**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

**FORM 10-K**

** **
| **x**                                                 | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| ** **                                            | ** **                                                                                              |
| **For the  fiscal year ended December 31, 2006** |
| ** **                                            | ** **                                                                                              |
| **OR**                                                |
| ** **                                            | ** **                                                                                              |
| **o**                                                 | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                            | ** **                                                                                              |

 

**For the transition period from               to               **

 

**Commission File Number 333-88829**

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

** **

**3rdStreet Ice Harbor, PO Box 1750**

**Dubuque, Iowa 52001**

**(563) 690-2100**

(Registrant’s telephone number including area code)

** **

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

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act. Yes o  No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding twelve months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. Yes x  No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):Large 
| accelerated filer o | Accelerated filer o | Non-accelerated filer x |
|---------------------|---------------------|-------------------------|

 

Indicate by checkmark if the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o  No x

All of the common equity interests of PeninsulaGaming, LLC (the “Company”) are held by Peninsula Gaming Partners, LLC. All ofthe common equity interests of Diamond Jo, LLC, The Old Evangeline Downs,L.L.C., Diamond Jo Worth Holdings, LLC and Peninsula Gaming Corp. are held bythe Company. All of the common equity interests of Diamond Jo Worth, LLC and DiamondJo Worth Corp. are held by Diamond Jo Worth Holdings, LLC.

 

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**TABLE OF CONTENTS**

 
|               |                                                                                                                         | ** ** | **Page** |
|---------------|-------------------------------------------------------------------------------------------------------------------------|------------|----------|
|          |                                                                                                                    |       |     |
| PART I   |                                                                                                                    |       | 3        |
|          |                                                                                                                    |       |     |
| ITEM 1.       | BUSINESS                                                                                                                |       | 3        |
|          |                                                                                                                    |       |     |
| ITEM  1A.     | RISK  FACTORS                                                                                                           |       | 13       |
|          |                                                                                                                    |       |     |
| ITEM 1B       | UNRESOLVED STAFF COMMENTS                                                                                               |       | 18       |
|          |                                                                                                                    |       |     |
| ITEM 2.       | PROPERTIES                                                                                                              |       | 18       |
|          |                                                                                                                    |       |     |
| ITEM  3.      | LEGAL  PROCEEDINGS                                                                                                      |       | 18       |
|          |                                                                                                                    |       |     |
| ITEM 4.       | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                     |       | 19       |
|          |                                                                                                                    |       |     |
| PART II  |                                                                                                                    |       | 19       |
|          |                                                                                                                    |       |     |
| ITEM 5.       | MARKET FOR THE  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES |       | 19       |
|          |                                                                                                                    |       |     |
| ITEM  6.      | SELECTED  FINANCIAL DATA                                                                                                |       | 20       |
|          |                                                                                                                    |       |     |
| ITEM 7.       | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             |       | 21       |
|          |                                                                                                                    |       |     |
| ITEM 7A.      | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK                                                             |       | 33       |
|          |                                                                                                                    |       |     |
| ITEM 8.       | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                             |       | 33       |
|          |                                                                                                                    |       |     |
| ITEM 9.       | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE                                   |       | 33       |
|          |                                                                                                                    |       |     |
| ITEM 9A.      | CONTROLS AND PROCEDURES                                                                                                 |       | 34       |
|          |                                                                                                                    |       |     |
| ITEM  9B.     | OTHER  INFORMATION                                                                                                      |       | 34       |
|          |                                                                                                                    |       |     |
| PART III |                                                                                                                    |       | 34       |
|          |                                                                                                                    |       |     |
| ITEM 10.      | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                                                          |       | 34       |
|          |                                                                                                                    |       |     |
| ITEM 11.      | EXECUTIVE COMPENSATION                                                                                                  |       | 35       |
|          |                                                                                                                    |       |     |
| ITEM 12.      | SECURITY OWNERSHIP  OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                         |       | 43       |
|          |                                                                                                                    |       |     |
| ITEM 13.      | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                          |       | 44       |
|          |                                                                                                                    |       |     |
| ITEM 14.      | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                  |       | 46       |
|          |                                                                                                                    |       |     |
| PART IV  |                                                                                                                    |       | 46       |
|          |                                                                                                                    |       |     |
| ITEM 15.      | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                              |       | 46       |
|          |                                                                                                                    |       |     |
|          | SIGNATURES                                                                                                              |       | 53       |

 

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**PART I**

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

**General**

Peninsula Gaming, LLC, aDelaware limited liability company organized in 1999 (“PGL” or the “Company”),is a holding company with no independent operations whose sole assets are cashand its equity interests in its wholly owned subsidiaries. The Company is awholly owned subsidiary of Peninsula Gaming Partners, LLC, a Delaware limitedliability company (“PGP”). PGL’s operating subsidiaries consist of:

·                  Diamond Jo, LLC,a Delaware limited liability company (“DJL”), which owns and operates theDiamond Jo riverboat casino in Dubuque, Iowa;

·                  The OldEvangeline Downs, L.L.C., a Louisiana limited liability company (“OED”), which ownsand operates the Evangeline Downs Racetrack and Casino, “racino”, in St. LandryParish, Louisiana, and four off-track betting (“OTB”) parlors in Louisiana; and

·                  Diamond Jo Worth,LLC, a Delaware limited liability company (“DJW”), which constructed a newcasino in Worth County, Iowa that opened in April 2006.

In addition, PGL is the parent of Peninsula GamingCorp, a Delaware corporation (“PGC”), which has no assets or operations, andDiamond Jo Holdings, LLC, a Delaware limited liability company (“DJWH”), whichhas no independent operations and whose sole assets are its equity interests inits wholly owned subsidiaries. DJWH’s subsidiaries are DJW and Diamond Jo WorthCorp., a Delaware corporation (“DJWC”), which has no assets or operations.

As used herein, unlessotherwise stated or the context otherwise refers to PGL, the terms “we”, “us”, “our”or the “Company” refer to PGL.

We currently operate three reportable segments: (1) the gamingoperations of DJL, consisting of the Diamond Jo riverboat casino in Dubuque,Iowa (the “Diamond Jo”), (2) the gaming operations of OED, consisting ofthe casino, racetrack and OTBs operated by OED in Louisiana, (the “EvangelineDowns”), and (3) the gaming operations of DJW, consisting of the casino inNorthwood, Iowa. See Note 12 to the consolidated financial statements forfinancial information about our segments.

Our address is 3rdStreet Ice Harbor, PO Box 1750, Dubuque, Iowa, 52004-1750 and our telephonenumber is (563) 690-2100. Our annual reports on Form 10-K, quarterlyreports on Form 10-Q and current reports on Form 8-K, and amendmentsto these reports, filed by us with the Securities and Exchange Commission (“SEC”),are available on the SEC’s website at http://www.sec.gov.

**Business**

*Diamond Jo.*TheDiamond Jo operates from the Port of Dubuque, a waterfront development on theMississippi River in downtown Dubuque, Iowa and is accessible from each of themajor highways in the area. The Diamond Jo is a three-story, approximately48,000 square foot riverboat casino, replicating a classic 19th century paddlewheel riverboat. TheDiamond Jo has an approved capacity for 1,394 patrons, features a spacious two-storyatrium and a 44-seat capacity deli and offers 777 slot machines and 17 tablegames on approximately 19,000 square feet of gaming space. Adjacent to theDiamond Jo is a two-story, approximately 36,000 square foot dockside pavilion,featuring our 142-seat capacity Lighthouse Grill restaurant, our 140-seatcapacity High Steaks restaurant and our 25-seat capacity Club Wild playerslounge. Approximately 1,200 parking spaces are conveniently available to ourpatrons, together with valet parking. The Diamond Jo is open seven days a weekand functions primarily as a dockside riverboat with continuous boarding and nocruising requirements.

On September 27, 2006,DJL entered into an Offer to Purchase Real Estate, Acceptance and Lease (the “HistoricalSociety Agreement”) with the Dubuque County Historical Society (the “HistoricalSociety”). The Historical Society Agreement provides for, among other things,(i) a charitable contribution to the Historical Society of $1.0 million payablein equal annual installments of $0.1 million for 10 years commencing one yearafter the closing of the transactions contemplated by the Historical SocietyAgreement and (ii) the purchase by DJL of 2.4 acres of real property (the “ExpansionTract”) for a purchase price not to exceed $2 million.  A primary purpose of the Historical SocietyAgreement is to facilitate DJL’s building of a new moored barge facility toexpand its existing casino operations. If the purchase price payable for theExpansion Tract is less than $2.0 million, DJL has agreed to make a charitablecontribution following the closing of the transactions contemplated by theHistorical Society Agreement in an amount equal to the difference between $2.0million and the price paid for the Expansion Tract. The Historical SocietyAgreement also provides for the Historical Society to lease DJL’s existingdockside pavilion for 99 years at $1 per year and for DJL to transfer all ofits rights, title and interest in the existing Diamond Jo vessel to theHistorical Society at the Historical Society’s option. The lease and thetransfer of the vessel are conditioned upon DJL commencing operation of its newmoored barge facility. Closing of the transactions contemplated by theHistorical Society Agreement are contingent upon satisfactory completion of DJL’sdue diligence relating to its purchase of the Expansion Tract.

DJL’s proposed new mooredbarge facility is expected to include approximately 1,000 slot machines, 17table games and a five-table poker room. Additional amenities are expected to include a bowling center, variousrestaurants and an entertainment center. 

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The Company is currently in the process of estimatingtotal project costs and timing of completion of the new casino.

In addition, in February2007, DJL entered into the Port of Dubuque Public Parking Facility DevelopmentAgreement (“Development Agreement”) with the City of Dubuque, Iowa (the “Cityof Dubuque”) regarding, among other things, the design, development,construction and financing of a public parking facility to be located adjacentto DJL’s proposed casino development. The City of Dubuque is currently in theprocess of estimating the total cost of the parking facility. It is anticipatedthat the City of Dubuque will award to a third party a construction contract toconstruct the parking facility with a required completion date of no later thanAugust 1, 2008.  The parking facility,which will be owned by the City of Dubuque, will provide free parking to thegeneral public and contain approximately 1,200 parking spaces.

*EvangelineDowns.*The Evangeline Downs Racetrack and Casino is locatedin Opelousas, Louisiana.  This facility has a southern Louisiana cajunroadhouse theme on the exterior, with a complimentary regional Acadianatmosphere on the interior.  The racino currently includes a casino with1,627 slot machines, parking spaces for approximately 2,544 cars and 5 buses,and several dining options.  Our dining venues include a 312-seat cajunbuffet, a 90-seat fine-dining Blackberry’s restaurant, a 60-seat PO-Boys FoodCourt, a 90-seat Café 24/7 and a 202-seat Mojo’s sports bar with a 37-seatpatio.  In addition a raised bar and lounge area known as Zydeco’soccupies the center of our casino floor.  In the Clubhouse, Silk’s FineDining offers a varied menu and the Grandstand area contains a concession andbar for our patrons’ convenience.  The racino includes a one-mile dirttrack, stables for 980 horses, a grandstand and clubhouse seating for 1,295patrons, and apron and patio space for an additional 3,000 patrons.  OEDis open twenty-four hours per day, seven days per week.

In addition, OEDis currently evaluating the proposed development and construction of a hoteland event center contiguous to its racino.

*OTBs.* OED currently operates four OTBs; one in Port Allen, Louisiana; one in NewIberia, Louisiana; one in Henderson, Louisiana; and one in Eunice, Louisianawhich opened on February 17, 2006.  Each of these OTBs offers simulcastpari-mutuel wagering seven days a week and is equipped to serve alcoholic andnon-alcoholic beverages and food. The Port Allen OTB is located immediately offInterstate 10, across the Mississippi River from Baton Rouge. The two-storyPort Allen facility offers off-track betting, 83 video poker machines, a full-servicebar, a cafe and a VIP lounge. During 2006 and through January 2007, OEDoperated the New Iberia OTB, located on U.S. Highway 182, approximately 20miles outside Lafayette, Louisiana, which offered off-track betting and alimited food offering. In February 2007, OED’s New Iberia OTB operations movedto a new facility which offers simulcast pari-mutuel wagering seven days a weekand is equipped to serve alcoholic and non-alcoholic beverages and food. The Henderson OTB, which opened on May 14, 2005, seats 60 patrons andfeatures a restaurant and full service bar.  We recently received approvalto operate video poker machines at our Henderson facility and expect to haveapproximately 44 video poker machines in operation by mid-year of 2007. We will be enlarging the current facility by approximately 1,250 square feet toaccommodate video poker operations.  The Eunice facility offers off-trackbetting, 66 video poker machines, a full service bar and private parking forits patrons.  Under Louisiana’s racing and off-track betting laws, we havea right of prior approval with respect to any applicant seeking a permit tooperate an OTB within a 55-mile radius of our Evangeline Downs racetrack whicheffectively gives us the exclusive right, at our option, to operate OTBs withina 55-mile radius of our horse racetrack, provided that such OTB is not alsowithin a 55-mile radius of another horse racetrack.

*Diamond Jo Worth*.  The Diamond Jo Worth opened to the public inApril 2006 and is open seven days a week. On May 11, 2005, the Iowa Racing andGaming Commission granted us a gaming license to operate an excursion gamblingboat in Northwood, Iowa. Northwood is located in north-central Iowa, near theMinnesota border and approximately 30 miles north of Mason City. Our casino issituated on a 35-acre site approximately an equal distance between Minneapolis,Minnesota and Des Moines, Iowa at the intersection of Interstate 35 and Highway105. The exterior design of Diamond Jo Worth incorporates a regional gristmill andriverboat theme, with a complementary riverside docking facility atmosphere onthe interior. Throughout most of 2006, the Diamond Jo Worth casino had 577 slotmachines and 15 table games in operation as well as parking spaces forapproximately 1,300 vehicles, several dining options, including a 150-seatcoffee shop and two fast food dining outlets. In November 2006, a 100-roomhotel development adjacent to the casino opened which is owned and operated bya third party. We also operate a convenience store and gas station at the site.Due to the casino expansion project more fully discussed below, the Diamond JoWorth casino currently has 535 slot machines and 15 table games in operation.

On July 13, 2006, theIowa Racing and Gaming Commission approved DJW’s request to expand its newcasino facility by approximately 30,000 square feet.  The proposed expansion is expected to add anadditional 300 slot machines, 11 table games, a poker room, a buffetrestaurant, an expanded casino bar, a banquet and event center and additionalparking.  Construction of the expansionhas commenced and is expected to be completed during the second quarter of 2007for an aggregate cost of approximately $32.7 million.

**Competition**

All of our gaming properties face competition from othergaming operations. The decision to visit one of our properties over that of acompetitor is influenced by a number of factors including, but not limited to,customer service, slot machine payouts, slot loyalty programs and convenience.In addition, our competitors may offer amenities that our properties may nothave. Our 

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competitors may also have less debt than we do, whichmay allow them to be able to react more quickly than we can to changes in theirgaming market and the gaming industry.

*Diamond Jo.*TheDiamond Jo’s principal competition is the only other licensed gaming facilityin Dubuque, the Dubuque Greyhound Park (the “DGP”). The DGP is locatedapproximately three miles north of the Port of Dubuque and offers slotmachines, live and simulcast greyhound racing and, on a limited basis,simulcast horse racing. In May 2005, DGP expanded its facility to include 1,000slot machines. In February 2006, DGP replaced 82 slot machines with video pokerand March 2006 added 16 table games and 4 poker tables. In addition, a group ofprivate investors opened a hotel adjacent to the DGP in October 2005. The DGPis owned and operated by the Dubuque Racing Association, or DRA. As anot-for-profit organization, the DRA distributes a percentage of its cash flow tothe City of Dubuque and local charities.

Riverboat gaming licenses in the State of Iowa aregranted to not-for-profit “qualified sponsoring organizations” and can beissued jointly to a not-for-profit qualified sponsoring organization and a boatoperator. The granting of new licenses requires regulatory approval, which includes,among other things, satisfactory feasibility studies. The DRA is thenot-for-profit qualified sponsoring organization that, pursuant to a contractbetween the parties, holds the excursion riverboat gaming license together withus as the boat operator.

The Iowa Racing and Gaming Commission rescinded its rule limitingriverboat gaming licenses in Iowa and in May 2005 granted four new gaminglicenses (including ours in Worth County). The closest of these licensees tothe Diamond Jo is one located in Waterloo, Iowa. As this location is over 100miles away from the Diamond Jo, we believe that the opening of this facility,which is scheduled to open in summer 2007, will not have a significant impacton our Dubuque operations.

The Dubuque gaming market borders other neighboring gamingmarkets, including:

(1)                                  Elginand Aurora, Illinois to the east;

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

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

(4)                                  Clinton, Iowa and theQuad Cities (Bettendorf and Davenport, Iowa and Moline and Rock Island,Illinois) to the south.

 

We believe that the Diamond Jo competes only indirectlywith gaming facilities in these neighboring markets. Illinois enactedlegislation providing for dockside gaming in 1999. Illinois limits the numberof dockside gaming licenses to 10. Nine of the 10 licenses have already beenissued. The tenth license is currently pending.

*Evangeline Downs.*Thenearest competitor to Evangeline Downs is a Native American casino locatedapproximately 50 miles to the north of the racino, including several miles offthe highway in Marksville, Louisiana. Beyond that, patrons in Lafayette need todrive approximately 50 miles to reach riverboat casinos in Baton Rouge andapproximately 70 miles to reach riverboat casinos in Lake Charles and a NativeAmerican casino in Kinder. Because our competition in Marksville is situatedmore than 20 miles off the highway, we believe that patrons of the Marksvillecasino may find the ease of highway access to our racino more convenient.

Louisiana law currently places limitations on thenumber and types of gaming facilities that may operate in the state. Currently,there are only four horse racetracks in Louisiana with licenses to conduct liveracing. Under the Pari-Mutuel Act, each of the four horse racetracks (includingour racino) is permitted to install slot machines at its facilities. The horseracetrack nearest to the racino site that is allowed to have gaming operationsis located in Vinton, Louisiana, near Lake Charles, which is over 100 milesaway from the racino. In addition, current Louisiana law permits only 15 riverboatgaming licenses, all of which have currently been awarded. Also, under currentLouisiana law, the only non-Native American land-based casino permitted tooperate in the state is the land-based casino currently operating in NewOrleans, over 100 miles from Lafayette. Native American gaming facilitiesoperate pursuant to compacts with the State of Louisiana. There currently areonly four federally-recognized Native American tribes in Louisiana and onlythree Native American casinos currently operating in Louisiana, the closestbeing in Marksville, which is approximately 50 miles from the racino site. Thefourth tribe, which to our knowledge currently does not have a compact with theState of Louisiana, has proposed to develop a casino in DeSoto Parish, over 150miles from the racino.

In August 2005 Hurricane Katrina hit southernLouisiana causing much of the New Orleans and surrounding area’s population tomove north toward Lafayette. In September 2005, Hurricane Rita hit southwestLouisiana and caused the closure of many of Evangeline Downs’ competitors. Thissurge in local population, coupled with the temporary reduction in competition,helped improve operations at Evangeline Downs during the fourth quarter of 2005and the early part of 2006 and gave Evangeline Downs the opportunity togenerate new customers and grow its player database.

*Diamond Jo Worth.*Diamond JoWorth’s primary competition is the Native American gaming operations inMinnesota, the closest being approximately 110 miles from the Diamond Jo Worthcasino. In addition, a new casino in Emmetsburg, Iowa, approximately 90 milesfrom Diamond Jo Worth casino, commenced operations in June 2006.  As noted above, a new casino located inWaterloo, IA is scheduled to open in the summer of 2007.  Waterloo, IA is approximately 120 miles fromthe Diamond Jo Worth casino.

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**Employees**

We maintain a staff ofapproximately 290 to 320 full-time equivalent employees at the Diamond Jo, astaff of approximately 600 to 675 full-time equivalent employees at Evangeline Downsand a staff of approximately 280 to 330 full-time equivalent employees at theDiamond Jo Worth, depending upon the time of the year. None of our employeesare covered by a collective bargaining agreement. We have not experienced anylabor problems resulting in a work stoppage, and believe we maintain goodrelations with****our****employees.

**Agreements with the City of Dubuque, Iowa**

**During2005, DJL entered into an agreement with the City of Dubuque which providesfor, among other things, the following:**

·                  The extension ofthe lease of real property around the Diamond Jo through 2018. The currentlease calls for lease payments of $25,000 annually through 2008. EffectiveJanuary 1, 2009, the lease payments increase to $250,000 annually. If at anytime DJL elects to move its operations to a barge facility, the lease paymentsincrease to $500,000 annually. However, under DJL’s operating agreement withthe DRA, the DRA is required to reimburse DJL for all lease payments paid tothe city as described in this paragraph; and

·                  The option forDJL to build a barge facility within the Port of Dubuque (which is where theDiamond Jo is currently docked).

On February 5,2007, DJL entered into the Port of Dubuque Public Parking Facility DevelopmentAgreement (“Development Agreement”) with the City of Dubuque.  The Development Agreement provides for, amongother things, the design, development, construction and financing of a publicparking facility to be located adjacent to DJL’s proposed casino development inthe Port of Dubuque, City of Dubuque.  Itis anticipated that the City of Dubuque will award to a third party aconstruction contract to construct the parking facility no later than December31, 2007.  The parking facility, whichwill be owned by the City of Dubuque, will provide free parking to the generalpublic and contain approximately 1,200 parking spaces.  The Development Agreement requires that DJLconstruct its casino development to consist of not less than 140,000 squarefeet and at a cost of at least $45 million. The Development Agreement provides that the parking facility will befinanced by an initial payment of not less than $6.4 million by DJL to the Cityof Dubuque with the remainder of the cost being financed via tax incrementfinance bonds that will be issued by the City of Dubuque and paid off with thetax incremental revenue generated by the new DJL casino development.  As part of the Development Agreement, DJL isrequired to enter into a minimum assessment agreement for its new casinodevelopment and to pay the operating costs of the parking facility, includingthe cost of operation, security, repair and maintenance.  Additionally, DJL is obligated to pay to theCity of Dubuque for the life of the parking facility an amount equal to $80 perparking space, per year (subject to adjustments based on increases in a statedconsumer price index) which amount will be held in a sinking fund and used to satisfythe capital maintenance requirements for the parking facility.  The Development Agreement also provides thatDJL will enter into a maintenance service agreement with the City of Dubuque toprovide operation, maintenance, security and other services for the parkingfacility.

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**Regulatory Matters**

We and our subsidiaries are subject to regulation by the State of Iowa, theState of Louisiana, and, to a lesser extent, by federal law. We and oursubsidiaries are subject to regulations that apply specifically to live racingfacilities and the gaming and pari-mutuel industry, in addition to regulationsapplicable to businesses generally. Our racino is subject to the Pari-MutuelAct and the Louisiana Horse Racing Act. Laws and regulations applicable to ourcurrent racetrack and our racino are administered by the Louisiana State GamingControl Board and the Louisiana State Racing Commission. Legislative oradministrative changes in applicable legal requirements, including legislationto prohibit casino gaming, have been proposed in the past. It is possible thatthe applicable requirements to operate an Iowa or Louisiana gaming facilitywill become more stringent and burdensome, and that taxes, fees and expensesmay increase. It is also possible that the number of authorized gaming licensesin Iowa or Louisiana may increase, which would intensify the competition thatwe face. Our failure to comply with detailed regulatory requirements may begrounds for the suspension or revocation of one or more of our respective licenseswhich would have a material adverse effect on our respective businesses.

**Iowa** Riverboat Gaming Regulation

Our Diamond Jo and Diamond Jo Worth operations are subject to Chapter 99F of the IowaCode and the regulations promulgated under that Chapter and the licensing andregulatory control of the Iowa Racing and Gaming Commission. Our license issubject to annual renewal.

Under Iowa law, the legal age for gaming is 21, andwagering on a “gambling game” is legal when conducted by a licensee on an “excursiongambling boat.” An “excursion gambling boat” is an excursion boat or mooredbarge and a “gambling game” is any game of chance authorized by the Iowa Racingand Gaming Commission. Permanent dockside casino gaming was recently authorizedby the Iowa Legislature.

The legislation permitting riverboat gaming in Iowaauthorizes the granting of licenses to “qualified sponsoring organizations.” A “qualifiedsponsoring organization” is defined as a nonprofit corporation organized underIowa law, whether or not exempt from federal taxation, or a person orassociation that can show to the satisfaction of the Iowa Racing and GamingCommission that the person or association is eligible for exemption fromfederal income taxation under Sections 501(c)(3), (4), (5), (6), (7), (8),(10) or (19) of the Internal Revenue Code. Such nonprofit corporationmay operate the riverboat itself, or it may enter into an agreement withanother boat operator to operate the riverboat on its behalf. A boat operatormust be approved and licensed by the Iowa Racing and Gaming Commission. DRA, anot-for-profit corporation organized for the purpose of operating a pari-mutuel greyhoundracing facility in Dubuque, Iowa, first received a riverboat gaming license in1990 and has served as the “qualified sponsoring organization” of the DiamondJo since March 18, 1993. DRA subsequently entered into the DRA OperatingAgreement with Greater Dubuque Riverboat Entertainment Company, the previousowner and operator of the Diamond Jo, authorizing Greater Dubuque RiverboatEntertainment Company to operate riverboat gaming operations in Dubuque. TheDRA Operating Agreement was approved by the Iowa Racing and Gaming Commissionon March 18, 1993. The term of the DRA Operating Agreement expires onDecember 31, 2018. We assumed the rights and obligations of GreaterDubuque Riverboat Entertainment Company under the DRA Operating Agreement.

During 2005, DJL’s operating agreement with the DRA(who holds a joint gambling license with DJL to conduct gambling games underIowa law) was amended to provide for, among other things, the following:

·                  theauthorization of the DRA to operate up to 1,000 slot machines and up to 20table games at the DGP;

·                  the extension ofthe operating agreement through December 31, 2018;

·                  from February2006 (the date that DGP commenced operation of table games) through August 31,2006 (the date a competing casino facility opened to the public in Riverside,Iowa),  DRA was contractually obligatedto pay to DJL $0.33 for each $1.00 of reduction in DJL’s adjusted gross gamingreceipts, subject to a maximum 15% decline and certain payment deferralconditions. Beginning September 1, 2006 and continuing until the earlier of (i)DJL’s commencement of operations as a barge facility or (ii) December 31, 2008,DRA is contractually obligated to pay to DJL $0.33 for each $1.00 of reductionin DJL’s adjusted gross gaming receipts above a 7% decline from the base periodand subject to a maximum 21% decline and certain payment deferral conditions;and

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·                  a requirementthat DJL continue to pay to the DRA the sum of $.50 for each patron admitted onthe boat through 2008. During 2006, 2005 and 2004, these payments approximated$0.4 million, $0.5 million and $0.5 million, respectively. Commencing January1, 2009, DJL is obligated pay to the DRA 3% of DJL’s adjusted gross receipts.If however, DJL elects to move its operations to a barge facility, uponcommencement of operations as a barge facility, DJL will be required to pay tothe DRA 4.5% of DJL’s adjusted gross receipts.

During 2006, DJLrecorded other revenue of approximately $1.6 million related to this agreement,of which $1.2 million has been recorded as a long-term receivable and is inincluded in deposits and other assets on the Company’s balance sheet.

In a separate agreement with the City of Dubuque, weextended our leases for real property, including various parking lots aroundthe casino, through December 2018.

The Worth County Development Authority (“WCDA”), anot-for-profit corporation, was organized on July 14, 2003 for the purpose ofserving as a qualified sponsoring organization for a gaming license to be heldin Worth County, Iowa. Pursuant to an operator’s agreement with the WCDA, DJWis entitled to own and operate an excursion gambling boat in Worth County,Iowa. The “qualified sponsoring organization” for DJW, WCDA receives 5.76% ofDJW’s adjusted gross receipts. In 2006, DJW expensed $2.8 million under thisagreement.  The operating agreement withthe WCDA expires on March 31, 2015, but is subject to automatic three yearrenewal periods.

Under Iowa law, a license to conduct gaming may beissued in a county only if the county electorate has approved the gaming. Theelectorate of Dubuque County, Iowa, which includes the City of Dubuque,approved gaming on May 17, 1994 by referendum, with 80% of the electoratevoting in favor of gaming conducted by the Diamond Jo. The electorate of WorthCounty, Iowa, approved gaming on June 24, 2003 by referendum, including gamingconducted by Diamond Jo Worth, with 75% of the electorate voting in favor. Inaddition, a referendum must be held every eight years in each of the countieswhere gambling games are conducted and the proposition to continue to allowgambling games in such counties must be approved by a majority of the countyelectorate voting on the proposition. Such a referendum took place for DiamondJo on November 5,2002 with 79% of the electorate voting on the proposition favoring continuedgaming on riverboats in Dubuque County. The next referendum is scheduled for2010. If any reauthorization referendum is defeated, Iowa law provides that anypreviously issued gaming license will remain valid and subject to renewal for atotal of nine years from the date of original issuance of the license, subjectto earlier non-renewal or revocation under Iowa law and regulations applicableto all licenses.

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

Substantially all of DJL’s and DJW’s materialtransactions are subject to review and approval by the Iowa Racing and GamingCommission. All contracts or business arrangements, verbal or written, with any related party or inwhich the term exceeds three years or the total value of the contract exceeds$100,000 are agreements that qualify for submission to and approval by the IowaRacing and Gaming Commission subject to certain limited exceptions. Theagreement must be submitted within 30 days of execution and approval mustbe obtained prior to implementation unless the agreement contains a writtenclause stating that the agreement is subject to commission approval.Additionally, contracts negotiated between the Diamond Jo or Diamond Jo Worthand a related party must be accompanied by economic and qualitativejustification.

We must submit detailed financial, operating and otherreports to the Iowa Racing and Gaming Commission. We must file weekly gamingreports indicating adjusted gross receipts received from gambling games.Additionally, we must file annual financial statements covering all financialactivities related to our operations for each fiscal year. We must also keepdetailed records regarding our equity structure and owners.

Iowa has a graduated wagering tax on riverboatgambling equal to 5% of the first one million dollars of adjusted grossreceipts, 10% on the next two million dollars of adjusted gross receipts and22% on adjusted gross receipts of more than three million dollars. In addition,Iowa riverboats share equally in costs of the Iowa Racing and Gaming Commissionand related entities to administer gaming in Iowa. For the fiscal year endedDecember 31, 2006, DJL’s and DJW’s share of such expenses wereapproximately $0.7 million and $0.5 million, respectively. Further, DJL pays tothe City of Dubuque a fee equal to $.50 per passenger.

In accordance with legislation passed in 2004, allexcursion gambling boat licensees, including DJL, were assessed an amount basedon the licensee’s adjusted gross receipts to be deposited into the Rebuild IowaInfrastructure Fund. DJL’s total assessment was $2.1 million, which was paid intwo equal payments of $1.05 million on May 2005 and May 2006, respectively. DJLrecorded the payments as a long term deposit on its consolidated balance sheet.Beginning in July 2010, we may offset gaming taxes in an amount equal to20% of the total assessment in each of the succeeding five fiscal yearsthereafter. DJW was not included in this assessment as it was not licensed atthe time of the assessment.

In connection with obtaining its gaming license, DJWis required to pay under an executory agreement a license fee of $5.0 

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million payable in five equal annual installments of$1.0 million. DJW paid the first two installments in June 2005 and May2006 with the remaining installments due in May 2007 and eachMay thereafter through 2009.

If the Iowa Racing and Gaming Commission decides thata gaming law or regulation has been violated, the Iowa Racing and GamingCommission has the power to assess fines, revoke or suspend licenses or to takeany other action as may be reasonable or appropriate to enforce the gamingrules and regulations. In addition, renewal is subject to, among otherthings, continued satisfaction of suitability requirements.

We are required to notify the Iowa Racing and GamingCommission as to the identity of, and may be required to submit backgroundinformation regarding, each director, corporate officer and owner, partner,joint venture, trustee or any other person who has a beneficial interest offive percent or more, direct or indirect, in DJL or DJW. The Iowa Racing andGaming Commission may also request that we provide them with a list of personsholding beneficial ownership interests in DJL or DJW of less than five percent.For purposes of these rules, “beneficial interest” includes all direct andindirect forms of ownership or control, voting power or investment power heldthrough any contract, lien, lease, partnership, stockholding, syndication,joint venture, understanding, relationship, present or reversionary right, titleor interest, or otherwise. The Iowa Racing and Gaming Commission may limit,make conditional, suspend or revoke the license of a licensee in which adirector, corporate officer or holder of a beneficial interest is found to beineligible as a result of want of character, moral fitness, financialresponsibility, or professional qualifications or due to failure to meet othercriteria employed by the Iowa Racing and Gaming Commission.

If any gaming authority, including the Iowa Racing andGaming Commission, requires any person, including a holder of record orbeneficial owner of securities, to be licensed, qualified or found suitable,the person must apply for a license, qualification or finding of suitabilitywithin the time period specified by the gaming authority. The person would berequired to pay all costs of obtaining the license, qualification or finding ofsuitability. If a holder of record or beneficial owner of any of the Company’s8 3/4% senior secured notes due 2012 (the “Peninsula Gaming Notes”), DJW’s 11%senior secured notes due 2012 (the “DJW Notes”), or any membership interest inPGL, PGP, DJL or DJW is required to be licensed, qualified or found suitableand is not licensed, qualified or found suitable by such gaming authoritywithin the applicable time period, the Peninsula Gaming Notes, DJW Notes, ormembership interests, as the case may be, would be subject to regulatoryredemption procedures.

**The Horse Racing Act and The Pari-Mutuel Act**

The Horse Racing Act has been in effect since 1968 andis the basis for the current statutory scheme regulating live and off-trackbetting for horse racing. The Horse Racing Act states, among other things, thatcertain policies of Louisiana with respect to horse racing are to:(i) encourage the development of the business of horse racing withpari-mutuel wagering on a high plane; (ii) encourage the development ofthe breeding and ownership of race horses; (iii) regulate the business ofhorse racing by licensed horse racing tracks in the state and to provide theorderly conduct of racing; (iv) provide financial assistance to encouragethe business of racing horses; and (iv) provide a program for theregulation, ownership, possession, licensing, keeping and inoculation ofhorses.

The Pari-Mutuel Act became effective on July 9,1997 and provides for numerous controls and supervision over the operation ofslot facilities and requires us to comply with complex and extensiverequirements. Failure to adhere to these statutes and regulations will resultin serious disciplinary action against us, including monetary fines andsuspension or revocation of our licenses.

The Pari-Mutuel Act allows only one facility in eachof St. Landry Parish, Bossier Parish, Calcasieu Parish and Orleans Parish to belicensed to operate slot machines at a live horse racing facility. OED ispresently the only “eligible facility” in St. Landry Parish under thePari-Mutuel Act. The Pari-Mutuel Act requires (among other things) that twoconditions be met prior to the opening and operation of a slot machine casinoat a live-racing venue. First, a parish-wide referendum must approve theoperation. In 1997, voters in St. Landry Parish voted to approve the slotmachine casino at the racino site. Secondly, the Pari-Mutuel Act requires thatan appropriate tax be levied on the slot machine operation. In 2000, an 18.5%license tax was levied upon taxable net slot machine proceeds. Therefore, webelieve that both of the conditions required by the Pari-Mutuel Act have beenmet with respect to the racino at our site in Opelousas within St. LandryParish.

The Pari-Mutuel Act also provides that the “designatedgaming space” in any eligible facility cannot exceed 15,000 square feet, thatthe licensee will not allow underage gaming and that notice of toll-free telephoneassistance for compulsive gamblers will be posted at the facility. OEDcurrently complies with these requirements.

The Pari-Mutuel Act requires that licensees supplementhorse racing purses and pay certain other fees from slot machine proceeds. ThePari-Mutuel Act also levies taxes on the net slot machine proceeds. Licenseesmust pay 15% of gross slot machine proceeds to supplement purses at theirfacilities, pay 2% to the Louisiana Thoroughbred Breeders Association and alsopay 1% to the Louisiana Quarter Horse Breeders Association. In addition tothese payments, we will pay 18.5% of the net slot machine proceeds (net of thepayments described above) as state taxes and 4% as local taxes. The effectiverate of total taxes and fees is therefore approximately 36.5% of our adjustedgross slot revenue. Additionally, we also pay $0.25 for each patron who attendsa live race at our horse racetrack, enters the racino during non-racing season,from the hours of noon to midnight, Thursday through Monday, or enters any oneof our OTBs.

To remain an “eligible facility” under the Pari-MutuelAct, each year we must, among other things, have a minimum of 80 live racingdays in a consecutive 20-week period.

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**The**Louisiana State Gaming Control Board

In 1996, Louisiana created the Louisiana GamingControl Board, which was granted all of the regulatory authority, control andjurisdiction to license and monitor gaming facilities in Louisiana, includingour racino. To receive a gaming license an applicant and its management mustapply to the Louisiana Gaming Control Board and be investigated by theLouisiana State Police prior to licensing. The Louisiana Gaming Control Boardand Louisiana State Police must determine that the applicant is suitable toconduct the gaming operations, including that the applicant (and its owners,officers, directors and key employees) is of good character, honesty andintegrity, that its prior activities, reputation and associations pose nothreat to the public interest or to the effective regulation of the industryand that the applicant is capable of conducting the operation of the slotmachine facility. The Louisiana Gaming Control Board must also determine thatthe applicant has adequate financing from a source suitable and acceptable tothe Louisiana Gaming Control Board.

The applicant for a gaming license, its directors,officers, key personnel, partners, and persons holding a 5% or greater equityor economic interest in the applicant will be required to be found suitable bythe Louisiana Gaming Control Board. To receive a license the applicant mustfile an extensive application with the Louisiana Gaming Control Board,disclosing personal, financial, criminal, business and other information. Theapplicant is required to pay all costs of investigation. An application for afinding of suitability of a person may be denied for any cause deemedreasonable by the Louisiana Gaming Control Board. Any other person who is foundto have a material relationship to or a material involvement with a gaming companyalso may be required to be investigated in order to be found suitable or belicensed as a business associate of an applicant. Key employees, controllingpersons or others who exercise significant influence upon the management oraffairs of a gaming company may be deemed to have such a relationship orinvolvement.

If the Louisiana Gaming Control Board were to find adirector, officer or key employee of an applicant unsuitable for licensingpurposes or unsuitable to continue having a relationship with an applicant, theapplicant would have to dismiss and sever all relationships with such person.The applicant would have similar obligations with regard to any person whorefuses to file appropriate applications. Each gaming employee must obtain agaming employee permit which may be revoked upon the occurrence of certainspecified events.

An applicant must also demonstrate that the proposedgaming operation has adequate financial resources generated from suitablesources and adequate procedures to comply with the operating controls andrequirements imposed by the laws and regulations in the State of Louisiana.Additionally, the applicant must submit plans and specifications of the gamingpremises specifying the layout and design of the gaming space. Proof of taxcompliance, both state and federal, is also required. This submission isfollowed by a thorough investigation by the regulatory authorities of theapplicant, its business probity, the premises and other matters. An applicationfor any gaming license, approval or finding of suitability may be denied forany cause that the regulatory authorities deem reasonable.

We received our gaming license to operate slotmachines at our racino from the Louisiana Gaming Control Board onJanuary 21, 2003. Our license has a term of five years and is renewablefor succeeding five year periods upon application for such renewal. TheLouisiana Gaming Control Board retains absolute discretion over the right torenew our license upon the termination of its initial term.

OED’s gaming license authorizes the use of 15,000square feet of designated gaming space. OED submitted for approval its currentlayout for the casino, which incorporates 1,627 slot machines. OED’s layout wasapproved based on the type of machines, which were all upright machines. ShouldOED change the manufacturer, type and/or design of its slot machines, it mustonce again seek and obtain approval of both the Louisiana State Police and gobefore the Louisiana Gaming Control Board to obtain approval for the new machines.Once any new machines are installed, they must be inspected by regulators andtested prior to the approval of their operation. The moving of the machineswithin the approved gaming area also requires the approval of the LouisianaState Police with oversight of the Louisiana Gaming Control Board.

To maintain our gaming license, each year we mustremain an “eligible facility” under the Pari-Mutuel Act. This means that wemust, among other things, have a minimum of 80 live racing days in aconsecutive 20-week period each year of live horse race meetings at the newhorse racetrack and must be a licensed racing association.

