,418,452 |   |
| PROPERTY AND  EQUIPMENT, NET                     |       |                          |        | 18,543,117 |   | 107,619,959 |   |   |   |   |   | 126,163,076 |   |
| OTHER  ASSETS:                                   |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| Investment  in subsidiaries                      |       | (62,215,342                   | )           |   |   |   |   |   |   | 62,215,342 |   |   |   |
| Deferred  financing costs                        |       |                          |        | 5,583,956 |   | 7,727,979 |   |   |   |   |   | 13,311,935 |   |
| Goodwill                                         |       |                          |        | 53,083,429 |   |   |   |   |   |   |   | 53,083,429 |   |
| Licenses and  other intangibles                  |       |                          |        |   |   | 32,562,289 |   |   |   |   |   | 32,562,289 |   |
| Deposits and  other assets                       |       |                          |        | 363,184 |   | 166,975 |   |   |   |   |   | 530,159 |   |
| Total other  assets                              |       | (62,215,342                   | )           | 59,030,569 |   | 40,457,243 |   |   |   | 62,215,342 |   | 99,487,812 |   |
| TOTAL                                            |       | $                             | (62,216,553 | ) | $ | 88,931,336 |   | $ | 160,811,877 |   |   |   | $ | 55,542,680 |   | $ | 243,069,340 |   |
|                                             |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES  AND MEMBERS’ DEFICIT**       |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| CURRENT  LIABILITIES:                            |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| Accounts  payable                                |       | $                             | 36,034      |   | $ | 690,681 |   | $ | 3,075,270 |   |   |   |   |   | $ | 3,801,985 |   |
| Construction  payable-Racino project             |       |                          |        |   |   | 4,711,861 |   |   |   |   |   | 4,711,861 |   |
| Purse  settlement payable                        |       |                          |        |   |   | 5,040,312 |   |   |   |   |   | 5,040,312 |   |
| Accrued  payroll and payroll taxes               |       | 341,218                       |        | 1,088,514 |   | 1,186,183 |   |   |   |   |   | 2,615,915 |   |
| Accrued  interest                                |       |                          |        | 1,707,840 |   | 3,265,705 |   |   |   |   |   | 4,973,545 |   |
| Other  accrued expenses                          |       | 5,553                         |        | 1,554,791 |   | 2,835,850 |   |   |   |   |   | 4,396,194 |   |
| Payables to  affiliate                           |       |                          |        |   |   | 6,773,635 |   |   |   | $ | (6,672,662 | ) | 100,973 |   |
| Current  maturity of long-term debt              |       |                          |        | 1,203,672 |   | 7,426,336 |   |   |   |   |   | 8,630,008 |   |
| Total  current liabilities                       |       | 382,805                       |        | 6,245,498 |   | 34,315,152 |   |   |   | (6,672,662 | ) | 34,270,793 |   |
| LONG-TERM  LIABILITIES:                          |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| 8 3⁄4% senior  secured notes, net of discount |       |                          |        | 86,739,981 |   | 143,205,669 |   |   |   |   |   | 229,945,650 |   |
| 13% senior  secured notes, net of discount       |       |                          |        |   |   | 6,796,576 |   |   |   |   |   | 6,796,576 |   |
| Senior  secured credit facilities                |       |                          |        | 6,117,690 |   | 7,770,074 |   |   |   |   |   | 13,887,764 |   |
| Term loan                                        |       |                          |        |   |   | 8,666,667 |   |   |   |   |   | 8,666,667 |   |
| Notes  payable                                   |       |                          |        | 2,284,192 |   | 5,167,056 |   |   |   |   |   | 7,451,248 |   |
| Other  accrued expenses                          |       |                          |        | 250,000 |   | 400,000 |   |   |   |   |   | 650,000 |   |
| Preferred  members’ interest, redeemable    |       |                          |        | 4,000,000 |   |   |   |   |   |   |   | 4,000,000 |   |
| Total  long-term liabilities                     |       |                          |        | 99,391,863 |   | 172,006,042 |   |   |   |   |   | 271,397,905 |   |
| Total  liabilities                               |       | 382,805                       |        | 105,637,361 |   | 206,321,194 |   |   |   | (6,672,662 | ) | 305,668,698 |   |
|                                             |       |                          |        |   |   |   |   |   |   |   |   |   |   |
| MEMBERS’  DEFICIT                           |       | (62,599,358                   | )           | (16,706,025 | ) | (45,509,317 | ) |   |   | 62,215,342 |   | (62,599,358 | ) |
| TOTAL                                            |       | $                             | (62,216,553 | ) | $ | 88,931,336 |   | $ | 160,811,877 |   |   |   | $ | 55,542,680 |   | $ | 243,069,340 |   |

 

