**UNITED STATES SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-K**

** **

**FOR ANNUAL AND TRANSITION REPORTS**

**PURSUANT TO SECTIONS 13 OR 15(d) OFTHE**

**SECURITIES EXCHANGE ACT OF 1934.**

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

** **

**Forthe fiscal year ended December 31, 2006**

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

** **

**Commission file number 333-81778**

** **

**WHEELING ISLAND GAMING, INC.**

(Exactname of registrant as specified in its charter)
| **DELAWARE** (State or other  jurisdiction of   incorporation or organization) | **1 South Stone Street   Wheeling, West Virginia**(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 to Section 12(b) of the Act:  **None**

 

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

 

     Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act.

YES: o     NO: x

 

     Indicateby check mark if the registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Act.

YES: x     NO: o

 

     Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

YES: x      NO: o

 

     Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

   Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (Check one):

Large accelerated filer: o      Accelerated filer: o       Non-accelerated filer: x

 

     Indicateby check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).

YES: o      NO: x

 

State the aggregate market value of the voting and non-voting commonequity held by non-affiliates computed by reference to the price at which thecommon equity was last sold, or the average bid and asked price of such commonequity, as of the last business day of the registrant’s most recently completedsecond fiscal quarter:  Not applicable.

 

Indicate the number of shares outstanding of each of the registrant’sclasses of common stock, as of the latest practicable date:

 

Common Stock, $1 par value                                              500shares outstanding

 

Documentsincorporated by reference:  None

 

 

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**TABLE OF CONTENTS**
| **PART I**   |
|--------------|
|              | ** ** | ** ** | ** ** | ** ** |
| **ITEM 1.**  |   | BUSINESS |   |   |
|         |   | Operations |   |   |
|         |   | Marketing |   |   |
|         |   | Market |   |   |
|         |   | Competition |   |   |
|         |   | Intellectual  Property Rights |   |   |
|         |   | Suppliers |   |   |
|         |   | Employees |   |   |
|         |   | Available  Information |   |   |
|         |   | Security  & Controls |   |   |
|         |   | Regulation  and Licensing |   |   |
|         |   |   |   |   |
| **ITEM 1A.** |   | RISK  FACTORS |   |   |
| ** **   |   |   |   |   |
| **ITEM 1B.** |   | UNRESOLVED STAFF  COMMENTS |   |   |
| ** **   |   |   |   |   |
| **ITEM 2.**  |   | PROPERTIES |   |   |
| ** **   |   |   |   |   |
| **ITEM 3.**  |   | LEGAL  PROCEEDINGS |   |   |
| ** **   |   |   |   |   |
| **ITEM 4.**  |   | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS |   |   |
| ** **   |   |   |   |   |
| **PART II**  |
| ** **   |
| **ITEM 5.**  |   | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES |   |   |
|         |   |   |   |   |
| **ITEM 6.**  |   | SELECTED FINANCIAL  DATA |   |   |
| ** **   |   |   |   |   |
| **ITEM 7.**  |   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   |   |
|         |   | Overview |   |   |
|         |   | Critical  Accounting Policies |   |   |
|         |   | Results  of Operations |   |   |
|         |   | 2006  Compared to 2005 |   |   |
|         |   | 2005  Compared to 2004 |   |   |
|         |   | Liquidity and Capital Resources |   |   |
|         |   | Contractual Obligations and Commitments |   |   |
|         |   |   |   |   |
| **ITEM 7A.** |   | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK |   |   |

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| **ITEM 8.**                        |   | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                          |   |   |
|------------------------------------|--------|---------------------------------------------------------------------------------------|--------|--------|
| ** **                         |   |                                                                                  |   |   |
| **ITEM 9.**                        |   | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE |   |   |
| ** **                         |   |                                                                                  |   |   |
| **ITEM 9A.**                       |   | CONTROLS AND  PROCEDURES                                                              |   |   |
| ** **                         |   |                                                                                  |   |   |
| **ITEM 9B.**                       |   | OTHER INFORMATION                                                                     |   |   |
| ** **                         |   |                                                                                  |   |   |
| **PART III**                       |
| ** **                         |
| **ITEM 10.**                       |   | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                               |   |   |
| ** **                         |   | Audit Committee of the Board of Directors                                             |   |   |
|                               |   | Code of  Ethics                                                                       |   |   |
|                               |   |                                                                                  |   |   |
| **ITEM 11.**                       |   | EXECUTIVE  COMPENSATION                                                               |   |   |
|                               |   | Compensation Discussion and Analysis                                                  |   |   |
|                               |   | Delaware North Compensation Committee Report                                          |   |   |
|                               |   | Additional Information Regarding Executive  Compensation                              |   |   |
|                               |   | Remuneration  of Directors                                                            |   |   |
|                               |   | Termination or Change in Control                                                      |   |   |
|                               |   |                                                                                  |   |   |
| **ITEM 12.**                       |   | STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS   AND MANAGEMENT                         |   |   |
|                               |   | Principal  Shareholders                                                               |   |   |
|                               |   |                                                                                  |   |   |
| **ITEM 13.**                       |   | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND  DIRECTOR INDEPENDENCE            |   |   |
| ** **                         |   |                                                                                  |   |   |
| **ITEM 14.**                       |   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                               |   |   |
| ** **                         |   |                                                                                  |   |   |
| **PART IV**                        |
| ** **                         |
| **ITEM 15.**                       |   | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                           |   |   |
| ** **                         |   |                                                                                  |   |   |
| Signatures                         |   |                                                                                  |   |   |
|                               |   |                                                                                  |   |   |
| INDEX TO  EXHIBITS                 |   |                                                                                  |   |   |
|                               |   |                                                                                  |   |   |
| CONSOLIDATED  FINANCIAL STATEMENTS |   |                                                                                  |   |   |
|                                    |        |                                                                                       |        |        |  |  |  |  |

 

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**ITEM 1. BUSINESS**

We own and operate WheelingIsland Racetrack & Gaming Center (or Wheeling Island), a premier gaming andentertainment complex located in Wheeling, West Virginia.  Wheeling Island features 2,330 slot machines,a hotel, showroom, greyhound racetrack, pari-mutuel wagering on live greyhoundracing and simulcast greyhound, thoroughbred and harness racing and variousdining venues.  We are a wholly ownedsubsidiary of Delaware North Companies Gaming & Entertainment, Inc. (orDelaware North G&E).  Delaware NorthG&E is a wholly owned subsidiary of Delaware North Companies, Incorporated,or Delaware North.

We do not have operations otherthan Wheeling Island and are entirely dependent upon this gaming site for ourrevenues.  Accordingly, we may be subjectto greater risks than a geographically diversified gaming operation.

**Operations**

Wheeling Island is a270,000-square foot facility that, as of December 31, 2006, featured:

·                  64,272-square feet ofgaming area with 2,330 slot machines;

·                  151-room hotel;

·                  550-seat multi-purposeshowroom;

·                  4,100 square feet ofconference space;

·                  a one-quarter milegreyhound racetrack with a 2,400-seat grandstand and mezzanine area;

·                  a full-service 600-seatclubhouse restaurant, a 300-seat buffet-style restaurant, a 128- seatcasual restaurant, a 70-seat fine dining restaurant, a 140-seat food court, twoconcession stands, three lounges and three bars;

·                  180 covered parkingspaces; and

·                  2,295 uncovered parkingspaces.

*GamingOperations*

We currently operate 2,330gaming devices in three main gaming areas. These three gaming areas are the Island Expansion Room with 1,148machines, the Island Room with 618 slot machines, and the Fairgrounds Room with564 slot machines.  The Island Room andIsland Expansion Room are located on the primary upper level while theFairgrounds Room is located on the lower level. Wheeling Island leases 82 slot machines and owns the remaining 2,248slot machines.  Our slot machines includemechanical spinning reel slot machines and video lottery terminals with eithercoin-out or ticket in ticket out (TITO) functionality.  There are 472 slot machines with coin-outpayment functionality and 1,858 slot machines with TITO functionality as ofDecember 31, 2006.  We offer one localprogressive slot machine game, which links multiple machines playing for asingle jackpot.  In addition, we offer a multi-state progressive slot machine game (“Cashola”).  Cashola links multiple slot machines ateligible properties in West Virginia, Delaware and Rhode Island.  There are currently 15 multi-stateprogressive slot machines at Wheeling Island. The West Virginia Lottery Commission, or the Lottery Commission, uses acentral computerized system, or the 

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“Central System”, for tracking all video gamingactivity in West Virginia.  The Lottery Commission is in the process ofreplacing the current SAMS 7.1-2 (International Gaming Technology, Inc.)central system with the AEGIS (Scientific Games, Inc.) central system.  As of this filing, Wheeling Island hasconverted approximately two-thirds of its slot machines to the AEGIS centralsystem and we anticipate converting the remaining one-third of the slotmachines later in 2007.  We do notbelieve that the conversion to the AEGIS central system will have a materialadverse impact on our business, financial condition or results of operation.

*Pari-MutuelOperations*

We offer pari-mutuel wageringon live greyhound racing events and greyhound, thoroughbred and harness racingevents simulcast from other racetracks across the country.  We normally conduct seven or eight livegreyhound racing events each week depending on the time of year and offerwagering on simulcast racing events every day. A live greyhound racing event consists of 17 to 20 greyhound races.  We typically simulcast between four and 21racing programs per day.

*Food andBeverage Operations*

Food and beverage operations atour facility are comprised of a full-service 600-seat clubhouse restaurant inthe upper level of the grandstand, a 300-seat buffet-style restaurant locatedin the Island Room, a 128-seat casual restaurant, a 70-seat fine diningrestaurant, a 140-seat food court, two concession stands, three lounges andthree bars.  The buffet style restaurantwas expanded to 300 seats and refurbished during 2005.

*Lodging andEntertainment Operations*

Lodging operations arecomprised of a 151-room hotel, which includes nine suite style rooms.

Entertainment operationsconsist of a 550-seat multi-purpose showroom and various conference facilities.The multi-purpose showroom is used as an entertainment venue and for largespecial events.  During 2006, theshowroom hosted 205 events.  Theconference facilities are used to host a variety of large meeting functions andother catered events.

**Marketing**

We target markets within a 150-mileradius around Wheeling, West Virginia, including the local regional area andthe major cities of Cleveland, Akron, Canton, Youngstown and Columbus, Ohio andWashington and Pittsburgh, Pennsylvania. Advertising initiatives have been focused on generating awareness andinducing product trials for new customers and the existing player database.

Our primary promotional toolused to develop customer loyalty is the Preferred Players Club, which wasintroduced in July 2000.  PreferredPlayers Club members earn points relative to their slot machine level ofplay.  Points earned by club members canbe redeemed for cash, food and beverage, lodging, entertainment and retailoffers.  Members may also receivecomplimentary coupons and promotional offers and discounts as part of a monthlymailer.  We administer the PreferredPlayer Club through the use of a player tracking system. Total clubmembership in the Preferred Player Club as of December 31, 2006 exceeded 509,000members.

In 2006, changes were made toimprove the value of the direct mail and player rewards programs. Thepromotional calendar was upgraded and the frequency of vehicle and cashgiveaways was increased, along with monthly and daily promotionalofferings.   Player loyalty programs wereformalized and a mid level 

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ambassador program was alsointroduced.  Additionally, a program forincentives was initiated for bus passengers and operators.

For the fiscal year endedDecember 31, 2006, we spent a total of $7.0 million on marketing andadvertising programs.  Of this amount,$1.0 million was spent on media advertising and $6.0 million wasspent on promotional programs, including all reward expenditures related to thePreferred Player Club.  For fiscal year2006, the allocation of our expenditures for media advertising was 30.7% ondirect mail, 41.4% on newspapers and other print media, 0.7% on television andradio and 27.2% on billboard advertising.

Our goal is to attractcustomers by promoting our facility as a complete entertainment complexoffering a unique combination of quality racing, slot machine gaming, dining,special events and other entertainment options.

**Market**

Our primary market consists ofthe 150-mile radius area around Wheeling, West Virginia, including the majorcities of Cleveland, Akron, Canton, Youngstown and Columbus, Ohio andWashington and Pittsburgh, Pennsylvania. Patrons from these highly populated areas enjoy convenient access toWheeling Island via Interstate Route 70, a major four-lane highway adjacent toour property.  According to the LotteryCommission, annual gaming revenues (representing gross terminal income)generated in West Virginia were $942.3 million for the state’s fiscal yearended June 30, 2006, a 5.3% increase over the prior year period.  According to Lottery Commission data, duringthe most recent six-month period ended December 31, 2006, gaming revenueswere $486.2 million, representing an increase of 6.3% over the same periodin the prior year.

Our market share of gamingrevenue (representing gross terminal income) during the state’s fiscal yearended June 30, 2006 was 20.8%.  Ourmarket share of gaming revenue during the period from July 1, 2006 to December30, 2006 was 20.9%.  As of December 31,2006, we had 20.4% of the total number of slot machines operating in WestVirginia.  The current market for ourfacility consists primarily of day-trip customers from the surrounding area andgaming patrons from the major cities of Akron, Columbus, Canton, Cleveland andYoungstown, Ohio and Pittsburgh, Pennsylvania, which utilize our 151-room hotelfor extended stays typically lasting from one to two nights.  The average length of stay in our hotelduring 2006 was 1.3 days.  We believethat the location of our facility and our strong customer service has enabledus to grow our share of gaming revenues 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**

The West Virginia RacetrackVideo Lottery Act, as amended (or the Lottery Act), provides that only licensedgreyhound or horse racing facilities that were licensed prior to January 1,1994, and which conduct a minimum number of days of live racing, may offer slotmachine gaming.  We are one of fourlicensed racing facilities that have approval to offer slot machine gaming inWest Virginia.

We believe that the primarycompetitive factors in our industry are location, number of slot machines, typesand prices of amenities, name recognition, customer service, overall atmosphereand availability and convenience of parking. We face significant competition for wagering dollars from variousdifferent competitors in West Virginia, as well as in the adjacent states ofPennsylvania and Ohio.  Currently, ourprincipal direct competitor is Mountaineer Park, located approximately 50 milesto the north in Chester, West Virginia. Mountaineer Park offers slot machine gaming and pari-mutuel wagering onlive thoroughbred racing and simulcast thoroughbred, harness and greyhoundevents.  This gaming facility competesdirectly 

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with us in attracting thewestern Pennsylvania market, including Pittsburgh, as well as the northernpanhandle market of West Virginia and the feeder markets in northeasternOhio.  Mountaineer Park currently offersmore gaming machines and more entertainment amenities than we do, including an18-hole golf course, a 5,000-seat concert venue and a health spa. We believethat we have a  distinct advantage inthat our facilities are located in the City of Wheeling, one of the majorpopulation centers of the northern panhandle market of West Virginia, whileMountaineer Park is located in the less populated Town of Chester.  Wheeling Island’s property is adjacent toInterstate Route 70, a major four-lane highway that provides customerswith easy access to our facility, while Mountaineer Park is located on a two-lanestate road.  Other than Mountaineer Park,there are currently no facilities offering competitive pari-mutuel live racingand slot machine gaming within a 150-mile radius of our facility.  In addition to our facility and MountaineerPark, there are two facilities located in West Virginia that offer slot machinegaming.  However, these facilities inCharleston and Charles Town, West Virginia are located more than 150 miles awayfrom our facility.  As a result, webelieve that we do not compete to any significant extent with these facilitiesfor customers.

On January 1, 2002, legislationbecame effective which authorized up to 9,000 slot machines in adults-onlyfacilities throughout West Virginia.  Thelegislation allows slot machines in establishments licensed by the state tosell beer or other alcoholic beverages for consumption on the premises. Inaddition, slot machines are allowed in certain fraternal or veterans’organizations that have been approved to operate these slot machines.  No more than five slot machines are allowedin approved establishments licensed to sell alcoholic beverages and no morethan ten slot machines are allowed at approved fraternal or veteransorganizations.  As of December 31, 2006,8,211 of these slot machines are licensed and operating in West Virginia.  While we believe the existence of such slotmachines has reduced the growth rate of our gaming revenues, we do not believesuch machines have had a material impact on our business, financial conditionor results of operations.

On July 5, 2004, legislationwas enacted in Pennsylvania permitting the introduction of slot machine gamingin that state and establishing the Pennsylvania Gaming Control Board and givingit authority to approve license applications. On December 20, 2006, the Pennsylvania Gaming Control Board approved 11applications for permanent slot-machine gaming operator licenses.  Two of these licenses were awarded to plannedslot operations within our primary market, which includes Pittsburgh.  These licenses were awarded to the WashingtonTrotting Association, Inc. (“The Meadows”) and PITG Gaming, LLC. (“The MajesticStar”).

The Meadows is currently aharness racetrack offering pari-mutuel wagering located approximately 35 milesto the east of Wheeling in Washington, Pennsylvania.  The Meadows is constructing a temporarygaming facility which we anticipate will open during the spring of 2007.  The temporary facility is expected to openwith approximately 1,800 slot machines. We expect The Meadows will have approximately 3,000 slot machines oncetheir permanent facility opens.  Weanticipate that the Meadow’s permanent facility will open late in 2008.  The Majestic Star will be a stand alonefacility and is expected to open in 2008 with up to 5,000 slot machines.  The Majestic Star operation is planned to belocated on the North Shore of the Allegheny River in the downtown Pittsburgharea.  We expect the introduction ofthese two facilities to have a material adverse impact on our business,financial condition and results of operation.

To a lesser extent, we alsocompete with Thistledown, located approximately 143 miles to the northwest inCleveland, Ohio, Northfield Park, located approximately 150 miles to the northin Northfield, Ohio and Beulah Park and Scioto Downs, located approximately 135miles to the west in Columbus, Ohio. These facilities offer pari-mutuel wagering but do not currently offerslot machine gaming.

Ohio currently does not permitany form of casino gaming, including slot machines gaming.  However, if any form of casino gaming,including slot machine gaming, were to be approved in Ohio, we believe such adevelopment would have a material impact on our business, financial conditionor results of operations.

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We also compete with statewidelotteries in West Virginia, Pennsylvania and Ohio and live and simulcastpari-mutuel wagering in Pennsylvania and Ohio. In addition, we generally compete with other entertainment optionsavailable to consumers.

**IntellectualProperty Rights**

We operate using the names “WheelingIsland” and “Wheeling Island Racetrack & Gaming Center” and the associatedlogos.  We have registered the domainname of our Internet site www.wheelingisland.com.  We believe that the use of our name hashelped us establish a well-known reputation in the local gaming market.  We believe that the use of the “WheelingIsland” brand name contributes significantly to obtaining new customers in ourmarket and to expanding our market.  Wedo not have any patents or any other major brand names that are material to ouroperations.

**Suppliers**

We contract for the supply ofnumerous goods and services.  Oursignificant agreements with suppliers are for totalisator services, video andperipheral equipment, slot machine games, communication and slot machine gamingsupplies, the supply of beer and other alcoholic products and fresh and frozenfood products.  These services generallyare provided under short-term agreements.

**Employees**

As of December 31, 2006,we employed approximately 852 persons, 665 of whom were full-time employees and187 of whom were part-time employees. The United Food and Commercial Workers Union, Local 23, representsapproximately 259 employees in our pari-mutuel, maintenance, cleaning, racingand slot machine gaming operations departments. The collective bargaining agreement with these employees will expire onFebruary 22, 2009.  The Hotel Employeesand Restaurant Employees Union, Local 57 represents approximately 245 employeesin our food and beverage department, 36 employees in our security department,and 31 lodging department employees under three separate collective bargainingagreements.  The collective bargainingagreement for the lodging employees will expire on June 30, 2009, thecollective bargaining agreements for the food and beverage employees willexpire on June 22, 2009 and the collective bargaining agreement for thesecurity employees will expire on April 23, 2010.  The International Alliance of Theatrical andStage Employees Union represent 20 part-time stagehand employees in ourentertainment department.  The  collective bargaining agreement with theseemployees will expire on June 22, 2007. We believe that we generally have satisfactory relations with ouremployees and with all three unions.