Although we have obtained our license to conduct slotmachine operations, we continue to be subject to ongoing monitoring andcompliance requirements by the Louisiana Gaming Control Board and the LouisianaState Police. We have obtained from the Louisiana Gaming Control Board a videodraw poker establishment license and owner device license. The video draw pokerestablishment license allows us to operate video draw poker devices at ourapproved OTB locations but not the racino, and the owner device license allowsus to own those machines. Regulations require us to comply with rigorousaccounting and operating procedures, including the submission of detailedfinancial and operating reports. Our accounting records must include accurate,complete and permanent records of all transactions pertaining to revenue.Detailed ownership records must be kept on site available for inspection. Allrecords must be retained for a period of five years. Audited financialstatements are required to be submitted to the Louisiana State Police. Internalcontrols have been approved and in place beginning the first day of operation.These controls include handling of cash, tips and gratuities, slot operations,and count room procedures and management information systems. Each licensedfacility is required by the Louisiana Gaming Control Board to maintain cash orcash equivalent amounts on site sufficient to protect patrons against 

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defaults in gaming debts owed by the licensee. Inaddition, licensees are subject to currency transaction reporting regulations.

We must also strictly comply with mandated operatingprocedures and supply detailed reports disclosing such compliance. Regulationof a casino’s methods of operations is extensive and will include substantiallyall aspects of our casino operation. Operating procedures that are subject toregulation include slot machine maintenance and operation, cash management andcash procedures, cage procedures, drop procedures, regulation of weapons in thecasino, parking, access to the premises and records by regulators, gamingcredit and advertising, surveillance and security standards, safeguards againstunderage gambling, compulsive gambling programs, physical layout andprogressive jackpots.

The Louisiana Gaming Control Board retains the powerto suspend, revoke, condition, limit or restrict our license to conduct slotmachine operations as a sanction for violating licensing terms or for any causethey deem reasonable. In addition, monetary fines for violations may be leviedagainst us, and our gaming operation revenues may be forfeited to the stateunder certain circumstances. Initial enforcement actions against a licensee arebrought by the Louisiana State Police and are heard before an administrativelaw judge to whom the Louisiana Gaming Control Board has delegated decisionmaking power. Either party may appeal the ruling of the administrative lawjudge before the full Louisiana Gaming Control Board. Either party may furtherappeal the ruling of the Louisiana Gaming Control Board in state court. Thelaws, regulations and procedures pertaining to gaming are subject to theinterpretation of the regulatory authorities and may be amended. Any changes insuch laws or regulations, or their current interpretations, could have amaterial adverse effect on our business, financial condition, results ofoperations and ability to meet our payment obligations under the Peninsula GamingNotes and our other indebtedness.

The Louisiana Gaming Control Board has broadregulatory power over securities issuances and incurrence of indebtedness bygaming facilities. Substantially all loans, leases, private sales ofsecurities, extensions of credit, refinancings and similar financingtransactions entered into by a licensee must be approved by the LouisianaGaming Control Board. Pursuant to a letter dated January 31, 2003, theLouisiana Gaming Control Board exempted the offering of the Peninsula GamingNotes (as defined herein) from any requirement for prior approval by theLouisiana Gaming Control Board. However, at any time, any holder of thePeninsula Gaming Notes may be called before the Louisiana Gaming Control Boardto undergo a suitability investigation in the event the Louisiana GamingControl Board determines that such holder exercises a material influence overus or our operations.

At any time the Louisiana Gaming Control Board mayinvestigate and require the finding of suitability of any shareholder orbeneficial shareholder (and if the shareholder is a corporate or partnershipentity, then the shareholders or partners of the entity), officer, partner,member, manager or director of a licensee if the Louisiana Gaming Control Boardbelieves such holder exercises a material influence over the licensee.Furthermore, all holders of more than a 5% interest in the licensee, orproposed purchasers of more than a 5% interest are automatically investigatedand are required to submit to suitability requirements of the Louisiana GamingControl Board. Any sale or transfer of more than a 5% interest in any gaminglicensee is subject to the approval of the Louisiana Gaming Control Board.

If the Louisiana Gaming Control Board finds that anysecurity holder or proposed security holder, including a holder of our debtsecurities or the debt securities of our subsidiaries, is not qualifiedpursuant to existing laws, rules and regulations, and if as a result itdetermines that the licensee is no longer qualified to continue as a licensee,it can propose action necessary to protect the public interest, including thesuspension or revocation of a license or permit. It may also issue, underpenalty of revocation of license, a condition of disqualification naming theperson and declaring that such person may not (a) receive dividends orinterest on securities of the licensee, (b) exercise any right conferredby securities of the licensee, (c) receive remuneration or any othereconomic benefit from the licensee or (d) continue in an ownership oreconomic interest in the licensee or remain as a director, partner, officer, ormanager of the licensee. A security issued by a licensee must generallydisclose these restrictions.

**Louisiana**State Racing Commission

Pari-mutuel betting and the conducting of live horserace meets in Louisiana are strictly regulated by the Louisiana State RacingCommission, which was created pursuant to the Horse Racing Act. The LouisianaRacing Commission is comprised of ten members. In order to be approved toconduct a live race meet and to operate pari-mutuel wagering (includingoff-track betting), an applicant must show, among other things: (i) racingexperience; (ii) financial qualifications; (iii) moral and financialqualifications of applicant and applicant’s partners, officers and officials;(iv) the expected effect on the breeding and horse industry; and(v) the expected effect on the State’s economy.

In 2000, we received from the Louisiana State RacingCommission a license to conduct live race meets and to operate pari-mutuelwagering at our prior facility. The initial term of this license is ten yearssubject to renewal in 2010. On December 19, 2002, we received approval totransfer our operations under our license from Lafayette Parish to St. LandryParish upon completion of our new horse racetrack. As a condition to theapproval of our racing license, we are required to offer pari-mutuel wageringin the defined casino gaming space at the time we begin conducting slot machinegaming. Our racino includes monitors and other equipment to facilitate live andsimulcast wagering within the casino area in compliance with this condition.

The Louisiana State Racing Commission promulgatesrules, regulations and conditions for the holding, conducting and operating ofall racetracks in the state. Failure to adhere to these regulations may resultin substantial fines or the suspension or revocation of our racing license. Arevocation or suspension of the racing license would, in turn, result in therevocation or suspension of our gaming license to conduct slot machineoperations. Any alteration in the regulation of these activities could have amaterial 

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adverse effect on our operations.

**Federal**Regulation of Slot Machines

We are required to make annual filings with the UnitedStates Attorney General in connection with the sale, distribution or operationof slot machines. We are currently in compliance with such filing requirements.

**Potential**Changes in Tax and Regulatory Requirements

In the past, federal and state legislators andofficials have proposed changes in tax law, or in the administration of thelaws, affecting the gaming industry. Regulatory commissions and statelegislatures sometimes consider limitations on the expansion of gaming injurisdictions where we operate and other changes in gaming laws andregulations. Proposals at the national level have included a federal gamingtax, an increase in the federal minimum wage rate and limitations on thefederal income tax deductibility of the cost of furnishing complimentarypromotional items to customers, as well as various measures which would requirewithholding on amounts won by customers or on negotiated discounts provided tocustomers on amounts owed to gaming companies. It is not possible to determinewith certainty the likelihood of possible changes in tax or other laws or inthe administration of the laws. The changes, if adopted, could have a materialadverse effect on our financial results.

**Liquor**Regulations

The sale of alcoholic beverages by us in Iowa issubject to the licensing, control and regulation by liquor agencies, whichinclude the City of Dubuque, City of Northwood and the Alcohol Beverage ControlDivision of the Iowa Department of Commerce. The applicable Iowa liquor lawsallow the sale of liquor during legal hours which are Monday through Saturdayfrom 6 a.m. to 2 a.m. the next day and Sunday from 8 a.m. to2 a.m. on Monday. Subject to few exceptions, all persons who have afinancial interest in us, by ownership, loan or otherwise, must be disclosed inan application filed with, and are subject to investigation by, Iowa’s liquoragencies. Persons who have a direct or indirect interest in any Iowa liquorlicense, other than hotel or restaurant liquor licenses, may be prohibited frompurchasing or holding our Peninsula Gaming or DJW Notes (as defined herein).All licenses are subject to annual renewal, are revocable and are nottransferable. The liquor agencies have the full power to limit, condition,suspend or revoke any license or to place a liquor licensee on probation withor without conditions. Any disciplinary action could, and revocation would,have a material adverse effect upon the operations of our business. Many of ourowners, officers and managers must be investigated by the liquor agencies inconnection with our liquor permits. Changes in licensed positions must beapproved by the liquor agencies.

The sale of alcoholic beverages by us in Louisiana issubject to the licensing, control and regulation by the State of Louisiana,Department of Revenue, Office of Alcohol and Tobacco Control, as well as thecities of Opelousas, New Iberia, and Eunice, and the parishes of West BatonRouge, Iberia, St. Landry and St. Martin. The applicable liquor laws in the city of Opelousas where the racino islocated allow the sale of liquor 24 hours a day, 7 days a week.

**United States**Coast Guard

The Diamond Jo was previously regulated by the UnitedStates Coast Guard, whose regulations affected boat design and stipulatedon-board facilities, equipment and personnel, including requirements that eachvessel be operated by a minimum complement of licensed personnel, in additionto restricting the number of persons who can be aboard the boat at any onetime. Our riverboat was required to hold a Certificate of Inspection (“COI”)and a Certificate of Documentation from the United States Coast Guard. Loss ofthe COI would have precluded our use of the Diamond Jo as an operatingriverboat. In addition, the riverboat was subject to United States Coast Guardregulations requiring periodic hull inspections.

Due to changes in Iowa law, we may operate a gamingvessel that is not required to cruise without a COI. We have received ourPermanently Moored Vessel (“PMV”) permit from the United States Army Corp ofEngineers and have given up our COI. On November 25, 2005, the United StatesCoast Guard approved our PMV status, which took effect on November 28, 2005.

Nowthat we have transitioned to PMV status, we are regulated by the IowaDepartment of Natural Resources (IDNR). The IDNR has regulatory oversight overmany of the issues previously controlled by the United States Coast Guard.

The St. Louis Marine Safety Office (“MSO”) willre-evaluate risks to the PMV every two years or sooner if there is, among otherfactors, a change of traffic or local conditions. In addition, St. Louis MSOpersonnel will also periodically visit the site to ensure that the vessel isbeing maintained in satisfactory condition. If during one of these periodicreviews, the vessel is found to be poorly maintained or to present anunreasonable risk to the safety and/or security of the public, the MSO mayreconsider the vessel’s PMV status. We believe that the Diamond Jo is currentlycompliant with MSO regulations required to maintain its PMV status.

**Other Regulations**

We and our subsidiaries are subject to federal, stateand local environmental and safety and health laws, regulations and ordinancesthat apply to non-gaming businesses generally, such as the Clean Air Act,Federal Water Pollution Control Act, Occupational Safety and Health Act,Resource Conservation Recovery Act, Oil Pollution Act of 1990 and ComprehensiveEnvironmental Response, Compensation and Liability Act, each as amended. Wehave not incurred, and do not expect to incur, material expenditures withrespect to these laws. There can be no assurances, however, that we will notincur material liability under

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these laws in thefuture.

**Seasonality** and Inflation

Our operations aresubject to seasonal fluctuations. Our Iowa operations are typically weaker fromNovember through February as a result of adverse weather conditions,and are typically stronger from March through October. Our Louisianaoperations are also subject to seasonal fluctuations. Our horse racingoperations are usually stronger during live racing season which generally runsfrom February through October. In general, our payroll and general and administrativeexpenses are affected by inflation. Although inflation has not had a materialeffect on our business to date, we could experience more significant effects ofinflation in future periods.

**ITEM 1A.****                                          RISKFACTORS**

**Future Operating Performance**—**Our future operating performance could be adverselyaffected by disruptions and reduced patronage of our properties as a result ofeconomic and other business factors.**

Our future operating performance could be adverselyaffected by disruptions and reduced patronage of our properties as a result ofeconomic and other business factors. The impact of these factors will be moresignificant to us than it would be to a more diversified gaming company or to agaming company that does not depend on seasonal earnings from racing. Any orall of our properties could be completely or partially closed due to, amongother things, severe weather, casualty, mechanical failure, including thefailure of our slot machines, physical damage or extended or extraordinarymaintenance or inspection. Severe weather may also cause the closure ofhighways which provide access to our properties and could reduce the number ofpeople visiting these facilities. In addition, to maintain our gaming licensefor our racino, we must have a minimum of 80 live racing days in a consecutive20-week period each year of live horse race meetings at the new racetrack, andpoor weather conditions may make it difficult for us to comply with thisrequirement. Although we maintain insurance policies, insurance proceeds maynot adequately compensate us for all economic consequences of any such event.

We are also vulnerable to any adverse changes ingeneral political, financial and economic conditions (including as a result ofinternational conflict) and any negative economic, competitive, demographic orother conditions affecting the States of Iowa and Louisiana, the cities ofDubuque and Northwood, Iowa, and Opelousas, Louisiana and the surrounding areasfrom which we expect to attract patrons. If the economy of any of these areassuffers a downturn or if any of these areas’ larger employers lay off workers,we may be adversely affected by the decline in disposable income of affectedconsumers. Any of the foregoing factors could limit or result in a decrease inthe number of patrons at any of our properties or a decrease in the amount thatpatrons are willing to wager.

**Debt — Our substantial indebtedness couldadversely affect our business, financial condition and results of operationsand prevent us from fulfilling our obligations under our senior creditfacilities, the Peninsula Gaming Notes and DJW Notes.**

As of December 31, 2006,we had approximately $368.6 million of total debt outstanding. Our significantindebtedness could have important consequences such as:

·                  limiting our ability to obtain additional financing tofund our working capital requirements, capital expenditures, debt service,costs to complete the various development projects at DJL, DJW, and OED andgeneral corporate or other obligations;

·                  limiting our ability to use operating cash flow inother areas of our business because we must dedicate a significant portion ofthese funds to make principal and interest payments on our indebtedness;  

·                  increasing our interest expense if there is a rise ininterest rates, because a portion of our borrowings are under our senior creditfacilities and, as such, we will have interest rate periods with short-termdurations (typically 30 to 180 days) that require ongoing refunding at the thencurrent rates of interest;  

·                  causing our failure to comply with the financial andrestrictive covenants contained in the indentures that govern the PeninsulaGaming Notes and the DJW Notes and our senior credit facilities, which couldcause a default under those instruments and which, if not cured or waived,could have a material adverse effect on us; 

·                  placing us at a competitive disadvantage to ourcompetitors who may not be as highly leveraged; and  

·                  increasing our vulnerability to and limiting ourability to react to changing market conditions, changes in our industry andeconomic downturns.  

Any of the factors listed above could have a materialadverse effect on our business, financial condition and results ofoperations.  In addition, we have thecapacity to issue additional indebtedness, including the ability to incuradditional indebtedness under the revolving portion of our senior creditfacilities, subject to the limitations imposed by the agreements covering ourindebtedness.

**Failure to Complete Construction Projects on Time and WithinBudget - If we fail to complete construction projects on time and withinbudget, it could have a material adverse effect on our business.**

We are currently planning:(i) to construct a new gaming facility at DJL and to work with the City ofDubuque to construct a nearby parking garage and water treatment facility, (ii)to expand our casino facility at DJW, and (iii) to expand our Henderson OTB atOED. In addition, we are currently evaluating our options regarding theproposed development and construction of a hotel and event center contiguous atOED.

There can be no assurancethat we will complete these construction projects on time or within  budget. Construction projects are subject to development and construction risks,any of which could cause unanticipated costs increases and delays.  Such risks include shortages of materials orskilled labor, unforeseen engineering, environmental or geological problems,work stoppages, weather interference and unanticipated cost increases. Most ofthese factors are beyond our control.  Significantbudget overruns or delays with respect to expansion and development projectscould adversely affect our results of operations. In addition, difficulties ordelays in obtaining any of the requisite licenses, permits or authorizationsfrom regulatory authorities can increase the cost or delay the completion of anexpansion or development. Unexpected changes or concession  required bylocal, state or federal regulatory authorities could involve significant additionalcosts and delay the scheduled opening of our expanded casino.

While we believe that thebudgets for our various development projects are reasonable, these developmentand other costs are estimates and actual costs may be higher than expected.  For example, a delay in the commencement ofconstruction beyond the scheduled commencement date may increase the overallbudget for any of the projects and under certain circumstances we may beresponsible for the increased costs.  Inparticular, our guaranteed maximum price construction contract with HenkelConstruction Company related to our expansion project at DJW coversapproximately $13 million of the construction costs for such project. We areresponsible for the costs with respect to the remaining approximately $20million of budgeted components that are not part of the guaranteed maximumprice contract.  While we may in thefuture enter into other agreements that may seek to limit our exposure to increasesin costs related to each of our development projects, the actual costs forthese items may exceed budgeted costs.

If cash flow from operationsor the amounts we have raised through financing are not sufficient, or if actualconstruction costs exceed expected amounts, we would be required to seek additional financing, modify ourconstruction plans or use cash from operations that would otherwise be used forother purposes (including servicing our indebtedness).  There can be no assurances that thesealternatives would be available or that they would not have a material adverseeffect on our business, financial condition and results of operations and ourability to meet our payment obligations under the notes and our other indebtedness.

**Restrictive Covenants - The indenture governing the PeninsulaGaming Notes and DJW Notes and our senior secured credit facilities containcovenants that significantly restrict our operations.**

The indenture governing the Peninsula Gaming Notes andDJW Notes and the agreements governing our senior secured credit facilitiescontain, and any other future debt agreements may contain, numerous covenantsimposing financial and operating

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restrictionson our business. These restrictions may affect our ability to operate ourbusiness, may limit our ability to take advantage of potential businessopportunities as they arise and may adversely affect the conduct of our currentbusiness. These covenants place restrictions on our ability and the ability of oursubsidiaries to, among other things:

·                  paydividends or make other distributions or restricted payments to PGP;

·                  redeemstock;

·                  incurindebtedness or issue preferred membership interests;

·                  makecertain investments;

·                  createliens;

·                  agreeto payment restrictions affecting the subsidiary guarantors;

·                  consolidateor merge;

·                  sellor otherwise transfer or dispose of assets, including equity interests of ourrestricted subsidiaries;

·                  enterinto transactions with our affiliates;

·                  designateour subsidiaries as unrestricted subsidiaries; and

·                  usethe proceeds of permitted sales of our assets.

Our PGL Credit Facility limits DJL’s and OED’s abilityto pay dividends, make loans and distributions to PGL and DJW and also requiresDJL and OED to meet, among other things, certain minimum EBITDA and maximumcapital expenditure requirements. Our indenture governing the DJW Notes alsolimits DJW’s ability to make loans and distributions to PGL. Due to theselimitations on the payment of dividends, making loans and other distributions,PGL may not, on its own, be able to satisfy its obligations under the PeninsulaGaming Notes, which obligations must therefore be satisfied by DJL, co-issuerof the Peninsula Gaming Notes, and OED, guarantor of the Peninsula Gaming Notes.In addition, due to the limitations discussed above, DJW may not be able toreceive dividends or distributions from PGL or any of its restrictedsubsidiaries to help satisfy its obligations under the DJW Notes or DJW CreditFacility.  Non-compliance with thefinancial ratios and tests contained in our debt agreements may adverselyaffect our ability to incur more debt, adequately finance our operations orcapital needs in the future or to pursue attractive business opportunities thatmay arise in the future. Our ability to meet these ratios and tests and tocomply with other provisions governing our indebtedness may be adverselyaffected by our operations and by changes in economic or business conditions orother events beyond our control. Our failure to comply with our debt-relatedobligations could result in an event of default under the notes and our otherindebtedness.

**History of Net Losses**—**We have had net losses in recent years and mayexperience net losses in the future.**

We had net losses in 2005 and 2004 of$3.4 million and $45.1 million, respectively. Of the $45.1 millionnet loss in 2004, $37.6 million related to loss on early retirement ofdebt. As we continue to execute our business strategy, we may experience netlosses in the future, which could have an adverse effect on our business,prospects, financial condition, and results of operations.

**Licensing**—**If we fail to meet the minimum live racing day requirements, our gaminglicense with respect to the racino will be canceled and all slot machine gamingat the racino must cease.**

Louisiana gaming regulations and our gaming licenserequire that we, among other things, have a minimum of 80 live racing days in aconsecutive 20-week period each year of live horse race meetings at the horseracetrack. Live racing days typically vary in number from year to year and arebased on a number of factors, many of which are beyond our control, includingthe number of suitable race horses and the occurrence of severe weather. If wefail to have the minimum number of live racing days, our gaming license withrespect to the racino may be canceled, and the casino will be required to ceaseoperations. Any cessation of our operation would have a material adverse affecton our business, prospects, financial condition, and results of operations.

**Reauthorization of Gaming in Iowa**—**The Dubuque County and Worth County electorate mustvote in 2010 and every eight years thereafter whether to continue to allowriverboat gaming in Dubuque County and Worth County, Iowa. If riverboat gamingis discontinued, it is unlikely that DJL or DJW will be able to conduct itsgaming operations.**

Under Iowa law, a licenseto conduct gaming may be issued in a county only if the county electorate hasapproved the gaming, and a reauthorization referendum requiring majorityapproval must be held every eight years. On November 5, 2002, theelectorate of Dubuque County, Iowa, which includes the City of Dubuque,approved gaming by approximately 79% of the votes cast. On June 24, 2003, WorthCounty, Iowa approved gaming in the county by approximately 75% of the votescast. If any reauthorization referendum is defeated in either Dubuque or WorthCounty, it is unlikely that DJL or DJW, respectively, would be able to conductgaming operations, and, in that case, we may not be able to continue to serviceour indebtedness, including the Peninsula Gaming and 

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DJW Notes.

**Liquor Regulation**—**Revocation of any of our liquor licenses, which aresubject to extensive regulation, could have a material adverse effect on ourgaming operations.**

The sale of alcoholic beverages at our properties issubject to licensing, control and regulation by state and local agencies inIowa and Louisiana. Subject to limited exceptions, all persons who have afinancial interest in DJL, OED, PGL, or DJW by ownership, loan or otherwise,must be disclosed in an application filed with, and are subject to investigationby, Iowa and Louisiana liquor agencies. All liquor licenses are subject toannual renewal, are revocable and are not transferable. The liquor agencieshave broad powers to limit, condition, suspend or revoke any liquor license.Any disciplinary action with respect to any of our liquor licenses could, andany failure to renew or revocation of our liquor licenses would, have amaterial adverse effect on our business.

**Competition**—**We face intense competition in our gaming markets and increasedcompetition may have a material adverse effect on our business, financialcondition and results of operations.**

The gaming industry is intensely competitive. If ourexisting competitors expand and/or upgrade their facilities or operate moreefficiently than we do, or new gaming firms enter the markets in which weoperate, we could lose market share, our gaming markets could become saturatedand new opportunities for expanding our business could become limited. As aresult, increased competition could have a material adverse effect on ourbusiness, financial condition and results of operations.

In Dubuque, Iowa,we face competition primarily from the DGP, which possesses several competitivestrengths. The DGP offers some amenities that Diamond Jo does not have,including live and simulcast greyhound racing, and, on a limited basis,simulcast horse racing. As a not-for-profit organization, the DGP has developedstrong relationships with the local community and city officials bydistributing a percentage of its cash-flow, through contributions, to the Cityof Dubuque and local charities. In May 2005, DGP expanded its facility toinclude 1,000 slot machines. In February 2006, DGP replaced 82 slot machineswith video poker and in March 2006 added 16 table games and 4 poker tables. Inaddition, a group of private investors opened a hotel adjacent to the DGP inOctober 2005. The DGP is owned and operated by the Dubuque Racing Association,or DRA. Besides the DGP, we also currently face limited competition from othergaming facilities located approximately 60 to 120 miles from our operations.The Iowa Racing and Gaming Commission recently rescinded its rule limitingriverboat gaming licenses in Iowa and in May 2005 granted 4 new licenses(including ours in Worth County). The closest of these licenses to the DiamondJo is one located in Waterloo, Iowa, approximately 70 miles to the west ofDubuque, which is expected to open in spring 2007.

Our primary competition at the new Diamond Jo Worthcasino is from the Native American gaming operations in Minnesota, the closestbeing approximately 110 miles from the Diamond Jo Worth casino. In addition, anew casino in Emmetsburg, Iowa, located approximately 90 miles from Diamond JoWorth casino, commenced operations in June 2006.  As noted above, a new casino located inWaterloo, Iowa is scheduled to open in the spring of 2007 and is locatedapproximately 120 miles from our casino. Our competitors may offer amenities that the Diamond Jo Worth casino willnot have.

In Louisiana, the nearest competitor to EvangelineDowns is a Native American casino located approximately 50 miles to the southof Lafayette, including several miles off the highway in Marksville, Louisiana.We also face competition from several other casinos and pari-mutuel gaming facilitieslocated 50 to 100 miles from our racino, including Native American casinos inKinder, Louisiana, and riverboat casinos in Baton Rouge and Lake Charles,Louisiana. The nearest horse racetrack to our racino that is allowed to havegaming operations is located in Vinton, Louisiana. We also face competitionfrom truck stop video poker parlors and OTBs in the areas surrounding Lafayetteand Opelousas, Louisiana.

We could also face additional competition if Louisianaor any of the states bordering Iowa or Louisiana adopts laws authorizing new oradditional gaming.

We also compete to some extent with other forms ofgaming on both a local and national level, including state-sponsored lotteries,charitable gaming, on- and off-track wagering, and other forms ofentertainment, including motion pictures, sporting events and otherrecreational activities. It is possible that these secondary competitors couldreduce the number of visitors to our facilities or the amount they are willingto wager, which could have a material adverse effect on our ability to generaterevenue or maintain our profitability.

Increased competition may require us to makesubstantial capital expenditures to maintain and enhance the competitivepositions of our properties, including updating slot machines to reflectchanging technology, refurbishing rooms and public service areas periodically,replacing obsolete equipment on an ongoing basis and making other expendituresto increase the attractiveness and add to the appeal of our facilities. Becausewe are highly leveraged, after satisfying our obligations under our outstandingindebtedness, there can be no assurance that we will have sufficient funds toundertake these expenditures or that we will be able to obtain sufficientfinancing to fund such expenditures. If we are unable to make suchexpenditures, our competitive position could be materially adversely affected.

**Governmental Regulation**—**Extensive gaming and racing-related regulationcontinuously impacts our operations and changes in such laws may have amaterial adverse effect on our operations by, among other things, prohibitingor limiting gaming in the jurisdictions in which we operate.**

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The ownership, management and operation of our gamingfacilities are subject to extensive laws, regulations and ordinances which areadministered by the Iowa Racing and Gaming Commission, the Louisiana StateGaming Control Board, the Louisiana State Racing Commission and various otherfederal, state and local government entities and agencies. We are subject toregulations that apply specifically to the gaming industry and horse racetracksand casinos, in addition to regulations applicable to businesses generally. Ifcurrent laws, regulations or interpretations thereof are modified, or ifadditional laws or regulations are adopted, it could have a material adverseeffect on our business.

Legislative or administrative changes in applicablelegal requirements, including legislation to prohibit casino gaming, have beenproposed in the past. For example, in 1996, the State of Louisiana adopted astatute in connection with which votes were held locally where gamingoperations were conducted and which, had the continuation of gaming beenrejected by the voters, might have resulted in the termination of operations atthe end of their current license terms. During the 1996 local gamingreferendums, Lafayette Parish voted to disallow gaming in the Parish, whereasSt. Landry Parish, the site of our racino, voted in favor of gaming. Allparishes where riverboat gaming operations are currently conducted voted tocontinue riverboat gaming, but there can be no guarantee that similar referendamight not produce unfavorable results in the future. Proposals to amend orsupplement the Louisiana Riverboat Economic Development and Gaming Control Actand the Pari-Mutuel Act also are frequently introduced in the Louisiana Statelegislature. In the 2001 session, a representative from Orleans Parishintroduced a proposal to repeal the authority of horse racetracks in CalcasieuParish (i.e., site of Delta Downs) and St. Landry Parish (i.e., site of ourracino) to conduct slot machine gaming at such horse racetracks and to repealthe special taxing districts created for such purposes. If adopted, thisproposal would have effectively prohibited us from operating the casino portionof our racino. In addition, the Louisiana legislature, from time to time,considers proposals to repeal the Pari-Mutuel Act.

Similarly, in Iowa, the county electorate mustreauthorize gaming every eight years. See “Reauthorization of Gaming in Iowa.”

To date, we have obtained all governmental licenses,findings of suitability, registrations, permits and approvals necessary for theoperation of our properties owned by DJL, OED and DJW. However, we can give noassurance that any additional licenses, permits and approvals that may berequired will be given or that existing ones will be renewed or will not berevoked. Renewal is subject to, among other things, continued satisfaction ofsuitability requirements. Any failure to renew or maintain our licenses or toreceive new licenses when necessary would have a material adverse effect on us.

The legislation permitting riverboat gaming in Iowaauthorizes the granting of licenses to “qualified sponsoring organizations.”Such “qualified sponsoring organizations” may operate the riverboat itself,subject to satisfying necessary licensing requirements, or it may enter into anagreement with a boat operator to operate the excursion gambling boat on itsbehalf. An operator must be approved and licensed by the Iowa Racing and GamingCommission. The DRA, a not-for-profit corporation organized for the purpose ofoperating a pari-mutuel greyhound racing facility in Dubuque, Iowa, firstreceived a riverboat gaming license in 1990 and, pursuant to the Amended DRAOperating Agreement, has served as the “qualified sponsoring organization” ofthe Diamond Jo since March 18, 1993. The term of the Amended DRA OperatingAgreement expires on December 31, 2018. WCDA, pursuant to the WCDA OperatingAgreement, will serve as the “qualified sponsoring organization” of Diamond JoWorth. The term of the WCDA Operating Agreement expires on March 31, 2015 whichis subject to automatic three year renewal periods. If the Amended DRAOperating Agreement or WCDA Operating Agreement were to terminate, or if theDRA or WCDA were to otherwise discontinue acting as our “qualified sponsoringorganization” with respect to our operation of the Diamond Jo and Diamond JoWorth, respectively, and we were unable to obtain a license from the IowaRacing and Gaming Commission for an alternative “qualified sponsoringorganization” to act on our behalf, we would no longer be able to continue ourDiamond Jo or Diamond Jo Worth operations, which would materially and adverselyaffect our business, results of operations and cash flows.

**Environmental Matters**—**We are subject to environmental laws and potentialexposure to environmental liabilities. This may affect our ability to develop,sell or rent our property or to borrow money where such property is required tobe used as collateral.**

We are subject to various federal, state and localenvironmental laws, ordinances and regulations, including those governingdischarges to air and water, the generation, handling, management and disposalof petroleum products or hazardous substances or wastes, and the health andsafety of our employees. Permits may be required for our operations and thesepermits are subject to renewal, modification and, in some cases, revocation. Inaddition, under environmental laws, ordinances or regulations, a current orprevious owner or operator of property may be liable for the costs of removalor remediation of some kinds of hazardous substances or petroleum products on,under, or in its property, without regard to whether the owner or operator knewof, or caused, the presence of the contaminants, and regardless of whether thepractices that resulted in the contamination were legal at the time theyoccurred. In addition, as part of our business in Worth County, Iowa, weoperate a gas station, which includes a number of underground storage tankscontaining petroleum products. The presence of, or failure to remediateproperly, the substances may adversely affect the ability to sell or rent theproperty or to borrow funds using the property as collateral. Additionally, theowner of a site may be subject to claims by third parties based on damages andcosts resulting from environmental contamination emanating from a site.

We have reviewed environmental assessments, in somecases including soil and groundwater testing, relating to our currently ownedand leased properties in Dubuque, Iowa, and other properties we may lease fromthe City of Dubuque or other parties. As a 

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result,we have become aware that there is contamination present on some of theseproperties apparently due to past industrial activities. With respect toparcels we currently own or lease, we believe, based on the types and amount ofcontamination identified, the anticipated uses of the properties and thepotential that the contamination, in some cases, may have migrated onto ourproperties from nearby properties, that any cost to clean up these propertieswill not result in a material adverse effect on our earnings. We have alsoreviewed environmental assessments and are not aware of any environmentalliabilities related to our properties at OED and DJW.

We do not anticipate any material adverse effect onour earnings or competitive position relating to environmental matters, but itis possible that future developments could lead to material costs ofenvironmental compliance for us and that these costs could have a materialadverse effect on our business and financial condition.

**Taxation**—**Anincrease in the taxes and fees that we pay could have a material adverse effecton us, and might reduce the cash flow available to service our indebtedness.**

We are subject tosignificant taxes and fees relating to our gaming operations, which are subjectto increase at any time. Currently, in Iowa, we are taxed at an effective rateof approximately 21% of our adjusted gross receipts by the State of Iowa, wepay the City of Dubuque a fee equal to $0.50 per patron and we pay a fee equalto 5.76% of adjusted gross receipts to the Worth County Development Authority.In addition, all Iowa riverboats share equally in costs of the Iowa Racing andGaming Commission and related entities to administer gaming in Iowa, which iscurrently approximately $0.7 million per year per riverboat. Currently, inLouisiana, we are taxed at an effective rate of approximately 36.5% of ouradjusted gross slot revenue and pay to the Louisiana State Racing Commission afee of $0.25 for each patron who enters the racino on live race days from thehours of 6:00 pm to midnight, enters the racino during non-racing season fromthe hours of noon to midnight Thursday through Monday, or enters any one of ourOTBs. In addition, there have been proposals in the past to tax all gamingestablishments, including riverboat casinos, at the federal level. Any materialincrease in taxes or fees, or in costs of the Iowa Racing and Gaming Commissionand related entities, would have a material adverse affect on our business.

**Difficulty in Attracting and Retaining Qualified Employees**—**If we are unable to attract and retain a sufficientnumber of qualified employees or are required to substantially increase ourlabor costs, our business, results of operations and financial condition willbe materially adversely affected.**

The operation of our business requires qualifiedexecutives, managers and skilled employees with gaming industry experience andqualifications to obtain the requisite licenses. We may have difficultyattracting and retaining a sufficient number of qualified employees and may berequired to pay higher levels of compensation than we have estimated in orderto do so. In preparation for the opening of the expanded casino and amenitiesat DJW, we have begun the process of hiring an additional 60 full timeequivalent employees.  If we are unableto attract and retain a sufficient number of qualified employees for ourcurrent operations or related to the DJW expansion or are required tosubstantially increase our labor costs, we may not be able to operate ourbusiness in a cost effective manner or at all.

We are dependent upon the available labor pool ofunskilled and semi-skilled employees. We are also subject to the Fair LaborStandards Act, which governs matters such as minimum wage, overtime and otherworking conditions. In February 2007, the State of Iowa passed a billincreasing the minimum wage for Iowa workers. Effective April 1, 2007 the minimum wage for the State of Iowa willincrease from $5.15 per hour to $6.20 per hour and then to $7.25 effectiveJanuary 1, 2008.  In addition, a bill iscurrently pending at the federal level that would increase in federal minimumwage rate.  While DJL and DJW currentlypay all of their employees more than the current and proposed new minimum wagelevels, these changes in minimum wage laws could increase our payroll costs inthe future and have an adverse effect on our liquidity.  Current Iowa law effectively requires that wepay Iowa employees 25% more than the federally mandated minimum wage rates.Further changes in applicable state or federal laws and regulations,particularly those governing minimum wages, could increase labor costs, whichcould have a material adverse effect on the cash flow available to service ourindebtedness.

**Energy Costs — Our operations are affected byincreases in energy costs.**

We are a large consumer of electricity and otherenergy in connection with the operation of our gaming properties. Accordingly,increases in energy costs may have a negative impact on our operating results.Additionally, higher energy and gasoline prices which affect our customers mayresult in reduced visitation to our casinos and racino and a reduction in ourrevenues.

**Interested Party Matters**—**All of the Company’s voting equity interests areindirectly beneficially owned in the aggregate by managers and executive officersof PGP and such ownership may give rise to conflicts of interest.**

All of the Company’s voting equity interests areindirectly beneficially owned or controlled in the aggregate byMr. Stevens, Mr. Luzich and Mr. Oliver. Specifically, M. Brent Stevens,our Chief Executive Officer, is also the Chairman of the Board of Managers ofPGP and the Chief Executive Officer of PGP, DJL, OED, PGL and DJW.Mr. Stevens indirectly beneficially owns or controls (through hisbeneficial ownership or control of voting equity interests in PGP)approximately 66.2% of the Company’s voting equity interests. Michael Luzich,our President and Secretary, is also a Manager of PGP and the President andSecretary of PGP, PGL, DJL, OED and DJW. Mr. Luzich indirectly beneficiallyowns (through his ownership of voting equity interests in PGP) approximately 32.3%of the Company’s voting equity interests. Terrance W. Oliver, a Manager of PGP,indirectly beneficially owns (through his direct ownership of interests in TheOliver Family Trust) approximately 1.5% of the Company’s voting equityinterests. Andrew Whittaker, a Manager of PGP, indirectly beneficially owns(through his indirect ownership of voting equity interests in PGP)approximately 4.2% (which is included in the calculation of the 66.2% owned orcontrolled by Mr. Stevens) of the Company’s voting equity interests. Inaddition, Mr. Stevens has the right to designate three of the five membersof PGP’s board of managers, including one of the two independent managers, andMr. Luzich has the right to designate two of the five members of PGP’sboard of managers, including one of the two independent managers, for so longas Mr. Stevens and Mr. Luzich, respectively, beneficially hold atleast 5% of the voting equity 

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interestsof PGP.

Because of their controlling interests, theseindividuals have the power to elect a majority of our managers, appoint newmanagement and approve any action requiring the approval of holders of ourequity interests, including adopting amendments to our certificate offormation, approving mergers or sales of substantially all of our assets orchanges to our capital structure.

PGP is primarily responsible for managing DJL, OED andDJW operations as well as supervising all development projects. Neither PGP norany of its affiliates is restricted from managing other gaming operations,including new gaming ventures or facilities that may compete with ours, exceptthat certain restrictions under the Amended DRA Operating Agreement willterminate if we or any of our affiliates operate another facility in DubuqueCounty or the adjoining counties of Illinois or Wisconsin. If PGP or any of itsaffiliates decides to manage other gaming operations, such activities couldrequire a significant amount of attention from PGP’s officers and managers andrequire them to devote less time to managing our operations. While we believethat any new ventures will not detract from PGP’s ability to manage and operateour business, there can be no assurance that such ventures would not have amaterial adverse effect on us or on PGP.

**ITEM 1B.****                                          UNRESOLVEDSTAFF COMMENTS**

Notapplicable

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

DJL owns the docksidepavilion, adjacent to the Diamond Jo casino, consisting of approximately 36,000square feet, a surface parking lot within close proximity to the docksidepavilion, and a walkway connecting the dockside pavilion to a ramp, leading towhere the Diamond Jo is moored.

We currently haveapproximately 1,200 parking spaces that are in close proximity to the DiamondJo located on properties that we own, lease or to which we are given access atno cost pursuant to a non-exclusive use agreement with a third party. Ourproperty lease currently requires us to pay $25,000 per year as rent throughJune 2009. Beginning in June 2009 through the remaining term of the lease weare required to pay $250,000 per year (increasing each year by cost of livingindex). If at any time DJL elects to move its operations to a barge facility,the lease payments increase to $500,000 annually.  All rent payments associated with this leaseare reimbursed to us by the DRA as outlined under the Amended DRA OperatingAgreement entered into in June 2005. In 2005, the terms of the DRA OperatingAgreement and our lease with the City of Dubuque were extended throughDecember 31, 2018.

In addition, as noted inItem 1 above, DJL entered into the Historical Society Agreement with theHistorical Society for the purchase by DJL of 2.4 acres of real property inclose proximity to DJL’s current operations.

The OED racino sits on and is bounded by approximately649 acres of owned land located in Opelousas, Louisiana that we purchased in2002 and 2003. We have constructed a 170,000 square foot building and a onemile dirt racetrack on this site. A portion of the purchase price for certainparcels of such land was financed by the seller of such parcels by OED issuinga $3,850,000 note payable to the seller. The note is payable in seven annualinstallments and bears interest at a rate of 8.75%. The note is collateralizedby a mortgage on the property. Simultaneously with the payment of each annualinstallment, the seller agreed to release from the mortgage one of sevenparcels of land into which the land was equally divided.  As of December 31, 2006, OED has paid threeof the seven annual installments.