F-24

----

 
| ** **                                       | ** ** | **At December 31, 2003**     | ** **  |
|--------------------------------------------------|------------|-----------------------------------|-------------|
| ** **                                       | ** ** | **Parent  Co-Issuer –  PGL** | ** **  | **Subsidiary  Co-Issuer -  DJL** | ** ** | **Subsidiary  Guarantor -  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                             |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                       |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| CURRENT  ASSETS:                                 |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Cash and cash  equivalents                       |       |                              |        | $ | 12,655,641 |   | $ | 8,502,654 |   |   |   |   |   | $ | 21,158,295 |   |
| Restricted  cash-purse settlements               |       |                              |        |   |   | 1,589,125 |   |   |   |   |   | 1,589,125 |   |
| Restricted  investments                          |       |                              |        |   |   | 15,778,883 |   |   |   |   |   | 15,778,883 |   |
| Receivables                                      |       |                              |        | 80,089 |   | 402,133 |   |   |   |   |   | 482,222 |   |
| Receivables  from affiliates                     |       |                              |        | 5,060,894 |   |   |   | $ | 295,000 |   | $ | (5,355,894 | ) |   |   |
| Inventories                                      |       |                              |        | 113,269 |   | 290,107 |   |   |   |   |   | 403,376 |   |
| Prepaid  expenses                                |       |                              |        | 570,563 |   | 244,446 |   |   |   |   |   | 815,009 |   |
| Total  current assets                            |       |                              |        | 18,480,456 |   | 26,807,348 |   | 295,000 |   | (5,355,894 | ) | 40,226,910 |   |
| RESTRICTED  CASH-RACINO PROJECT                  |       |                              |        |   |   | 20,013,291 |   |   |   |   |   | 20,013,291 |   |
| PROPERTY AND  EQUIPMENT, NET                     |       |                              |        | 15,014,293 |   | 87,463,052 |   |   |   |   |   | 102,477,345 |   |
| OTHER  ASSETS:                                   |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Investment  in subsidiaries                      |       | $                                 | (10,628,709 | ) |   |   |   |   |   |   | 10,628,709 |   |   |   |
| Deferred  financing costs                        |       |                              |        | 2,516,581 |   | 10,185,806 |   |   |   |   |   | 12,702,387 |   |
| Goodwill                                         |       |                              |        | 53,083,429 |   |   |   |   |   |   |   | 53,083,429 |   |
| Licenses and  other intangibles                  |       |                              |        |   |   | 32,257,963 |   |   |   |   |   | 32,257,963 |   |
| Deposits and  other assets                       |       |                              |        | 670,022 |   | 87,767 |   |   |   |   |   | 757,789 |   |
| Total other  assets                              |       | (10,628,709                       | )           | 56,270,032 |   | 42,531,536 |   | 0 |   | 10,628,709 |   | 98,801,568 |   |
| TOTAL                                            |       | $                                 | (10,628,709 | ) | $ | 89,764,781 |   | $ | 176,815,227 |   | $ | 295,000 |   | $ | 5,272,815 |   | $ | 261,519,114 |   |
|                                             |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES  AND MEMBERS’ DEFICIT**       |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| CURRENT  LIABILITIES:                            |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Accounts  payable                                |       |                              |        | $ | 804,581 |   | $ | 2,168,027 |   |   |   |   |   | $ | 2,972,608 |   |
| Construction  payable-Racino project             |       |                              |        |   |   | 20,156,591 |   |   |   |   |   | 20,156,591 |   |
| Purse  settlement payable                        |       |                              |        |   |   | 1,589,125 |   |   |   |   |   | 1,589,125 |   |
| Accrued  payroll and payroll taxes               |       |                              |        | 1,569,224 |   | 1,219,000 |   |   |   |   |   | 2,788,224 |   |
| Accrued  interest                                |       |                              |        | 4,432,472 |   | 5,472,306 |   |   |   |   |   | 9,904,778 |   |
| Other  accrued expenses                          |       |                              |        | 2,568,794 |   | 2,067,312 |   | $ | 175,000 |   |   |   | 4,811,106 |   |
| Payables to  affiliate                           |       |                              |        |   |   | 4,855,204 |   | 500,690 |   | $ | (5,355,894 | ) |   |   |
| Current  maturity of long-term debt              |       |                              |        | 600,000 |   | 3,498,222 |   |   |   |   |   | 4,098,222 |   |
| Total  current liabilities                       |       |                              |        | 9,975,071 |   | 41,025,787 |   | 675,690 |   | (5,355,894 | ) | 46,320,654 |   |
| LONG-TERM  LIABILITIES:                          |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| 121⁄4% senior  secured notes, net of discount |       |                              |        | 70,616,221 |   |   |   |   |   |   |   | 70,616,221 |   |
| 13% senior  secured notes, net of discount       |       |                              |        |   |   | 120,923,436 |   |   |   |   |   | 120,923,436 |   |
| Senior  secured credit facilities                |       |                              |        | 10,650,000 |   | 5,104,301 |   |   |   |   |   | 15,754,301 |   |
| FF&E  credit facility                        |       |                              |        |   |   | 9,921,557 |   |   |   |   |   | 9,921,557 |   |
| Notes  payable                                   |       |                              |        |   |   | 3,511,654 |   |   |   |   |   | 3,511,654 |   |
| Other  accrued expenses                          |       |                              |        | 300,000 |   | 800,000 |   |   |   |   |   | 1,100,000 |   |
| Preferred  members’ interest, redeemable    |       |                              |        | 4,000,000 |   |   |   |   |   |   |   | 4,000,000 |   |
| Total  long-term liabilities                     |       |                              |        | 85,566,221 |   | 140,260,948 |   |   |   |   |   | 225,827,169 |   |
| Total  liabilities                               |       |                              |        | 95,541,292 |   | 181,286,735 |   | 675,690 |   | (5,355,894 | ) | 272,147,823 |   |
| MEMBERS’  DEFICIT                           |       | $                                 | (10,628,709 | ) | (5,776,511 | ) | (4,471,508 | ) | (380,690 | ) | 10,628,709 |   | (10,628,709 | ) |
| TOTAL                                            |       | $                                 | (10,628,709 | ) | $ | 89,764,781 |   | $ | 176,815,227 |   | $ | 295,000 |   | $ | 5,272,815 |   | $ | 261,519,114 |   |

 

F-25

----

 

