**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-K**

 

**FOR ANNUAL AND TRANSITION REPORTSPURSUANT TO SECTIONS 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934.**

** **
| **ý** | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|------------|-------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2005**

 
| **o** | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|-----------------------------------------------------------------------------------------------|

 

**Commissionfile number 333-81778**

 

**WHEELINGISLAND GAMING, INC.**

(Exactname of registrant as specified in its charter)

** **

| **DELAWARE**                          |       | **1 South  Stone Street**                 |
|---------------------------------------|------------|-------------------------------------------|
| (State  or other jurisdiction of      |       | **Wheeling,  West Virginia**              |
| incorporation  or organization)       |       | (Address  of principal executive offices) |
|                                  |       |                                      |
| **16-1333214**                        | ** ** | **26003**                                 |
| (I.R.S. Employer  Identification No.) | ** ** | (Zip Code)                                |

 

Registrant’s telephone number, including area code:**(304) 232-5050**

 

Securities registered pursuant toSection 12(b) of the Act:**  None**

 

Securities registered pursuant toSection 12(g) of the Act:**  None**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

YES:     o     NO:      ý

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act.

YES:     ý     NO:      o

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

YES:     ý     NO:     o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot 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 to this Form10-K.  ý

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer:    o      Acceleratedfiler:    o      Non-accelerated filer:     ý

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

YES:    o     NO:    ý

 

Statethe aggregate market value of the voting and non-voting common equity held bynon-affiliates computed by reference to the price at which the common equitywas last sold, or the average bid and asked price of such common equity, as ofthe last business day of the registrant’s most recently completed second fiscalquarter:  Not applicable.

 

Indicatethe number of shares outstanding of each of the registrant’s classes of commonstock, as of the latest practicable date:

 
| Common  Stock, $1 par value |   | 500  shares outstanding |
|-----------------------------|--------|-------------------------|

 

Documents incorporated by reference: None

 

 

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**TABLE OF CONTENTS**

 

**PART I**

 
| **ITEM 1.**  | BUSINESS                                                                                                               | 1      |
|--------------|------------------------------------------------------------------------------------------------------------------------|--------|
|         | Operations                                                                                                             | 1      |
|         | Marketing                                                                                                              | 2      |
|         | The Wheeling Island Expansion                                                                                          | 3      |
|         | Market                                                                                                                 | 3      |
|         | Competition                                                                                                            | 4      |
|         | Intellectual Property Rights                                                                                           | 5      |
|         | Suppliers                                                                                                              | 6      |
|         | Employees                                                                                                              | 6      |
|         | Available Information                                                                                                  | 6      |
|         | Security and Controls                                                                                                  | 6      |
|         | Regulation and Licensing                                                                                               | 7      |
|         |                                                                                                                   |   |
| **ITEM 1A.** | RISK FACTORS                                                                                                           | 9      |
|         |                                                                                                                   |   |
| **ITEM 1B.** | UNRESOLVED STAFF COMMENTS                                                                                              | 15     |
|         |                                                                                                                   |   |
| **ITEM 2.**  | PROPERTIES                                                                                                             | 15     |
|         |                                                                                                                   |   |
| **ITEM 3.**  | LEGAL PROCEEDINGS                                                                                                      | 16     |
|         |                                                                                                                   |   |
| **ITEM 4.**  | SUBMISSION OF MATTERS TO A  VOTE OF SECURITY HOLDERS                                                                   | 16     |
|         |                                                                                                                   |   |
| **PART II**  |
|         |                                                                                                                   |   |
| **ITEM 5.**  | MARKET FOR  REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES | 17     |
|         |                                                                                                                   |   |
|         |                                                                                                                   |   |
|         |                                                                                                                   |   |
| **ITEM 6.**  | SELECTED FINANCIAL  DATA                                                                                               | 17     |
|         |                                                                                                                   |   |
| **ITEM 7.**  | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            | 21     |
|         | Overview                                                                                                               | 21     |
|         | Critical Accounting  Policies                                                                                          | 22     |
|         | Recent  Accounting Pronouncements                                                                                      | 24     |
|         | Results of Operations                                                                                                  | 24     |
|         | 2005 Compared to 2004                                                                                                  | 24     |
|         | 2004 Compared to 2003                                                                                                  | 27     |
|         | Liquidity and  Capital Resources                                                                                       | 30     |
|         | Contractual  Obligations and Commitments                                                                               | 31     |

 

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| **ITEM 7A.**                                | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           | 31     |
|---------------------------------------------|---------------------------------------------------------------------------------------|--------|
|                                        |                                                                                  |   |
|                                        |                                                                                  |   |
| **ITEM 8.**                                 | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                          | 31     |
|                                        |                                                                                  |   |
| **ITEM 9.**                                 | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 31     |
|                                        |                                                                                  |   |
|                                        |                                                                                  |   |
| **ITEM 9A.**                                | CONTROLS AND  PROCEDURES                                                              | 32     |
|                                        |                                                                                  |   |
| **ITEM  9B.**                               | OTHER INFORMATION                                                                     | 32     |
|                                        |                                                                                  |   |
| **PART III**                                |
|                                        |                                                                                  |   |
| **ITEM 10.**                                | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                   | 33     |
|                                        | Audit  Committee of the Board of Directors                                            | 34     |
|                                        | Code of Ethics                                                                        | 34     |
|                                        |                                                                                  |   |
| **ITEM 11.**                                | EXECUTIVE  COMPENSATION                                                               | 34     |
|                                        | Remuneration of  Directors                                                            | 34     |
|                                        | Compensation  of Executive Officers                                                   | 35     |
|                                        | Report of  the Board of Directors on Executive Compensation                           | 36     |
|                                        |                                                                                  |   |
| **ITEM 12.**                                | STOCK  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS                                         |   |
|                                        | AND  MANAGEMENT                                                                       | 37     |
|                                        | Principal Stockholders                                                                | 37     |
|                                        |                                                                                  |   |
| **ITEM 13.**                                | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                       | 38     |
|                                        |                                                                                  |   |
| **ITEM 14.**                                | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                               | 38     |
|                                        |                                                                                  |   |
| **PART IV**                                 |
|                                        |                                                                                  |   |
| **ITEM 15.**                                | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                           | 40     |
|                                        |                                                                                  |
| Signatures                                  | 41                                                                                    |
|                                        |                                                                                  |
| INDEX TO EXHIBITS                           | 42                                                                                    |
|                                        |                                                                                  |
| INDEX TO  CONSOLIDATED FINANCIAL STATEMENTS | F1                                                                                    |

 

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**ITEM 1. BUSINESS**

 

Weown and operate Wheeling Island Racetrack & Gaming Center (or WheelingIsland), a premier gaming and entertainment complex located in Wheeling, WestVirginia. Wheeling Island features 2,332 slot machines, a hotel, showroom,greyhound racetrack, pari-mutuel wagering on live greyhound racing andsimulcast greyhound, thoroughbred and harness racing and various dining venues.We are a wholly owned subsidiary of Delaware North Companies Gaming &Entertainment, Inc. (or Delaware North G&E, formerly SportsystemsCorporation). Delaware North G&E is a wholly owned subsidiary of DelawareNorth Companies, Incorporated, or Delaware North.

 

Wedo not have operations other than Wheeling Island and are entirely dependentupon this gaming site for our revenues. Accordingly, we may be subject togreater risks than a geographically diversified gaming operation.

 

**Operations**

 

WheelingIsland is a 270,000-square foot facility that, as of December 31, 2005,featured:

 

•                                          64,272-square feet of gaming area with 2,332slot machines;

 

•                                          151-room hotel;

 

•                                          550-seat multi-purpose showroom;

 

•                                          4,100 square feet of conference space;

 

•                                          a one-quarter mile greyhound racetrack with a2,400-seat grandstand and mezzanine area;

 

•                                          a full-service 600-seat clubhouse restaurant,a 300-seat buffet-style restaurant, a 128- seat casual restaurant, a 70-seatfine dining restaurant, a 140-seat food court, two concession stands, fourlounges and three bars;

 

•                                          180 covered parking spaces; and

 

•                                          2,295 uncovered parking spaces.

 

*Gaming Operations*

 

Wecurrently operate 2,332 gaming devices in three main gaming areas. Other than84 slot machines, which we lease, we own all of the slot machines operating atour facility. The Wheeling Island expansion, an annex to our existing gamingfacility, contains 1,146 machines. The Wheeling Island expansion opened forgaming on June 26, 2003. The Island Room contains 618 slot machines. TheFairgrounds Room, located in the original lower grandstand of the racetrack,contains 568 slot machines. All three gaming areas (Wheeling Island Expansion,Island Room and Fairgrounds Room) are contiguous. Our slot machines includemechanical spinning reel slot machines and video lottery terminals with eithercoin-out or ticket in ticket out (TITO) functionality. In late 2004 weinitiated a concerted effort to convert the necessary hardware in a majority ofour coin-out machines to TITO. As a result of the conversion effort, the numberof machines that have the coin-out payment functionality was reduced from 2,014at December 31, 2004 to 704 at December 31, 2005. Of the remaining 1,628machines in operation at December 31, 2005, 1,508 are TITO and 120 haveticket-out functionality only. We offer one local progressive slot machinegame, which links multiple machines playing for a single jackpot. The WestVirginia 

 

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LotteryCommission, or the Lottery Commission, has initiated a plan to implementmulti-state progressive slot machine games at all four West Virginia racetracks.Such multi-state progressive slot games would link together certain slotmachine terminals located at all four West Virginia racetracks and certainterminals located at racetracks in Delaware and Rhode Island with each linkedterminal contributing to a single multi-state jackpot. In February 2006 theLottery Commission contracted with Scientific Games, Inc. to replace thecurrent SAMS 7.1-2 IGT central system that tracks all of the video gamingactivity in West Virginia. The Lottery Commission expects the new centralsystem to be fully operational with all of the video lottery terminals in WestVirginia connected by the end of February 2007. We do not believe that thecentral system conversion will have a material adverse impact on our business,financial condition or results of operation.

 

*Pari-Mutuel Operations*

 

Weoffer pari-mutuel wagering on live greyhound racing events and greyhound,thoroughbred and harness racing events simulcast from other racetracks acrossthe country. We normally conduct eight live greyhound racing events each week,and offer wagering on simulcast racing events every day. A live greyhoundracing event consists of 15 to 20 greyhound races. We typically simulcastbetween 4 and 21 racing programs per day.

 

*Food and Beverage Operations*

 

Foodand beverage operations at our facility are comprised of a full-service600-seat clubhouse restaurant in the upper level of the grandstand, a 300-seatbuffet-style restaurant located in the Island Room, a 128-seat casualrestaurant, a 70-seat fine dining restaurant, a 140-seat food court, twoconcession stands, four lounges and three bars. The casual restaurant, finedining restaurant, food court, one lounge and one bar were added with theopening of the Wheeling Island expansion. The buffet style restaurant wasexpanded to 300 seats and refurbished during 2005.

 

*Lodging and Entertainment Operations*

 

Lodgingoperations are comprised of a 151-room hotel, which includes nine suite stylerooms. The hotel was opened on June 26, 2003 in conjunction with the WheelingIsland expansion.

 

Entertainmentoperations consist of a 550-seat multi-purpose showroom and various conferencefacilities, which opened on June 26, 2003 in connection with the WheelingIsland expansion. The multi-purpose showroom is used as an entertainment venueand for large special events. During 2005 the showroom hosted 233 events. Theconference facilities are used to host a variety of large meeting functions andother catered events.

 

**Marketing**

 

Ourmarketing efforts are dedicated to media and promotional programs that aim toattract and retain gaming customers. Our spending for media and promotionalprograms principally targets the major markets within a 150-mile radius aroundWheeling, West Virginia, including the local regional area and the major citiesof Akron, Canton, Youngstown and Columbus, Ohio and Pittsburgh, Pennsylvania.

 

Ourprimary promotional tool used to develop customer loyalty is the PreferredPlayer Club, which we introduced in July 2000. The Preferred Player Clubprovides gaming customers with reward incentives for increased levels of play. Beginningin October 2002, such reward incentives were revised to provide PreferredPlayer Club members with club points equal to a percentage of all gamingdollars played. Club points can be redeemed for cash, food and beverage,lodging, entertainment and retail offers. Members also receive complimentarycoupons and promotional offers and discounts as part of a monthly mailer. Weadminister the Preferred Player Club through 

 

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theuse of a player tracking system. The player tracking system also containsinformation concerning customer preferences and interests that allows us totailor our program rewards and other promotions accordingly. Total clubmembership in the Preferred Player Club as of December 31, 2005 exceeded381,000 members. In the future, we expect to strengthen the Preferred PlayerClub by improving the variety of rewards offered to members.

 

Ourmarketing efforts aimed at group sales represent an integral part of ourmarketing program. We offer group packages designed to cater to groups thattravel by bus in an effort to attract customers from the outlying regions ofour market area who would not normally drive to our facility. We provideincentives for these groups in the form of discounts on food and beverage services,as well as coupons that can be redeemed for slot machine gaming. Due to ourconcentrated efforts on developing our group sales business and the opening ofthe Wheeling Island expansion, the bus traffic at our facility has grownsubstantially in recent years.

 

Ourother marketing efforts include:

 

•                                          creative and highly publicized special eventspromotions directed at our current markets in West Virginia, Ohio andPennsylvania;

 

•                                          local, regional and national entertainmentattractions;

 

•                                          cash and merchandise give-aways; and

 

•                                          food and beverage specials and localentertainment attractions.

 

Ourmarketing and promotional efforts include extensive use of direct mail,television, radio and print media advertising in our primary market. Duringfiscal year 2005, we spent a total of $7.8 million on marketing and advertisingprograms. Of this amount, $1.0 million was spent on media advertising and$6.8 million was spent on promotional programs, including all rewardexpenditures related to the Preferred Player Club. For the year endedDecember 31, 2005, the allocation of our expenditures for mediaadvertising was 40.9% on direct mail, 12.4% on newspapers and other printmedia, 6.7% on television, 1.5% on radio, and 38.5% on billboard advertising.

 

Ourgoal is to attract customers by promoting our facility as a completeentertainment complex offering a unique combination of quality racing, slotmachine gaming, dining, special events and other entertainment options.

 

**The Wheeling Island Expansion**

 

Toaccommodate growing demand we opened the Wheeling Island expansion on June 26,2003. The Wheeling Island expansion increased the number of slot machines from1,630 to 2,200 while also adding the following amenities to the Wheeling Islandcomplex:

 

•                  a 151-room hotel;

•                  one fine dining restaurant, one casual diningrestaurant, a food court and bar and lounge areas;

•                  a 550-seat multi-purpose showroom; and

•                  180 covered parking spaces plus additionaloutdoor parking spaces.

 

**Market**

 

Ourprimary market consists of the 150-mile radius area around Wheeling, WestVirginia, including the major cities of Akron, Canton, Youngstown and Columbus,Ohio and Pittsburgh, Pennsylvania. Patrons from these highly populated areasenjoy convenient access to Wheeling Island via Interstate Route 70, a majorfour-lane 

 

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highwayadjacent to our property. According to the Lottery Commission, annual gamingrevenues (representing gross terminal income) generated in West Virginia were$894.5 million for the State’s fiscal year ended June 30, 2005, a 4.6%increase over the prior year period. According to Lottery Commission data,during the most recent six-month period ended December 31, 2005, gamingrevenues were $457.6 million, representing an increase of 2.9% over thesame period in the prior year.

 

Ourmarket share of gaming revenue (representing gross terminal income) during theState’s fiscal year ended June 30, 2005 was 21.2%. Our market share of gamingrevenue during the period from July 1, 2005 to December 31, 2005 was 21.0%. Asof December 31, 2005, we had 20.5% of the total number of slot machinesoperating in West Virginia. The current market for our facility consistsprimarily of day-trip customers from the surrounding area and gaming patronsfrom the major cities of Akron, Columbus, Canton and Youngstown, Ohio andPittsburgh, Pennsylvania, which utilize our 151-room hotel for extended staystypically lasting from one to two nights. The average length of stay in ourhotel during 2005 was 1.3 days. We believe that the location of our facilityalong with the additional gaming capacity and amenities that were added fromthe Wheeling Island expansion has enabled us to grow our share of gamingrevenues within our primary market. In the future, however, we believe that ourmarket share of gaming revenues within our primary market will be adverselyaffected by the introduction of slot machine gaming in western Pennsylvania.

 

**Competition**

 

TheWest Virginia Racetrack Video Lottery Act, as amended (or the Lottery Act),provides that only licensed greyhound or horse racing facilities that werelicensed prior to January 1, 1994, and which conduct a minimum number of daysof live racing, may offer slot machine gaming. We are one of four licensedracing facilities that have approval to offer slot machine gaming in WestVirginia.

 

Webelieve that the primary competitive factors in our industry are location,number of slot machines, types and prices of amenities, name recognition,customer service, overall atmosphere and availability and convenience ofparking. We face significant competition for wagering dollars from variousdifferent competitors in West Virginia, as well as in the adjacent states ofPennsylvania and Ohio. Currently, our principal direct competitor isMountaineer Park, located approximately 50 miles to the north in Chester, WestVirginia. Mountaineer Park offers slot machine gaming and pari-mutuel wageringon live thoroughbred racing and simulcast thoroughbred, harness and greyhoundevents. This gaming facility competes directly with us in attracting thewestern Pennsylvania market, including Pittsburgh, as well as the northernpanhandle market of West Virginia and the feeder markets in northeastern Ohio. MountaineerPark currently offers more gaming machines and more entertainment amenitiesthan we do, including an 18-hole golf course, a 5,000-seat concert venue and ahealth spa. We believe that our ability to compete with Mountaineer Park wasgreatly enhanced when we opened the Wheeling Island expansion in the secondquarter of 2003, which added many amenities to our facility. We also believethat the competitive impact of the expansion is complemented by our locationand accessibility. Wheeling Island is located in the City of Wheeling, one ofthe major population centers of the northern panhandle market of West Virginia,while Mountaineer Park is located in the less populated Town of Chester. WheelingIsland’s property is adjacent to Interstate Route 70, a major four-lane highwaythat provides customers with easy access to our facility, while MountaineerPark is located on a two-lane state road. Other than Mountaineer Park, thereare currently no facilities offering competitive pari-mutuel live racing andslot machine gaming within a 150-mile radius of our facility. In addition toour facility and Mountaineer Park, there are two facilities located in WestVirginia that offer slot machine gaming. However, these facilities inCharleston and Charles Town, West Virginia are located more than 150 miles awayfrom our facility. As a result, we believe that we do not compete to anysignificant extent with these facilities for customers.

 

OnJuly 5, 2004, legislation was enacted in Pennsylvania permitting theintroduction of slot machine gaming in 

 

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thatstate. The 2004 Pennsylvania law provides for the establishment of a stategaming control board that will award fourteen licenses to operate slot machinegaming facilities in Pennsylvania. Our primary market consists of the 150-mileradius around Wheeling and includes the western Pennsylvania market area thatincludes Pittsburgh. Slot machine operators that are awarded licenses inwestern Pennsylvania will compete directly with us for customers in our market.We believe that such licenses will be awarded in late 2006 and that gamingoperations in western Pennsylvania will commence in 2007. We expect theintroduction of slot machine gaming in the western Pennsylvania market to havea material adverse impact on our business, financial condition and results ofoperation.

 

Wecurrently compete with The Meadows, a harness racetrack located approximately35 miles to the east in Washington, Pennsylvania. Currently, The Meadows onlyoffers pari-mutuel wagering; however, we believe it is likely that The Meadowswill be awarded a slot machine gaming license in late 2006 under thePennsylvania legislation enacted in 2004.

 

Ohiocurrently does not permit any form of casino gaming, including slot machinegaming. However, as a result of greater budgetary pressures, states areincreasingly looking to new sources of additional revenue, which may includegaming. In the past, bills have been introduced in the Ohio legislature tolegalize slot machine gaming at racetracks, none of which has successfullypassed. To the extent that Ohio legalizes any form of casino gaming, or ifadditional gaming were approved in West Virginia, our slot machine gamingoperations would compete with any new gaming facilities that opened as a resultof such legislation. For example, if gaming similar to that which has beenapproved in West Virginia and Pennsylvania is approved in Ohio, there would beseven racetracks in Ohio that could potentially compete with us for gamingcustomers. In addition, increased competition could result from other nearbystates allowing expanded casino gaming, or gaming machines that are not offeredby us, as well as other forms of gaming not currently available in WestVirginia. In addition, if Internet gaming were legalized, we might losecustomers to that medium.