In addition, OED owns the land, building andimprovements of the Port Allen OTB and leases the facilities that comprise theNew Iberia, Henderson and Eunice OTBs.

TheDJW casino, convenience store and current casino expansion project is locatedon 35 acres of owned land in Worth County, Iowa.  The current casino building is approximately60,000 square feet and upon completion of the expansion project will grow toapproximately 75,000 square feet.  Wecurrently have approximately 1,300 parking spaces that are in close proximityto Diamond Jo Worth located on properties that we own or lease.  DJW leases 10 acres of land north of thecasino that require DJW to pay $52,000 per year as rent through June 2016.  The property lease also allows for thepurchase of the leased land at the expiration of the lease for a total purchaseprice of $750,000.

Inaddition, DJW owns 354 acres of land approximately 10 miles northwest of thecasino in Emmons, Minnesota on which a member’s only 178 acre 9-hole golfcourse and 9-station sporting clay course and 176 acre hunting facility, knownas Pheasant Links, is located, together with a 4,500 square footclubhouse.  DJW also leases 80 acres ofadjacent land for $6,000 per year through September 2010 for use as additionalhunting land.

**ITEM 3.****                                                   LEGALPROCEEDINGS**

InOctober 2003, OED filed a Petition for Declaratory Judgment in St. LandryParish, Louisiana, naming as opposing parties the Secretary of the Departmentof Revenue and Taxation for the State of Louisiana (the “Department”), the St.Landry Parish School Board and the City of Opelousas. OED seeks a judgmentdeclaring that sales taxes are not due to the defendants on purchases made by 

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OED and its contractorsin connection with the construction and furnishing of the Evangeline DownsRacetrack and Casino, which was constructed in St. Landry Parish in 2003-2004.OED’s action is based on Louisiana statutory law which provides that racetracksare not required to pay taxes and fees other than those provided in the racingstatutes, and that taxes and fees provided in the racing statutes are in lieuof, among other things, all state and local sales taxes. The St. Landry ParishSchool Board and the City of Opelousas have questioned the application of theracing statutes to the construction and furnishing of the casino portion of thefacility, thereby leading to the filing of this action. The Department has nowtaken the same position.

OED filed a motionfor summary judgment, which was scheduled for hearing in July 2005. Thedefendants filed responses, generally arguing that the exemption under theracing statutes should not extend to the purchase of goods, materials andservices which were unrelated to horse racing. Prior to the hearing, it was discoveredby OED that OED’s contractor (and the contractor’s subcontractors) had paidsales taxes on many purchases related to the construction of the new racetrackand casino, and that OED, in its payments to the contractor, had reimbursed thecontractor for such sales taxes. In light of this discovery, the parties agreedto continue indefinitely the hearing on the motion for summary judgment so thatOED could prepare and file a refund claim for the taxes paid by OED’scontractor and the contractor’s subcontractors.

InNovember and December 2005, OED filed refund claims totaling $0.6million. OED has not recorded the refund claims due to uncertainty as to theoutcome of the matter. Neither the Department nor the St. Landry Parish SchoolBoard ruled on OED’s refund claims within one year of filing those claimsresulting in those claims being deemed denied under Louisiana law.  OED has formally appealed the denial of theserefund claims.  The Department has notyet responded to the appeal.  St. LandryParish has answered the appeal by generally denying OED’s right to recover thetaxes.

In October 2006,the Department notified OED that additional taxes andinterest totaling approximately $0.4 million were due for the periodJanuary 1, 2002 through December 31, 2004.  In November 2006, OEDformally protested the additional proposed tax assessment with the Department;the protest was denied by the Department. Accordingly, OED accrued and paid the additional taxes of approximately $0.4million, but, in accordance with Louisiana law, these taxes were paid underprotest.  In December 2006, and inaccordance with Louisiana law, OED filed suit in East Baton Rouge Parish,Louisiana against the Department for recovery of these taxes paid underprotest.  This litigation is in its earlystages.  The Department has answered thissuit by generally denying OED’s right to recover the taxes paid underprotest.  In addition, during 2006, the Company accrued an additional$1.1 million related to state sales taxes that the Company may be required topay for the years 2005 and 2006 and for local parish and city taxes for theyears 2002 through 2006.  Of the totalsales tax amount recorded, approximately $0.7 million and $0.4 million wasrecorded in general and administrative expense and interest expense,respectively, in the condensed consolidated statement of operations for 2006.The remaining balance, totaling approximately $0.4 million, was capitalized infixed assets.  OED has accrued management’s best estimate of all salestaxes that would be required to be paid for non-racetrack facilities andongoing operating purchases as of December 31, 2006.

InOctober 2005, OED filed a request to arbitrate certain claims against thegeneral contractor of its racino relating to improper construction of the horseracetrack at the racino. OED is pursuing a claim for damages of approximately$7.1 million against the general contractor to recoup its track reconstructioncosts and other related damages. The contractor has filed a counterclaim forunpaid billings. OED believes it is too early to predict the outcome of thearbitration and, accordingly, has not recorded any damage claim as anasset.  If the contractor obtains afavorable ruling in the arbitration, OED may be required to pay up to $1.6million in unpaid construction retainage and bonuses, which amount has beenaccrued on the Company’s consolidated balance sheet as of December 31, 2006.

Other than as describedabove, neither the Company nor its subsidiaries are parties to any pendinglegal proceedings other than litigation arising in the normal course ofbusiness. Management does not believe that adverse determinations in any or allsuch other litigation would have a material adverse effect on the Company’sfinancial condition, results of operations or cash flows.

 

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

 

None.

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

 

There is no establishedpublic trading market for any of PGL’s, DJL’s or PGC’s common equitysecurities.

As of March 31, 2007,PGP was the only holder of record of the common equity of PGL. In November 2005and May 2004, PGP repurchased 35,210 and 147,553 units of its convertiblepreferred membership interests from an unrelated third party for approximately$1.8 million and $4.5 million, respectively. Both of these repurchases werefunded by a distribution of cash to PGP from the Company. In fiscal years 2006,2005 and 2004, PGL and/or its subsidiaries paid distributions of $2.5 million,$2.8 million, and $2.5 million, respectively, to PGP in respect of (i) PGPdevelopment expenses, (ii) board fees and actual out-of-pocket expenses 

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incurred by members of theboard of managers of PGP (the “Board of Managers”) in their capacity as boardmembers, and (iii) tax, accounting, legal and administrative costs andexpenses of PGP. These amounts were recorded as member distributions.

Significant restrictionsexist on our ability to make member distributions. See Note 4 to theconsolidated financial statements for information on such restrictions.

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

The following table represents selected consolidatedfinancial data of PGL for the five years ended December 31, 2006.

The selected historical financial data for suchperiods are derived from audited financial statements of the Company and itssubsidiaries. All years presented include DJL operations, 2002 — 2003 alsoincludes horse racing operations of OED, 2004 — 2006 includes OED gaming(casino operations opened December 2003) and horse racing operations, and 2006includes DJW operations (casino opened in April 2006). The selected financialdata set forth below should be read in conjunction with, and is qualified inits entirety by reference to, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” and the Company’s financialstatements and the related notes included elsewhere in this document.
| ** **                                                                   | ** ** | **2006**                             | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** | ** ** |   |
|------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|--------|
| ** **                                                                   | ** ** | **(Dollars in thousands)** | ** ** | ** ** |
| **Statement of Operations Data**                                             | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| REVENUES:                                                                    |       |                                 |       |       |       |       |       |       |       |       |       |       |   |
| Casino                                                                       |       | $                                    | 200,734    |       | $          | 146,790    |       | $          | 120,190    |       | $          | 57,001     |   | $ | 48,552 |   |   |   |
| Racing                                                                       |       | 22,146                               |       | 17,578     |       | 17,380     |       | 17,051     |       | 15,510     |       |       |   |
| Video Poker                                                                  |       | 3,715                                |       | 2,339      |       | 2,715      |       | 722        |       |       |       |       |   |
| Food and beverage                                                            |       | 15,315                               |       | 13,511     |       | 11,464     |       | 4,566      |       | 3,886      |       |       |   |
| Other                                                                        |       | 10,087                               |       | 2,710      |       | 1,434      |       | 589        |       | 145        |       |       |   |
| Less promotional allowances                                                  |       | (17,580                              | )          | (13,855    | )          | (11,464    | )          | (4,626     | )          | (3,964     | )          |       |   |
| Total net revenues                                                           |       | 234,417                              |       | 169,073    |       | 141,719    |       | 75,303     |       | 64,129     |       |       |   |
| EXPENSES:                                                                    |       |                                 |       |       |       |       |       |       |       |       |       |       |   |
| Casino                                                                       |       | 84,971                               |       | 67,180     |       | 58,079     |       | 23,262     |       | 19,974     |       |       |   |
| Racing                                                                       |       | 18,579                               |       | 15,335     |       | 14,010     |       | 13,045     |       | 12,651     |       |       |   |
| Video poker                                                                  |       | 2,949                                |       | 1,767      |       | 2,034      |       | 654        |       |       |       |       |   |
| Food and beverage                                                            |       | 11,701                               |       | 9,849      |       | 9,218      |       | 4,282      |       | 3,820      |       |       |   |
| Other                                                                        |       | 6,605                                |       | 1,720      |       | 1,076      |       | 443        |       | 27         |       |       |   |
| Selling, general and administrative                                          |       | 43,924                               |       | 28,454     |       | 24,247     |       | 14,509     |       | 10,558     |       |       |   |
| Depreciation and amortization                                                |       | 20,820                               |       | 16,249     |       | 12,356     |       | 3,324      |       | 2,950      |       |       |   |
| Pre-opening expense                                                          |       | 966                                  |       | 310        |       | 367        |       | 3,257      |       |       |       |       |   |
| Development expense                                                          |       | 777                                  |       | 575        |       | 242        |       | 102        |       |       |       |       |   |
| Management severance and recruiting                                          |       |                                 |       |       |       | 593        |       |       |       |       |       |       |   |
| Affiliate management fees                                                    |       | 4,516                                |       | 2,057      |       | 757        |       | 175        |       |       |       |       |   |
| (Gain) loss on disposal of assets                                            |       | 210                                  |       | (16        | )          | (716       | )          | 50         |       | 8          |       |       |   |
| Litigation settlement                                                        |       |                                 |       |       |       |       |       |       |       | 1,600      |       |       |   |
| Referendum                                                                   |       |                                 |       |       |       |       |       |       |       | 771        |       |       |   |
| State of Wisconsin government relations                                      |       |                                 |       |       |       |       |       |       |       | 55         |       |       |   |
| Total expenses                                                               |       | 196,018                              |       | 143,480    |       | 122,263    |       | 63,103     |       | 52,414     |       |       |   |
| Income from operations                                                       |       | 38,399                               |       | 25,593     |       | 19,456     |       | 12,200     |       | 11,715     |       |       |   |
| OTHER INCOME (EXPENSE):                                                      |       |                                 |       |       |       |       |       |       |       |       |       |       |   |
| Interest income                                                              |       | 955                                  |       | 516        |       | 170        |       | 490        |       | 46         |       |       |   |
| Interest expense, net of amounts capitalized                                 |       | (32,741                              | )          | (29,133    | )          | (26,775    | )          | (25,072    | )          | (11,888    | )          |       |   |
| Loss on early retirement of debt                                             |       |                                 |       |       |       | (37,566    | )          |       |       |       |       |       |   |
| Interest expense related to preferred members’  interest, redeemable(1) |       | (285                                 | )          | (360       | )          | (360       | )          | (180       | )          |       |       |       |   |
| Total other expense                                                          |       | (32,071                              | )          | (28,977    | )          | (64,531    | )          | (24,762    | )          | (11,842    | )          |       |   |
| Preferred member distributions(1)                                            |       |                                 |       |       |       |       |       | (180       | )          | (373       | )          |       |   |
| Minority interest                                                            |       |                                 |       |       |       |       |       |       |       | (232       | )          |       |   |
| Net income (loss) to common member’s interests                          |       | $                                    | 6,328      |       | $          | (3,384     | )          | $          | (45,075    | )          | $          | (12,742    | )      | $ | (732 | ) |   |   |
|                                                                         |       |                                 |       |       |       |       |       |       |       |       |       |       |   |
| Ratio of earnings to fixed charges(2)                                        |       | 1.2                                  | x          | 0.9        | x          | 0.3        | x          | 0.5        | x          | 0.9        | x          |       |   |
|                                                                         |       |                                 |       |       |       |       |       |       |       |       |       |       |   |
| **Other Data**                                                               | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| Cash flows from/(used in) operating activities                               |       | $                                    | 41,821     |       | $          | 21,527     |       | $          | (21,875    | )          | $          | 769        |   | $ | 11,784 |   |   |   |
| Cash flows used in investing activities                                      |       | (31,980                              | )          | (52,142    | )          | (6,786     | )          | (94,695    | )          | (37,790    | )          |       |   |
| Cash flows from financing activities                                         |       | 34,302                               |       | 32,889     |       | 18,007     |       | 104,574    |       | 28,993     |       |       |   |
| Distributions to common members                                              |       | 2,494                                |       | 4,624      |       | 7,031      |       | 1,557      |       | 1,260      |       |       |   |
|                                                                              |            |                                      |            |            |            |            |            |            |            |            |            |            |        |  |  |  |  |  |  |  |

 

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| ** **                                       | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **Balance  Sheet Data**                          |       |     |       |     |       |     |       |     |       |     |       |
| Current assets                                   |       | $        | 67,231     |     | $          | 24,731   |       | $        | 17,418     |     | $          | 40,227 |   | $ | 12,160 |   |
| Total assets                                     |       | 353,810  |       | 287,628  |       | 243,069  |       | 261,519  |       | 126,448  |       |
| Current  liabilities                             |       | 49,346   |       | 47,886   |       | 34,270   |       | 46,321   |       | 35,358   |       |
| Total debt(1)                                    |       | 368,568  |       | 321,006  |       | 279,378  |       | 228,825  |       | 102,944  |       |
| Preferred  members’ interest, redeemable(1) |       |     |       |     |       |     |       |     |       | 4,000    |       |
| Total member’s  (deficit) equity            |       | (56,501  | )          | (70,607  | )          | (62,599  | )          | (10,629  | )          | 3,671    |       |
|                                                  |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

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(1)                                  InMay 2003, the Financial Accounting Standards Board issued Statement ofFinancial Accounting Standards No. 150, “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity” (“SFAS 150”).This statement establishes standards for how an issuer classifies and measurescertain financial instruments with characteristics of both liabilities andequity. It requires the issuer to classify a financial instrument that iswithin the scope of the standard as a liability if such financial instrumentembodies an obligation of the issuer. As a result of the adoption of SFASNo. 150 on July 1, 2003, we reclassified our $4 millionmandatory redeemable preferred members’ interest from the mezzaninesection of the consolidated balance sheet to long-term debt. Further,preferred member distributions paid or accrued subsequent to adoption of SFASNo. 150 are required to be presented as interest expense separately frominterest due to other creditors. The Company was not required to record acumulative effect of a change in an accounting principle as the redeemablepreferred members’ interest was recorded at fair value prior to July 1,2003. We are precluded from reclassifying prior period amounts pursuant to thisstandard. The $4 million mandatory redeemable preferred members’ interest wererepaid in 2006.

(2)                                  Forpurposes of determining the ratio of earnings to fixed charges, earnings aredefined as net income (loss) to common members’ interests plus fixed charges.Fixed charges include interest expense on all indebtedness, including amountscapitalized, amortization of deferred financing costs and debt discount andpreferred member distributions. Earnings were insufficient to cover fixedcharges for the years ended December 31, 2005, 2004, 2003 and 2002 by $3.7million, $46.3 million, $14.9 million and $0.8 million, respectively.
| **ITEM 7.** | ** ** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|------------|-------------------------------------------------------------------------------------------------|

 

The following discussion and analysis should be readin conjunction with, and is qualified in its entirety by, our “SelectedFinancial Data” and the financial statements and the related notes theretoappearing elsewhere in this report.

**Forward LookingStatements**

Some statements contained in “Management’s Discussionand Analysis of Financial Condition and Results of Operations” constitute “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. Forward-looking statements include the words “may,” “will,” “estimate,”“intend,” “continue,” “believe,” “expect,” or “anticipate” and other similarwords. These forward-looking statements generally relate to plans andobjectives for future operations and are based upon management’s reasonableestimates of future results or trends. Although we believe that the plans andobjectives reflected in or suggested by such forward-looking statements arereasonable, such plans or objectives may not be achieved. Actual results maydiffer from projected results due, but not limited, to unforeseen developments,including developments relating to the following:

·                  the availability and adequacy of our cash flow tosatisfy our obligations, including payment of the Peninsula Gaming Notes, theDJW Notes and additional funds required to support capital improvements anddevelopment;

·                  economic, competitive, demographic, business and otherconditions in our local and regional markets;

·                  changes or developments in the laws, regulations ortaxes in the gaming and horse racing industry;

·                  actions taken or omitted to be taken by third parties,including customers, suppliers, competitors, members and shareholders, as wellas legislative, regulatory, judicial and other governmental authorities;

·                  changes in business strategy, capital improvements,development plans, including those due to environmental remediation concerns,or changes in personnel or their compensation, including federal, state andlocal minimum wage requirements;

·                  the loss of any license or permit, including thefailure to obtain an unconditional renewal of a required gaming

21

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license on atimely basis;

·                  the termination of our operating agreement with theDubuque Racing Association, Ltd. and/or the Worth County Development Authorityor the failure of the Dubuque Racing Association, Ltd. and/or the Worth CountyDevelopment Authority to continue as our “qualified sponsoring organization;”

·                  the loss of our riverboat casino or land-basedfacilities due to casualty, weather, mechanical failure or any extended orextraordinary maintenance or inspection that may be required;

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

·                  adverse circumstances, changes, developments or eventsrelating to or resulting from our ownership and control of DJL, OED and DJW;and

·                  other factors discussed in our other filings with theSEC.

**Overview**

We own and operate (i) the Diamond Jo riverboat casino in Dubuque,Iowa with 777 slot machines and 17 table games, (ii) the Evangeline Downsracino in Opelousas, Louisiana with 1,627 slot machines and a one-mile dirthorse racetrack and four OTBs located throughout south central Louisiana and(iii) the Diamond Jo Worth casino in Worth County, Iowa with 577 slot machinesand 15 table games which opened to the public in April 2006.

**Results** of Operations

Our results of operationsdiscussed below include the consolidated results of operations of PGL, DJL andOED for the years ended December 31, 2006, 2005 and 2004, the results ofoperations of DJW for the years ended December 31, 2006 and 2005 (the periodswhich DJW had operations) and the results of operations of OED Acquisition, LLC(“OEDA”) for the period January 1, 2004 through June 30, 2004 (thedate which OEDA was spun-off).

*Statementof Operations Data*

(inthousands)
| ** **             | ** ** | **Year Ended December 31,** | ** ** |
|------------------------|------------|--------------------------------------------|------------|
| ** **             | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| General  corporate     |       | $                                          | (11,035    | ) | $ | (3,967 | ) | $ | (1,276 | ) |
| Diamond Jo             |       | 9,996                                      |       | 12,580 |   | 14,225 |   |
| Evangeline Downs  (1)  |       | 23,838                                     |       | 17,297 |   | 6,507 |   |
| Diamond Jo Worth       |       | 15,600                                     |       | (317 | ) | — |   |
| Income from operations |       | $                                          | 38,399     |   | $ | 25,593 |   | $ | 19,456 |   |

(1)          Includes OEDA for 2004.
| ** **                  | ** ** | **Diamond Jo**                        | ** ** | **Evangeline Downs**                  | ** ** | **Diamond Jo  Worth** | ** ** |
|-----------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|----------------------------|------------|
| ** **                  | ** ** | **Year Ended December 31,** | ** ** | **Year Ended December 31,** | ** ** | **Year Ended**        | ** ** |
| ** **                  | ** ** | **2006**                                   | ** ** | **2005**                                   | ** ** | **2004**                   | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                        |       |                                       |       |                                       |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| *Revenues:*                 | * *   | * *                                   | * *   | * *                                   | * *   | * *                   | * *   | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * |
| Casino                      |       | $                                          | 44,784     |                                       | $          | 51,536                     |       | $ | 51,233 |   | $ | 106,558 |   | $ | 95,254 |   | $ | 68,957 |   | $ | 49,392 |   |   |   |
| Racing                      |       |                                       |       |                                       |       |                       |       | 22,146 |   | 17,578 |   | 17,380 |   |   |   |   |   |
| Video Poker                 |       |                                       |       |                                       |       |                       |       | 3,715 |   | 2,339 |   | 2,715 |   |   |   |   |   |
| Food and beverage           |       | 2,642                                      |       | 2,720                                      |       | 2,897                      |       | 10,803 |   | 10,791 |   | 8,567 |   | 1,870 |   |   |   |
| Other                       |       | 1,948                                      |       | 310                                        |       | 488                        |       | 1,308 |   | 1,017 |   | 946 |   | 6,831 |   | $ | 1,383 |   |
| Less promotional allowances |       | (4,795                                     | )          | (4,459                                     | )          | (4,786                     | )          | (9,478 | ) | (9,396 | ) | (6,678 | ) | (3,307 | ) |   |   |
| Net revenues                |       | 44,579                                     |       | 50,107                                     |       | 49,832                     |       | 135,052 |   | 117,583 |   | 91,887 |   | 54,786 |   | 1,383 |   |
| *Expenses:*                 | * *   | * *                                   | * *   | * *                                   | * *   | * *                   | * *   | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * |
| Casino                      |       | 18,844                                     |       | 21,108                                     |       | 20,984                     |       | 50,133 |   | 46,072 |   | 37,095 |   | 15,994 |   |   |   |
| Racing                      |       |                                       |       |                                       |       |                       |       | 18,579 |   | 15,335 |   | 14,010 |   |   |   |   |   |
| Video Poker                 |       |                                       |       |                                       |       |                       |       | 2,949 |   | 1,767 |   | 2,034 |   |   |   |   |   |
| Food and beverage           |       | 2,455                                      |       | 2,517                                      |       | 2,641                      |       | 7,563 |   | 7,332 |   | 6,577 |   | 1,683 |   |   |   |
| Other                       |       | 39                                         |       | 37                                         |       | 390                        |       | 295 |   | 305 |   | 686 |   | 6,271 |   | 1,378 |   |
|                             |            |                                            |            |                                            |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| Selling, general and administrative |   | 8,387  |   | 9,579  |   | 9,117  |   | 16,556  |   | 15,549  |   | 14,204 |   | 8,241  |   |   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
| Depreciation and amortization       |   | 4,176  |   | 4,136  |   | 2,679  |   | 13,094  |   | 12,090  |   | 9,677  |   | 3,536  |   | 23     |   |
| Pre-opening expense                 |   |   |   |   |   |   |   | 19      |   | 171     |   | 367    |   | 947    |   | 139    |   |
| Management severance and recruiting |   |   |   |   |   | 294    |   |    |   |    |   | 191    |   |   |   |   |   |
| Affiliate management fees           |   |   |   |   |   |   |   | 1,839   |   | 1,479   |   | 757    |   | 2,396  |   | 160    |   |
| Development expense                 |   | 624    |   | 147    |   |   |   | 109     |   | 205     |   |   |   | 44     |   |   |   |
| (Gain) loss on disposal of assets   |   | 58     |   | 3      |   | (498   | )      | 78      |   | (19     | )      | (218   | )      | 74     |   |   |   |
| Total expenses                      |   | 34,583 |   | 37,527 |   | 35,607 |   | 111,214 |   | 100,286 |   | 85,380 |   | 39,186 |   | 1,700  |   |
| Income (loss) from operations       |   | $      | 9,996  |   | $      | 12,580 |   | $       | 14,225 |    | $      | 23,838 |   | $      | 17,297 |   | $      | 6,507 |   | $ | 15,600 |   | $ | (317 | ) |
|                                |   |   |   |   |   |   |   |    |   |    |   |   |   |   |   |   |   |
| % of net  revenues                  |   | 22     |   | 25     |   | 29     |   | 18      |   | 15      |   | 7      |   | 28     |   | (23    | )      |
|                                     |        |        |        |        |        |        |        |         |        |         |        |        |        |        |        |        |        |  |  |  |  |  |  |  |  |

 

*2006 Compared to 2005*

Net revenues increased $65.3 million, or 39%, to$234.4 million in 2006 from $169.1 million in 2005. This increase wasprimarily related to an increase in casino revenues at DJW of $49.4 million.Also contributing to the increase is an increase in OED’s casino revenues of$11.3 million to $106.6 million in 2006 from $95.3 million in 2005. Thisincrease is attributed primarily to an increase in admissions as well as anincrease in the average amount spent by our customers per trip, which webelieve is attributable to our continued focus during the period on marketingand player development programs and promotions. Daily casino win per positionat OED was $179 in 2006 as compared to $160 in 2005.

DJL’s casino revenuesdecreased by $6.7 million to $44.8 million in 2006 from $51.5 million in 2005.We believe this decrease was primarily related to the expansion of a localcompetitor’s gaming facility, which resulted in an increase in the number ofslot machines in May 2005, and the introduction of video poker inFebruary 2006 and table games in March 2006. In addition, a newcasino facility located approximately 110 miles from DJL’s casino opened to thepublic on August 31, 2006, further increasing competition in the Eastern Iowamarket.  DJL’s slot revenue decreased to$40.2 million in 2006 from $45.1 million in 2005, and DJL’s table game revenuedecreased 28% to $4.6 million for 2006 compared to $6.4 million for 2005primarily due to the expansion of a competitor’s gaming facility as describedabove.  Casino revenues at the Diamond Jowere derived 90% from slot machines and 10% from table games in 2006 comparedto 88% from slot machines and 12% from table games in 2005. DJL’s casino winper gaming position per day decreased to $135 in 2006 from $155 in 2005. In2006, our casino win per admission at DJL increased to $56 from $53 for 2005.

DJW’s casino revenues of$49.4 million for 2006 were comprised of slot revenues of $45.3 million andtable game revenues of $4.1 million.  DJW’sslot win per unit was $300 for the period April 4, 2006 (date of opening thecasino to the public) through December 31, 2006. Including table games, DJW’swin per gaming position per day was $266 for the period April 4, 2006 (date ofopening the casino to the public) through December 31, 2006.

Racing revenues at OEDfor 2006 were $22.1 million compared to $17.6 million for 2005. This increaseis primarily attributable to OED running 14% more live meets during 2006compared to 2005.  This increase in livemeets was necessitated due to damage at the Delta Downs racetrack caused byHurricane Rita in 2005.  The remainingincrease in racing revenues is due to the opening of new OTBs in the secondquarter of 2005, fourth quarter of 2005, and first quarter of 2006 as well asan increase in patronage at our Port Allen and New Iberia OTB’s.  In July 2006, OED closed the Alexandria OTB.

Video poker revenues atOED for 2006 were $3.7 million compared to $2.3 million for 2005. The increasein video poker revenues is attributable to the addition of video poker in ournew OTB in Eunice, Louisiana in April 2006 as well as an increase in admissionsat our Port Allen OTB.

Net food and beveragerevenues, other revenues and promotional allowances increased $5.5 millionduring 2006 compared to 2005 due primarily to an increase in net food andbeverage revenues, other revenues and promotional allowances at DJW of $4.0million due to the opening of the casino in April 2006 and the purchase of aconvenience store that was acquired in September 2005 in connection with thepurchase of the land on which the new casino was constructed and an increase inother revenue at DJL of $1.6 million primarily related to the DRA’s contractualobligation under its operating agreement to pay DJL $0.33 for each $1.00reduction in DJL’s adjusted gross gaming receipts.

Casino operating expensesincreased $17.8 million to $85.0 million for the 2006 from $67.2 million for2005 due primarily to DJW casino expenses of $16.0 million.  Also contributing to this increase was anincrease in casino expenses at OED of $4.1 million primarily related to pursesupplements and gaming taxes which are based on net casino revenues. Casinoexpenses at the Diamond Jo 

23

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decreased $2.3 million primarily related to a decreasein gaming taxes as a result of the decrease in casino revenues of approximately$1.5 million and a decrease in payroll and related expenses in response to adecrease in casino revenues of approximately $0.7 million.

Consistent with anincrease in racing revenues as noted above, racing expenses increased to $18.6million for 2006 from $15.3 million for 2005 offset partially by a reduction inour tote system expense.

Consistent with anincrease in video poker revenues as described above, video poker expensesincreased $1.1 million to $2.9 million for 2006 from $1.8 million for 2005.

Food and beverageexpenses increased to $11.7 million for 2006 from $9.8 million for 2005 dueprimarily to DJW expenses of $1.7 million. Other expenses increased to $6.6million for 2006 from $1.7 million for 2005 due primarily to an increase ingasoline and merchandise sales at DJW’s convenience store of $4.9 million dueto the timing of the purchase of the store as discussed above.

Selling, general andadministrative expenses increased $15.5 million to $43.9 million for 2006 from$28.4 million for 2005. This increase was due primarily to (i) $8.2 million inexpenses at DJW and (ii) a $7.3 million increase in expenses associated with anincrease in the fair value and percentage vested of PGP incentive units grantedto certain executive officers of the Company in 2005.  In December 2006, the employment agreementsof the executive officers to which PGP incentive units were granted wereamended to move the obligations under the incentive unit plan from PGL toPGP.  As such, the liability associatedwith these incentive units was assumed by PGP; however, the related expense associatedwith the increase in the fair value and percentage vested is allocated to PGLand such expense is reflected in PGL’s consolidated statement of operations.

Depreciation andamortization expenses increased to $20.8 million for 2006 from $16.2 millionfor 2005 due primarily to (ii) depreciation of buildings and equipment relatedto the opening of DJW’s casino in April 2006, (ii) depreciation related to theopening of two new OTBs during 2005 and one during the first quarter of 2006and (iii) an increase in depreciation expense at DJL associated withaccelerating depreciation on certain depreciable assets that will either becontributed to the Historical Society or will not be utilized at its new casinofacility.  Accelerated depreciation onthese assets began during the fourth quarter of 2006 and DJL will continue todepreciate the remaining net book value of those assets less their estimatedfair market value at the date of contribution or estimated net realizable valueup to the date that DJL estimates commencing operations at the newfacility.  Depreciation expense for 2006increased by approximately $0.2 million as a result of accelerated depreciationon these assets.  In addition, includedin depreciation expense for 2006 is an impairment charge associated withlong-lived assets at OED’s Alexandria OTB of approximately $0.4 million.  At December 31, 2006, we performed our annualimpairment test on goodwill and indefinite lived intangible assets anddetermined that the estimated fair value exceeded its carrying value as of thatdate. Based on that review, management determined that there was no impairmentof goodwill and indefinite lived intangible assets.

Pre-opening expenses of$1.0 million for 2006 relate primarily to expenses incurred by DJW with respectto start-up activities surrounding the new casino development in Worth County,Iowa. Pre-opening expenses of $0.3 million in 2005 relate to payroll and otherexpenses incurred by OED with respect to start-up activities surrounding theopening of two OTBs and expenses incurred by DJW with respect to start-upactivities surrounding the new casino development in Worth County, Iowa.Affiliate management fees of $4.5 million and $2.1 million for 2006 and 2005,respectively, relate to management fees paid to related parties under variousmanagement services and consulting agreements at OED and DJW which are based onnet revenues and EBITDA.

Interest income ofapproximately $1.0 million for 2006 is primarily related to interest earned oncash deposits invested in interest bearing accounts.  Interest income of approximately $0.5 millionfor 2005 is primarily related to interest earned on the undistributed netproceeds from the offering of the DJW Notes in July 2005 which weredeposited into interest bearing accounts. Net interest expense, including interest expense related to DJL’sredeemable preferred membership interests, increased $3.5 million to $33.0million during 2006 from $29.5 million in 2005. This increase is primarily dueto (i) timing of the original issuance of the DJW Notes which occurred in July2005, (ii) an increase in interest of approximately $0.7 million related to theissuance of $20 million principal amount of DJW Notes in August 2006 and (iii)interest of approximately $0.4 million related to the sales tax accrual at OEDas discussed above. Interest expense of approximately $0.8 million and $0.4million was capitalized as part of the DJW casino development and otherconstruction projects during 2006 and 2005, respectively.  In October 2006, DJL redeemed all of theoutstanding redeemable preferred membership interests for $4.0 million plusaccrued interest.

Closing of thetransactions contemplated by the Historical Society Agreement are contingentupon satisfactory completion of DJL’s due diligence relating to its purchase ofthe Expansion Tract.  Since the $1.0million charitable contribution is contingent upon the closing of theHistorical Society Agreement all important contingencies have not yet beenresolved and no contribution expense will be recorded until the contingenciesare resolved.

*2005 Compared to 2004*

Net revenues increased $27.4 million, or 19%, to$169.1 million in 2005 from $141.7 million in 2004. The majority ofthis increase is due to an increase in OED’s casino revenues of $26.3 millionto $95.3 million in 2005 from $69.0 million in 2004. This 

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increase is attributed primarily to improvements inour marketing and player development programs and promotions as well as anincrease in the local population as a result of Hurricane Katrina which hitSouthern Louisiana in August 2005 and forced many residents from the Gulf Coastto move north to areas closer to the racino. Daily casino win per position atOED was $160 in 2005 as compared to $119 in 2004.

DJL’s casino revenues increased by $0.3 million to$51.5 million in 2005 from $51.2 million in 2004. DJL’s slot revenue decreasedslightly to $45.2 million in 2005 from $45.5 million in 2004. DJL’s table gameand poker revenue increased by $0.6 million, or 11.3%, in 2005 compared 2004,due to an increase in poker revenue of $0.4 million and an increase in tablegame hold percentage to 19.9% in 2005 compared to 18.6% in 2004.  Casino revenues at DJL were derived 88% fromslot machines and 12% from table games and poker in 2005 compared to 89% fromslot machines and 11% from table games in 2004. DJL’s casino win per gamingposition per day at the DJL decreased slightly to $155 in 2005 from $159 in2004. In 2005, our casino win per admission at DJL increased to $53 from $49 in2004.

Racingrevenues at OED for 2005 were $17.6 million compared to $17.4 millionfor 2004. This increase is primarily due to the opening of two new OTBs in 2005and the running of additional live meets in the first and fourth quarter of2005. These increases were offset by a decrease related to the closure of theracetrack from May 13, 2005 to June 28, 2005 for improvements relatedto the dirt track.  We reopened the racetrack on June 29, 2005.Additional declines can be attributed to an overall decline in industry handleand relocation of our racetrack operations to Opelousas.

Video poker revenues for 2005 and 2004 were $2.3million and $2.7 million, respectively. The decrease in video poker revenueswas attributed to an increase in competition in the video poker market due tothe addition of two new truck stop venues offering video poker within one mileof our Port Allen OTB.

Net food and beverage revenues, other revenues andpromotional allowances increased $0.9 million during 2005 to $2.3 millioncompared to $1.4 million in 2004 due primarily to an increase in food andbeverage revenues at OED of $2.2 million due to an increase in the number ofvisitors at the racino and an increase in other revenue at DJW of $1.4million related to gasoline sales at the convenience store that was acquired inconnection with the purchase of the land on which the new casino wasconstructed offset by an increase in complimentary expenses included inpromotional allowances of approximately $2.4 million which is consistent withthe increase in casino revenues.

Casino operating expenses increased $9.1 millionto $67.2 million in 2005 from $58.1 million in 2004 due primarily toan increase in casino expenses at OED of $9.0 million primarily related topurse supplements and gaming taxes which are based on net casino revenues andan increase in direct mail expenses. These increases at OED were partiallyoffset by a decrease in casino payroll and payroll related expenses ofapproximately $1.2 million. Casino expenses at DJL increased $0.1 millionprimarily related to an increase in gaming tax expense due to an increase ingaming revenues and an increase in the gaming tax rate from 20% to 22%effective July 1, 2004 as well as an increase in direct mail expenses.These increases at DJL were partially offset by a decrease in casino payrolland payroll related expenses of approximately $0.9 million.

Racing expenses at OED increased $1.3 million to$15.3 million in 2005 from $14.0 million in 2004 due primarily to anincrease in operating expenses associated with the opening of two new OTBs in2005 and the running of additional live meets in the first and fourth quarterof 2005.

Consistent with adecrease in video poker revenues as described above, video poker expensesdecreased $0.2 million to $1.8 million for 2005 from $2.0 million for 2004.

Food and beverage expenses increased $0.6 millionto $9.8 million in 2005 from $9.2 million in 2004 due primarily tothe increase of food and beverage cost of sales at OED associated with anincrease in sales. Other expenses increased $0.6 million due primarily tothe cost of gasoline sold at DJW’s convenience store as discussed above.

Selling, general and administrative expenses increased$4.3 million to $28.5 million in 2005 from $24.2 million in 2004.This increase was due to an increase in general and administrative expenses atOED of $1.4 million due primarily to increased payroll and payroll relatedbenefits and operating expenses associated with cleaning and maintaining alarger facility due to the opening of the new track in late 2004 and therunning of more live racing days in 2005 than in 2004. General andadministrative expenses at DJL increased $0.5 million primarily due toincreased marketing expenses. General and administrative expenses at corporateincreased $2.4 million due primarily to additional staffing and expenseassociated with the increase in the fair value of member units granted tocertain executive officers of the Company in 2005 of approximately $1.2million.

Depreciation and amortization expenses increased to$16.2 million in 2005 from $12.4 million in 2004 due primarily to anincrease in depreciation related to the purchase of 783 new slot machines byDJL and OED during the fourth quarter of 2004 in addition to depreciation relatedto the opening of the second phase of OED’s racino, the dirt horse racetrackand related facilities, which opened to the public on November 22, 2004.At December 31, 2005, we performed our annual impairment test on goodwill andindefinite lived intangible assets and determined that the estimated fair valueexceeded their carrying value as of that date. Based on that review, managementdetermined that there was no impairment of goodwill and indefinite livedintangible assets.

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Pre-opening expenses of $0.3 million in 2005 relate topayroll and other expenses incurred by OED with respect to start-up activitiessurrounding the opening of its Henderson and Alexandria OTBs and expensesincurred by DJW with respect to start-up activities surrounding the new casinodevelopment in Worth County, Iowa. Pre-opening expenses of $0.4 million in 2004relate to payroll and other expenses incurred by OED with respect to start-upactivities surrounding the racino project and opening of the new racetrack andgrandstands in November 2004. Development expenses of approximately $0.6million and $0.2 million in 2005 and 2004, respectively, relate to expensesincurred pursuing potential OTB opportunities at OED and expenses incurredunder an exclusive agreement with the Worth County Development Authoritypursuant to which the parties agreed to jointly submit an application for alicense to operate a gaming facility in Worth County, Iowa. Affiliatemanagement fees increased $1.3 million to $2.1 million in 2005 from $0.8million in 2004 due primarily to management fees payable to a related party inconnection with a management services agreement and consulting fees paidpursuant to a consulting agreement with a related party which are based on OED’soperations.

Interest income of approximately $0.5 million in 2005is primarily related to interest earned on the net proceeds from the offeringof the DJW Notes in July 2005 which were deposited into interest bearingaccounts. Interest expense, including loss on early retirement of debt andinterest expense related to DJL’s redeemable preferred member interests,decreased $35.2 million to $29.5 million in 2005 from $64.7 million in 2004.This decrease is primarily due to the loss on early retirement of debt of $37.6million related to the refinancing of our long term debt with lower interestrates during the second quarter of 2004 offset by interest on the DJW Notes ofapproximately $1.8 million. Interest expense of approximately $0.4 million wascapitalized in 2005 as part of DJW casino development and $1.1 million wascapitalized as part of the racino construction at OED in 2004.

**Liquidity and**Capital Resources

Our cash balance increased $44.1 million to $56.9million at December 31, 2006 from $12.8 million at December 31, 2005.

Cash flows from operating activities were $41.8million in 2006, an increase of $20.3 million when compared to $21.5 million in2005. The increase is primarily due to an increase in net income (excludingnoncash depreciation and amortization and noncash equity based and othercompensation expense) of $21.8 million and a decrease in operating assets andliabilities changes of $2.2 million primarily related to an increase inlong-term assets at DJL related to the DRA agreement.