**AvailableInformation**

Our current reports onForm 8-K, quarterly reports on Form 10-Q, and annual reports on Form 10-K areelectronically filed with or furnished to the Securities and ExchangeCommission, or SEC, and all such reports and amendments to such reports filedhave been and will be made available, free of charge, on the SEC’s website,www.sec.gov, as soon as reasonably practicable after such filing.  We also make available free of charge throughour Internet website, www.wheelingisland.com, a direct link to those reports onthe SEC’s website.  The contents of ourwebsite are not incorporated by reference 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, NWWashington, D.C. 20549.  The public mayobtain information on the operation of the Public Reference Room by calling theSEC at 1-800-SEC-0330.

Our principal executiveoffices are located at 1 South Stone Street, Wheeling, West Virginia, and our 

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telephone number is (304)232-5050.  Unless the contextspecifically requires otherwise, the terms, the “Company,” “Wheeling Island,” “we,”“us” and “our” mean Wheeling Island Gaming, Inc., a Delaware corporation, andits subsidiaries on a consolidated basis.

**Security and Controls**

We employ stringent securitymeasures at our facility to provide maximum safety to our customers andemployees while also protecting company assets. These programs include 24-hour security surveillance of the entirefacility, stationed security guards on the gaming floor 24 hours a day andsecurity guard escorts for all significant money transfers to and from thegaming money room.

**Regulationand Licensing**

*General*

Our operations are subject toextensive state and local regulations. Our ability to remain in business and to operate profitably depends uponour continued ability to satisfy all applicable gaming laws and regulations.

*WestVirginia Racing Regulations*

Our greyhound racing operationsare subject to extensive regulation by the West Virginia Racing Commission, orthe 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 and responsibilities extend tothe approval and/or oversight of all aspects of racing and pari-mutuel wageringoperations.  In order to conduct simulcastracing, we are required under West Virginia law to hold a minimum of 220 liverace days each year.  During 2006, weconducted a total of 268 live race days. In addition, certain activities, such as simulcasting races, require theconsent of the representatives of a majority of the greyhound owners andtrainers at our facility.

Our export simulcast activitiesthat occur outside of West Virginia are subject to regulation by other stateracing commissions that prohibit us from accepting off-track wagering onsimulcast racing without the approval of the Racing Commission and, subject tocertain exceptions, of any other currently operating track within 60 miles or,if none, of the closest racetrack in any adjoining state.  We have received all necessary approvals toconduct our current operations.  However,such approvals are subject to renewal and approval annually.  The failure to receive or retain approvals orrenewals of approvals, or a delay in receiving such approvals and renewals,could cause the reduction or suspension of racing, pari-mutuel wagering andgaming operations at our facility and have a material adverse effect on ourbusiness, financial condition and results of operations.

*WestVirginia Lottery Regulations*

The operation of video lotterygames in West Virginia is subject to the Lottery Act.  Licensing and regulatory control are providedby the Lottery Commission.  The LotteryAct provides that only licensed 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. We are one of only four facilities that qualify under thislegislation.  Accordingly, we must complyfully with regulations of the Racing Commission to qualify for our license underthe Lottery Act and maintain our video lottery gaming operations.

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The Lottery Act requires thatwe be subject to a written agreement with the greyhound owners, breeders andtrainers who race greyhounds at our facility. We are party to the requisite agreements with the appropriate parties atthe kennels that operate at our facility. The Lottery Act also requires that we be subject to an agreement withthe pari-mutuel clerks who work at our facility.  We are party to such an agreement, which wenotify the Lottery Commission of annually. The absence of an agreement with the kennels or the pari-mutuel clerks,or the termination or non-renewal of such agreements, would have a materialadverse effect on our business, financial condition and results of operations.

By Lottery Commissiondirective, all of our slot machines must be connected to the CentralSystem.  The Central System tracks allvideo lottery gaming activity within West Virginia.  The Lottery Commission has broad powers toapprove and monitor all operations of the gaming machines, the specification ofthe machines and the interface between the terminals and the West VirginiaLottery’s Central System.  The LotteryCommission also acts upon our requests for increases in the number of gamingmachines.  The Lottery Commission’sdenial of a request to increase the number of machines at our facility couldlimit our growth and thus adversely affect our business, financial conditionand results of operations.  In addition,the Lottery Commission licenses all persons who control or are key personnel ofour gaming operations to ensure their integrity and absence of any criminalinvolvement.

The conduct of gaming by aracing facility is subject to the approval of the voters of the county in whichthe facility is located.  If suchapproval is obtained, the facilities may continue to conduct video lotteryactivities unless the matter is resubmitted to the voters pursuant to apetition signed by at least 5.0% of the registered voters, who must wait atleast five years from the approval to bring such a petition. If approval isdenied, another vote on the issue may not be held for two years. Gaming wasapproved in Ohio County, the location of Wheeling Island, in May 1994.  If such approval were ever revoked, it wouldhave a material adverse effect on our business, financial condition and resultsof operations.

Under the Lottery Act,racetracks that conduct video lottery gaming, as well as persons who serviceand repair gaming machines, gaming floor attendants and validation managers(persons who perform video lottery ticket redemption services), are required tobe licensed by the Lottery Commission. The licensing application procedures are extensive and include inquiriesinto, and an evaluation of, the character, background (including criminalrecord, reputation and associations), business ability and experience of anapplicant and the adequacy and source of the applicant’s financingarrangements.  In addition, a racetrackapplicant must hold a valid racing license and post a bond or irrevocableletter of credit in such amount as the Lottery Commission shall determine.  No license will be granted until the LotteryCommission determines that each person who has “control” of an applicant meetsall of the applicable licensing qualifications. Persons deemed to have control of a corporate applicant include (i) anyholding or parent company or subsidiary of the applicant who has the ability toelect a majority of the applicant’s board of directors or to otherwise controlthe activities of the applicant and (ii) key personnel of an applicant,including any executive officer, employee or agent who has the power toexercise significant influence over decisions concerning any part of theapplicant’s business operations.

Video lottery machines may onlybe operated in the grandstand building of a racetrack where pari-mutuelwagering is permitted; *provided, however*,that if a racetrack was authorized by the Lottery Commission prior to November1, 1993 to operate video lottery machines in another area of the racetrack’sfacilities, such racetrack may continue to do so.  Our competitor, Mountaineer Park, is the onlyfacility to benefit from this, and has lottery machines at the hotel on itspremises.

The Lottery Act imposesextensive operational controls relating to, among other matters, security andsupervision, access to the machines, hours of operation, general liabilityinsurance coverage and machine locations. In addition, the Lottery Act prohibits the extension of credit for videolottery play, and requires 

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Lottery Commission approvalbefore any advertising and promotional activities for video lottery gaming areconducted.  The Lottery Act provides forcriminal and civil liability in the event of specified violations.

All revenues derived from theoperation of video lottery games must be deposited with the Lottery Commissionto be shared in accordance with the provisions of the Lottery Act.  Under such provisions, each racetrack mustelectronically remit to the Lottery Commission its “gross terminal income”(total amounts wagered, net of winning patron payouts).  To ensure the availability of such funds tothe Lottery Commission, each racetrack must maintain in its account an amountequal to or greater than the gross terminal income to be remitted.  If a racetrack fails to maintain thisbalance, the Lottery Commission may disable all of the racetrack’s videolottery machines until full payment of all amounts due it are made.

The Lottery Commission’sCentral System tracks all video lottery gaming activity within WestVirginia.  If the operation of theCentral System is disrupted for any reason, we believe that the LotteryCommission would suspend all gaming operations within the state until normaloperation of the system was restored. Moreover, if any facet of the Central System operating at our facilityis disrupted for any reason, the state may suspend gaming operations at ourfacility which may result in a material disruption of our gaming operations andhave a material adverse effect on our business, financial condition and resultsof operations.

Pursuant to the regulatoryauthority of both the Racing Commission and the Lottery Commission, we may beinvestigated by either body at any time. Accordingly, we must comply with all gaming laws at all times.  Should either body consider us to be inviolation of any of the applicable laws or regulations, each has the plenaryauthority to suspend or rescind our licenses. Should we fail to comply, our business could be materially adverselyaffected.

*State andFederal Simulcast Regulation*

In accordance with theagreements with the kennels, we have agreed upon the allocation of our revenuesfrom import simulcast wagering to the purse funds.  Because we cannot conduct import simulcastwagering in the absence of the agreements with the kennels, the termination ornon-renewal of any of these agreements could have a material adverse effect onour business, financial condition and results of operations.

*Compliancewith Other Laws*

We are also subject to avariety of other rules and regulations, including zoning, construction andland-use laws and regulations in West Virginia governing the service ofalcoholic beverages.  We derive asignificant portion of our other revenues from the sale of alcoholic beveragesto patrons of our facilities. Any interruption or termination of our existingability to serve alcoholic beverages would have a material adverse effect onour business, financial condition and results of operations.

*Restrictionson Share Ownership and Transfer*

The Lottery Act provides that atransfer of more than 5.0% of the voting stock of a corporation that controls agaming license may only be to persons who have met the licensing requirementsof the Lottery Act, or which transfer has been pre-approved by the LotteryCommission.  Any transfer that does notcomply with this requirement voids the license.

Our operations are subject toextensive government regulations and could be subjected at any time toadditional or more restrictive regulations.

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**ITEM 1A.  RISK FACTORS**

**RisksRelated to Our Business**

*Weare dependent on a single gaming site*

Wedo not have operations other than Wheeling Island Racetrack & Gaming Centerand are entirely dependent upon this gaming site for our revenues.  Accordingly, we may be subject to greaterrisks than a geographically diversified gaming operation, including, but notlimited to:

·                  Risksrelated to local and regional economic and competitive conditions, such as adecline in the number of residents near or visitors to Wheeling Island, adownturn in the overall economy in our market, a decrease in gaming activitiesin our market or an increase in competition in our market;

·                  Impededaccess due to weather, road construction or closures of primary access routes;

·                  Changesin local and state governmental laws and regulations (including changes in lawsand regulations affecting gaming operations and taxes);

·                  Risksrelated to acts of terrorism or breaches of security affecting our facility orour market; and

·                  Naturaland other disasters affecting our market.

We are located onWheeling Island on the Ohio River, and floods, such as the ones that occurredin September 2004 and January 2005 that closed our facility for several days oneach occasion, could disrupt our business for an indeterminate amount oftime.  The future occurrence of floodevents such as these could have a material adverse effect on our business,financial condition and results of operations.

*Governmentallaws and regulations could have a negative effect on our business*

Our operations aresubject to extensive governmental laws and regulations and could be subjectedat any time to additional or more restrictive laws and regulations.  We are subject to the provisions of the WestVirginia Racing Act, which governs the conduct of greyhound racing in WestVirginia, and the Lottery Act, which governs the operation of slot machines inWest Virginia.

Our ability toremain in business depends upon our continued ability to operate in compliancewith all applicable gaming and racing laws and regulations, including theacquisition and maintenance of several licenses and permits.  Our material licenses are subject to annualor other periodic renewal and governmental authorities may refuse to grant usthe licenses necessary to continue to operate our existing facility.  In addition, we may be investigated by theRacing Commission or the Lottery Commission at any time.  Should either commission consider us to be inviolation of any applicable laws or regulations, each commission has theplenary authority to suspend or rescind our licenses.  In addition, from time to time, ouroperations may not have been in compliance with all applicable laws andregulations, although we do not believe such non-compliance is material.  No assurance can be given that these or anyother future violations will not result in an investigation or suspension ortermination of one or more of our licenses. In addition, we can give no assurance that regulatory authorities willrenew our required licenses or permits in the future or that they will approveany required filings to conduct business in our jurisdiction.  The failure to obtain or maintain in effectrequired regulatory approvals, permits or licenses would have a materialadverse effect upon our business, financial condition and results ofoperations.

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The LotteryCommission also licenses all persons who control or are key personnel of ourgaming operations to ensure their integrity and absence of any criminalinvolvement.  We can give no assurancethat the Lottery Commission will renew these required licenses.  The failure to renew such licenses could havea material adverse effect upon our business, financial conditions and resultsof operations.

Our export simulcast activities that occur outsideof West Virginia are subject to regulation by other state racing commissionsthat prohibit us from accepting off-track wagering on simulcast racing withoutthe approval of the Racing Commission and, subject to certain exceptions, ofany other currently operating track within 60 miles or, if none, of the closestracetrack in any adjoining state.  Wehave received all necessary approvals to conduct our current operations.  However, such approvals are subject torenewal and approval annually.  Thefailure to receive or retain approvals or renewals of approvals, or a delay inreceiving such approvals and renewals, could cause the reduction or suspensionof racing, pari-mutuel wagering and gaming operations at our facility and havea material adverse effect on our business, financial condition and results ofoperations.

The conduct ofgaming by a racing facility is subject to the approval of the voters of thecounty in which the facility is located. If such approval is obtained, the facilities may continue to conductvideo lottery activities unless the matter is resubmitted to the voterspursuant to a petition signed by at least 5% of the registered voters, who mustwait at least five years from such approval 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 at Wheeling Island in May 1994.  If such approval were ever revoked, it wouldhave a material adverse effect on our business, financial condition and resultsof operations.

In the past, theWest Virginia legislature has increased the state’s share of gross terminalincome.  There is a possibility ofincreased gaming taxes on the State’s racetracks in future years.  Any substantial unfavorable change in thefuture in the enabling laws or tax rates on gaming revenues could make ourbusiness substantially less profitable or illegal, which would have a materialadverse effect on our business, financial condition and results of operations.

We feel that our interpretation of state tax laws pertaining to income,sales and use taxes is correct.  However,there is the possibility that the state may determine that our tax calculationsare incorrect or deficient.  As a result,there is the possibility of the imposition of additional state income, salesand use taxes and related penalties and interest.  Any substantial change in the state tax lawsor determination by the state that our tax calculations are incorrect ordeficient could result in a material adverse effect on our business, financialconditions and results of operations.

We are alsosubject 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.  Wederive a significant portion of our other revenues from the sale of alcoholicbeverages to patrons of our facilities. Any interruption or termination of our existing ability to servealcoholic beverages would have a material adverse impact on our business, financialcondition and results of operations.

Our facilities arecurrently subject to various local regulations, which prohibit smoking incertain areas of our facilities.  Asignificant percentage of our gaming patrons smoke and therefore the enactmentof any regulation which increases the areas of our facility where smoking isprohibited could materially impact our business, financial condition andresults of operations.

We can recoup fromthe state a portion of our total qualified capital investments during the statefiscal year.  Our policy is to invest inqualified capital projects each year in order to recoup the maximum amountavailable. Our accounting policy in regard to these investments and relatedrecoupment is to estimate the amount of the capital investment credit andrecognize this amount as revenue evenly throughout the state 

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fiscal year.  If our capital investments do not meet thestate’s qualification criteria or if there is a change in the applicable rulesand regulations, the resulting impact could materially impact our business,financial condition and results of operations.

*Ifexisting gaming regulations are liberalized enabling new competitors to enterour market, our business could be materially adversely affected*

On July 5, 2004legislation was enacted in Pennsylvania permitting the introduction of slotmachine gaming in that state.  On December 20, 2006,the Pennsylvania Gaming Control Board approved 11 applications for permanentslot-machine gaming operator licenses. Two of these licenses were awarded to planned slot operations within ourprimary market.  These licenses wereawarded to the Washington Trotting Association, Inc. (“The Meadows”) and PITGGaming, LLC. (“The Majestic Star”).  Ourprimary market consists of the 150-mile radius around Wheeling and includes thewestern Pennsylvania market area that includes Pittsburgh.  Slot machine operations that are awardedlicenses in western Pennsylvania will compete directly with us for customers inour market.  We expect the introduction ofslot machine gaming in the western Pennsylvania market to have a materialadverse impact on our business, financial condition and results of operation.

Ohio currentlydoes not permit any form of casino gaming. If gambling legislation similar to that which has been approved in WestVirginia and Pennsylvania were approved in Ohio, there would be sevenracetracks in Ohio that could potentially compete with us for gaming customersin the Ohio market.  In addition, to theextent that West Virginia or other nearby states allow expanded casino gaming,the new gaming facilities may offer more gaming machines than we do, or gamingmachines that are not offered by us, as well as other forms of gaming notcurrently available in West Virginia. The introduction of these forms of additional competition could have amaterial adverse impact on our business, financial condition and results ofoperation.

*Recent developments pertaining to gaming inPennsylvania have had a negative impact on our debt rating.*

The Pennsylvania Gaming Control Board approved five Category 1 slotmachine gaming operator licenses on September 27, 2006.  WashingtonTrotting Association, Inc. (The Meadows) was issued one of these fivelicenses.  In conjunction with thisdevelopment, the Standard and Poor’s Ratings Service lowered its debt rating onour $125.0 million of unsecured senior notes issued in December 2001 to “B”from “B+” and expressed a negative outlook for the Company.  Thisdevelopment reflects their assessment of the potential impact that newcompetition in Pennsylvania, particularly The Meadows, will have on the Company’soperating performance.  We expect the introduction of slot machine gamingin the western Pennsylvania market to have a material adverse impact on ourbusiness, financial condition and results of operations.

*If we are unable to compete successfully with ourexisting competitors, our business could be materially adversely affected.*

We face significant competition for wagering dollars from variousdifferent competitors in West Virginia, as well as in the adjacent states ofPennsylvania and Ohio. Our principal direct competitor is Mountaineer Park,located approximately 50 miles to the north of Chester, West Virginia.Mountaineer Park offers slot machine gaming, pari-mutuel wagering on livethoroughbred racing and simulcast thoroughbred, harness and greyhound events.This gaming facility competes directly with us in attracting the westernPennsylvania market, including Pittsburgh, as well as the northern panhandlemarket of West Virginia and the feeder markets in northeastern Ohio. To theextent that Mountaineer Park enhances its facilities by adding more slotmachines or other amenities, it may become an even more significant competitor.

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To a lesser extent, we compete with Thistledown, located approximately143 miles to the northwest in Cleveland, Ohio; Northfield Park, locatedapproximately 150 miles to the north in Northfield, Ohio; The Meadows, locatedapproximately 35 miles to the east in Washington, Pennsylvania; and BeulahPark; and Scioto Downs, located approximately 135 miles to the west inColumbus, Ohio. These facilities offer pari-mutuel wagering but do notcurrently offer slot machine gaming. As discussed above, if such facilitieswere to receive legislative approval to offer slot machine gaming, they woulddirectly compete with us for customers in our primary market. We also competewith statewide lotteries in West Virginia, Pennsylvania and Ohio and live andsimulcast pari-mutuel wagering in Pennsylvania and Ohio. In addition, wegenerally compete with other entertainment 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 to9,000 slot machines in adults-only facilities throughout West Virginia.  The legislation allows slot machines inestablishments licensed by the state to sell beer or other alcoholic beveragesfor consumption on the premises.  Inaddition, slot machines are allowed in certain fraternal or veterans’organizations.  No more than five slotmachines are allowed in approved establishments licensed to sell alcoholicbeverages and no more than ten slot machines are allowed in fraternal orveterans’ organization that have been approved to operate these slotmachines.  As of December 31, 2006, 8,211of these slot machines are licensed and operating in West Virginia.  The state of West Virginia could liberalizegaming laws relating to these additional slot machines, increase the number ofslot machines authorized or significantly improve the competitive position ofthe establishments authorized to operate these slot machines.  The occurrence of some or all of these eventscould have a material adverse impact on our business, financial condition andresults of operations.

*Ourbusiness may be adversely affected by recession or economic downturn; theseasonal nature of our business could also adversely affect our cash flow*

Our primarybusiness involves leisure and entertainment. During periods of recession or economic downturn, consumers may reduceor eliminate spending on leisure and entertainment activities.  In the event that our primary demographic marketor the United States in general suffers adverse economic conditions, ourrevenues may be materially adversely affected. In addition, our operations are typically 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 have a material adverse effect on ouroperations.