 

Wealso compete with Thistledown, located approximately 143 miles to the northwestin Cleveland, Ohio, Northfield Park, located approximately 150 miles to thenorth in Northfield, Ohio, and Beulah Park and Scioto Downs, locatedapproximately 135 miles to the west in Columbus, Ohio. These facilities offerpari-mutuel wagering but do not currently offer slot machine gaming.

 

OnJanuary 1, 2002, legislation became effective which authorized up to 9,000 slotmachines in adults-only facilities throughout West Virginia. The legislationallows slot machines in establishments licensed by the State to sell beer orother alcoholic beverages for consumption on the premises. In addition, slotmachines are allowed in certain fraternal or veterans’ organizations that havebeen approved to operate these slot machines. No more than five slot machinesare allowed in approved establishments licensed to sell alcoholic beverages andno more than ten slot machines are allowed at approved fraternal or veteransorganizations. As of December 31, 2005, 8,369 of these slot machines arelicensed and operating in West Virginia. While we believe the existence of suchslot machines has reduced the growth rate of our gaming revenues, we do notbelieve such machines have had a material impact on our business, financialcondition or results of operations.

 

Wealso compete with statewide lotteries in West Virginia, Pennsylvania and Ohioand live and simulcast pari-mutuel wagering in Pennsylvania and Ohio. Inaddition, we generally compete with other entertainment options available toconsumers.

 

**Intellectual Property Rights**

 

Weoperate using the names “Wheeling Island” and “Wheeling Island Racetrack &Gaming Center” and the associated logos. We have registered the domain name ofour Internet site www.wheelingisland.com. We believe 

 

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thatthe use of our name has helped us establish a well-known reputation in thelocal gaming market. We believe that the use of the “Wheeling Island” brandname contributes significantly to obtaining new customers in our market and toexpanding our market. We do not have any patents or any other major brand namesthat are material to our operations.

 

**Suppliers**

 

Wecontract for the supply of numerous goods and services. Our significantagreements with suppliers are for totalisator services, video and peripheralequipment, slot machine games, communication and slot machine gaming supplies,the supply of beer and other alcoholic products and fresh and frozen foodproducts. These services generally are provided under short-term agreements.

 

**Employees**

 

Asof December 31, 2005, we employed approximately 954 persons, 694 of whomwere full-time employees and 260 of whom were part-time employees. The UnitedFood and Commercial Workers Union, Local 23, represents approximately 319employees in our pari-mutuel, maintenance, cleaning, racing and slot machinegaming operations departments. Our labor agreement with the United Food andCommercial Workers Union, Local 23 expired on February 26, 2006. We arecurrently operating under the terms of the expired agreement while negotiatinga permanent extension of this agreement The Hotel Employees and RestaurantEmployees Union, Local 57 represents approximately 279 employees in our foodand beverage department, 36 employees in our security department, and 30lodging department employees under three separate collective bargainingagreements. The collective bargaining agreements with the food and beverageemployees and security department employees expire on June 22, 2006, andApril 30, 2006, respectively. The separate collective bargaining agreement withthe lodging employees expires on June 30, 2009. The International Alliance ofTheatrical and Stage Employees Union represents 16 part-time stagehandemployees in our entertainment department. The union agreement with theseemployees will expire on June 22, 2007. We believe that we generally havesatisfactory relations with our employees and with all three unions.

 

**AvailableInformation**

 

We make available free of charge through ourInternet website, www.wheelingisland.com, our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments tothese reports filed or furnished pursuant to Section 13(a) of the SecuritiesExchange Act of 1934, as amended, as soon as reasonably practicable after weelectronically file such materials with, or furnish them, to the Securities andExchange Commission, or SEC. Such reports will remain available on our websitefor at least twelve months. The contents of our website are not incorporated byreference into this annual report. The public may read and copy any materialsfiled by us with the SEC at the SEC’s Public Reference Room at 100 F Street,NW, Washington, D.C. 20549.

 

Our principal executive offices are locatedat 1 South Stone Street, Wheeling, West Virginia, and our telephone number is (304) 232-5050. Unless the context specifically requires otherwise, the terms,the “Company”, “Wheeling Island”, “we”, “us” and “our” mean Wheeling IslandGaming, Inc., a Delaware corporation, and its subsidiaries on a consolidatedbasis.

 

**Securityand Controls**

 

Weemploy stringent security measures at our facility to provide maximum safety toour customers and employees while also protecting company assets. Theseprograms include 24-hour security surveillance of the entire facility,stationed security guards on the gaming floor 24 hours a day and security guardescorts for all significant money transfers to and from the gaming money room.

 

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**Regulation and Licensing**

 

*General*

 

Ouroperations are subject to extensive state and local regulations. Our ability toremain in business and to operate profitably depends upon our continued abilityto satisfy all applicable gaming laws and regulations.

 

*West Virginia Racing Regulations*

 

Ourgreyhound racing operations are subject to extensive regulation by the WestVirginia Racing Commission, or the Racing Commission. The powers andresponsibilities of the Racing Commission include, among other things:  (i) granting permission annually to maintainracing licenses and schedule race meets; (ii) approving simulcastingactivities; (iii) licensing all of our officers, directors, racing officialsand certain other employees; and (iv) approving all of our contracts thataffect our racing and pari-mutuel wagering operations. Such powers andresponsibilities extend to the approval and/or oversight of all aspects ofracing and pari-mutuel wagering operations. In order to conduct simulcastracing, we are required under West Virginia law to hold a minimum of 220 liverace days each year. During 2005 we conducted a total of 304 live race days. Inaddition, certain activities, such as simulcasting races, require the consentof the representatives of a majority of the greyhound owners and trainers atour facility.

 

Ourexport simulcast activities that occur outside of West Virginia are subject toregulation by other state racing commissions that prohibit us from acceptingoff-track wagering on simulcast racing without the approval of the RacingCommission and, subject to certain exceptions, of any other currently operatingtrack within 60 miles or, if none, of the closest racetrack in any adjoiningstate. We have received all necessary approvals to conduct our currentoperations. However, such approvals are subject to renewal and approvalannually. The failure to receive or retain approvals or renewals of approvals,or a delay in receiving such approvals and renewals, could cause the reductionor suspension of racing, pari-mutuel wagering and gaming operations at ourfacility and have a material adverse effect on our business, financialcondition and results of operations.

 

*West Virginia Lottery Regulations*

 

Theoperation of video lottery games in West Virginia is subject to the Lottery Act.Licensing and regulatory control are provided by the Lottery Commission. TheLottery Act provides that only greyhound or horse racing facilities that werelicensed prior to January 1, 1994 and conduct a minimum number of days of liveracing may offer video lottery gaming. There are only four facilities thatqualify under this legislation, including us. Accordingly, we must comply fullywith regulations of the Racing Commission to qualify for our license under theLottery Act and maintain our video lottery gaming operations.

 

TheLottery Act requires that we be subject to a written agreement with thegreyhound owners, breeders and trainers who race greyhounds at our facility. Weare party to the requisite agreements with the appropriate parties at thekennels that operate at our facility. The Lottery Act also requires that we besubject to an agreement with the pari-mutuel clerks who work at our facility. Weare party to such an agreement, which we notify the Lottery Commission ofannually. The absence of an agreement with the kennels or the pari-mutuelclerks, or the termination or non-renewal of such agreements, would have amaterial adverse effect on our business, financial condition and results ofoperations.

 

TheLottery Commission has broad powers to approve and monitor all operations ofthe gaming machines, the specification of the machines and the interfacebetween the terminals and the West Virginia Central Lottery System. The LotteryCommission also acts upon our requests for increases in the number of gamingmachines. 

 

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TheLottery Commission’s denial of a request to increase the number of machines atour facility could limit our growth and thus adversely affect our business,financial condition and results of operations. In addition, the LotteryCommission licenses all persons who control or are key personnel of our gamingoperations to ensure their integrity and absence of any criminal involvement.

 

Theconduct of gaming by a racing facility is subject to the approval of the votersof the county in which the facility is located. If such approval is obtained,the facilities may continue to conduct video lottery activities unless thematter is resubmitted to the voters pursuant to a petition signed by at least5.0% of the registered voters, who must wait at least five years from theapproval to bring such a petition. If approval is denied, another vote on theissue may not be held for two years. Gaming was approved in Ohio County, thelocation of Wheeling Island, in May 1994. If such approval were ever revoked,it would have a material adverse effect on our business, financial conditionand results of operations.

 

Underthe Lottery Act, racetracks that conduct video lottery gaming, as well aspersons who service and repair gaming machines and validation managers (personswho perform video lottery ticket redemption services), are required to belicensed by the Lottery Commission. The licensing application procedures areextensive and include inquiries into, and an evaluation of, the character,background (including criminal record, reputation and associations), businessability and experience of an applicant and the adequacy and source of theapplicant’s financing arrangements. In addition, a racetrack applicant musthold a valid racing license and post a bond or irrevocable letter of credit insuch amount as the Lottery Commission shall determine. No license will begranted until the Lottery Commission determines that each person who has “control”of an applicant meets all of the applicable licensing qualifications. Personsdeemed to have control of a corporate applicant include (i) any holding orparent company or subsidiary of the applicant who has the ability to elect amajority of the applicant’s board of directors or to otherwise control theactivities of the applicant and (ii) key personnel of an applicant, includingany executive officer, employee or agent who has the power to exercisesignificant influence over decisions concerning any part of the applicant’sbusiness operations.

 

Videolottery machines may only be operated in the grandstand building of a racetrackwhere pari-mutuel wagering is permitted; *provided,however*, that if a racetrack was authorized by the LotteryCommission prior to November 1, 1993 to operate video lottery machines inanother area of the racetrack’s facilities, such racetrack may continue to doso. Our competitor, Mountaineer Park, is the only facility to benefit fromthis, and has lottery machines at the hotel on its premises.

 

TheLottery Act imposes extensive operational controls relating to, among othermatters, security and supervision, access to the machines, hours of operation,general liability insurance coverage and machine locations. In addition, theLottery Act prohibits the extension of credit for video lottery play, andrequires Lottery Commission approval before any advertising and promotionalactivities for video lottery gaming are conducted. The Lottery Act provides forcriminal and civil liability in the event of specified violations.

 

Allrevenues derived from the operation of video lottery games must be depositedwith the Lottery Commission to be shared in accordance with the provisions ofthe Lottery Act. Under such provisions, each racetrack must electronicallyremit to the Lottery Commission its “gross terminal income” (total amountswagered, net of winning patron payouts). To ensure the availability of suchfunds to the Lottery Commission, each racetrack must maintain in its account anamount equal to or greater than the gross terminal income to be remitted. If aracetrack fails to maintain this balance, the Lottery Commission may disableall of the racetrack’s video lottery machines until full payment of all amountsdue it are made.

 

ByLottery Commission directive, all of our slot machines were required to beconnected to the SAMS 7.1-2 IGT central system maintained by the LotteryCommission. The central system tracks all of the video lottery gaming 

 

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activityin West Virginia. In February 2006 the Lottery Commission contracted withScientific Games, Inc. to supply a new central system that will replace theSAMS 7.1-2 IGT central system. All of our slot machines will be required to beconnected to the new central system supplied by Scientific Games, Inc. If theoperation of the central system or the conversion to the new central systemcauses a disruption of video lottery gaming for any reason, we believe that theLottery Commission would suspend all gaming operations within the State untilnormal operation of the system was restored. Any such suspension could cause amaterial disruption of our gaming operations and have a material adverse effecton our business, financial condition and results of operations.

 

Pursuantto the regulatory authority of both the Racing Commission and the LotteryCommission, we may be investigated by either body at any time. Accordingly, wemust comply with all gaming laws at all times. Should either body consider usto be in violation of any of the applicable laws or regulations, each has theplenary authority to suspend or rescind our licenses. Should we fail to comply,our business could be materially adversely affected.

 

*State and Federal Simulcast Regulation*

 

Inaccordance with the agreements with the kennels, we have agreed upon theallocation of our revenues from import simulcast wagering to the purse funds. Becausewe cannot conduct import simulcast wagering in the absence of the agreementswith the kennels, the termination or non-renewal of any of these agreementscould have a material adverse effect on our business, financial condition andresults of operations.

 

*Compliance with Other Laws*

 

Weare also subject to a variety of other rules and regulations, including zoning,construction and land-use laws and regulations in West Virginia governing theservice of alcoholic beverages. We derive a significant portion of our otherrevenues from the sale of alcoholic beverages to patrons of our facilities. Anyinterruption or termination of our existing ability to serve alcoholicbeverages would have a material adverse effect on our business, financialcondition and results of operations.

 

*Restrictions on Share Ownership and Transfer*

 

TheLottery Act provides that a transfer of more than 5.0% of the voting stock of acorporation that controls a gaming license may only be to persons who have metthe licensing requirements of the Lottery Act, or which transfer has beenpre-approved by the Lottery Commission. Any transfer that does not comply withthis requirement voids the license.

 

Ouroperations are subject to extensive government regulations and could besubjected at any time to additional or more restrictive regulations.

 

**ITEM 1A. RISKFACTORS**

 

**RisksRelated to Our Business**

 

*We AreDependent on a Single Gaming Site*

 

We do not have operations other thanWheeling Island Racetrack & Gaming Center and are entirely dependent uponthis gaming site for our revenues. Accordingly, we may be subject to greaterrisks than a geographically diversified gaming operation, including, but notlimited to:

 

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•                  Risks related to local and regional economicand competitive conditions, such as a decline in the number of residents nearor visitors to Wheeling Island, a downturn in the overall economy in ourmarket, a decrease in gaming activities in our market or an increase incompetition in our market;

 

•                  Impeded access due to weather, roadconstruction or closures of primary access routes;

 

•                  Changes in local and state governmental lawsand regulations (including changes in laws and regulations affecting gamingoperations and taxes);

 

•                  Risks related to acts of terrorism orbreaches of security affecting our facility or our market; and

 

•                  Natural and other disasters affecting ourmarket.

 

We are located on Wheeling Island on the OhioRiver, and floods, such as the ones that occurred in September 2004 and January2005 that closed our facility for several days on each occasion, could disruptour business for an indeterminate amount of time. The future occurrence offlood events such as these could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

*GovernmentRegulation Could Have a Negative Effect on Our Business*

 

Our operations are subject to extensivegovernment regulations and could be subjected at any time to additional or morerestrictive regulations. We are subject to the provisions of the West VirginiaRacing Act, which governs the conduct of greyhound racing in West Virginia, andthe Lottery Act, which governs the operation of slot machines in West Virginia.

 

Our ability to remain in business dependsupon our continued ability to operate in compliance with all applicable gamingand racing laws and regulations, including the acquisition and maintenance ofseveral licenses and permits. Our material licenses are subject to annual orother periodic renewal and governmental authorities may refuse to grant us thelicenses necessary to continue to operate our existing facility. In addition,we may be investigated by the (Racing Commission) or the Lottery Commission atany time. Should either commission consider us to be in violation of anyapplicable laws or regulations, each commission has the plenary authority tosuspend or rescind our licenses. In addition, from time to time, our operationsmay not have been in compliance with all applicable laws and regulations, althoughwe do not believe such non-compliance is material. No assurance can be giventhat these or any other future violations will not result in an investigationor suspension or termination of one or more of our licenses. In addition, wecan give no assurance that regulatory authorities will renew our requiredlicenses or permits in the future or that they will approve any requiredfilings to conduct business in our jurisdiction. The failure to obtain ormaintain in effect required regulatory approvals, permits or licenses wouldhave a material adverse effect upon our business, financial condition andresults of operations.

 

The Lottery Commission also licenses allpersons who control or are key personnel of our gaming operations to ensuretheir integrity and absence of any criminal involvement. We can give noassurance that the Lottery Commission will renew these required licenses. Thefailure to renew such licenses could have a material adverse effect upon ourbusiness, financial condition and results of operation.

 

Theconduct of gaming by a racing facility is subject to the approval of the votersof the county in which the facility is located. If such approval is obtained,the facilities may continue to conduct video lottery activities unless thematter is resubmitted to the voters pursuant to a petition signed by at least5% of the registered 

 

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voters,who must wait at least five years from such approval to bring such a petition. Ifapproval is denied, another vote on the issue may not be held for two years. Gamingwas approved in Ohio County, the location of Wheeling Downs, in May 1994. Ifsuch approval were ever revoked, it would have a material adverse effect on ourbusiness, financial condition and results of operations.

 

In the past the West Virginia legislature hasincreased the state’s share of gross terminal income. There is a reasonablelikelihood of increased gaming taxes on the state’s racetracks in future years.Any substantial unfavorable change in the future in the enabling laws or taxrates on gaming revenues could make our business substantially less profitableor illegal, which would have a material adverse effect on our business,financial condition and results of operations.

 

Weare also subject to a variety of other rules and regulations, including zoning,construction and land-use laws and regulations in West Virginia governing theservice of alcoholic beverages. We derive a significant portion of our otherrevenues from the sale of alcoholic beverages to patrons of our facilities. Anyinterruption or termination of our existing ability to serve alcoholicbeverages would have a material adverse impact on our business, financialcondition and results of operations.

 

Our facilities are currently subject tovarious local regulations, which prohibit smoking in certain areas of ourfacilities. A significant percentage of our gaming patrons smoke and thereforethe enactment of any regulation which increases the areas of our facility wheresmoking is prohibited could materially impact of our business, financialcondition and results of operations.

 

*TheCompetition from the Introduction of Slot Machine Gaming in Pennsylvania WillHave a Material Adverse Impact on Our Business*

 

On July 5, 2004 legislation was enacted inPennsylvania permitting the introduction of slot machine gaming in that state. The2004 Pennsylvania law provides for the establishment of a state gaming controlboard that will award 14 licenses to operate slot machine gaming facilities inPennsylvania. Our primary market consists of the 150-mile radius aroundWheeling and includes the western Pennsylvania market area that includesPittsburgh. Slot machine operators that are awarded licenses in westernPennsylvania will compete directly with us for customers in our market. Webelieve that such licenses will be awarded in late 2006 and that gamingoperations in western Pennsylvania will commence in 2007. We expect theintroduction of slot machine gaming in the western Pennsylvania market to havea material adverse impact on our business, financial condition and results ofoperation.

 

*IfExisting Gaming Regulations Are Liberalized Enabling New Competitors to EnterOur Market, Our Business Could be Materially Adversely Affected*

 

The state of Ohio currently does not permitany form of casino gaming. If gaming legislation similar to that which has beenapproved in West Virginia and Pennsylvania were approved in Ohio, there wouldbe seven racetracks in Ohio that could potentially compete with us for gamingcustomers in the Ohio market. In addition to the extent that West Virginia orother nearby states allow expanded casino gaming, the new gaming facilities mayoffer more gaming machines than we do, or gaming machines that are not offeredby us, as well as other forms of gaming not currently available in WestVirginia. The introduction of these forms of additional competition could havea material adverse impact on our business, financial condition and results ofoperation.

 

*If We AreUnable to Compete Successfully With Our Existing Competitors, Our BusinessCould Be Materially Adversely Affected*

 

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Weface significant competition for wagering dollars from various differentcompetitors in West Virginia, as well as in the adjacent states of Pennsylvaniaand Ohio. Our principal direct competitor is Mountaineer Park, locatedapproximately 50 miles to the north of Chester, West Virginia. Mountaineer Parkoffers slot machine gaming, pari-mutuel wagering on live thoroughbred racingand simulcast thoroughbred, harness and greyhound events. This gaming facilitycompetes directly with us in attracting the western Pennsylvania market,including Pittsburgh, as well as the northern panhandle market of West Virginiaand the feeder markets in northeastern Ohio. To the extent that MountaineerPark enhances its facilities by adding more slot machines or other amenities,it may become an even more significant competitor.

 

To a lesser extent, we compete withThistledown, located approximately 143 miles to the northwest in Cleveland,Ohio; Northfield Park, located approximately 150 miles to the north inNorthfield, Ohio. The Meadows, located approximately 35 miles to the east inWashington, Pennsylvania; and Beulah Park; and Scioto Downs, locatedapproximately 135 miles to the west in Columbus, Ohio. These facilities offerpari-mutuel wagering but do not currently offer slot machine gaming. Asdiscussed above, if such facilities were to receive legislative approval to offerslot machine gaming, they would directly compete with us for customers in ourprimary market. We also compete with statewide lotteries in West Virginia,Pennsylvania and Ohio and live and simulcast pari-mutuel wagering inPennsylvania and Ohio. In addition, we generally compete with otherentertainment options available to consumers.