Cash flows used in investing activities during 2006was $32.0 million consisting of cash outflows of (i) payments ofapproximately $23.6 million for construction and other development costsassociated with the Worth County casino development and expansion project,(ii) net cash outflows of approximately $12.7 million used for capitalexpenditures mainly related to the development of our new OTB in Eunice,Louisiana, the acquisition of slot machines and slot machine conversions andgeneral maintenance capital expenditures at DJL, OED and DJW, (iii) businessacquisition and licensing costs of $1.5 million and (iv) changes in cashsurrender value of $0.3 million of key person life insurance policies. Theseoutflows were partially offset by a decrease in our restricted cash balancedesignated for construction and other development costs associated with theWorth County casino development and expansion project of $6.1 million.

Cash flows from financing activities during 2006 of$34.3 million reflects (i) proceeds from the offering of $56.5 million inadditional DJW Notes, (ii) net proceeds of $21.8 million from the offering of$22.0 million principal amount of additional Peninsula Gaming Notes, net ofdiscount, and (iii) aggregate borrowings under the revolver portion of the PGLCredit Facility and under the DJW Credit Facility of $29.7 million. Theseinflows were partially offset by (i) aggregate principal payments under therevolver portion of the PGL Credit Facility and DJW Credit Facility of $53.5million, (ii) payment of deferred financing costs associated with theissuance of the additional DJW Notes and Peninsula Gaming Notes of $4.4million, (iii) redemption by DJL of preferred members interest — redeemable of$4.0 million, (iv) aggregate principal payments under the term loan portion ofthe PGL Credit Facility of $4.0 million, (v) aggregate principal paymentson notes payable of $5.3 million and (vi) member distributions ofapproximately $2.5 million.

As of December 31, 2006, the Company had nooutstanding balances under the revolver portion and $4.7 million outstandingunder the term loan portion of the PGL Credit Facility, and outstanding lettersof credit of approximately $0.9 million. In addition, as of December 31, 2006,DJW had no outstanding balances under the DJW Credit Facility and outstandingletters of credit of approximately $0.3 million.

*Financing Activities*

On April 16, 2004, DJL and PGC completed a privateplacement of $233 million principal amount of 8 3⁄4% senior secured notes due2012 (the “Peninsula Gaming Notes”). The Peninsula Gaming Notes were issued ata discount of approximately $3.3 million. Interest on the Peninsula GamingNotes is payable semi-annually on April 15 and October 15 of each year,beginning on October 15, 2004. Upon a corporate restructuring, the Company alsobecame a co-issuer of the Peninsula Gaming Notes.

The Company used the net proceeds from the sale of thePeninsula Gaming Notes as follows (all payments based on outstanding balancesas of April 16, 2004): (1) to irrevocably deposit funds into an escrow accountto redeem all of DJL’s outstanding 12 1⁄4% senior secured notes (“DJL Notes”) inan amount (including call premium and accrued interest) of approximately $79.9 

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million; (2) to repurchase approximately $116.3million principal amount of OED’s outstanding 13% senior secured notes for anaggregate amount (including tender premium, accrued interest and contingentinterest) of approximately $134.6 million; (3) to pay accrued distributions onDJL’s outstanding preferred membership interests-redeemable of approximately $1.1million; (4) to pay related fees and expenses of approximately $13.4 million;and (5) for general corporate purposes. As a result of the issuance of thePeninsula Gaming Notes, DJL incurred a loss of approximately $8.8 millionconsisting of the write-off of deferred financing fees of approximately $2.1million, the payment of a call premium on the DJL Notes of approximately $5.7million, interest on the DJL Notes of approximately $0.7 million and write-offof bond discount of approximately $0.3 million. In connection therewith, OEDalso incurred a loss of approximately $27.9 million consisting of the write-offof deferred financing fees of approximately $8.4 million, the payment of atender premium on the OED Notes of approximately $16.3 million, write-off ofbond discount of approximately $2.1 million and consent fees of approximately$1.1 million. In addition, OED and DJL wrote off $0.9 million of deferredfinancing fees related to the refinancing of the credit facilities discussedbelow.

On December 22, 2006, the Company, DJL, and PGC,as co-issuers,  issued and sold to athird party investor in a private placement $22.0 million aggregate principalamount of Peninsula Gaming Notes (“Additional PGL Notes”).  The Company intends to use the net proceedsfrom this issuance of the Additional PGL Notes to finance, in part, theconstruction of a new moored barge facility to expand its existing casinooperations at DJL and the proposed development and construction of a hotel andevent center contiguous to its racetrack and casino at OED.

The indenture governing the Peninsula Gaming Noteslimits the Company’s ability to, among other things:

·                  incurmore debt;

·                  paydividends or make other distributions to PGP and DJW (for so long as DJW is anunrestricted subsidiary);

·                  redeemstock;

·                  makeinvestments;

·                  createliens;

·                  enterinto transactions with affiliates;

·                  mergeor consolidate; and

·                  transferor sell assets.

The Peninsula Gaming Notes are full and unconditionalobligations of DJL as a co-issuer. PGL and PGC, also co-issuers, have noindependent assets (other than PGL’s cash and investment in its subsidiaries)or operations. The Peninsula Gaming Notes are also guaranteed, subject to theprior lien of the Company’s credit facility discussed below, by OED. Further,OED and DJL have pledged their equity interests as collateral. All of DJL’s andOED’s net assets are restricted except for $8.2 million at December 31, 2006under the Peninsula Gaming Notes. The Peninsula Gaming Notes do not limit DJL’sor OED’s ability to transfer net assets between PGL, DJL, and OED. Proceedsreceived from the issuance of the Peninsula Gaming Notes were allocated betweenDJL and OED, based on each company’s respective amount of senior debtrefinanced and their respective shares of financing related fees and expenses.DJL was allocated approximately $86.7 million of debt, net of $1.3 milliondiscount and OED was allocated approximately $143 million, net of $2.0 milliondiscount.

In July 2005, DJW completed a private placementof $40.0 million aggregate principal amount of DJW Notes. In connection withthe offering of the DJW Notes, DJW was designated an “unrestricted subsidiary”by the Company under the indenture governing the Peninsula Gaming Notes, andDJW was released of its obligations under the PGL Credit Facility. The DJWNotes bear interest at a rate of 11% per year, payable semi-annually onApril 15 and October 15 of each year.

The DJW Notes are secured by a pledge of the equity ofDJW and DJWC and all of DJW’s current and future assets (with the exception ofcertain excluded assets). The lien on the collateral that secures the DJW Notesis contractually subordinated to the liens securing up to $5.0 million ofindebtedness under the DJW Credit Facility as defined below. The DJW Notes,which mature on April 15, 2012, are redeemable at the Company’s option, inwhole or in part at any time or from time to time, on and after April 15,2008 at certain specified redemption prices set forth in the indenturegoverning the DJW Notes. The indenture governing the DJW Notes contains anumber of restrictive covenants and agreements, including covenants that limitthe ability of the Company and its subsidiaries to, among other things:(1) pay dividends, redeem stock or make other distributions or restrictedpayments; (2) incur indebtedness or issue preferred shares; (3) makecertain investments; (4) create liens; (5) consolidate or merge;(6) sell or otherwise transfer or dispose of assets; (7) enter intotransactions with affiliates; (8) use proceeds of permitted asset salesand (9) change its line of business. Specifically, DJW is prohibited frommaking any dividends or other distributions to PGL, subject to certain limitedexceptions. DJW is permitted to make dividends or other distributions to PGL topay certain tax obligations. Further, DJW can make dividends and otherdistributions to PGL to pay corporate overhead or similar allocations orpayments, including, but not limited to, tax preparation, insurance,accounting, licensure, legal and administrative fees and expenses.Additionally, DJW may make dividends 

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and other distributions to PGL in respect of certainpayments under management agreements and to pay reasonable directors’ ormanagers’ fees and expenses, so long as any payments with respect to anymanagement agreement or certain employee, consulting or similar agreements donot, in the aggregate, in any fiscal year exceed (a) for 2006, $500,000, (b)for 2007, the product of 1.333333 multiplied by 4.0% of DJW’s ConsolidatedEBITDA (as defined in the indenture governing the DJW Notes) and (c) for anyfiscal year thereafter, 4.0% of DJW’s Consolidated EBITDA. Finally, DJW canmake dividends and other distributions not to exceed $1.0 million. Subject tothe foregoing provisions, all of the net assets of DJW are restricted.

Upon the occurrence and continuance of certain eventsof default, the trustee or the holders of not less than 25% in aggregateprincipal amount of outstanding DJW Notes may declare all unpaid principal andaccrued interest on all of the DJW Notes to be immediately due and payable.Upon the occurrence of a change of control (as defined in the indenture), eachholder of DJW Notes will have the right to require the Company to purchase allor a portion of such holder’s DJW Notes at a purchase price equal to 101% ofthe principal amount thereof plus accrued and unpaid interest, if any, to thedate of repurchase.

On August 31, 2006, DJW entered into the FirstSupplemental Indenture to the Indenture dated as of July 19, 2005 (the “DJWFirst Supplemental Indenture”) which permitted, among other things, theissuance by DJW on August 31, 2006 of an additional $20 million principalamount of DJW Notes, the proceeds of which are to be used in part to fund thecurrent expansion of the DJW casino. In addition, the DJW First SupplementalIndenture also eliminates or reduces certain restrictions on DJW’s ability topay certain fees under various management agreements, increased the amount ofindebtedness permitted to be incurred under DJW’s senior credit facility from$2.5 million to $5.0 million and requires DJW to offer to buy back a portion ofthe DJW Notes on a semi-annual basis, beginning March 31, 2007, with 50% ofExcess Cash Flow (as defined therein) at a premium of 7.5%.

On December 21, 2006, DJW entered into the SecondSupplemental Indenture to the Indenture dated as of July 19, 2005 (the “DJWSecond Supplemental Indenture”) which permitted, among other things, theissuance by DJW on December 21, 2006 of an additional $36.5 million principalamount of DJW Notes (“Additional DJW Notes”) and the distribution of up to$35.0 million of the net proceeds of the Additional DJW Notes to PGL.  This distribution to PGL will be used tofinance, in part, the construction of a new moored barge facility to expand itsexisting casino operations at DJL and the proposed development and constructionof a hotel and event center contiguous to its racetrack and casino at OED.

On June 16, 2004, DJL and OED jointly entered into aloan and security agreement with Wells Fargo Foothill, Inc. as the arranger andagent which was later amended in November 2004, July 2005 and December 2006 (asamended the “PGL Credit Facility”). The PGL Credit Facility consists of arevolving credit facility which permits DJL and OED to request advances andletters of credit up to the lesser of the maximum revolver amount of $50million (less amounts outstanding under letters of credit) and a specifiedborrowing base (the “Borrowing Base”). The Borrowing Base is the lesser of thecombined EBITDA (as defined in the PGL Credit Facility) of OED and DJL for thetwelve months immediately preceding the current month end multiplied by 150%and the combined EBITDA of OED and DJL for the most recent quarterly periodannualized multiplied by 150%. At December 31, 2006, the maximum revolveramount was $50.0 million. The borrowings under the revolver portion of the PGLCredit Facility bear interest at a rate equal to the Wells Fargo prime rateplus a margin of 0.25%, or 8.5% at December 31, 2006. The available borrowingamount at December 31, 2006, after reductions for amounts borrowed and lettersof credit outstanding at DJL and OED, was $49.1 million. As of December 31,2006, there were no outstanding advances under the revolver portion of the PGL CreditFacility and outstanding letters of credit of approximately $0.9 million.

The PGL Credit Facility also contains a term loan inthe amount of $4.7 million at December 31, 2006. The term loan is secured bycertain assets of the Company and requires monthly payments of $0.3 millionstarting July 1, 2004 until the full balance is paid, with a maturity no laterthan June 16, 2008. The term loan has an interest rate equal to the greater of(i) the Wells Fargo prime rate plus 2.5%, or 10.75% at December 31, 2006; and(ii) 6.0%.

DJL and OED are jointly and severally liable under thePGL Credit Facility and such borrowings are collateralized by substantially allof the assets of OED and DJL. Borrowings under the PGL Credit Facility areguaranteed by PGL and PGC.

The PGL Credit Facility contains a number ofrestrictive covenants, including covenants that limit DJL’s and OED’s abilityto, among other things: (1) incur more debt; (2) create liens; (3) enter intoany merger, consolidation, reorganization, or recapitalization, or reclassifyits capital stock; (4) dispose of certain assets; (5) guarantee the debt ofothers; (6) pay dividends or make other distributions; (7) make investments;and (8) enter into transactions with affiliates. The PGL Credit Facility also containsfinancial covenants including a minimum combined EBITDA (as defined by the PGLCredit Facility) of DJL and OED and limitations on capital expenditures at DJLand OED.

Specifically, DJL and OED are prohibited from makingany dividends or other distributions to PGL or any of PGL’s unrestrictedsubsidiaries, subject to certain limited exceptions which are less restrictivethan the Peninsula Gaming Notes. For example, DJL and OED are permitted to makedividends or other distributions to PGL to pay certain tax obligations and tofund tax preparation, accounting, legal and administrative fees and expenses.Additionally, DJL and OED may make dividends and other distributions to PGL inrespect of certain payments under management agreements and to pay reasonabledirectors’ or managers’ fees and expenses, so long as such payments do not, inthe aggregate, in any fiscal year exceed the lesser of (a) 4.0% of DJL and OED’scombined EBITDA (as defined in the PGL Credit Facility) and (b) $4.0 million.DJL and OED may also make dividends or other 

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distributionsto PGL so that PGL, subject to certain limitations, can repurchase, redeem orotherwise acquire equity interests in PGL or its restricted subsidiaries (asdefined in the PGL Credit Facility) from its respective employees, members ormanagers.

On December 6, 2006, DJL andOED entered into a Third Amendment to Loan and Security Agreement and Consent(the “Third Amendment”).  The ThirdAmendment provides, among other things, that (i) OED will be permitted to makecapital expenditures, in addition to those otherwise previously permitted bythe terms of the PGL Credit Facility, in an aggregate amount not to exceed$25.0 million in connection with a proposed project to develop and construct ahotel and event center contiguous to OED’s casino and racetrack in Opelousas,Louisiana and (ii) the applicable interest rate margin for advances made underthe PGL Credit Facility with respect to base rate loans and LIBOR rate loansand letter of credit fees were reduced.

On December 22, 2006 DJL and OED entered into a Fourth Amendmentto Loan and Security Agreement and Consent (the “Fourth Amendment”).  The Fourth Amendment, among other things, (i)provided for an increase in available borrowings under the revolverportion of the facility of $15.0 million effective upon the acquisition of theExpansion Tract, (ii) permitted the issuance of the Additional PGL Notes and(iii) permits DJL to make additionalcapital expenditures, subject to the acquisition of the Expansion Tract, in an aggregate amount not to exceed $55.0million in connection with the proposed project at DJL to develop and constructa new moored barge facility in Dubuque, Iowa.

OnMarch 1, 2006, DJW and DJWC entered into a senior secured revolving creditfacility with American Trust & Savings Bank that was subsequently amendedon October 4, 2006 and December 21, 2006 (as amended, the “DJW Credit Facility”).The DJW Credit Facility permits DJW to request advances and letters of creditof up to $5.0 million. Advances under the DJW Credit Facility bear interest ata rate equal to the greater of (i) at DJW’s option, either LIBOR plus a margin1.85%-2.20% or the Wall Street Journal prime rate less a margin of 1.0%, or7.25% at December 31, 2006, and (ii) 5%. The DJW Credit Facility expires onMarch 1, 2010.  The availableborrowing amount under such facility at December 31, 2006, after reductions foramounts borrowed and letters of credit outstanding at DJW, was $4.7 million. Asof December 31, 2006, there were no outstanding advances under the DJW CreditFacility and outstanding letters of credit of approximately $0.3 million.

The DJW Credit Facilitycontains a number of restrictive covenants, including covenants that limit DJW’sability to, among other things, incur or guarantee more debt and create liens.In addition, the DJW Credit Facility requires that, on an annual basis, DJWrepay all advances (other than amounts designated under letters of credit) andsuch repayment of all advances must continue for a period of five days, afterwhich, DJW will be allowed to resume requesting advances. The DJW CreditFacility also contains customary events of default, including nonpayment ofprincipal and interest when due, violation of covenants, material inaccuracy ofrepresentations and warranties, bankruptcy events, and material judgments.Certain of the events of default are subject to a grace period.

DJW’sand DJWC’s obligations under the DJW Credit Facility are secured by a securityinterest in substantially all of DJW’s and DJWC’s tangible and intangibleassets. The DJW Credit Facility is secured by substantially the same assetsthat secure the DJW Notes. Our Chief Executive Officer agreed tounconditionally guarantee DJW’s payment obligations to the lender under the DJWCredit Facility.

Pursuantto an intercreditor agreement between DJW and American Trust and Savings Bank,the lien on the collateral securing the DJW Credit Facility is contractuallysenior to the lien on the collateral securing the DJW Notes and the relatedguarantees. The intercreditor agreement provides that the liens securing theDJW Notes and the related guarantees on any collateral that also secures theobligations under the DJW Credit Facility is subordinated to the liens securingup to $5.0 million under the DJW Credit Facility and related interest, fees,indemnities, costs and expenses. Under the intercreditor agreement, if the DJWNotes become due and payable prior to the stated maturity thereof for anyreason or are not paid in full at the stated maturity thereof at a time duringwhich indebtedness under the DJW Credit Facility has not been fully paid, thetrustee under the DJW Notes indenture, as collateral agent under the relatedsecurity documents, will only have the right to foreclose upon any collateralthat also secures the obligations under the DJW Credit Facility if the lenderunder such facility (with or without such lender taking part in any suchforeclosure) either (i) fails to take steps to exercise remedies with respectto or in connection with such collateral within 180 days following notice tosuch lender of the occurrence of an Event of Default (as defined) under the DJWNotes indenture or (ii) fails to continue to pursue any such exercise ofremedies while such Event of Default is then continuing and no insolvencyproceeding is pending. The intercreditor agreement prevents the trustee underthe DJW Notes indenture, as collateral agent under the related securitydocuments, and the holders of the DJW Notes from pursuing remedies with respectto such collateral in all other instances during which indebtedness under theDJW Credit Facility has not be fully paid, including during any insolvencyproceeding. The intercreditor agreement provides that the net proceeds from anydisposition of the shared collateral will first be applied to repayindebtedness outstanding under the DJW Credit Facility and thereafter to repayall of the obligations of DJW, DJWC, and any subsidiary guarantors thereofunder the DJW Notes.

In December 2006, DJW entered into an agreementwith a slot machine manufacturer to finance the purchase of 45 slot machinesrelated to the current casino expansion. The machines were purchased duringDecember 2006.  Of the purchase price forthe slot machines, $0.6 million of the purchase price of the slot machines wasfinanced with equal principal payments over twelve months and zero percentinterest with payments to begin in June 2007. As there was no stated interestrate on the note, DJW used an imputed interest rate of 7.4% to establish the presentvalue of the notes by discounting, at 7.4%, all future interest and principalpayments on 

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thenotes. DJW considered the rates at which it could obtain financing of a similarnature from other sources at the date of the transaction.

In January 2006, DJW entered into a capital leaseagreement with a slot machine manufacturer for the purchase of 50 slot machinesfor a gross purchase price of approximately $0.7 million. The capital leaserequires equal lease payments for 12 months beginning in April 2006. Thecapital lease contains an option to purchase the machines at the end of thelease for one dollar.

In November 2005, DJW entered into agreementswith various slot machine manufacturers to finance the purchase of 366 slotmachines. The machines were purchased during the first quarter of 2006. Of thepurchase price for the slot machines, $3.6 million was financed through a slotmachine vendor with equal principal payments due over thirty-six months withzero percent interest for the first twenty-four months and 7.25% interest forthe remaining twelve months with payments to begin in April 2006. The remaining$0.8 million of the purchase price of the slot machines was financed throughanother slot machine vendor with equal principal payments over twelve monthsand zero percent interest with payments to begin in May 2006. As there was nostated interest rate for the first twenty-four months on one of the notes andno stated interest rate on the other note, DJW used an imputed interest rate of7.25% to establish the present value of the notes by discounting, at 7.25%, allfuture interest and principal payments on the notes. DJW considered the ratesat which it could obtain financing of a similar nature from other sources atthe date of the transaction and the stated interest rates, if any, within theslot machine purchase agreements when determining the imputed interest rate.

*General*

In addition to our cashon hand, we currently have the following sources of funds for our business:(i) cash flows from operations, (ii) available borrowings under the PGLCredit Facility and (iii) available borrowings under the DJW CreditFacility. The available borrowing amount at December 31, 2006, afterreductions for amounts borrowed and letters of credit outstanding under the PGLCredit Facility and the DJW Credit Facility was $49.1 million and $4.7 million,respectively. Contractual restrictions and other provisions contained in theagreements governing our consolidated indebtedness, including our senior creditfacilities and the indentures governing the Peninsula Gaming Notes and the DJWNotes, limit or restrict our ability to use the funds available to us at eachof our gaming properties.

InSeptember 2006, DJL announced its intent to develop and construct a new casinoand entertainment complex near its current casino facility.  The proposed development is expected toinclude approximately 1,000 slot machines, 17 table games, a five-table pokerroom, various restaurants, a bowling center and an entertainment center.  The Company is currently in the process ofestimating total project costs and timing of completion of the new casino.

Inaddition, in February 2007, DJL entered into the Development Agreement with theCity of Dubuque regarding, among other things, the design, development,construction and financing of a public parking facility to be located adjacentto DJL’s proposed casino development. The City of Dubuque is currently in the process of estimating the totalcost of the new parking facility.  It isanticipated that the City of Dubuque will award to a third party a constructioncontract to construct the parking facility no later than December 31,2007.  The parking facility will be ownedby the City of Dubuque, open to the general public and consist of approximately1,200 spaces.  The Development Agreementrequires that DJL construct its casino development to consist of not less than140,000 square feet and at a cost of at least $45 million.  In addition, the Development Agreementprovides that the parking facility will be financed by an initial payment ofnot less than $6.4 million by DJL to the City of Dubuque with the remainder ofthe cost being financed via tax increment finance bonds that will be issued bythe City of Dubuque and paid off with the tax incremental revenue generated bythe new DJL casino development.  As partof the Development Agreement, DJL is required to enter into a minimumassessment agreement for its new casino development and to pay the operatingcosts of the parking facility, including the cost of operation, security,repair and maintenance.  At its option,DJL may elect to increase the initial payment above the $6.4 million minimumwhich would reduce the minimum assessment for the new casino developmentthereby reducing ongoing property taxes.

OED iscurrently evaluating the proposed development and construction of a hotel andevent center contiguous to its racino.

Weexpect our capital expenditures for the next twelve months, excluding anyamounts related to the current expansion of DJW’s gaming facility in WorthCounty, Iowa and any amounts related to the casino development at DJL and theproposed hotel and event center development at OED, to be approximately $8.2million. Capital expenditures for the next twelve months related to theexpansion of our current gaming facility in Worth County, Iowa are expected tobe approximately $24.7 million, of which approximately $3.7 million will befinanced through vendor financing. Our debt maturities for the next twelvemonths are expected to be approximately $8.8 million. The Company plans tofinance these developments with: (i) cash on hand of $69.9 million at December31, 2006, (ii) cash generated from operations, (iii) available borrowings underthe PGL Credit Facility and DJW Credit Facility and (iv) available vendor andequipment financing. There can be no assurances that such projects will becompleted in the estimated time frames or at the estimated costs.

Based on our cash onhand, expected cash flows from operations and our available sources offinancing, we believe we will have adequate liquidity to satisfy our currentoperating needs at each of our gaming properties and to service our outstanding

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indebtednessfor the next twelve months.

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

**Contractual** Obligations and Commitments and Contingent Liabilities

Our future contractual obligations and commitments atDecember 31, 2006 were as follows (in millions of dollars):
| ** **                          | ** ** | **Payments due by Period** | ** ** |
|-------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations**    | ** ** | **Total**                                 | ** ** | **Less Than  1 Year** | ** ** | **2 – 3 Years** | ** ** | **4 – 5 Years** | ** ** | **Thereafter** | ** ** |
|                                |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-Term Debt                      |       | $                                         | 371.5      |   | $ | 8.8 |   | $ | 3.7 |   | $ | 7.5 |   | $ | 351.5 |   |
| Interest on  Long-Term Debt         |       | 178.2                                     |       | 34.6 |   | 68.0 |   | 66.0 |   | 9.6 |   |
| Operating Leases                    |       | 4.5                                       |       | 1.3 |   | 1.7 |   | 0.7 |   | 0.8 |   |
| Purchase  Commitments               |       | 6.0                                       |       | 2.1 |   | 3.2 |   | 0.7 |   | — |   |
| Gaming License                      |       | 3.0                                       |       | 1.0 |   | 2.0 |   | — |   | — |   |
| Total Contractual Cash  Obligations |       | $                                         | 563.2      |   | $ | 47.8 |   | $ | 78.6 |   | $ | 74.9 |   | $ | 361.9 |   |

 

The following shows our contingent obligations atDecember 31, 2006 based on expiration dates (in millions):
| ** **                 | ** ** | **Less Than  1 Year** | ** ** | **1 – 3 Years** | ** ** | **4 – 5 Years** | ** ** | **Thereafter** | ** ** |
|----------------------------|------------|---------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|----------------|------------|
|                       |       |                            |       |                                |       |                                |       |           |       |   |
| Standby letters  of credit |       | $                               | 0.4        |                                | $          | 0.8                                 |       | —         |       | — |   |   |
|                            |            |                                 |            |                                     |            |                                     |            |                |            |  |  |  |  |  |  |  |  |

**Off-Balance Sheet Transactions**

Other than as disclosed above, we do not maintain anyoff-balance sheet transactions, arrangements, obligations or otherrelationships with unconsolidated entities or others that are reasonably likelyto have a material current or future effect on our financial condition, cashflows, revenues or expenses, results of operations, liquidity, capitalexpenditures or capital resources.

**Recent** Accounting Pronouncements

In September 2006, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157, *Fair Value Measurements*(“SFAS 157”). SFAS 157 defines fair value, establishes a frameworkfrom measuring fair value in generally accepted accounting principles, andexpands disclosures about fair value measurements. SFAS 157 applies underother accounting pronouncements that require or permit fair value measurements.SFAS 157 indicates, among other things, a fair value measurement assumesthat the transaction to sell the asset or transfer the liability occurs in theprincipal market for the asset or liability or, in the absense of a principalmarket, the most advantageous market for the asset or liability. SFAS 157is effective for the Company’s year ending December 31, 2008. The Companyis currently evaluating the impact of SFAS 157 on the Company’s financialstatements.

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities” (“SFAS 159”). SFAS 159 permits companies to choose to measure many financialinstruments and certain other items at fair value.  If the fair value option is chosen by acompany, the company shall report unrealized gains and losses on items forwhich the fair value option has been elected in earnings at each subsequentreporting date.  SFAS 159 is effective asof the beginning of the Company’s year ending December 31, 2008.  The Company is currently evaluating whetherto elect the fair value option and the impact, if any, on the Company’sfinancial statements of implementing SFAS 159.

**Critical** Accounting Policies

The preparation offinancial statements in accordance with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amount of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting periods. We periodically evaluate our policies and the estimates andassumptions related to these policies. All of our subsidiary companies operate ina highly regulated industry. In our Iowa and Louisiana operations, we aresubject to regulations

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thatdescribe and regulate operating and internal control procedures. The majorityof our casino revenue is in the form of cash, personal checks or credit cards,which by their nature do not require complex estimates. We estimate the usefullives for our depreciable assets. We also estimate certain liabilitiesincluding our slot club and self-insured medical and workers compensationliabilities. We believe that these estimates are reasonable based on our pastexperience with the business and based upon our assumptions related to possibleoutcomes in the future. Future actual results will likely differ from theseestimates.

Understanding ourcritical accounting policies and related risks is important in evaluating ourfinancial condition and results of operations. The critical accounting policiesused in preparation of the Company’s financial statements involve a significantuse of management judgment on matters that are inherently uncertain and aredescribed in this Annual Report on Form 10-K for the year endedDecember 31, 2006. If actual results differ significantly from management’sestimates, there could be a material effect on our financial condition, resultsof operations and cash flows. Management regularly discusses the identificationand development of these critical accounting policies with the Audit Committeeof the Board of Managers. There have been no significant changes to the Company’scritical accounting policies during the year ended December 31, 2006.

*Goodwill, Intangible andOther Long-Lived Assets.**  *We evaluate our goodwill, intangible and otherlong-lived assets for impairment on a periodic basis. For goodwill andintangible assets with indefinite lives, we compare the carrying values to fairvalues on an annual basis or sooner if an indication of impairment exists.Other long-lived assets are reviewed for impairment when management plans todispose of assets or when events or circumstances indicate a possibleimpairment. For assets to be disposed of, we recognize the asset at the lowerof carrying value or fair market value less costs of disposal, as estimatedbased on comparable asset sales, solicited offers, or a discounted cash flowmodel. For assets to be held and used, we review for impairment wheneverindicators of impairment exist. We then compare the estimated future cash flowsof the asset, on an undiscounted basis, to the carrying value of the asset. Ifthe undiscounted cash flows exceed the carrying value, no impairment isindicated. If the undiscounted cash flows do not exceed the carrying value,then an impairment loss is recorded based on the fair value of the asset,typically measured using a discounted cash flow model. All recognizedimpairment losses, whether for assets to be disposed of or assets to be heldand used, are recorded as operating expenses.

Our goodwill is relatedto our DJL operations. Our intangible assets consist of our tradename and ourslot machine and electronic video game and horse racing licenses related to ouroperations at OED and our gaming license at DJW. We intend to use the OEDtradename for the foreseeable future and our OED and DJW licenses are renewablesubject to our compliance with state gaming and racing regulations and subjectto voter approval of gaming in Worth County, Iowa every eight years. Ourintangible assets, therefore, have been determined to have indefinite lives andare not amortized. Should these assets in the future be determined to havefinite lives because of our decision to discontinue the use of the OEDtradename or our inability to renew our licenses at OED or DJW, the intangibleassets could become impaired and require an impairment charge and anyunimpaired amounts would be amortized over their remaining useful lives.

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

Goodwill and intangibleassets are also subject to impairment by, among other factors, significantchanges in gaming tax rates, competition and regulatory requirements; lack oflicense renewals; lack of voter reapproval in Iowa; and changes in the way weuse our OED tradename. At December 31, 2006, 2005 and 2004, we completed theannual impairment testing of all of our goodwill and intangible assets withindefinite lives and no impairments were indicated. We are required to performan analysis of our goodwill and intangible assets at least on an annual basis.If our ongoing estimates of future cash flows are not met, we may have torecord impairment charges in future accounting periods.

During the quarter endedJune 30, 2006, management determined the undiscounted future cash flows of itsAlexandria OTB did not support the recoverability of the fixed assets attributableto the OTB’s operation. As such, the Company recognized an impairment chargefor the OTB’s assets that exceeded their estimated fair market value. Theimpairment charge of $0.4 million is included in depreciation and amortizationin the consolidated statement of operations and is part of the Evangeline Downsoperating segment.

*EquityBased Compensation.* Units granted by PGP to Company employees under PGP’s Incentive UnitPlan contain a put option exercisable by the employee and arerecorded at their estimated intrinsic value (which is the increase in the fairmarket value of the units granted based on a market multiple of forecastedtotal segment operating earnings) with a corresponding expense recorded withinthe statement of operations based on the percentage vested and any change inestimated intrinsic value at each 

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reporting period. Fair market value of the units canchange due to numerous factors including those previously mentioned under “Goodwill,Intangible and Other Long-Lived Assets”, and slower than anticipated increasesor declines in operating revenues, unanticipated operating cost increases,construction delays, the market’s perception of the economy in general, thegaming industry, risk, interest rates, and alternative investments. Significantchanges in estimates and forecasts related to the calculation of the estimatedintrinsic value of the units may have a material effect on our results ofoperations in the period in which the revised estimate is made.

As ofDecember 31, 2006, there was approximately $9.2 million of compensationexpense related to nonvested awards which has not been recognized in theconsolidated statement of operations. Based on the estimated intrinsic value at December 31, 2006,approximately $6.7 million of the unrecognized value of awards is scheduled tovest over approximately two years unless vested earlier per the terms of theawards.  The remaining $2.5 million isscheduled to vest upon a change in control of the Company.

*Litigation.**  *An estimated loss from a loss contingency is recordedwhen information available prior to issuance of the financial statementsindicates that it is probable that a liability has been incurred at the date ofthe financial statements and the amount of the loss can be reasonably estimated.Accounting for contingencies such as legal matters requires the use of judgmentas to the probability of the outcome and the amount. Many legal contingenciescan take years to be resolved. An adverse outcome could have a material impacton our financial condition, operating results and cash flows.

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

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

We are exposed tointerest rate risk due to changes in interest rates with respect to ourlong-term variable interest rate debt borrowing under the PGL Credit Facilityand DJW Credit Facility. As of December 31, 2006, the Company had $4.7 millionin outstanding borrowings under the PGL Credit Facility and DJW CreditFacility, including borrowings under the term loan portion of the PGL CreditFacility that have variable interest rates. We have estimated our market riskexposure using sensitivity analysis. We have defined our market risk exposureas the potential loss in future earnings and cash flows with respect tointerest rate exposure of our market risk sensitive instruments assuming ahypothetical increase in market rates of interest of 100 basis points. Assumingwe borrow the maximum amount allowed under the PGL Credit Facility and DJWCredit Facility (currently an aggregate amount of $59.7 million) and if marketrates of interest on our variable rate debt increase by 100 basis points, theestimated additional annual interest expense would be approximately $0.6million.

We are also exposed tofair value risk due to changes in interest rates with respect to our long-termfixed interest rate debt borrowings. Our fixed rate debt instruments are notgenerally affected by a change in the market rates of interest, and therefore,such changes generally do not have an impact on future earnings. However,future earnings and cash flows may be impacted by changes in interest ratesrelated to indebtedness incurred to fund repayments as such fixed rate debtmatures. The following table contains information relating to our fixed andvariable rate debt borrowings as of December 31, 2006 (dollars in millions):
| **Description**                                             | ** ** | **Maturity**        | ** ** | **Interest  Rate**  | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
|-------------------------------------------------------------|------------|---------------------|------------|---------------------|------------|---------------------|------------|-----------------|------------|
| 8 3⁄4% senior  secured notes                             |       | April 15, 2012 |       | 83⁄4             | %          | $                   | 252.4      |            | $          | 252.5 | * |
| 13% senior notes  with contingent interest of OED           |       | March 1, 2010  |       | 13                  | %          | 6.8                 |       | 6.9             | *          |
| 11% senior  secured notes and related contingent put option |       | April 15, 2012      |       | 11                  | %          | 96.5                |       | 95.5            | *          |
| Term loan                                                   |       | June 16, 2008  |       | 103⁄4            | %          | 4.7                 |       | 4.7             |       |
| Notes payable and  capital lease obligations                |       | 2007 — 2011    |       | 7 1⁄4% - 83⁄4 | %          | 8.2                 |       | 8.4             |       |
|                                                             |            |                     |            |                     |            |                     |            |                 |            |  |  |

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*                 Representsfair value as of December 31, 2006 based on information provided by anindependent investment banking firm.

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

The report of independent registered public accountingfirm, financial statements and the notes thereto and the financial statementschedule are included beginning on page F-1.

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

None.

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**ITEM 9A.****                                            CONTROLSAND PROCEDURES**

*Evaluation of disclosurecontrols and procedures.**  *The Company’s Chief Executive Officer and ChiefFinancial Officer, after evaluating the effectiveness of the design andoperation of the Company’s disclosure controls and procedures (as defined inExchange Act) as of December 31, 2006, have concluded that as of such date theCompany’s disclosure controls and procedures were adequate and effective anddesigned to ensure that material information relating to the Company and itssubsidiaries would be made known to such officers on a timely basis.

*Changes in internalcontrols.*  Therehave been no significant changes (including corrective actions with regard tosignificant deficiencies or material weaknesses) in our internal controls overfinancial reporting that has materially affected or is reasonably likely tomaterially affect our internal controls over financial reporting during ourfourth quarter.

**ITEM 9B.**                                            OTHERINFORMATION

None.

**PART III**

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

**Executive Officers**and Managers

PGP is the Company’s sole managing member. Thefollowing table sets forth the names and ages of the executive officers of theCompany, DJL and PGC and of the managers of PGP.
| **Name**            | ** ** | **Age** | ** ** | **Position** | ** **                                                                           |
|---------------------|------------|---------|------------|--------------|--------------------------------------------------------------------------------------|
|                |       |    |       |         |                                                                                 |   |
| M. Brent Stevens    |       |    | 46         |         | Chief  Executive Officer of the Company and Chairman of the Board of Managers of PGP |   |
| Michael S.  Luzich  |       |    | 52         |         | President  and Secretary of the Company, DJL and PGC and Manager of PGP              |   |
| Jonathan C.  Swain  |       |    | 41         |         | Chief  Operating Officer of the Company, DJL and PGC                                 |   |
| Natalie A.  Schramm |       |    | 36         |         | Chief  Financial Officer of the Company, DJL and PGC                                 |   |
| Terrance W.  Oliver |       |    | 57         |         | Manager  of PGP                                                                      |   |
| Andrew Whittaker    |       |    | 45         |         | Manager of PGP                                                                       |   |

 

**Management Profiles**

Following is a brief description of the businessexperience of each of the individuals listed in the preceding table. Presently,PGP’s board of managers is comprised of five managers; however, the fifthmanager has not been appointed.

***M. Brent Stevens.***Mr. Stevensis our Chief Executive Officer and is the Chairman of the Board of Managers ofPGP, which offices he has held since 1999. Mr. Stevens also serves asChief Executive Officer of PGL, DJL, OED and DJW. Since 1990, Mr. Stevenshas been employed by Jefferies & Company, Inc., and presently isan Executive Vice President in the Investment Banking department.

***Michael S. Luzich.***Mr. Luzichis our President and Secretary and has been a manager of PGP since 1999.Mr. Luzich also serves as President and Secretary of PGL, DJL, OED, andDJW. Mr. Luzich is the founder and President of the Cambridge InvestmentGroup, LLC, an investment and development company located in Las Vegas, Nevada.Prior to October 1995, Mr. Luzich was a founding partner and directorof Fitzgeralds New York, Inc. and Fitzgeralds ArizonaManagement, Inc., which are development companies responsible for theTurning Stone Casino near Syracuse, New York for the Oneida Tribe and the CliffCastle Casino near Sedona, Arizona for the Yavapai-Apachi Tribe, respectively.

***Jonathan C. Swain.***Mr. Swainwas hired as Chief Operating Officer of PGL in July 2004. Mr. Swainalso serves as Chief Operating Officer DJL, OED, and DJW. Mr. Swain servedfrom 2000 through July 2004 as Vice President and General Manager of PalaceStation, Santa Fe Station and Sunset Station, three properties of StationCasinos Inc., a hotel and gaming company headquartered in Las Vegas, Nevada.In 1999 and 2000, Mr. Swain served as Vice President and General Managerof the Hard Rock Hotel and Casino in Las Vegas. From 1995 through 1999,Mr. Swain worked for the Aztar Resorts Inc., serving as the CorporateVice President of Marketing and President of the Las Vegas Tropicana. AztarResorts, Inc. is a hotel and gaming company headquartered in PhoenixArizona. From 1993 to 1995, Mr. Swain served as Vice President ofMarketing and as Executive Director of International Marketing with the TrumpTaj Mahal in Atlantic City, New Jersey.

***Natalie A. Schramm.***Ms. Schramm is our Chief Financial Officer, whichoffice she has held since 1999. Ms. Schramm also serves as Chief FinancialOfficer of DJL, OED and DJW. Ms. Schramm served as Assistant General Managerof DJL from April 1, 2000 to December 31, 2002. On January 1,2003, Ms. Schramm was appointed General Manager of DJL. Ms. Schrammjoined our predecessor, Greater Dubuque Riverboat Entertainment Company, L.C.,in November 1996 and was formerly employed by Aerie Hotels and Resorts inOak Brook, Illinois as Corporate Accounting Manager since 1992. She wasresponsible for the corporate 

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accountingfunctions of the Silver Eagle, the Eagle Ridge Inn and Resorts, located inGalena, Illinois and the Essex Hotel, located in Chicago, Illinois. She servedas Internal Audit Manager for the Silver Eagle and was a member of adevelopment team that successfully pursued a riverboat gaming license inIndiana.