CONSOLIDATING STATEMENTS OF OPERATIONS

 
| ** **                                                                | ** ** | **Year Ended December 31, 2004**  | ** **  |
|---------------------------------------------------------------------------|------------|-----------------------------------|-------------|
| ** **                                                                | ** ** | **Parent  Co-Issuer –  PGL** | ** **  | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                      |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                                                 |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                              |        | $ | 50,964,152 |   | $ | 68,956,783 |   |   |   |   |   | $ | 119,920,935 |   |
| Racing                                                                    |       |                              |        |   |   | 20,000,703 |   |   |   |   |   | 20,000,703 |   |
| Food and beverage                                                         |       |                              |        | 2,896,792 |   | 8,567,302 |   |   |   |   |   | 11,464,094 |   |
| Management fee  income                                                    |       |                              |        | 1,444,990 |   |   |   | $ | 245,486 |   | $ | (1,690,476 | ) |   |   |
| Other                                                                     |       |                              |        | 487,765 |   | 946,370 |   |   |   |   |   | 1,434,135 |   |
| Less promotional  allowances                                              |       |                              |        | (2,633,454 | ) | (5,332,330 | ) |   |   |   |   | (7,965,784 | ) |
| Total net  revenues                                                       |       |                              |        | 53,160,245 |   | 93,138,828 |   | 245,486 |   | (1,690,476 | ) | 144,854,083 |   |
|                                                                      |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                                                 |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                              |        | 22,831,003 |   | 38,079,749 |   |   |   |   |   | 60,910,752 |   |
| Racing                                                                    |       |                              |        |   |   | 16,958,738 |   |   |   |   |   | 16,958,738 |   |
| Food and beverage                                                         |       |                              |        | 2,641,480 |   | 6,576,865 |   |   |   |   |   | 9,218,345 |   |
| Boat operations                                                           |       |                              |        | 2,231,223 |   |   |   |   |   |   |   | 2,231,223 |   |
| Other                                                                     |       |                              |        | 390,134 |   | 685,730 |   |   |   |   |   | 1,075,864 |   |
| Selling, general  and administrative                                      |       | $                                 | 375,542     |   | 6,921,574 |   | 13,556,447 |   |   |   | 551,064 |   | 21,404,627 |   |
| Depreciation and  amortization                                            |       |                              |        | 2,678,488 |   | 9,677,015 |   |   |   |   |   | 12,355,503 |   |
| Pre-opening  expense                                                      |       |                              |        |   |   | 367,488 |   |   |   |   |   | 367,488 |   |
| Development  expense                                                      |       | 241,691                           |        |   |   |   |   |   |   |   |   | 241,691 |   |
| Management  severance and recruiting                                      |       | 35,903                            |        | 293,637 |   | 191,480 |   |   |   | 71,807 |   | 592,827 |   |
| Affiliate  management fees                                                |       |                              |        |   |   | 2,360,406 |   | 87,500 |   | (1,690,476 | ) | 757,430 |   |
| Gain on disposal  of assets                                               |       |                              |        | (497,710 | ) | (218,480 | ) |   |   |   |   | (716,190 | ) |
| Corporate expense  allocation                                             |       |                              |        | 343,093 |   | 279,778 |   |   |   | (622,871 | ) |   |   |
| Total expenses                                                            |       | 653,136                           |        | 37,832,922 |   | 88,515,216 |   | 87,500 |   | (1,690,476 | ) | 125,398,298 |   |
|                                                                      |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS)  FROM OPERATIONS                                            |       | (653,136                          | )           | 15,327,323 |   | 4,623,612 |   | 157,986 |   |   |   | 19,455,785 |   |
|                                                                      |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME  (EXPENSE):                                                  |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                           |       |                              |        | 40,011 |   | 130,400 |   |   |   |   |   | 170,411 |   |
| Interest expense,  net of amounts capitalized                             |       |                              |        | (9,930,200 | ) | (16,844,910 | ) |   |   |   |   | (26,775,110 | ) |
| Loss on early  retirement of debt                                         |       |                              |        | (8,839,695 | ) | (28,726,539 | ) |   |   |   |   | (37,566,234 | ) |
| Interest expense  related to preferred members’ interest, redeemable |       |                              |        | (360,000 | ) |   |   |   |   |   |   | (360,000 | ) |
| Loss from equity  investment in subsidiaries                              |       | (44,422,012                       | )           |   |   |   |   |   |   | 44,422,012 |   |   |   |
| Total other  expense                                                      |       | (44,422,012                       | )           | (19,089,884 | ) | (45,441,049 | ) |   |   | 44,422,012 |   | (64,530,933 | ) |
| NET INCOME (LOSS)  TO COMMON MEMBERS’ INTEREST                       |       | $                                 | (45,075,148 | ) | $ | (3,762,561 | ) | $ | (40,817,437 | ) | $ | 157,986 |   | $ | 44,422,012 |   | $ | (45,075,148 | ) |

 