 

*TheCompetition from Gaming Machines in Adults–Only Facilities in West VirginiaCould Have an Adverse Impact on Our Business*

 

On January 1, 2002,legislation became effective which authorized up to 9,000 slot machines inadults-only facilities throughout West Virginia. The legislation allows slotmachines in establishments licensed by the state to sell beer or otheralcoholic beverages for consumption on the premises. In addition, slot machinesare allowed in certain fraternal or veterans’ organizations. No more than fiveslot machines are allowed in approved establishments licensed to sell alcoholicbeverages and no more than ten slot machines are allowed in fraternal or veterans’organization that have been approved to operate these slot machines. As ofDecember 31, 2005, 8,369 of these slot machines are licensed and operating inWest Virginia. The state of West Virginia could liberalize gaming laws relatingto these additional slot machines, increase the number of slot machinesauthorized or significantly improve the competitive position of theestablishments authorized to operate these slot machines. The occurrence ofsome or all of these events could have a material adverse impact on ourbusiness, financial condition and results of operations.

 

*OurBusiness May Be Adversely Affected by Recession or Economic Downturn; theSeasonal Nature of Our Business Could Also Adversely Affect Our Cash Flow*

 

Ourprimary business involves leisure and entertainment. During periods ofrecession or economic downturn, consumers may reduce or eliminate spending onleisure and entertainment activities. In the event that our primary demographicmarket or the United States in general suffers adverse economic conditions, ourrevenues may be materially adversely affected. In addition, our operations aresomewhat seasonal in nature. Winter conditions may adversely affecttransportation routes to our gaming site, as well as cause cancellations oflive greyhound racing. As a result, unfavorable seasonal conditions could havea material adverse effect on our operations.

 

*Our GamingOperations Are Dependent on Our Linkage to the Lottery Commission’s CentralSystem*

 

By Lottery Commission directive, all of ourslot machines are required to be connected to the SAMS 7.1-2 IGT 

 

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central system maintained by the LotteryCommission. In February 2006, the Lottery Commission contracted with ScientificGames Inc. to supply a new central system that will replace the SAMS 7.1-2 IGTcentral system. All of our slot machines will be required to be connected tothe new central system supplied by Scientific Games, Inc. If the operation ofthe central system or the conversion to the new central system causes adisruption of video lottery gaming for any reason, we believe that the LotteryCommission would suspend all gaming operations within the state until normaloperation of the system was restored. Any such suspension could cause amaterial disruption of our gaming operations and have a material adverse impacton our business, financial condition and results of operations.

 

*We Have inthe Past Suffered, and We May Continue in the Future to Suffer, Losses from OurPari-Mutuel Wagering Business*

 

We are required to continue ourpari-mutuel wagering business in order to maintain our gaming license. In thepast we have incurred operating losses on our pari-mutuel wagering businessthat were offset by operating profits in our slot machine gaming business. Weare attempting to minimize or eliminate losses from our pari-mutuel wageringbusiness by increasing marketing efforts, cutting costs and enhancing thequality of our greyhound racing activities. Nonetheless, there can be no guaranteethat this strategy will prove successful, that our unprofitable operations canbecome profitable or that if they become profitable, will continue to beprofitable.

 

*We AreControlled by a Single Stockholder*

 

Delaware North G&E is our solestockholder, and thus exercises control over all matters that require approvalby our stockholders, including the election of directors and the approval ofsignificant transactions. There can be no assurance that the interests ofDelaware North G&E will not conflict with the interests of the holders ofour senior unsecured notes.

 

*We May BeSubject to Material Environmental Liability as a Result of UnknownEnvironmental Hazards*

 

We may incur costs to comply withenvironmental requirements, such as those relating to discharges to air, waterand land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. Under these and otherenvironmental requirements, as an owner of real estate we may be required toinvestigate and clean up hazardous or toxic substances or chemical releasesthat may be found on our property. We could also be held liable to agovernmental entity or to third parties for property damage, personal injuryand for investigation and clean-up costs in connection with any contaminationon our property. These laws typically impose clean-up responsibility andliability without regard to whether the owner knew of or caused the presence ofthe contaminants or whether or not the contamination occurred prior to theowner’s possession of the property. The investigation, remediation or removalof harmful substances can be very costly. In addition, if contamination isfound to exist on our property, we could be subject to common law claims bythird parties based on damages and costs resulting from that environmentalcontamination. We cannot assure you that substantial clean-up or remediationcosts will not be incurred in the future.

 

*Outcome ofLegal Proceedings*

 

Periodically we are defendants in variouslegal proceedings that arise in the normal course of our business. In generallegal proceedings can be costly and time consuming and there can be noassurance as to the outcome of these matters. We may not prevail in the defenseof these proceedings and such matters could ultimately result in settlements ordamages that could materially impact our business, financial condition andresults of operations.

 

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*Dependenceon Key Management Personnel*

 

Weare dependent on the employment services of several key members of ourmanagement team. Our ability to retain key management personnel is impacted bythe competitiveness of our overall compensation philosophy and the continuinggrowth of the gaming industry as a whole, which increases the demand for gamingmanagement personnel. The loss of the services of any of these key individualscould have a material adverse effect on our business, financial condition andresults of operations.

 

*PotentialImpact of Labor Unions*

 

Some of our employees are represented bylabor unions. A lengthy strike or other work stoppage could have an adverseeffect on our business, financial condition and results of operations. Wecannot provide assurance that we will not experience an increase in thesuccessful unionization of our work force. In addition, our labor agreementwith the United Food and Commercial Workers Union, Local 23 expired on February26, 2006 and we are currently negotiating an extension of this agreement. It ispossible that these union employees will seek an increase in wages and/orbenefits. The collective bargaining agreements with the food and beverageemployees and security department employees expire on June 22, 2006 and April30, 2006, respectively. Any significant increase in labor costs could have amaterial adverse effect on our business, financial condition and results ofoperations.

 

*Availabilityof Competitive Slot Product*

 

A portion of our gaming revenues isattributable to the popularity of the type of slot machine games that we offerat our gaming facility and it is critical that we continue to offer the latesttechnology in slot machine gaming to our customers. All of the slot machinegame manufacturers in West Virginia are required to be licensed by the Lottery Commission.In addition, all of the slot machine games need to be separately tested andapproved by the Lottery Commission. Since certain game manufacturers may choosenot to become licensed in West Virginia, or may choose to forego the necessarytesting required for approval of new slot games given the lack of size of theWest Virginia market, we cannot make any assurances as to our ability topurchase any new slot games that are introduced to the marketplace. If ourability to provide the latest slot gaming technology is curtailed it mayadversely impact our profitability.

 

*UnstableEnergy Costs*

 

Our facility uses significant amounts ofelectricity, gas and other forms of energy. While no shortages of energy havebeen experienced, the recent significant increases in energy costs willcontinue to negatively impact our results of operations. In addition, theenergy and fuel price increases could also result in a decline in disposableincome of potential customers and a corresponding decrease in visitation to ourfacility, which would negatively impact our revenues. The magnitude of theimpact will be subject to market forces beyond our control and we cannot makeany assurances that such impacts will not be material.

 

*Covenant Restrictions Under Our New Revolving CreditFacility and the Indenture May Limit Our Ability to Operate Our Business*

 

Oursecured revolving credit facility (revolver) and the Indenture, dated as ofDecember 19, 2001, by and among the Company, the Guarantors (as definedtherein), and U.S. Bank, N.A., as trustee (Indenture), governing our seniorunsecured notes contain, and other future agreements governing our debt maycontain, among other things, covenants that may restrict our ability and theguarantors’ ability to finance future operations or capital needs or to

 

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engagein other business activities.

 

Ourrevolver also requires us to maintain specified financial ratios and satisfycertain financial condition tests that may require that we take action toreduce our debt or to act in a manner contrary to our business objectives. Eventsbeyond our control, including changes in general economic and businessconditions, may affect our ability to meet those financial ratios and financialcondition tests.

 

Inaddition, the revolver and the Indenture restrict, and other future agreementsgoverning our debt may restrict, among other things, our ability and theguarantors’ ability to:

 

•                  prepay principal of or redeem or repurchasesubordinated debt or unsecured debt, including our senior unsecured notes insome circumstances;

 

•                  dispose of property;

 

•                  merge with other entities;

 

•                  make acquisitions and investments in otherpersons or entities;

 

•                  pay dividends or make distributions;

 

•                  grant liens and negative pledges;

 

•                  incur debt; and

 

•                  make capital expenditures.

 

*Servicing Our Debt Will Require a Significant Amount ofCash, And Our Ability to Generate Sufficient Cash Depends on Many Factors, Someof Which Are Beyond Our Control*

 

Our ability to service our debt (including our senior unsecured notes)depends on our ability to generate significant cash flow in the future. This,to some extent, is subject to general economic, financial, competitive,legislative and regulatory factors as well as other factors that are beyond ourcontrol. In addition, the ability to borrow funds under our revolving creditfacility in the future depends on our meeting the financial covenants in suchcredit agreement, including a minimum fixed charge coverage ratio test and amaximum leverage ratio test. We cannot assure you that our business willgenerate cash flow from operations, or that future borrowings will be availableto us under our revolving credit facility, in an amount sufficient to enable usto pay our debt or to fund other liquidity needs. If we are not able togenerate sufficient cash flow to service our debt obligations, we may need torefinance or restructure our debt, sell assets, reduce or delay capitalinvestments, or seek to raise additional capital. If we are unable to implementone or more of these alternatives, we may not be able to service our debtobligations, including making payments on our senior unsecured notes.

 

**ITEM 1B. UNRESOLVED STAFF COMMENTS**

 

None

 

# **ITEM 2. PROPERTIES**

#  

WheelingIsland Racetrack & Gaming Center, which is owned by us, is situated onapproximately 62 acres of land 

 

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onWheeling Island on the Ohio River in Wheeling, West Virginia. The entireWheeling Island facility occupies approximately 270,000 square feet.

 

We also own 24 acres of land located at the northern limit of theVillage of Beech Bottom in Brooke County, West Virginia, approximately 13 milesfrom our Wheeling Island facility. Our greyhound kennel facility is located onthis property.

 

**ITEM 3. LEGALPROCEEDINGS**

 

The kennels for some of the racinggreyhounds, which participate in our racing meets, were relocated to BrookeCounty, West Virginia during the 2002 fiscal year. The County Commission ofBrooke County, West Virginia, claims an entitlement to a portion of the revenuegenerated by our gaming and pari-mutuel racing operations by virtue of thelocation of our kennel compound in Brooke County. The Brooke County Commissionthreatened to take legal action to obtain those revenues, or in thealternative, to enjoin the continued operation of our kennels in Brooke Countybecause of their construction without prior approval in a local option election.It is our position that Brooke County is not entitled to a share of our gamingand pari-mutuel racing revenues. In addition, the West Virginia RacingCommission approved the construction and operation of our kennels. On February25, 2004, we commenced an action in the Circuit Court of Kanawha County, WestVirginia, which names the Brooke County Commission, the Ohio County Commissionand the West Virginia Racing Commission as defendants. The action seeks adeclaratory judgment to confirm that the West Virginia Racing Commissionfollowed all lawful procedures and acted within the scope of its authority when the Racing Commission approvedthe construction and operation of our kennels, that the local option electioncontended for by the Brooke County Commissioners was not required, and thatBrooke County is only entitled to receive the property tax revenue associatedwith the kennel facility.

 

We have reached an agreement in principlewith Brooke County to the settlement of this matter on terms, which will nothave a material impact to us, or to the continued operation of our kennels. Thisagreement in principle is currently being memorialized by the parties.

 

We are aparty to a number of other legal proceedings that have arisen in the ordinarycourse of our business. We believe that the outcome of such proceedings willnot have a material adverse effect on our operating results or financialcondition.

 

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

 

Notapplicable.

 

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**PART II**

 

**ITEM 5.****  ****MARKET FOR REGISTRANT’SCOMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND  ISSUER PURCHASES OF EQUITY SECURITIES**

 

Not applicable.

 

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

 

The selected financialdata presented below as of and for the five years ended December 31, 2005has been derived from our audited consolidated financial statements. Ourselected statement of operations data for 2005, 2004 and 2003, and our selectedbalance sheet data at December 31, 2005 and 2004, have been derived from auditedconsolidated financial statements included elsewhere in this Annual Report. Ourselected statement of operations data for 2002 and 2001, and our selectedbalance sheet data at December 31, 2003, 2002 and 2001, have been derived fromaudited consolidated financial statements not included in this Annual Report.The selected financial data should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andthose consolidated financial statements and related notes thereto which areincluded elsewhere herein.

 

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| ** **                                     | ** ** | **Year Ended December 31,**                    | ** **  |
|------------------------------------------------|------------|---------------------------------------------------------------|-------------|
| ** **                                     | ** ** | **(dollars in thousands, except ratios)** | ** **  |
| ** **                                     | ** ** | **2005**                                                      | ** **  | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001(1)** | ** ** |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| **Statement of Operations Data:**              |       |                                                          |        |   |   |   |   |   |   |   |   |
| Operating revenue:                             |       |                                                          |        |   |   |   |   |   |   |   |   |
| Gaming revenue (2)                             |       | $                                                             | 96,368      |   | $ | 100,378 |   | $ | 88,634 |   | $ | 78,550 |   | $ | 67,372 |   |
| Pari-mutuel revenue                            |       | 7,052                                                         |        | 6,841 |   | 7,704 |   | 8,639 |   | 9145 |   |
| Food & beverage revenue                    |       | 8,273                                                         |        | 7,782 |   | 6,066 |   | 4,913 |   | 4,502 |   |
| Lodging revenue                                |       | 2,528                                                         |        | 2,468 |   | 1,542 |   | — |   | — |   |
| Other revenue                                  |       | 2,708                                                         |        | 1,947 |   | 1,357 |   | 790 |   | 800 |   |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| Total operating revenue                        |       | 116,929                                                       |        | 119,416 |   | 105,303 |   | 92,892 |   | 81,819 |   |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| Operating expenses:                            |       |                                                          |        |   |   |   |   |   |   |   |   |
| Purse expense                                  |       | 20,129                                                        |        | 21,473 |   | 20,147 |   | 18,799 |   | 17,025 |   |
| Gaming costs                                   |       | 7,095                                                         |        | 7,440 |   | 7,025 |   | 4,397 |   | 3,755 |   |
| Pari-mutuel costs                              |       | 4,058                                                         |        | 3,521 |   | 3,772 |   | 4,049 |   | 4,335 |   |
| Food & beverage costs                      |       | 9,453                                                         |        | 8,444 |   | 6,857 |   | 5,617 |   | 4,083 |   |
| Lodging expenses                               |       | 1,208                                                         |        | 1,239 |   | 810 |   | — |   | — |   |
| Other expenses                                 |       | 819                                                           |        | 739 |   | 339 |   | — |   | — |   |
| Marketing and promotions                       |       | 9,327                                                         |        | 8,258 |   | 6,568 |   | 6,046 |   | 4,270 |   |
| Facilities and maintenance                     |       | 10,448                                                        |        | 9,704 |   | 7,309 |   | 5,176 |   | 4,790 |   |
| Management fees (3)                            |       | —                                                        |        | — |   | — |   | — |   | 25,521 |   |
| General and administrative (4)                 |       | 6,789                                                         |        | 6,404 |   | 5,117 |   | 3,909 |   | 3,069 |   |
| Business Interruption Insurance   Proceeds (5) |       | (1,861                                                        | )           | — |   | — |   | — |   | — |   |
| Depreciation and amortization                  |       | 11,347                                                        |        | 11,693 |   | 9,630 |   | 7,483 |   | 3,703 |   |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| Total operating expenses                       |       | 78,812                                                        |        | 78,915 |   | 67,574 |   | 55,476 |   | 70,551 |   |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| Income from operations                         |       | 38,117                                                        |        | 40,501 |   | 37,729 |   | 37,416 |   | 11,268 |   |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| Interest expense, net                          |       | (13,967                                                       | )           | (14,338 | ) | (14,013 | ) | (13,939 | ) | (1,427 | ) |
| Casualty (loss) recoveries, net (6)            |       | 1,893                                                         |        | (4,308 | ) | — |   | — |   | — |   |
| Other income (expense), net                    |       | (69                                                           | )           | (254 | ) | 1 |   | (333 | ) | (69 | ) |
| Income before income tax                       |       | 25,974                                                        |        | 21,601 |   | 23,717 |   | 23,144 |   | 9,772 |   |
| Income tax expense                             |       | 9,060                                                         |        | 7,593 |   | 8,325 |   | 8,303 |   | 3,313 |   |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| Net income                                     |       | $                                                             | 16,914      |   | $ | 14,008 |   | $ | 15,392 |   | $ | 14,841 |   | $ | 6,459 |   |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| **Operating Data:**                            |       |                                                          |        |   |   |   |   |   |   |   |   |
| Gross terminal income (7)                      |       | $                                                             | 190,526,887 |   | $ | 193,705,811 |   | $ | 174,829,040 |   | $ | 149,137,640 |   | $ | 116,297,474 |   |
| Number of slot machines (8)                    |       | 2,332                                                         |        | 2,362 |   | 2,200 |   | 1,623 |   | 1,537 |   |
| Slot machine win per unit per day (9)          |       | $                                                             | 228.55      |   | $ | 237.38 |   | $ | 253.60 |   | $ | 267.87 |   | $ | 239.39 |   |
| Hotel occupancy % (10)                         |       | 98.1                                                          | %           | 90.9 | % | 81.5 | % | — |   | — |   |
| Revenue per available room (11)                |       | $                                                             | 46.25       |   | $ | 45.28 |   | $ | 54.04 |   | — |   | — |   |
|                                           |       |                                                          |        |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                        |       |                                                          |        |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                      |       | $                                                             | 11,957      |   | $ | 10,509 |   | $ | 9,517 |   | $ | 7,867 |   | $ | 9,903 |   |
| Total assets                                   |       | 215,110                                                       |        | 220,086 |   | 230,516 |   | 185,740 |   | 168,107 |   |
| Total long term debt                           |       | 134,000                                                       |        | 142,250 |   | 159,000 |   | 126,500 |   | 125,000 |   |
| Shareholder’s equity                      |       | 37,302                                                        |        | 32,388 |   | 30,880 |   | 27,488 |   | 12,647 |   |

 

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(1)           On December 19, 2001, we redeemed the entireequity interest of WHX Entertainment Corp. for total consideration of $105.0million (the Stock Purchase Transaction). Of the $105.0 million totalconsideration, $90.0 million is attributable to the purchase price of theshares and $15.0 million is attributable to a non-compete covenant whereby WHXis prohibited from engaging in any business, which is the same as,substantially similar to, or directly competitive with the business activitiesconducted by us for a period of five years.

 

(2)           Gaming revenues represent gross revenues fromslot machine gaming, or total amounts wagered, net of winning patron payouts(the “gross terminal income”) less (1) a fee of up to 4% of gross terminalincome paid to the Lottery Commission for administering slot machine gaming atthe licensee’s race track (the “administration fee”), (2) a tax of 30% of netterminal income (gross terminal income less the administration fee) paid to theState’s general revenue fund, (3) an amount of 9.5% of net terminal income(NTI) to be paid to various state funds, including funds for tourism promotion,Ohio County, employee retirement programs and other programs and (4) an amountof 7% of NTI to be paid to the State’s Worker’s Compensation debt reductionfund up to a maximum amount of $11.0 million in any state fiscal year.

 

The state deducts a 10% surcharge from all amounts of NTI above apredetermined level, defined as the NTI generated for the State’s fiscal yearended June 30, 2001. The remainder of the excess NTI is divided asfollows:  50% is returned to theracetrack (of which 8% represents supplemental purse expense), 41% is paid tothe State’s general revenue fund and the remaining 9% is divided among variousstate funds. Of the total 10% surcharge, 42% is deposited in a capitalreinvestment account attributable to each racetrack. The racetrack is entitledto recoup monies in the capital reinvestment account for certain types ofcapital improvements made at the racetrack on a dollar-for-dollar basis. Allrevenues derived from the operation of slot machines must initially bedeposited with the Lottery Commission to be shared in accordance with theprovisions of the Lottery Act.

 

Weaccrue the expected surcharge amount ratably during the year based uponestimates of the actual amounts expected to be paid in each state fiscal year.The recoupment of amounts held in the capital reinvestment account, and asimilar fund held by the Racing Commission to be used for racetrack capitalimprovements, are included in gaming revenues during the period in which, theyare earned and approved qualifying expenditures made. Excess qualifyingexpenditures may be carried forward for recoupment in future periods, subjectto certain statutory limitations. During 2005, the Company recognizedrecoupments of $4,352 as an element of reported gaming revenue.