*Ourgaming operations are dependent on our linkage to the West Virginia Lottery Commission’sCentral System*

By West Virginia Lottery Commission directive, allof our slot machines are required to be connected to their central computerizedtracking system, the Central System.  Thestate is in the process of upgrading the Central System.  The Central System upgrade entails the SAMS7.1-2 (International Gaming Technology, Inc.) central system being replacedwith the AEGIS (Scientific Games, Inc.) central system.  As of this filing, Wheeling Island has converted approximately two-thirds of its slotmachines to the AEGIS central system and we anticipate converting the remainingone-third of the slot machines later in 2007. If the operation of the Central System or the conversion to theAEGIS central system causes a disruption of video lottery gaming for anyreason, we believe that the Lottery Commission would suspend all gamingoperations within the state until normal operation of the system wasrestored.  Any such suspension couldcause a material disruption of our gaming operations and have a materialadverse impact on our business, 

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financial condition and results of operations.

*Ourpari-mutuel wagering business is not a viable business by itself and requiressubsidizing operating profits from other parts of our business*

Ourpari-mutuel wagering business can’t sustain itself without offsetting operatingprofits from profitable parts of our business. We are attempting to increase pari-mutuel profits by increasingmarketing efforts, cutting costs and enhancing the quality of our greyhoundracing activities.  Nonetheless, therecan be no guarantees that this strategy will prove successful and sustainable.  We are required to continue our pari-mutuelwagering business in order to maintain our gaming license.

*Weare controlled by a single stockholder*

Delaware NorthG&E is our sole stockholder, and thus exercises control over all mattersthat require approval by our stockholders, including the election of directorsand the approval of significant transactions. There can be no assurance that the interests of Delaware North G&Ewill not conflict with the interests of the holders of the senior unsecurednotes.

*Wemay be subject to material environmental liability as a result of unknownenvironmental hazards*

Wemay incur costs to comply with environmental requirements, such as thoserelating to discharges to air, water and land, the handling and disposal ofsolid and hazardous waste and the clean up of properties affected by hazardoussubstances.  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.  Wecould also be held liable to a governmental entity or to third parties forproperty damage, personal injury and for investigation and clean up costs inconnection with any contamination on our property.  These laws typically impose clean up responsibilityand liability without regard to whether the owner knew of or caused thepresence of the contaminants or whether or not the contamination occurred priorto the owner’s possession of the property.  The investigation, remediation or removal ofharmful substances can be very costly. In addition, if contamination is found to exist on our property, wecould be subject to common law claims by third parties based on damages andcosts resulting from that environmental contamination.  We cannot assure that substantial clean up orremediation costs will not be incurred in the future.

*Outcomeof legal proceedings*

Periodically we aredefendants in various legal proceedings that arise in the normal course of ourbusiness.  In general, legal proceedingscan be costly and time consuming and there can be no assurance as to the outcomeof these matters.  We may not prevail inthe defense of these proceedings and such matters could ultimately result insettlements or damages that could materially impact our business, financialcondition and results of operations.

*Dependenceon key management personnel*

We are dependenton the employment services of several key members of our management team.  Our ability to retain key managementpersonnel is impacted by the competitiveness of our overall compensationphilosophy and the continuing growth of the gaming industry as a whole, whichincreases the demand for gaming management personnel.  The loss of the services of any of these keyindividuals could have a material adverse effect on our business, financialcondition and results of operations.

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*Potentialimpact of labor unions*

Some of our employees arerepresented by labor unions.  A lengthystrike or other work stoppage could have an adverse effect on our business,financial condition and results of operations. We cannot provide assurance that we will not experience an increase inthe successful unionization of our work force.

*Potential impact of labor union pension fund deficit*

On October 17, 2006, the trustees of the UFCW Local23 Employers Pension Fund advised the eight largest participating employerswithin the defined benefit pension fund that there was a significant deficiencyin the funding status.  The trustees ofthe fund have recommended that all employers within the fund increase theircontributions in order to eliminate this shortfall.  We are currently evaluating our options andthe extent of the financial impact, if any, on the Company. If we are requiredto fund this significant deficiency, it may adversely impact our profitability.

*Availabilityof competitive slot product*

A portion of our gamingrevenues is attributable to the popularity of the type of slot machine gamesthat we offer at our gaming facility and it is critical that we continue tooffer the latest technology in slot machine gaming to our customers.  All of the slot machine game manufacturers inWest Virginia are required to be licensed by the Lottery Commission.  In addition, all of the slot machine gamesneed to be separately tested and approved 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 our ability to provide the latest slotgaming technology is curtailed it may adversely impact our profitability.

*Unstableenergy costs*

Our facility usessignificant amounts of electricity, gas and other forms of energy.  While no shortages of energy have beenexperienced, the recent significant increases in energy costs will continue tonegatively impact our results of operations. In addition, the energy and fuel price increases could also result in adecline in disposable income of potential customers and a correspondingdecrease in visitation to our facility, which would negatively impact ourrevenues.  The magnitude of the impactwill be subject to market forces beyond our control and we cannot make anyassurances that such impacts will not be material.

*Covenant restrictions under our revolving credit facilityand the Indenture may limit our ability to operate our business*

Oursecured revolving credit facility and the 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 (Indenture), governing our senior unsecured notescontain, and other future agreements governing our debt may contain, amongother things, covenants that may restrict our ability and the guarantors’ abilityto finance future operations or capital needs or to engage in other businessactivities.

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.Events beyond our control, including changes in general economic and businessconditions, may affect our ability to meet those financial ratios and financialcondition tests.

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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.*

Ourability to service our debt (including our senior unsecured notes) depends onour ability to generate significant cash flow in the future. This, to someextent, is subject to general economic, financial, competitive, legislative andregulatory factors as well as other factors that are beyond our control. Inaddition, the ability to borrow funds under our revolving credit facility inthe future depends on our meeting the financial covenants in such creditagreement, including a minimum fixed charge coverage ratio test and a maximumleverage ratio test. We cannot assure you that our business will generate cashflow from operations, or that future borrowings will be available to us underour revolving credit facility, in an amount sufficient to enable us to pay ourdebt or to fund other liquidity needs. If we are not able to generatesufficient cash flow to service our debt obligations, we may need to refinanceor restructure our debt, sell assets, reduce or delay capital investments, orseek to raise additional capital. If we are unable to implement one or more ofthese alternatives, we may not be able to service our debt obligations,including making payments on our senior unsecured notes.

**ITEM 1B. UNRESOLVED STAFF COMMENTS**

None

# **ITEM 2.  PROPERTIES**

Wheeling Island Racetrack &Gaming Center, which is owned by us, is situated on approximately 62 acres ofland on Wheeling Island on the Ohio River in Wheeling, West Virginia.  The entire Wheeling Island facility occupiesapproximately 270,000 square feet.

We alsoown 24 acres of land located at the northern limit of the Village of BeechBottom in Brooke County, West Virginia, approximately 13 miles from ourWheeling Island facility.  Our greyhoundkennel facility is located on this property.

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**ITEM 3.  LEGAL PROCEEDINGS**

We area party to a number of other legal proceedings that have arisen in the ordinarycourse of our business.  We believe thatthe outcome of such proceedings will not have a material adverse effect on ouroperating results or financial condition.

**ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

Not applicable.

**PART II**

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

Notapplicable.

**ITEM6. ****SELECTEDFINANCIAL DATA**

The selected financial data presented belowas of and for the five years ended December 31, 2006 has been derived fromour audited consolidated financial statements. Our selected statement of operations data for 2006, 2005 and 2004, andour selected balance sheet data at December 31, 2006 and 2005 have been derivedfrom audited consolidated financial statements included elsewhere in thisAnnual Report.  Our selected statement ofoperations data for 2003 and 2002, and our selected balance sheet data atDecember 31, 2004, 2003 and 2002 was derived from audited consolidatedfinancial statements not included in this Annual Report.  The selected financial data should be read inconjunction with “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and those consolidated financial statements andrelated notes thereto which are included elsewhere herein.

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| ** **                                   | ** ** | **Year Ended December 31,**                    | ** ** |
|----------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                   | ** ** | **(dollars in thousands, except ratios)** | ** ** |
| ** **                                   | ** ** | **2006**                                                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Statement  of Operations Data:**           |       |                                                          |       |   |   |   |   |   |   |   |   |
| Operating  revenue:                          |       |                                                          |       |   |   |   |   |   |   |   |   |
| Gaming revenue (1)                           |       | $                                                             | 99,385     |   | $ | 96,368 |   | $ | 100,378 |   | $ | 88,634 |   | $ | 78,550 |   |
| Pari-mutuel revenue                          |       | 7,262                                                         |       | 7,052 |   | 6,841 |   | 7,704 |   | 8,639 |   |
| Food & beverage revenue                  |       | 7,818                                                         |       | 8,273 |   | 7,782 |   | 6,066 |   | 4,913 |   |
| Lodging revenue                              |       | 2,334                                                         |       | 2,528 |   | 2,468 |   | 1,542 |   | — |   |
| Other revenue                                |       | 2,892                                                         |       | 2,708 |   | 1,947 |   | 1,357 |   | 790 |   |
| ** **                                   |       |                                                          |       |   |   |   |   |   |   |   |   |
| Total operating revenue                      |       | 119,691                                                       |       | 116,929 |   | 119,416 |   | 105,303 |   | 92,892 |   |
| ** **                                   |       |                                                          |       |   |   |   |   |   |   |   |   |
| Operating  expenses:                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| Purse expense                                |       | 19,836                                                        |       | 20,129 |   | 21,473 |   | 20,147 |   | 18,799 |   |
| Gaming expense                               |       | 6,060                                                         |       | 7,095 |   | 7,440 |   | 7,025 |   | 4,397 |   |
| Pari-mutuel expense                          |       | 3,913                                                         |       | 4,058 |   | 3,521 |   | 3,772 |   | 4,049 |   |
| Food & beverage expense                  |       | 9,481                                                         |       | 9,453 |   | 8,444 |   | 6,857 |   | 5,617 |   |
| Lodging expense                              |       | 1,207                                                         |       | 1,208 |   | 1,239 |   | 810 |   | — |   |
| Other expense                                |       | 550                                                           |       | 819 |   | 739 |   | 339 |   | — |   |
| Marketing and promotions                     |       | 8,834                                                         |       | 9,327 |   | 8,258 |   | 6,568 |   | 6,046 |   |
| Facilities and maintenance                   |       | 10,352                                                        |       | 10,448 |   | 9,704 |   | 7,309 |   | 5,176 |   |
| General and administrative (2)               |       | 7,210                                                         |       | 6,789 |   | 6,404 |   | 5,117 |   | 3,909 |   |
| Business interruption insurance proceeds (3) |       | (1,215                                                        | )          | (1,861 | ) | — |   | — |   | — |   |
| Depreciation and amortization                |       | 11,257                                                        |       | 11,347 |   | 11,693 |   | 9,630 |   | 7,483 |   |
|                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| Total operating expenses                     |       | 77,485                                                        |       | 78,812 |   | 78,915 |   | 67,574 |   | 55,476 |   |
|                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| Income from operations                       |       | 42,206                                                        |       | 38,117 |   | 40,501 |   | 37,729 |   | 37,416 |   |
|                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| Interest expense, net                        |       | (13,453                                                       | )          | (13,967 | ) | (14,338 | ) | (14,013 | ) | (13,939 | ) |
| Casualty recoveries (loss), net (4)          |       | 2,876                                                         |       | 1,893 |   | (4,308 | ) | — |   | — |   |
| Other income (expense), net                  |       | (113                                                          | )          | (69 | ) | (254 | ) | 1 |   | (333 | ) |
| Income before income tax                     |       | 31,516                                                        |       | 25,974 |   | 21,601 |   | 23,717 |   | 23,144 |   |
| Income tax expense                           |       | 11,105                                                        |       | 9,060 |   | 7,593 |   | 8,325 |   | 8,303 |   |
|                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| Net income                                   |       | $                                                             | 20,411     |   | $ | 16,914 |   | $ | 14,008 |   | $ | 15,392 |   | $ | 14,841 |   |
| ** **                                   |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Operating  Data:**                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| Gross terminal income (5)                    |       | $                                                             | 202,913    |   | $ | 190,527 |   | $ | 193,706 |   | $ | 174,829 |   | $ | 149,138 |   |
| Number of slot machines (6)                  |       | 2,330                                                         |       | 2,332 |   | 2,362 |   | 2,200 |   | 1,623 |   |
| Slot machine win per unit per day (7)        |       | $                                                             | 238.59     |   | $ | 228.55 |   | $ | 237.38 |   | $ | 253.60 |   | $ | 267.87 |   |
| Hotel occupancy % (8)                        |       | 98.5                                                          | %          | 98.1 | % | 90.9 | % | 81.5 | % | — |   |
| Revenue per available room (9)               |       | $                                                             | 42.34      |   | $ | 46.25 |   | $ | 45.28 |   | $ | 54.04 |   | $ | — |   |

 

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| **Balance  Sheet Data:**   |   |    |   |    |   |    |   |    |   |    |   |
|----------------------------|--------|---------|--------|---------|--------|---------|--------|---------|--------|---------|--------|
| Cash and cash equivalents  |   | $       | 19,128 |    | $      | 11,957  |   | $       | 10,509 |    | $      | 9,517 |   | $ | 7,867 |   |
| Total assets               |   | 214,062 |   | 215,110 |   | 220,086 |   | 230,516 |   | 185,740 |   |
| Total long term debt       |   | 125,000 |   | 134,000 |   | 142,250 |   | 159,000 |   | 126,500 |   |
| Shareholder’s  equity |   | 45,713  |   | 37,302  |   | 32,388  |   | 30,880  |   | 27,488  |   |
|                            |        |         |        |         |        |         |        |         |        |         |        |  |  |  |  |  |

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(1)                                  Gaming revenues represent gross revenues from slotmachine gaming, or total amounts wagered, net of winning patron payouts (the “grossterminal income”) less a fee of 4% of gross terminal income paid to the LotteryCommission for administering slot machine gaming at the licensee’s race track(the “administration fee”) less taxes and withholdings.  Net terminal income (NTI) is gross terminalincome less the administrative fee. State taxes and withholding rates are lower on  NTI earned during the state fiscal year up toa predetermined threshold of $96.9 million (“base NTI”) and higher for NTIearned in excess (“excess NTI”).    Our accounting policy is to estimate NTI forthe state fiscal year, calculate an estimated average tax and withholding ratebased on this estimate, and use this rate to calculate taxes and withholdings.

State taxes and withholdings onbase NTI are as follows:  (1) 30% of baseNTI is paid to the state’s general revenue fund, (2) 9.5% of base NTI is paidto various state funds, including funds for tourism promotion, Ohio County,employee retirement and other programs and (3) 7% of base NTI is paid to theState’s workers’ compensation debt reduction fund up until the fund reaches amaximum amount of $11.0 million in any state fiscal year.

State taxes and withholdings on excess NTI are asfollows:  (1) 10% of excess NTI is paidfor a surcharge (excess NTI less the 10% surcharge equals “net excess NTI”),(2) 41% of net excess NTI is paid to the state’s general revenue fund and (3)9% of net excess NTI is paid to various state funds, including funds fortourism promotion, Ohio County, employee retirement and other programs.

Of the total 10% surcharge referred to in the preceding paragraph,42% is deposited into a capital reinvestment account for each racetrack.Additionally, included in the taxes and withholdings is 1% of base NTI and 1%of net excess NTI paid to the West Virginia Racing Commission.  Of this amount, nearly 50% is deposited intoa capital reinvestment account for each racetrack.  The racetrack is entitled to recoup moniesfrom each of the capital reinvestment accounts for certain types of capitalimprovements made at the racetrack on a dollar-for-dollar basis.  Our policy is to reinvest capital in order torecoup the maximum monies available. During 2006, Wheeling Island recognized approximately $4.7 million fromthe capital reinvestment accounts as credits to gaming revenue.

(2)                                  Effective December 19, 2001, Wheeling Island entered into anadministrative services agreement pursuant to which administrative fees arerecorded and paid to Delaware North G&E. Pursuant to this agreement, Delaware North G&E receives a fee thatis equal to the greater of 1.5% of preceding year total operating revenues or$1.2 million per year.  Such fees arerecorded as general and administrative expenses.

(3)                                  Business interruption insurance proceedsrepresent recoveries that relate to lost operating profits and were recorded ascredits to operating expenses.  Theproceeds recorded in 2006 are attributable to the September 2004 and January2005 floods in the amounts of $0.4 million and $0.8 million, respectively.  The proceeds recorded in 2005 areattributable to the September 2004 and January 2005 floods in the amounts of$1.3 million and $0.6 million, respectively.

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(4)                                  Casualty (loss)recoveries, net represent the repair costs incurred in the September 2004 andJanuary 2005 floods and the related insurance reimbursements.  In 2006, we recorded a net casualty (loss)recovery of $2.9 million, which is comprised of insurance reimbursementstotaling $1.9 million and $1.0 million for the September 2004 and January 2005floods, respectively.

In2005, we recorded a net casualty (loss) recovery of $1.9 million, which iscomprised of insurance reimbursements totaling $3.6 million and $1.7 millionfor the September 2004 and January 2005 floods, respectively, offset by floodrelated expenses of $0.6 million and $2.8 million, for the September 2004 and January2005 floods, respectively.

 (5)                               Gross terminal incomerepresents gross revenues from slot machine gaming, or total amounts wagered,net of winning patron payouts.

(6)                                  The number of slotmachines are given as of the end of each period presented.

(7)                                Slot machine win perunit per day refers to the gross terminal income for a given period divided bythe average number of slot machines operating in that period divided by thenumber of days in that period.

(8)                                  Hotel occupancypercentage represents total number of rooms sold or provided gratuitously tocustomers, divided by the total number of rooms available for sale.

(9)                                  Revenue per availableroom represents total lodging revenues for the year divided by the total numberof rooms available for sale during the year. Note that several rooms were placed out of service during the September2004 and January 2005 floods.

 

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

*CautionaryNote Regarding Forward-Looking Statements*

Except for historical information contained herein, the statements inthis 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 statementsinvolve known and unknown factors, risks and uncertainties, which may cause ouractual results in future periods to differ materially from those expressed inany forward-looking statements.

# **Overview**

*General*

We own and operate WheelingIsland Racetrack & Gaming Center, or Wheeling Island, a premier gaming andentertainment complex located in Wheeling, West Virginia.  Wheeling Island features 2,330 slot machines,a hotel, showroom, greyhound racetrack, pari-mutuel wagering on live greyhoundracing and simulcast greyhound, thoroughbred and harness racing and variousdining venues.

Our gaming operation iscomprised of 2,330 slot machines situated within 64,272 square feet of gamingarea.  Our slot machines includemechanical spinning reel slot machines and video lottery terminals with eithercoin-out or ticket in ticket out functionality. The gaming mix is comprised of 1,858 slot machines that dispensevouchers for patron winnings and 472 machines that dispense coins.  The gaming mix includes progressive gamesthat link multiple machines playing for a larger combined jackpot.

Our pari-mutuel operations consist of pari-mutuelwagering on live greyhound races and on greyhound, thoroughbred and harnessevents that are simulcast from other racetracks.  Our racetrack currently conducts eight livegreyhound races each week and offers a mix of simulcast wagering every day.

Our food and beverage operations include afull-service 600-seat clubhouse restaurant, a 300-seat buffet-stylerestaurant, a 128-seat casual restaurant, a 70-seat fine dining restaurant, a140-seat food court, two concession stands, three lounges and three bars.

Our lodging operations arecomprised of a 151-room hotel, which includes nine suite style rooms.

Our entertainment operationsconsist primarily of a 550-seat multi-purpose showroom and various conferencefacilities.

*Gaming Floor Expansion*

On December 13, 2006, we commenced work on an $7.5 milliongaming floor expansion.  This will enableus to relocate most of the slot machines out of the lower, Fairgrounds area,which is in the flood plain, to the upper, Island Room Expansion area, which isabove the flood plain.  It will addnearly 13,000 square feet to the facility and is expected to be complete inJune 2007.