F-26

----

 
| ** **                                                                | ** ** | **Year  Ended December 31, 2003** | ** **  |
|---------------------------------------------------------------------------|------------|-----------------------------------|-------------|
| ** **                                                                | ** ** | **Parent  Co-Issuer –  PGL** | ** **  | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                      |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                                                 |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                              |        | $ | 53,567,052 |   | $ | 3,227,477 |   |   |   |   |   | $ | 56,794,529 |   |
| Racing                                                                    |       |                              |        |   |   | 17,773,481 |   |   |   |   |   | 17,773,481 |   |
| Food and beverage                                                         |       |                              |        | 3,027,064 |   | 1,538,374 |   |   |   |   |   | 4,565,438 |   |
| Management fee  income                                                    |       |                              |        | 360,000 |   |   |   | $ | 120,000 |   | $ | (480,000 | ) |   |   |
| Other                                                                     |       |                              |        | 421,907 |   | 167,361 |   |   |   |   |   | 589,268 |   |
| Less promotional  allowances                                              |       |                              |        | (3,011,987 | ) | (209,147 | ) |   |   |   |   | (3,221,134 | ) |
| Total net  revenues                                                       |       |                              |        | 54,364,036 |   | 22,497,546 |   | 120,000 |   | (480,000 | ) | 76,501,582 |   |
|                                                                      |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                                                 |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                              |        | 22,182,740 |   | 1,908,730 |   |   |   |   |   | 24,091,470 |   |
| Racing                                                                    |       |                              |        |   |   | 14,646,351 |   |   |   |   |   | 14,646,351 |   |
| Food and beverage                                                         |       |                              |        | 2,781,945 |   | 1,500,065 |   |   |   |   |   | 4,282,010 |   |
| Boat operations                                                           |       |                              |        | 2,322,126 |   |   |   |   |   |   |   | 2,322,126 |   |
| Other                                                                     |       |                              |        | 383,030 |   | 59,934 |   |   |   |   |   | 442,964 |   |
| Selling, general  and administrative                                      |       |                              |        | 8,331,577 |   | 3,277,507 |   |   |   |   |   | 11,609,084 |   |
| Depreciation and  amortization                                            |       |                              |        | 2,499,597 |   | 823,944 |   |   |   |   |   | 3,323,541 |   |
| Pre-opening  expense                                                      |       |                              |        |   |   | 3,256,963 |   |   |   |   |   | 3,256,963 |   |
| Development expense                                                       |       |                              |        | 102,272 |   |   |   |   |   |   |   | 102,272 |   |
| Loss on disposal  of assets                                               |       |                              |        | 49,735 |   |   |   |   |   |   |   | 49,735 |   |
| Litigation  settlement                                                    |       |                              |        |   |   | 1,600,000 |   |   |   | (1,600,000 | ) |   |   |
| Affiliate  management fees                                                |       |                              |        |   |   | 480,000 |   | 175,000 |   | (480,000 | ) | 175,000 |   |
| Total expenses                                                            |       |                              |        | 38,653,022 |   | 27,553,494 |   | 175,000 |   | (2,080,000 | ) | 64,301,516 |   |
|                                                                      |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS)  FROM OPERATIONS                                            |       |                              |        | 15,711,014 |   | (5,055,948 | ) | (55,000 | ) | 1,600,000 |   | 12,200,066 |   |
|                                                                      |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME  (EXPENSE):                                                  |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                           |       |                              |        | 49,797 |   | 440,003 |   |   |   |   |   | 489,800 |   |
| Interest expense,  net of amounts capitalized                             |       |                              |        | (10,920,493 | ) | (14,151,163 | ) |   |   |   |   | (25,071,656 | ) |
| Interest expense  related to preferred members’ interest, redeemable |       |                              |        | (180,000 | ) |   |   |   |   |   |   | (180,000 | ) |
| Loss from equity  investment in subsidiaries                              |       | $                                 | (12,742,334 | ) |   |   |   |   |   |   | 12,742,334 |   |   |   |
| Total other  expense                                                      |       | (12,742,334                       | )           | (11,050,696) |   | (13,711,160 | ) |   |   | 12,742,334 |   | (24,761,856 | ) |
| NET LOSS BEFORE  PREFERRED MEMBER DISTRIBUTIONS                           |       | (12,742,334                       | )           | 4,660,318 | ) | (18,767,108 | ) | (55,000 | ) | 14,342,334 |   | (12,561,790 | ) |
| LESS PREFERRED  MEMBER DISTRIBUTIONS                                      |       |                              |        | 180,544 |   |   |   |   |   |   |   | 180,544 |   |
| NET LOSS TO  COMMON MEMBERS’ INTEREST                                |       | $                                 | (12,742,334 | ) | $ | 4,479,774 |   | $ | (18,767,108 | ) | $ | (55,000 | ) | $ | 14,342,334 |   | $ | (12,742,334 | ) |

 