 

(3)           Historically, we recorded and paid managementfees to two shareholders based on the total operating revenues of the precedingyear pursuant to management services agreements that terminated uponconsummation of the Stock Purchase Transaction.

 

(4)           EffectiveDecember 19, 2001, Wheeling Island entered into an administrative servicesagreement 

 

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pursuant to which administrative fees are recorded and paid to DelawareNorth G&E. Pursuant to this agreement, Delaware North G&E receives afee that is equal to the greater of 1.5% of preceding year total operatingrevenues or $1.2 million per year. Such fees are recorded as general andadministrative expenses.

 

(5)           Business interruption insurance proceedsrepresent insurance recoveries that relate to lost operating profits and wererecorded as credits to operating expense. The proceeds recorded in 2005 areattributable to the September 2004 and January 2005 floods in the amount of$1.3 million and $0.6 million, respectively.

 

(6)           Casualty (loss) recoveries, net represent therepair costs incurred in the September 2004 and January 2005 floods and therelated insurance reimbursements. In 2005 we recorded a net casualty (loss)recovery of $1.9 million, which is comprised of insurance reimbursementstotaling $3.6 million and $1.7 million for the September 2004 and January 2005floods, respectively, offset by flood related expenses of $0.6 million and $2.8million, respectively.

 

During 2004 we recorded anet casualty loss of $4.3 million, which represents flood repair costs incurredfor the September 2004 flood.

 

(7)           Gross terminal income represents grossrevenues from slot machine gaming, or total amounts wagered, net of winningpatron payouts.

 

(8)           The number of slot machines are given as ofthe end of each period presented.

 

(9)           Slot machine win per unit per day refers tothe gross terminal income for a given period divided by the average number ofslot machines operating in that period divided by the number of days in thatperiod.

 

(10)         Hotel occupancy percentage represents totalnumber of rooms sold or provided gratuitously to customers, divided by thetotal number of rooms available for sale.

 

(11)         Revenue per available room represents totallodging revenues for the year divided by the total number of rooms availablefor sale during the year.

 

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

 

*Cautionary Note Regarding Forward-Looking Statements*

 

Exceptfor historical information contained herein, the statements in this report(including without limitation, statements indicating that we “expect,”“estimate,” “anticipate,” or “believe” and all other statements concerningfuture financial results, product or service offerings or other events thathave not yet occurred) are forward-looking statements that are made pursuant tothe safe harbor provisions of applicable securities legislation andregulations. Forward-looking statements involve known and unknown factors,risks and uncertainties, which may cause our actual results in future periodsto differ materially from those expressed in any forward-looking statements.

 

# **Overview**

#  

*General*

 

Weown and operate Wheeling Island Racetrack & Gaming Center, or WheelingIsland, a premier gaming and entertainment complex located in Wheeling, WestVirginia. Wheeling Island features 2,332 slot machines, a hotel, showroom,greyhound racetrack, pari-mutuel wagering on live greyhound racing andsimulcast greyhound, thoroughbred and harness racing and various dining venues.

 

Ourgaming operation is comprised of 2,332 slot machines situated within 64,272square feet of gaming area. Our slot machines include mechanical spinning reelslot machines and video lottery terminals with either coin-out or voucher-outfunctionality. The gaming mix is comprised of 1,628 slot machines that dispensevouchers for patron winnings and 704 machines that dispense coins. The gamingmix includes one progressive game that links multiple machines playing for alarger combined jackpot.

 

Ourpari-mutuel operations consist of pari-mutuel wagering on live greyhound racesand on greyhound, thoroughbred and harness events that are simulcast from otherracetracks. Our racetrack currently conducts eight live greyhound races eachweek and offers a mix of simulcast wagering every day.

 

Ourfood and beverage operations include a full-service 600-seat clubhouserestaurant, a 300-seat buffet-style restaurant, a 128-seat casual restaurant, a70-seat fine dining restaurant, a 140-seat food court, two concession stands,four lounges and three bars.

 

Ourlodging operations are comprised of a 151-room hotel, which includes nine suitestyle rooms.

 

Ourentertainment operations consist primarily of a 550-seat multi-purpose showroomand various conference facilities.

 

*Wheeling Island Expansion*

 

On June26, 2003, the Wheeling Island expansion was completed and opened for gaming.The gaming and hotel expansion is connected to our existing gaming facility.The opening of the Wheeling Island expansion increased the number of slotmachines from 1,630 to 2,200 while also adding the following amenities to theWheeling Island complex:

 

•      a 151-room hotel;

 

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•      one fine dining restaurant, one casual diningrestaurant, a food court and bar and lounge areas;

•      a 550-seat multi-purpose showroom; and

•      180 covered parking spaces plus additionaloutdoor parking spaces.

 

The total cost of designing, developing,constructing and equipping the Wheeling Island expansion was approximately$69.0 million, including architectural fees.

 

*CasualtyLoss*

 

In September 2004 and January 2005, ourgaming and racing facilities were damaged as a result of flooding of the OhioRiver. On each occasion we incurred substantial repair costs and were forced tosuspend all operations for several days resulting in a loss of operatingprofits. For the fiscal year ended December 31, 2005 we recorded a net casualtyloss recovery of $1.9 million, which is comprised of insurance reimbursementstotaling $3.6 million and $1.7 million for the September 2004 and January 2005floods, respectively, offset by flood related expenses of $0.6 million and $2.8million, respectively. Also during 2005, business interruption insuranceproceeds recorded as credits to operating expenses totaled $1.3 million and$0.6 million for the September 2004 and January 2005 floods, respectively.

 

During 2004 we recorded a net casualty lossof $4.3 million, which represents flood repair costs incurred for the September2004 flood. In addition, during 2004 we recorded a $0.3 million loss includedin other expense, which represents the net carrying value of equipment assetslost during the September flood. The equipment assets that were purchased toreplace the lost equipment were recorded as capital expenditures during 2004and totaled $0.3 million.

 

**Critical AccountingPolicies**

 

Oursignificant accounting policies are described in Note 1 to the notes to theConsolidated Financial Statements. We believe the following represents ourcritical accounting policies.

 

*RevenueRecognition*

 

Gamingrevenues represent gross revenues from slot machine gaming, or total amountswagered, net of winning patron payouts (the “gross terminal income”) less (1) afee of up to 4% of gross terminal income paid to the Lottery Commission foradministering slot machine gaming at the licensee’s race track (the“administration fee”), (2) a tax of 30% of net terminal income (gross terminalincome less the administration fee) paid to the state’s general revenue fund,(3) an amount of 9.5% of net terminal income (NTI) to be paid to various statefunds, including funds for tourism promotion, Ohio County, employee retirementprograms and other programs and (4) an amount of 7% of NTI to be paid to theState’s Worker’s Compensation debt reduction fund up to a maximum amount of$11.0 million in any state fiscal year.

 

The state deducts a 10% surcharge from allamounts of NTI above a predetermined level, defined as the NTI generated forthe state’s fiscal year ended June 30, 2001. The remainder of the excess NTI isdivided as follows:  50% is returned tothe racetrack (of which 8% represents supplemental purse expense), 41% is paidto the state’s general revenue fund and the remaining 9% is divided amongvarious state funds. Of the total 10% surcharge, 42% is deposited in a capitalreinvestment account attributable to each racetrack. The racetrack is entitledto recoup monies in the capital reinvestment account for certain types ofcapital improvements made at the racetrack on a dollar-for-dollar basis. Allrevenues derived from the operation of slot machines must initially bedeposited 

 

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with the Lottery Commission to be shared inaccordance with the provisions of the Lottery Act.

 

Weaccrue the expected surcharge amount ratably during the year based uponestimates of the actual amounts expected to be paid in each state fiscal year.The recoupment of amounts held in the capital reinvestment account, and asimilar fund held by the Racing Commission to be used for racetrack capitalimprovements, are included in gaming revenues during the period in which theyare earned and approved qualifying expenditures are made. Excess qualifying expendituresmay be carried forward for recoupment in future periods, subject to certainstatutory limitations. During 2005, we recognized recoupments of $4,352 as anelement of reported gaming revenue.

 

*Valuationof Goodwill and Other Intangible Assets*

 

Thecarrying value of long-lived assets, including goodwill and other intangibleassets, are reviewed for impairment annually or more frequently whenever eventsor changes in circumstances indicate that the assets might be impaired.

 

On July5, 2004, legislation was enacted in Pennsylvania permitting the introduction ofslot machine gaming inthat state. The 2004 Pennsylvania law provides for the establishment of astate gaming control board that will award 14 licenses to operate slot machinegaming facilities in Pennsylvania. Our primary market consists of the 150-mileradius around Wheeling and includes the western Pennsylvania market area thatincludes Pittsburgh. Slot machine operators that are awarded licenses inwestern Pennsylvania will compete directly with us for customers in our market,which may have an adverse effect on our implied fair value.

 

Weperformed our annual review of the carrying value of the goodwill and operatinglicenses for impairment as of December 31, 2005.

 

The firststep in our goodwill impairment test, used to identify potential impairment,compared our fair value to our carrying value, including goodwill. Our fairvalue was determined based on the discounted cash flow method. The cash flowsassociated with the discounted cash flow method were based on a number ofestimates and assumptions, including our projected future operating results,which include the estimated impact of gaming in western Pennsylvania and thereasonable likelihood of enhanced gaming in West Virginia, our long-term growthrate and a discount rate. As our fair value exceeds our carrying value, thesecond step in the assessment process was not necessary. Accordingly, noimpairment charge was required.

 

Intesting the operating licenses for impairment we compared the fair value of theintangible assets to their carrying value. The fair value of our operatinglicenses was determined based on the discounted cash flow method. The cashflows associated with the discounted cash flow method were based on a number ofestimates and assumptions, including our projected future operating results ofwhich include the estimated impact of gaming in western Pennsylvania, thereasonable likelihood of enhanced gaming in West Virginia, our long-term growthrate and a discount rate. Pursuant to this evaluation we determined that theoperating licenses were not impaired.

 

Significantchanges to one or more of these assumptions could change our conclusions in thefuture. Our analysis assumes that gaming in Pennsylvania will commence in 2007,and as that date approaches and more specific information becomes available,our goodwill and other intangible assets may be determined to be impaired.

 

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*Preferred Player Program*

 

Manyof our customers are members of our frequent player program called thePreferred Player Club. The Preferred Player Club is a promotional tool used todevelop customer loyalty by providing customers with reward incentives forincreased levels of play. Club members can accumulate points for casinowagering that can be redeemed for cash, food and beverages, lodging,entertainment and retail products. A liability is recorded for the estimate ofunredeemed points based on redemption history. Points redeemed for cash arerecognized as a reduction in revenues while points redeemed for food andbeverage, lodging, entertainment, and other retail products are recognized aspromotional expenses.

 

**Recent Accounting Pronouncements**

 

In May 2005, the FASB issued SFAS No. 154,“Accounting Changes and Error Corrections,” a replacement of APB Opinion No. 20and FASB Statement No. 3, which changes the requirements for the accounting forand reporting of a change in accounting principle. SFAS No. 154 applies to allvoluntary changes in accounting principles, as well as to changes required byan accounting pronouncement if the pronouncement does not include specifictransition provisions. The statement requires retrospective application toprior periods’ financial statements of changes in accounting principles. SFASNo. 154 is effective for accounting changes and corrections of errors made infiscal years beginning after December 15, 2005. We do not expect the adoptionof SFAS No. 154 to have a material effect on our consolidated financial position,results of operations, or cash flows.

 

# **Resultsof Operations**

#  

**2005Compared to 2004**

 

Gaming revenues were $96.4 million for theyear ended December 31, 2005, a decrease of $4.0 million, or 4.0%, from $100.4million for the year ended December 31, 2004. The decrease in gaming revenuewas due primarily to the impact of the January 2005 flood which closed thegaming facility for three days and a portion of another day, increasedcompetition from limited video lottery machines in our immediate market area, alegislative change enacted in July 2005 that increased the share of netterminal income that is contributed to the employee retirement fund by 0.5% upto the base level and provided for a distribution of net terminal income to theworkers compensation debt reduction fund for all net terminal income amounts upto a predetermined level and a $0.9 million increase in the redemption ofPreferred Players Club points and coupons for cash which are recognized asreductions of gaming revenue. The decrease in gaming revenue occurred despitethe closure of the gaming facility of four days and portions of two other daysas a result of the flooding of the Ohio River in September 2004.

 

Pari-mutuel revenues for the year endedDecember 31, 2005 were $7.1 million, an increase of $0.3 million, or 3.1%, from$6.8 million for the year ended December 31, 2004. The increase in pari-mutuelrevenues was due primarily to the additional commissions earned on theexporting of our live racing signal resulting from an increase in the number oflive performances offered from 383 in 2004 to 408 during 2005, offset partiallyby a 11.8% decrease in simulcast wagering handle. The increase in the number oflive performances offered was due principally to the cancellation of 33 liveperformances in 2004 during the shutdown of the racing operations caused by theflooding of the Ohio River.

 

Foodand beverage revenues for the year ended December 31, 2005 were $8.3 million, a$0.5 million increase, or 6.3%, from $7.8 million for the year ended December31, 2004. The increase in food and beverage

 

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revenueswas due primarily to the increased sales associated with the newly refurbishedand expanded Island Room Buffet which opened in March 2005 and the impact ofthe closure of the gaming facility for several days during 2004 as a result ofthe flooding of the Ohio River offset partially by the impact of the January2005 flood which also closed the gaming facility for several days.

 

Lodging revenues of $2.5 million for the yearended December 31, 2005 were unchanged from the prior year despite an increasein occupancy percentage from 90.1% for the year ended December 31, 2004 to98.1% for the year ended December 31, 2005. The increase in occupancy percentageis due to an increase in the number of rooms provided gratuitously to customersand our increase in complimentary room discounts offered to patrons.

 

Other revenues were $2.7 million for the yearended December 31, 2005, an increase of $0.8 million, or 39.1%, from $1.9million for the year ended December 31, 2004. The increase in other revenuesrelates to an increase in rental income from the kennel compound resulting fromthe new leasing terms with kennel owners.

 

Purse expense for the year ended December 31,2005 was $20.1 million, a decrease of $1.4 million, or 6.3%, from $21.5 millionfor the prior year. The decrease in purse expense was due principally to theJuly 2005 legislative change that lowered the purse share of net terminalincome for all net terminal income amounts up to a predetermined level.

 

Gaming expenses were $7.1 million for theyear ended December 31, 2005, a decrease of $0.3 million, or 4.6%, from $7.4million for the year ended December 31, 2004. The decrease in gaming expenses isdue to $0.8 million of payroll savings associated with the implementation ofthe TITO functionality in our slot machines, offset partially by the recordingof a $0.6 million cash shortage recovery in the prior year resulting from aone-time downward adjustment in the state’s computation of net terminal incomeover the previous three years.

 

Pari-mutuel expenses were $4.1 million forthe year ended December 31, 2005, an increase of $0.6 million, or 15.3%, from$3.5 million for the prior year. The increase in pari-mutuel expenses is dueprimarily to cost associated with the increase in the number of live racingperformances offered from 383 in 2004 to 408 in 2005 and increased costsresulting from new leasing terms with kennel owners.

 

Food and beverage expenses for the year endedDecember 31, 2005 were $9.5 million, an increase of $1.1 million, or 11.9%,from $8.4 million for the year ended December 31, 2004. The increase in foodand beverage expenses is due primarily to a $0.5 million increase in food costsrelated to the $0.5 million increase in food and beverage sales and an increasein the quality of food offerings at the newly refurbished Island Room Buffetand a $0.3 million increase in payroll costs.

 

Lodging expenses were $1.2 million for theyear ended December 31, 2005 and are unchanged from the prior year.

 

Other expenses were $0.8 million for the yearended December 31, 2005, an increase of $0.1 million, or 10.8%, from $0.7million for the year ended December 31, 2004. The increase in other expense isdue primarily to the recording of a $0.1 million loss on retail inventoryduring 2005.

 

Marketing and promotions expenses for theyear ended December 31, 2005 were $9.3 million, an increase of $1.0 million, or12.9%, from $8.3 million for the year ended December 31, 2004. The increase inmarketing and promotions expense is due to a $0.6 million increase in the costof food and beverage complimentaries, $0.7 million of increased promotional costs associated with an increasein the number of Preferred Player Club 

 

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parties, and a $0.2 million increase inpromotional printing costs offset partially by a $0.4 million decrease inadvertising costs.

 

Facilities and maintenance expenses were$10.4 million for the year ended December 31, 2005, an increase of $0.7million, or 7.7%, from $9.7 million for the prior year. The increase infacilities and maintenance expense is due to a $0.8 million increase ininsurance premiums paid for liability and property coverage, a $0.2 millionincrease in utilities expense and a $0.1 million increase in contract servicescosts offset partially by a $0.5 million decrease in real property and personalproperty taxes.

 

General and Administrative, or G&A,expenses were $6.8 million for the year ended December 31, 2005, an increase of$0.4 million, or 6.0%, from $6.4 million for the year ended December 31, 2004.The increase in G&A expenses is due primarily to a $0.2 million increase inlegal fees and settlements and a $0.2 million increase in the administrativeservices fees paid to our sole stockholder.

 

Business interruption insurance proceeds of$1.9 million were recorded in the year ended December 31, 2005. Such businessinterruption insurance proceeds were recorded as credits to operating expenseand are attributable to the September 2004 and January 2005 floods in theamounts of $1.3 million and $0.6 million, respectively.

 

Depreciation and amortization expenses forthe year ended December 31, 2005 were $11.3 million, a $0.4 million, or 3.0%decrease from $11.7 million for the prior year. The decrease was due primarilyto $3.2 million in slot machine assets being fully depreciated in November2004.

 

Interest expense, net was $14.0 million forthe year ended December 31, 2005, a decrease of $0.3 million, or 2.6%, from$14.3 million for the year ended December 31, 2004. The decrease in interestexpense is due primarily to decreased borrowings under our revolving creditfacility for the year ended December 31, 2005 as compared to the prior year andhigher interest income associated with higher invested cash balances during2005 as compared to the prior year.

 

Net casualty loss recoveries of $1.9 millionwere recorded for the year ended December 31, 2005 as compared to a casualtyloss of $4.3 million for the year ended December 31, 2004. The net casualtyloss recoveries recorded in 2005 are comprised of insurance reimbursementstotaling $3.6 million and $1.7 million for the September 2004 and January 2005floods, respectively, offset partially by flood-related expenses of $0.6million and $2.8 million, respectively. The $4.3 million casualty loss recordedin 2004 represents flood repair costs incurred for the September 2004 flood.

 

Other expense for the year ended December 31,2005 was $0.1 million, a $0.2 million decrease from $0.3 million for the prioryear. The decrease in other expense is due primarily to the recording of a $0.3million expense in 2004 representing the loss on the disposition of equipmentassets destroyed in the September 2004 flood as compared to the $0.1 millionexpense recorded in 2005 representing the loss on the disposition of assetsdestroyed in the January 2005 flood.

 

Income tax expense was $9.1 million for theyear ended December 31, 2005, an increase of $1.5 million, or 19.3%, from $7.6million for the year ended December 31, 2004. The increase was directlyattributable to the $4.4 million increase in income before income taxes from$21.6 million for the year ended December 31, 2004 to $26.0 million for the yearended December 31, 2005. Income tax expense for both periods was based on aneffective tax rate of 35.0%.

 

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**2004 Compared to 2003**

 

Gaming revenues were $100.4 million for theyear ended December 31, 2004, an increase of $11.8 million, or 13.2%, from$88.6 million for the year ended December 31, 2003. The increase was due to theincreased gaming activity associated with the June 26, 2003 opening of theWheeling Island expansion and the further expansion of the gaming operationsthat occurred in 2004 and the $2.3 million decrease in the redemption ofPreferred Players Club points and coupons for cash offset partially by a $0.4million increase in the accrued share of net terminal income and surcharge amount(net of recoupments) owed to the state of West Virginia and a $0.3 millionnon-recurring downward adjustment of gaming revenues resulting from acumulative adjustment in the state’s computation of net terminal income. Thesegaming revenue variances are explained below.