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*Casualty Loss*

In September 2004 and January 2005, our gaming andracing facilities were damaged as a result of flooding of the Ohio River.  On each occasion we incurred substantialrepair costs and were forced to suspend all operations for several daysresulting in a loss of operating profits. For the fiscal year ended December 31, 2006, we recorded a net casualty (loss) recovery of $2.9 million, which is comprisedof insurance reimbursements of $1.8 million and $1.1 million for the September2004 and January 2005 floods, respectively. Also, during 2006, we recorded business interruption insurance proceedsas credits to operating expenses totaling $1.2 million representing $0.4million and $0.8 million for the September 2004 and January 2005 floods,respectively.

**Critical AccountingPolicies**

Our significant accounting policies are described in thenotes to the Consolidated Financial Statements. We believe the following represents our critical accounting policies.

*Revenue Recognition*

Gaming revenues represent gross revenues from slot machine gaming, ortotal amounts wagered, net of winning patron payouts (the “gross terminalincome”) less a fee of 4% of gross terminal income paid to the LotteryCommission for administering slot machine gaming at the licensee’s race track(the “administration fee”) less taxes and withholdings withheld from netterminal income.  Net terminal income(NTI) is gross terminal income less the administrative fee.  State taxes and withholding rates are loweron net terminal income  earned during theState fiscal year up to a predetermined threshold of $96.9 million (“base NTI”)and higher for income earned in excess (“excess NTI”).  Our accounting policy is to estimate net terminal income for the statefiscal year, calculate an estimated average tax and withholding rate based onthis estimate, and use this rate to calculate taxes and withholding.  Net terminal income less taxes and withholdings(using the average tax and withholding rate described above) equals gamingrevenues.

State taxes and withholdings for base NTI are as follows:  (1) 30% of base NTI is paid to the state’sgeneral revenue fund, (2) 9.5% of base NTI is paid to various state funds,including funds for tourism promotion, Ohio County, employee retirement andother programs and (3) 7% of base NTI is paid to the state’s worker’scompensation debt reduction fund up until the fund reaches a maximum amount of$11.0 million in any state fiscal year.

State taxes and withholdings for excess NTI are asfollows:  (1) 10% of excess NTI is paidfor a surcharge (excess NTI less the 10% surcharge equals “net excess NTI”),(2) 41% of net excess NTI is paid to the state’s general revenue fund and (3)9% net excess NTI is paid to various state funds, including funds for tourismpromotion, Ohio County, employee retirement and other programs.

*Valuationof Goodwill and Other Intangible Assets*

The carrying valueof long-lived assets, including goodwill and other intangible assets, arereviewed for impairment annually or more frequently whenever events or changesin circumstances indicate that the assets might be impaired.

We performed our annual review of the carryingvalue of the goodwill and operating licenses for impairment as of December 31,2006.  The first step in our goodwillimpairment test, used to identify potential impairment, compared our fairvalue to our carrying value, including goodwill.  Our fair value was determined based on a discounted

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cashflow method.  The cash flows associatedwith the discounted cash flow method were based on a number of estimates andassumptions, including our projected future operating results, which includethe estimated impact of gaming in western Pennsylvania, the probability ofenhanced gaming in West Virginia, our long-term growth rate and a discountrate.  As our fair value exceeds ourcarrying value, the second step in the assessment process was not necessary.  Accordingly, no impairment 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 operating licenses was determined based on thediscounted 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,which include the estimated impact of gaming in western Pennsylvania, theprobability of enhanced gaming in West Virginia, construction costs, ourlong-term growth rate and a discount rate. Pursuant to this evaluation we determined that the operating licenseswere not impaired.

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

*PreferredPlayer Program*

Many of our customers aremembers of our frequent player program called the Preferred Player Club. ThePreferred Player Club is a promotional tool used to develop customer loyalty byproviding customers with reward incentives for increased levels of play.  Club members can accumulate points for casinowagering that can be redeemed for cash, food and beverages, lodging,entertainment and retail products.  Aliability is recorded for the estimate of unredeemed points based on redemptionhistory. Point redeemed for cash are recognized as a reduction in revenueswhile the net impact of points redeemed for food and beverage, lodging,entertainment, and other retail products are recognized as promotionalexpenses.

*Recent Accounting Pronouncements*

In June 2006, the FASB issuedInterpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — anInterpretation of SFAS No. 109.” FIN No. 48 clarifies the accounting foruncertainty in income taxes recognized in an entity’s financial statements inaccordance with SFAS No. 109, “Accounting for Income Taxes.”  The pronouncement prescribes a recognitionthreshold and measurement attributable to financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.  FIN No. 48 is effective for fiscal yearsbeginning after December 15, 2006.  TheCompany is in the process of determining the effect, if any, the adoption ofFIN No. 48 will have on its financial statements.

# **Results of Operations**

**2006 Compared to 2005**

Gamingrevenues were $99.4 million for the year ended December 31, 2006, an increaseof $3.0 million, or 3.1%, from $96.4 million for the year ended December 31,2005.  The increase was mostly due to a$12.4 million increase in gross terminal income which resulted in a $6.6million increase in net gaming revenues. The increase in gross terminal income was a result of increased gamingby our repeat customers and the implementation of more effective marketing strategies.  The net gaming revenues increase was 

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partiallyoffset by a $1.5 million increase in the redemption of Preferred Playerscoupons and points for cash, which are recognized as a reduction to gamingrevenues, and a $2.1 million increase in gaming taxes and withholdings as aresult of an increase in our average taxes and withholdings rate. The averagetaxes and withholding rate increase relates to our policy for recognizing theState of West Virginia taxes and withholdings retained from our gross terminalincome.  Our policy is to estimate netterminal income for the state fiscal year, calculate an estimated average taxand withholding rate based on this estimate, and use this rate to calculatetaxes and withholdings.  Net terminalincome is gross terminal income less a 4.0% administrative fee withheld by theState of West Virginia.  State taxes andwithholdings rates are lower on net terminal income up to a predeterminedthreshold of $96.9 million and higher for income earned in excess.  Our average tax and withholding rate for thefirst six months of 2006 was based on actual net terminal income for the Statefiscal year beginning July 1, 2005 and ending June 30, 2006 and our estimatedaverage tax and withholding rate for the six months ended December 31, 2006 wasbased on estimated net terminal income for the State fiscal year beginning July1, 2006 and ending on June 30, 2007.  Forthe twelve months ended December 31, 2006, our estimated average tax andwithholding rate was 48.1%, an increase of 1.0%, from 47.1% for the comparableperiod in the prior year.

Pari-mutuelrevenues were $7.3 million for the year ended December 31, 2006, an increase of$0.2 million, or 3.0%, from $7.1 million for the year ended December 31,2005.  The increase in pari-mutuelrevenues was due primarily to a $0.1 million increase in inter track wageringrevenues and a $0.1 million increase in host fee revenues from off trackbetting.  Inter track wagering revenuesincreased because of additional events and more revenue per performance incomparison to the same period in the prior year.  Host fee revenues from off track bettingincreased primarily as a result of additional revenues per performance becauseour live races were exported to more venues in comparison to the same period inthe prior year.

Food and beveragerevenues were $7.8 million for the year ended December 31, 2006, a decrease of$0.5 million, or 5.5%, from $8.3 million for the year ended December 31,2005.  The decrease in food and beveragerevenues was primarily attributable to a decrease in customer purchases due toan increase in the number of complimentary food and beverage items provided toour gaming patrons.

Lodging revenues were $2.3 million for the yearended December 31, 2006, a $0.2 million decrease, or 7.7%, from $2.5 millionfor the year ended December 31, 2005. The decrease in lodging revenues was mostly a result of a decrease inavailable hotel rooms for sale due to an increase in the redemption of couponsfor hotel rooms.  Hotel occupancyincreased from 98.1% for the year ended December 31, 2005 to 98.5% for the yearended December 31, 2006.

Other revenues were $2.9million for the year ended December 31, 2006, an increase of $0.2 million, or6.8%, from $2.7 million for the year ended December 31, 2005.  The increase in other revenues relates to a$0.1 million increase in parking revenues and a $0.1 million increase in ATMrelated revenues.  Parking revenuesincreased mostly as a result of increased gaming patronage and ATM revenuesincreased mostly due to an improved fee arrangement with our new ATM serviceprovider.

Purse expense was $19.8 million for the yearended December 31, 2006, a decrease of $0.3 million, or 1.5%, from $20.1million for the prior year.  The $0.3 million decrease in purse expensewas primarily attributable to a reduction in our average video lottery pursewithholding rate offset by an increase in gross terminal income resulting in anincrease in video lottery purse withholdings. The reduction of the average video lottery purse withholding raterelates to our policy for recognizing the video lottery purse withholdingsretained from our gross terminal income. Our policy is to estimate net terminal income for the state fiscal year,calculate an estimated average video lottery purse withholding rate based onthis estimate, and use this rate to calculate the withholdings.  Net terminal income is gross terminal incomeless a 4.0% administrative fee withheld by the State of West Virginia.  The video lottery purse withholding rate 

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is higher on net terminal income up to a predeterminedthreshold of $96.9 million and lower for income earned in excess.  Our average purse withholding rate for thefirst six months of 2006 was based on actual net terminal income for the Statefiscal year beginning July 1, 2005 and ending June 30, 2006 and our estimatedaverage purse withholding rate for the six months ended December 31, 2006 wasbased on estimated net terminal income for the State fiscal year beginning July1, 2006 and ending on June 30, 2007.  Forthe twelve months ended December 31, 2006, our estimated video lottery pursewithholding rate was 9.0%, a decrease of 0.8%, from 9.8% for the comparableperiod in the prior year.  The decrease in the video lottery pursewithholding rate was partially due to the July 2005 legislative change thatlowered the purse share of base NTI.

Gaming expenses were $6.1 million for the year endedDecember 31, 2006, a decrease of $1.0 million, or 14.6%, from $7.1 million forthe year ended December 31, 2005. The decrease in gaming expenses was primarilydue to $1.1 million of payroll savings related to the implementation of moreeffective labor cost controls and ticket-in ticket-out slot machinefunctionality.

Pari-mutuelexpenses were $3.9 million for the year ended December 31, 2006, a decrease of$0.2 million, or 3.6%, from $4.1 million for the prior year.  The decrease in pari-mutuel expenses wasmostly due to a $0.1 million decrease in simulcast uplink expenses as a resultof improved leasing terms and a $0.1 million payroll savings as a result ofmore effective labor cost controls.

Food and beverageexpenses were $9.5 million for the year ended December 31, 2006 and areunchanged from the prior year.

Lodging expenses were$1.2 million for the year ended December 31, 2006 and are unchanged from theprior year.

Other expenses were $0.6 million for the year endedDecember 31, 2006, a decrease of $0.2 million, or 32.8%, from $0.8 million forthe year ended December 31, 2005.  Thedecrease in other expenses was due primarily to a $0.2 million decrease inentertainment expenses.

Marketing and promotionsexpenses for the year ended December 31, 2006 were $8.8 million, a decrease of$0.5 million, or 5.3%, from $9.3 million for the year ended December 31,2005.  The decrease in marketing and promotionsexpenses was due primarily to a $0.2 million decrease in the cost ofcomplimentary entertainment and promotional gifts and a $0.2 million decreasein production costs.

Facilities andmaintenance expenses were $10.4 million for the year ended December 31, 2006and are unchanged from the prior year.

General and administrative expenses were $7.2million for the year ended December 31, 2006, an increase of $0.4 million, or6.2%, from $6.8 million for the year ended December 31, 2005.  The increase in G&A expenses was principally due to a $0.8 millionincrease in legal expenses due to a one time legal settlement partially offsetby a decrease of $0.2 million in payroll expenses mostly due to the eliminationof select management positions and a decrease of $0.1 million in employeerelocation costs as a result of a decrease in key employee turnover.

Business interruptioninsurance proceeds of $1.2 million were recorded in the year ended December 31,2006.  Business interruption insuranceproceeds were recorded as credits to operating expense and are attributable tothe September 2004 and January 2005 floods in the amounts of $0.4 million and$0.8 million, respectively.

Depreciation andamortization expenses were $11.3 million for the year ended December 31, 2006and are unchanged from the prior year.

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Interest expense, net was$13.5 million for the year ended December 31, 2006, a decrease of $0.5 million,or 3.7%, from $14.0 million for the year ended December 31, 2005.  The decrease in interest expense is due primarilyto decreased borrowings under our revolving credit facility for the year endedDecember 31, 2006 as compared to the prior year and higher interest incomeassociated with higher invested cash balances during 2006 as compared to theprior year.

Netcasualty loss recoveries of $2.9 million were recorded for the twelve monthsended December 31, 2006 which are comprised of insurance reimbursementstotaling $1.9 million and $1.0 million for the September 2004 and January 2005floods, respectively.  Net casualty lossrecoveries of $1.9 million were recorded for the twelve months ended December31, 2005 which are comprised of insurance reimbursements of $3.6 million and$1.7 million for the September 2004 flood and January 2005 flood, respectively,offset by flood related expenses of $0.6 million and $2.8 million for theSeptember 2004 and January 2005 floods, respectively.

Other expenses were $0.1million for the year ended December 31, 2006 and are unchanged from the prioryear.

Income tax expense was$11.1 million for the year ended December 31, 2006, an increase of $2.0million, or 22.6%, from $9.1 million for the year ended December 31, 2005.  The increase was directly attributable to the$5.5 million increase in income before income taxes from $26.0 million for theyear ended December 31, 2005 to $31.5 million for the year ended December 31,2006.  Income tax expense for bothperiods was based on an effective tax rate of 35.0%.

**2005 Compared to 2004**

Gaming revenues were$96.4 million for the year ended December 31, 2005, a decrease of $4.0 million,or 4.0%, from $100.4 million for the year ended December 31, 2004.  The decrease in gaming revenue was dueprimarily to the impact of the January 2005 flood which closed the gamingfacility for three days and a portion of another day, increased competitionfrom limited video lottery machines in our immediate market area, a legislativechange enacted in July 2005 that increased the share of net terminal incomethat is contributed to the employee retirement fund by 0.5% up to the baselevel and provided for a distribution of net terminal income to the workers’compensation debt reduction fund for all net terminal income amounts up to apredetermined level and a $0.9 million increase in the redemption of PreferredPlayers Club points and coupons for cash which are recognized as reductions ofgaming revenue.  The decrease in gamingrevenue occurred despite the closure of the gaming facility for four days andportions of two other days as a result of the flooding of the Ohio River inSeptember 2004.

Pari-mutuel revenues forthe year ended December 31, 2005 were $7.1 million, an increase of $0.3million, or 3.1%, from $6.8 million for the year ended December 31, 2004.  The increase in pari-mutuel revenues was dueprimarily to the additional commissions earned on the exporting of our liveracing signal resulting from an increase in the number of live performancesoffered from 383 in 2004 to 408 during 2005, offset partially by a 11.8%decrease in simulcast wagering handle. The increase in the number of live performances offered was dueprincipally to the cancellation of 33 live performances in 2004 during theshutdown of the racing operations caused by the flooding of the Ohio River.

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

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facility forseveral days during 2004 as a result of the flooding of the Ohio River offsetpartially by the impact of the January 2005 flood which also closed the gamingfacility for several days.

Lodging revenues of $2.5million for the year ended December 31, 2005 were unchanged from the prioryear.  The lodging revenues wereunchanged despite an increase in occupancy percentage from 90.1% for the yearended December 31, 2004 to 98.1% for the year ended December 31, 2005.  The increase in occupancy percentage is dueto an increase in the number of rooms provided gratuitously to customers andour increase in complimentary room discounts offered to patrons.

Other revenues were $2.7million for the year ended December 31, 2005, an increase of $0.8 million, or39.1%, from $1.9 million for the year ended December 31, 2004.  The increase in other revenues relates to anincrease in rental income from the kennel compound resulting from the newleasing terms with kennel owners.

Purse expense for theyear ended December 31, 2005 was $20.1 million, a decrease of $1.4 million, or6.3%, from $21.5 million for the prior year. The decrease in purse expense was due principally to the July 2005legislative change that lowered the purse share of net terminal income for allnet terminal income amounts up to a predetermined level.

Gaming expenses were $7.1million for the year ended December 31, 2005, a decrease of $0.3 million, or 4.6%,from $7.4 million for the year ended December 31, 2004.  The decrease in gaming expenses is due to$0.8 million of payroll savings associated with the implementation of the TITOfunctionality in our slot machines, offset partially by the recording of a $0.6million cash shortage recovery in the prior year resulting from a one-timedownward adjustment in the state’s computation of net terminal income over theprevious three years.

Pari-mutuel expenses were$4.1 million for the 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 due primarily to cost associatedwith the increase in the number of live racing performances offered from 383 in2004 to 408 in 2005 and increased costs resulting from new leasing terms withkennel owners.

Food and beverageexpenses for the year ended December 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 food and beverageexpenses is due primarily to a $0.5 million increase in food costs related tothe $0.5 million increase in food and beverage sales and an increase in thequality of food offerings at the newly refurbished Island Room Buffet and a$0.3 million increase in payroll costs.

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

Other expenses were $0.8million for the year ended December 31, 2005, an increase of $0.1 million, or10.8%, from $0.7 million for the year ended December 31, 2004.  The increase in other expense is dueprimarily to the recording of a $0.1 million loss on retail inventory during2005.

Marketing and promotionsexpenses for the year ended December 31, 2005 were $9.3 million, an increase of$1.0 million, or 12.9%, from $8.3 million for the year ended December 31,2004.  The increase in marketing andpromotions expense is due to a $0.6 million increase in the cost of food andbeverage complimentary items, $0.7 million of increased promotional costsassociated with an increase in the number of Preferred Player Club parties, anda $0.2 million increase in promotional printing costs offset partially by a$0.4 million decrease in advertising costs.

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Facilities andmaintenance expenses were $10.4 million for the year ended December 31, 2005,an increase of $0.7 million, or 7.7%, from $9.7 million for the prioryear.  The increase in facilities andmaintenance expense is due to a $0.8 million increase in insurance premiumspaid for liability and property coverage, a $0.2 million increase in utilitiesexpense and a $0.1 million increase in contract services costs offset partiallyby a $0.5 million decrease in real property and personal property taxes.

General and Administrative,or G&A, expenses were $6.8 million for the year ended December 31, 2005, anincrease of $0.4 million, or 6.0%, from $6.4 million for the year endedDecember 31, 2004.  The increase inG&A expenses is due primarily to a $0.2 million increase in legal fees andsettlements and a $0.2 million increase in the administrative services feespaid to our sole stockholder.

Business interruptioninsurance proceeds of $1.9 million were recorded in the year ended December 31,2005.  Such business interruption insuranceproceeds were recorded as credits to operating expense and are attributable tothe September 2004 and January 2005 floods in the amounts of $1.3 million and$0.6 million, respectively.

Depreciation andamortization expenses for the 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 primarily to $3.2million in slot machine assets being fully depreciated in November 2004.

Interest expense, net was$14.0 million for the 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 interest expense is dueprimarily to decreased borrowings under our revolving credit facility for the yearended December 31, 2005 as compared to the prior year and higher interestincome associated with higher invested cash balances during 2005 as compared tothe prior year.

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

Other expense for theyear ended December 31, 2005 was $0.1 million, a $0.2 million decrease from$0.3 million for the prior year.  Thedecrease in other expense is due primarily to the recording of a $0.3 millionexpense in 2004 representing the loss on the disposition of equipment assetsdestroyed in the September 2004 flood as compared to the $0.1 million expenserecorded in 2005 representing the loss on the disposition of assets destroyedin the January 2005 flood.

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

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**Liquidity and Capital Resources**

Asof December 31, 2006 we had cash and cash equivalents of $19.1 million.  Our principal source of liquidity during theyear ended December 31, 2006 consisted of cash provided by operatingactivities.  As of December 31, 2005 wehad cash and cash equivalents of $12.0 million. Our principal source of liquidity for the year ended December 31, 2005consisted of cash provided by operating activities.

Cashprovided by operating activities for the year ended December 31, 2006 was $31.1million as compared to $27.1 million for the year ended December 31, 2005.  The $4.0 million increase was principally dueto a $3.5 million increase in net income and a $1.4 million increase in cashflows due to the change in deferred income taxes partially offset by a $1.0million decrease in cash flows attributable to changes in balance sheet accountsprimarily due to timing variances associated with tax payments.