F-27

----

 
| ** **                                                            | ** ** | **Year  Ended December 31, 2002** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                            | ** ** | **Parent  Co-Issuer –  PGL** | ** ** | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                                             |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                |       |                              |       | $ | 48,262,485 |   |   |   |   |   |   |   | $ | 48,262,485 |   |
| Racing                                                                |       |                              |       |   |   | $ | 15,509,989 |   |   |   |   |   | 15,509,989 |   |
| Food and beverage                                                     |       |                              |       | 2,806,118 |   | 1,080,208 |   |   |   |   |   | 3,886,326 |   |
| Management fee  income                                                |       |                              |       | 725,334 |   |   |   |   |   | $ | (725,334 | ) |   |   |
| Other                                                                 |       |                              |       | 144,817 |   |   |   |   |   |   |   | 144,817 |   |
| Less promotional  allowances                                          |       |                              |       | (2,615,355 | ) |   |   |   |   |   |   | (2,615,355 | ) |
| Total net  revenues                                                   |       |                              |       | 49,323,399 |   | 16,590,197 |   |   |   | (725,334 | ) | 65,188,262 |   |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                                             |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                |       |                              |       | 20,992,183 |   |   |   |   |   |   |   | 20,992,183 |   |
| Racing                                                                |       |                              |       |   |   | 12,650,996 |   |   |   |   |   | 12,650,996 |   |
| Food and beverage                                                     |       |                              |       | 2,822,160 |   | 998,205 |   |   |   |   |   | 3,820,365 |   |
| Boat operations                                                       |       |                              |       | 2,295,771 |   |   |   |   |   |   |   | 2,295,771 |   |
| Other                                                                 |       |                              |       | 27,471 |   |   |   |   |   |   |   | 27,471 |   |
| Selling, general  and administrative                                  |       |                              |       | 6,847,903 |   | 1,454,476 |   |   |   |   |   | 8,302,379 |   |
| Depreciation and  amortization                                        |       |                              |       | 2,766,543 |   | 183,826 |   |   |   |   |   | 2,950,369 |   |
| Loss on disposal  of assets                                           |       |                              |       | 8,000 |   |   |   |   |   |   |   | 8,000 |   |
| Referendum                                                            |       |                              |       | 771,111 |   |   |   |   |   |   |   | 771,111 |   |
| Litigation  settlement                                                |       |                              |       |   |   | 1,600,000 |   |   |   |   |   | 1,600,000 |   |
| Affiliate  management fees                                            |       |                              |       |   |   | 224,644 |   | $ | 500,690 |   | (725,334 | ) |   |   |
| State of  Wisconsin government relations                              |       |                              |       | 55,000 |   |   |   |   |   |   |   | 55,000 |   |
| Total expenses                                                        |       |                              |       | 36,586,142 |   | 17,112,147 |   | 500,690 |   | (725,334 | ) | 53,473,645 |   |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS)  FROM OPERATIONS                                        |       |                              |       | 12,737,257 |   | (521,950 | ) | (500,690 | ) |   |   | 11,714,617 |   |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME  (EXPENSE):                                              |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                       |       |                              |       | 44,162 |   | 2,313 |   |   |   |   |   | 46,475 |   |
| Interest income  from affiliate                                       |       |                              |       | 330,208 |   |   |   |   |   | (330,208 | ) |   |   |
| Interest expense                                                      |       |                              |       | (10,840,480 | ) | (1,377,707 | ) |   |   | 330,208 |   | (11,887,979 | ) |
| Loss from equity  investment in subsidiaries                          |       | $                                 | (731,993   | ) |   |   |   |   |   |   | 731,993 |   |   |   |
| Total other  expense                                                  |       | (731,993                          | )          | (10,466,110 | ) | (1,375,394 | ) |   |   | 731,993 |   | (11,841,504 | ) |
|                                                                  |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| NET LOSS BEFORE  PREFERRED MEMBER DISTRIBUTIONS AND MINORITY INTEREST |       | (731,993                          | )          | 2,271,147 |   | (1,897,344 | ) | (500,690 | ) | 731,993 |   | (126,887 | ) |
| LESS PREFERRED  MEMBER DISTRIBUTIONS                                  |       |                              |       | 373,050 |   |   |   |   |   |   |   | 373,050 |   |
| LESS MINORITY  INTEREST                                               |       |                              |       |   |   | 232,056 |   |   |   |   |   | 232,056 |   |
| NET LOSS TO  COMMON MEMBERS’ INTEREST                            |       | $                                 | (731,993   | ) | $ | 1,898,097 |   | $ | (2,129,400 | ) | $ | (500,690 | ) | $ | 731,993 |   | $ | (731,993 | ) |

 

F-28

----

 