 

The Wheeling Island expansion increased thenumber of slot machines from 1,630 to 2,200 and added new lodging, food andbeverage and entertainment amenities to the Wheeling Island complex. TheWheeling Island expansion opened on June 26, 2003 and was only open forapproximately six months during the 12 months ended December 31, 2003. The fullyear impact of the Wheeling Island expansion and the further expansion ofWheeling Island’s gaming operations which increased the number of slot machinesfrom 2,200 to 2,362 during 2004 resulted in higher levels of gaming activitywhich increased net terminal income from $167.8 million to $186.0 million, or10.8%. The increase in gaming activity occurred despite the closure of thegaming facility for four days and portions of two other days as a result of theflooding of the Ohio River in September.

 

All cash redemptions of points earned bymembers in our Preferred Players Club and redemption of cash coupons providedto Preferred Players Club members are recognized as reductions in gamingrevenues. Total cash redemptions were $3.5 million for the year ended December31, 2004, a decrease of $2.3 million, or 39.2%, from $5.8 million for the yearended December 31, 2003. The decrease in cash redemptions despite increasedmembership in the Preferred Players Club is due to the elimination of cashcoupons provided to Preferred Players Club members beginning in September 2003.

 

The State of West Virginia’s share of netterminal income above a predetermined level increases from 30.0% to 41.0%during a State fiscal year. In addition, the State retains a 10.0% surchargefrom all net terminal income in excess of the predetermined level for the Statefiscal year. Of the total 10.0% surcharge, 42.0% can be recouped for certaintypes of capital investments made at the facility. We accrue for the State’sincreased share of net terminal income and the expected surcharge amounts (netof recoupments) ratably throughout the State fiscal year. The state’spercentage share of net terminal income increased during the year endedDecember 31, 2004 due to estimated increases in net terminal income that weresubject to the higher percentage paid to the state (41.0%) and the 10.0%surcharge (net of recoupments). As a result, gaming revenue derived from slotmachines as a percentage of net terminal income decreased from 56.3% to 56.0%.

 

The State of West Virginia computes the netterminal income through the use of a centralized computer system. The year todate net terminal income for Wheeling Island was adjusted downward on aone-time basis in August 2004 by $0.6 million to more properly account for theinitial settings of progressive jackpot payouts during the last three years.Such adjustment in net terminal income resulted in a $0.3 million non-recurringdownward adjustment of gaming revenues.

 

Pari-mutuel revenues for the year endedDecember 31, 2004 were $6.8 million, a $0.9 million decrease, or 11.2%, from$7.7 million for the year ended December 31, 2003. The $0.9 million decrease isdue to a $5.5 million decrease in wagering handle on our live races and a $0.4million decrease in wagering handle on our simulcast races. The decrease inwagering handle on our live and simulcast races was due primarily to the 

 

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cancellation of 33 live and 10 simulcastperformances during the shutdown of racing operations caused by the flooding ofthe Ohio River in September.

 

Food and beverage revenues for the year endedDecember 31, 2004 were $7.8 million, an increase of $1.7 million, or 28.3%,from $6.1 million for the year ended December 31, 2003. The increase in foodand beverage revenues is due primarily to the full year impact of the June 26,2003 opening of a new fine dining restaurant, a casual dining restaurant, afood court and two bar areas in connection with the Wheeling Island expansion,offset partially by the increase in the number of food and beveragecomplimentaries provided to Preferred Players Club members through pointredemptions and coupons.

 

Lodging revenues were $2.5 million for theyear ended December 31, 2004, an increase of $1.0 million, or 60.1%, from $1.5million for the year ended December 31, 2003. The increase in lodging revenuesis due primarily to the full year impact of the 151-room hotel that opened onJune 26, 2003 offset partially by an increase in discounted room rateofferings.

 

Other revenues were $1.9 million for the yearended December 31, 2004, an increase of $0.5 million, or 43.5%, from $1.4million for the year ended December 31, 2003. The increase in other revenues isdue primarily to increased ATM fee income related to the increase in gamingactivity and an increase in the ATM fee charge and increased retail revenueassociated with the full year impact of the June 26, 2003 opening of the newgift shop.

 

Purse expenses for the year ended December31, 2004 were $21.5 million, an increase of $1.4 million, or 6.6%, from $20.1million for the prior fiscal year. The $1.4 million increase was due to theincrease in gaming purse expense associated with the increase in net terminalincome to $186.0 million for the year ended December 31, 2004 from $167.8million for the year ended December 31, 2003. Such increase in purse expenseswas offset partially by a $0.4 million decrease in the accrued purse share ofnet terminal income and a $0.2 million decrease in pari-mutuel purse expense.The state of West Virginia’s share of net terminal income above a predeterminedlevel increases from 30.0% to 41.0% during the state fiscal year. In addition,the state deducts a 10.0% surcharge from all net terminal income in excess ofthe predetermined level for the state fiscal year. The purse share of allexcess net terminal income amounts remaining after the surcharge deduction is8.0% as compared to 14.0% for all net terminal income before the predeterminedlevel. We accrue for the expected decrease in the purse share of net terminalincome ratably throughout the state fiscal year. The purse share of netterminal income decreased during the year ended December 31, 2004 due toestimated increases in net terminal income that were subject to the 10.0%surcharge and the lower percentage paid to purses (8%) after the surchargededuction. As a result, gaming purse expense as a percentage of net terminalincome decreased from 11.0% to 10.8%. The $0.2 million decrease in pari-mutuelpurse expense is due to the $5.5 million decrease in wagering handle on ourlive races due primarily to the cancellation of several performances due to theclosure of the racetrack facility caused by the flooding of the Ohio River inSeptember.

 

Gaming expenses were $7.4 million for theyear ended December 31, 2004, an increase of $0.4 million, or 5.9%, from $7.0million for the year ended December 31, 2003. The increase in gaming expensesis due primarily to a $1.9 million increase in gaming payroll costs associatedwith the full year impact of the Wheeling Island expansion and the in-houselabor dedicated to the technical maintenance of the Company’s slot machines, whichwas previously provided by a contracted service and $0.5 million of licenseefee costs for licensed slot games offset partially by (i) the recording in 2004of a $0.6 million recovery of previously recorded cash shortages (ii) therecording of a $0.7 million cash shortage during 2003 and (iii) a $0.7 milliondecrease in contract services costs relating to the technical maintenance ofour slot machines.

 

Pari-mutuel expenses were $3.5 million forthe year ended December 31, 2004, a decrease of $0.3 million, or 

 

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6.7%, from $3.8 million for the year endedDecember 31, 2003. The decrease in pari-mutuel expenses is due primarily tolower expenses associated with the cancellation of 33 live and 10 simulcast performancesduring the shutdown of racing operations caused by the flooding of the OhioRiver in September.

 

Food and beverage expenses for the year endedDecember 31, 2004 were $8.4 million, an increase of $1.5 million, or 23.1%,from $6.9 million for the prior year. The increase in food and beverageexpenses is due principally to a $1.1 million increase in payroll costs relatedto the opening of a new fine dining restaurant, a casual restaurant, a foodcourt and two bar areas on June 26, 2003, and a $0.5 million increase in costof sales associated with the $1.7 million increase in food and beveragerevenues.

 

Lodging expenses were $1.2 million for theyear ended December 31, 2004, an increase of $0.4 million, or 53.0%, from $0.8million for the year ended December 31, 2003. The increase in lodging expensesis due to the full year impact of the 151-room hotel that opened on June 26,2003 offset partially by cost decreases associated with the closure of thehotel facility during the flood.

 

Other expenses were $0.7 million for the yearended December 31, 2004, an increase of $0.4 million from $0.3 million for theyear ended December 31, 2003. The increase in other expenses is due primarilyto the costs associated with the retail gift shop and multi-purpose showroomthat opened on June 26, 2003.

 

Marketing and promotions expenses for theyear ended December 31, 2004 were $8.3 million, an increase of $1.7 million, or25.7%, from $6.6 million for the prior year. The increase in marketing andpromotions expense is due primarily to a $1.3 million increase in costsassociated with complimentaries and higher Preferred Players Club pointredemptions for non-cash items, a $0.3 million increase in media andadvertising expense and a $0.2 million increase in marketing payroll costs.

 

Facilities and maintenance expenses for theyear ended December 31, 2004 were $9.7 million, an increase of $2.4 million, or32.8%, from $7.3 million for the year ended December 31, 2003. The increase infacilities and maintenance expense is due primarily to a $0.7 million increasein security and cleaning payroll costs, a $0.7 million increase in realproperty and personal property taxes, a $0.7 million increase in insurancepremiums paid for liability and property coverage and a $0.2 million increasein utilities expense related to the full year impact of the opening of theWheeling Island expansion.

 

General and administrative, or G&A,expenses for the year ended December 31, 2004 were $6.4 million, an increase of$1.3 million, or 25.2%, from $5.1 million for the year ended December 31, 2003.The increase in G&A expense was due primarily to a $0.7 million increase inadministrative payroll and employment related costs for staff additionsassociated with the Wheeling Island expansion, a $0.3 million increase inadministrative services fees paid to our sole stockholder and a $0.2 millionincrease in other professional services costs.

 

Depreciation and amortization expenses forthe year ended December 31, 2004 were $11.7 million, a $2.1 million, or 21.4%increase from $9.6 million for the prior year. The increase was due primarilyto the full year impact of increased depreciation expense associated with the$63.6 million of Wheeling Island expansion assets that were added to ourbuildings, improvements and equipment accounts in 2003 and $5.1 million ofadditional assets that were added to our buildings, improvements and equipmentaccounts during the 12 months ended December 31, 2004.

 

Interest expense was $14.3 million for theyear ended December 31, 2004, an increase of $0.3 million, or 2.3%, from $14.0million for the year ended December 31, 2003. The $0.3 million of increasedinterest expense is due primarily to increased borrowings under our revolvingcredit facility for the six months ended 

 

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June 26, 2004 as compared to last year andthe capitalization of $0.2 million of interest expense in June 2003, related toborrowings under our revolving credit facility to fund the Wheeling Islandexpansion expenditures offset partially by the lower interest expenseassociated with decreased borrowings under our revolving credit facility duringthe six months ended December 31, 2004 as compared to last year.

 

A casualty loss due to the flood of $4.3million was recorded for the year ended December 31, 2004. Such loss representsthe repair costs incurred in 2004 related to the flooding of the Ohio River inSeptember. No such expense was recorded in 2003.

 

Other expense for the 12 months endedDecember 31, 2004 was $0.3 million and primarily represents the loss on thedisposition of equipment assets destroyed by the flooding of the Ohio River inSeptember. No such expense was recorded in 2003.

 

Income tax expense was $7.6 million for theyear ended December 31, 2004, a decrease of $0.7 million, or 8.8%, from $8.3million for the year ended December 31, 2003. The decrease was directlyattributable to the $2.1 million decrease in income before income taxes from$23.7 million for the year ended December 31, 2003 to $21.6 million for theyear ended December 31, 2004. Income tax expense for the year ended December31, 2004 was based on an effective tax rate of 35.0%. Income tax expense forthe year ended December 31, 2003 was based on an effective tax rate of 35.1%.

 

**Liquidity and Capital Resources**

 

As of December 31, 2005 we had cash and cashequivalents of $12.0 million. Our principal source of liquidity during the yearended December 31, 2005 consisted of cash provided by operating activities. Asof December 31, 2004 we had cash and cash equivalents of $10.5 million. Ourprincipal source of liquidity for the year ended December 31, 2004 consisted ofcash provided by operating activities.

 

Cash provided by operating activities for theyear ended December 31, 2005 was $27.1 million as compared to $34.5 million forthe year ended December 31, 2004. The $7.4 million decrease was due to (i) an$11.6 million decrease in cash flows attributable to changes in balance sheetaccounts including a $4.3 million decrease in the change in accrued expensesrelating to higher accrued expenses in 2004 as a result of the September 2004flood, a $2.7 million decrease in the change in receivables relating to thetiming of the receipt of the capital improvement fund recoupments from the stateof West Virginia in 2004 and a $2.4 million decrease in prepaid income taxes in2004, and (ii) a $0.6 million decrease in depreciation and amortization andother non-cash charges offset partially by a $2.9 million increase in netincome and a $2.0 million decrease in the deferred income tax benefit relatingprimarily to return-to-provision and Internal Revenue Service audit adjustmentsto tax depreciation.

 

Cash used in investing activities for theyears ended December 31, 2005 and 2004 was $6.4 million and $5.0 million,respectively. The $1.4 million increase in cash used for investing activitieswas due to additional capital expenditures incurred relating to variousprojects including $4.1 million to convert our slot machines to the TITOfunctionality.

 

Cash used in financing activities for theyear ended December 31, 2005 was $19.3 million, or $9.2 million lower than the$28.5 million of cash used in financing activities for the year ended December31, 2004. The $9.2 million decrease in cash used in financing activities is dueto an $8.5 million decrease in the repayments made under our revolving creditfacility during the year ended December 31, 2005 as compared to the prior year,a $0.5 million decrease in the dividend payment made to our sole stockholderand a $0.1 million increase in the change in cash overdrafts for the year endedDecember 31, 2005. As of December 31, 2005 we have

 

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drawn $9.0 million against the revolvingcredit facility and the total commitment balance was $25.0 million. During thenext 12 months the commitment balance will remain at $25.0 million.

 

In 2001, we executed a $40.0 million securedrevolving credit facility (revolver) with a bank group. In 2003, we executed anincrease in the available commitment under the revolver from $40.0 million to$50.0 million. As of December 31, 2005, we had drawn $9.0 million against therevolver. The revolver includes a $5.0 million letter of credit component, andis secured by all of our assets. Interest is based on LIBOR plus a statedpercentage or, at our option, the lead bank’s commercial base rate plus astated percentage. At December 31, 2005, the lowest applicable rate was 6.6%. Acommitment fee is payable quarterly on the unused balance. The revolverprovides for quarterly reductions of $3,125 to the commitment, which began inDecember 2003, and continued until the commitment was reduced to $25.0 millionat September 30, 2005. At December 31, 2005 the commitment balance remained at$25.0 million. The revolver matures in January 2007.

 

We believe our future cash provided byoperating activities, as well as availability under our revolving creditfacility will provide sufficient funding for our future working capital needsand capital expenditures.

 

**ContractualObligations and Commitments**

 

The following table reflects our contractualobligations and commitments:

 
| ** **                                     | ** ** | **Payments Due by period (in thousands)** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                     | ** ** | ** **                                                         | ** ** | **Less than** | ** ** | **1-3** | ** ** | **3-5** | ** ** | **After 5** | ** ** |
| **($000)**                                     | ** ** | **Total**                                                          | ** ** | **1 Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **Years** | ** ** |
|                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| Long Term Debt                                 |       | $                                                                  | 134,000    |   | $ | 0 |   | $ | 9,000 |   | $ | 125,000 |   | $ | 0 |   |
| Total Contractual Obligations and  Commitments |       | $                                                                  | 134,000    |   | $ | 0 |   | $ | 9,000 |   | $ | 125,000 |   | $ | 0 |   |

 

Ourability to service our debt depends on our ability to generate significant cashflow in the future. This, to some extent, is subject to general economic,financial, competitive, legislative and regulatory factors, as well as otherfactors that are beyond our control. In addition, the ability to borrow fundsunder our revolving credit facility in the future depends on our meeting thefinancial covenants in such credit agreement, including a minimum fixed chargecoverage ratio test and a maximum leverage ratio test. We cannot provideassurance that our business will generate cash flow from operations, or thatfuture borrowings will be available to use under our revolver or otherwise, inan amount sufficient to enable us to service our long-term debt or to fundother liquidity needs.

 

# **ITEM 7A.**   QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

#  

None.

 

**ITEM 8.**   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

TheConsolidated Financial Statements and accompanying footnotes are set forth onpages F-1 through F-15 of this report.

 

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

 

Previouslyreported in our Current Report on Form 8-K filed on February 15, 2006 and inour Current Report filed on March 31, 2006.

 

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

 

*Disclosure Controls and Procedures*

 

Asof the end of the period covered by this report, our management, with theparticipation of our principal executive officer and principal financialofficer, performed an evaluation of the effectiveness of the design and operationof our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”)). Based on such evaluation, our management, including our principalexecutive officer and principal financial officer, have concluded that, as ofthe end of such period, our disclosure controls and procedures were effectivein ensuring that the information required to be disclosed by us in this reporthas been made known to them in a timely manner.

 

*Changes in Internal Control Over Financial Reporting*

 

There were no changes inour internal control over financial reporting that occurred during the fourthfiscal quarter that materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**ITEM 9B.****  ****OTHER INFORMATION**

 

None.

 

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**PART III**

 

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

 

Thetable below sets forth the names, ages and positions of our directors andexecutive officers.

 
| **Name**                 | ** ** | **Age** | ** ** | **Position and Office Held** |
|--------------------------|------------|---------|------------|---------------------------------------------|
|                     |       |    |       |                                        |
| Charles  E. Moran, Jr.   |       | 55      |       | Chairman  of the Board                      |
| William  J. Bissett      |       | 57      |       | Director                                    |
| Thomas  A. Cooper        |       | 69      |       | Director,  Chairman of Audit Committee      |
| William  R. Greiner      |       | 71      |       | Director,  Member of Audit Committee        |
| Ronald  A. Sultemeier    |       | 57      |       | Chief  Executive Officer                    |
| Robert  D. Marshall, Jr. |       | 41      |       | President                                   |
| James  W. Simms          |       | 41      |       | Vice  President of Marketing                |
| Michael  D. Corbin       |       | 44      |       | Interim  Vice President of Finance          |

 

***Charles E. Moran, Jr***. Mr. Moran was appointed as a director andnamed Chairman of the Board in August of 2004. Mr. Moran has served as thePresident and Chief Operating Officer of Delaware North Companies, Inc. sinceJanuary 2004. For 2002 and 2003, Mr. Moran served as Chief Financial Officer of Delaware North. Mr. Moran joinedCA One Services, Inc., a Delaware North subsidiary, as Vice President ofFinance in 1992. Mr. Moran was appointed President of CA One Services in 1997.

 

***William J. Bissett***. Mr. Bissett has served as a directorsince October 1994. Mr. Bissett has served as Vice President,Government Affairs and Community Relations for Delaware North sinceMarch 1995, overseeing all government relations activities, includinginteraction with legislative and regulatory agencies at all levels ofgovernment. From June 1992 to March 1995, Mr. Bissett served asPresident of Delaware North G&E.

 

***Thomas A. Cooper***. Mr. Cooper was appointed as a director andnamed Chairman of the Audit Committee. In addition, Mr. Cooper is Chairman ofTAC Associates, Inc., a financial services consulting firm. Mr. Cooper wasappointed to the Board of Directors of Delaware North in June 1995. He alsoserves as a director of BISYS, Inc. and as a director of RenaissanceReinsurance.

 

***William R. Greiner***. Dr. Greiner was appointed as a director andnamed a member of the Audit Committee in January 2003. Dr. Greiner is a law professor at the University at Buffalo, the StateUniversity of New York. From 1991 to 2003, Dr. Greiner served as theUniversity’s President and from 1984 through 1991, Dr. Greiner served as theUniversity’s Senior Vice President and Provost. From 1980 through August 1984,Dr. Greiner served as the University’s Associate Vice President for AcademicAffairs and Chief Academic Officer for the Division of Academic Affairs.

 

***Ronald A. Sultemeier***. Mr. Sultemeier was appointed as our ChiefExecutive Officer in March 2003. From October 1994 to November 2001, Mr.Sultemeier served as our Vice President and Treasurer. Mr. Sultemeier alsoserved as a director from October 1994 through January 2003. Mr. Sultemeierjoined Delaware North G&E in January 1994 and became President in 1995.From January 1981 to December 1993, Mr. Sultemeier held various seniormanagement positions at several greyhound racetracks, including TucsonGreyhound Park, Dairyland Greyhound Park and The Woodlands.

 

***Robert D. Marshall, Jr.***Mr. Marshall was appointed as our Presidentin July 2005. From 1993 to 1999 Mr. Marshall worked for Wyndham Hotels andResorts in various management positions, including General Manager 

 

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ofthe Wyndham Cleveland Hotel at Playhouse Square. From 2000 to 2002, Mr.Marshall served as Director of Facilities and Services for Accenture where hewas responsible for the facility services of several Accenture locations in theChicago area. Mr. Marshall joined Delaware North Companies Parks and Resorts,Inc., a Delaware North subsidiary, as Regional Vice President in 2002 andserved in that capacity until July 2005.

 

***James W. Simms***. Mr. Simms was appointed as our VicePresident of Marketing in January 2006. From February 2000 through July 2001Mr. Simms served as Direct Marketing Manager for Park Place Entertainment’s,Bally’s and Paris properties in Las Vegas. From 2001 to 2005, Mr. Simms servedas Director of Marketing for Ameristar Casinos, Inc. where he was responsiblefor developing the marketing plans for Ameristar’s Nevada properties. During2005 Mr. Simms served as Senior Director of Marketing for the Majestic StarCasino in Gary, Indiana.