***Marcia S. Seligman.*** Ms. Seligman was our Vice President and Corporate Counsel, which officeshe held since October 2004.  Ms. Seligman was formerly in privatepractice with an emphasis in corporate and real estate law from 1997 to2004.  Prior to 1997, Ms. Seligman was Vice President and General Counselof Grand Casinos, Inc., a publicly held company that owned casinos inMississippi and managed Native American casinos in Louisiana, Minnesota andMississippi.  Previous to her experience at Grand Casinos, Inc., Ms.Seligman served as Director of Legal Services of General Growth Management,Inc., a shopping center owner and developer based in Chicago, Illinois. Ms.Seligman resigned from the Company effective February 28, 2006.

***Terrance W. Oliver.***Mr. Oliver is a manager of PGP, which office he hasheld since 1999. Since 1993, Mr. Oliver has served as a director of andconsultant to Mikohn Gaming Corporation, a gaming equipment manufacturerheadquartered in Las Vegas. From 1988 until 1993, Mr. Oliver served asChairman of the Board to the predecessor company of Mikohn. From 1984 until1996, Mr. Oliver was a founding shareholder, board member and executiveofficer of Fitzgeralds Gaming Corporation. Mr. Oliver retired as the ChiefOperating Officer of Fitzgeralds Gaming Corporation in 1996.

***Andrew Whittaker.***Mr. Whittakeris a manager of PGP, which office he has held since 1999. Since 1990Mr. Whittaker has been employed by Jefferies &Company, Inc., where he is presently a Vice Chairman.

**Audit**Committee

Terrance W. Oliver and Andrew Whittaker serve on theCompany’s audit committee. The board of directors of the Company has determinedthat each of Messrs. Oliver and Whittaker is an “audit committee financialexpert” as that term is used in Item 401(h)(2) of Regulation S-K adopted by theSEC. Although the Company is not a “listed issuer” within the meaning of Rule10A-3 under the Exchange Act, the board of directors of the Company hasdetermined that each of Messrs. Oliver and Whittaker would be considered an “independent”director within the meaning of the rules of the New York Stock Exchange forlisted companies and within the meaning of Rule 10A-3 under the Exchange Act.

**Code of Ethics**

The Company has adopted a code of ethics that appliesto our Chief Executive Officer, Chief Financial Officer, Controller or personsperforming a similar function. A copy of our code of ethics may be obtained,free of charge, upon written request to our principal place of business.

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

**COMPENSATION DISCUSSIONAND ANALYSIS**

**Overview**

**This compensation discussiondescribes the material elements of the compensation awarded to, earned by, orpaid to our officers who are considered to be “named executive officers” duringthe Company’s last fiscal year.  Namedexecutive officers consist of the individuals who served as our chief executiveofficer, chief financial officer and the three other executive officers whoreceived the highest amount of total compensation in 2006, whose names are setforth below in the table under “Executive Compensation — Summary CompensationTable.”**

**Compensation Objectives**

Our compensation program is designed to attract andretain talented and dedicated executive officers, ensure executive compensationis aligned with our corporate strategies and business objectives, promote theachievement of key strategic and financial performance measures by linkingshort- and long-term cash and equity incentives to the achievement ofmeasurable corporate and individual performance goals, and align executives’incentives with the creation of equity-holder value.

To achieve these objectives, we have designed andimplemented incentive compensation to primarily reward our executives forpositive financial performance.

The principal components of the compensation packagefor the Company’s executive officers are:

·                  Basesalary;

·                  Cashbonus; and

·                  Equity-basedcompensation awards under PGP’s Incentive Unit Plan.

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Overall, our aim is tooffer our executives total compensation opportunities that represent a mediancompensatory level among a peer group of competitive companies.  Accordingly, we seek to review thecompensation that we offer against that offered by peer group companies on anannual basis.

**Processes and Procedures for DeterminingCompensation**

PGP’s operating agreementhas delegated certain powers traditionally vested in the Board of Managers toan executive committee consisting of the Chief Executive Officer and Presidentand Secretary.  Among the powers andresponsibilities delegated to the executive committee under the operatingagreement is the authority, subject to the approval of the Board of Managers,to unanimously approve the engagement of all of our executive officers whosecompensation exceeds $100,000 annually. In the event that the executive committee is unable to reach a unanimousdetermination as to any such engagement within a reasonable period of time, theexecutive committee submits the prospective engagement to the independentmanagers of the Board of Managers, who then make a final determination.  The Chief Executive Officer determineschanges to salary and bonus compensation of our executive officers.

The Board of Managersadministers PGP’s 2004 Amended and Restated Incentive Unit Plan, referred to asthe IUP.  Awards under the IUP arerecommended by the Chief Executive Officer and considered by the Board ofManagers.  Our Chief Executive Officerabstains from decisions made by the Board of Managers relating to hiscompensation.

**Compensation Components**

We compensate our executives through a mix of base salary, cash bonusawards and equity-based compensation.

*Base Salaries*

Base salaries for ournamed executive officers are intended to be competitive with industry peers andother comparable companies. We establish base salaries for our executives basedon the scope of their responsibilities, and take into account competitivemarket compensation paid by companies in our competitive peer group for similarpositions.  Our Chief Executive Officerevaluates executive performance and reaches base salary compensation decisionsbased upon a subjective and careful analysis of each executive’s specificcontributions.  Our Chief ExecutiveOfficer takes into consideration the level of responsibility and experience ofeach named executive officer and the knowledge and skill required to performsuch executive’s job requirements.

In the case of certainnamed executive officers, base salaries were initially set in employmentagreements, which typically provide for a minimum increase in base salary eachyear.  See “Executive Compensation —Employment and Consulting Agreements.” Neither Mr. Stevens, our Chief Executive Officer, nor Mr. Luzich, ourPresident and Secretary, receives compensation in the form of a basesalary.  Each year, based on each individual’sperformance and contribution and other factors described above, our ChiefExecutive Officer reviews salary and, if appropriate, adjusts salary levels foreach of our other named executive officers.

*Cash Bonuses*

Cash bonuses for our named executive officers,likewise, are intended to be competitive with industry peers and othercomparable companies.  Our namedexecutive officers can earn additional cash incentive compensation each year toprovide annual incentive for excellence in business and individual performance.  Our cash bonuses, as opposed to our equitygrants, are designed to more immediately reward our executive officers fortheir performance during the most recent year and are intended to reward theachievement of annual corporate financial and personal performance goals. Webelieve the immediacy of these cash bonuses, in contrast to our equity grantswhich vest over a period of time, provides a significant incentive to ourexecutives towards achieving their respective individual objectives.  We believe our cash bonuses are an importantmotivating factor to our executive officers, in addition to being a significantfactor in attracting and retaining certain of our executive officers.  After reviewing individual performances andindustry peers, the Chief Executive Officer determines bonuses and otherincentive awards.  In those cases where anamed executive officer has an employment agreement, provision for the paymentof a cash bonus is made on terms consistent with our general cash bonus policy.  Mr. Luzich received a one time cash bonusduring 2006 related to the successful development of our new Diamond Jo Worthcasino.  Mr. Stevens does not receivecompensation in the form of a cash bonus.

*Equity-Based Compensation*

We believe that positive long-term Company performanceis best achieved through an ownership culture that provides incentive to ourexecutive officers through the use of equity compensation.  PGP adopted the IUP to provide for the grantof profits interests to certain employees, including our named executiveofficers.  The IUP was adopted to, amongother things: (i) align compensation rewards with operating results andequity-holder value; (ii) attract and retain qualified individuals;(iii) motivate participants to achieve long-range goals; (iv) providecompensation opportunities competitive with the Company’s industry peers andother comparable companies; and (v) provide a higher return on equity byfocusing award participation on those individuals with a demonstrated capacityto increase growth in equity value.  Webelieve that this strategy is consistent with our business goals, 

36

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includingequity-holder return, employee retention, and revenue and segment operatingearnings growth.

The Board of Managers, with the consultation andadvice of the Chief Executive Officer, selects the recipients and sets theterms of profits interests granted under the IUP.  Generally, profits interests granted underthe IUP will be subject to terms and conditions customary for such plans, whichmay include vesting requirements, transfer restrictions, satisfaction of budget-relatedperformance criteria and similar conditions and qualifications, in each case,as approved by PGP’s Board of Managers or a subcommittee thereof.  Holders of profits interests issued under theIUP are entitled to receive distributions from operating profits on a pro ratabasis with holders of common units of PGP (but only to the extent of profitsallocated to holders of profits interests after the date of grant), anddistributions on liquidation only to the extent of their pro rata share of any undistributedoperating profits allocated to holders of profits interests and any furtherappreciation in the fair market value of PGP after the date of grant.  Under the terms of the IUP, PGP may grantprofits interests from time to time representing up to 15.5% of its outstandingcapital interests on a fully diluted basis.

In determining the size of equity grants to ourexecutive officers, our Board of Managers considers our company-levelperformance, the applicable executive officer’s performance, comparative equityownership of our competitors and peer group, the amount of equity previouslyawarded to the applicable executive officer, the vesting of such awards and therecommendations of management and any other consultants or advisors that ourBoard of Managers may choose to consult. We currently do not have any formal plan requiring us to grant, or notto grant, equity compensation on specified dates.  We do not have any equity ownershipguidelines for our executive officers.

*Benefits and other Compensation*

We maintain broad-based benefits that are provided toall employees, including health and dental insurance, life and disabilityinsurance and a 401(k) plan.  Certain ofthese benefits require the employee to pay a premium, with the Company payingthe remainder of the premiums.  Thesebenefits are offered on the same basis to all employees, except that theCompany maintains $1 million life insurance policies for each of our ChiefFinancial Officer and our Chief Operating Officer, for which the Company is notthe beneficiary.  We also providesupplemental health insurance for certain of our named executive officers thatprovides for payment of up to $10,000 per claim and $100,000 in the aggregateannually for out-of-pocket expenses and deductible costs.

Our 401(k) retirement plan is available to alleligible employees.  Company matchingcontributions to the 401(k) plan are made at the discretion of the Board ofManagers.  In 2006, the Company matchedelective employee-participant contributions of our participating namedexecutive officers on a basis of 50% of the employee’s contribution up to 8% oftheir compensation.  Certain employees,including the named executive officers are eligible to receive automobileallowance and membership fees of clubs and associations paid by us.  In addition, we provide a deferredcompensation plan under which eligible employees may defer compensation andwith respect to which we match 100% of any deferred compensation up to thefirst five percent of the employee’s total compensation.

**EXECUTIVE COMPENSATION**

**Summary CompensationTable**

The following table sets forth information for theyears indicated concerning the compensation paid to our named executiveofficers for services rendered in all capacities to PGL, DJL, OED and DJW, asapplicable, during 2006.  None of our namedexecutive officers participate in or have account balances in qualified ornon-qualified defined benefit plans sponsored by us.  Earnings on deferred compensation are notreflected in this column because the return on earnings is calculated in thesame manner and at the same rate as earnings on externally managed publiclyavailable mutual funds.  See “ExecutiveCompensation — Non-qualified Deferred Compensation.”

37

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| **Name and Principal Position**  | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus   (1)** | ** ** | **IUP  Awards (2)** | ** ** | **All Other   Compensation** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|----------|------------|------------|------------|----------------------|------------|--------------------------|------------|----------------------------------------|------------|-----------|------------|
| M. Brent Stevens*Chief Executive Officer*       |       | 2006     |       | $          | —     |                 | $          | —                   |       | $                                      | —     |      | $          | 207,522 | (3) | $ | 207,522 |   |
| Michael S. Luzich*President and Secretary*      |       | 2006     |       | —     |       | 145,000              |       | —                   |       | 1,835,179                              | (4)        | 1,980,179 |       |
| Jonathan C. Swain*Chief Operating Officer*      |       | 2006     |       | 417,692    |       | 400,000              |       | 6,751,819                |       | 58,668                                 | (5)        | 7,628,179 |       |
| Natalie A. Schramm*Chief Financial Officer*     |       | 2006     |       | 240,173    |       | 180,000              |       | 1,732,955                |       | 40,539                                 | (6)        | 2,193,667 |       |
| Marcia S. Seligman (7)*Corporate Legal Counsel* |       | 2006     |       | 44,546     |       | —               |       | —                   |       | 852                                    |       | 45,398    |       |
|                                                 |            |          |            |            |            |                      |            |                          |            |                                        |            |           |            |  |  |  |  |  |

----

| (1)    |   | Bonus amounts reflect compensation in the fiscal  year earned regardless of the year in which paid.                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (2)    |   | Amounts in this column reflect the dollar amount of  IUP awards recognized for financial statement reporting purposes for the  fiscal year ended December 31, 2006, in accordance with Statement of  Financial Accounting Standards No. 123 (Revised 2004) Share-Based Payment.  Assumptions used in the calculation of these amounts are included in  Management’s Discussion and Analysis of Financial Condition and Results of  Operations — Critical Accounting Policies included elsewhere in this Form  10-K. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (3)    |   | Mr. Stevens did not receive a cash salary or bonus  from the Company in 2006. All Other Compensation represents compensation  accrued at PGP, but not paid, in respect of services allocable to the Company.                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (4)    |   | Mr. Luzich did not receive a cash salary from the  Company in 2006. All Other Compensation represents fees earned pursuant to a  consulting agreement with PGP and OED in the aggregate amount of $1,835,179  for 2006. See “Executive Compensation — Employment and Consulting  Agreements.”                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (5)    |   | Mr. Swain received $1,793 in premiums paid on life  insurance in excess of Internal Revenue Service limitations, $7,700 in  automobile allowance, $5,760 in membership fees of clubs and associations,  $7,500 in matching contributions to our 401(k) plan, and $35,915 in matching  contributions to our deferred compensation plan.                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (6)    |   | Ms. Schramm received $1,793 in premiums paid on life  insurance in excess of Internal Revenue Service limitations, $7,700 in  automobile allowance, $4,270 in membership fees of clubs and associations,  $7,500 in matching contributions to our 401(k) plan, and $19,276 in matching  contributions to our deferred compensation plan.                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (7)    |   | Ms. Seligman ceased employment with the Company as  of February 28, 2006. If Ms. Seligman remained employed by us as of December  31, 2006, she would have been considered a named executive officer. During  2006, Ms. Seligman received $852 in vested matching contributions to our  deferred compensation plan.                                                                                                                                                                                                           |

 

**Grants of Equity Awards**

The Company did not make any grants under its IUP in2006.

**Outstanding Equity AwardsAt Fiscal Year-End**

The following table sets forth information regardingoutstanding equity awards (consisting solely of awards under the IUP) held byour named executive officers as of December 31, 2006:

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| **Name**            | ** ** | ** ** | ** ** | **Number of Units That  Have Not Vested  (#)** | ** **                                                    | **Market Value of Units  That Have Not Vested  ($)(1)** | ** ** | **Number of Unearned Units   or Other Rights   That Have Not Vested  (#)** | ** ** | **Market Value of   Unearned Units or   Other Rights That Have   Not Vested  ($)(1)** | ** **                                                                |
|---------------------|------------|------------|------------|-------------------------------------------------------------------------|---------------------------------------------------------------|---------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|
| M. Brent Stevens    |       | —     |       |                                                                    | $         — |                                                                                  |       | —                                                                                                                       |       |                                                                                                                                         | $           — |   |   |
|                |       |       |       |                                                                    |                                                          |                                                                                  |       |                                                                                                                         |       |                                                                                                                                         |                                                                      |   |   |
| Michael S.  Luzich  |       | —     |       |                                                                    | —                                                        |                                                                                  |       | —                                                                                                                       |       |                                                                                                                                         | —                                                                    |   |   |
|                |       |       |       |                                                                    |                                                          |                                                                                  |       |                                                                                                                         |       |                                                                                                                                         |                                                                      |   |   |
| Jonathan C.  Swain  |       | 4,146      |       |                                                                    | 641,464                                                       |                                                                                  |       | 45,272                                                                                                                       |       |                                                                                                                                         | 6,735,364                                                                 |   |   |
|                |       |       |       |                                                                    |                                                          |                                                                                  |       |                                                                                                                         |       |                                                                                                                                         |                                                                      |   |   |
| Natalie A.  Schramm |       | 1,037      |       |                                                                    | 160,366                                                       |                                                                                  |       | 11,318                                                                                                                       |       |                                                                                                                                         | 1,683,841                                                                 |   |   |
|                |       |       |       |                                                                    |                                                          |                                                                                  |       |                                                                                                                         |       |                                                                                                                                         |                                                                      |   |   |
| Marcia S. Seligman  |       | —     |       |                                                                    | —                                                        |                                                                                  |       | —                                                                                                                       |       |                                                                                                                                         | —                                                                    |   |   |

 

----

(1)           Represents estimated intrinsic valueat December 31, 2006.

At a meeting of the Board of Managers of PGP held onFebruary 25, 2005, PGP approved grants of profits interests under the IUP tocertain executive officers of PGP and/or its subsidiaries aggregating 10.50% ofthe outstanding membership units of PGP on a fully diluted basis, of which 2%was awarded to Mr. Swain and 0.5%, awarded to Ms. Schramm and the balanceawarded to Messrs. Stevens and Luzich as incentive compensation to suchindividuals at PGP and thus not reflected in this table.  The terms of the awards reflected in thetable above include specified vesting schedules, acceleration of vesting uponthe occurrence of certain events, anti dilution protection, transferrestrictions and other customary terms and provisions.

At a meeting of the Board of Managers of PGP held onSeptember 12, 2005, PGP granted awards of profits interests under the IUP tocertain executive officers of the Company and its subsidiaries aggregating 5.0%of the outstanding membership units of PGP on a fully diluted basis, of which4% was awarded to Mr. Swain and 1.0% was awarded to Ms. Schramm, in each casesubject to certain anti-dilution provisions which are designed to preserve thepercentage of profits interest originally granted.

Under the terms of the awards granted on September 12,2005, 20% of the profits interests vest on each of the first and secondanniversaries of the grant date and an additional 40% vest on the thirdanniversary, provided that in each of those preceding years the Company and itssubsidiaries achieves certain target consolidated segment operating earningsset forth in the Company’s annual budget. If the Company achieves between 80% and 100% of the target consolidatedsegment operating earnings then that percentage of profits interests availableto vest for that year will vest.  Upon achange of control or recapitalization, the remaining 20% of the profitsinterests granted and any remaining unvested interests vest immediately.  If the employee is terminated without cause,the profits interests vest immediately. All profits interests that do not vest in accordance with their termsshall be forfeited and cancelled.

**Equity Vested**

Thefollowing table sets forth information regarding the vesting of equity awardsheld by the named executive officers during the year ended December 31, 2006.
| ** **          | ** ** | **IUP Awards** | ** ** |
|---------------------|------------|---------------------|------------|
| **Name**            | ** ** | ** **          | ** ** | **Number of Units Acquired on Vesting  (#)** | ** ** | **Value Realized on Vesting  ($)(1)** | ** ** |
| M. Brent Stevens    |       | —              |       |   | $           — |   |   |
|                |       |                |       |   |   |   |   |
| Michael S.  Luzich  |       | —              |       |   | — |   |   |
|                |       |                |       |   |   |   |   |
| Jonathan C.  Swain  |       | 25,358              |       |   | 3,821,148 |   |   |
|                |       |                |       |   |   |   |   |
| Natalie A.  Schramm |       | 6,339               |       |   | 955,287 |   |   |
|                |       |                |       |   |   |   |   |
| Marcia S. Seligman  |       | —              |       |   | — |   |   |
|                     |            |                     |            |  |  |  |  |  |  |

 

----

(1)           Represents estimatedintrinsic value at December 31, 2006.

**Pension Benefits**

None of our named executive officers participate in orhave account balances in qualified or non-qualified defined benefit planssponsored by us.  Our Board of Managersmay elect to adopt qualified or non-qualified defined benefit plans in thefuture if it 

39

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determines that doing sois in our best interests.

**Non-qualified DeferredCompensation**

The Peninsula Gaming, LLC- Executive Nonqualified Excess Plan, referred to as the deferred compensationplan, is a non-qualified deferred compensation plan that allows eligibleexecutives, including certain named executive officers, and other key-employeesto defer up to 20% of their base salary and up to 80% of their cash bonuscompensation.  The following tableillustrates the amounts due to each of our named executive officers under thedeferred compensation plan as of December 31, 2006.  In addition, the table shows contributionsmade under the deferred compensation plan by the named executive officers andthe Company in 2006 together with fiscal year end balances.
| **Name and Principal Position** | ** ** | **Year** | ** ** | **Executive   Contributions  in Last Fiscal  Year** | ** ** | **Registrant   Contributions   in Last Fiscal  Year (1)** | ** **                            | **Aggregate  Earnings in  Last Fiscal Year (2)** | ** ** | **Aggregate  Withdrawals/  Distributions** | ** ** | **Aggregate  Balance at  Last Fiscal  Year End  (3)** | ** **                            |
|------------------------------------------------|------------|----------|------------|--------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|---------------------------------------|----------------------------------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------------------------------------|---------------------------------------|
| M. Brent Stevens*Chief Executive Officer*      |       | 2006     |       | $    —                                    |       |                                                                               | $     — |                                                                 |       | $     —      |       |                                                                 | $     — |   |   | $       — |   |   |
| Michael S. Luzich*President and Secretary*     |       | 2006     |       | —                                                             |       |                                                                               | —                                |                                                                 |       | —                                     |       |                                                                 | —                                |   |   | — |   |   |
| Jonathan C. Swain*Chief Operating Officer*     |       | 2006     |       | 35,915                                                             |       |                                                                               | 35,915                                |                                                                 |       | 17,266                                     |       |                                                                 | —                                |   |   | 144,421 |   |   |
| Natalie A.  Schramm*Chief Financial Officer*   |       | 2006     |       | 19,276                                                             |       |                                                                               | 19,276                                |                                                                 |       | 10,609                                     |       |                                                                 | —                                |   |   | 83,959 |   |   |
| Marcia S. Seligman*Corporate Legal Counsel*    |       | 2006     |       | 2,555                                                              |       |                                                                               | 852                                   |                                                                 |       | 909                                        |       |                                                                 | (13,450                               | ) |   | — |   |   |

----

(1)             Contributionsare included in the “All Other Compensation” column of the Summary CompensationTable.

(2)             Noamounts shown in the Aggregate Earnings column are reported as compensation inthe Summary Compensation Table.

(3)             Amountsshown represent all vested and unvested amounts due under the deferredcompensation plan. At December 31, 2006, Mr. Swain and Ms. Schramm’s vestedbalance was $119,869 and $83,959, respectively.

Under the deferredcompensation plan, we match 100% of any deferred compensation up to the firstfive percent of the employee’s total compensation deferred.  The deferred compensation plan is notintended to provide for the payment of above-market or preferential earnings oncompensation deferred under the plan. Earnings on deferred compensation are calculated in the same manner andat the same rate as earnings on certain externally managed publicly availablemutual funds. Employee deferrals are deemed to be invested in these funds inaccordance with the applicable employee’s election.  Employees under the deferred compensationplan do not actually own any share of the investment options he or she elects.

All employeecontributions to the deferred compensation plan are fully vested at the time ofdeferral.  All Company matchcontributions vest over a three year period commencing on the employee’s firstday of employment.  In addition, allbalances under the deferred compensation plan will become fully vested upon theemployee’s death, disability or reaching normal retirement age or upon a changeof control of the Company.  Qualifyingdistribution events under the plan include, but are not limited to, theapplicable employee’s separation from service, disability or death, change incontrol of the Company and hardship withdrawals.

**Employment and ConsultingAgreements**

***Michael S. Luzich-President andSecretary***

Mr. Luzich is party to a consulting agreement with PGPand OED pursuant to which he is entitled to receive compensation in an aggregateannual amount equal to (a) 2% of DJL’s unconsolidated earnings before interest,taxes, depreciation, amortization and other non-recurring charges, plus (b)2.5% of OED’s and DJW’s earnings before interest, taxes, depreciation,amortization and other non-recurring charges plus (c) 2.5% of earnings beforeinterest, taxes, depreciation, amortization and other non-recurring charges ofany future gaming operations acquired, directly or indirectly, by PGP.  The consulting agreement has a one-year termand, subject to the occurrence of various termination events, is renewableautomatically for successive one-year terms. Under this agreement, Mr. Luzich is also entitled to reimbursement ofreasonable business expenses as approved by the board of managers of PGP.

***Jonathan C. Swain-Chief OperatingOfficer***

40

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** **

In July 2004, Mr. Swain entered into an employmentagreement with PGL to serve as Chief Operating Officer.  Under the terms of his employment agreement,Mr. Swain was entitled to receive from PGL a base annual salary of $400,000during his first twelve months of employment, plus a cash bonus of $30,000 uponcommencing his employment, an additional $30,000 in October 2004 and anadditional $180,000 of which 25% vested upon signing of his employmentagreement and the remaining 75% vests equally over a three year period.  In addition to the base salary, Mr. Swain isentitled to receive an annual cash bonus payable by PGL based on hisperformance during the previous fiscal year, determined on a basis consistentwith bonuses paid to similarly situated executive officers of PGL.  Mr. Swain has also been granted profitsinterests under the IUP aggregating 6%, of which 2% are scheduled to vest overthe term of his employment agreement and 3.2% are scheduled to vest upon theachievement of certain financial targets of the Company with the remaining 0.8%vesting upon the occurrence of a change in control or recapitalization ofPGP.  Upon any termination of Mr. Swain’semployment or upon the occurrence of a change of control or recapitalization ofPGP, Mr. Swain is entitled at his option to cause the Company to redeem allvested membership interests granted to him under the IUP for cash at their fairmarket value at the time of termination of employment.  If Mr. Swain is terminated for any reasonother than for cause or as part of a mutual termination, as defined in hisemployment agreement, he is entitled to receive the sum of: (a) severance isthe amount equal to the lesser of (i) the balance of his base compensation duefor the remainder of his term of employment and (ii) twelve months basecompensation; and (b) a prorated share of the cash bonus to which Mr. Swainotherwise would be entitled had his employment continued to the end of theyear.  For more information relating to paymentobligations of the Company upon termination of Mr. Swain’s employment, see “ExecutiveCompensation—Potential Payments Upon Termination or Change of Control”.  Mr. Swain’s employment agreement has aninitial term of three years.

***Natalie A. Schramm-ChiefFinancial Officer***

In July 2004, Ms. Schramm entered into an employmentagreement with PGL.  Under the terms ofher employment agreement, Ms. Schramm was entitled to receive from PGL a baseannual salary of $230,000 in the twelve months beginning July 1, 2004, which issubject to upward adjustment annually by not less than 5% of the prior year’scompensation.  In addition to basesalary, Ms. Schramm is entitled to receive an annual cash bonus payable byPGL based on her performance during the previous fiscal year, determined on abasis consistent with bonuses paid to similarly situated executive officers ofPGL.  Ms. Schramm has also been granted profitsinterests under the IUP aggregating 1.5%, of which 0.5% are scheduled to vestover the term of her employment agreement and 0.8% are schedule to vest uponthe achievement of certain financial targets of the Company with the remaining0.2% vesting upon the occurrence of a change in control or recapitalization ofPGP.  Upon any termination of Ms. Schramm’semployment or upon the occurrence of a change of control or recapitalization ofPGP, Ms. Schramm is entitled at her option to cause the Company to redeem allvested membership interests granted to her under the IUP for cash at their fairmarket value at the time of termination of employment.  For more information relating to severanceobligations of the Company upon termination of Ms. Schramm’s employment, see “ExecutiveCompensation—Potential Payments Upon Termination or Change of Control”.  Ms. Schramm’s employment agreement hasan initial term of three years.

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

In October 2004, Ms. Seligman entered into anemployment agreement with PGL. Under the terms of her employment agreement, Ms.Seligman was entitled to receive from PGL a base annual salary of $140,000 inthe twelve months beginning October 1, 2004. In addition to the base salary,Ms. Seligman was entitled to receive an annual cash bonus payable by PGL basedon her performance during the previous fiscal year. Ms. Seligman resigned fromthe Company effective February 28, 2006 and received a pro rata portion of herannual base salary based on the number of days she was employed during the 2006fiscal year.

**Potential Payments Upon Termination or Change ofControl**

***Michael S. Luzich***

Mr. Luzich’s consulting agreement does not provide forpayments upon a change of control of the Company.

***Jonathan C. Swain***

If within 12 months of a sale or transfer of acontrolling interest in the Company or substantially all of the Company’sassets and operations during the term of his employment, or Mr. Swainterminates his employment for good reason, as defined in his employmentagreement, or the Company terminates him for any reason other than for cause,as defined in his employment agreement, then Mr. Swain is entitled to receive:(1) the balance of his base compensation due for the remainder of the term ofhis employment contract; and (2) a prorated share of the cash bonus to which hewould have been entitled had his employment continued to the end of the thencurrent calendar year due under the agreement. Upon the occurrence of a change of control or recapitalization of PGP,all unvested membership interests granted to Mr. Swain under the IUP willvest.  Upon any termination of Mr. Swain’semployment or upon the occurrence of a change of control or recapitalization ofPGP, Mr. Swain is also entitled at his option to cause the Company to redeemall vested membership interests granted to him under the IUP for cash at theirfair market value such time.

41

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***Natalie A. Schramm***

In the event a controlling interest in the Company orsubstantially all of the Company’s assets and operations are transferred orsold to an unrelated entity or person at any time during the term of Ms.Schramm’s employment, she is entitled to receive severance equal to 12 monthsof her base salary; provided, if following such transaction Mr. Stevens remainsthe Company’s CEO or managing partner, then Ms. Schramm shall not receive suchseverance payments.  Upon the occurrenceof a change of control or recapitalization of PGP, all unvested membershipinterests granted to Ms. Schramm under the IUP will vest.  Upon any termination of Ms. Schramm’semployment or upon the occurrence of a change of control or recapitalization ofPGP, Ms. Schramm is also entitled at her option to cause the Company to redeemall vested membership interests granted to her under the IUP for cash at theirfair market value at such time.

**MANAGER COMPENSATION**

**Manager CompensationTable**

The following table sets forth a summary of thecompensation we paid to our Managers in 2006:
| **Name        ** | ** ** | ** ** | ** ** | **Fees Earned  or Paid in   Cash** | ** ** | **Total** | ** ** |
|----------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|-----------|------------|
| M. Brent Stevens                                         |       | $          | 78,750     |                                                   | $          | 78,750    |       |
| Michael S. Luzich                                        |       | 3,750      |       | 3,750                                                  |       |
| Terrance W. Oliver                                       |       | 3,750      |       | 3,750                                                  |       |
| Andrew Whittaker                                         |       | 3,750      |       | 3,750                                                  |       |
|                                                          |            |            |            |                                                        |            |           |            |  |  |

 

All managers serving on the Board of Managers receiveannual board fees for serving on the Board of Managers of PGP, which fees areallocated between PGP and the Company (of which the portion allocated to theCompany is reflected in the table above), and are reimbursed for their traveland out-of-pocket expenses related to their attendance at Board ofManagers meetings.  The Audit Committeeof the Board of Managers consists of Messrs. Oliver and Whittaker, neither ofwhom receive additional fees for service on such committee.

**Compensation CommitteeInterlocks and Insider Participation**

We have no standing compensation committee.  All compensation decisions are made by eitherthe Chief Executive Officer, or in the case of compensation of our ChiefExecutive Officer, the Board of Managers.

**Board of Managers Report**

The Board of Managers has reviewed the CompensationDiscussion and Analysis and discussed that analysis with management.  Based on its review and discussions withmanagement, the Board of Managers has approved the inclusion of theCompensation Discussion and Analysis in our Annual Report on Form 10-K for thefiscal year ended December 31, 2006. This report is provided by the following members of the Board of Managers:

 
| By:      | /s/ M. BRENT STEVENS                  |     |
|----------|---------------------------------------|----------|
|     | M. Brent Stevens                      |     |
| * * | *Chief Executive Officer and Manager* | * * |
|     |                                  |     |
| By:      | /s/ MICHAEL S. LUZICH                 |     |
|     | Michael S. Luzich                     |     |
| * * | *President, Secretary and Manager*    | * * |
|     |                                  |     |
| By:      | /s/ TERRANCE W. OLIVER                |     |
|     | Terrance W. Oliver                    |     |
| * * | *Manager*                             | * * |
|     |                                  |     |
| By:      | /s/ ANDREW WHITTAKER                  |     |
|     | Andrew Whittaker                      |     |
| * * | *Manager*                             | * * |

 

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| **ITEM 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT AND** |
|--------------|-------------------------------------------------------------------------|
| ** **   | **RELATED STOCKHOLDER MATTERS**                                         |

 

PGP currently owns all of the Company’s outstandingcommon membership interests and is the sole managing member of the Company.

The table below sets forth, as of December 31,2006, information regarding the beneficial ownership of outstanding membershipinterests of PGP by:

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

(b)                                 eachmanager and executive officer of PGP; and

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

The following information is helpful to anunderstanding of, and qualifies the beneficial ownership data contained in, thetable set forth below. PGP has three outstanding classes of membershipinterests: (i) convertible preferred interests, which are convertible at theoption of the holder into non-voting common membership interests; (ii) votingcommon membership interests; and (iii) non-voting common membership interests, whichoutstanding interests consist of awards under the IUP. Mr. Stevens holds358,904 PGP membership interests directly and 413,333 PGP common membershipinterests indirectly through PGP Investors, LLC, a Delaware limited liability company.Mr. Stevens is the sole managing member of PGP Investors, LLC andexercises voting and investment power over the PGP common membership interestsowned by PGP Investors, LLC. Mr. Stevens and Mr. Whittaker, managersof PGP, are an Executive Vice President and a Vice Chairman, respectively, ofJefferies & Company, Inc. (“Jefferies”). In addition, Jefferies and some ofits affiliates, officers and employees are members of PGP Investors, LLC.Mr. Whittaker holds an economic interest in approximately 41,667 PGPcommon membership interests indirectly through his membership in PGP Investors,LLC, but does not exercise voting or investment power with respect to these PGPcommon membership interests. Mr. Oliver holds his interest through TheOliver Family Trust. The total holdings of all managers and executive officersas a group includes the 413,333 PGP common membership interests held by PGPInvestors, LLC, over which Mr. Stevens exercises sole voting andinvestment power. Unless otherwise indicated, the address of each manager orexecutive officer of PGP is c/o Diamond Jo, LLC, 400 East Third Street,P.O. Box 1750, Dubuque, Iowa, 52001-1750.

 
| **Name and Address of Beneficial Owner**                                        | ** ** | **Voting Common  Membership  Interests  Beneficially  Owned** | ** ** | **Percent of  Class** | ** ** | **Non-voting  Common  Membership  Interests  Beneficially  Owned** | ** ** | **Percent of  Class** | ** ** | **Convertible  Preferred  Membership  Interests  Beneficially  Owned** | ** ** | **Percent of  Class** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------------------------|------------|--------------------------------------------------------------------|------------|----------------------------|------------|------------------------------------------------------------------------|------------|----------------------------|------------|
|                                                                                                     |       |                                                               |       |                       |       |                                                               |       |                       |       |                                                                   |       |                       |       |
| M. Brent Stevens  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004    |       | 661,583                                                            |       | 66.16                      | %          | 91,248                                                             |       | 29.73                      | %          | 19,323                                                                 |       | 6.09                       | %          |
|                                                                                                     |       |                                                               |       |                       |       |                                                               |       |                       |       |                                                                   |       |                       |       |
| PGP Investors, LLC(1)  11100 Santa Monica, 10th Floor  Los Angeles, CA 90071                             |       | 413,333                                                            |       | 41.33                      | %          | —                                                             |       | —                     |       | —                                                                 |       | —                     |       |
|                                                                                                     |       |                                                               |       |                       |       |                                                               |       |                       |       |                                                                   |       |                       |       |
| Michael S. Luzich  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004   |       | 323,333                                                            |       | 32.33                      | %          | 91,248                                                             |       | 29.73                      | %          | 19,323                                                                 |       | 6.09                       | %          |
|                                                                                                     |       |                                                               |       |                       |       |                                                               |       |                       |       |                                                                   |       |                       |       |
| Terrance Oliver  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004     |       | 15,000                                                             |       | 1.5                        | %          | —                                                             |       | —                     |       | —                                                                 |       | —                     |       |
|                                                                                                     |       |                                                               |       |                       |       |                                                               |       |                       |       |                                                                   |       |                       |       |
| Andrew Whittaker(1)  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004 |       | 41,667                                                             |       | 41.67                      | %          | —                                                             |       | —                     |       | —                                                                 |       | —                     |       |

 

43

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| Jonathan Swain (2)  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004  |   | —    |   | — |   | 99,543  |   | 32.43  | %      | — |   | — |   |
|----------------------------------------------------------------------------------------------------------|--------|-----------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
|                                                                                                     |   |      |   |   |   |    |   |   |   |   |   |   |   |
| Natalie Schramm (2)  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004 |   | —    |   | — |   | 24,886  |   | 8.11   | %      | — |   | — |   |
|                                                                                                     |   |      |   |   |   |    |   |   |   |   |   |   |   |
| All managers and  executive officers as a group (7 persons)                                         |   | 1,000,000 |   | 100.00 | %      | 306,925 |   | 100.00 | %      | 38,646 |   | 12.18  | %      |

----

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

(2)             Interestsowned by Mr. Swain and Ms. Schramm are non-voting.

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

**DJWCredit Facility Guarantee**

In connection with entering into the DJW CreditFacility, our Chief Executive Officer agreed to unconditionally guarantee DJW’spayment obligations to the lender thereunder.  For more informationregarding the DJW Credit Facility, refer to “Management’s Discussion andAnalysis of Financial Condition and Results of Operations - Liquidity andCapital Resources”.

**Managing MemberIndemnification**

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

**Operating**Agreement of PGP

In accordance with PGP’s operating agreement, theBoard of Managers is composed of five individuals, two of whom must beindependent managers. At any time that M. Brent Stevens, together with anyentity controlled by Mr. Stevens, beneficially holds at least 5% of thevoting common membership interests of PGP, Mr. Stevens is entitled todesignate three of PGP’s managers, including one of the two independentmanagers. The two independent managers are required to serve as members of theindependent committee. Under PGP’s operating agreement, PGP Advisors, LLC, aDelaware limited liability company, of which Mr. Stevens is the solemanaging member, may render financial advisory and consulting services to PGPand is entitled to receive commercially reasonable fees for the servicesconsistent with industry practices. To date, PGP has not entered into any sucharrangements with Mr. Stevens. At any time that Michael Luzich, togetherwith any entity controlled by Mr. Luzich, beneficially holds at least 5%of the voting common membership interests of PGP, Mr. Luzich is entitledto designate two of PGP’s managers, including the other independent manager. Inconsideration for their execution of personal guarantees to provide creditsupport for OED’s credit facilities, each of Messrs. Luzich and Stevenswere granted profits interests of 1.5% of PGP’s fully diluted membershipinterests by PGP’s board of managers. Messrs. Stevens and Luzich areentitled to receive distributions on liquidation in respect of such profitsinterests only to the extent of any appreciation in the fair market value ofPGP interests since the date of grant of such profits interests.

Presently, the Board of Managers is composed of fourmanagers. If not appointed earlier, a fifth manager may be appointed byMr. Stevens at a future meeting of managers. A manager may resign at anytime, and the member who designates a manager may remove or replace thatmanager from the Board of Managers at any time.

On May 21, 2003, PGP’soperating agreement was amended to create an executive committee consisting ofMessrs. Luzich and Stevens. Under the amendment, the executive committeemanages our business and affairs. The executive committee meets weekly or asotherwise agreed upon between Messrs. Luzich and Stevens. Other than withrespect to any officers whose responsibilities include any project or realestate development, all executive officers of PGP and its subsidiaries shallreport to the Chief Executive Officer of PGP. The executive committee shall,subject to the approval of the Board of Managers, unanimously approve theengagement of all of our executive officers (whose compensation exceeds $100,000 annually), attorneys and accountants. Inthe event that the executive committee is unable to reach a unanimousdetermination as to any such engagement within a reasonable period of time, theexecutive committee shall submit the prospective engagement to the independentmanagers the Board of Managers board, whose determination shall be final.