CONSOLIDATING STATEMENTS OFCASH FLOWS

 
| ** **                                                                               | ** ** | **Year  Ended December 31, 2004** | ** **  |
|------------------------------------------------------------------------------------------|------------|-----------------------------------|-------------|
| ** **                                                                               | ** ** | **Parent  Co-Issuer –  PGL** | ** **  | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                                     |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                   |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                        |       | $                                 | (45,075,148 | ) | $ | (3,762,561 | ) | $ | (40,817,437 | ) | $ | 157,986 |   | $ | 44,422,012 |   | $ | (45,075,148 | ) |
| Adjustments to  reconcile net income (loss) to net cash flows from operating activities: |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                           |       |                              |        | 2,678,488 |   | 9,677,015 |   |   |   |   |   | 12,355,503 |   |
| Provision for  doubtful accounts                                                         |       |                              |        | 105,900 |   |   |   |   |   |   |   | 105,900 |   |
| Amortization of  deferred financing costs and bond discount                              |       |                              |        | 3,559,534 |   | 12,850,086 |   |   |   |   |   | 16,409,620 |   |
| (Gain) loss on  disposal of assets                                                       |       |                              |        | (497,710 | ) | (218,480 | ) |   |   |   |   | (716,190 | ) |
| Loss from equity  investment in subsidiaries                                             |       | 44,422,012                        |        |   |   |   |   |   |   | (44,422,012 | ) |   |   |
| Changes in  operating assets and liabilities:                                            |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Restricted cash–purse  settlements                                                  |       |                              |        |   |   | (2,082,206 | ) |   |   |   |   | (2,082,206 | ) |
| Receivables                                                                              |       |                              |        | (106,787 | ) | (332,949 | ) |   |   |   |   | (439,736 | ) |
| Receivables from  affiliates                                                             |       |                              |        | (1,611,768 | ) |   |   | (70,486 | ) | 1,682,254 |   |   |   |
| Payables to  affiliates                                                                  |       |                              |        |   |   | 1,918,432 |   |   |   | (1,682,254 | ) | 236,178 |   |
| Inventories                                                                              |       |                              |        | 7,662 |   | 152,378 |   |   |   |   |   | 160,040 |   |
| Prepaid expenses  and other assets                                                       |       |                              |        | (187,089 | ) | (953,983 | ) |   |   |   |   | (1,141,072 | ) |
| Accounts payable                                                                         |       | 36,034                            |        | (113,900 | ) | 4,358,430 |   |   |   |   |   | 4,280,564 |   |
| Accrued expenses                                                                         |       | 346,771                           |        | (4,269,345 | ) | (1,470,880 | ) | (175,000 | ) |   |   | (5,568,454 | ) |
| Litigation  settlement                                                                   |       |                              |        |   |   | (400,000 | ) |   |   |   |   | (400,000 | ) |
| Net cash flows  from operating activities                                                |       | (270,331                          | )           | (4,197,576 | ) | (17,319,594 | ) | (87,500 | ) |   |   | (21,875,001 | ) |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                   |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Business  acquisition and licensing costs                                                |       |                              |        |   |   | (304,326 | ) |   |   |   |   | (304,326 | ) |
| Racino project  development costs                                                        |       |                              |        |   |   | (38,227,251 | ) |   |   |   |   | (38,227,251 | ) |
| Proceeds from  (deposits to) restricted cash – racino project, net                  |       |                              |        |   |   | 20,013,291 |   |   |   |   |   | 20,013,291 |   |
| Maturity and sale  of restricted investments                                             |       |                              |        |   |   | 15,778,883 |   |   |   |   |   | 15,778,883 |   |
| Purchase of  property and equipment                                                      |       |                              |        | (2,576,462 | ) | (2,571,115 | ) |   |   |   |   | (5,147,577 | ) |
| Proceeds from  sale of property and equipment                                            |       |                              |        | 539,000 |   | 561,661 |   |   |   |   |   | 1,100,661 |   |
| Net cash flows  from investing activities                                                |       |                              |        | (2,037,462 | ) | (4,748,857 | ) |   |   |   |   | (6,786,319 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                   |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Deferred  financing costs                                                                |       |                              |        | (6,117,121 | ) | (8,041,813 | ) |   |   |   |   | (14,158,934 | ) |
| Principal  payments on debt                                                              |       |                              |        | (87,978,297 | ) | (140,575,638 | ) |   |   |   |   | (228,553,935 | ) |
| Proceeds from  senior secured notes                                                      |       |                              |        | 86,657,993 |   | 143,070,687 |   |   |   |   |   | 229,728,680 |   |
| Proceeds from  senior credit facilities                                                  |       |                              |        | 11,617,690 |   | 8,270,072 |   |   |   |   |   | 19,887,762 |   |
| Proceeds from  FF&E credit facility                                                  |       |                              |        |   |   | 3,467,507 |   |   |   |   |   | 3,467,507 |   |
| Proceeds from  term loan                                                                 |       |                              |        |   |   | 14,666,667 |   |   |   |   |   | 14,666,667 |   |
| Member  distributions                                                                    |       | 269,120                           |        | (7,166,953 | ) | (220,373 | ) | 87,500 |   |   |   | (7,030,706 | ) |
| Net cash flows  from financing activities                                                |       | 269,120                           |        | (2,986,688 | ) | 20,637,109 |   | 87,500 |   |   |   | 18,007,041 |   |
| NET DECREASE IN  CASH AND CASH EQUIVALENTS                                               |       | (1,211                            | )           | (9,221,726 | ) | (1,431,342 | ) |   |   |   |   | (10,654,279 | ) |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                          |       |                              |        | 12,655,641 |   | 8,502,654 |   |   |   |   |   | 21,158,295 |   |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR                                                |       | $                                 | (1,211      | ) | $ | 3,433,915 |   | $ | 7,071,312 |   |   |   |   |   | $ | 10,504,016 |   |
|                                                                                          |            |                                   |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-29

----

 

CONSOLIDATING STATEMENTS OFCASH FLOWS (UNAUDITED)