 

***Michael D. Corbin***. Mr. Corbin was appointed as an InterimVice President of Finance in October 2005. Mr. Corbin has been theController for Delaware North G&E since April 1996. Prior to thatposition, he was Senior Financial Analyst for Delaware North. Mr. Corbin servedas our Vice President of Finance from November 2001 through May 2005.

 

**Audit Committee of the Board of Directors**

 

The Board of Directors has an AuditCommittee, which held eight meetings in 2005. The Audit Committee currentlyconsists of Messrs. Cooper and Greiner. The Board of Directors has determinedthat Thomas A. Cooper is an “audit committee financial expert,” within themeaning of the rules of the Securities and Exchange Commission. Both Mr. Cooperand Dr. Greiner qualify as “independent” as such term is used in Item7(d)(3)(iv) of Schedule 14A under the Exchange Act assuming the listingstandards of the National Association of Securities Dealers, Inc. applied.

 

TheAudit Committee oversees our financial reporting process and internal auditfunctions on behalf of the Board of Directors. In fulfilling itsresponsibility, the Audit Committee pre-approves the selection of ourindependent certified public accountants. The Audit Committee also reviews ourconsolidated financial statements and the adequacy of our internal controls.The Audit Committee meets at least quarterly with management and theindependent registered public accounting firm to review and discuss the resultsof their audit of the consolidated financial statements, their evaluation ofour internal controls, the overall quality of our financial reporting, ourcritical accounting policies and to review and approve any related partytransactions. Periodically the Audit Committee meets separately with theindependent certified public accountants.

 

# **Code of Ethics**

#  

Wehave adopted a Code of Ethics that applies to our President, Chief ExecutiveOfficer and Vice President of Finance. Our Code of Ethics can be found on ourInternet website at www.wheelingisland.com. In the future we intend to discloseany amendment to, or waiver of, a provision of the Code of Ethics that appliesto our President, Chief Executive Officer or Vice President of Finance on ourwebsite.

 

# **ITEM 11.    EXECUTIVECOMPENSATION**

#  

**Remunerationof Directors**

 

Outside directors are compensated for theirservices as follows: 

 

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•   An annual retainer fee of $25,000, payable inequal quarterly installments for serving on the Board of Directors.

 

•   An annual retainer fee of $15,000, payable inequal quarterly installments for each director who serves on the AuditCommittee.

 

•   A fee of $1,000 for each Board of Directorsmeeting and each Audit Committee Meeting attended. If the Board of Directorsmeeting and Audit Committee Meeting are held on the same day then a $1,000 feeis paid for participation at both meetings.

 

The reasonable expenses incurred by eachdirector in connection with his duties as a director are also reimbursed by us.A Board member who is also an employee of the Company or Delaware North doesnot receive compensation for service as a director.

 

**Compensation of Named Executive Officers**

 

The following table sets forth for our fiscal years endedDecember 31, 2003, December 31, 2004 and December 31, 2005, in prescribedformat, the compensation awarded, paid to or earned by our Chief Executive Officerand the other four most highly compensated “executive officers” whosecompensation exceeded $100,000 at December 31, 2005 (the “Named ExecutiveOfficers”):

 
| ** **                   | ** ** | **Annual Compensation** | ** ** |
|------------------------------|------------|------------------------------|------------|
| ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | **All Other** | ** ** |
| ** **                   | ** ** | **Year**                     | ** ** | **Salary $ ** | ** ** | **Bonus $** | ** ** | **Compensation $ (1)** | ** ** |
|                         |       |                         |       |   |   |   |   |   |   |
| Ronald A. Sultemeier (2)     |       | 2005                         |       | 256,376 |   | 94,938 |   | 21,855 |   |
| Chief Executive Officer      |       | 2004                         |       | 251,000 |   | 81,875 |   | 21,960 |   |
|                         |       | 2003                         |       | 245,000 |   | — |   | 22,005 |   |
|                         |       |                         |       |   |   |   |   |   |   |
| Robert D. Marshall, Jr. (3)  |       | 2005                         |       | 162,119 |   | 23,440 |   | 5,250 |   |
| President                    |       | 2004                         |       | — |   | — |   | — |   |
|                         |       | 2003                         |       | — |   | — |   | — |   |
|                         |       |                         |       |   |   |   |   |   |   |
| Eric H. Persson (4)          |       | 2005                         |       | 161,950 |   | — |   | 4,915 |   |
| Vice President of Operations |       | 2004                         |       | 109,991 |   | 25,313 |   | — |   |
|                         |       | 2003                         |       | — |   | — |   | — |   |
|                         |       |                         |       |   |   |   |   |   |   |
| Geoffry P. Andres (5)        |       | 2005                         |       | 103,778 |   | — |   | 2,576 |   |
| President                    |       | 2004                         |       | 213,942 |   | 93,355 |   | — |   |
|                         |       | 2003                         |       | — |   | — |   | — |   |
|                         |       |                         |       |   |   |   |   |   |   |
| James J. Rafferty (6)        |       | 2005                         |       | 164,216 |   | — |   | 2,611 |   |
| Vice President of Marketing  |       | 2004                         |       | 166,769 |   | 31,800 |   | 2,147 |   |
|                         |       | 2003                         |       | 144,615 |   | 12,532 |   | — |   |

 

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(1)     All Other Compensation represents ourcontributions to the retirement savings plans of the executive officers.

 

35

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(2)     Ronald A. Sultemeier is compensated byDelaware North G&E in his capacity as President of that company.

 

(3)     On August 1, 2005, Robert D. Marshall, Jr.became our President. His annual salary is $225,495. Mr. Marshall's annualbonus of $23,440 includes a signing bonus upon his becoming President onAugust 1, 2005 of $2,540.

 

(4)     Eric H. Persson resigned as our VicePresident of Operations in February 2006.

 

(5)     Geoffry P. Andres resigned as our Presidentin May 2005.

 

(6)     James J. Rafferty resigned as our VicePresident of Marketing in October 2005.

 

**REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION**

 

Compensationof executive officers and the Chief Executive Officer is governed by theexecutive compensation philosophy, policy and procedures of Delaware North.Annual base salary and variable compensation for each named executive officeris reviewed and approved by the compensation committee of the Delaware NorthBoard of Directors or the Compensation Committee.

 

**Compensation Philosophy**

 

Our compensation philosophy is to relate thecompensation of our executives to measures of our performance that contributeto our increased value and is based on the following goals:

 

•   Compensation policies, procedures andpractices are designed to attract and retain top quality management.

 

•   Total compensation must reflect a competitiveand performance-oriented environment that motivates executives to set andachieve aggressive goals in their respective areas of responsibility.

 

•   Incentive based compensation is contingentupon the performance of each executive against pre-established annual financialand strategic performance objectives.

 

The Board of Directors periodically reviewsthe components of compensation for our executive officers on the basis of itsphilosophy and goals.

 

**Executive Compensation Components**

 

Pay levels for each named executive officer,other than the Chief Executive Officer, largely reflect the recommendation ofthe Chief Executive Officer based upon individual experience and breadth ofknowledge, internal considerations, and other subjective factors.

 

The President’s salary is reviewed annuallyby the Chief Executive Officer in conjunction with a performance evaluation.The Chief Executive Officer will make a recommendation for salary adjustment tothe Compensation Committee for approval.

 

The President’s bonus compensation iscomputed as a percentage of base salary ranging from a minimum of 0% to amaximum of 50%. The actual percentage of base salary earned as bonuscompensation is based upon the achievement of the specific pre-establishedfinancial and strategic performance objectives, in accordance with the DelawareNorth Companies, Incorporated Target Incentive Plan, or the Target IncentivePlan.

 

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The salary compensation of the Vice Presidentof Finance is reviewed annually by the Chief Executive Officer in conjunctionwith a performance evaluation. The Chief Executive Officer makes arecommendation for a salary adjustment to Delaware North.

 

**Chief Executive Officer Compensation**

 

The salary compensation of the ChiefExecutive Officer is reviewed annually by the Compensation Committee.

 

The bonus compensation of the Chief ExecutiveOfficer is computed as a percentage of base salary ranging from a minimum of 0%to a maximum of 50%. The actual percentage of base salary earned as bonuscompensation is based upon the achievement of the specific pre-establishedfinancial and strategic performance objectives, in accordance with the TargetIncentive Plan.

 

**2005Target Incentive Plan Awards**

 

The 2005 cycle under the Target IncentivePlan began on January 1, 2005 and ended on December 31, 2005.Performance measures for the 2005 cycle consisted of 60% for financialobjectives and 40% for business objectives. For the position of Chief ExecutiveOfficer, the (i) financial objectives were based on the followingcomponents: 10% on Delaware North operating profit, 45% on Delaware NorthG&E operating profit and 5% on Delaware North G&E administrativeexpenses; and (ii) business objectives were based 25% on compliance withthe Sarbanes-Oxley Act and 15% on other selective business goals. For theposition of President, the (i) financial objectives were base on thefollowing components: 35% on Wheeling Island Gaming, Inc. operating profit, 10%on Delaware North G&E operating profit and 15% on Wheeling Island GamingInc. administrative expenses; and (ii) business objectives were based 20%on implementation of customer service programs and 20% on assessment ofperformance management. The awards for the 2005 cycle under the TargetIncentive Plan were approved by the Compensation Committee on February 27, 2006and included a pay-out to Ronald A. Sultemeier and Robert D. Marshall, Jr. of$94,938 and $20,900, respectively.

 
|   | THE BOARD OF DIRECTORS |
|--------|------------------------|
|   |                   |
|   | Charles  E. Moran, Jr. |
|   | Thomas  A. Cooper      |
|   | William  R. Greiner    |
|   | William  J. Bissett    |

 

**ITEM 12.    STOCKOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

# **Principal Stockholders**

 

Thefollowing table sets forth information regarding the shares of our common stockbeneficially owned by each stockholder who is known by us to beneficially ownin excess of 5.0% of the outstanding shares of our common stock, by eachdirector and named executive officer and by all executive officers and directorsas a group.

 
| **Name of Beneficial Owner**                    | ** ** | **Number of  Shares  Beneficially  Owned** | ** ** | **Percentage  of Class** | ** ** |
|----------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------|------------|
|                                                           |       |                                            |       |                          |       |
| Delaware North Companies Gaming &  Entertainment, Inc. (1) |       | 500                                             |       | 100                           | %          |
| Ronald A. Sultemeier                                           |       | 0                                               |       | 0                             |       |
| Robert D. Marshall, Jr.                                        |       | 0                                               |       | 0                             |       |
| James W. Simms                                                 |       | 0                                               |       | 0                             |       |
| Michael D. Corbin                                              |       | 0                                               |       | 0                             |       |
| William J. Bissett                                             |       | 0                                               |       | 0                             |       |
| Charles E. Moran, Jr.                                          |       | 0                                               |       | 0                             |       |
| Thomas A. Cooper                                               |       | 0                                               |       | 0                             |       |
| William R. Greiner                                             |       | 0                                               |       | 0                             |       |
| All executive officers and directors as a  group (8 persons)   |       | 0                                               |       | 0                             |       |

 

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(1)                                  The address for Delaware North CompaniesGaming & Entertainment, Inc. is 40 Fountain Plaza, Buffalo, New York 14202.

 

37

----

 

DelawareNorth G&E is our sole stockholder, and thus exercises control over allmatters that require approval by our stockholders, including the election ofdirectors and the approval of significant transactions. There can be noassurance that the interests of Delaware North G&E will not conflict withthe interests of the holders of our debt.

 

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

#  

Uponthe closing of the $125.0 million of unsecured senior notes in December 2001,we entered into an administrative services agreement with Delaware NorthG&E and Delaware North. Pursuant to this administrative services agreement,Delaware North G&E receives an annual administrative services fee that isequal to the greater of 1.5% of preceding year total operating revenues or$1.2 million for certain administrative support services provided to us byDelaware North G&E and Delaware North. During 2005, 2004, and 2003, werecorded administrative service fees of $1.9 million, $1.7 million, and $1.5million, respectively, under this agreement.

 

Weinvest our excess cash in a segregated account administered by Delaware Northunder its centralized cash management program. At December 31, 2005 andDecember 31, 2004, we had $0.2 million and $0.1 million invested with DelawareNorth, respectively. During 2005, 2004 and 2003, we earned $49,000, $11,000 and$16,000 million on these invested cash balances, respectively.

 

Atax sharing agreement with Delaware North and Delaware North G&E providesfor payment by us to Delaware North of amounts representing not more than theamount of tax that would be payable by us had we and our subsidiaries filed aseparate consolidated or combined tax return as a Subchapter C corporation forthe relevant taxing jurisdiction (less any tax directly paid by such personswith respect to such period).

 

Weparticipate in a comprehensive insurance program maintained by Delaware North.Risk-based premiums charged by and reimbursed to Delaware North amounted to$2.4 million in 2005, $1.6 million in 2004 and $1.0 million in 2003.

 

In December 2005, we paid a cash dividend of$12.0 million to Delaware North G&E. In 2004 and 2003 we paid cashdividends of $12.5 million and $12.0 million, respectively, to Delaware NorthG&E.

 

# **ITEM 14.    PRINCIPALACCOUNTANT FEES AND SERVICES**

 

*Audit Fees*

 

The following tablesummarizes fees billed to us for the fiscal years ended December 31, 2005 and2004:

 
| ** **                                       | ** ** | **Fiscal 2005** | ** ** | **Fiscal 2004** | ** ** |
|--------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| *Audit Fees-Annual Audit and Quarterly  Reviews* |       | $                    | 153,100    |                 | $          | 136,500 |   |
| Audit-Related Fees                               |       | 30,800               |       | —               |       |
| Tax Fees:                                        |       |                 |       |                 |       |
| *Tax Consulting, Advisory Services*              |       | —               |       | —               |       |
| *Tax Compliance, Planning and Preparation*       |       | —               |       | —               |       |
| All Other Fees                                   |       | —               |       | —               |       |
| Total Fees                                       |       | $                    | 183,900    |                 | $          | 136,500 |   |

 

38

----

 

The auditfees in the above table are related to the audit of our year-end financialstatements and the review of our interim financial statements. All suchaccounting fees and services are approved by the Audit Committee at thebeginning of each respective year in accordance with the Audit Committee’spre-approved procedures. Audit related fees in 2005 represent those feesassociated with procedures performed related to our goodwill and intangibleassets impairment testing and the change in our independent registered publicaccounting firm.

 

39

----

 

**PART IV**

 

**ITEM 15.****           ****EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 

## **(a)  Documents Filed as part of the Form 10-K**

## ** **

1.     The Consolidated Financial Statements of theCompany filed as part of this annual report are listed in the table of contentson page F-1.

 

2.     FinancialStatement Schedules

 

None.

 

3.     Exhibits

 

The Exhibitsrequired by Item 601 of Regulation S-K and filed herewith are listed in theIndex to Exhibits immediately preceding the Exhibits.

 

40

----

 

**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|   | WHEELING ISLAND GAMING, INC. |
|--------|------------------------------|
|   |                         |
|   |                         |
|   | By:                          | /s/ Ronald A. Sultemeier |
|   | Ronald A. Sultemeier         |
|   | Chief Executive Officer      |
|        |                              |  |  |

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| **Signature**             | ** ** | **Capacity** | ** **                        | **Date** |
|---------------------------|------------|--------------|-----------------------------------|----------|
|                      |       |         |                              |     |   |
|                      |       |         |                              |     |   |
| /s/ Ronald A. Sultemeier  |       |         | Chief Executive Officer           |     | March 31, 2006 |
| Ronald A. Sultemeier      |       |         | (principal executive officer)     |     |   |
|                      |       |         |                              |     |   |
|                      |       |         |                              |     |   |
| /s/ Michael D. Corbin     |       |         | Interim Vice President of Finance |     | March 31, 2006 |
| Michael D. Corbin         |       |         | (principal financial officer and  |     |   |
|                      |       |         | principal accounting officer)     |     |   |
|                      |       |         |                              |     |   |
|                      |       |         |                              |     |   |
| /s/ Charles E. Moran, Jr. |       |         | Chairman of the Board             |     | March 31, 2006 |
| Charles E. Moran, Jr.     |       |         |                              |     |   |
|                      |       |         |                              |     |   |
|                      |       |         |                              |     |   |
| /s/ William J. Bissett    |       |         | Director                          |     | March 31, 2006 |
| William J. Bissett        |       |         |                              |     |   |
|                      |       |         |                              |     |   |
|                      |       |         |                              |     |   |
| /s/ Thomas A. Cooper      |       |         | Director                          |     | March 31, 2006 |
| Thomas A. Cooper          |       |         |                              |     |   |
|                      |       |         |                              |     |   |
|                      |       |         |                              |     |   |
| /s/ William R. Greiner    |       |         | Director                          |     | March 31, 2006 |
| William R. Greiner        |       |         |                              |     |   |

 

41

----

 

**INDEX TO EXHIBITS**

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **No.**     | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                           |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.1         |       | Certificate of Incorporation of  Wheeling Island Gaming, Inc. (the “Company”) (incorporated by reference to  Exhibit 3.1 of the Company’s Registration Statement on Form S-4 (Registration  No. 333-81778))                                                                                                                                                                |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 3.2         |       | Restated By-laws of the Company  (incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on  Form 10-K for fiscal year ended on December 31, 2002)                                                                                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.1         |       | Indenture, dated as of December 19,  2001, by and among the Company, the Guarantors (as defined therein) and U.S.  Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 of the  Company’s Registration Statement on Form S-4 (Registration No. 333-81778))                                                                                                               |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.2         |       | Notation of Guarantee, WDRA Food  Service, Inc. (“WDRA”) as Guarantor (incorporated by reference to Exhibit 4.2  of the Company’s Registration Statement on Form S-4 (Registration No.  333-81778))                                                                                                                                                                        |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.3         |       | Notation of Guarantee, Wheeling Land  Development Corp. (“Wheeling Land”) as Guarantor (incorporated by reference  to Exhibit 4.3 of the Company’s Registration Statement on Form S-4  (Registration No. 333-81778))                                                                                                                                                       |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.4         |       | Registration Rights Agreement, dated as  of December 19, 2001, by and among the Company as Issuer, WDRA and Wheeling  Land as Guarantors and Banc of America Securities LLC and Wells Fargo  Brokerage Services LLC (incorporated by reference to Exhibit 4.4 of the  Company’s Registration Statement on Form S-4 (Registration No. 333-81778))                                     |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.1        |       | Amended and Restated Loan Agreement,  dated as of December 14, 2001, by and among the Company as Borrower, the  Lenders and Syndication Agent referred to therein and Bank of America, N.A.  as Administrative Agent for itself and the other Lenders (incorporated by  reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-4  (Registration No. 333-81778)) |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.2        |       | Purchase Agreement, dated as of  December 12, 2001, by and among the Company as Issuer, WDRA and Wheeling Land  as Guarantors and Banc of America Securities LLC and Wells Fargo Brokerage  Services LLC (incorporated by reference to Exhibit 10.2 of the Company’s  Registration Statement on Form S-4 (Registration No. 333-81778))                                               |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.3        |       | Stock Redemption Agreement, dated as of  November 16, 2001, by and among the Company, WHX Entertainment Corp. and  Sportsystems Corporation (incorporated by reference to Exhibit 10.3 of the  Company’s Registration Statement on Form S-4 (Registration No. 333-81778))                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.4        |       | Advisory Services Agreement, dated as  of November 16, 2001, by and between the Company and Delaware North  Companies, Incorporated (incorporated by reference to Exhibit 10.4 of the  Company’s Registration Statement on Form S-4 (Registration No. 333-81778))                                                                                                                    |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.5        |       | Administrative Services Agreement,  effective as of December 19, 2001, by and among the Company, Sportsystems  Corporation (now known as Delaware North G&E), Delaware North G&E,  formerly and                                                                                                                                                                                   |

 

42

----

 
|   |   | Delaware North Companies, Incorporated  (incorporated by reference to Exhibit 10.5 of the Company’s Registration  Statement on Form S-4 (Registration No. 333-81778))                                                                                                                                                    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10.6   |   | Tax Sharing Agreement, effective as of  December 20, 2001, by and among Delaware North Companies, Incorporated,  Sportsystems Corporation and the Company for itself and its subsidiaries  (incorporated by reference to Exhibit 10.6 of the Company’s Registration  Statement on Form S-4 (Registration No. 333-81778)) |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10.7   |   | Agreement dated as of September 1, 2001  between the Company and Louis P. Ciminelli Construction Company, Inc.  (incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on  Form 10-K for fiscal year ended on December 31, 2002)                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10.8   |   | Delaware  North Companies, Incorporated Target Incentive Plan Document*                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 21.1   |   | List of subsidiaries of the Company  (incorporated by reference to Exhibit 21.1 of the Company’s Registration  Statement on Form S-4 (Registration No. 333-81778))                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 31.1   |   | Certification by Chief Executive  Officer of the Company as required by Section 302 of the Sarbanes-Oxley Act of  2002*                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 31.2   |   | Certification by President of the  Company as required by Section 302 of the Sarbanes-Oxley Act of 2002 *                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 31.3   |   | Certification by Chief Financial  Officer of the Company as required by Section 302 of the Sarbanes-Oxley Act  of 2002 *                                                                                                                                                                                                      |

 

----

| * |   | Filed herewith. |
|---|--------|-----------------|

 

43

----

 

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| ** **                                                                                 | ** ** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------|
|                                                                                       |       |       |
| Report  of Independent Registered Public Accounting Firm                                   |       | F-2        |
|                                                                                       |       |       |
| Consolidated Balance Sheet    As of December 31, 2005 and 2004                             |       | F-3        |
|                                                                                       |       |       |
| Consolidated Statement of  Operations   Years Ended December 31, 2005, 2004 and 2003       |       | F-4        |
|                                                                                       |       |       |
| Consolidated Statements of  Cash Flows   Years Ended December 31, 2005, 2004 and 2003      |       | F-5        |
|                                                                                       |       |       |
| Notes to Consolidated  Financial Statements   Years Ended December 31, 2005, 2004 and 2003 |       | F-6        |

 

F-1

----

 

**Report of Independent Registered Public Accounting Firm**

 

To the Board of Directors and Shareholder of

Wheeling Island Gaming, Inc.