Cash used in investing activities for the yearsended December 31, 2006 and 2005 was $3.9 million and $6.4 million,respectively.  The $2.5 million decreasein cash used for investing activities was primarily due to additional prioryear capital expenditures related to the ongoing conversion of the slotmachines to ticket-in, ticket-out functionality.

Cashused in financing activities for the year ended December 31, 2006 was $20.0million, an increase of $0.7 million, from $19.3 million for the year endedDecember 31, 2005.  The $0.7 millionincrease in cash used in financing activities is due to a $0.8 million increasein the repayments made under our revolving credit facility offset by a $0.1million increase in cash flow resulting from the net change in cashoverdrafts.  As of December 31, 2006 noamounts were drawn against the revolving credit facility and the totalcommitment balance was $25.0 million.

In2001, we executed a $40.0 million secured revolving credit facility (Revolver)with a bank group.  In 2003, we executedan increase in the available commitment under the Revolver from $40.0 millionto $50.0 million.  As of December 31,2006, the Company had no amounts drawn against the Revolver.  The Revolver includes a $5.0 million letterof credit component, and is 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.  A commitment fee ispayable quarterly on the unused balance. The Revolver provides for quarterly reductions of $3,125 to thecommitment, which began in December 2003, and continued until the commitmentwas reduced to $25.0 million at September 30, 2005.  At December 31, 2006 the commitment balanceremained at $25.0 million.  On January19, 2007, the Revolver was amended to extend the maturity date from January 19,2007 to April 30, 2007.  Pursuant to thisamendment, Bank of America, N.A. became the sole lender under the Revolveragreement.  All other terms andconditions of the Revolver remain the same. We anticipate that we will extend the Revolver for a minimum of oneadditional year.

**Contractual Obligationsand Commitments**

Thefollowing table reflects our contractual obligations 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  and Interest                   |       | $                                                                  | 162,968    |   | $ | 12,656 |   | $ | 150,312 |   | $ | 0 |   | $ | 0 |   |
| Total Contractual  Obligations and Commitments |       | $                                                                  | 162,968    |   | $ | 12,656 |   | $ | 150,312 |   | $ | 0 |   | $ | 0 |   |

 

Our ability to service our debt depends on ourability to generate significant cash flow in the future.  This, to some extent, is subject to generaleconomic, financial, competitive, legislative and regulatory factors, as 

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well as other factors that are beyond ourcontrol.  In addition, the ability toborrow funds under our revolving credit facility in the future depends on ourmeeting the financial covenants in such credit agreement, including a minimumfixed charge coverage ratio test and a maximum leverage ratio test.  We cannot provide assurance that our businesswill generate cash flow from operations, or that future borrowings will beavailable to use under our Revolver or otherwise, in an amount sufficient toenable us to service our long-term debt or to fund other liquidity needs.

# **ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

None.

**ITEM 8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

The Consolidated Financial Statements and accompanying footnotes areset forth on pages F-1 through F-17 of this report.

**ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE**

Previously reported on our Current Report on Form 8-K filed on February15, 2006.

**ITEM 9A.  CONTROLS AND PROCEDURES**

*Disclosure Controls and Procedures*

As of the end of the period covered by this report, our management,with the participation of our principal executive officer and principalfinancial officer, performed an evaluation of the effectiveness of the designand operation of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended(the “Exchange Act”)).  Our management,including our principal executive officer and principal financial officer, haveconcluded that, as of the end of such period, our disclosure controls andprocedures are effective in ensuring that the information required to bedisclosed by us in reports that we file or submit under the Exchange Act(including this report) is recorded, processed, summarized and reported withinthe time periods specified in the rule and forms of the Securities and ExchangeCommission, and that such information is accumulated and communicated to ourmanagement (including our chief executive officer and chief financial officer)to allow timely decisions regarding required disclosure.  Based on such evaluation, our chief executiveofficer and chief financial officer have concluded that we are in compliancewith Rule 13a-15(e) of the Exchange Act.

*Changes in Internal Control Over Financial Reporting*

There were no changes in our internal control overfinancial reporting that occurred during the fourth fiscal quarter thatmaterially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

**ITEM 9B.    OTHER INFORMATION**

None.

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**PART III**

**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

Thetable below sets forth the names, ages and positions of our directors andexecutive officers.
| **Name**                | ** ** | **Age** | ** ** | **Position and Office Held**          |
|-------------------------|------------|---------|------------|---------------------------------------|
|                    |       |    |       |                                  |
| Charles E. Moran, Jr.   |       | 56      |       | Chairman of the Board                 |
| William J. Bissett      |       | 58      |       | Director                              |
| Thomas A. Cooper        |       | 70      |       | Director, Chairman of Audit Committee |
| William R. Greiner      |       | 72      |       | Director, Member of Audit Committee   |
| Ronald A. Sultemeier    |       | 58      |       | Chief Executive Officer               |
| Robert D. Marshall, Jr. |       | 42      |       | President                             |
| James W. Simms          |       | 42      |       | Vice President of Marketing           |
| Phillip B. Simons       |       | 44      |       | 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 joined CA One Services, Inc., aDelaware North subsidiary, as Vice President of Finance in 1992.  Mr. Moran was appointed President of CA OneServices in 1997.

***William J. Bissett***.  Mr. Bissett has served as a director sinceOctober 1994.  Mr. Bissett hasserved as Vice President, Government Affairs and Community Relations forDelaware North since March 1995, overseeing all government relationsactivities, including interaction with legislative and regulatory agencies atall levels of government.  FromJune 1992 to March 1995, Mr. Bissett served as President ofDelaware North G&E.

***Thomas A. Cooper***.  Mr. Cooper was appointed as a director andnamed Chairman of the Audit Committee in January 2003.  In addition, Mr. Cooper is Chairman of TACAssociates, Inc., a financial services consulting firm.  Mr. Cooper was appointed to the Board ofDirectors of Delaware North in June 1995. He also serves as a director of BISYS, Inc. and as a director ofRenaissance Reinsurance.

***William R. Greiner***.  Dr.Greiner was appointed as a director and named a member of the Audit Committeein January 2003.  Dr. Greiner is a lawprofessor at the University at Buffalo, the State University 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. Greinerserved as the University’s Associate Vice President for Academic Affairs andChief Academic Officer for the Division of Academic Affairs.

***Ronald A. Sultemeier***.  Mr. Sultemeier was appointed as our ChiefExecutive Officer in March 2003.  FromOctober 1994 to November 2001, Mr. Sultemeier served as our Vice President andTreasurer.  Mr. Sultemeier also served asa director from October 1994 through January 2003.  Mr. Sultemeier joined Delaware North G&Ein 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 and Resorts in various management positions,including General Manager of the Wyndham Cleveland Hotel at PlayhouseSquare.  From 2000 to 2002, Mr. Marshallserved as 

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Directorof Facilities and Services for Accenture where he was responsible for thefacility services of several Accenture locations in the Chicago area.  Mr. Marshall joined Delaware North CompaniesParks and Resorts, Inc., a Delaware North subsidiary, as Regional VicePresident in 2002 and served in that capacity until July 2005.

***James W. Simms***.  Mr. Simms was appointed as our Vice Presidentof Marketing in January 2006.  FromFebruary 2000 through July 2001, Mr. Simms served as Direct Marketing Managerfor Park Place Entertainment’s, Bally’s and Paris properties in Las Vegas.  From 2001 to 2005, Mr. Simms served asDirector of Marketing for Ameristar Casinos, Inc. where he was responsible fordeveloping the marketing plans for Ameristar’s Nevada properties.  During 2005, Mr. Simms served as SeniorDirector of Marketing for the Majestic Star Casino in Gary, Indiana.

***Phillip B. Simons.***** **Mr. Simons was appointed as our VicePresident of Finance in April 2006.  From 1999 to 2005, Mr. Simons, a certifiedpublic accountant, was the Director of Finance for resorts and casinos operatedby Destination Hotels and Resorts, Carlson Hospitality Worldwide and WyndhamHotels and Resorts.  From June 2005 toApril 2006, Mr. Simons served as Acting Vice President and Consultant forDestination Hotels and Resorts.

**AuditCommittee of the Board of Directors**

The Board of Directorshas an Audit Committee, which held eight meetings in 2006.  The Audit Committee currently consists ofMessrs. Cooper and Greiner.  The Board ofDirectors has determined that Thomas A. Cooper is an “audit committeefinancial expert,” within the meaning of the rules of the Securities andExchange Commission.  Both Mr. Cooper andDr. Greiner qualify as “independent” as such term is used in Item 7(d)(3)(iv)of Schedule 14A under the Exchange Act assuming the listing standards of theNational 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 its responsibility, the Audit Committee pre-approves theselection of our independent certified public accountants.  The Audit Committee also reviews ourconsolidated financial statements and the adequacy of our internalcontrols.  The Audit Committee meets atleast quarterly with management and the independent registered publicaccounting firm to review and discuss the results of their audit of theconsolidated financial statements, their evaluation of our internal controls,the overall quality of our financial reporting, our critical accountingpolicies and to review and approve any related party transactions.  Periodically the Audit Committee meetsseparately with the independent certified public accountants.

# **Code of Ethics**

We have adopted a Code of Ethics that applies to our President, ChiefExecutive Officer 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 disclose any amendment to, or waiver of, aprovision of the Code of Ethics that applies to our President, Chief ExecutiveOfficer or Vice President of Finance on our website.

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# **ITEM11.  EXECUTIVE COMPENSATION**

**COMPENSATIONDISCUSSION AND ANALYSIS**

In this section, we will give an overview andanalysis of our compensation program and policies, the material compensationdecisions we have made under those programs and policies, and the materialfactors that we considered in making those decisions.  Later in this Part III under the heading “AdditionalInformation Regarding Executive Compensation,” you will find tables containingspecific information about the compensation earned by the following individualsin 2006, whom we refer to as our “named executive officers”: 

·   RonaldA. Sultemeier, Chief Executive Officer

·   RobertD. Marshall, Jr., President

·   JamesW. Simms, Vice President of Marketing

·   PhillipB. Simons, Vice President of Finance

·   EricH. Persson, Vice President of Operations, who held this position until January26, 2006

·   MichaelD. Corbin, who held the office of Interim Vice President of Finance until June6, 2006

Thediscussion below is intended to help you understand the detailed informationprovided in those tables and put that information into context within ouroverall compensation program.

**Compensation Philosophy**

Ourcompensation philosophy is to relate the compensation of our executives tomeasures of our performance that contribute to and increase our value based onthe following goals:

·          Compensationpolicies, procedures and practices are designed to attract and retain topquality management.

·          Totalcompensation must reflect a competitive and performance-oriented environmentthat motivates executives to set and achieve aggressive goals in theirrespective areas of responsibility.

·          Incentivebased compensation is contingent upon the performance of each executive againstpre-established annual financial and strategic performance objectives.

Ourcompensation decisions with respect to executive officer salaries and annualincentives are influenced by (a) the executive’s level of responsibilityand function, (b) our overall performance and profitability and(c) our assessment of the competitive marketplace, including peercompanies. As discussed below in more detail, our philosophy is to focus ontotal direct compensation opportunities through a mix of base salary and annualcash incentive bonus.  Our compensation package does not include astock or other equity component.

**CompensationCommittee**

Compensationof the named executive officers (including our Chief Executive Officer) isgoverned by the 

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executivecompensation philosophy, policy and procedures of Delaware North.  The annual base salary and variablecompensation of the Chief Executive Officer and President is reviewed andapproved by the compensation committee of the Board of Directors of DelawareNorth or the Delaware North Compensation Committee.  The annual base salary and variablecompensation of the Vice President of Marketing and Vice President of Financeis reviewed and approved by the Chief Executive Officer in compliance with theexecutive compensation policies and parameters established by the DelawareNorth Compensation Committee.  For a furtherdiscussion of the role of certain named executive officers in the compensationapproval process, see “Role of Executive Officers in Determining Compensation”under this Part III.  Reviews andadjustments to our compensation system usually occur during the first quarterof each fiscal year.  The Delaware NorthCompensation Committee ensures that the total compensation paid to our namedexecutive officers is fair, reasonable and competitive.

**Overviewof Compensation Program**

Throughoutthis narrative discussion and in the accompanying charts, we refer to our namedexecutive officers.  The key compensationpackage provided to our named executive officers includes:

·                  basesalary, which provides fixed compensation based on competitive market practice;

·                  bonus/performancebased incentive compensation, which provides focus on meeting annual goals thatlead to our long-term success and motivates achievement of critical annualperformance metrics; and

·                  retirementand other benefits.

**Determinationof Appropriate Pay Levels**

Wecompete with many other companies for experienced and talented executives.   As such, market information regarding paypractices at peer companies (as provided in the public reports filed by suchcompanies with the Securities and Exchange Commission) is reviewed andconsidered in assessing the reasonableness of compensation and ensuring thatcompensation levels remain competitive in the marketplace.

Eachelement of compensation is reviewed so that the overall compensation packagewill attract, motivate and retain our key employees, including our namedexecutive officers, by rewarding superior performance and providing anincentive for the achievement of our strategic goals.  The following factors are considered todetermine the amount of compensation paid to each executive officer:

·                  overalljob performance, including performance against corporate and individualobjectives;

·                  jobresponsibilities, including unique skills necessary to support the long-termperformance of the Company;

·                  teamwork,both contributions as a member of the executive management team and fosteringan environment of personal and professional growth for the entire work force;

·                  performanceof general management responsibilities, execution of company objectives andcontributions to the continuing success of the Company; and

·                  theCompany’s overall financial position and providing for an equitabledistribution of compensation throughout the company.

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The compensation for each of our named executive officers, other thanour Chief Executive Officer, is paid by the Company.  The compensation for our Chief ExecutiveOfficer is paid by our parent, Delaware North G&E.

**Allocation of Compensation**

There is no pre-established policy or target for the allocation ofcompensation.  The factors describedabove, as well as the overall compensation philosophy and compensation peergroup information, is reviewed to determine the appropriate level and mix ofcompensation.  Historically, and infiscal 2006, the total compensation granted to named executive officers was inthe form of cash compensation.

**Timing ofCompensation**

As discussed elsewhere, compensation,including salary base adjustments, incentive plan eligibility, incentive plangoal specifications and incentive plan payments, for our named executiveofficers are reviewed annually, usually in the first quarter.   Our incentive plan performance measures foreach annual cycle at times may be established in the second quarter.

**Minimum Stock Ownership Requirements**

Thereare no minimum stock ownership guidelines for the company.  None of the named executive officersbeneficially own any shares of our common stock or the common stock of ourparent, Delaware North G&E.

**2006Executive Compensation Components**

Forthe fiscal year ended December 31, 2006, the principal components ofcompensation for named executive officers were:

·                  salary;

·                  bonus/performance-basedincentive compensation;

·                  ourmatching contributions to the named executive officers who participated in our401(k) Plan;

·                  inthe case of our Chief Executive Officer, matching contributions under thenon-qualified Delaware North Companies Executive Supplemental Retirement Plan;and

·                  otherbenefits.

*BaseSalary*

Weprovide our named executive officers with a base salary to compensate them forservices rendered during the fiscal year. Salaries are intended to be competitive relative to the gaming industryin which we compete for our highly skilled talent.  Market forces as well as individualexperience and performance is considered when setting salaries within the rangefor each position.  Base salary levelsare reviewed annually, usually in the first quarter, as part of our performancereview process, and adjustments are made 

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basedon attainment of individual goals and market-wide changes in salaries forcomparable positions and qualifications. For a further discussion of the role of certain named executive officersin the compensation approval process, see “Role of Executive Officers inDetermining Compensation” under this Part III.

Duringthe review of base salaries for executive officers (including the salary of ourChief Executive Officer, which is paid by our parent, Delaware North G&E),the following factors are considered by the Delaware North CompensationCommittee:

·                  marketdata of peer companies;

·                  internalreview of the executive’s compensation, both internally and relative to otherexecutive officers; and

·                  individualperformance of the executive.

*Bonus/PerformanceBased Incentive Compensation*

The base bonus compensation for our Chief ExecutiveOfficer (which is paid by our parent, Delaware North G&E) is computed as apercentage of base salary ranging from a minimum of 0% to a maximum of 50%**.**  The base bonuscompensation for our President is computed as a percentage of base salaryranging from a minimum of 0% to a maximum of 50%.  The base bonus compensation for our VicePresident of Finance and Vice President of Marketing is computed as apercentage of base salary ranging from a minimum of 0% to a maximum of 30% anda minimum of 0% to a maximum of 40%, respectively.  The actual percentage of base salary earnedas annual base bonus compensation is based upon the achievement of specificfinancial and strategic performance objectives which are pre-set annually underour Target Incentive Plan.  Each of ourChief Executive Officer, President, Vice President of Finance and VicePresident of Marketing are eligible for additional bonus compensation which iscomputed as a percentage of the base bonus ranging from a minimum of 0% to amaximum of 25%.  The additional bonus isbased upon the achievement of specific financial performance objectives thatare pre-set annually under our Target Incentive Plan.

The2006 cycle under the Target Incentive Plan began on January 1, 2006 andended on December 31, 2006. The Delaware North Compensation Committeeestablished the performance measures for the 2006 cycle under the TargetIncentive Plan for the position of Chief Executive Officer.  In addition, senior management establishedthe performance measures for the 2006 cycle as it relates to the positions ofPresident, the Vice President of Marketing and the Vice President of Finance.

*Base bonus performance measures*

Performance measures for the 2006 cycle as itrelates to the base bonus consisted of 60% for financial objectives and 40% forbusiness objectives for the position of Chief Executive Officer and 50% forfinancial objectives and 50% for business objectives for the positions ofPresident and Vice President of Marketing, and the Vice President of Finance.

For the position of Chief Executive Officer, the(i) financial objectives were based on the following components:  10%on Delaware North operating profit, 20% on Delaware North G&E operatingprofit and 30% on Delaware North G&E pre-tax profit; and (ii) businessobjectives were based 25% on the development of new business opportunities, 10%on compliance with the Sarbanes-Oxley Act and 5% on development of successionplanning programs.

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For the position of President, the(i) financial objectives were based 10% on Delaware North G&Eoperating profit, and 40% on Wheeling Island Gaming, Inc. operating profitand (ii) business objectives were based 20% on development andimplementation of new business initiatives, 10% on compliance with the Sarbanes-OxleyAct, 10% on the implementation of customer service programs and 10% on thedevelopment of succession planning programs.

For the position of Vice President of Marketing the(i) financial objective was solely based on Wheeling IslandGaming, Inc. operating profit and (ii) business objectives were based10% on the development of marketing department organizational andcommunications programs, 10% on the preparation of a comprehensive analysis onthe benefit of new technology, 10% on the development of a strategic positioningand branding analysis, 10% on the preparation of a marketing cost reinvestmentmatrix and 10% on the improvement of interdepartmental communications.

Forthe position of Vice President of Finance, the (i) financial objective wassolely based on the Company’s operating profit and (ii) businessobjectives were based 25% on implementing internal and external financialpolicy and reporting initiatives including coordination of the transition ofauditing services to the new independent auditor, 10% on the development ofsuccession planning programs,  10% on initiatives related to compliancewith the Sarbanes-Oxley Act and 5% on the development and maintenance ofmarketing program value metrics.

*Additionalbonus performance measures*

Performancemeasures for the 2006 cycle as it relates to the additional bonus consistedsolely of financial objectives for the positions of Chief Executive Officer,President, Vice President of Marketing and Vice President of Finance.  For the position of Chief Executive Officer,the additional bonus was based solely on Delaware North G&E operatingprofit and for the positions of President, Vice President of Finance and VicePresident of Marketing, the additional bonus was based solely on WheelingIsland Gaming, Inc.’s operating profit.