 
| ** **                                                                      | ** ** | **Year  Ended December 31, 2003** | ** **  |
|---------------------------------------------------------------------------------|------------|-----------------------------------|-------------|
| ** **                                                                      | ** ** | **Parent  Co-Issuer –  PGL** | ** **  | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                            |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                          |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                        |       | $                                 | (12,742,334 | ) | $ | (12,742,334 | ) | $ | (18,767,108 | ) | $ | (17,222,108 | ) | $ | 48,731,550 |   | $ | (12,742,334 | ) |
| Adjustments to  reconcile net loss to net cash flows from operating activities: |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                  |       |                              |        | 2,499,597 |   | 823,944 |   |   |   |   |   | 3,323,541 |   |
| Provision for  doubtful accounts                                                |       |                              |        | 149,214 |   |   |   |   |   |   |   | 149,214 |   |
| Amortization of  deferred financing costs and bond discount                     |       |                              |        | 1,186,622 |   | 1,974,401 |   |   |   |   |   | 3,161,023 |   |
| Loss on disposal  of assets                                                     |       |                              |        | 49,735 |   |   |   |   |   |   |   | 49,735 |   |
| Loss from equity  investment in subsidiaries                                    |       | 12,742,334                        |        | 17,222,108 |   |   |   | 17,167,108 |   | (47,131,550 | ) |   |   |
| Changes in  operating assets and liabilities:                                   |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Restricted cash–purse  settlements                                         |       |                              |        |   |   | (748,759 | ) |   |   |   |   | (748,759 | ) |
| Receivables                                                                     |       |                              |        | (129,601 | ) | (226,013 | ) |   |   |   |   | (355,614 | ) |
| Receivables from  affiliates                                                    |       |                              |        | (1,521,211 | ) |   |   | (120,000 | ) | 1,641,211 |   |   |   |
| Payables to  affiliates                                                         |       |                              |        |   |   | 1,641,211 |   |   |   | (1,641,211 | ) |   |   |
| Inventories                                                                     |       |                              |        | (4,601 | ) | (260,371 | ) |   |   |   |   | (264,972 | ) |
| Prepaid expenses  and other assets                                              |       |                              |        | (861,222 | ) | (210,197 | ) |   |   |   |   | (1,071,419 | ) |
| Accounts payable                                                                |       |                              |        | 58,670 |   | 2,124,402 |   |   |   |   |   | 2,183,072 |   |
| Accrued expenses                                                                |       |                              |        | 465,755 |   | 6,844,704 |   | 175,000 |   |   |   | 7,485,459 |   |
| Litigation  settlement                                                          |       |                              |        |   |   | 1,200,000 |   |   |   | (1,600,000 | ) | (400,000 | ) |
| Net cash flows  from operating activities                                       |       |                              |        | 6,372,732 |   | (5,603,786 | ) |   |   |   |   | 768,946 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                          |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Business acquisition  and licensing costs                                       |       |                              |        |   |   | (1,781,746 | ) |   |   |   |   | (1,781,746 | ) |
| Racino project  development costs                                               |       |                              |        |   |   | (55,303,006 | ) |   |   |   |   | (55,303,006 | ) |
| Proceeds from  (deposits to) restricted cash – racino project, net         |       |                              |        |   |   | (20,013,291 | ) |   |   |   |   | (20,013,291 | ) |
| Purchase of  restricted investments                                             |       |                              |        |   |   | (23,922,971 | ) |   |   |   |   | (23,922,971 | ) |
| Maturity and sale  of restricted investments                                    |       |                              |        |   |   | 8,144,088 |   |   |   |   |   | 8,144,088 |   |
| Purchase of  property and equipment                                             |       |                              |        | (1,495,407 | ) | (710,981 | ) |   |   |   |   | (2,206,388 | ) |
| Proceeds from  sale of property and equipment                                   |       |                              |        | 387,906 |   |   |   |   |   |   |   | 387,906 |   |
| Net cash flows  from investing activities                                       |       |                              |        | (1,107,501 | ) | (93,587,907 | ) |   |   |   |   | (94,695,408 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                          |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| Deferred  financing costs                                                       |       |                              |        |   |   | (11,516,099 | ) |   |   |   |   | (11,516,099 | ) |
| Principal  payments on debt                                                     |       |                              |        | (600,000 | ) | (20,125,000 | ) |   |   |   |   | (20,725,000 | ) |
| Proceeds from  senior secured notes                                             |       |                              |        |   |   | 120,736,000 |   |   |   |   |   | 120,736,000 |   |
| Proceeds from  senior credit facilities                                         |       |                              |        |   |   | 5,104,301 |   |   |   |   |   | 5,104,301 |   |
| Proceeds from  FF&E credit facility                                         |       |                              |        |   |   | 12,532,493 |   |   |   |   |   | 12,532,493 |   |
| Proceeds from  affiliate note receivable                                        |       |                              |        |   |   |   |   | 7,325,000 |   | (7,325,000 | ) |   |   |
| Principal  payments on affiliate notes payable                                  |       |                              |        |   |   |   |   | (7,325,000 | ) | 7,325,000 |   |   |   |
| Member  distributions                                                           |       |                              |        | (1,557,143 | ) |   |   |   |   |   |   | (1,557,143 | ) |
| Net cash flows  from financing activities                                       |       |                              |        | (2,157,143 | ) | 106,731,695 |   |   |   |   |   | 104,574,552 |   |
|                                                                            |       |                              |        |   |   |   |   |   |   |   |   |   |   |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                      |       |                              |        | 3,108,088 |   | 7,540,002 |   |   |   |   |   | 10,648,090 |   |
| CASH AND CASH EQUIVALENTS  AT BEGINNING OF YEAR                                 |       |                              |        | 9,547,553 |   | 962,652 |   |   |   |   |   | 10,510,205 |   |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR                                       |       |                              |        | $ | 12,655,641 |   | $ | 8,502,654 |   |   |   |   |   | $ | 21,158,295 |   |
|                                                                                 |            |                                   |             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-30

----

 