At a meeting of the Board of Managers held onFebruary 25, 2005, PGP approved certain amendments to its operating

44

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agreement to permit certain amendments to PGP’s 2004Incentive Unit Plan, including increasing the percentage of profits interestsissuable under such plan from 10% to 12% of PGP’s outstanding membershipinterests on a fully diluted basis. The Board of Managers approved an additionalamendment to its operating agreement on September 12, 2005 to increase thepercentage of profits interests issuable under the 2004 Incentive Unit Plan to15.5% of PGP’s outstanding membership interests on a fully diluted basis.

**Management Services**Agreement —DJL, OEDA, and OED

DJL and OEDA (together, the “Operators”) manage andoperate OED’s racino near Lafayette, Louisiana and OED’s OTBs pursuant to amanagement services agreement. Although the Operators may obtain services fromaffiliates to the extent necessary to perform their obligations, the Operatorsare fully responsible for all obligations under the agreement. Fees under themanagement services agreement are shared between DJL and OEDA, with DJLreceiving 75% and OEDA receiving 25% of such fees.

Pursuant to the terms of the management servicesagreement, the Operators are entitled to receive pre-opening service fees equalto $40,000 per month, commencing June 27, 2001. The Operators are alsoentitled to be reimbursed for all reasonable and documented out-of-pocketexpenses permitted to be incurred under the management services agreement,including, but not limited to, tax preparation, accounting, legal andadministrative fees and expenses. The Operators are also entitled to receive inthe aggregate a basic management fee equal to 1.75% of net revenue (less netfood and beverage revenue) and an incentive fee equal to:

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

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

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

Under the management services agreement, “EBITDA” isdefined as earnings before interest, income taxes, depreciation andamortization. In calculating earnings, the basic management fee, the incentivefee and reimbursables payable under the management services agreement areexcluded.  During 2006, 2005 and 2004 OEDexpensed affiliate management fees payable to OEDA of $0.9 million, $0.7 millionand $ 0.5 million, respectively, related to this agreement.

**ProfitsInterests**

At a meeting of the Board of Managers of PGP held onFebruary 25, 2005, PGP approved grants of profits interests under the IUP tocertain executive officers of PGP and/or its subsidiaries aggregating 10.50% ofthe outstanding membership units of PGP on a fully diluted basis, of which 4%was awarded to Mr. Stevens, 4% was awarded to Mr. Luzich, 2% was awarded to Mr.Swain and 0.5% was awarded to Ms. Schramm. The terms of the awards include specified vesting schedules,acceleration of vesting upon the occurrence of certain events, anti dilutionprotection, transfer restrictions and other customary terms andprovisions.  PGP also approved the grantof profits interests outside of the IUP (on terms substantially similar tothose awarded under the IUP) to each of Messrs. Stevens and Luzich representing1.5% of the outstanding membership units of PGP on a fully diluted basis.

At a meeting of the Board of Managers of PGP held onSeptember 12, 2005, PGP granted awards of profits interests under the IUP tocertain executive officers of the Company and its subsidiaries aggregating 5.0%of the outstanding membership units of PGP on a fully diluted basis, of which4% was awarded to Mr. Swain and 1.0% was awarded to Ms. Schramm, in each casesubject to certain anti-dilution provisions which are designed to preserve thepercentage of profits interest originally granted.

Under the terms of the awards granted on September 12,2005, 20% of the profits interests vest on each of the first and secondanniversaries of the grant date and an additional 40% vest on the thirdanniversary, provided that in each of those preceding years the Company and itssubsidiaries achieves the target consolidated segment operating earnings setforth in the annual budget.  If the Company achieves between 80% and 100%of the target consolidated segment operating earnings then that percentage ofprofits interests available to vest for that year will vest.  Upon achange of control or recapitalization, the remaining 20% of the profitsinterests granted and any remaining unvested interests vest immediately. If the employee is terminated without cause, the profits interests vestimmediately.  All profits interests that do not vest shall be forfeited andcancelled.

**Management ServicesAgreement — DJW and PGP**

In 2005, DJW entered intoa management services agreement (“MSA”) with PGP. Pursuant to the terms of thatagreement, PGP will design, develop, construct, manage and operate the newcasino in Worth County, Iowa and provide certain pre-opening services inconnection therewith. Under the management services agreement, PGP is entitledto receive a pre-opening service fee equal to $40,000 per month commencing inSeptember 2005 and ending upon opening of the new casino to the public. Uponcommencement of operations at the new casino, PGP will also receive a basicmanagement fee equal to 1.75% of net revenue (less net food and beveragerevenue) and an incentive fee equal to:

·              3.0% of the first $25.0 million ofEBITDA (as defined below);

45

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·              4.0% of EBITDA in excess of $25.0million but less than $30.0 million of EBITDA; and

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

“EBITDA” is defined in the management servicesagreement as earnings before interest, income taxes, depreciation andamortization; provided, however, that in calculating earnings, the basicmanagement fee, the incentive fee payable under the management servicesagreement shall not be deducted. The management services agreement willterminate on the later of (i) April 2014 or (ii) the date of sale by PGP of itsbeneficial ownership of the DJW’s membership interests. During 2006 and 2005,the Company expensed affiliate management fees of $1.7 million and $0.2million, respectively, related to this agreement.

**ITEM 14.****                                            PRINCIPALACCOUNTANT FEES AND SERVICES**
| **(in thousands):** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|
| Audit fees               |       | $        | 400        |     | $          | 331 |   |
| Audit-related  fees (1)  |       | 104      |       | 117      |       |
| Tax fees (2)             |       | 39       |       | 31       |       |
| All other fees           |       | —   |       | —   |       |
|                          |            |          |            |          |            |  |  |

----

(1)             Quarterly and annualinternal control, procedures related to compliance with state gamingregulations and quarterly net slot machine proceeds audits.

(2)             Compliancerelated services primarily involving research.

In accordance with our internal policies, all feesrelated to audit services rendered by our independent accountants are requiredto be pre-approved by our audit committee. In addition, all of the auditservices described above in this Item 14 for the years ended December 31,2006 and 2005 have been approved by our audit committee.

**PART IV**

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

**(a)           Thefollowing documents are filed as a part of this report:**

(1)                                  Financial Statements—see Index toConsolidated Financial Statements and Schedule appearing on page F-1.

(2)                                  Financial Statement Schedules—see Indexto Consolidated Financial Statements and Schedule appearing onpage F-1.

(3)                                  Exhibits:

**INDEX TO EXHIBITS**

 
| Exhibit  Number | ** ** | **Description of Exhibit***                                                                                                                                                                                                                                                                                                                                                                              |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1             |       | Certificate of Formation of Peninsula Gaming  Company, LLC—incorporated herein by reference to Exhibit 3.1A of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999. (With regard to  applicable cross-references in this Form 10-K, Peninsula Gaming Company,  LLC’s Form S-4, Current, Quarterly and Annual Reports were filed with the SEC  under File No. 333-88829. |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.2             |       | Amendment to Certificate of Formation of Peninsula  Gaming Company, LLC—incorporated by reference to Exhibit 3.1B of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.3             |       | Certificate of Amendment to the Certificate of  Formation of Peninsula Gaming Company, LLC, dated March 10,  2004—incorporated herein by reference to Peninsula Gaming Company, LLC’s  Quarterly Report on Form 10-Q filed May 14, 2004.                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.4             |       | Amended and Restated Operating Agreement of Peninsula  Gaming Company, LLC—incorporated herein by reference to Exhibit 3.2 of  Peninsula Gaming Company, LLC’s Form S-4 filed on October 12, 1999.                                                                                                                                                                                        |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.5             |       | Certificate of Formation of Peninsula Casinos, LLC,  dated February 27, 2004—incorporated by reference to Exhibit 3.3A of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                          |
|            |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.6             |       | Certificate of Amendment to the Certificate of  Formation of Peninsula Casinos, LLC, dated March 9, 2004—incorporated by  reference to Exhibit 3.3B of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004                                                                                                                                                                              |

 

46

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| 3.7    |   | Operating Agreement of Peninsula Gaming, LLC  (formerly known as Peninsula Casinos, LLC, dated June 14,  2004—incorporated by reference to Exhibit 3.4 of Peninsula Gaming, LLC’s Form  S-4 filed July 30, 2004.                                                                                                                                                                                                                                                |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.8    |   | Certificate of Incorporation of The Old Evangeline  Downs Capital Corp., dated January 20, 2003—incorporated herein by  reference to Exhibit 3.4 of The Old Evangeline Downs Capital Corp.’s Form S-4  filed May 28, 2003. (With regard to applicable cross-references in this  registration statement, The Old Evangeline Downs Capital Corp.’s Form S-4,  Current, Quarterly and Annual Reports were filed with the SEC under File No.  333-105587. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.9    |   | Certificate of Amendment to the Certificate of Incorporation  of The Old Evangeline Downs Capital Corp., dated June 17,  2004—incorporated by reference to Exhibit 3.5B of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.10   |   | By-laws of The Old Evangeline Downs Capital  Corp.—incorporated herein by reference to Exhibit 3.5 of The Old Evangeline  Downs Capital Corp.’s Form S-4 filed May 28, 2003.                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1    |   | Specimen Certificate of Common Stock of Peninsula  Gaming Corp. (formerly known as The Old Evangeline Downs Capital  Corp.)—incorporated by reference to Exhibit 4.1 of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.2    |   | Indenture, dated February 25, 2003, by and  among The Old Evangeline Downs, L.L.C., The Old Evangeline Downs Capital  Corp. and U.S. Bank National Association—incorporated herein by reference to  Exhibit 4.1 of The Old Evangeline Downs, L.L.C.’s Form S-4 filed May 28,  2003.                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.3    |   | Supplemental Indenture, dated as of March 25,  2004, by and among The Old Evangeline Downs, L.L.C., The Old Evangeline Downs  Capital Corp. and U.S. Bank National Association—incorporated by reference to  Exhibit 4.3B of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.4    |   | Indenture, dated as of April 16, 2004, by and  among Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC, The  Old Evangeline Downs Capital Corp., the Subsidiary Guarantors named therein  and U.S. Bank National Association—incorporated by reference to Exhibit 4.4A  of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.5    |   | Supplemental Indenture among Peninsula Gaming, LLC,  Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC, The Old  Evangeline Downs Capital Corp. and U.S. Bank National Association, dated as  of June 16, 2004—incorporated by reference to Exhibit 4.4B of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.6    |   | Registration Rights Agreement, dated April 16,  2004, by and among Diamond Jo, LLC (formerly known as Peninsula Gaming  Company, LLC, The Old Evangeline Downs Capital Corp., the Guarantors named  therein and Jefferies & Company,  Inc.—incorporated by  reference to Exhibit 4.5A of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.7    |   | Joinder of Peninsula Gaming, LLC, dated  June 16, 2004, to the Registration Rights Agreement, dated  April 16, 2004, by and among Diamond Jo, LLC (formerly known as  Peninsula Gaming Company, LLC, The Old Evangeline Downs Capital Corp., the  Guarantors named therein and Jefferies &  Company, Inc.—incorporated by reference to Exhibit 4.5B of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.8    |   | Pledge and Security Agreement, dated as of  April 16, 2004, among Diamond Jo, LLC (formerly known as Peninsula  Gaming Company, LLC, The Old Evangeline Downs Capital Corp., OED Acquisition,  LLC, Peninsula Gaming Corporation, The Old Evangeline Downs, L.L.C. and U.S.  Bank National Association—incorporated by reference to Exhibit 4.6A of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.9    |   | Supplement to Security Agreement by Peninsula  Gaming, LLC, dated June 16, 2004—incorporated by reference to Exhibit  4.6B of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.10   |   | Trademark Security Agreement, dated April 16,  2004, by Diamond Jo, LLC in favor of U.S. Bank National  Association—incorporated by reference to Exhibit 4.7 of Peninsula Gaming,  LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.11   |   | Form of 8 3¤4%  Senior Secured Notes due 2012—incorporated by reference to Exhibit 4.8 of  Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.12   |   | Intercreditor Agreement between U.S. Bank National  Association and Wells Fargo Foothill, Inc., dated April 16,  2004—incorporated by reference to Exhibit 4.9A of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.13   |   | Acknowledgement of Peninsula Gaming, LLC, dated  June 16, 2004, to the Intercreditor Agreement between U.S. Bank National  Association and Wells Fargo Foothill, Inc., dated April 16,  2004—incorporated by reference to Exhibit 4.9B of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004.                                                                                                                                                      |

 

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| 4.14       |       | Supplement to Security  Agreement by Peninsula Gaming, LLC, dated June 30, 2005—incorporated  herein by reference to Exhibit 4.1 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                      |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.15       |       | Supplement to Security  Agreement by Diamond Jo Worth Corp., dated June 30, 2005—incorporated  herein by reference to Exhibit 4.2 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                     |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.16       |       | Supplemental Indenture among Diamond Jo Worth Corp.,  Peninsula Gaming, LLC, Diamond Jo, LLC, Peninsula Gaming Corp. and U.S. Bank  National Association, dated as of June 30, 2005—incorporated herein by  reference to Exhibit 4.3 of Peninsula Gaming, LLC’s Quarterly Report on Form  10-Q filed November 14, 2005.                  |
|       | ** ** |                                                                                                                                                                                                                                                                                                                                               |
| 4.17       | ** ** | Acknowledgement of Diamond Jo Worth Corp., dated  June 30, 2005, to the Intercreditor Agreement between U.S. Bank National  Association and Wells Fargo Foothill, Inc., dated April 16, 2004—incorporated  herein by reference to Exhibit 4.4 of Peninsula Gaming, LLC’s Quarterly Report  on Form 10-Q filed November 14, 2005.         |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.18       |       | Supplement to Security  Agreement by Diamond Jo Worth Holdings, LLC, dated June 30, 2005—incorporated  herein by reference to Exhibit 4.5 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.19       |       | Supplemental Indenture among Diamond Jo Worth  Holdings, LLC, Peninsula Gaming, LLC, Diamond Jo, LLC, Peninsula Gaming Corp.  and U.S. Bank National Association, dated as of June 30, 2005—incorporated  herein by reference to Exhibit 4.6 of Peninsula Gaming, LLC’s Quarterly  Report on Form 10-Q filed November 14, 2005.          |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.20       |       | Acknowledgement of Diamond Jo Worth Holdings, LLC,  dated June 30, 2005, to the Intercreditor Agreement between U.S. Bank  National Association and Wells Fargo Foothill, Inc., dated April 16,  2004—incorporated herein by reference to Exhibit 4.7 of Peninsula Gaming,  LLC’s Quarterly Report on Form 10-Q filed November 14, 2005. |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.21       |       | Indenture among Diamond Jo Worth, LLC, Diamond Jo.  Worth Corp. and U.S. Bank National Association, as Trustee, dated as of July  19, 2005—incorporated herein by reference to Exhibit 10.2 of Peninsula  Gaming, LLC’s Quarterly Report on Form 10-Q filed August 16, 2005.                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.22       |       | Pledge and Security Agreement, dated as of July 19,  2005, among Diamond Jo Worth, LLC, Diamond Jo Worth Corp., Diamond Jo Worth  Holdings, LLC and U.S. Bank National Association, as Trustee—incorporated  herein by reference to Exhibit 10.4 of Peninsula Gaming, LLC’s Form 10-Q  filed August 16, 2005.                            |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.23       |       | First Supplemental Indenture dated August 31, 2006  by and among Diamond Jo Worth, LLC, Diamond Jo Worth Corp. and US Bank  National Association, as trustee—incorporated herein by reference to Exhibit 10.1 of Peninsula Gaming,  LLC’s Quarterly Report on Form  10-Q filed November 14, 2006.                                        |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.24† |       | Second Supplemental Indenture dated December 21,  2006 by and among Diamond Jo Worth, LLC, Diamond Jo Worth Corp. and US Bank  National Association, as trustee                                                                                                                                                                                    |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.25† |       | Third Amendment to Loan and Security Agreement and  Consent, dated December 6, 2006.                                                                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 4.26† |       | Fourth Amendment to Loan and Security Agreement and  Consent, dated December 22, 2006.                                                                                                                                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 10.1       |       | Operating Agreement, dated February 22, 1993,  by and among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat  Entertainment Company, L.C.—incorporated herein by reference to Exhibit 10.9A  of Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                 |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 10.2       |       | Amendment to Operating Agreement, dated  February 22, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9B of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                   |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 10.3       |       | Amendment to Operating Agreement, dated  March 4, 1993, by and among Dubuque Racing Association, Ltd. and Greater  Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9C of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                       |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 10.4       |       | Third Amendment to Operating Agreement, dated  March 11, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9D of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                |
|       |       |                                                                                                                                                                                                                                                                                                                                               |
| 10.5       |       | Fourth Amendment to Operating Agreement, dated  March 11, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9E of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                               |

 

48

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| 10.6   |   | Fifth Amendment to Operating Agreement, dated  April 9, 1993, by and among Dubuque Racing Association, Ltd. and Greater  Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9F of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                         |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.7   |   | Sixth Amendment to Operating Agreement, dated  November 29, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9G of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.8   |   | Seventh Amendment to Operating Agreement, dated  April 6, 1994, by and among Dubuque Racing Association, Ltd. and Greater  Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9H of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.9   |   | Eighth Amendment to Operating Agreement, dated  April 29, 1994, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9I of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.10  |   | Ninth Amendment to Operating Agreement, dated  July 11, 1995, by and among Dubuque Racing Association, Ltd. and Greater  Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9J of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.11  |   | Tenth Amendment to Operating Agreement, dated  July 15, 1999, by and among Dubuque Racing Association, Ltd. and Greater  Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.9K of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.12  |   | Operating Agreement Assignment, dated July 15,  1999, by and among Greater Dubuque Riverboat Entertainment Company, L.C. and  Peninsula Gaming Company, LLC—incorporated herein by reference to Exhibit  10.10 of Peninsula Gaming Company, LLC’s Form S-4 filed October 12,  1999.                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.13  |   | Ice Harbor Parking Agreement Assignment dated  July 15, 1999, by and among Greater Dubuque Riverboat Entertainment  Company, L.C. and Peninsula Gaming Company, LLC—incorporated herein by  reference to Exhibit 10.13 of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.14  |   | First Amendment to Sublease Agreement, dated  July 15, 1999, by and among Dubuque Racing Association, Ltd. and Greater  Dubuque Riverboat Entertainment Company, L.C.—incorporated herein by  reference to Exhibit 10.14 of Peninsula Gaming Company, LLC’s Form S-4 filed  October 12, 1999.                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.15  |   | Sublease Assignment, dated July 15, 1999, by  and among Greater Dubuque Entertainment Company, L.C. and Peninsula Gaming  Company, LLC—incorporated herein by reference to Exhibit 10.15 of Peninsula  Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.16  |   | Iowa Racing and Gaming Commission Gaming License,  dated July 15, 1999—incorporated herein by reference to Exhibit 10.16 of  Peninsula Gaming Company, LLC’s Form S-4 filed October 12, 1999.                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.17  |   | Assignment of Iowa IGT Declaration and Agreement of  Trust, dated July 15, 1999 by and among Greater Dubuque Riverboat  Entertainment Company, L.C. and Peninsula Gaming Company, LLC—incorporated  herein by reference to Exhibit 10.17 of Peninsula Gaming Company, LLC’s Form  S-4 filed October 12, 1999.                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.18  |   | Amended and Restated Management Services Agreement,  dated as of February 25, 2003, by and among The Old Evangeline Downs,  L.L.C., OED Acquisition, LLC and Peninsula Gaming Company, LLC—incorporated  herein by reference to Exhibit 10.15 of Peninsula Gaming Company, LLC’s Form  10-Q Quarterly Report for the quarter ended September 30, 2003. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.19  |   | Loan and Security Agreement, dated as of  June 16, 2004, by and among Diamond Jo, LLC (formerly known as Peninsula  Gaming Company, LLC, The Old Evangeline Downs, L.L.C. and Wells Fargo Foothill, Inc—incorporated  by reference to Exhibit 10.19 of Peninsula Gaming, LLC’s Form S-4 filed July  30, 2004.                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10.20  |   | Guarantor Security Agreement, dated as of  June 16, 2004, by and among Peninsula Gaming, LLC, The Old Evangeline  Downs Capital Corp. and Wells Fargo Foothill, Inc—incorporated by  reference to Exhibit 10.20 of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004.                                                                              |

 

49

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| 10.21  |   | Intercompany Subordination Agreement, dated as of  June 16, 2004, by and among The Old Evangeline Downs, L.L.C., Diamond  Jo, LLC (formerly known as Peninsula Gaming Company, LLC, The Old Evangeline  Downs Capital Corp., Peninsula Gaming, LLC and Wells Fargo  Foothill, Inc—incorporated by reference to Exhibit 10.21 of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004.                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.22  |   | Management Fees Subordination Agreement, dated as of  June 16, 2004, by and among The Old Evangeline Downs, L.L.C., The Old  Evangeline Downs Capital Corp., Diamond Jo, LLC (formerly known as Peninsula  Gaming Company, LLC, OED Acquisition, LLC and Wells Fargo  Foothill, Inc.—incorporated by reference to Exhibit 10.22 of Peninsula  Gaming, LLC’s Form S-4 filed July 30, 2004.                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.23  |   | Post Closing Letter, dated June 16, 2004, from  Wells Fargo Foothill, Inc. to The Old Evangeline Downs, L.L.C. and  Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC—incorporated  by reference to Exhibit 10.23 of Peninsula Gaming, LLC’s Form S-4 filed July  30, 2004.                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.24  |   | Employment Agreement, dated July 14, 2004, by  and between Jonathan Swain and Peninsula Gaming, LLC—incorporated by  reference to Exhibit 10.1B of Peninsula Gaming, LLC’s Form S-4 filed July 30,  2004                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.25  |   | Form of Employment Agreement by and between Natalie  A. Schramm and Peninsula Gaming, LLC.—incorporated by reference to Exhibit  10.01A of Peninsula Gaming, LLC’s Form S-4 filed July 30, 2004.                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.26  |   | Guaranty by The Old Evangeline Downs Capital Corp.  in favor of Wells Fargo Foothill, Inc., dated June 16,  2004—incorporated by reference to Exhibit 10.25 of Peninsula Gaming, LLC’s  Form S-4 filed July 30, 2004                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.27  |   | Purchase Agreement among Diamond Jo Worth, LLC,  Diamond Jo Worth Corp., Diamond Jo Worth Holdings, LLC, Diamond Jo, LLC and  Jefferies & Company, Inc.—incorporated herein by reference to Exhibit  10.3 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed August  16, 2005.                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.28  |   | Borrower Supplement No. 1  by Diamond Jo Worth, LLC, dated as of May 13, 2005—incorporated herein  by reference to Exhibit 10.2 of Peninsula  Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.29  |   | Second Amendment to Loan and Security Agreement,  dated as of July 12, 2005, by and among Diamond Jo, LLC, The Old Evangeline  Downs, L.L.C., Diamond Jo Worth, LLC and Wells Fargo Foothill, Inc.—incorporated  herein by reference to Exhibit 10.6 of Peninsula Gaming, LLC’s Quarterly  Report on Form 10-Q filed August 16, 2005.                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.30  |   | Stock Pledge Agreement  Supplement by Peninsula Gaming, LLC, dated as of May 13, 2005—incorporated  herein by reference to Exhibit 10.4 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.31  |   | Acknowledgement and  Agreement by Diamond Jo Worth, LLC, dated July 12, 2005—incorporated  herein by reference to Exhibit 10.5 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed  November 14, 2005.                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.32  |   | Acknowledgment of Diamond  Jo Worth, LLC, dated May 13, 2005—incorporated herein by reference to  Exhibit 10.6 of Peninsula  Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.33  |   | First Amendment to Intercompany Subordination  Agreement, dated as of May 13, 2005, by and among The Old Evangeline Downs,  L.L.C., Diamond Jo Worth, LLC, Diamond Jo, LLC, Peninsula Gaming Corp.,  Peninsula Gaming, LLC, OED Acquisition, LLC and Wells Fargo Foothill,  Inc.—incorporated herein by reference to Exhibit 10.7 of Peninsula Gaming,  LLC’s Quarterly Report on Form 10-Q filed November 14, 2005. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.34  |   | Act of Second Amendment of Multiple Obligations  Mortgage, dated as of July 12, 2005, between The Old Evangeline Downs, L.L.C.  and Wells Fargo Foothill, Inc.—incorporated herein by reference to Exhibit  10.8of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November  14, 2005.                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.35  |   | Second Amendment to Iowa Shore Mortgage, dated as of  July 12, 2005, between Diamond Jo, LLC and Wells Fargo Foothill,  Inc.—incorporated herein by reference to Exhibit 10.9 of Peninsula Gaming,  LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.36  |   | Subordination Agreement, dated as of July 12, 2005,  between Diamond Jo, LLC and U.S. Bank National Association, as  Trustee—incorporated herein by reference to Exhibit 10.10 of Peninsula  Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                                                                                                    |

 

50

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| 10.37  |   | Mortgage, Assignment of Rents, Security Agreement  and Fixture Financing Statement, dated May 13, 2005, between Diamond Jo  Worth, LLC and Well Fargo Foothill, Inc., as Agent —incorporated herein by  reference to Exhibit 10.11 of Peninsula Gaming, LLC’s Quarterly Report on  Form 10-Q filed November 14, 2005.                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.38  |   | Second Amendment to First Preferred Ship Mortgage,  dated as of July 12, 2005, between Diamond Jo, LLC and Wells Fargo Foothill,  Inc.—incorporated herein by reference to Exhibit 10.12 of Peninsula Gaming,  LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.39  |   | Amended and Restated Mortgage, Assignment of Rents,  Security Agreement and Fixture Financing Statement, dated July 19, 2005,  between Diamond Jo Worth, LLC and Well Fargo Foothill, Inc., as  Agent—incorporated herein by reference to Exhibit 10.5 of Peninsula Gaming,  LLC’s Quarterly Report on Form 10-Q filed August 16, 2005.              |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.40  |   | Assignment of Mortgage, Assignment of Rents,  Security Agreement and Fixture Financing Statement by U.S. Bank National  Association, dated July 19, 2005—incorporated herein by reference to Exhibit  10.9 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November  14, 2005.                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.41  |   | Release of Real Estate Mortgage by Wells Fargo  Foothill, Inc., dated July 19, 2005—incorporated herein by reference to  Exhibit 10.53 of Peninsula Gaming, LLC’s Annual Report on Form 10-K filed  March 30, 2006.                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.42  |   | Cash Collateral and Disbursement Agreement, dated as  of July 19, 2005, by and among Diamond Jo Worth, LLC, Diamond Jo Worth Corp.  and U.S. Bank National Association, as Trustee and Disbursement  Agent—incorporated herein by reference to Exhibit 10.14 of Peninsula Gaming,  LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.      |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.43  |   | Multi-Party Blocked Account Agreement, dated as of  July 19, 2005, by and among Diamond Jo Worth, LLC, U.S. Bank National  Association, as trustee, and U.S. Bank National Association, as securities  intermediary—incorporated  herein by reference to Exhibit 10.53 of Peninsula Gaming, LLC’s Annual  Report on Form 10-K filed March 30,  2006. |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.44  |   | Multi-Party Blocked Account Agreement, dated as of  July 19, 2005, by and among Diamond Jo Worth, LLC, U.S. Bank National  Association, as trustee, and U.S. Bank National Association, as securities  intermediary—incorporated  herein by reference to Exhibit 10.53 of Peninsula Gaming, LLC’s Annual  Report on Form 10-K filed March 30,  2006. |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.45  |   | Multi-Party Blocked Account Agreement, dated as of  July 19, 2005, by and among Diamond Jo Worth, LLC, U.S. Bank National  Association, as trustee, and American Trust and Savings Bank, as depositary—incorporated herein by reference to Exhibit  10.53 of Peninsula Gaming, LLC’s Annual Report on Form 10-K filed March 30, 2006.                |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.46  |   | Multi-Party Blocked Account Agreement, dated as of  July 19, 2005, by and among Diamond Jo Worth, LLC, U.S. Bank National  Association, as trustee, and American Trust and Savings Bank, as depositary—incorporated herein by reference to Exhibit  10.53 of Peninsula Gaming, LLC’s Annual Report on Form 10-K filed March 30, 2006.                |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.47  |   | Management Services Agreement, dated July 19, 2005,  between Diamond Jo Worth, LLC and Peninsula Gaming Partners—incorporated  herein by reference to Exhibit 10.1 of Peninsula Gaming, LLC’s Quarterly  Report on Form 10-Q filed August 16, 2005.                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.48  |   | Eleventh Amendment to Operating Agreement, dated as  of May 31, 2005, by and between Dubuque Racing Association, Ltd. And Diamond  Jo, LLC—incorporated herein by reference to Exhibit 10.16 of Peninsula  Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2005.                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.49  |   | Standard Form of Agreement between Owner and  Architect, dated March 1, 2005, between Diamond Jo Worth, LLC and KGA  Architecture—incorporated  herein by reference to Exhibit 10.7 of Peninsula Gaming, LLC’s Quarterly  Report on Form 10-Q filed August 16,  2005.                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.50  |   | General Conditions of Standard Form of Agreement  between Owner and Architect, dated March 1, 2005, between Diamond Jo  Worth, LLC and KGA Architecture—incorporated herein by reference to Exhibit 10.8 of Peninsula Gaming,  LLC’s Quarterly Report on Form  10-Q filed August 16, 2005.                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.51  |   | Standard Form of Agreement between Owner and  Contractor, dated as of June 6, 2005, between Diamond Jo Worth, LLC and  Henkel Construction Company—incorporated herein by reference to Exhibit 10.9 of Peninsula Gaming,  LLC’s Quarterly Report on Form  10-Q filed August 16, 2005.                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 10.52  |   | Second Amendment to Employment Agreement of Jonathan  Swain, dated as of September 12, 2005—incorporated herein by reference to Exhibit 10.52 of Peninsula Gaming,  LLC’s Annual Report on Form  10-K filed March 30, 2006.                                                                                                                          |

 

51

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| 10.53       |   | Offer to Purchase Real Estate, Acceptance and Lease,  dated September 27, 2006, between Diamond Jo, LLC and Dubuque County  Historical Society—incorporated  herein by reference to Exhibit 10.1 of Peninsula Gaming, LLC’s Quarterly  Report on Form 10-Q filed November 14,  2006. |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.54       |   | Closing Agreement, dated September 27, 2006, between  Diamond Jo, LLC and Dubuque County Historical Society—incorporated herein by reference to Exhibit  10.1 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2006.                                      |
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.55       |   | Real Estate Ground Lease, dated September 27, 2006,  between Diamond Jo, LLC and Dubuque County Historical Society—incorporated herein by reference to Exhibit  10.1 of Peninsula Gaming, LLC’s Quarterly Report on Form 10-Q filed November 14, 2006.                               |
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.56† |   | Amended and Restated Operator’s Agreement, dated November 5,  2004, by and among the Worth County Development Authority, an Iowa not-for-profit  corporation, and Diamond Jo Worth, LLC.                                                                                        |
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.57† |   | PGP’s Amended and Restated 2004 Incentive Unit Plan.                                                                                                                                                                                                                                      |
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.58† |   | Form of Incentive Unit Plan Agreement.                                                                                                                                                                                                                                                         |
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.59† |   | Construction Agreement, dated August 18, 2006,  between Diamond Jo Worth, LLC and Henkel Construction Company.                                                                                                                                                                                 |
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.60† |   | Purchase Agreement among Peninsula Gaming LLC,  Diamond Jo, LLC, Peninsula Gaming Corp., and Jefferies & Company, Inc.,  dated December 22, 2006.                                                                                                                                          |
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.61† |   | First Amendment to Employment Agreement of Natalie  Schramm, dated December 18, 2006                                                                                                                                                                                                           |
|        |   |                                                                                                                                                                                                                                                                                           |
| 10.62† |   | Third Amendment to Employment Agreement of Jonathan  Swain, dated December 18, 2006                                                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                                                                           |
| 12.1†  |   | Computation of ratio of earnings to fixed charges.                                                                                                                                                                                                                                             |
|        |   |                                                                                                                                                                                                                                                                                           |
| 21.1†  |   | Subsidiaries of the Registrants                                                                                                                                                                                                                                                                |
|        |   |                                                                                                                                                                                                                                                                                           |
| 31.1†  |   | Certification of M. Brent Stevens, Chief Executive  Officer.                                                                                                                                                                                                                                   |
|        |   |                                                                                                                                                                                                                                                                                           |
| 31.2†  |   | Certification of Natalie A. Schramm, Chief Financial  Officer.                                                                                                                                                                                                                                 |
|        |   |                                                                                                                                                                                                                                                                                           |

----

*                    Unlessotherwise noted, exhibits have been previously filed and are incorporated byreference.

†                     Filedherewith.

52

----

**SIGNATURES**

Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, each of theregistrants has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, on April 2, 2007.
|          | PENINSULA GAMING, LLC  |                        |
|----------|------------------------|-----------------------------|
|     |                   |                        |
|     | By:                    |  /s/ M.  BRENT STEVENS |   |
|     |                   | M. Brent Stevens            |
| * * | * *               | *Chief Executive Officer*   |
|     |                   |                        |
|     | PENINSULA GAMING CORP. |                        |
|     |                   |                        |
|     | By:                    |  /s/ M.  BRENT STEVENS |   |
|     |                   | M. Brent Stevens            |
| * * | * *               | *Chief Executive Officer*   |
|     |                   |                        |
|     | DIAMOND JO, LLC        |                        |
|     |                   |                        |
|     | By:                    |  /s/ M.  BRENT STEVENS |   |
|     |                   | M. Brent Stevens            |
| * * | * *               | *Chief Executive Officer*   |
|          |                        |                             |  |  |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of each of the registrants andin the capacities indicated on April 2, 2007.
|          | PENINSULA GAMING, LLC |                                                      |
|----------|-----------------------|-----------------------------------------------------------|
|     |                  |                                                      |
|     | By:                   |  /s/ M.  BRENT STEVENS                               |   |
|     |                  | M. Brent Stevens                                          |
| * * | * *              | *Chief Executive Officer and Manager*                     |
| * * | * *              | *(principal executive officer)*                           |
|     |                  |                                                      |
|     | By:                   |  /s/ NATALIE  A. SCHRAMM                             |   |
|     |                  | Natalie A. Schramm                                        |
| * * | * *              | *Chief Financial Officer*                                 |
| * * | * *              | *(principal financial and principal accounting  officer)* |
|     |                  |                                                      |
|     | By:                   |  /s/ MICHAEL  S. LUZICH                              |   |
|     |                  | Michael S. Luzich                                         |
| * * | * *              | *President, Secretary and Manager*                        |
|     |                  |                                                      |
|     | By:                   |  /s/ TERRANCE  W. OLIVER                             |   |
|     |                  | Terrance W. Oliver                                        |
| * * | * *              | *Manager*                                                 |
|     |                  |                                                      |
|     | By:                   |  /s/ ANDREW  WHITTAKER                               |   |
|     |                  | Andrew Whittaker                                          |
| * * | * *              | *Manager*                                                 |

 

53

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

 

 

54

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**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE**
| **Consolidated Financial Statements and Schedule of Peninsula Gaming,  LLC:**                                                        |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Report of Independent Registered Public Accounting  Firm                                                                             |   | F-2    |
| Consolidated  Balance Sheets — December 31, 2006 and 2005                                                                  |   | F-3    |
| Consolidated Statements of Operations — Years Ended  December 31, 2006, 2005 and 2004                                      |   | F-4    |
| Consolidated Statements of Changes in Member’s Deficit  — Years Ended December 31, 2006, 2005 and 2004                |   | F-5    |
| Consolidated Statements of Cash Flows — Years Ended  December 31, 2006, 2005 and 2004                                      |   | F-6    |
| Notes to Consolidated Financial Statements                                                                                           |   | F-7    |
| Financial Statement Schedule — Valuation and  Qualifying Accounts — Years Ended December 31, 2006, 2005 and 2004 |   | S-1    |

 

F-1

----

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

Peninsula Gaming, LLC

Dubuque,Iowa

We have audited the accompanying consolidated balancesheets of Peninsula Gaming, LLC and subsidiaries (the “Company”) as ofDecember 31, 2006 and 2005, and the related consolidated statements ofoperations, changes in member’s deficit, and cash flows for each of the threeyears in the period ended December 31, 2006. Our audits also included thefinancial statement schedule listed in the Index to Consolidated FinancialStatements and Schedule. These financial statements and financial statementschedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andfinancial statement schedule based on our audits.

We conducted our audits in accordance with standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements presentfairly, in all material respects, the financial position of Peninsula Gaming,LLC and subsidiaries as of December 31, 2006 and 2005, and the results oftheir operations and their cash flows for each of the three years in the periodended December 31, 2006, in conformity with accounting principlesgenerally accepted in the United States of America. Also, in our opinion, suchfinancial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.
| /s/ DELOITTE &  TOUCHE LLP |   |
|-------------------------------------|--------|
|                                |   |
| Cedar Rapids,  Iowa                 |   |
| March 27,  2007                |   |

 

F-2

----

 

PENINSULA GAMING, LLC

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2006 AND 2005

(in thousands)
| ** **                                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **ASSETS**                                                                              |       |     |       |     |       |
| CURRENT ASSETS:                                                                         |       |     |       |     |       |
| Cash and cash  equivalents                                                              |       | $        | 56,921     |     | $          | 12,778 |   |
| Restricted cash  — purse settlements                                               |       | 4,619    |       | 5,119    |       |
| Restricted cash  — interest reserve                                                |       | —   |       | 2,281    |       |
| Accounts  receivable, less allowance for doubtful accounts of $39 and $73, respectively |       | 3,529    |       | 2,801    |       |
| Inventories                                                                             |       | 706      |       | 493      |       |
| Prepaid expenses                                                                        |       | 1,456    |       | 1,259    |       |
| Total current  assets                                                                   |       | 67,231   |       | 24,731   |       |
| RESTRICTED CASH-WORTH PROJECT                                                           |       | 12,981   |       | 16,848   |       |
| PROPERTY AND EQUIPMENT,  NET                                                            |       | 164,754  |       | 143,393  |       |
| OTHER ASSETS:                                                                           |       |     |       |     |       |
| Deferred  financing costs, net of amortization of $6,603 and $3,863, respectively       |       | 16,224   |       | 14,263   |       |
| Goodwill                                                                                |       | 53,083   |       | 53,083   |       |
| Licenses and  other intangibles                                                         |       | 35,521   |       | 34,003   |       |
| Deposits and  other assets                                                              |       | 4,016    |       | 1,307    |       |
| Total other  assets                                                                     |       | 108,844  |       | 102,656  |       |
| TOTAL                                                                                   |       | $        | 353,810    |     | $          | 287,628 |   |
| **LIABILITIES AND MEMBER’S  DEFICIT**                                              |       |     |       |     |       |
| CURRENT LIABILITIES:                                                                    |       |     |       |     |       |
| Accounts payable                                                                        |       | $        | 5,383      |     | $          | 4,742 |   |
| Construction  payable                                                                   |       | 5,531    |       | 6,117    |       |
| Purse settlement  payable                                                               |       | 6,265    |       | 7,320    |       |
| Accrued payroll  and payroll taxes                                                      |       | 4,575    |       | 4,267    |       |
| Accrued interest                                                                        |       | 7,437    |       | 5,864    |       |
| Other accrued  expenses                                                                 |       | 9,026    |       | 7,605    |       |
| Payable to  affiliates                                                                  |       | 2,484    |       | 969      |       |
| Current  maturities of long-term debt and leases                                        |       | 8,645    |       | 11,002   |       |
| Total current  liabilities                                                              |       | 49,346   |       | 47,886   |       |
| LONG-TERM LIABILITIES:                                                                  |       |     |       |     |       |
| 8 3/4% senior secured notes, net  of discount                                           |       | 252,381  |       | 230,259  |       |
| 11% senior  secured notes, net of discount                                              |       | 96,500   |       | 40,000   |       |
| 13% senior  secured notes, net of discount                                              |       | 6,831    |       | 6,813    |       |
| Senior secured  credit facilities                                                       |       | —   |       | 23,800   |       |
| Term loan                                                                               |       | 667      |       | 4,667    |       |
| Notes and leases  payable, net of discount                                              |       | 3,544    |       | 4,465    |       |
| Other accrued  expenses                                                                 |       | 1,042    |       | 345      |       |
| Total long-term  liabilities                                                            |       | 360,965  |       | 310,349  |       |
| Total  liabilities                                                                      |       | 410,311  |       | 358,235  |       |
| COMMITMENTS AND  CONTINGENCIES                                                          |       |     |       |     |       |
| MEMBER’S DEFICIT:                                                                  |       |     |       |     |       |
| Common member’s  interest                                                          |       | 9,000    |       | 9,000    |       |
| Accumulated  deficit                                                                    |       | (65,501  | )          | (79,607  | )          |
| Total member’s  deficit                                                            |       | (56,501  | )          | (70,607  | )          |
| TOTAL                                                                                   |       | $        | 353,810    |     | $          | 287,628 |   |

 

See notes to consolidated financial statements.