Theaggregate base and additional bonus awards for the 2006 cycle under the TargetIncentive Plan were approved by the Delaware North Compensation Committee onFebruary 28, 2007 and included the following pay-outs:

| Name                    | ** ** | **2006 Cycle Total Payment** | ** ** |
|-------------------------|------------|---------------------------------------------|------------|
| Ronald A. Sultemeier    |       | $                                           | 153,462    |   |
| Robert D. Marshall, Jr. |       | $                                           | 140,934    |   |
| James W. Simms          |       | $                                           | 71,760     |   |
| Phillip B. Simons       |       | $                                           | 34,500     |   |
| Michael D. Corbin       |       | $                                           | 13,441     |   |

 

*Retirementand Other Benefits*

401(k)Plan

TheDelaware North Companies 401(k) Plan is a tax-qualified retirement savings plansponsored by Delaware North****available toall of our eligible employees.  To beeligible to participate in the 401(k) Plan, employees must be at least 21 yearsof age and have been employed by us for at least one year.  Under the 401(k) Plan, we make matchingcontributions to participants (including our named executive officers) of up to4% of base salary on the first 5% of base salary contributed by eachparticipant.

Eachof the following named executive officers participated in the 401(k) Plan in2006 and received 

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matchingcontributions from us under the 401(k) Plan as follows:

| Name                    | ** ** | **2006 Matching Contributions under the 401(k) Plan** | ** ** |
|-------------------------|------------|-------------------------------------------------------------------------------------|------------|
| Ronald A. Sultemeier    |       | $                                                                                   | 8,800      |   |
| Robert D. Marshall, Jr. |       | $                                                                                   | 8,800      |   |
| Eric H. Persson         |       | $                                                                                   | 1,284      |   |
| Michael D. Corbin       |       | $                                                                                   | 931        |   |

 

Executive Retirement Plan

The Delaware North Companies Executive Supplemental Retirement Plan, orthe Executive Retirement Plan, is a nonqualified deferred compensation plan towhich certain executive officers of Delaware North (including our ChiefExecutive Officer) may elect to defer up to 20% of their annual basesalary.  In 2006, our Chief ExecutiveOfficer received matching contributions from Delaware North under the ExecutiveRetirement Plan of $5,059.  For a furtherdiscussion of the Executive Retirement Plan, see “Nonqualified DeferredCompensation” in this Item 11.

Other Benefits

Each of the named executive officers also receives medical and dentalinsurance coverage on the same terms as other employees.  Additionally, our Chief Executive Officerreceives an annual travel allowance equal to $6,000.

**Role of Executive Officers in Determining Compensation**

Pay levels for each named executive officer, other than our ChiefExecutive Officer, largely reflect the recommendation of our Chief ExecutiveOfficer based upon individual experience and breadth of knowledge, internalconsiderations and other subjective factors. Our Chief Executive Officer also reviews the President’s salary annuallyin conjunction with a performance evaluation and makes a recommendation forsalary adjustment to the Delaware North Compensation Committee forapproval.  The salary compensation of theVice President of Finance and the Vice President of Marketing is reviewedannually by the President and the Chief Executive Officer in conjunction withperformance evaluations.  Salaryadjustments for the Vice President of Marketing and Vice President of Financeare determined within the policies and parameters established by the DelawareNorth Compensation Committee.

OurChief Executive Officer is not involved with any aspect of determining his owncompensation.  The Delaware NorthCompensation Committee makes all compensation decisions for our Chief ExecutiveOfficer and President and establishes the compensation policies and parametersthat are used in determining the compensation of the Vice President ofMarketing and Vice President of Finance.

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**DELAWARE NORTH COMPENSATION COMMITTEE REPORT**

The Delaware North Compensation Committee hasreviewed and discussed with our Board of Directors and management theCompensation Discussion and Analysis (“CD&A”) provisions to be included inthe Company’s Annual Report on Form 10-K for the fiscal year ended December 31,2006.  Based on such review anddiscussions, the Delaware North Compensation Committee recommended to our Boardand management that the CD&A be included in the Company’s Annual Report onForm 10-K.
|        | **COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS  OF DELAWARE NORTH COMPANIES, INCORPORATED** |
|--------|-------------------------------------------------------------------------------------------------|
|   |                                                                                            |
|   | Thomas A. Cooper                                                                                |
|   | Jeremy M. Jacobs, Jr.                                                                           |
|   | Louis M. Jacobs                                                                                 |
|   | Charles E. Moran, Jr.                                                                           |
|   | Eileen Morgan                                                                                   |

 

**ADDITIONAL INFORMATION REGARDINGEXECUTIVE COMPENSATION**

**SUMMARY COMPENSATION TABLE**

Thefollowing table sets forth information regarding compensation for the fiscalyear ended December 31, 2006 earned by or paid to our named executiveofficers.  Each of the named executiveofficers have received cash payment awards for the 2006 cycle under the TargetIncentive Plan that, for purposes of this Summary Compensation Table, have beencharacterized as “Non-Equity Incentive Plan Compensation” under column (g)rather than “Bonuses” under column (d). The cash compensation awards for the 2006 cycle were determined by theDelaware North Compensation Committee at its February 28, 2007 meeting and werepaid out shortly thereafter.

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| **Name  and  Principal  Position**                       | ** ** | **Year** | ** ** | **Salary  ($)** | ** ** | **Bonus  ($)  (1)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non- Equity  Incentive Plan  Compensation  ($)  (1)** | ** ** | **Change in  Pension Value  and  Nonqualified  Deferred  Compensation  Earnings ($)** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total ($)** | ** ** |
|----------------------------------------------------------|------------|----------|------------|-----------------|------------|---------------------|------------|------------------------|------------|-------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------|------------|
| **(a)**                                                  | ** ** | **(b)**  | ** ** | **(c)**         | ** ** | **(d)**             | ** ** | **(e)**                | ** ** | **(f)**                 | ** ** | **(g)**                                                           | ** ** | **(h)**                                                                                              | ** ** | **(i)**                               | ** ** | **(j)**            | ** ** |
| Ronald  A. Sultemeier (2)  Chief Executive Officer  |       | 2006     |       | $               | 251,539    | ** **          | **—** | ** **             | **—** | ** **              | **—** |                                                              | $          | 153,462                                                                                              |       | —                                |       | $                  | 13,859     | (3)(4) | $ | 418,860 |   |
| Robert  D. Marshall, Jr.  President                      |       | 2006     |       | $               | 228,877    | ** **          | **—** | ** **             | **—** | ** **              | **—** |                                                              | $          | 140,934                                                                                              |       | —                                |       | $                  | 8,800      | (3) | $ | 378,611 |   |
| James  W. Simms (5)  Vice President of Marketing         |       | 2006     |       | $               | 153,000    | ** **          | **—** | ** **             | **—** | ** **              | **—** |                                                              | $          | 71,760                                                                                               |       | —                                |       | $                  | 10,000     | (6) | $ | 234,760 |   |
| Phillip  B. Simons (7)  Vice President of Finance        |       | 2006     |       | $               | 101,875    | ** **          | **—** | ** **             | **—** | ** **              | **—** |                                                              | $          | 34,500                                                                                               |       | —                                |       | —             |       | $ | 136,375 |   |
| Eric  H. Persson (8)  Vice President of Operations       |       | 2006     |       | $               | 32,091     | ** **          | **—** | ** **             | **—** | ** **              | **—** |                                                              | —     |                                                                                                 | —     |                                  | $          | 1,284              | (3)        | $ | 33,375 |   |
| Michael D. Corbin (9)  Interim Vice President of Finance |       | 2006     |       | $               | 54,134     | ** **          | **—** | ** **             | **—** | ** **              | **—** |                                                              | $          | 13,441                                                                                               |       | —                                | ** ** | $                  | 931        | (3) | $ | 68,506 |   |

----

(1)  The amounts in column (g) reflect the cashawards to the named individuals for the 2006 cycle under the Target IncentivePlan which is discussed in further detail under “Bonus/Performance BasedIncentive Compensation” and that, for purposes of this Summary CompensationTable, have been characterized as “Non-Equity Incentive Plan Compensation”under column (g) rather than “Bonuses” under column (d).

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

(3)  The amounts in column (i) reflect matchingcontributions under our 401(k) Plan.

(4)  The amount in column (i) includes matchingcontributions under the Executive Retirement Plan.

(5)  James W. Simms became our Vice President ofMarketing on January 2, 2006.  Mr. Simms’annual salary is $156,000.

(6)  The amount in column (i) reflects a hiringincentive.

(7)  Phillip B. Simons became our Vice Presidentof Finance on April 26, 2006.  Mr. Simons’annual salary is $150,000.

(8)  Eric H. Persson resigned as our VicePresident of Operations January 26, 2006, at which time his position waseliminated.

(9)  Michael D. Corbin resigned****asour Interim Vice President of Finance on June 6, 2006.

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**NONQUALIFIEDDEFERRED COMPENSATION TABLE**
| **Name**                | ** ** | **Executive  Contributions in Last  FY  ($)  (1)** | ** ** | **Registrant  Contributions in Last  FY  ($)** | ** ** | **Aggregate  Earnings in Last  FY  ($)** | ** ** | **Aggregate  Withdrawals/Distributions  ($)** | ** ** | **Aggregate  Balance at Last  FYE  ($)  (1)** | ** ** |
|-------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------------|------------|
| **(a)**                 | ** ** | **(b)**                                                      | ** ** | **(c)**                                                  | ** ** | **(d)**                                            | ** ** | **(e)**                                       | ** ** | **(f)**                                                 | ** ** |
| Ronald A. Sultemeier    |       | $                                                            | 37,731     |                                                     | $          | 5,059                                              |       | $                                             | 32,555     | ** **                                              | **—** |   | $ | 242,751 |   |
| Robert D. Marshall, Jr. | ** ** | **—**                                                   | ** ** | **—**                                               | ** ** | **—**                                         | ** ** | **—**                                    | ** ** | **—**                                              | ** ** |
| James W. Simms          | ** ** | **—**                                                   | ** ** | **—**                                               | ** ** | **—**                                         | ** ** | **—**                                    | ** ** | **—**                                              | ** ** |
| Phillip B. Simons       | ** ** | **—**                                                   | ** ** | **—**                                               | ** ** | **—**                                         | ** ** | **—**                                    | ** ** | **—**                                              | ** ** |
| Eric H. Persson         | ** ** | **—**                                                   | ** ** | **—**                                               | ** ** | **—**                                         | ** ** | **—**                                    | ** ** | **—**                                              | ** ** |
| Michael D. Corbin       | ** ** | **—**                                                   | ** ** | **—**                                               | ** ** | **—**                                         | ** ** | **—**                                    | ** ** | **—**                                              | ** ** |
|                         |            |                                                              |            |                                                          |            |                                                    |            |                                               |            |                                                         |            |  |  |  |  |

----

**(1)  Reflects deferrals under the ExecutiveRetirement Plan of base salary earned by and paid to our Chief ExecutiveOfficer in 2006.  These amounts arereported as 2006 compensation in column (c) of the Summary Compensation Table.**

**The Executive Retirement Plan**is a nonqualified deferredcompensation plan to which certain executive officers of Delaware North(including our Chief Executive Officer) may elect to defer up to 20% of theirannual base salary.  A deferral electionmust be made no later than December 22nd of the previous year, and are irrevocable;however, a participant may suspend his deferrals (to 0%) during the period inquestion if an unforeseeable emergency should occur, such as for an unexpectedillness, accident or property loss. The actual deferrals are deducted from theparticipant’s salary in equal installments for the period of January 1 throughDecember 31 of each year.  These deferralelections are for the salary earned by the participant for the particularsalary pay period during that year, which would otherwise be payable to theparticipant in such pay period.  Theelection to defer under the Executive Retirement Plan is in addition to anydeferral election made by the participant under the 401(k) Plan.  Deferral amounts are credited with earningsor losses based on the rate of return of mutual funds selected by theparticipant, which the participant may change at any time.  Loans are not permitted under the ExecutiveRetirement Plan, although emergency distributions are permitted in the case ofan unforeseeable financial hardship, such as for an unexpected illness,accident or property loss.  Distributionswill be paid out in two installments, tied to termination of employment, includingretirement.  The first installmentwill  be paid at termination orretirement and the second installment will be paid one year after terminationor retirement.

**The Executive Retirement Plan also provides for matching contributions byDelaware North of 100% on the first 3% deferred plus 50% on the next 2%deferred for each pay period.  The matchis limited to a total of a 4% maximum between the Executive Retirement Plan andthe 401(k)**.  The participant is 100% vested at all timesin his own deferrals and the company match.

 

40

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**REMUNERATION OF DIRECTORS**

Outsidedirectors who serve as members of our Board of Directors are compensated fortheir services as follows:

1.             An annual retainer fee of $25,000,payable in equal quarterly installments for serving on the Board of Directors.

2.             An annual retainer fee of $15,000,payable in equal quarterly installments for each director who serves on theAudit Committee.

3.             A fee of $1,000 for each Board ofDirectors meeting and each Audit Committee Meeting attended.  If the Board of Directors meeting and AuditCommittee Meeting are held on the same day then a $1,000 fee is paid forparticipation at both meetings.

Inaddition, the reasonable expenses incurred by each director in connection withhis duties as a director are also reimbursed by us.  A Board member who is also an employee of thecompany or Delaware North does not receive compensation for service as adirector.

**DIRECTOR COMPENSATION TABLE**

Thefollowing table sets forth information regarding compensation for the fiscalyear ended December 31, 2006 for each member who served on our Board ofDirectors
| Name                                             | ** ** | **Fees  Earned or  Paid in Cash  ($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Option  Awards  ($)(2)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Change in Pension  Value and  Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| **(a)**                                          | ** ** | **(b)**                                               | ** ** | **(c)**                | ** ** | **(d)**                    | ** ** | **(e)**                                                | ** ** | **(f)**                                                                                         | ** ** | **(g)**                               | ** ** | **(h)**        | ** ** |
| Charles E. Moran, Jr,  Chairman of the Board (1) |       | —                                                |       | —                 |       | —                     |       | —                                                 |       | —                                                                                          |       | —                                |       | —         |       |
| William  J. Bissett (2)                          |       | —                                                |       | —                 |       | —                     |       | —                                                 |       | —                                                                                          |       | —                                |       | —         |       |
| Thomas A. Cooper                                 |       | $                                                     | 25,000     | (3)                    | —     |                       | —     |                                                   | —     |                                                                                            | —     |                                  | —     |           | $          | 48,000 |   |
|                                                  |       | $                                                     | 15,000     | (4)                    |       |                       |       |                                                   |       |                                                                                            |       |                                  |       |           |       |   |
|                                                  |       | $                                                     | 8,000      | (5)                    |       |                       |       |                                                   |       |                                                                                            |       |                                  |       |           |       |   |
| William  R. Greiner                              |       | $                                                     | 25,000     | (3)                    | —     |                       | —     |                                                   | —     |                                                                                            | —     |                                  | —     |           | $          | 48,000 |   |
|                                             |       | $                                                     | 15,000     | (4)                    |       |                       |       |                                                   |       |                                                                                            |       |                                  |       |           |       |   |
|                                             |       | $                                                     | 8,000      | (5)                    |       |                       |       |                                                   |       |                                                                                            |       |                                  |       |           |       |   |

----

(1)           Mr. Moran serves as the President and Chief Operating Officer ofDelaware North and, as such, does not receive compensation for service as amember of our Board of Directors.

(2)           Mr. Bissett serves as Vice President, Government Affairs and CommunityRelations for Delaware North and, as such, does not receive compensation forservice as a member of our Board of Directors.

(3)           Represents an annual retainer fee, payable in equal quarterlyinstallments for serving on the Board of Directors.

(4)           Represents an annual retainer fee, payable in equal quarterlyinstallments for serving on the Audit Committee.

41

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(5)           Represents fees paid for attendance at meetings of the Board ofDirectors and the Audit Committee.

**TERMINATIONOR CHANGE IN CONTROL**

We have not entered into any employment agreements, severanceagreements or any other type of termination or change in control agreementswith any of our named executive officers. There is no formal policy with respect to payments to named executiveofficers upon a termination of such officer or change in control of thecompany.  Eric H. Persson did not receive any paymentsin respect of his termination as Vice President of Operations on January 26,2006 and Michael D. Corbin did not receive any payments in respect to hisresignation as Interim Vice President of Finance on June 6, 2006.  Mr. Corbin is currently Vice President ofFinance at Delaware North G&E.

**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 each directorand named executive officer and by all executive officers and directors as agroup.
| **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                             |       |
| Phillip B.  Simons                                             |       | 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                             |       |

----

(1)                                  The address for DelawareNorth Companies Gaming & Entertainment, Inc. is 40 Fountain Plaza, Buffalo,New York 14202.   Delaware North G&Eis our sole stockholder, and thus exercises control over all matters thatrequire approval by our stockholders, including the election of directors andthe approval of significant transactions. There can be no assurance that the interests of Delaware North G&Ewill not conflict with the interests of the holders of our debt.

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

Upon the closing of the $125.0million of unsecured senior notes in December 2001, we entered into anadministrative services agreement with Delaware North G&E and DelawareNorth.  Pursuant to this 

42

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administrative servicesagreement, Delaware North G&E receives an annual administrative servicesfee that is equal to the greater of 1.5% of preceding year total operatingrevenues or $1.2 million for certain administrative support servicesprovided to us by Delaware North G&E and Delaware North.  During 2006, 2005, and 2004, we recordedadministrative service fees of $1.9 million, $1.9 million and $1.7 million,respectively, under this agreement.

We invest our excess cash in asegregated account administered by Delaware North under its centralized cashmanagement program.  At December 31, 2006and December 31, 2005, we had $5.4 million and $0.2 million invested withDelaware North, respectively.  During2006, 2005 and 2004, we earned $297,000, $49,000 and $11,000 on these investedcash balances, respectively.

A tax sharing agreement withDelaware North and Delaware North G&E provides for payment by us toDelaware North of amounts representing not more than the amount of tax thatwould be payable by us had we and our subsidiaries filed a separateconsolidated or combined tax return as a Subchapter C corporation for therelevant taxing jurisdiction (less any tax directly paid by such persons withrespect to such period).

We participate in a comprehensive insurance program maintained byDelaware North.  Risk-based premiumscharged by and reimbursed to Delaware North amounted to $2.5 million in 2006,$2.4 million in 2005 and $1.6 million in 2004.

In December 2006, we paida cash dividend of $12.0 million to Delaware North G&E.  In 2005 and 2004, we paid cash dividends of$12.0 million and $12.5 million, respectively, to Delaware North G&E.

# **ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

Ernst& Young LLP (E&Y) was appointed as our independent auditors on February10, 2006, effective for the 2006 fiscal year. We terminated PricewaterhouseCoopers LLC (PwC) as our independentauditors effective with the completion of the 2005 audit.  The audit fees in the below table includefees paid to E&Y for the audit of the December 31, 2006 financialstatements and review of the quarterly interim financial statement reviews andfees paid to PwC for the audit of the December 31, 2005 financial statementsand review of the quarterly interim financial statements.
| ** **                                           | ** ** | **Fiscal 2006** | ** ** | **Fiscal 2005** | ** ** |
|------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| Audit Fees—*Annual Audit and Quarterly Reviews* |       | $                    | 137,242    |                 | $          | 153,100 |   |
| Audit-Related  Fees                                  |       | 0                    |       | 30,800               |       |
| Tax Fees:—                                      |       |                 |       |                 |       |
| *Tax Consulting, Advisory Services*                  |       | 0                    |       | 0                    |       |
| *Tax Compliance, Planning and Preparation*           |       | 0                    |       | 0                    |       |
| All Other Fees                                       |       | 0                    |       | 0                    |       |
| Total Fees                                           |       | $                    | 137,242    |                 | $          | 183,900 |   |

 

Allsuch accounting 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-relatedfees in 2005 represented those fees associated with procedures performedrelated to our goodwill and intangible assets impairment testing and the changein our independent registered public accounting firm.

43

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**PARTIV**

**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.               Financial Statement Schedules

All financial statement schedules are notrequired under the related instructions, or are inapplicable and therefore havebeen omitted.

3.               Exhibits

The Exhibits required by Item 601 ofRegulation S-K and filed herewith are listed in the Index to Exhibitsimmediately preceding the Exhibits.