CONSOLIDATING STATEMENTS OFCASH FLOWS

 
| ** **                                                                      | ** ** | **Year  Ended December 31, 2002** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                      | ** ** | **Parent  Co-Issuer –  PGL** | ** ** | **Subsidiary  Co-Issuer –  DJL** | ** ** | **Subsidiary  Guarantor –  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                            |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                          |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                        |       | $                                 | (731,993   | ) | $ | (731,993 | ) | $ | (2,129,400 | ) | $ | (2,630,090 | ) | $ | 5,491,483 |   | $ | (731,993 | ) |
| Adjustments to  reconcile net loss to net cash flows from operating activities: |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                  |       |                              |       | 2,766,543 |   | 183,826 |   |   |   |   |   | 2,950,369 |   |
| Provision for  doubtful accounts                                                |       |                              |       | 138,751 |   |   |   |   |   |   |   | 138,751 |   |
| Amortization of  deferred financing costs and bond discount                     |       |                              |       | 1,153,734 |   | 339,937 |   |   |   |   |   | 1,493,671 |   |
| Loss on disposal  of assets                                                     |       |                              |       | 8,000 |   |   |   |   |   |   |   | 8,000 |   |
| Minority interest                                                               |       |                              |       |   |   | 232,056 |   |   |   |   |   | 232,056 |   |
| Loss from equity  investment in subsidiaries                                    |       | 731,993                           |       | 2,630,090 |   |   |   | 2,129,400 |   | (5,491,483 | ) |   |   |
| Changes in  operating assets and liabilities:                                   |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Restricted cash–purse  settlements                                         |       |                              |       |   |   | 639,655 |   |   |   |   |   | 639,655 |   |
| Receivables                                                                     |       |                              |       | (1,188,515 | ) | 41,575 |   |   |   | 1,055,542 |   | (91,398 | ) |
| Receivables from  affiliates                                                    |       |                              |       | (1,719,341 | ) |   |   |   |   | 1,719,341 |   |   |   |
| Payables to  affiliates                                                         |       |                              |       |   |   | 1,719,341 |   |   |   | (1,719,341 | ) |   |   |
| Inventories                                                                     |       |                              |       | (10,991 | ) | 16,276 |   |   |   |   |   | 5,285 |   |
| Prepaid expenses  and other assets                                              |       |                              |       | (37,509 | ) | 10,208 |   |   |   |   |   | (27,301 | ) |
| Accounts payable                                                                |       |                              |       | 36,605 |   | 23,483 |   |   |   |   |   | 60,088 |   |
| Accrued expenses                                                                |       |                              |       | 5,225,837 |   | 835,642 |   | 500,690 |   | (1,055,542 | ) | 5,506,627 |   |
| Litigation  settlement                                                          |       |                              |       |   |   | 1,600,000 |   |   |   |   |   | 1,600,000 |   |
| Net cash flows  from operating activities                                       |       |                              |       | 8,271,211 |   | 3,512,599 |   |   |   |   |   | 11,783,810 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                          |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Acquisition of  subsidiary, net of cash acquired                                |       |                              |       | (14,500,000 | ) |   |   | (15,546,000 | ) | 770,138 |   | (29,275,862 | ) |
| Business  acquisition and licensing costs                                       |       |                              |       |   |   | (1,503,944 | ) |   |   |   |   | (1,503,944 | ) |
| Racino project  development costs                                               |       |                              |       |   |   | (5,315,279 | ) |   |   |   |   | (5,315,279 | ) |
| Purchase of  property and equipment                                             |       |                              |       | (1,399,798 | ) | (295,277 | ) |   |   |   |   | (1,695,075 | ) |
| Net cash flows  from investing activities                                       |       |                              |       | (15,899,798 | ) | (7,114,500 | ) | (15,546,000 | ) | 770,138 |   | (37,790,160 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                          |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Deferred  financing costs                                                       |       |                              |       | (937,500 | ) | (537,206 | ) | (229,000 | ) |   |   | (1,703,706 | ) |
| Principal payments  on debt                                                     |       |                              |       | (150,000 | ) | (150,000 | ) |   |   |   |   | (300,000 | ) |
| Principal  payments on debt to affiliates                                       |       |                              |       |   |   | (18,379 | ) |   |   |   |   | (18,379 | ) |
| Proceeds from  senior secured notes                                             |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Proceeds from  senior credit facilities                                         |       |                              |       | 12,000,000 |   |   |   | 8,450,000 |   |   |   | 20,450,000 |   |
| Proceeds from  FF&E credit facility                                         |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Proceeds from  term loan                                                        |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Proceeds from  notes payable                                                    |       |                              |       |   |   | 4,500,000 |   | 7,325,000 |   |   |   | 11,825,000 |   |
| Member  distributions                                                           |       |                              |       | (1,260,012 | ) |   |   |   |   |   |   | (1,260,012 | ) |
| Net cash flows  from financing activities                                       |       |                              |       | 9,652,488 |   | 3,794,415 |   | 15,546,000 |   |   |   | 28,992,903 |   |
|                                                                            |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                      |       |                              |       | 2,023,901 |   | 192,514 |   |   |   | 770,138 |   | 2,986,553 |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                 |       |                              |       | 7,523,652 |   | 770,138 |   |   |   | (770,138 | ) | 7,523,652 |   |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR                                       |       |                              |       | $ | 9,547,553 |   | $ | 962,652 |   |   |   |   |   | $ | 10,510,205 |   |
|                                                                                 |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-31

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**FINANCIALSTATEMENT SCHEDULE**

 

**PENINSULAGAMING, LLC**

**VALUATION AND QUALIFYING ACCOUNTS**

**Forthe Years Ended December 31, 2004, 2003 and 2002**

**(inthousands)**

 
| **Description**                 | ** ** | **Balance at  Beginning  of Year** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Deductions(1)** | ** ** | **Balance at  End of Year** | ** ** |
|---------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|-------------------|------------|-----------------------------|------------|
|                            |       |                               |       |                                |       |              |       |                        |       |
| Year ended December 31, 2004:   |       |                               |       |                                |       |              |       |                        |       |
| Allowance for doubtful accounts |       | $                                  | 62         |                                | $          | 106               |       | $                           | (121       | ) | $ | 47 |   |
| Year ended December 31, 2003:   |       |                               |       |                                |       |              |       |                        |       |
| Allowance for doubtful accounts |       | $                                  | 46         |                                | $          | 149               |       | $                           | (133       | ) | $ | 62 |   |
| Year ended December 31, 2002:   |       |                               |       |                                |       |              |       |                        |       |
| Allowance for doubtful accounts |       | $                                  | 57         |                                | $          | 139               |       | $                           | (150       | ) | $ | 46 |   |

 

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(1)           Amounts written off.

 

S-1

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