F-3

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(in thousands)
| ** **                                                                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                      |       |     |       |     |       |     |       |
| REVENUES:                                                                 |       |     |       |     |       |     |       |
| Casino                                                                    |       | $        | 200,734    |     | $          | 146,790  |       | $ | 120,190 |   |
| Racing                                                                    |       | 22,146   |       | 17,578   |       | 17,380   |       |
| Video poker                                                               |       | 3,715    |       | 2,339    |       | 2,715    |       |
| Food and beverage                                                         |       | 15,315   |       | 13,511   |       | 11,464   |       |
| Other                                                                     |       | 10,087   |       | 2,710    |       | 1,434    |       |
| Less promotional  allowances                                              |       | (17,580  | )          | (13,855  | )          | (11,464  | )          |
| Total net  revenues                                                       |       | 234,417  |       | 169,073  |       | 141,719  |       |
| EXPENSES:                                                                 |       |     |       |     |       |     |       |
| Casino                                                                    |       | 84,971   |       | 67,180   |       | 58,079   |       |
| Racing                                                                    |       | 18,579   |       | 15,335   |       | 14,010   |       |
| Video poker                                                               |       | 2,949    |       | 1,767    |       | 2,034    |       |
| Food and beverage                                                         |       | 11,701   |       | 9,849    |       | 9,218    |       |
| Other                                                                     |       | 6,605    |       | 1,720    |       | 1,076    |       |
| Selling, general and  administrative                                      |       | 43,924   |       | 28,454   |       | 24,247   |       |
| Depreciation and  amortization                                            |       | 20,820   |       | 16,249   |       | 12,356   |       |
| Pre-opening expense                                                       |       | 966      |       | 310      |       | 367      |       |
| Development expense                                                       |       | 777      |       | 575      |       | 242      |       |
| Affiliate management  fees                                                |       | 4,516    |       | 2,057    |       | 757      |       |
| (Gain) loss on disposal  of assets                                        |       | 210      |       | (16      | )          | (716     | )          |
| Management severance  and recruiting                                      |       | —   |       | —   |       | 593      |       |
| Total expenses                                                            |       | 196,018  |       | 143,480  |       | 122,263  |       |
| INCOME FROM OPERATIONS                                                    |       | 38,399   |       | 25,593   |       | 19,456   |       |
| OTHER INCOME (EXPENSE):                                                   |       |     |       |     |       |     |       |
| Interest income                                                           |       | 955      |       | 516      |       | 170      |       |
| Interest expense, net  of amounts capitalized                             |       | (32,741  | )          | (29,133  | )          | (26,775  | )          |
| Loss on early  retirement of debt                                         |       | —   |       | —   |       | (37,566  | )          |
| Interest expense  related to preferred members’ interest, redeemable |       | (285     | )          | (360     | )          | (360     | )          |
| Total other  expense                                                      |       | (32,071  | )          | (28,977  | )          | (64,531  | )          |
| NET INCOME (LOSS)                                                         |       | $        | 6,328      |     | $          | (3,384   | )          | $ | (45,075 | ) |

 

See notes to consolidated financial statements.

 

F-4

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S DEFICIT

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(in thousands)

 
| ** **                        | ** ** | **COMMON  MEMBER’S  INTEREST** | ** ** | **ACCUMULATED  DEFICIT** | ** ** | **TOTAL  MEMBER’S   DEFICIT** | ** ** |
|-----------------------------------|------------|-------------------------------------|------------|--------------------------|------------|-----------------------------------------|------------|
|                              |       |                                |       |                     |       |                                    |       |
| BALANCE,  JANUARY 1, 2004    |       | $                                   | 9,000      |                     | $          | (19,628                                 | )          | $ | (10,628 | ) |
| Net loss                          |       | —                              |       | (45,075                  | )          | (45,075                                 | )          |
| Member distributions              |       | —                              |       | (7,031                   | )          | (7,031                                  | )          |
| Spin off of OED  Acquisition, LLC |       | —                              |       | 135                      |       | 135                                     |       |
| BALANCE,  DECEMBER 31, 2004  |       | 9,000                               |       | (71,599                  | )          | (62,599                                 | )          |
| Net loss                          |       | —                              |       | (3,384                   | )          | (3,384                                  | )          |
| Member distributions              |       | —                              |       | (4,624                   | )          | (4,624                                  | )          |
| BALANCE,  DECEMBER 31, 2005  |       | 9,000                               |       | (79,607                  | )          | (70,607                                 | )          |
| Net income                        |       | —                              |       | 6,328                    |       | 6,328                                   |       |
| Member distributions              |       | —                              |       | (2,494                   | )          | (2,494                                  | )          |
| Member contributions              |       | —                              |       | 10,272                   |       | 10,272                                  |       |
| BALANCE, DECEMBER 31, 2006   |       | $                                   | 9,000      |                     | $          | (65,501                                 | )          | $ | (56,501 | ) |

 

See notes to consolidated financial statements.

 

F-5

----

 

PENINSULA GAMING, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(in thousands)
| ** **                                                                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                     |       |     |       |     |       |     |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                   |       |     |       |     |       |     |       |
| Net income  (loss)                                                                       |       | $        | 6,328      |     | $          | (3,384   | )          | $ | (45,075 | ) |
| Adjustments to  reconcile net income (loss) to net cash flows from operating activities: |       |     |       |     |       |     |       |
| Depreciation and  amortization                                                           |       | 20,820   |       | 16,249   |       | 12,356   |       |
| Provision for  doubtful accounts                                                         |       | 145      |       | 136      |       | 106      |       |
| Amortization of  deferred financing costs and bond discount                              |       | 3,551    |       | 3,140    |       | 2,623    |       |
| Non-cash equity  based and other compensation                                            |       | 8,766    |       | 1,208    |       | —   |       |
| Write-off of  deferred financing and bond discount                                       |       | —   |       | —   |       | 13,786   |       |
| (Gain) loss on  disposal of assets                                                       |       | 210      |       | (16      | )          | (716     | )          |
| Changes in  operating assets and liabilities:                                            |       |     |       |     |       |     |       |
| Restricted cash  — purse settlements                                                |       | 500      |       | (1,448   | )          | (2,082   | )          |
| Receivables                                                                              |       | (874     | )          | (1,934   | )          | (440     | )          |
| Inventories                                                                              |       | (213     | )          | (250     | )          | 160      |       |
| Prepaid expenses  and other assets                                                       |       | (2,621   | )          | 149      |       | (1,141   | )          |
| Payable to  affiliates                                                                   |       | 1,813    |       | 868      |       | 236      |       |
| Accounts payable                                                                         |       | (669     | )          | 2,791    |       | 4,280    |       |
| Accrued expenses                                                                         |       | 4,065    |       | 4,018    |       | (5,968   | )          |
| Net cash flows  from operating activities                                                |       | 41,821   |       | 21,527   |       | (21,875  | )          |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                   |       |     |       |     |       |     |       |
| Increase in cash  value of life insurance                                                |       | (283     | )          | —   |       | —   |       |
| Business  acquisition and licensing costs                                                |       | (1,520   | )          | (1,441   | )          | (304     | )          |
| Proceeds from  (deposits to) restricted cash, net                                        |       | 6,148    |       | (19,129  | )          | 20,013   |       |
| Maturity and  sale of restricted investments                                             |       | —   |       | —   |       | 15,779   |       |
| Construction  project development costs                                                  |       | (23,647  | )          | (25,949  | )          | (38,227  | )          |
| Purchase of  property and equipment                                                      |       | (12,725  | )          | (5,776   | )          | (5,148   | )          |
| Proceeds from  sale of property and equipment                                            |       | 47       |       | 153      |       | 1,101    |       |
| Net cash flows  from investing activities                                                |       | (31,980  | )          | (52,142  | )          | (6,786   | )          |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                   |       |     |       |     |       |     |       |
| Deferred  financing costs                                                                |       | (4,393   | )          | (3,283   | )          | (14,159  | )          |
| Principal  payments on debt                                                              |       | (9,291   | )          | (9,116   | )          | (206,200 | )          |
| Redemption of  preferred member’s interest                                          |       | (4,000   | )          | —   |       | —   |       |
| Proceeds from  senior secured notes                                                      |       | 78,280   |       | 40,000   |       | 229,728  |       |
| Proceeds from  senior credit facilities                                                  |       | 29,685   |       | 23,033   |       | 19,888   |       |
| Payments on  senior credit facilities                                                    |       | (53,485  | )          | (13,121  | )          | (22,354  | )          |
| Proceeds from  FF&E credit facility                                                  |       | —   |       | —   |       | 3,468    |       |
| Proceeds from  term loan                                                                 |       | —   |       | —   |       | 14,667   |       |
| Member  distributions                                                                    |       | (2,494   | )          | (4,624   | )          | (7,031   | )          |
| Net cash flows  from financing activities                                                |       | 34,302   |       | 32,889   |       | 18,007   |       |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                    |       | 44,143   |       | 2,274    |       | (10,654  | )          |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                          |       | 12,778   |       | 10,504   |       | 21,158   |       |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR                                                |       | $        | 56,921     |     | $          | 12,778   |       | $ | 10,504 |   |
|                                                                                     |       |     |       |     |       |     |       |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                      |       |     |       |     |       |     |       |
| Cash paid during the  year for interest                                                  |       | $        | 29,170     |     | $          | 25,418   |       | $ | 30,693 |   |
| SUPPLEMENTAL  SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:              |       |     |       |     |       |     |       |
| Property and equipment  purchased, but not paid                                          |       | $        | 4,764      |     | $          | 5,046    |       | $ | 4,712 |   |
| Property and equipment  purchased in exchange for indebtedness                           |       | 5,899    |       | 22       |       | 8,496    |       |
| Assumption of equity  based and other compensation liability by owner                    |       | 1,506    |       | —   |       | —   |       |
| Deferred financing fees  incurred, but not paid                                          |       | 303      |       | —   |       | —   |       |
| Property and equipment  returned for a reduction in construction payable                 |       | —   |       | 162      |       | —   |       |
| Exchange of private PGL  notes for registered PGL notes                                  |       | —   |       | —   |       | 233,000  |       |
| Spin-off of OED Acquisition, LLC                                                         |       | —   |       | —   |       | 135      |       |

 

See notes to consolidated financial statements.

F-6

----

 

PENINSULA GAMING, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

**1. ORGANIZATION AND BUSINESS PURPOSE**

Peninsula Gaming, LLC (“PGL” or the “Company”), aDelaware limited liability company organized in 1999, is a holding company withno independent operations whose primary assets are cash and its equityinterests in its wholly owned subsidiaries. PGL’s subsidiaries consist of:(i) Diamond Jo, LLC, a Delaware limited liability company (“DJL”), thatowns and operates the Diamond Jo riverboat casino in Dubuque, Iowa;(ii) The Old Evangeline Downs, L.L.C., a Louisiana limited liabilitycompany (“OED”), that owns and operates the Evangeline Downs Racetrack andCasino, or racino, in St. Landry Parish, Louisiana and four off-track betting (“OTB”)parlors in Louisiana; (iii) Diamond Jo Worth Holdings, LLC, a Delawarelimited liability company (“DJWH”), and (iv) Peninsula Gaming Corp. (“PGC”),a Delaware limited liability company with no assets or operations formed solelyto facilitate the offering of the Company’s 8 3/4% senior secured notes due2012 (the “Peninsula Gaming Notes”) in March 2004. DJWH is a holdingcompany with no independent operations whose sole assets are its equityinterests in its wholly owned subsidiaries. DJWH’s subsidiaries consist of:(i) Diamond Jo Worth, LLC, a Delaware limited liability company (“DJW”),that owns and operates the Diamond Jo casino in Worth County, Iowa and(ii) DJW Corp. (“DJWC”), a Delaware limited liability company with noassets or operations formed solely to facilitate the offering by DJW of its 11%senior secured notes due 2012 (the “DJW Notes”) in July 2005. The Companyis a wholly owned subsidiary of Peninsula Gaming Partners, LLC (“PGP”), aDelaware limited liability company.

***RecentDevelopments***

On July 13, 2006, the IowaRacing and Gaming Commission approved DJW’s request to expand its new casinofacility by approximately 30,000 square feet. The proposed expansion is expected to add an additional 300 slotmachines, 11 table games, a new poker room, a new buffet restaurant, anexpanded casino bar, a banquet and event center and additional parking.  Construction of the expansion has commencedand is expected to be completed during the second quarter of 2007 for anaggregate cost of approximately $32.7 million.

On September 27, 2006,DJL entered into an Offer to Purchase Real Estate, Acceptance and Lease (the “HistoricalSociety Agreement”) with the Dubuque County Historical Society (the “HistoricalSociety”). The Historical Society Agreement provides for, among other things,(i) a charitable contribution to the Historical Society of $1.0 million payablein equal annual installments of $0.1 million for 10 years commencing one yearafter the closing of the transactions contemplated by the Historical SocietyAgreement and (ii) the purchase by DJL of 2.4 acres of real property (the “ExpansionTract”) for a purchase price not to exceed $2 million, to facilitate DJL’sbuilding of a new moored barge facility to expand its existing casinooperations. In addition, if the purchase price payable for the Expansion Tractis less than $2.0 million, DJL has agreed to make a charitable contributionfollowing the closing of the transactions contemplated by the HistoricalSociety Agreement of the difference between the price paid for the ExpansionTract and $2.0 million. The Historical Society Agreement also provides for theHistorical Society to lease DJL’s existing dockside pavilion for 99 years at $1per year and for DJL to transfer all of its rights, title and interest in theexisting Diamond Jo vessel to the Historical Society at the Historical Society’soption. The lease and the transfer of the vessel are conditioned upon DJLcommencing operation of its new moored barge facility. Closing of thetransactions contemplated by the Historical Society Agreement are contingentupon satisfactory completion of DJL’s due diligence relating to its purchase ofthe Expansion Tract. Since the $1.0 million charitable contribution iscontingent upon the closing of the Historical Society Agreement, all importantcontingencies have not yet been resolved and no contribution expense will berecorded until the contingencies are resolved.

DJL’s proposed new mooredbarge facility is expected to include approximately 1,000 slot machines, 17table games and a five-table poker room. Additional amenities are expected to include a bowling center, variousrestaurants and an entertainment center. The Company is currently in the process of estimating total projectcosts and timing of completion of the new casino.

In addition, in February2007, DJL entered into the Port of Dubuque Public Parking Facility DevelopmentAgreement (“Development Agreement”) with the City of Dubuque, Iowa regarding,among other things, the design, development, construction and financing of apublic parking facility to be located adjacent to DJL’s proposed casinodevelopment.  The City of Dubuque iscurrently in the process of estimating the total cost of the new parkingfacility.  It is anticipated that theCity of Dubuque will hire a third party to construct the parking facility witha required completion date of no later than August 1, 2008.  The parking facility, which will be owned bythe City of Dubuque, will provide free parking to the general public andcontain approximately 1,200 parking spaces. The Development Agreement requires that DJL construct its casinodevelopment to consist of not less than 140,000 square feet and at a cost of atleast $45 million.  In addition, theDevelopment Agreement provides that the parking facility will be financed by aninitial payment of not less than $6.4 million by DJL to the City of Dubuquewith the remainder of the cost being financed via tax increment finance bondsthat will be issued by the City of Dubuque and paid off with the taxincremental revenue generated by the new DJL casino development.  Also as part of the Development Agreement,DJL is required to enter into a minimum assessment agreement for its new casinodevelopment and to pay the operating costs of the parking facility, including thecost of operation, security, repair and maintenance.  At its option, DJL may elect to increase theinitial payment above the $6.4 million minimum which would reduce the minimumassessment for the new casino development thereby reducing ongoing propertytaxes.  Additionally, DJL is obligated topay to the City of Dubuque for the life of the parking facility an amount equalto $80 per parking space, per year (subject to adjustments based on increasesin a stated consumer price

F-7

----

 

index) which amount willbe held in a sinking fund and used to satisfy the capital maintenancerequirements for the parking facility. The Development Agreement also provides that DJL will enter into amaintenance service agreement with the City  of Dubuque to provide operation, maintenance,security and other services for the parking facility. PGL has guaranteed DJL’sobligations under the Development Agreement.

OED is currentlyevaluating its options regarding the proposed development and construction of ahotel and event center contiguous to its racino.

The Company plans tofinance these developments with the following: (i) cash on hand, (ii) cashgenerated from operations, (iii) available borrowings under the PGL CreditFacility and (iv) available vendor and equipment financing. There can be noassurances that such projects will be completed in the estimated time frames orat the estimated costs.

**2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

***Consolidation—***Theconsolidated financial statements include the financial information of theCompany and its wholly owned subsidiaries DJL, OED, PGC and DJWH. Allsignificant intercompany balances and transactions have been eliminated.

***Cash and CashEquivalents—***The Company considers all certificates ofdeposit and other highly liquid debt instruments purchased with originalmaturities of three months or less to be cash equivalents.

***RestrictedCash-Purse Settlements—***Restricted cash represents amountsrestricted by regulation for purses to be paid during the live meet racingseason at OED. Additionally, restricted cash includes entrance fees for aspecial futurity race during the racing season, plus any interest earnings.These funds will be used to pay the purse for the race. A separate interestbearing bank account is required for these funds.

***Restricted Cash - Interest Reserve —***Restrictedcash — interest reserve at December 31, 2005 represents a portion of the unusedproceeds from the DJW Notes, the use and disbursement of which were restrictedto the payment of interest on the DJW Notes in accordance with the terms of aCash Collateral and Disbursement Agreement, dated July 19, 2005, among DJW,DJWC and US Bank (as trustee and disbursement agent) (the “Cash Collateral andDisbursement Agreement”).

***Allowance forDoubtful Accounts—***The allowance for doubtful accounts ismaintained at a level considered adequate to provide for probable futurelosses.

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

***Restricted Cash - Worth Project —***Restricted cash atDecember 31, 2006 represents the remaining unused proceeds from the issuance of$20.0 million of additional DJW Notes in August 2006, the use and disbursementof which are restricted to the design, development, construction,equipping and opening of the current casino expansion in Worth County, Iowa.Restricted cash at December 31, 2005 represents the remaining unused proceedsfrom the original issuance of the DJW Notes in July 2005, the use anddisbursement of which was restricted to the design, development, construction,equipping and opening of the casino in Worth County, Iowa in accordance withthe terms of the Cash Collateral and Disbursement Agreement.

***Property andEquipment—***Property and equipment are recorded at cost.Major renewals and improvements are capitalized, while maintenance and repairsare expensed as incurred. Depreciation and amortization are computed on astraight-line basis over the following estimated useful lives:
| Land improvements                    |   | 20–40 years |   |
|--------------------------------------|--------|------------------|--------|
| Buildings and  building improvements |   | 5–40 years  |   |
| Riverboat and  improvements          |   | 3–20 years  |   |
| Furniture,  fixtures and equipment   |   | 3–7 years   |   |
| Computer  equipment                  |   | 3–5 years   |   |
| Vehicles                             |   | 3–5 years   |   |

 

During the fourth quarterof 2006, in connection with the Historical Society Agreement, managementdetermined it was probable that DJL would be building a new casinofacility.  As such, DJL beganaccelerating depreciation on certain depreciable assets that will either becontributed to the Historical Society or will not be utilized at its newfacility.  DJL will continue todepreciate the remaining net book value of those assets, less their estimatedfair market value at the date of contribution or estimated net realizablevalue, through the period that DJL estimates commencing operations at the newfacility.  Depreciation expense for 2006increased by approximately $0.2 million as a result of accelerated depreciationon these assets.

***Impairment of Long-Lived Assets—***Long-lived assets are reviewed for impairment when management plans to disposeof assets or when events or circumstances indicate that the carrying amount ofa long-lived asset may not be recoverable. Assets held for disposal arereported at the lower of the carrying amount or fair value less cost to sell.Management determines fair value using a

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discounted future cash flow analysis or other acceptedvaluation techniques. Long-lived assets held for use are reviewed forimpairment by comparing the carrying amount of an asset to the undiscountedfuture cash flows expected to be generated by the asset over its remaininguseful life. If an asset is considered to be impaired, the impairment to berecognized is measured as the amount by which the carrying amount of the assetexceeds its fair value. During the quarter ended June 30, 2006, managementdetermined the undiscounted future cash flows of its Alexandria OTB did notsupport the recoverability of the property and equipment attributable to theOTB’s operation. As such, the Company recognized an impairment charge for theOTB’s assets that exceeded their estimated fair market value. The impairmentcharge of $0.4 million is included in depreciation and amortization on theconsolidated statement of operations and is part of the OED operating segment.

 

***CapitalizedInterest—*** The Company capitalizes interest costsassociated with debt incurred in connection with construction projects. Whendebt is incurred in connection with the development of the constructionprojects, the Company capitalizes interest on amounts expended on the projectsat each applicable subsidiaries’ average cost of borrowed money. Capitalizationof interest ceases when the project is substantially complete. The amountcapitalized during 2006, 2005 and 2004 was $0.8 million, $0.4 million and $1.3million, respectively.

***Deferred FinancingCosts—*** Costs associated with the issuance of debt havebeen deferred and are being amortized over the life of the relatedindenture/agreement using the effective interest method. These amortizationcosts are included in interest expense on the statements of operations.

***Goodwill andLicenses and Other Intangible Assets—*** Goodwill representsthe excess of the purchase price over the fair value of the net identifiableassets acquired in connection with the acquisition of the Diamond Jo riverboatcasino operations. Goodwill is not amortized but is reviewed at least annuallyfor impairment and written down and charged to income when its recorded valueexceeds its estimated fair value. At December 31 of 2006, 2005 and 2004, DJLperformed its annual impairment test on goodwill and determined that theestimated fair value of the DJL reporting unit exceeded its carrying value asof that date. Goodwill is subject to impairment by, among other things, significantchanges in the gaming tax rates in Iowa, significant new competition whichcould substantially reduce profitability, non-renewal of DJL’s gaming licensedue to regulatory matters or lack of approval of gaming by the countyelectorate at scheduled referendums, and regulatory changes that couldadversely affect DJL’s business.

Licenses and other intangibles as of December 31, 2006and 2005 consist of the acquired licenses and tradename associated with thepurchase of OED and the first two $1.0 million payments in June 2005 and May2006, respectively, for DJW’s gaming license under an executory agreement withthe State of Iowa. The licenses and tradename have indefinite lives as theCompany has determined that there are no legal, regulatory, contractual,economic or other factors that would limit their useful lives and the Companyintends to renew and operate the licenses and use the tradename indefinitely.In addition, other key factors in the Company’s assessment that these licenseshave an indefinite life include: (1) the Company’s license renewal experienceconfirms that the renewal process is perfunctory and renewals would not bewithheld except under extraordinary circumstances; (2) the renewals related tothese licenses confirms the Company’s belief that the renewal process could becompleted without substantial cost and without material modification of thelicenses; (3) the economic performance of the operations related to thelicenses support the Company’s intention of operating the licenses indefinitely;and (4) the continued limitation of gaming licenses in the States of Louisianaand Iowa limits competition in the jurisdictions where these licenses aremaintained. Indefinite lived intangible assets are not amortized but arereviewed at least annually for impairment and written down and charged toincome when their recorded value exceeds their estimated fair value. Licensesand other intangibles at December 31 are summarized as follows (in thousands):
| ** **                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |
| Slot machine and  electronic video game licenses |       | $        | 29,735     |     | $          | 29,240 |   |
| Tradename                                        |       | 2,478    |       | 2,455    |       |
| Horse racing  licenses                           |       | 1,308    |       | 1,308    |       |
| DJW gaming  license                              |       | 2,000    |       | 1,000    |       |
|                                             |       |     |       |     |       |
| Total                                            |       | $        | 35,521     |     | $          | 34,003 |   |

 

Each of OED’s identifiedintangible assets were valued separately by an independent valuation specialistwhen the Company was purchased. The valuations were updated by management as ofDecember 31 of 2006, 2005 and 2004 indicating no impairment. In addition,management performed an internal valuation of the DJW gaming license as ofDecember 31 of 2006 and 2005 indicating no impairment. These intangible assetsare subject to impairment by, among other things, significant changes in thegaming tax rates in Louisiana and Iowa, significant new competition which couldsubstantially reduce profitability, non-renewal of the racing or gaminglicenses due to regulatory matters, changes to OED’s trade name or the way OED’strade name is used in connection with its business and regulatory changes thatcould adversely affect the Company’s business by, for example, limiting orreducing the number of slot machines or video poker machines that the Companyis permitted to operate.

In connection with PGL’s acquisition of OED from athird party, OED is required to pay a contingent fee of one half of one percent(0.5%) of the net slot revenues generated by OED’s racino located in St. LandryParish, Louisiana, for a period of ten years commencing on December 19, 2003,the date the racino’s casino opened to the general public. This contingent feeis payable monthly in arrears and has been recorded as an adjustment to thepurchase price allocated to slot machine and video game licenses of $0.5

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millionand $0.4 million for the years ended December 31, 2006 and 2005, respectively.

***Debt Discount—***Debtdiscount associated with the issuance of debt is netted with the related debtobligations on the balance sheets and is amortized over the life of the debtusing the effective interest method. The amortization of such discount isincluded in interest expense on the statements of operations.

***Derivative Financial Instrument—***The Company has aderivative financial instrument, a contingent put option related to the DJWNotes.  Such derivative financialinstrument is recorded at fair market value and the change in fair market valueis recognized immediately through earnings.

***Revenue Recognitionand Promotional Allowances—*** In accordance with industrypractice, casino and video poker revenue is the net win from gaming activities,which is the difference between gaming wins and losses. Racing revenues includeOED’s share of pari-mutuel wagering on live races after payment of amountsreturned as winning wagers, and OED’s share of wagering from import and exportsimulcasting as well as OED’s share of wagering from its off-track bettingparlors. Food, beverage and other revenue is recognized as services areperformed.

Various cash and free play incentive programs relatedto gaming play as well as the retail value of food and beverage and otherservices furnished to guests without charge are included in gross revenues andthen deducted as promotional allowances. These amounts were as follows:
| **(in thousands)**        | ** ** | **Year Ended** | ** ** |
|--------------------------------|------------|---------------------|------------|
| ** **                     | ** ** | **2006**            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Cash and free  play incentives |       | $                   | 9,581      |   | $ | 6,638 |   | $ | 5,355 |   |
| Food and  beverage             |       | 7,365               |       | 6,876 |   | 5,627 |   |
| Other                          |       | 634                 |       | 341 |   | 482 |   |
| Total promotional  allowances  |       | $                   | 17,580     |   | $ | 13,855 |   | $ | 11,464 |   |

 

The cost of complimentary food and beverage and otherservices have been included in casino and video poker expenses on theaccompanying statements of operations. Such estimated costs of providingcomplimentary services allocated from the food and beverage and other operatingdepartments to the casino and video poker departments were as follows:
| **(**in thousands)               | ** ** | **Year Ended** | ** ** |
|---------------------------------------|------------|---------------------|------------|
| ** **                            | ** ** | **2006**            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Food and  beverage                    |       | $                   | 2,556      |   | $ | 2,358 |   | $ | 1,642 |   |
| Other                                 |       | 254                 |       | 149 |   | 357 |   |
| Total cost of  complimentary services |       | $                   | 2,810      |   | $ | 2,507 |   | $ | 1,999 |   |

 

***Slot Club Awards—***TheCompany provides slot patrons with incentives redeemable for food, beverage orother services based on the dollar amount of play on slot machines. A liabilityhas been established based on an estimate of the cost of honoring theseoutstanding incentives, utilizing the age and prior history of redemptions.

***EquityBased Compensation—*** Effective January 1, 2006, theCompany adopted Statement of Financial Accounting Standards No. 123(Revised 2004) *Share-Based Payment* (“SFASNo. 123R”) which requires that compensation expense under equity basedawards be measured at fair value. As allowed under the provisions of SFASNo. 123R the Company has applied SFAS No. 123R prospectively to newawards and to awards modified, repurchased, or cancelled after the requiredeffective date. The Company continues to account for any portion of awardsoutstanding at the date of initial application of SFAS No. 123R using theaccounting principles historically applied to those awards, the intrinsic valuemethod. The Company did not have any new awards and there were nomodifications, repurchases, or cancellations of awards issued prior to January 1,2006 during the year ended December 31, 2006. There were no payments toemployees related to equity based awards during the years 2006, 2005 and 2004.As of December 31, 2006, there was approximately $9.2 million ofcompensation expense related to nonvested awards which has not been recognizedin the consolidated statement of operations. Based on the intrinsic value atDecember 31, 2006, approximately $6.7 million of the unrecognized value ofawards is scheduled to vest over approximately two years unless vested earlierper the terms of the awards.  Theremaining $2.5 million is scheduled to vest upon a change in control of theCompany.  See Note 10 for moreinformation regarding the terms of outstanding equity awards.

Equity based awards granted by PGP to Companyemployees contain a put option exercisable by the employee and are,therefore, recorded at their intrinsic value (which is the increase in the fairmarket value of the units granted based on a market multiple of forecastedtotal segment operating earnings) and the percentage vested. The amountexpensed each period is based upon the change in intrinsic value and thepercentage vested. As these awards are issued by PGP, the awards represent aPGP liability and not a liability of the Company although the expenseassociated with awards to Company employees is recorded by the Company.

***Advertising—***Allcosts associated with advertising are expensed as incurred. Advertising expensewas approximately $2.7 million in 2006, $2.0 million in 2005 and approximately$2.9 million in 2004.

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***Pre-OpeningExpense—***Costs associated with start-up activities areexpensed as incurred.

***DevelopmentExpense—*** During 2006 and 2005 the Company incurred costssurrounding the development of DJL’s proposed new casino and OED’s proposedhotel and event center development and other potential real propertydevelopments of approximately $0.8 million and $0.4 million, respectively,which are included in development expense. In addition, during 2003, the Company entered into an exclusive agreementwith the Worth County Development Authority pursuant to which the partiesagreed to jointly submit an application for a license to operate a gamingfacility in Worth County, Iowa. During 2005 and 2004, the Company incurredexpenses of $0.2 million and $0.2 million, respectively, related to thisapplication submitted to the Iowa Racing and Gaming Commission. The license wasgranted in May 2005.

***Income Taxes—***The Company is a limited liability company. In lieu of corporate income taxes,the members of a limited liability company are taxed on their proportionateshare of the Company’s taxable income. Therefore, no provision or liability forincome taxes has been included in the financial statements.

***Use of Estimates—************The***preparationof financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting periods. Actual results could differ from those estimates.Significant estimates involve the fair value of equity based compensation, the periodicreview of the carrying value of assets for impairment, the estimated usefullives for depreciable assets and the estimated liability for slot club awards.

In addition, an estimatedloss from a loss contingency is recorded when information available prior toissuance of the financial statements indicates that it is probable that aliability has been incurred at the date of the financial statements and theamount of the loss can be reasonably estimated. Accounting for contingenciessuch as legal matters requires the use of judgment. Many of these legalcontingencies can take years to be resolved. An adverse outcome could have amaterial impact on financial condition, results of operations, and cash flows.

***Concentrations ofRisk—***The Company’s customer base is concentrated insouthern Minnesota, north central and eastern Iowa and southwest Louisiana.

The Company maintains deposit accounts at three banks.At December 31, 2006 and 2005, and various times during the years thenended, the balance at the banks exceeded the maximum amount insured by theFederal Deposit Insurance Corporation. Credit risk is managed by monitoring thecredit quality of the banks.

***Reclassifications***— Certain prior yearamounts have been reclassified to conform with the current year presentation.These reclassifications did not have any effect on the Company’s financialposition, operating income, and net income or loss for the years ended December31, 2005 and 2004.  In the statement ofoperations for the year ended December 31, 2006, the Company classified freeplay incentives related to gaming play as promotional allowances.  The Company previously presented such amountsas casino and selling, general and administrative expenses.  In the statements of operations for the yearsended December 31, 2005 and 2004, the Company reclassified $6.8 million and$0.1 million and $3.5 million and none, respectively, from casino and selling,general and administrative expenses to promotional allowances to be consistentwith the 2006 presentation.  In thestatement of operations for the year ended December 31, 2006, the Companyclassified certain wide area progressive contributions as casino expense.  The Company previously presented certain widearea progressive contributions as a reduction to casino revenues.  In the statement of operations for the yearsended December 31, 2005 and 2004, the Company reclassified $0.3 million and$0.3 million, respectively, from casino revenues to casino expense to beconsistent with the 2006 presentation. The Company previously classified certain racing costs as a reduction toracing revenue.  In the statements ofoperations for the years ended December 31, 2005 and 2004, the Companyreclassified $0.1 million and $0.1 million, respectively, from casino revenuesto casino costs to be consistent with the 2006 presentation.  Also, in the statement of cash flows for theyear ended December 31, 2006, the Company classified changes in restricted cashbalances related to operating purse settlements as an operating activity. TheCompany previously presented such changes as an investing activity. In thestatements of cash flows for the years ended 2005 and 2004, the Companyreclassified changes in restricted cash balances related to operating pursesettlements of $(1.4) million and $(2.1) million, respectively, from investingto operating to be consistent with the 2006 presentation.

***Recently IssuedAccounting Standards—*** In September 2006, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards No. 157, *Fair Value Measurements* (“SFAS 157”). SFAS 157defines fair value, establishes a framework for measuring fair value, andexpands disclosures about fair value measurements. SFAS 157 applies underother accounting pronouncements that require or permit fair value measurements.SFAS 157 indicates, that among other things, a fair value measurementassumes that the transaction to sell the asset or transfer the liability occursin the principal market for the asset or liability or, in the absence of aprincipal market, the most advantageous market for the asset or liability.SFAS 157 is effective for the Company’s year ending December 31,2008. The Company is currently evaluating the impact of SFAS 157 on theCompany’s financial statements.

In February 2007, the FASB issued Statement No. 159, “TheFair Value Option for Financial Assets and Financial

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Liabilities” (“SFAS 159”).  SFAS 159 permitscompanies to choose to measure many financial instruments and certain otheritems at fair value.  If the fair value option is chosen by a company, thecompany shall report unrealized gains and losses on items for which the fairvalue option has been elected in earnings at each subsequent reportingdate.  SFAS 159 is effective as of the beginning of the Company’s yearending December 31, 2008.  The Company is currently evaluating whether toelect the fair value option and the impact, if any, on the Company’s financialstatements of implementing SFAS 159.

**3. PROPERTY AND EQUIPMENT**

Property and equipment at December 31 issummarized as follows (in thousands):
| ** **                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
|                               |       |     |       |     |       |
| Land and land  improvements        |       | $        | 16,773     |     | $          | 15,381 |   |
| Buildings and  improvements        |       | 114,823  |       | 84,138   |       |
| Riverboat and  improvements        |       | 8,410    |       | 8,387    |       |
| Furniture,  fixtures and equipment |       | 56,721   |       | 43,112   |       |
| Computer  equipment                |       | 8,185    |       | 6,095    |       |
| Vehicles                           |       | 378      |       | 209      |       |
| Construction in  progress          |       | 13,360   |       | 21,020   |       |
| Subtotal                           |       | 218,650  |       | 178,342  |       |
| Accumulated  depreciation          |       | (53,896  | )          | (34,949  | )          |
| Property and equipment,  net       |       | $        | 164,754    |     | $          | 143,393 |   |

 

Depreciation expense forthe years ended December 31, 2006, 2005 and 2004 was $20.8 million, $16.2million and $12.4 million, respectively.

In connection with DJL’sproposed casino development as discussed in Note 1, DJL began acceleratingdepreciation on long-lived assets with a net book value of approximately $4.5million that will either be contributed to the Historical Society or will notbe utilized at its new casino facility. Accelerated depreciation on these assets began during the fourth quarterof 2006 and DJL will continue to depreciate the remaining net book value ofthose assets, less their estimated fair market value at the date ofcontribution or estimated net realizable value, through the period that DJLestimates commencing operations at the new facility.  Depreciation expense for 2006 increased byapproximately $0.2 million as a result of accelerated depreciation on theseassets.

Included in the totalamount of depreciation and amortization expense for 2006 is an impairmentcharge of approximately $0.4 million associated with long-lived assets at OED’sAlexandria OTB.  Based on historic andexpected future cash flows of the Alexandria OTB operations, the carrying valueof the leasehold improvements and certain other assets were not expected to berecovered by future cash flows and were written down by the amount the carryingvalue of the assets exceeded their estimated fair market value.  OED closed the Alexandria OTB in July of 2006and recorded a lease termination loss of approximately $0.1 million.

**4. DEBT**

Long-term debt at December 31 consists of the following (in thousands):
| ** **                                                                                                                                                                                                                                                                                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                                                                                                                                                                                            |       |     |       |     |       |
| 8 3/4% senior secured notes due  April 15, 2012, net of discount of $2,619 and $2,741, respectively,  secured by substantially all the assets of PGL, DJL and OED and the equity of  DJL and OED                                                                                                                           |       | $        | 252,381    |     | $          | 230,259 |   |
| 11% senior  secured notes of DJW due April 15, 2012 and related contingent put  option, net of discount, secured by substantially all the assets of DJW and a  pledge of equity of DJW and DJWC                                                                                                                            |       | 96,500   |       | 40,000   |       |
| 13% senior  secured notes of OED due March 1, 2010 with contingent interest, net of  discount of $78 and $97, respectively, secured by certain assets of OED                                                                                                                                                               |       | 6,831    |       | 6,813    |       |
| $50,000  revolving line of credit under a loan and security agreement of DJL and OED  with Wells Fargo Foothill, Inc., interest rate at prime plus a margin of  0.25% (current rate of 8.5% at December 31, 2006), maturing June 16, 2008,  secured by substantially all assets of DJL and OED                                  |       | —   |       | 23,800   |       |
| $5,000 revolving  line of credit under a loan and security agreement of DJW with a bank,  interest rate at prime less a margin of 1.0% (current rate of 7.25% at  December 31, 2006), maturing March 1, 2010, secured by substantially all  the assets of DJW and guaranteed by the Company’s Chief Executive Officer |       | —   |       | —   |       |
| Term loan under  a loan and security agreement of DJL and OED with Wells Fargo Foothill, Inc.,  interest rate at prime plus 2.5% (current rate of 10.75% at December 31,  2006), due in equal monthly installments of $333, maturing June 16, 2008,  secured by certain assets of DJL and OED                                   |       | 4,667    |       | 8,667    |       |
| Notes payable  and capital lease obligations, net of discount of $234 and $235,  respectively, interest rate at 7 1⁄4% - 8 3⁄4%, due 2007 - 2011                                                                                                                                                                          |       | 8,189    |       | 7,467    |       |
| Preferred  membership interests—redeemable, interest at 9%, paid October 2006                                                                                                                                                                                                                                         |       | —   |       | 4,000    |       |
| Total debt                                                                                                                                                                                                                                                                                                                      |       | 368,568  |       | 321,006  |       |
| Less current  portion                                                                                                                                                                                                                                                                                                           |       | (8,645   | )          | (11,002  | )          |
| Total long term debt                                                                                                                                                                                                                                                                                                            |       | $        | 359,923    |     | $          | 310,004 |   |

 

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Principal maturities of debt (excluding discount) foreach of the years ended December 31 are summarized as follows (dollars inthousands):
| 2007       |   | $       | 8,844   |   |
|------------|--------|---------|---------|--------|
| 2008       |   | 2,740   |    |
| 2009       |   | 912     |    |
| 2010       |   | 7,484   |    |
| 2011       |   | 19      |    |
| Thereafter |   | 351,500 |    |
|       |   | $       | 371,499 |   |

 

The weighted average interest rate on the Company’sshort-term borrowings consisting of borrowings under its line of credit as ofDecember 31, 2005 was 7.75%.

PeninsulaGaming Notes

On April 16, 2004, DJL and PGC completed a privateplacement of $233 million principal amount of 8 3⁄4% senior secured notes due2012 (the “Peninsula Gaming Notes”). The Peninsula Gaming Notes were issued ata discount of approximately $3.3 million. Interest on the Peninsula GamingNotes is payable semi-annually on April 15 and October 15 of each year,beginning on October 15, 2004. Upon a corporate restructuring, the Company alsobecame a co-issuer of the Peninsula Gaming Notes.