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**SIGNATURES**

Pursuant to the requirements of Section13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
|        | WHEELING ISLAND  GAMING, INC. |
|--------|-------------------------------|
|   |                          |
|   |                          |
|   | By:                           | /s/ Ronald A. Sultemeier |
|   | Ronald A.  Sultemeier         |
|   | Chief Executive  Officer      |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.
| Signature                 | ** ** | **Capacity**                                                    | ** ** | **Date**       |
|---------------------------|------------|-----------------------------------------------------------------|------------|----------------|
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ RONALD A.  SULTEMEIER |       | Chief Executive Officer                                         |       | March 21, 2007 |
| Ronald A.  Sultemeier     |       | (principal executive officer)                                   |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ PHILLIP B.  SIMONS    |       | Vice President of Finance                                       |       | March 21, 2007 |
| Phillip B.  Simons        |       | (principal financial officer and principal  accounting officer) |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ CHARLES E.  MORAN, JR |       | Chairman of the Board                                           |       | March 21, 2007 |
| Charles E.  Moran, Jr.    |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ WILLIAM J.  BISSETT   |       | Director                                                        |       | March 21, 2007 |
| William J.  Bissett       |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ THOMAS A.  COOPER     |       | Director                                                        |       | March 21, 2007 |
| Thomas A. Cooper          |       |                                                            |       |           |
|                      |       |                                                            |       |           |
|                      |       |                                                            |       |           |
| /s/ WILLIAM R.  GREINER   |       | Director                                                        |       | March 21, 2007 |
| William R.  Greiner       |       |                                                            |       |           |

 

45

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**INDEXTO 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,  Delaware North G&E, formerly and Delaware North                                                                                                                                                                                                           |
|           |       |                                                                                                                                                                                                                                                                                                                                                                                      |

 

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|        |   | 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   |   | Waiver Agreement, dated as of March 31, 2005, by and  among the Company as Borrower, the Lenders referred to therein and other  parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s  Current Report on Form 8-K filed April 1, 2005)                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.9   |   | Amendment No. 1 to the Amended and Restated Loan  Agreement, dated as of June 7, 2005, by and among the Company as Borrower,  the Lenders and Syndication Agent referred to therein and Bank of America,  N.A. as Administrative Agent (incorporated by reference to Exhibit 10.1 of  the Company’s Current Report on Form 8-K filed June 9, 2005)         |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.10  |   | Amendment No. 2 to the Amended and Restated Loan  Agreement, dated as of December 28, 2005, by and among the Company as  Borrower, the Lenders and Syndication Agent referred to therein and Bank of  America, N.A. as Administrative Agent (incorporated by reference to Exhibit  10.1 of the Company’s Current Report on Form 8-K filed January 4, 2006) |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 10.11  |   | Amendment No. 3 to the Amended and Restated Loan  Agreement, dated as of January 19, 2007, by and among the Company as  Borrower, the Lenders and Syndication Agent referred to therein and Bank of  America, N.A. as Administrative Agent (incorporated by reference to Exhibit  10.1 of the Company’s Current Report on Form 8-K filed January 23, 2007) |
|   |   |                                                                                                                                                                                                                                                                                                                                                            |
| 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 *                                                                                                                                                                                                                                         |

----

*          Filedherewith.

47

----

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**
|                                                         |
|---------------------------------------------------------|
|                                                    |
| Report of Independent Registered Public Accounting Firm |
|                                                    |
| Report of Independent Registered Public Accounting Firm |
|                                                    |
| Consolidated Balance Sheets                             |
| As of  December 31, 2006 and 2005                       |
|                                                    |
| Consolidated Statements of  Operations                  |
| Years  Ended December 31, 2006, 2005 and 2004           |
|                                                    |
| Consolidated Statements of  Cash Flows                  |
| Years  Ended December 31, 2006, 2005 and 2004           |
|                                                    |
| Notes to Consolidated  Financial Statements             |
| Years  Ended December 31, 2006, 2005 and 2004           |

 

F-1

----

**Report of Independent Registered Public AccountingFirm**

To the Board of Directorsand Shareholder of Wheeling Island Gaming, Inc.

We have audited theaccompanying consolidated balance sheet of Wheeling Island Gaming, Inc. as ofDecember 31, 2006, and the related consolidated statements of operations andcash flows for the year ended December 31, 2006.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. We were not engaged to perform an audit of the Company’sinternal control over financial reporting. Our audits included consideration ofinternal control over financial reporting as a basis for designing auditprocedures  that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectivenessof the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. Anaudit also includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Wheeling Island Gaming, Inc.at December 31, 2006, and the consolidated results of their operations andtheir cash flows for the year ended December 31, 2006, in conformity with U.S.generally accepted accounting principles.

Ernst & Young LLP

Buffalo, New York

March 5, 2007

F-2

----

**Report of Independent Registered Public AccountingFirm**

To the Board of Directorsand Shareholder of Wheeling Island Gaming, Inc.

In our opinion, theconsolidated balance sheet as of December 31, 2005 and the related consolidatedstatements of operations and of cash flows for each of two years in the periodended December 31, 2005 present fairly, in all material respects, the financialposition of Wheeling Island Gaming, Inc. and its subsidiaries at December 31,2005, and the results of their operations and their cash flows for each of thetwo years in the period ended December 31, 2005, in conformity with accountingprinciples generally accepted in the United States of America.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.  Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight 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 a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

PricewaterhouseCoopers LLP

Buffalo, New York

March 28, 2006

F-3

----

**WHEELINGISLAND GAMING, INC.**

** **

**Consolidated Balance Sheets**

**($000’somitted)**
| ** **                                                                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **Assets**                                                                                                 | ** ** | ** **            | ** ** | ** ** | ** ** |
|                                                                                                       |       |                  |       |   |   |
| Current assets:                                                                                            |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                 |       | $                     | 19,128     |   | $ | 11,957 |   |
| Receivables                                                                                                |       | 4,303                 |       | 2,925 |   |
| Prepaid expenses  and other assets                                                                         |       | 1,300                 |       | 1,104 |   |
| Deferred income  taxes                                                                                     |       | 790                   |       | 2,188 |   |
|                                                                                                       |       |                  |       |   |   |
| Total current  assets                                                                                      |       | 25,521                |       | 18,174 |   |
|                                                                                                       |       |                  |       |   |   |
| Property and equipment,  net                                                                               |       | 86,027                |       | 90,649 |   |
| Operating licenses                                                                                         |       | 65,919                |       | 65,919 |   |
| Goodwill                                                                                                   |       | 32,221                |       | 32,221 |   |
| Non-compete covenant                                                                                       |       | —                |       | 2,902 |   |
| Other intangible assets                                                                                    |       | 2,133                 |       | 2,170 |   |
| Debt issuance costs                                                                                        |       | 2,241                 |       | 3,075 |   |
|                                                                                                       |       |                  |       |   |   |
| Total assets                                                                                               |       | $                     | 214,062    |   | $ | 215,110 |   |
|                                                                                                       |       |                  |       |   |   |
| **Liabilities and Shareholders’  Equity**                                                             |       |                  |       |   |   |
|                                                                                                       |       |                  |       |   |   |
| Current liabilities:                                                                                       |       |                  |       |   |   |
| Accounts payable  — trade                                                                             |       | $                     | 7,022      |   | $ | 4,586 |   |
| Accounts payable  — affiliate                                                                         |       | 440                   |       | 4,489 |   |
| Accrued expenses                                                                                           |       | 7,730                 |       | 6,735 |   |
| Income taxes  payable                                                                                      |       | 1,508                 |       | 455 |   |
|                                                                                                       |       |                  |       |   |   |
| Total current  liabilities                                                                                 |       | 16,700                |       | 16,265 |   |
|                                                                                                       |       |                  |       |   |   |
| Long-term debt                                                                                             |       | 125,000               |       | 134,000 |   |
| Deferred income tax                                                                                        |       | 26,649                |       | 27,543 |   |
|                                                                                                       |       |                  |       |   |   |
| Total  liabilities                                                                                         |       | 168,349               |       | 177,808 |   |
|                                                                                                       |       |                  |       |   |   |
| Shareholders’ equity:                                                                                 |       |                  |       |   |   |
| Common stock, $1  par value, 500 shares authorized, issued and outstanding in 2006 and 2005,  respectively |       | 1                     |       | 1 |   |
| Additional  paid-in capital                                                                                |       | 5,915                 |       | 5,915 |   |
| Retained  earnings                                                                                         |       | 39,797                |       | 31,386 |   |
|                                                                                                       |       |                  |       |   |   |
| Total  shareholders’ equity                                                                           |       | 45,713                |       | 37,302 |   |
|                                                                                                       |       |                  |       |   |   |
| Total liabilities and  shareholder’s equity                                                           |       | $                     | 214,062    |   | $ | 215,110 |   |

 

Theaccompanying notes are an integral part

of these financial statements

F-4

----

**WHEELING ISLAND GAMING, INC.**

**Consolidated Statement of Operations**

**($000’somitted)**
| ** **                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating revenue:                        |       |                                       |       |   |   |   |   |
| Gaming revenue                            |       | $                                          | 99,385     |   | $ | 96,368 |   | $ | 100,378 |   |
| Pari-mutuel  revenue                      |       | 7,262                                      |       | 7,052 |   | 6,841 |   |
| Food &  beverage revenue              |       | 7,818                                      |       | 8,273 |   | 7,782 |   |
| Lodging revenue                           |       | 2,334                                      |       | 2,528 |   | 2,468 |   |
| Other revenue                             |       | 2,892                                      |       | 2,708 |   | 1,947 |   |
|                                      |       | 119,691                                    |       | 116,929 |   | 119,416 |   |
|                                      |       |                                       |       |   |   |   |   |
| Operating expenses:                       |       |                                       |       |   |   |   |   |
| Purse expense                             |       | 19,836                                     |       | 20,129 |   | 21,473 |   |
| Gaming costs                              |       | 6,060                                      |       | 7,095 |   | 7,440 |   |
| Pari-mutuel  costs                        |       | 3,913                                      |       | 4,058 |   | 3,521 |   |
| Food &  beverage costs                |       | 9,481                                      |       | 9,453 |   | 8,444 |   |
| Lodging expenses                          |       | 1,207                                      |       | 1,208 |   | 1,239 |   |
| Other expenses                            |       | 550                                        |       | 819 |   | 739 |   |
| Marketing and  promotions                 |       | 8,834                                      |       | 9,327 |   | 8,258 |   |
| Facilities and  maintenance               |       | 10,352                                     |       | 10,448 |   | 9,704 |   |
| General and  administrative               |       | 7,210                                      |       | 6,789 |   | 6,404 |   |
| Business  interruption insurance proceeds |       | (1,215                                     | )          | (1,861 | ) | — |   |
| Depreciation and  amortization            |       | 11,257                                     |       | 11,347 |   | 11,693 |   |
|                                      |       |                                       |       |   |   |   |   |
|                                      |       | 77,485                                     |       | 78,812 |   | 78,915 |   |
|                                      |       |                                       |       |   |   |   |   |
| Income from operations                    |       | 42,206                                     |       | 38,117 |   | 40,501 |   |
| Interest expense, net                     |       | (13,453                                    | )          | (13,967 | ) | (14,338 | ) |
| Casualty recoveries  (loss)               |       | 2,876                                      |       | 1,893 |   | (4,308 | ) |
| Other expense, net                        |       | (113                                       | )          | (69 | ) | (254 | ) |
| Income before  income tax                 |       | 31,516                                     |       | 25,974 |   | 21,601 |   |
| Income tax expense                        |       | 11,105                                     |       | 9,060 |   | 7,593 |   |
|                                      |       |                                       |       |   |   |   |   |
| Net income                                |       | $                                          | 20,411     |   | $ | 16,914 |   | $ | 14,008 |   |

 

The accompanying notes are an integral part

of these financial statements

F-5

----

**WHEELING ISLAND GAMING, INC.**

**Consolidated Statements of Cash Flows**

**($000’somitted)**
| ** **                                                                          | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                          | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                          | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash flows relating to  operating activities:                                       |       |                                       |       |   |   |   |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Net income                                                                          |       | $                                          | 20,411     |   | $ | 16,914 |   | $ | 14,008 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities - |       |                                       |       |   |   |   |   |
| Depreciation and  amortization                                                      |       | 11,257                                     |       | 11,347 |   | 11,693 |   |
| Deferred income  tax                                                                |       | 504                                        |       | (940 | ) | (2,857 | ) |
| Other                                                                               |       | 954                                        |       | 916 |   | 1,148 |   |
| Change in assets  and liabilities:                                                  |       |                                       |       |   |   |   |   |
| Receivables                                                                         |       | (1,378                                     | )          | 622 |   | 3,338 |   |
| Prepaid expenses  and other assets                                                  |       | (196                                       | )          | 162 |   | (76 | ) |
| Prepaid income  taxes                                                               |       | —                                     |       | — |   | 2,390 |   |
| Accounts payable  — trade                                                      |       | 1,521                                      |       | (1,333 | ) | (372 | ) |
| Accrued expenses  - affiliate                                                       |       | (4,049                                     | )          | 1,465 |   | 1,832 |   |
| Accrued expenses                                                                    |       | 995                                        |       | (1,702 | ) | 2,603 |   |
| Income taxes  payable                                                               |       | 1,053                                      |       | (317 | ) | 772 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Net cash  provided by operating activities                                          |       | 31,072                                     |       | 27,134 |   | 34,479 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Cash flows relating to  investing activities:                                       |       |                                       |       |   |   |   |   |
| Payments for  capital expenditures                                                  |       | (3,928                                     | )          | (6,381 | ) | (4,993 | ) |
| Net cash used in  investing activities                                              |       | (3,928                                     | )          | (6,381 | ) | (4,993 | ) |
|                                                                                |       |                                       |       |   |   |   |   |
| Cash flows relating to  financing activities:                                       |       |                                       |       |   |   |   |   |
| Change in cash  overdrafts                                                          |       | 1,027                                      |       | 945 |   | 756 |   |
| Repayment of  long-term borrowings                                                  |       | (9,000                                     | )          | (8,250 | ) | (16,750 | ) |
| Dividends paid                                                                      |       | (12,000                                    | )          | (12,000 | ) | (12,500 | ) |
| Net cash used in  financing activities                                              |       | (19,973                                    | )          | (19,305 | ) | (28,494 | ) |
|                                                                                |       |                                       |       |   |   |   |   |
| Net increase in cash                                                                |       | 7,171                                      |       | 1,448 |   | 992 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Cash balances:                                                                      |       |                                       |       |   |   |   |   |
| Beginning of  period                                                                |       | 11,957                                     |       | 10,509 |   | 9,517 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| End of period                                                                       |       | $                                          | 19,128     |   | $ | 11,957 |   | $ | 10,509 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Supplemental  disclosure:                                                           |       |                                       |       |   |   |   |   |
| Cash paid during  the period for — Income taxes                                |       | $                                          | 9,548      |   | $ | 10,316 |   | $ | 7,288 |   |
|                                                                                |       |                                       |       |   |   |   |   |
| Interest                                                                            |       | $                                          | 13,743     |   | $ | 13,251 |   | $ | 13,473 |   |

 

The accompanying notes are an integral part

ofthese financial statements

F-6

----

**WHEELING ISLAND GAMING, INC.**

**Notes to Consolidated Financial Statements**

**($000’s omitted)**

**1.       Significant accountingpolicies**

**Business and ownership**

Wheeling Island Gaming, Inc. (the “Company”) owns and operates WheelingIsland Racetrack & Gaming Center, a premier gaming and entertainmentcomplex located in Wheeling, West Virginia. Business operations are comprisedof slot machine gaming, a greyhound racetrack, pari-mutuel wagering on livegreyhound racing and simulcast greyhound, thoroughbred and harness racing and variousdining venues.

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

**Principles of consolidation**

The consolidated financial statements include the accounts of theCompany and all of its wholly owned subsidiaries, which consist of WDRA FoodService, Inc. and Wheeling Land Development Corp.  All significant intercompany balances andtransactions have been eliminated in consolidation.

**Cash and cash equivalents**

TheCompany considers short-term, highly liquid investments with an originalmaturity of three months or less to be cash equivalents.  Interest-bearing time deposits of $5.4million and $0.2 million are included in cash and cash equivalents as ofDecember 31, 2006 and 2005, respectively.

**Fairvalue of financial instruments**

Thecarrying value of the Company’s cash and cash equivalents, trade and otherreceivables and trade payables approximates fair value primarily because of theshort maturities of these instruments. The fair market value of the Company’s Senior Notes at December 31, 2006was approximately $128.2 million based on their trading value in the openmarket.  The Company’s Revolving CreditFacility approximates fair value based upon its market-based variable interestrate.  The Revolving Credit Facilitybalance was zero at December 31, 2006.

**Property and equipment**

Propertyand equipment are stated at cost. Expenditures that extend the useful lives of assets are capitalized,while re­pair and maintenance costs are charged to operations as in­curred.  Depreciation is computed principally usingthe straight-line method over the estimated useful lives of the assets.

F-7

----

**Intangibleassets**

Indefinite-lived intangible assets consisting of licenses,trade name and goodwill are stated at cost which is equal to fair value attheir acquisition date.  In accordancewith SFAS 142, these assets are not subject to amortization for book or taxpurposes.  The Company assesses suchassets for impairment annually or more frequently if warranted by knowneconomic circumstances.  The non-competecovenant has been amortized over its term of five years and was fully amortizedat December 31, 2006.  The value assignedto the Company’s customer relationships is being amortized over its 20-yearestimated life.

**Impairmentof long-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 of the carrying value of long-livedassets is assessed by estimating the undiscounted cash flows that are directlyassociated with and expected to arise from the use of and eventual dispositionof such assets over their respective estimated useful lives. If the carryingvalue of the assets exceeds the estimated undiscounted cash flows, animpairment charge is recorded to the extent the carrying value of thelong-lived asset exceeds its fair value. The fair value is generally estimated based on the discounted cash flowmethod.

The Company evaluatesits goodwill 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.  To assess goodwill for impairment, thecarrying value of the Company is compared to the fair value of theCompany.  If the carrying value of theCompany exceeds its fair value, the second step in the assessment process wouldbe performed and an impairment charge to earnings would be recorded to theextent the carrying amount of the goodwill exceeds its implied fair value.  Any carrying amount in excess of the fairvalue of the indefinite lived intangible assets is recorded as an impairmentcharge to earnings.  Fair value isgenerally estimated based on the discounted cash flow method.

The Company performedits annual assessment of the carrying value of the operating licenses andgoodwill for impairment as of December 31, 2006.  The results of such assessment indicated thatno impairment charges are required.

**Preferred Player Program**

The Company offers aprogram whereby participants can accumulate points for casino wagering that cancurrently be redeemed for cash, food and beverages and retail offers.  A liability and offsetting charge topromotional expense is recorded for the estimate of unredeemed points based onthe Company’s redemption history.  Pointsredeemed for cash are recognized as a reduction in revenues while the netimpact of points redeemed for food and beverage and other retail offers arerecognized as promotional expenses.

**Promotional Allowances**

Food and beverage,lodging and other revenues do not include the retail amount of rooms, food, andbeverage and entertainment provided gratuitously to customers, which totaled$8,013, $6,837 and 

F-8

----

$5,609 for the yearsended December 31, 2006, 2005 and 2004, respectively.

**Advertising costs**

Advertisingcosts are charged to operations when incurred. During 2006, 2005 and 2004 advertising expense totaled $1,028, $961 and$1,401, respectively.

**Debt issuance costs**

Costsincurred in connection with the issuance of long-term debt are capitalized andamortized over the terms of the related debt agreements through periodiccharges to interest expense.

**Income tax**

The Company follows the asset and liability approach to account forincome taxes.  This approach requires therecognition of deferred tax assets and liabilities for the expected future taxconsequences of temporary differences between the carrying amounts and tax basesof assets and liabilities.

The federal taxable income of the Company is included in theconsolidated federal income tax return of DNC and subsidiaries.  Pursuant to a tax sharing agreement, theportion of the consolidated federal income tax provision allocated to theCompany is that which would result if the Company filed a federal income taxreturn with its subsidiaries on a stand-alone basis.  Federal income taxes included in theaccompanying balance sheets at December 31, 2006 and December 31, 2005 are dueto DNC.