 

In our opinion, the accompanying consolidatedbalance sheets and the related consolidated statements of operations and ofcash flows present fairly, in all material respects, the financialposition of Wheeling Island Gaming, Inc. and its subsidiaries atDecember 31, 2005 and 2004, and the results of their operations and theircash flows for each of the three years in the period ended December 31, 2005,in conformity with accounting principles generally accepted in the UnitedStates of America. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits. We conducted our audits of thesestatements in accordance with standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used, and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

 
| /s/ PricewaterhouseCoopers LLP |   |
|--------------------------------|--------|

PricewaterhouseCoopers LLP

Buffalo, New York

 

March 28, 2006

 

F-2

----

 

**WHEELINGISLAND GAMING, INC.**

 

**Consolidated Balance Sheet**

**($000’somitted)**

 

 
| ** **                                                                                                | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                | ** ** | **2005**              | ** ** | **2004** | ** ** |
| **Assets**                                                                                                | ** ** | ** **            | ** ** | ** ** | ** ** |
|                                                                                                      |       |                  |       |   |   |
| Current assets:                                                                                           |       |                  |       |   |   |
| Cash and cash equivalents                                                                                 |       | $                     | 11,957     |   | $ | 10,509 |   |
| Receivables, net of allowance                                                                             |       | 2,925                 |       | 3,547 |   |
| Prepaid expenses and other assets                                                                         |       | 1,104                 |       | 1,266 |   |
| Deferred income taxes                                                                                     |       | 2,188                 |       | 1,914 |   |
|                                                                                                      |       |                  |       |   |   |
| Total current assets                                                                                      |       | 18,174                |       | 17,236 |   |
|                                                                                                      |       |                  |       |   |   |
| Property and equipment, net                                                                               |       | 90,649                |       | 92,685 |   |
| Operating licenses                                                                                        |       | 65,919                |       | 65,919 |   |
| Goodwill                                                                                                  |       | 32,221                |       | 32,221 |   |
| Non-compete covenant                                                                                      |       | 2,902                 |       | 5,902 |   |
| Other intangible assets                                                                                   |       | 2,170                 |       | 2,209 |   |
| Debt issuance costs                                                                                       |       | 3,075                 |       | 3,914 |   |
|                                                                                                      |       |                  |       |   |   |
| Total assets                                                                                              |       | $                     | 215,110    |   | $ | 220,086 |   |
|                                                                                                      |       |                  |       |   |   |
| **Liabilities and Shareholders’ Equity**                                                             |       |                  |       |   |   |
|                                                                                                      |       |                  |       |   |   |
| Current liabilities:                                                                                      |       |                  |       |   |   |
| Accounts payable – trade                                                                             |       | $                     | 4,586      |   | $ | 5,004 |   |
| Accounts payable - affiliate                                                                              |       | 4,489                 |       | 3,024 |   |
| Accrued expenses                                                                                          |       | 6,735                 |       | 8,438 |   |
| Income taxes payable                                                                                      |       | 455                   |       | 772 |   |
|                                                                                                      |       |                  |       |   |   |
| Total current liabilities                                                                                 |       | 16,265                |       | 17,238 |   |
|                                                                                                      |       |                  |       |   |   |
| Long-term debt                                                                                            |       | 134,000               |       | 142,250 |   |
| Deferred income tax                                                                                       |       | 27,543                |       | 28,210 |   |
|                                                                                                      |       |                  |       |   |   |
| Total liabilities                                                                                         |       | 177,808               |       | 187,698 |   |
|                                                                                                      |       |                  |       |   |   |
| Shareholders’ equity:                                                                                |       |                  |       |   |   |
| Common stock, $1 par value, 500 shares  authorized, issued and outstanding in 2005 and 2004, respectively |       | 1                     |       | 1 |   |
| Additional paid-in capital                                                                                |       | 5,915                 |       | 5,915 |   |
| Retained earnings                                                                                         |       | 31,386                |       | 26,472 |   |
|                                                                                                      |       |                  |       |   |   |
| Total shareholders’ equity                                                                           |       | 37,302                |       | 32,388 |   |
|                                                                                                      |       |                  |       |   |   |
| Total liabilities and shareholder’s equity                                                           |       | $                     | 215,110    |   | $ | 220,086 |   |

 

Theaccompanying notes are an integral part of these financial statements

 

F-3

----

 

**WHEELINGISLAND GAMING, INC.**

 

**Consolidated Statement of Operations**

**($000’somitted)**

 
| ** **                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                               | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating revenue:                       |       |                                       |       |   |   |   |   |
| Gaming revenue                           |       | $                                          | 96,368     |   | $ | 100,378 |   | $ | 88,634 |   |
| Pari-mutuel revenue                      |       | 7,052                                      |       | 6,841 |   | 7,704 |   |
| Food & beverage revenue              |       | 8,273                                      |       | 7,782 |   | 6,066 |   |
| Lodging revenue                          |       | 2,528                                      |       | 2,468 |   | 1,542 |   |
| Other revenue                            |       | 2,708                                      |       | 1,947 |   | 1,357 |   |
|                                     |       | 116,929                                    |       | 119,416 |   | 105,303 |   |
|                                     |       |                                       |       |   |   |   |   |
| Operating expenses:                      |       |                                       |       |   |   |   |   |
| Purse expense                            |       | 20,129                                     |       | 21,473 |   | 20,147 |   |
| Gaming costs                             |       | 7,095                                      |       | 7,440 |   | 7,025 |   |
| Pari-mutuel costs                        |       | 4,058                                      |       | 3,521 |   | 3,772 |   |
| Food & beverage costs                |       | 9,453                                      |       | 8,444 |   | 6,857 |   |
| Lodging expenses                         |       | 1,208                                      |       | 1,239 |   | 810 |   |
| Other expenses                           |       | 819                                        |       | 739 |   | 339 |   |
| Marketing and promotions                 |       | 9,327                                      |       | 8,258 |   | 6,568 |   |
| Facilities and maintenance               |       | 10,448                                     |       | 9,704 |   | 7,309 |   |
| General and administrative               |       | 6,789                                      |       | 6,404 |   | 5,117 |   |
| Business interruption insurance proceeds |       | (1,861                                     | )          | — |   | — |   |
| Depreciation and amortization            |       | 11,347                                     |       | 11,693 |   | 9,630 |   |
|                                     |       |                                       |       |   |   |   |   |
|                                     |       | 78,812                                     |       | 78,915 |   | 67,574 |   |
|                                     |       |                                       |       |   |   |   |   |
| Operating income                         |       | 38,117                                     |       | 40,501 |   | 37,729 |   |
| Interest expense, net                    |       | (13,967                                    | )          | (14,338 | ) | (14,013 | ) |
| Casualty recovery (loss), net            |       | 1,893                                      |       | (4,308 | ) | — |   |
| Other income (expense), net              |       | (69                                        | )          | (254 | ) | 1 |   |
| Income before income tax                 |       | 25,974                                     |       | 21,601 |   | 23,717 |   |
| Income tax expense                       |       | 9,060                                      |       | 7,593 |   | 8,325 |   |
|                                     |       |                                       |       |   |   |   |   |
| Net income                               |       | $                                          | 16,914     |   | $ | 14,008 |   | $ | 15,392 |   |

 

Theaccompanying notes are an integral part

ofthese financial statements

 

F-4

----

 

**WHEELINGISLAND GAMING, INC.**

 

**Consolidated Statements of Cash Flows**

**($000’somitted)**

 
| ** **                                                                          | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                          | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash flows relating to operating  activities:                                       |       |                                       |       |   |   |   |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Net income                                                                          |       | $                                          | 16,914     |   | $ | 14,008 |   | $ | 15,392 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities - |       |                                       |       |   |   |   |   |
| Depreciation and amortization                                                       |       | 11,347                                     |       | 11,693 |   | 9,630 |   |
| Deferred income tax                                                                 |       | (940                                       | )          | (2,857 | ) | 5,715 |   |
| Other                                                                               |       | 916                                        |       | 1,148 |   | 838 |   |
| Change in assets and liabilities:                                                   |       |                                       |       |   |   |   |   |
| Receivables                                                                         |       | 622                                        |       | 3,338 |   | (4,446 | ) |
| Prepaid expenses and other assets                                                   |       | 162                                        |       | (76 | ) | (711 | ) |
| Prepaid income taxes                                                                |       | —                                     |       | 2,390 |   | (1,323 | ) |
| Accounts payable – trade                                                       |       | (1,333                                     | )          | (372 | ) | 1,883 |   |
| Accrued expenses - affiliate                                                        |       | 1,465                                      |       | 1,832 |   | (1,249 | ) |
| Accrued expenses                                                                    |       | (1,702                                     | )          | 2,603 |   | 2,473 |   |
| Income taxes payable                                                                |       | (317                                       | )          | 772 |   | — |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Net cash provided by operating activities                                           |       | 27,134                                     |       | 34,479 |   | 28,202 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Cash flows relating to investing  activities:                                       |       |                                       |       |   |   |   |   |
| Payments for capital expenditures                                                   |       | (6,381                                     | )          | (4,993 | ) | (47,052 | ) |
| Net cash used in investing activities                                               |       | (6,381                                     | )          | (4,993 | ) | (47,052 | ) |
|                                                                                |       |                                       |       |   |   |   |   |
| Cash flows relating to financing  activities:                                       |       |                                       |       |   |   |   |   |
| Change in cash overdrafts                                                           |       | 945                                        |       | 756 |   | — |   |
| Proceeds from long-term borrowings                                                  |       | —                                     |       | — |   | 32,500 |   |
| Repayment of long-term borrowings                                                   |       | (8,250                                     | )          | (16,750 | ) | — |   |
| Dividends paid                                                                      |       | (12,000                                    | )          | (12,500 | ) | (12,000 | ) |
| Net cash (used) provided by financing  activities                                   |       | (19,305                                    | )          | (28,494 | ) | 20,500 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Net increase in cash                                                                |       | 1,448                                      |       | 992 |   | 1,650 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Cash balances:                                                                      |       |                                       |       |   |   |   |   |
| Beginning of period                                                                 |       | 10,509                                     |       | 9,517 |   | 7,867 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| End of period                                                                       |       | $                                          | 11,957     |   | $ | 10,509 |   | $ | 9,517 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Supplemental disclosure:                                                            |       |                                       |       |   |   |   |   |
| Cash paid during the period for -                                                   |       |                                       |       |   |   |   |   |
| Income taxes                                                                        |       | $                                          | 10,316     |   | $ | 7,288 |   | $ | 3,933 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Interest                                                                            |       | $                                          | 13,251     |   | $ | 13,473 |   | $ | 13,579 |   |

 

Theaccompanying notes are an integral partof these financial statements

 

F-5

----

 

**WHEELINGISLAND GAMING, INC.**

 

**Notes to Consolidated Financial Statements**

**($000’somitted)**

 

**1.****                         ****Significant accountingpolicies**

 

## **Business andownership**

## ** **

WheelingIsland Gaming, Inc. (the “Company”) owns and operates Wheeling Island Racetrack& Gaming Center, a premier gaming and entertainment complex located inWheeling, West Virginia. Business operations are comprised of slot machinegaming, a greyhound racetrack, pari-mutuel wagering on live greyhound racingand simulcast greyhound, thoroughbred and harness racing and various diningvenues.

 

TheCompany is a wholly owned subsidiary of Delaware North Companies Gaming &Entertainment, Inc. (“DNC G&E”). Prior to October 2004, DNC G&E wasSportsystems Corporation. DNC G&E is a wholly owned subsidiary of DelawareNorth Companies, Incorporated (“DNC”).

 

**Principles of consolidation**

 

Theconsolidated financial statements include the accounts of the Company and allof its wholly owned subsidiaries, which consist of WDRA Food Service, Inc. andWheeling Land Development Corp. All significant intercompany balances andtransactions have been eliminated in consolidation.

 

**Cash and cash equivalents**

 

The Company considers short-term, highly liquid investmentswith an original maturity of three months or less to be cash equivalents.Interest-bearing time deposits of $245 and $134 are included in cash and cashequivalents as of December 31, 2005 and 2004, respectively.

 

**Fair value of financial instruments**

 

The carrying value of the Company’s cash and cashequivalents, trade and other receivables and trade payables approximates fairvalue primarily because of the short maturities of these instruments. The fairmarket value of the Company’s Senior Notes at December 31, 2005 is $131.1million based on their trading value in the open market. The Company’sRevolving Credit Facility approximates fair value based upon its market-basedvariable interest rate.

 

**Property and equipment**

 

Property and equipment are stated at cost. Expendituresthat extend the useful lives of assets are capitalized, while repair andmaintenance costs are charged to operations as incurred. Depreciation iscomputed principally using the straight-line method over the estimated usefullives of the assets.

 

F-6

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## **Intangibleassets**

## ** **

Indefinite-livedintangible assets consisting of licenses, trade name and goodwill are stated atcost which is equal to fair value at their acquisition date. In accordance withSFAS 142, these assets are not subject to amortization for book or taxpurposes. The Company assesses such assets for impairment annually or morefrequently if warranted by known economic circumstances. The non-competecovenant is being amortized over its term of five years and the value assignedto the Company’s customer relationships is amortized over its 20 year estimatedlife.

 

**Impairment oflong-lived assets, including goodwill and other intangible assets**

 

The carrying value oflong-lived assets, including property and equipment and amortizable intangibleassets, are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying value may not be recoverable. The recoverability ofthe carrying value of long-lived assets, is assessed by estimating theundiscounted cash flows that are directly associated with and expected to arisefrom the use of and eventual disposition of such assets over their respectiveestimated useful lives. If the carrying value of the assets exceeds theestimated undiscounted cash flows, an impairment charge is recorded to theextent the carrying value of the long-lived asset exceeds its fair value. Thefair value is generally estimated based on the discounted cash flow method.

 

The Company evaluates itsgoodwill and indefinite-lived intangible assets for impairment at leastannually and whenever facts and circumstances indicate that the carrying valueof goodwill and indefinite-lived intangible assets may not be recoverable. Toassess goodwill for impairment, the carrying value of the Company is comparedto the fair value of the Company. If the carrying value of the Company exceedsits fair value, the second step in the assessment process would be performedand an impairment charge to earnings would be recorded to the extent thecarrying amount of the goodwill exceeds its implied fair value. Any carryingamount in excess of the fair value of the indefinite-lived intangible assets isrecorded as an impairment charge to earnings. Fair value is generally estimatedbased on the discounted cash flow method.

 

The Company performed itsannual assessment of the carrying value of the operating licenses and goodwillfor impairment as of December 31, 2005. The results of such assessmentindicated that no impairment charges are required.

 

**PreferredPlayer Program**

 

The Company offers a programwhereby participants can accumulate points for casino wagering that cancurrently be redeemed for cash, food and beverages and retail offers. Aliability is recorded for the estimate of unredeemed points based on theCompany’s redemption history. Points redeemed for cash are recognized as areduction in revenues while points redeemed for food and beverage and otherretail offers are recognized as promotional expenses. See further discussion inNote 2.

 

**PromotionalAllowances**

 

Food and beverage, lodging andother revenues do not include the retail amount of rooms, food, and beverageand entertainment provided gratuitously to customers, which totaled $6,837,$5,609 and $3,870 for the years ended December 31, 2005, 2004 and 2003,respectively.

 

F-7

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## **Advertisingcosts**

## ** **

Advertising costs are charged to operations when incurred.During 2005, 2004 and 2003, advertising expense totaled $961, $1,401 and$1,116, respectively.

 

**Debt issuance costs**

 

Costs incurred in connection with the issuance of long-termdebt are capitalized and amortized over the terms of the related debtagreements through periodic charges to interest expense.

 

**Income tax**

 

TheCompany follows the asset and liability approach to account for income taxes.This approach requires the recognition of deferred tax assets and liabilitiesfor the expected future tax consequences of temporary differences between thecarrying amounts and tax bases of assets and liabilities.

 

The federal taxable income of the Company is included in theconsolidated federal income tax return of DNC and subsidiaries. Pursuant to atax sharing agreement, the portion of the consolidated federal income taxprovision allocated to the Company is that which would result if the Companyfiled a federal income tax return with its subsidiaries on a stand-alone basis.Federal income taxes included in the accompanying balance sheets at December31, 2005 and December 31, 2004 are due to DNC.

 

**Reclassification of balances**

 

Certainprior year amounts have been reclassified in order to conform to thepresentation used in the 2005 financial statements.

 

## **Use ofestimates in the preparation of financial statements**

## ** **

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Such estimates are particularly important in theevaluation for impairment of goodwill and other intangible assets. Theseestimates consider the impact of gaming in western Pennsylvania in the near futureand other factors. Actual results could differ from those estimates.

 

**2.****                         ****Recent AccountingPronouncements**

 

InMay 2005, the FASB issued SFAS No. 154, “Accounting Changes and ErrorCorrections,” a replacement of APB Opinion No. 20 and FASB Statement No. 3,which changes the requirements for the accounting for and reporting of a changein accounting principle. SFAS No. 154 applies to all voluntary changes inaccounting principles, as well as to changes required by an accountingpronouncement if the pronouncement does not include specific transitionprovisions. The statement requires retrospective application to prior periods’financial statements of changes in accounting principles. SFAS No. 154 iseffective for accounting changes and corrections of errors made in fiscal 

 

F-8

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yearsbeginning after December 15, 2005. The Company does not expect the adoption ofSFAS No. 154 to have a material effect on its consolidated financial position,results of operations, or cash flows.

 

**3.****                         ****Revenues and costs**

 

# **Gamingrevenues represent gross revenues from slot machine gaming, or total amountswagered, net of winning patron payouts (the “gross terminal income”) less (1) afee of up to 4% of gross terminal income paid to the Lottery Commission foradministering slot machine gaming at the licensee’s race track (the“administration fee”), (2) a tax of 30% of net terminal income (gross terminalincome less the administration fee) paid to the State’s general revenue fund, (3)an amount of 9.5% of net terminal income (NTI) to be paid to various statefunds, including funds for tourism promotion, Ohio County, employee retirementprograms and other programs and (4) an amount of 7% of NTI to be paid to theState’s Worker’s Compensation debt reduction fund up to a maximum amount of$11,000 in any state fiscal year.**

#  

Thestate deducts a 10% surcharge from all amounts of NTI above a predeterminedlevel, defined as the NTI generated for the state’s fiscal year ended June 30,2001. The remainder of the excess NTI is divided as follows: 50% is returned tothe racetrack (of which 8% represents supplemental purse expense), 41% is paidto the state’s general revenue fund and the remaining 9% is divided amongvarious state funds. Of the total 10% surcharge, 42% is deposited in a capitalreinvestment account attributable to each racetrack. The racetrack is entitledto recoup monies in the capital reinvestment account for certain types ofcapital improvements made at the racetrack on a dollar-for-dollar basis. Allrevenues derived from the operation of slot machines must initially bedeposited with the Lottery Commission to be shared in accordance with theprovisions of the Lottery Act.