**Reclassification of balances**

Certain prior year amounts have been reclassified in order toconform to the presentation used in the 2006 financial statements.

**Use of estimates in the preparation of financialstatements**

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Such estimates are particularlyimportant in the evaluation for impairment of goodwill and other intangibleassets.  Actual results could differ fromthose estimates.

F-9

----

* *

**2.**       **Recent Accounting Pronouncements**

InJune 2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting forUncertainty in Income Taxes — an Interpretation of SFAS No. 109.” FIN No. 48clarifies the accounting for uncertainty in income taxes recognized in anentity’s financial statements in accordance with SFAS No. 109, “Accounting forIncome Taxes.”  The pronouncementprescribes a recognition threshold and measurement attributable to financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  FIN No. 48 iseffective for fiscal years beginning after December 15, 2006.  The Company is in the process of determiningthe effect, if any, the adoption of FIN No. 48 will have on its financialstatements.

**3.       Revenues and costs**

Gaming revenues represent grossrevenues from slot machine gaming, or total amounts wagered, net of winningpatron payouts (the “gross terminal income”) less a fee of 4% of gross terminalincome paid to the Lottery Commission for administering slot machine gaming atthe licensee’s race track (the “administration fee”) less taxes andwithholdings.  Net terminal income (NTI)is gross terminal income less the administrative fee.  State taxes and withholding rates are loweron  NTI earned during the state fiscalyear up to a predetermined threshold of $96.9 million (“base NTI”) and higherfor NTI earned in excess (“excess NTI”).   The Company’saccounting policy is to estimate NTI for the state fiscal year, calculate anestimated average tax and withholding rate based on this estimate, and use thisrate to calculate taxes and withholding.

State taxes and withholdings forbase NTI are as follows:  30% of base NTIpaid to the state’s general revenue fund, 9.5% of base NTI paid to variousstate funds, including funds for tourism promotion, Ohio County, employeeretirement and other programs and 7% of base NTI paid to the state’s workers’compensation debt reduction fund up until the fund reaches a maximum amount of$11.0 million in any state fiscal year.

State taxes and withholdings for excess NTI are asfollows:  10% of excess NTI is paid for asurcharge (excess NTI less the 10% surcharge equals “net excess NTI”), 41% ofnet excess NTI is paid to the state’s general revenue fund and 9% net excessNTI is paid to various state funds, including funds for tourism promotion, OhioCounty, employee retirement and other programs.

Of the total 10% surcharge referred to in the precedingparagraph, 42% is deposited into a capital reinvestment account for eachracetrack. The Company is entitled to recoup monies in the capital reinvestmentaccount for certain types of capital improvements made at the racetrack on adollar-for-dollar basis.  During 2006,the Company recognized approximately $4.7 million in credits from the capitalreinvestment account as an element of reported gaming revenue.

Gaming purse expenserepresents payments made to greyhound owners to supplement pari-mutuel pursesas required by law.  Such payments equal7% of base NTI, plus, an additional 7% of base NTI, once the state’s worker’scompensation debt reduction fund reaches $11.0 million, plus, an additional 8%of net excess NTI.  The Company’s policyis to estimate NTI for the state fiscal year, calculate an average gaming purseexpense rate based on this estimate, and use this rate to calculate gamingpurse expense.

Underannually renewable licenses granted by the State of West Virginia RacingCommission, the Company conducts live racing events and simulcasts races fromother racetrack facilities.

F-10

----

Pari-mutuelrevenue represents the Company’s commissions earned from on-site pari-mutuelwagering during live racing and simulcasting, net of state pari-mutuel taxesand simulcast commissions paid.  Thesecommissions are calculated as specified by applicable state statutes based onpercentages applied to various types of pari-mutuel wagering pools.  State pari-mutuel taxes and simulcastcommissions paid are based on specified percentages of the wagering pools. TheCompany also receives commissions for its events that are simulcast to otherracetrack facilities.  These commissionsare based upon contractual percentages of amounts wagered or stated amounts perperformance.  A portion of the Company’spari-mutuel revenue and interest earned thereon are restricted by statute forcapital improvements and other specific uses, and are deposited in a segregatedaccount.  Restricted commissions amountedto $299, $300 and $305 in 2006, 2005 and 2004, respectively.  At December 31, 2006 the Company had made unreimbursedqualifying expenditures of $43 which are reimbursable from future restrictedcommissions earned.

Pari-mutuelpurse expense represents statutory and contractual percentages of pari-mutuelhandle paid by the Company to greyhound owners 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.         CasualtyLoss**

InSeptember 2004 and January 2005, the Company’s gaming and racing facilitieswere damaged as a result of flooding of the Ohio River.  On each occasion, the Company incurredsubstantial repair costs and was forced to suspend all operations for severaldays resulting in a loss of operating profits.

For the fiscal year endedDecember 31, 2006, the Company recorded anet casualty (loss) recovery of $2,876, which is comprised of insurancereimbursements of $1,879 and $997 for the September 2004 and January 2005floods, respectively.  Also, during 2006,the Company recorded business interruption insurance proceeds as credits tooperating expenses totaling $1,215 representing $428 and $787 for theSeptember 2004 and January 2005 floods, respectively.

For the fiscal year ended December 31, 2005, the Company recorded a netcasualty loss recovery of $1,893, which is comprised of insurancereimbursements totaling $3,610 and $1,677 for the September 2004 and January2005 floods, respectively, offset by flood-related expenses of $630 and $2,764,respectively.  Also during 2005, theCompany recorded business interruption insurance proceeds recorded as creditsto operating expenses totaling $1,861, representing $1,300 and $561 for theSeptember 2004 and January 2005 floods, respectively.

F-11

----

**5.       Receivables**

Receivables at December 31, 2006 and 2005 are comprised of thefollowing:

|                                                | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|------------------|------------|
| ** **                                     | ** ** | **2006**         | ** ** | **2005** | ** ** |
| West Virginia Lottery  Commission              | ** ** | $                | 2,540      |   | $ | 2,203 | ** ** |
| Pari-mutuel host fees  and settlement activity |       | 383              |       | 423 |   |
| West Virginia Racing  Commission               |       | 775              |       | 0 |   |
| All other                                      |       | 605              |       | 299 |   |
|                                           |       | $                | 4,303      |   | $ | 2,925 |   |

 

**6.       Intangible assets**

Intangible assets at December 31, 2006 and 2005 are comprised of thefollowing:

 

|                                | ** ** | **December, 31   2006** | ** ** | **December, 31   2005** | ** ** | **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 |       | (15,000                           | )          | (12,098                           | )          |                |       |
|                           |       | $                                 | 0          |                              | $          | 2,902               |       |   |   |
| Trade name                     |       | $                                 | 1,539      |                              | $          | 1,539               |       | Indefinite |   |
| Customer  relationships        |       | 778                               |       | 778                               |       | 20 years            |       |
| Less: accumulated amortization |       | (194                              | )          | (157                              | )          |                |       |
| Other                          |       | 10                                |       | 10                                |       | Indefinite          |       |
| Other intangible  assets       |       | $                                 | 2,133      |                              | $          | 2,170               |       |   |   |

 

The Company amortizes its finite-livedintangibles over their estimated lives on a straight-line basis.  Amortization expense of $2,939 was recordedduring the fiscal year of 2006 and $3,039 was recorded during each fiscal yearof 2005 and 2004.  Estimated amortizationexpense for the next five years is $39 per year.

**7.         Property andequipment, net**

|                                | ** ** | **Estimated life** | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **in years**       | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Land                           |       | n/a                     |       | $                     | 1,865      |   | $ | 1,865 |   |
| Land  improvements             |       | 10                      |       | 7,972                 |       | 7,966 |   |
| Buildings and  improvements    |       | 40                      |       | 79,908                |       | 79,474 |   |
| Equipment                      |       | 3 - 10                  |       | 45,471                |       | 41,968 |   |
| Construction in  progress      |       | n/a                     |       | 449                   |       | 741 |   |
|                           |       |                    |       | 135,665               |       | 132,014 |   |
| Less: accumulated depreciation |       |                    |       | (49,638               | )          | (41,365 | ) |
|                           |       |                    |       | $                     | 86,027     |   | $ | 90,649 |   |

 

Depreciationexpense was $8,317, $8,308 and $8,654 for the years ended December 31, 2006,2005 and 2004, respectively.

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**8.         Accounts payable -trade**

Accounts payable at December 31, 2006 and 2005 arecomprised of the following:

|                                                 | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
| West Virginia Lottery Commission |       | $                     | 4,542      |   | $ | 4,021 |   |
| All other                                       |       | 2,480                 |       | 565 |   |
|                                            |       | $                     | 7,022      |   | $ | 4,586 |   |

**9.         Accrued expenses**

Accruedexpenses at December 31, 2006 and 2005 are comprised of the following:

|                                                 | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Preferred Player Point Liability |       | $                     | 1,324      |   | $ | 1,273 |   |
| Property taxes                                  |       | 1,379                 |       | 1,331 |   |
| Interest                                        |       | 621                   |       | 614 |   |
| Payroll and  benefits                           |       | 1,256                 |       | 1,029 |   |
| Deferred income                                 |       | 1,645                 |       | 1,567 |   |
| Legal settlement                                |       | 922                   |       | — |   |
| All other                                       |       | 583                   |       | 921 |   |
|                                            |       | $                     | 7,730      |   | $ | 6,735 |   |

**10.      Long-term debt**

In2001, the Company issued $125,000 in unsecured Senior Notes.  The Senior Notes bear interest at 10.125%,payable semi-annually in June and December, and mature on December 15, 2009.Issuance costs totaling $6,001 were incurred in connection with the SeniorNotes and are being amortized in a manner approximating the effective interestmethod over the term thereof. Amortization is included with interest expense and amounted to $753 foreach of the years ended December 31, 2006, 2005 and 2004.  The related debt agreement requires theCompany to comply with certain covenants, which include limitations onadditional debt, restrictions on distributions to, and other transactions with,affiliates and certain investments.  TheSenior Notes are fully and unconditionally guaranteed by all of the Company’ssubsidiaries on a joint and several basis. At December 31, 2006 the subsidiaries, WDRA Food Service, Inc. andWheeling Land Development Corp., had aggregate subsidiary assets of $673, whichconsisted of land.

The Company may redeem all or a part of theSenior Notes at stipulated redemption prices. The Company may also redeem the Senior Notes of any holder that isunable to comply with the provisions of any racing or gaming law.  Any holder can require the Company to redeemits Senior Notes at 101% of the principal amount thereof upon the occurrence ofa change in control of the Company.

Alsoin 2001, the Company executed a $40,000 secured Revolving Credit Facility(Revolver) with a bank group.  In 2003,the Company executed an increase in the available commitment under the Revolverfrom $40,000 to $50,000.  As of December31, 2006, the Company had no balance outstanding on the Revolver.  The Revolver includes a $5,000 letter ofcredit component, and is secured by the assets of the Company.  Interest is based on LIBOR plus a statedpercentage or, at the Company’s option, the lead bank’s commercial base rateplus a stated percentage.  A commitment

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feeis payable quarterly on the unused balance. 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, 2006, the commitment balance remains at $25,000.  On January 19, 2007, the Revolver was amendedto extend the maturity date from January 19, 2007 to April 30, 2007.  Pursuant to this amendment, Bank of America,N.A. became the sole lender under the Revolver agreement.  All other terms and conditions of the Revolverremain the same.   The Revolver debtagreement requires the Company to comply with certain covenants, which includelimitations on additional debt, restrictions on distributions to, and othertransactions with, affiliates, a maximum leverage ratio, a minimum cash flowcoverage ratio and limitations on certain investments.  The Company is in compliance with allcovenants at December 31, 2006.  Issuancecosts totaling $427 were incurred in connection with the Revolver and are beingamortized over its term. Amortization is included with interest expense andamounted to $81 for 2006, $85 for 2005 and $85 for 2004.

**11.**      **Shareholder’s equity**

|                               | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in capital** | ** ** | **Retained  Earnings** | ** ** | **Total** | ** ** |
|-------------------------------|------------|-------------------|------------|--------------------------------------|------------|------------------------|------------|-----------|------------|
| 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 |   |
| Net income                    |       |              |       |                                 |       | 20,411                 |       | 20,411    |       |
| Less: Dividends  Paid         |       |              |       |                                 |       | (12,000                | )          | (12,000   | )          |
| Balance at December 31,  2006 |       | $                 | 1          |                                 | $          | 5,915                  |       | $         | 39,797     |   | $ | 45,713 |   |

 

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

The provision for incometaxes consists of the following:

 

|                                         | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current federal  tax expense            |       | $          | 10,601     |       | $          | 10,000     |       | $ | 10,449 |   |
| Deferred federal  tax expense (benefit) |       | 504        |       | (940       | )          | (2,856     | )          |
|                                    |       | $          | 11,105     |       | $          | 9,060      | ** ** | $ | 7,593 | ** ** |

 

During 2004, the Internal Revenue Service completeda review of the DNC’s federal income tax return for 2002.  The review resulted in the extension of thedepreciable lives of certain assets for income tax purposes and certain otheradjustments.  As a result of the review,the Company recorded a current income tax expense and deferred tax benefit of$1,000.  The future tax benefit of theseincome tax adjustments has been reflected as a component of deferred incometaxes in the accompanying balance sheets.

TheCompany is not subject to state income tax.

 

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For the 2007 income tax year and beyond,DNC has resolved to elect Subchapter S income tax status and the Company intendsto elect Qualified Subchapter S Subsidiary status.  Accordingly, income tax attributes of theCompany will pass through to the shareholder and income taxes deferred by theCompany at December 31, 2006 will be reversed and recognized as a component ofincome tax in the 2007 consolidated statement of income.

Theprovision for income taxes differs from the amount of income tax determined byapplying the U.S. statutory rate to income before income tax as a result of thefollowing:
| ** **                    | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                          |       |     |       |     |       |     |       |
| Income tax at statutory  rate |       | $        | 11,031     |     | $          | 9,091    |       | $ | 7,560 |   |
| Other adjustments             |       | 74       |       | (31      | )          | 33       |       |
|                          |       |     |       |     |       |     |       |
| Income tax expense            |       | $        | 11,105     |     | $          | 9,060    |       | $ | 7,593 |   |

 

Deferred tax assets (liabilities) consistof the following:
| ** **                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
|                            |       |     |       |     |       |
| Other intangibles               |       | $        | 2,746      |     | $          | 2,067 |   |
| Accrued flood expenses          |       | 0        |       | 1,435    |       |
| Other                           |       | 790      |       | 753      |       |
| Gross deferred tax  assets      |       | 3,536    |       | 4,255    |       |
|                            |       |     |       |     |       |
| Property and equipment          |       | (6,323   | )          | (6,538   | )          |
| Licenses                        |       | (23,072  | )          | (23,072  | )          |
| Gross deferred tax  liabilities |       | ($29,395 | )          | ($29,610 | )          |
|                            |       |     |       |     |       |
| Net deferred tax liabilities    |       | ($25,859 | )          | ($25,355 | )          |
|                                 |            |          |            |          |            |  |  |

 

**13.      Related partytransactions**

In 2001, the Company entered into an administrative services agreementand a tax sharing agreement with DNC G&E and DNC.  Pursuant to the administrative servicesagreement, the Company pays an annual administrative services fee equal to thegreater of 1.5% of the preceding year’s total operating revenues or $1,200 forcertain support services provided to the Company.  During 2006, 2005 and 2004, the Companyrecorded administrative services fees of $1,923, $1,929 and $1,741,respectively.  Pursuant to the taxsharing agreement, the Company pays DNC the amount of tax that would be payableby the Company if it had filed a separate consolidated federal income taxreturn on a stand-alone basis.

The Company invests its excess cash in a segregated accountadministered by DNC under its centralized cash management program.  At December 31, 2006 and 2005, the Companyhad $5,370 and $225 invested with DNC, respectively.  During 2006, 2005 and 2004, respectively, theCompany earned interest income of $297, $49 and $11, respectively.

The Company participates in a comprehensive insurance programmaintained by DNC.  Risk-based premiumscharged by and reimbursed to DNC amounted to $2,467 in 2006, $2,399 in 2005 and$1,599 in 2004.

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On December 28, 2006, the Company paid a cash dividend of $12,000 toDNC G&E.  In 2005 and 2004 cashdividends of $12,000 and $12,500, respectively, were paid to DNC G&E.

**14.      Retirement plans**

All full-time employees participate in a retirement savings planadministered by DNC.  Non-union employeesare entitled to share in a discretionary Company contribution to thisplan.  Union employees also participatein a union-sponsored defined contribution plan. Total expense relating to the retirement plans was $254 in 2006, $318 in2005 and $188 in 2004.

Pursuant to West Virginia statute, 1.0% of base NTI and 0.5% of anyexcess NTI is deposited to theretirement savings plan on behalf of all employees.  Such amounts are not included as an elementof the Company’s expenses.

**15.      Commitments**

In connection with its pari-mutuel operations, the Company leasestotalisator services, video and peripheral equipment under agreements expiringat various dates through 2007.  Expenserelated to such services is determined primarily as a percentage of thepari-mutuel handle or stated amounts per performance.  During 2006, 2005 and 2004, this expensetotaled $648, $745 and $716, respectively.

Inconnection with its gaming operations, the Company leases 82 slotmachines.   Lease expense for thesemachines during 2006, 2005 and 2004 totaled $128, $116 and $184, respectively.

**16.      Litigation**

The Company is party to a number of pending legal proceedings in theordinary course of business, although management does not expect that theoutcome of such proceedings, either individually or in the aggregate, will havea material effect on the Company’s financial condition or results ofoperations.

**17.      Risks anduncertainties**

The Company’s operations are subject to extensive governmentregulations and could be subjected at any time to additional or morerestrictive regulations.  The Company issubject to the provisions of the West Virginia Racing Act, which governs theconduct of greyhound racing in West Virginia, and the West Virginia RacetrackVideo Lottery Act (the “Lottery Act”), which under the regulatory control of theWest Virginia Lottery Commission, governs the operation of video lotteryterminals in West Virginia. Specifically, the Lottery Act provides that only licensed greyhound orhorse racing facilities that were licensed prior to January 1, 1994 and conducta minimum number of days of live racing may offer video lottery gaming.  Accordingly, the Company must comply fullywith regulations of the Racing Commission to qualify for its license under theLottery Act and maintain its video lottery gaming operations.

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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 thatthe Company be subject to a written agreement with the dog owners, breeders,and trainers who race greyhounds at its facility. The Company is a party to therequisite agreements with the kennels that operate at its facility. The LotteryAct also requires that the Company be subject to an agreement with thepari-mutuel clerks who work at its facility. This requirement is satisfied by a letter sent to the Lottery Commissionannually, which states that such agreement exists.  The Company’s material licenses are subjectto annual or other periodic renewal and governmental authorities may refuse togrant the Company the licenses necessary to continue to operate its existingfacility.  In addition, the Company maybe investigated by either the Racing Commission or the Lottery Commission atany time.  Should either body considerthe Company to be in violation of any applicable laws or regulations, each hasthe plenary authority to suspend or rescind the Company’s licenses.  The Company believes that it is in fullcompliance with all relevant regulations.

On July 5, 2004,legislation was enacted in Pennsylvania permitting the introduction of slotmachine gaming in that state.  On December 20, 2006,the Pennsylvania Gaming Control Board approved 11 applications for permanentslot-machine gaming operator licenses. Two of these licenses were awarded to planned slot operations which willcompete in the Company’s primary market. The Company’s primary market consists of the 150-mile radiusaround Wheeling and includes the western Pennsylvania market area that includesPittsburgh.  The Company expects theintroduction of slot machine gaming in the western Pennsylvania market to havea material adverse impact on its business, financial condition and results ofoperations.

Ohio currentlydoes not permit any form of casino gaming. If gaming legislation similar to that which has been approved in WestVirginia and Pennsylvania were approved in Ohio, there would be sevenracetracks in Ohio that could potentially compete with the Company for gamingcustomers in the Ohio market.

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