 

TheCompany accrues the expected surcharge amount ratably during the year basedupon estimates of the actual amounts expected to be paid in each state fiscalyear. The recoupment of amounts held in the capital reinvestment account, and asimilar fund held by the West Virginia Racing Commission to be used for racetrackcapital improvements, are included in gaming revenues during the period inwhich they are earned and approved qualifying expenditures made. Excessqualifying expenditures may be carried forward for recoupment in futureperiods, subject to certain statutory limitations. During 2005, the Companyrecognized recoupments of $4,352 as an element of reported gaming revenue.

 

Gaming purse expense represents payments made to greyhoundowners to supplement pari-mutuel purses as required by law. Such payments equal7% of the base amount NTI plus any base NTI portion allocated to the Worker’sCompensation debt reduction fund that exceeds the $11,000 maximum, and 8% ofthe excess NTI over the base amount after the 10% surcharge is applied. TheCompany accrues gaming purse expense ratably during the year, based uponestimates of the actual amounts expected to be paid in each state fiscal year.

 

Under annually renewable licenses granted by the State ofWest Virginia Racing Commission, the Company conducts live racing events andsimulcasts races from other racetrack facilities.

 

Pari-mutuel revenue represents the Company’s commissionsearned from on-site pari-mutuel wagering during live racing and simulcasting,net of state pari-mutuel taxes and simulcast commissions paid. Thesecommissions are calculated as specified by applicable state statutes based onpercentages applied to various types of pari-mutuel wagering pools. Statepari-mutuel taxes and simulcast commissions paid 

 

F-9

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are based on specified percentages of the wagering pools.The Company also receives commissions for its events that are simulcast toother racetrack facilities. These commissions are based upon contractualpercentages of amounts wagered or stated amounts per performance. A portion ofthe Company’s pari-mutuel revenue and interest earned thereon are restricted bystatute for capital improvements and other specific uses, and are deposited ina segregated account. Restricted commissions amounted to $300, $305 and $380 in2005, 2004 and 2003, respectively. At December 31, 2005 the Company had madeunreimbursed qualifying expenditures of $39,803, which are reimbursable fromfuture restricted commissions earned.

 

Pari-mutuel purse expense represents statutory andcontractual percentages of pari-mutuel handle paid by the Company to greyhoundowners and kennel operators.

 

Foodand beverage and lodging revenue is recognized at the time of the sale tocustomers and does not include the retail value of food and beverage andlodging rooms provided gratuitously to customers.

 

**4.****                         ****Casualty Loss**

 

InSeptember 2004 and January 2005, our gaming and racing facilities were damagedas a result of flooding of the Ohio River. On each occasion the Companyincurred substantial repair costs and was forced to suspend all operations forseveral days resulting in a loss of operating profits. For the fiscal yearended December 31, 2005 the Company recorded a net casualty loss recovery of$1,893, which is comprised of insurance reimbursements totaling $3,610 and$1,677 for the September 2004 and January 2005 floods, respectively, offset byflood related expenses of $630 and $2,764 respectively. Also during 2005,business interruption insurance proceeds recorded as credits to operatingexpenses totaled $1,300 and $561 for the September 2004 and January 2005 floodsrespectively. Additional insurance proceeds are expected and will be recognizedwhen realized.

 

During 2004 the Companyrecorded a net casualty loss of $4,308, which represents flood repair costsincurred for the September 2004 flood. In addition, during 2004 the Companyrecorded a $280 loss included in other expense, which represents the netcarrying value of equipment assets lost during the September flood. Theequipment assets that were purchased to replace the lost equipment wererecorded as capital expenditures during 2004 and totaled $326.

 

**5.****                         ****Intangible assets**

 

Intangibleassets at December 31, 2005 and 2004 are comprised of the following:

 
| ** **                     | ** ** | **December, 31  2005** | ** ** | **December, 31  2004** | ** ** | **Estimated  Life** | ** ** |
|--------------------------------|------------|-----------------------------|------------|-----------------------------|------------|---------------------|------------|
|                           |       |                        |       |                        |       |                |       |
| Operating Licenses             |       | $                           | 65,919     |                        | $          | 65,919              |       | Indefinite |   |
| Goodwill                       |       | 32,221                      |       | 32,221                      |       | Indefinite          |       |
| Non-compete covenant           |       | 15,000                      |       | 15,000                      |       | 5 years             |       |
| Less: accumulated amortization |       | (12,098                     | )          | (9,098                      | )          |                |       |
|                           |       | $                           | 2,902      |                        | $          | 5,902               |       |   |   |
| Trade name                     |       | $                           | 1,539      |                        | $          | 1,539               |       | Indefinite |   |
| Customer relationships         |       | 778                         |       | 778                         |       | 20 years            |       |
| Less: accumulated amortization |       | (157                        | )          | (118                        | )          |                |       |
| Other                          |       | 10                          |       | 10                          |       | Indefinite          |       |
| Other intangible assets        |       | $                           | 2,170      |                        | $          | 2,209               |       |   |   |

 

F-10

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The Company amortizes its finite-lived intangibles overtheir estimated lives on a straight-line basis. Amortization expense of $3,039was recorded during each fiscal year of 2005, 2004, and 2003. Estimatedamortization expense for the next five years is $2,941 for 2006, and $39 foreach of years 2007, 2008, 2009 and 2010.

 

**6.****                         ****Property and equipment, net**

 
| ** **                     | ** ** | **Estimated life** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **in years**       | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                     | ** ** | ** **              | ** ** | ** **            | ** ** | ** ** | ** ** |
| Land                           |       | n/a                     |       | $                     | 1,865      |   | $ | 1,865 |   |
| Land improvements              |       | 10                      |       | 7,966                 |       | 7,966 |   |
| Buildings and improvements     |       | 40                      |       | 79,474                |       | 78,617 |   |
| Equipment                      |       | 3 - 10                  |       | 41,968                |       | 37,093 |   |
| Construction in progress       |       | n/a                     |       | 741                   |       | 351 |   |
|                           |       |                    |       |                  |       |   |   |
|                           |       |                    |       | 132,014               |       | 125,892 |   |
| Less: accumulated depreciation |       |                    |       | (41,365               | )          | (33,207 | ) |
|                           |       |                    |       |                  |       |   |   |
|                           |       |                    |       | $                     | 90,649     |   | $ | 92,685 |   |

 

Depreciationexpense was $8,308, $8,654, and $6,589 for the years ended December 31, 2005,2004 and 2003, respectively.

 

**7.****                         ****Accrued expenses**

 

Accruedexpenses at December 31, 2005 and 2004 are comprised of the following:

 
| ** **                   | ** ** | **December 31,** | ** ** |
|------------------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Gaming liability             |       | $                     | 1,440      |   | $ | 1,235 |   |
| Accrued property taxes       |       | 1,331                 |       | 1,404 |   |
| Accrued interest             |       | 614                   |       | 688 |   |
| Accrued payroll and benefits |       | 1,029                 |       | 1,163 |   |
| Deferred income              |       | 1,567                 |       | 1,746 |   |
| All other                    |       | 754                   |       | 2,202 |   |
|                         |       |                  |       |   |   |
|                         |       | $                     | 6.735      |   | $ | 8,438 |   |

 

**8.****                         ****Long-term debt**

 

In 2001, the Company issued $125,000 in unsecured SeniorNotes. The Senior Notes bear interest at 10.125%, payable semi-annually in Juneand December, and mature on December 15, 2009. Issuance costs totaling $6,001were incurred in connection with the Senior Notes and are being amortized on astraight-line basis over the term thereof. Amortization is included withinterest expense and amounted to $753 for each of the years ended December 31,2005, 2004 and 2003. The related debt agreement requires the Company to complywith certain covenants, which include limitations on additional debt,restrictions on distributions to, and other transactions with, affiliates andcertain investments. The Senior Notes are fully and unconditionally guaranteedby all of the Company’s subsidiaries on a joint and several basis. At December31, 2005 the subsidiaries, WDRA Food Service, Inc. and Wheeling LandDevelopment Corp. had aggregate subsidiary assets of $673, which consisted ofland.

 

F-11

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The Company mayredeem all or a part of the Senior Notes at stipulated redemption prices. TheCompany may also redeem the Senior Notes of any holder that is unable to complywith the provisions of any racing or gaming law. Any holder can require theCompany to redeem its Senior Notes at 101% of the principal amount thereof uponthe occurrence of a change in control of the Company.

 

Also in 2001, the Company executed a $40,000 securedRevolving Credit Facility (Revolver) with a bank group. In 2003, the Companyexecuted an increase in the available commitment under the Revolver from$40,000 to $50,000. As of December 31, 2005, the Company had drawn $9,000against the Revolver. The Revolver includes a $5,000 letter of creditcomponent, and is secured by the assets of the Company. Interest is based onLIBOR plus a stated percentage or, at the Company’s option, the lead bank’scommercial base rate plus a stated percentage. At December 31, 2005, the lowestapplicable rate was 6.6%. A commitment fee is payable quarterly on the unusedbalance. The Revolver provides for quarterly reductions of $3,125 to thecommitment, which began in December 2003, and continued until the commitmentwas reduced to $25,000 at September 30, 2005. At December 31, 2005 thecommitment balance remains at $25,000. The Revolver matures in January 2007.The related debt agreement requires the Company to comply with certaincovenants, which include limitations on additional debt, restrictions ondistributions to, and other transactions with, affiliates, a maximum leverageratio, a minimum cash flow coverage ratio and limitations on certaininvestments. The Company is in full compliance with all covenants.

 

Issuance costs totaling $427 were incurred in connectionwith the Revolver and are being amortized over its term. Amortization isincluded with interest expense and amounted to $85 for 2005, $85 for 2004 and$86 for 2003.

 

**9.****                          Shareholder’sequity**

 
| ** **                   | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in capital** | ** ** | **Retained  Earnings** | ** ** | **Total** | ** ** |
|------------------------------|------------|-------------------|------------|--------------------------------------|------------|------------------------|------------|-----------|------------|
|                         |       |              |       |                                 |       |                   |       |      |       |
| Balance at December 31, 2002 |       | $                 | 1          |                                 | $          | 5,915                  |       | $         | 21,572     |   | $ | 27,488 |   |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Net income                   |       | —            |       | —                               |       | 15,392                 |       | 15,392    |       |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Less: Dividends Paid         |       | —            |       | —                               |       | (12,000                | )          | (12,000   | )          |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Balance at December 31, 2003 |       | $                 | 1          |                                 | $          | 5,915                  |       | $         | 24,964     |   | $ | 30,880 |   |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Net income                   |       | —            |       | —                               |       | 14,008                 |       | 14,008    |       |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Less: Dividends Paid         |       | —            |       | —                               |       | (12,500                | )          | (12,500   | )          |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Balance at December 31, 2004 |       | $                 | 1          |                                 | $          | 5,915                  |       | $         | 26,472     |   | $ | 32,388 |   |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Net income                   |       | —            |       | —                               |       | 16,914                 |       | 16,914    |       |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Less: Dividends Paid         |       | —            |       | —                               |       | (12,000                | )          | (12,000   | )          |
|                         |       |              |       |                                 |       |                   |       |      |       |
| Balance at December 31, 2005 |       | $                 | 1          |                                 | $          | 5,915                  |       | $         | 31,386     |   | $ | 37,302 |   |

 

**10.****                  ****Income tax expense (benefit)**

 

The provisionfor income taxes consists of the following:

 

F-12

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| ** **                             | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|----------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current federal tax expense            |       | $          | 10,000     |       | $          | 10,449     |       | $ | 2,610 |   |
|                                   |       |       |       |       |       |       |       |
| Deferred federal tax expense (benefit) |       | (940       | )          | (2,856     | )          | 5,715      |       |
|                                   |       |       |       |       |       |       |       |
|                                   |       | $          | 9,060      |       | $          | 7,593      |       | $ | 8,325 |   |

 

During 2004 the Internal Revenue Service completed a reviewof the DNC’s federal income tax return for 2002. The review resulted in theextension of the depreciable lives of certain assets for income tax purposesand certain other adjustments. As a result of the review the Company recorded acurrent income tax expense and deferred tax benefit of $1,000. The future taxbenefit of these income tax adjustments has been reflected as a component of deferredincome taxes in the accompanying balance sheets.

 

TheCompany is not subject to state income tax.

 

The provision for income taxes differs from the amount ofincome tax determined by applying the U.S. statutory rate to income beforeincome tax as a result of the following:

 
| ** **                   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income tax at statutory rate |       | $          | 9,091      |       | $          | 7,560      |       | $ | 8,301 |   |
| Other adjustments            |       | (31        | )          | 33         |       | 24         |       |
|                         |       |       |       |       |       |       |       |
| Income tax expense           |       | $          | 9,060      |       | $          | 7,593      |       | $ | 8,325 |   |

 

Deferred tax assets (liabilities) consist of the following:

 
| ** **                     | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
|                           |       |     |       |     |       |
| Other intangibles              |       | $        | 2,067      |     | $          | 1,353 |   |
| Deferred flood expenses        |       | 1,435    |       | 1,085    |       |
| Other                          |       | 753      |       | 969      |       |
| Gross deferred tax assets      |       | 4,255    |       | 3,407    |       |
|                           |       |     |       |     |       |
| Property and equipment         |       | (6,538   | )          | (6,631   | )          |
| Licenses                       |       | (23,072  | )          | (23,072  | )          |
| Gross deferred tax liabilities |       | $        | (29,610    | )        | $          | (29,703 | ) |
|                           |       |     |       |     |       |
| Net deferred tax liabilties    |       | $        | (25,355    | )        | $          | (26,296 | ) |

 

**11.****                  ****Related party transactions**

 

In2001, the Company entered into an administrative services agreement and a taxsharing agreement with DNC G&E and DNC. Pursuant to the administrativeservices agreement, the Company pays an annual administrative services feeequal to the greater of 1.5% of the preceding year’s total operating revenuesor $1,200 for certain support services provided to the Company. During 2005,2004 and 2003, the Company recorded administrative services fees of $1,929,$1,741 and $1,452, respectively. Pursuant to the tax sharing agreement, theCompany pays DNC the amount of tax that would be payable by the Company if ithad filed a separate consolidated federal income tax return on a stand-alonebasis.

 

TheCompany invests its excess cash in a segregated account administered by DNCunder its centralized 

 

F-13

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cashmanagement program. At December 31, 2005 and 2004, the Company had $225 and$134 invested with DNC, respectively. During 2005, 2004 and 2003, respectively,the Company earned interest income of $49, $11 and $16, respectively.

 

TheCompany participates in a comprehensive insurance program maintained by DNC.Risk-based premiums charged by and reimbursed to DNC amounted to $2,399 in2005, $1,599 in 2004 and $1,010 in 2003.

 

OnDecember 29, 2005, the Company paid a cash dividend of $12,000 to DNC G&E.In 2004 and 2003 cash dividends of $12,500 and $12,000, respectively, were paidto DNC G&E.

 

**12.****                  ****Retirement plans**

 

Allfull-time employees participate in a retirement savings plan administered byDNC. Non-union employees are entitled to share in a discretionary Companycontribution to this plan. Union employees also participate in aunion-sponsored defined contribution plan. Total expense relating to theretirement plans was $318 in 2005, $188 in 2004, and $227 in 2003.

 

Pursuantto West Virginia statute, 1.0% of base NTI and 0.5% of any excess NTI isdeposited to the retirement savings plan on behalf of all employees. Suchamounts are not included as an element of the Company’s expenses.

 

**13.****                  ****Commitments**

 

Inconnection with its pari-mutuel operations, the Company leases totalisatorservices, video and peripheral equipment under agreements expiring at variousdates through 2007. Expense related to such services is determined primarily asa percentage of the pari-mutuel handle or stated amounts per performance. During2005, 2004 and 2003, this expense totaled $745, $716 and $711, respectively.

 

In connection with its gaming operations, the Companyleases 70 slot machines from Autotote Systems, Inc. Such expense was $116 in2005 and $184 in 2004. In 2003 the Company leased slot machines and obtainedmaintenance services for these and other slot machines from Autotote Systems,Inc. Such expense was $1,008.

 

**14.****                  ****Litigation**

 

Thekennels for some of the racing greyhounds, which participate in our racingmeets, were relocated to Brooke County, West Virginia during the 2002 fiscalyear. The County Commission of Brooke County, West Virginia, is now claiming anentitlement to a portion of the revenue generated by the Company’s gaming andpari-mutuel racing operations by virtue of the location of its kennel compoundin Brooke County. The Brooke County Commission threatened to take legal actionto obtain those revenues, or in the alternative, to enjoin the continuedoperation of the Company’s kennels in Brooke County because of theirconstruction without prior approval in a local option election. It is theCompany’s position that Brooke County is not entitled to a share of theCompany’s gaming and pari-mutuel racing revenues. In addition, the constructionand operation of the kennels was approved by the West Virginia RacingCommission. On February 25, 2004, the Company commenced an action in theCircuit Court of Kanawha County, West Virginia, which names the Brooke CountyCommission, the Ohio County Commission and the West Virginia Racing Commissionas defendants. The action seeks a declaratory judgment to confirm that the WestVirginia Racing Commission followed all lawful procedures and acted within thescope of its authority when the Racing Commission approved the construction andoperation of the kennels, that the local option election contended for by theBrooke County Commissioners was not required, and that Brooke County is onlyentitled to receive the property tax revenue associated with the kennelfacility. The Company has reached an agreement in principle with Brooke Countyto the settlement of this matter on terms, which will not have a materialimpact on the Company, or to the continued operation of the Company’s kennels.This agreement in principle is currently being memorialized by the parties.

 

TheCompany is also party to a number of pending legal proceedings in the ordinarycourse of business, although management does not expect that the outcome ofsuch proceedings, either individually or in the aggregate, will have a materialeffect on the Company’s financial condition or results of operations.

 

**15.      Riskand uncertainties**

 

The Company’s operations are subject to extensive governmentregulations and could be subjected at any time to additional or morerestrictive regulations. The Company is subject to the provisions of the WestVirginia Racing Act, which governs the conduct of greyhound racing in WestVirginia, and the West Virginia Racetrack Video Lottery Act (the “LotteryAct”), which under the regulatory control of the West Virginia LotteryCommission, governs the operation of video lottery terminals in West Virginia.Specifically, the Lottery Act provides that only licensed greyhound or horseracing facilities that were licensed prior to January 1, 1994 and conduct aminimum number of days of live racing may offer video lottery gaming.Accordingly, the Company must comply fully with regulations of the RacingCommission to qualify for its license under the Lottery Act and maintain itsvideo lottery gaming operations.

 

The Company’s ability to remain in business depends upon its continuedability to operate in compliance with all applicable gaming and racing laws andregulations, including the acquisition and maintenance of several licenses andpermits. The Lottery Act requires that the Company be subject to a writtenagreement with the dog owners, breeders, and trainers who race greyhounds atits facility. The Company is a party to the requisite agreements with thekennels that the operate at its facility. The Lottery Act also requires thatthe Company be subject to an agreement with the pari-mutuel clerks who work atits facility. This requirement is satisfied by a letter sent to the LotteryCommission annually, which states that such agreement exists. The Company’s materiallicenses are subject to annual or other periodic renewal and governmental authoritiesmay refuse to grant the Company the licenses necessary to continue to operateits existing facility. In addition, the Company may be investigated by eitherthe Racing Commission or the Lottery Commission at any time. Should either bodyconsider the Company to be in violation of any applicable laws or regulations,each has the plenary authority to suspend or rescind the Company’s licenses.The Company believes that it is in full compliance with all relevantregulations.

 

On July 5, 2004, legislation was enacted in Pennsylvania permitting theintroduction of slot machine gaming in that state. The 2004 Pennsylvania lawprovides for the establishment of a state gaming control board that will awardfourteen licenses to operate slot machine gaming facilities in Pennsylvania.The Company’s primary market consists of the 150-mile radius around Wheeling,West Virginia and includes the western Pennsylvania market area that includesPittsburgh. Slot machine operators that are awarded licenses in westernPennsylvania will compete directly with the Company for customers in themarket. The Company expects the introduction of slot machine gaming in thewestern Pennsylvania to have a material adverse impact on the Company’sbusiness, financial condition and results of operation.

 

F-14

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