The Company used the net proceeds from the sale of thePeninsula Gaming Notes as follows (all payments based on outstanding balancesas of April 16, 2004): (1) to irrevocably deposit funds into an escrow accountto redeem all of DJL’s outstanding 12 1⁄4% senior secured notes (“DJL Notes”) inan amount (including call premium and accrued interest) of approximately $79.9million; (2) to repurchase approximately $116.3 million principal amount of OED’soutstanding 13% senior secured notes for an aggregate amount (including tenderpremium, accrued interest and contingent interest) of approximately $134.6million; (3) to pay accrued distributions on DJL’s outstanding preferredmembership interests-redeemable of approximately $1.1 million; (4) to payrelated fees and expenses of approximately $13.4 million; and (5) for generalcorporate purposes. As a result of the issuance of the Peninsula Gaming Notes,DJL incurred a loss of approximately $8.8 million consisting of the write-offof deferred financing fees of approximately $2.1 million, the payment of a callpremium on the DJL Notes of approximately $5.7 million, interest on the DJLNotes of approximately $0.7 million and write-off of bond discount ofapproximately $0.3 million. In connection therewith, OED also incurred a lossof approximately $27.9 million consisting of the write-off of deferredfinancing fees of approximately $8.4 million, the payment of a tender premiumon the OED Notes of approximately $16.3 million, write-off of bond discount ofapproximately $2.1 million and consent fees of approximately $1.1 million. Inaddition, OED and DJL wrote off $0.9 million of deferred financing fees relatedto the refinancing of the credit facilities discussed below.

On December 22, 2006, the Company, DJL, and PGC,as co-issuers, issued and sold to a third party investor in a private placement$22.0 million aggregate principal amount of Peninsula Gaming Notes (“AdditionalPGL Notes”).  The Company intends to usethe net proceeds from this issuance of the Additional PGL Notes to finance, inpart, the construction of a new moored barge facility to expand its existingcasino operations at DJL and the proposed development and construction of ahotel and event center contiguous to its racetrack and casino at OED.

The indenture governing thePeninsula Gaming Notes limits the Company’s ability to, among other things,incur more debt; pay dividends or make other distributions to PGP and DJW (forso long as DJW is an unrestricted subsidiary); redeem stock; make investments;create liens; enter into transactions with affiliates; merge or consolidate;and transfer or sell assets.

The Peninsula Gaming Notes are full and unconditionalobligations of DJL as a co-issuer. PGL and PGC, also co-issuers, have noindependent assets (other than PGL’s cash and investment in its subsidiaries)or operations. The Peninsula Gaming Notes are secured by substantially all theassets of PGL, DJL and OED subject to the prior lien of the Company’s creditfacility discussed below. The Peninsula Gaming Notes are also fully andunconditionally guaranteed, subject to the prior lien of the Company’s creditfacility discussed below, by OED. Further, OED and DJL have pledged theirequity interests as collateral. All of DJL’s and OED’s net assets arerestricted except for $8.2 million at December 31, 2006 under the PeninsulaGaming Notes. The Peninsula Gaming Notes do not limit DJL’s or OED’s ability totransfer net assets between PGL, DJL and OED.

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DJW Notes

In July 2005, DJW completed a private placementof $40.0 million aggregate principal amount of DJW Notes. In connection withthe offering of the DJW Notes, DJW was designated an “unrestricted subsidiary”by the Company under the indenture governing the Peninsula Gaming Notes, andDJW was released of its obligations under the PGL Credit Facility. The DJWNotes bear interest at a rate of 11% per year, payable semi-annually onApril 15 and October 15 of each year.

The DJW Notes are secured by a pledge of the equity ofDJW and DJWC and substantially all of DJW’s current and future assets. The lienon the collateral that secures the DJW Notes is contractually subordinated tothe liens securing up to $5.0 million of indebtedness under the DJW CreditFacility as defined below. The DJW Notes, which mature on April 15, 2012,are redeemable at the Company’s option, in whole or in part at any time or fromtime to time, on and after April 15, 2008 at certain specified redemptionprices set forth in the indenture governing the DJW Notes. The indenturegoverning the DJW Notes contains a number of restrictive covenants andagreements, including covenants that limit the ability of the Company and itssubsidiaries to, among other things: (1) pay dividends, redeem stock ormake other distributions or restricted payments; (2) incur indebtedness orissue preferred shares; (3) make certain investments; (4) createliens; (5) consolidate or merge; (6) sell or otherwise transfer ordispose of assets; (7) enter into transactions with affiliates;(8) use proceeds of permitted asset sales and (9) change its line ofbusiness. Specifically, DJW is prohibited from making any dividends or otherdistributions to PGL, subject to certain limited exceptions. DJW is permittedto make dividends or other distributions to PGL to pay certain tax obligations.Further, DJW can make dividends and other distributions to PGL to pay corporateoverhead or similar allocations or payments, including, but not limited to, taxpreparation, insurance, accounting, licensure, legal and administrative feesand expenses. Additionally, DJW may make dividends and other distributions toPGL in respect of certain payments under management agreements and to payreasonable directors’ or managers’ fees and expenses, so long as any paymentswith respect to any management agreement or certain employee, consulting orsimilar agreements do not, in the aggregate, in any fiscal year exceed (a) for2006, $500,000, (b) for 2007, the product of 1.333333 multiplied by 4.0% of DJW’sConsolidated EBITDA (as defined in the indenture governing the DJW Notes) and(c) for any fiscal year thereafter, 4.0% of DJW’s Consolidated EBITDA. Finally,DJW can make dividends and other distributions not to exceed $1.0 million.Subject to the foregoing provisions, all of the net assets of DJW arerestricted.

Upon the occurrence and continuance of certain eventsof default, the trustee or the holders of not less than 25% in aggregateprincipal amount of outstanding DJW Notes may declare all unpaid principal andaccrued interest on all of the DJW Notes to be immediately due and payable.Upon the occurrence of a change of control (as defined in the indenture), eachholder of DJW Notes will have the right to require the Company to purchase allor a portion of such holder’s DJW Notes at a purchase price equal to 101% ofthe principal amount thereof plus accrued and unpaid interest, if any, to thedate of repurchase.

On August 31, 2006, DJW entered into the FirstSupplemental Indenture to the Indenture dated as of July 19, 2005 (the “DJWFirst Supplemental Indenture”) which permitted, among other things, theissuance by DJW on August 31, 2006 of an additional $20 million principalamount of DJW Notes, the proceeds of which are to be used in part to fund thecurrent expansion of the DJW casino. In addition, the DJW First SupplementalIndenture requires DJW to offer to buy back a portion of the DJW Notes on asemi-annual basis, beginning March 31, 2007, with 50% of Excess Cash Flow (asdefined therein) at a premium of 7.5%. Such provision was determined to be anembedded derivative and was fair valued and separated from the DJW Notes atdate of issuance since it was not clearly and closely related.

On December 21, 2006, DJW entered into the SecondSupplemental Indenture to the Indenture dated as of July 19, 2005 (the “DJWSecond Supplemental Indenture”) which permitted, among other things, theissuance by DJW on December 21, 2006 of an additional $36.5 million principalamount of DJW Notes (“Additional DJW Notes”) and the distribution of up to$35.0 million of the net proceeds of the Additional DJW Notes to PGL.  The distribution was made to PGL in 2006 andwill be used to finance, in part, the construction of a new moored bargefacility to expand its existing casino operations at DJL and the proposeddevelopment and construction of a hotel and event center contiguous to itsracetrack and casino at OED.

OED Notes

On March 9, 2004, OED commenced a tender offerand consent solicitation to repurchase all of its outstanding 13% senior securednotes (the “OED Notes”) and to solicit consents to certain proposed amendmentsto the indenture governing the OED Notes as set forth in OED’s Offer toPurchase and Consent Solicitation Statement, dated March 9, 2004. OnMarch 19, 2004, the expiration date of the consent solicitation, OEDreceived the requisite consents and tenders from holders of a majority of theaggregate principal amount of the outstanding OED Notes. The tender offerexpired on April 5, 2004, and OED redeemed approximately $116.3 millionprincipal amount of the OED Notes.

Contingent interestaccrues on the remaining outstanding OED Notes. The amount of contingentinterest is equal to 0.3% of OED’s cash flow for the year, subject to certainlimitations. OED may defer paying a portion of the contingent interest undercertain circumstances set forth in the indenture governing the OED Notes. OEDis the sole obligor under the OED Notes.

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PGL Credit Facility

On June 16, 2004, DJL and OED jointly entered into aloan and security agreement with Wells Fargo Foothill, Inc. as the arranger andagent which was later amended in November 2004, July 2005 and December 2006 (asamended the “PGL Credit Facility”). The PGL Credit Facility consists of arevolving credit facility which permits DJL and OED to request advances andletters of credit up to the lesser of the maximum revolver amount of $50million (less amounts outstanding under letters of credit) and a specifiedborrowing base (the “Borrowing Base”). The Borrowing Base is the lesser of thecombined EBITDA (as defined in the PGL Credit Facility) of OED and DJL for thetwelve months immediately preceding the current month end multiplied by 150%and the combined EBITDA of OED and DJL for the most recent quarterly periodannualized multiplied by 150%. At December 31, 2006, the maximum revolveramount was $50.0 million. The borrowings under the revolver portion of the PGLCredit Facility bear interest at a rate equal to the Wells Fargo prime rateplus a margin of 0.25%, or 8.5% at December 31, 2006. The available borrowingamount at December 31, 2006, after reductions for amounts borrowed and lettersof credit outstanding at DJL and OED, was $49.1 million. As of December 31,2006, there were no outstanding advances under the revolver portion of the PGLCredit Facility and outstanding letters of credit were approximately $0.9million.

The PGL Credit Facility also contains a term loan inthe amount of $4.7 million at December 31, 2006. The term loan is secured bycertain assets of the Company and requires monthly payments of $0.3 millionstarting July 1, 2004 until the full balance is paid, with a maturity no laterthan June 16, 2008. The term loan has an interest rate equal to the greater of(i) the Wells Fargo prime rate plus 2.5%, or 10.75% at December 31, 2006; and(ii) 6.0%.

DJL and OED are jointly and severally liable under thePGL Credit Facility and such borrowings are collateralized by substantially allof the assets of OED and DJL. Borrowings under the PGL Credit Facility areguaranteed by PGL and PGC.

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

Specifically, DJL and OED are prohibited from makingany dividends or other distributions to PGL or any of PGL’s unrestrictedsubsidiaries, subject to certain limited exceptions (such restrictions atDecember 31, 2006 are less restrictive than the restrictions under thePeninsula Gaming Notes). DJL and OED are permitted to make dividends or otherdistributions to PGL to pay certain tax obligations and to fund taxpreparation, accounting, legal and administrative fees and expenses.Additionally, DJL and OED may make dividends and other distributions to PGL inrespect of certain payments under management agreements and to pay reasonabledirectors’ or managers’ fees and expenses, so long as such payments do not, inthe aggregate, in any fiscal year exceed the lesser of (a) 4.0% of DJL and OED’scombined EBITDA (as defined in the PGL Credit Facility) and (b) $4.0 million.DJL and OED may also make dividends or other distributions to PGL so that PGL,subject to certain limitations, can repurchase, redeem or otherwise acquireequity interests in PGL or its restricted subsidiaries (as defined in the PGLCredit Facility) from its respective employees, members or managers.

On December 6, 2006, DJL andOED entered into a Third Amendment to Loan and Security Agreement and Consent(the “Third Amendment”).  The ThirdAmendment provides, among other things, that (i) OED will be permitted to makecapital expenditures, in addition to those otherwise previously permitted bythe terms of the PGL Credit Facility, in an aggregate amount not to exceed$25.0 million in connection with a proposed project to develop and construct ahotel and event center contiguous to OED’s casino and racetrack in Opelousas,Louisiana and (ii) the applicable interest rate margin for advances made underthe PGL Credit Facility with respect to base rate loans and LIBOR rate loansand letter of credit fees were reduced.

On December 22, 2006, DJL and OED entered into a Fourth Amendmentto Loan and Security Agreement and Consent (the “Fourth Amendment”).  The Fourth Amendment, among other things, (i)provided for an increase in available borrowings under the revolverportion of the facility of $15.0 million effective upon the acquisition of theExpansion Tract, (ii) permitted the issuance of the Additional PGL Notes and(iii) permits DJL to make additionalcapital expenditures, subject to the acquisition of the Expansion Tract, in an aggregate amount not to exceed $55.0million in connection with the proposed project at DJL to develop and constructa new moored barge facility in Dubuque, Iowa.

DJW Credit Facility

OnMarch 1, 2006, DJW and DJWC entered into a senior secured revolving creditfacility with American Trust & Savings Bank that was subsequently amendedon October 4, 2006 and December 21, 2006 (as amended, the “DJW Credit Facility”).The DJW Credit Facility permits DJW to request advances and letters of creditof up to $5.0 million. Advances under the DJW Credit Facility bear interest ata rate equal to the greater of (i) at DJW’s option, either LIBOR plus a margin1.85%-2.20% or the Wall Street Journal prime rate less a margin of 1.0%, or7.25% at December 31, 2006, and (ii) 5%. The DJW Credit Facility expires onMarch 1, 2010.  The availableborrowing amount under such facility at December 31, 2006, after reductions foramounts borrowed and letters of credit outstanding at DJW, was $4.7 million. Asof December 31, 2006, there were no outstanding advances under the DJW CreditFacility 

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and outstanding letters of credit were approximately$0.3 million.

The DJW Credit Facilitycontains a number of restrictive covenants, including covenants that limit DJW’sability to, among other things, incur or guarantee more debt and create liens.In addition, the DJW Credit Facility requires that, on an annual basis, DJWrepay all advances (other than amounts designated under letters of credit) andsuch repayment of all advances must continue for a period of five days, afterwhich, DJW will be allowed to resume requesting advances. The DJW CreditFacility also contains customary events of default, including nonpayment ofprincipal and interest when due, violation of covenants, material inaccuracy ofrepresentations and warranties, bankruptcy events, and material judgments.Certain of the events of default are subject to a grace period.

DJW’sand DJWC’s obligations under the DJW Credit Facility are secured by a securityinterest in substantially all of DJW’s and DJWC’s tangible and intangibleassets. The DJW Credit Facility is secured by substantially the same assetsthat secure the DJW Notes. Our Chief Executive Officer agreed to unconditionallyguarantee DJW’s payment obligations to the lender under the DJW CreditFacility.

Pursuantto an intercreditor agreement between DJW and American Trust and Savings Bank,the lien on the collateral securing the DJW Credit Facility is contractuallysenior to the lien on the collateral securing the DJW Notes and the relatedguarantees. The intercreditor agreement provides that the liens securing theDJW Notes and the related guarantees on any collateral that also secures theobligations under the DJW Credit Facility is subordinated to the liens securingup to $5.0 million under the DJW Credit Facility and related interest, fees,indemnities, costs and expenses. Under the intercreditor agreement, if the DJWNotes become due and payable prior to the stated maturity thereof for anyreason or are not paid in full at the stated maturity thereof at a time duringwhich indebtedness under the DJW Credit Facility has not been fully paid, thetrustee under the DJW Notes indenture, as collateral agent under the related securitydocuments, will only have the right to foreclose upon any collateral that alsosecures the obligations under the DJW Credit Facility if the lender under suchfacility (with or without such lender taking part in any such foreclosure)either (i) fails to take steps to exercise remedies with respect to or inconnection with such collateral within 180 days following notice to such lenderof the occurrence of an Event of Default (as defined) under the DJW Notesindenture or (ii) fails to continue to pursue any such exercise of remedieswhile such Event of Default is then continuing and no insolvency proceeding ispending. The intercreditor agreement prevents the trustee under the DJW Notesindenture, as collateral agent under the related security documents, and theholders of the DJW Notes from pursuing remedies with respect to such collateralin all other instances during which indebtedness under the DJW Credit Facilityhas not be fully paid, including during any insolvency proceeding. Theintercreditor agreement provides that the net proceeds from any disposition ofthe shared collateral will first be applied to repay indebtedness outstandingunder the DJW Credit Facility and thereafter to repay all of the obligations ofDJW, DJWC, and any subsidiary guarantors thereof under the DJW Notes.

The Company was in compliance with all debt covenantsas of December 31, 2006.

**5. EMPLOYEE BENEFIT PLANS**

DJL, OED and DJW each have a qualified definedcontribution plan under section 401(k) of the Internal Revenue Code fortheir respective employees. Under the plans, eligible employees may elect todefer up to 60% of their salary, subject to Internal Revenue Service limits.The Company may make a matching contribution to each participant based upon apercentage set by the Company, prior to the end of each plan year. Companymatching contributions to the plans were $0.3 million in each of 2006, 2005 and2004.

In January 2005, the Company created anon-qualified deferred compensation plan. Under the plan, certain eligible keyemployees of the Company may elect to defer a portion of their compensation.The Company makes a matching contribution to each participant based upon apercentage set by the Company. These matching contributions vest over a threeyear period of service. Company matching contributions were $0.1 million in2006 and less than $0.1 million in 2005.

**6. LEASING ARRANGEMENTS**

***Pari-MutuelProcessing Equipment—***The Company entered into a newfive-year operating lease agreement commencing on February 1, 2006 for computerizedpari-mutuel central processing equipment, terminals and certain associatedequipment. Additionally, the lease agreement provides the Company withpari-mutuel services whereby the leased equipment automatically registers andtotals the amounts wagered on the races held at the race track or simulcast toit and to its respective off-track wagering parlors, and displays the win poolodds, payoffs, and other pertinent horse racing information needed to operatelive meet horse racing and simulcast betting. For all of the above equipmentand services, the Company pays 0.4% of the handle for both live meet racingdays and off-track betting racing days. There are no minimum fees associatedwith the lease. The Company expensed $0.3 million in 2006 and $0.5 million ineach of 2005 and 2004 related to the current and prior pari-mutuel processingequipment lease.

***Other—***TheCompany leases three of its OTB facilities and other equipment undernoncancelable operating leases. The leases require fixed monthly payments andcertain gaming machine leases require contingent monthly rental payments basedon usage of the equipment. The leases expire on various dates through 2026.Rent expense was $4.9 million, $3.1 million and $3.5 million during the yearsended 2006, 2005 and 2004, respectively.

 

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The future minimum rental payments required underthese leases at December 31, 2006 for the years ended December 31 aresummarized as follows (in thousands):
| 2007       |   | $   | 1,299  |   |
|------------|--------|-----|--------|--------|
| 2008       |   | 944 |   |
| 2009       |   | 726 |   |
| 2010       |   | 537 |   |
| 2011       |   | 172 |   |
| Thereafter |   | 801 |   |
| Total      |   | $   | 4,479  |   |

**7.COMMITMENTS AND CONTINGENCIES**

Under the Company’s and PGP’s operating agreements,the Company and PGP have agreed, subject to a few exceptions, to indemnify andhold harmless PGP and PGP’s members from liabilities incurred as a result oftheir positions as sole manager of the Company and as members of PGP,respectively.

InOctober 2003, OED filed a Petition for Declaratory Judgment in St. LandryParish, Louisiana, naming as opposing parties the Secretary of the Departmentof Revenue and Taxation for the State of Louisiana (the “Department”), the St.Landry Parish School Board and the City of Opelousas. OED seeks a judgmentdeclaring that sales taxes are not due to the defendants on purchases made byOED and its contractors in connection with the construction and furnishing ofthe Evangeline Downs Racetrack and Casino, which was constructed in St. LandryParish in 2003-2004. OED’s action is based on Louisiana statutory lawwhich provides that racetracks are not required to pay taxes and fees otherthan those provided in the racing statutes, and that taxes and fees provided inthe racing statutes are in lieu of, among other things, all state and localsales taxes. The St. Landry Parish School Board and the City of Opelousas havequestioned the application of the racing statutes to the construction andfurnishing of the casino portion of the facility, thereby leading to the filingof this action. The Department has now taken the same position.

OED filed a motion for summary judgment, which wasscheduled for hearing in July 2005. The defendants filed responses,generally arguing that the exemption under the racing statutes should notextend to the purchase of goods, materials and services which were unrelated tohorse racing. Prior to the hearing, it was discovered by OED that OED’scontractor (and the contractor’s subcontractors) had paid sales taxes on manypurchases related to the construction of the new racetrack and casino, and thatOED, in its payments to the contractor, had reimbursed the contractor for suchsales taxes. In light of this discovery, the parties agreed to continueindefinitely the hearing on the motion for summary judgment so that OED couldprepare and file a refund claim for the taxes paid by OED’s contractor and thecontractor’s subcontractors.

InNovember and December 2005, OED filed refund claims totaling $0.6million. OED has not recorded the refund claims due to uncertainty as to theoutcome of the matter. Neither the Department nor the St. Landry Parish SchoolBoard ruled on OED’s refund claims within one year of filing those claimsresulting in those claims being deemed denied under Louisiana law.  OED has formally appealed the denial of theserefund claims.  The Department has notyet responded to the appeal.  St. LandryParish has answered the appeal by generally denying OED’s right to recover thetaxes.

In October 2006,the Department notified OED that additional taxes andinterest totaling approximately $0.4 million were due for the periodJanuary 1, 2002 through December 31, 2004.  In November 2006, OEDformally protested the additional proposed tax assessment with the Department;the protest was denied by the Department. Accordingly, OED accrued and paid the additional taxes of approximately $0.4million, but, in accordance with Louisiana law, these taxes were paid underprotest.  In December 2006, and inaccordance with Louisiana law, OED filed suit in East Baton Rouge Parish,Louisiana against the Department for recovery of these taxes paid underprotest.  This litigation is in its earlystages.  The Department has answered thissuit by generally denying OED’s right to recover the taxes paid underprotest.  In addition, during 2006, theCompany accrued an additional $1.1 million related to state sales taxes thatthe Company may be required to pay for the years 2005 and 2006 and for localparish and city taxes for the years 2002 through 2006.  Of the total sales tax amount recorded,approximately $0.7 million and $0.4 million was recorded in general andadministrative expense and interest expense, respectively, in the consolidatedstatement of operations for 2006. The remaining balance, totaling approximately$0.4 million, was capitalized in fixed assets. OED has accrued management’sbest estimate of all sales taxes that would be required to be paid fornon-racetrack facilities and ongoing operating purchases as of December 31,2006.

InOctober 2005, OED filed a request to arbitrate certain claims against thegeneral contractor of its racino relating to improper construction of the horseracetrack at the racino. OED is pursuing a claim for damages of approximately$7.1 million against the general contractor to recoup its track reconstructioncosts and other related damages. The contractor has filed a counterclaim forunpaid billings. OED believes it is too early to predict the outcome of thearbitration and, accordingly, has not recorded any damage claim as anasset.  If the contractor obtains afavorable ruling in the arbitration, OED may be required to pay up to $1.6million in unpaid construction retainage and bonuses, which amount has beenaccrued on the Company’s consolidated balance sheet as of December 31, 2006.

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Other than asdescribed above, neither the Company nor its subsidiaries are parties to anypending legal proceedings other than litigation arising in the normal course ofbusiness. Management does not believe that adverse determinations in any or allsuch other litigation would have a material adverse effect on the Company’sfinancial condition, results of operations or cash flows.

In connection with obtaining its gaming license, DJWis required to pay under an executory agreement a license fee of $5.0 milliondue in five annual installments of $1.0 million. DJW paid the first two $1.0million installments in June 2005 and May 2006, respectively, with theremaining installments due each May thereafter through 2009. Also, DJW isrequired to pay its qualified sponsoring organization, who holds the jointgaming license with DJW, 5.76% of the casino’s adjusted gross receipts on anongoing basis.  In 2006, DJW expensed$2.8 million related to this agreement. The agreement expires on March 31, 2015but is subject to automatic three year renewal periods.

The Company’s future contractual obligations relatedto purchase commitments at December 31, 2006, excluding the DJW executoryagreement payments and the DJW payments to its sponsoring organization, aresummarized as follows (in thousands):
| 2007       |   | $     | 2,101  |   |
|------------|--------|-------|--------|--------|
| 2008       |   | 2,145 |   |
| 2009       |   | 1,080 |   |
| 2010       |   | 623   |   |
| 2011       |   | 39    |   |
| Thereafter |   | 21    |   |
| Total      |   | $     | 6,009  |   |

**8.MEMBER’S EQUITY**

On July 15, 1999, PGL authorized and issued$9.0 million of common membership units. PGP, as the holder of all of theCompany’s issued and outstanding common membership interests, is entitled tovote on all matters to be voted on by holders of common membership interests ofthe Company and, subject to certain limitations contained in the Company’soperating agreement and the indentures governing the Peninsula Gaming Notes,the DJW Notes, and the PGL Credit Facility, is entitled to dividends and otherdistributions as and when declared by the Company’s managers out of fundslegally available therefore.

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

Dubuque Racing Association, Ltd. (the “DRA”), aqualified sponsoring organization, holds a joint license with DJL to conductgambling games under Iowa statutes. The DRA owns Dubuque Greyhound Park (“DGP”),a traditional greyhound racetrack with 1,000 slot machines and amenitiesincluding a gift shop, restaurant and clubhouse. During 2005, DJL entered intoan amendment to its operating agreement under the joint gambling license (the “AmendedOperating Agreement”) with the DRA. The Amended Operating Agreement providesfor, among other things, the following:

·                  The DRA isauthorized to operate up to 1,000 slot machines and up to 20 table games atDGP.

·                  Extension of theoperating agreement through December 31, 2018.

·                  From February2006 (the date that DGP commenced operation of table games) through August 31,2006 (the date a competing casino facility opened to the public in Riverside,Iowa),  DRA was contractually obligatedto pay to DJL $0.33 for each $1.00 of reduction in DJL’s adjusted gross gamingreceipts, subject to a maximum 15% decline and certain payment deferralconditions. Beginning September 1, 2006 and continuing until the earlier of (i)DJL’s commencement of operations as a barge facility or (ii) December 31, 2008,DRA is contractually obligated to pay to DJL $0.33 for each $1.00 of reductionin DJL’s adjusted gross gaming receipts above a 7% decline from the base periodand subject to a maximum 21% decline and certain payment deferral conditions;and

·                  DJL willcontinue to pay to DRA the sum of $.50 for each patron admitted on the boatthrough 2008. During 2006, 2005 and 2004, these payments approximated $0.4million, $0.5 million and $0.5 million, respectively. Commencing January 1,2009, DJL shall pay to DRA 3% of DJL’s adjusted gross receipts. If however, DJLelects to move its operations to a barge facility, upon commencement of operationsas a barge facility, DJL will be required to pay to DRA 4.5% of DJL’s adjustedgross receipts.

During 2006, DJLrecorded other revenue of approximately $1.6 million related to this agreement,of which $1.2 million has been recorded as a long-term receivable and is inincluded in deposits and other assets on the Company’s balance sheet.

**10. TRANSACTIONS WITH RELATED PARTIES**

In November 2005, PGP repurchased 35,210 units of itsconvertible preferred membership interest from an unrelated party for approximately$1.8 million. In May 2004, PGP repurchased 147,553 units of its convertiblepreferred membership interests from an unrelated party for approximately $4.5million. Both repurchases were funded by a distribution of cash to PGP from theCompany.

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During 2006, 2005 and 2004, the Company distributed$2.5 million, $2.8 million, and $2.5 million, respectively, to PGP primarilyfor (i) certain consulting and financial advisory services related to PGPdevelopment expenses, (ii) board fees and actual out-of-pocket expensesincurred by members of the board of managers of PGP in their capacity as aboard member and (iii) tax, accounting, legal and administrative costs andexpenses related to PGP. These amounts were recorded as member distributions.

During 2006 and 2005, the Company expensed $0.2million and $0.4 million, respectively, as affiliate management fees, relatedto other compensation and board fees payable to board members of PGPrepresenting services provided to PGL. In 2006, PGP assumed PGL’s liability forsuch amounts which was recorded as a member contribution.

In accordance with a management services agreementbetween OED Acquisition LLC (“OEDA”), a wholly owned subsidiary of PGP, andOED, under which OED pays to OEDA a base management fee of 0.44% of net revenue(less net food and beverage revenue) plus an incentive fee based on earningsbefore interest, taxes, depreciation, amortization and other non-recurringcharges, OED expensed $0.9 million in affiliate management fees payable to OEDAin 2006, $0.7 million in 2005 and $0.2 million for the period from July 1,2004 through December 31, 2004 (the period subsequent to the spin-off ofOEDA).

In 2005, DJW entered intoa management services agreement with PGP. Pursuant to the terms of thatagreement, PGP is responsible for the design, development, construction,management and ongoing operation of the casino in Worth County, Iowa andprovided certain pre-opening services in connection therewith. Under themanagement services agreement, PGP was entitled to receive a pre-openingservice fee equal to $40,000 per month commencing in September 2005 and endingupon opening of the new casino to the public. Commencing in April 2006(commencement of operations at the new DJW casino), PGP is entitled to receivea base management fee equal to 1.75% of net revenue (less net food and beveragerevenue) and an incentive fee equal to:

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

• 4.0% of EBITDA in excess of $25.0 million but lessthan $30.0 million of EBITDA; and

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

“EBITDA” is defined in the management servicesagreement as earnings before interest, income taxes, depreciation andamortization; provided, however, that in calculating earnings, the base managementfee and the incentive fee payable under the management services agreement shallnot be deducted. The management services agreement will terminate on the laterof (i) April 2014 or (ii) the date of sale by PGP of its beneficial ownershipof the DJW’s membership interests. DJW expensed management fees of $1.7 millionand $0.2 million in 2006 and 2005, respectively, related to this agreement.

OED and PGP are parties to separate consultingagreements with a board member of PGP. Under the consulting agreements, OED andDJW must each pay the board member a fee equal to 2.5% of OED’s and DJW’searnings before interest, taxes, depreciation, amortization and othernon-recurring charges during the preceding calendar year commencing onJanuary 1, 2004 and May 1, 2006, respectively. Under the consultingagreements, the board member is also entitled to reimbursement of reasonablebusiness expenses as approved by the board of managers of PGP. OED expensed$1.0 million, $0.8 million and $0.5 million of affiliate management fees in2006, 2005 and 2004 related to this agreement. DJW expensed $0.7 million of affiliate management fees in 2006 relatedto this agreement.

A board member of PGP was entitled to receive fromOEDA board fees of $0.2 million per year for services performed in his capacityas an OEDA board member. For the period from January 1, 2004 throughJune 30, 2004 (the period prior to the spin-off of OEDA), the Companyexpensed $0.1 million related to these board fees.

At a meeting of the board of managers of PGP held onFebruary 25, 2005, PGP approved grants of profits interests under PGP’sAmended and Restated 2004 Incentive Unit Plan (the “IUP”) to two executiveofficers of PGL aggregating 2.50% of the outstanding membership units of PGP ona fully diluted basis. In addition, at a meeting of the board of managers ofPGP held on September 12, 2005, PGP approved additional grants under the IUP tothe executive officers of PGL aggregating 5% of the outstanding membershipunits of PGP on a fully diluted basis. The terms of the awards includespecified vesting schedules, acceleration of vesting upon the occurrence ofcertain events, anti-dilution protection, transfer restrictions and othercustomary terms and provisions. The profits interests awarded under the IUPentitle the holders thereof to receive distributions from operating profits ona pro rata basis with holders of common units of PGP (but only to the extent ofprofits allocated to holders of profits interests after the date of grant) anddistributions on liquidation (but only to the extent of their pro rata share ofany undistributed operating profits allocated to holders of profits interestsand any further appreciation in the fair market value of PGP after the date ofgrant). Upon any termination of their employment, the respective officers areentitled at their option to cause the Company to redeem all such vested profitsinterests granted to them for cash at their fair market value at the time oftermination of employment. Quarterly, the Company estimates the fair value ofthe units and compares that value to the value of the units at the date ofgrant. Any appreciation in the value of the units and based on the percentageof the grant vested is expensed. The Company expensed $8.5 million in 2006 and$1.2 million in 2005 with respect to these units. In 2006, PGP assumed PGL’sliability under these agreements which was recorded as a member 

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contribution.

**11. SUBSEQUENT EVENTS**

In February 2007, DJL entered into a DevelopmentAgreement with the City of Dubuque, Iowa regarding, among other things, thedesign, development, construction and financing of a public parking facility tobe located adjacent to DJL’s proposed casino development.  See Note 1 for further discussion of theDevelopment Agreement.

In December 2006 and January 2007, DJW enteredinto agreements with various slot machine manufacturers to finance the purchaseof 265 slot machines for the casino expansion development for a total grosspurchase price of $3.7 million. A portion of the machines were purchased duringthe first quarter of 2007 for a total gross purchase price of $3.1 million. Ofthe purchase price for the slot machines, $1.5 million of the purchase price ofthe slot machines was financed through a slot machine vendor with equalprincipal payments over twenty-four months and zero percent interest withpayments to begin in April 2007. The remaining $1.6 million of the purchaseprice of the slot machines was financed through another slot machine vendorwith equal principal payments over twelve months and zero percent interest withpayments to begin in April 2007. As there was no stated interest rate on thenotes, DJW used an imputed interest rate of 7.4% to establish the present valueof the notes by discounting, at 7.4%, all future interest and principalpayments on the notes. DJW considered the rates at which it could obtainfinancing of a similar nature from other sources at the date of the transactionand the stated interest rates, if any.

**12. SEGMENT INFORMATION**

The Company is organized around geographical areas andoperates three reportable segments: (1) Diamond Jo operations, whichcomprise the Diamond Jo riverboat casino in Dubuque, Iowa, (2) EvangelineDowns operations, which comprise the casino, racetrack and OTBs operated by OEDin Louisiana and (3) Diamond Jo Worth operations, which comprise the Diamond JoWorth casino operations in Northwood, Iowa.

The accounting policies for each segment are the sameas those described in Note 2 above. The Company evaluates performance andallocates resources based upon, among other considerations, segment operatingearnings (as defined below).

The tables below present information about reportedsegments as of and for the years ended (in thousands):
| ** **       | ** ** | **Net Revenues** | ** ** |
|------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2006**              | ** ** | **2005** | ** ** | **2004** | ** ** |
|             |       |                  |       |   |   |   |   |
| Diamond Jo       |       | $                     | 44,579     |   | $ | 50,107 |   | $ | 49,832 |   |
| Evangeline Downs |       | 135,052               |       | 117,583 |   | 91,887 |   |
| Diamond Jo Worth |       | 54,786                |       | 1,383 |   |   |   |
| Total            |       | $                     | 234,417    |   | $ | 169,073 |   | $ | 141,719 |   |

 
| ** **                           | ** ** | **Segment Operating  Earnings(1)** | ** ** |
|--------------------------------------|------------|-----------------------------------------|------------|
| ** **                           | ** ** | **2006**                                | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                 |       |                                    |       |   |   |   |   |
| General  Corporate                   |       | $                                       | (10,740    | ) | $ | (3,326 | ) | $ | (927 | ) |
| Diamond Jo                           |       | 14,854                                  |       | 16,866 |   | 16,700 |   |
| Evangeline Downs                     |       | 38,977                                  |       | 31,223 |   | 17,282 |   |
| Diamond Jo Worth                     |       | 22,597                                  |       | 5 |   | — |   |
| Total Segment  Operating Earnings(1) |       | 65,688                                  |       | 44,768 |   | 33,055 |   |
| General  Corporate:                  |       |                                    |       |   |   |   |   |
| Management severance and recruiting  |       | —                                  |       | — |   | (108 | ) |
| Development expense                  |       | —                                  |       | (223 | ) | (242 | ) |
| Depreciation and amortization        |       | (14                                     | )          | — |   | — |   |
| Affiliate management fees            |       | (281                                    | )          | (418 | ) | — |   |
| Interest income                      |       | 47                                      |       | — |   | — |   |
| Diamond Jo:                          |       |                                    |       |   |   |   |   |
| Depreciation and amortization        |       | (4,176                                  | )          | (4,136 | ) | (2,678 | ) |
| Development expense                  |       | (624                                    | )          | (147 | ) | — |   |
| Management severance and recruiting  |       | —                                  |       | — |   | (294 | ) |
| (Loss) gain on disposal of assets    |       | (58                                     | )          | (3 | ) | 498 |   |
| Interest expense, net                |       | (9,349                                  | )          | (9,744 | ) | (19,089 | ) |
| Evangeline  Downs:                   |       |                                    |       |   |   |   |   |
| Depreciation and amortization        |       | (13,094                                 | )          | (12,089 | ) | (9,677 | ) |
| Pre-opening expense                  |       | (19                                     | )          | (171 | ) | (367 | ) |
| Management severance and recruiting  |       | —                                  |       | — |   | (191 | ) |
|                                      |            |                                         |            |  |  |  |  |  |  |  |

F-20

----

 
| Development expense               |   | (109    | )      | (205    | )      | —  |   |
|-----------------------------------|--------|---------|--------|---------|--------|---------|--------|
| Affiliate management fees         |   | (1,839  | )      | (1,479  | )      | (757    | )      |
| (Loss) gain on disposal of assets |   | (78     | )      | 19      |   | 218     |   |
| Interest expense, net             |   | (18,341 | )      | (17,833 | )      | (45,443 | )      |
| Diamond Jo  Worth:                |   |    |   |    |   |    |   |
| Depreciation and amortization     |   | (3,536  | )      | (24     | )      | —  |   |
| Pre-opening expense               |   | (947    | )      | (139    | )      | —  |   |
| Development expense               |   | (44     | )      | —  |   | —  |   |
| Affiliate management fees         |   | (2,396  | )      | (160    | )      | —  |   |
| Loss on disposal of assets        |   | (74     | )      | —  |   | —  |   |
| Interest expense, net             |   | (4,428  | )      | (1,400  | )      | —  |   |
| Net income (loss)                 |   | $       | 6,328  |    | $      | (3,384  | )      | $ | (45,075 | ) |
|                                   |        |         |        |         |        |         |        |  |  |  |

----

(1)             Segmentoperating earnings is defined as net income (loss) plus depreciation andamortization, pre-opening expense, development expense, management severanceand recruiting, affiliate management fees, loss on disposal of assets andinterest expense (net) (including loss on early retirement of debt) less gainon disposal of assets.
| ** **        | ** ** | **Total Assets** | ** ** |
|-------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2006**              | ** ** | **2005** | ** ** |
|              |       |                  |       |   |   |
| General Corporate |       | $                     | 21,433     |   | $ | — |   |
| Diamond Jo        |       | 88,896                |       | 79,267 |   |
| Evangeline Downs  |       | 156,130               |       | 162,899 |   |
| Diamond Jo Worth  |       | 87,351                |       | 45,462 |   |
| Total             |       | $                     | 353,810    |   | $ | 287,628 |   |

 
| ** **        | ** ** | **Cash Expenditures for Additions to  Long-Lived Assets** | ** ** |
|-------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **        | ** ** | **2006**                                                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|              |       |                                                                               |       |   |   |   |   |
| General Corporate |       | $                                                                                  | 130        |   | $ | — |   | $ | — |   |
| Diamond Jo        |       | 1,733                                                                              |       | 1,754 |   | 2,576 |   |
| Evangeline Downs  |       | 6,753                                                                              |       | 12,231 |   | 41,103 |   |
| Diamond Jo Worth  |       | 29,276                                                                             |       | 19,181 |   | — |   |
| Total             |       | $                                                                                  | 37,892     |   | $ | 33,166 |   | $ | 43,679 |   |

**13. FAIRVALUE OF FINANCIAL INSTRUMENTS**

The fair value of theCompany’s financial instruments consisting of cash and cash equivalents,restricted cash, receivables, and payables approximate their recorded amountsdue to the short term nature of the instruments. The fair value and recordedamounts for the Company’s debt instruments at December 31, 2006 and 2005are as follows:

(in thousands)
| ** **                                                  | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                                  | ** ** | **Fair Value**             | ** ** | **Recorded Amount**        | ** ** | **Fair Value** | ** ** | **Recorded Amount** | ** ** |
| 83⁄4% senior  secured notes                              |       | $                               | 252,450    |                            | $          | 252,381 |   | $ | 229,505 |   | $ | 230,259 |   |
| 11% senior  secured notes and related contingent put option |       | 95,535                          |       | 96,500                          |       | 40,000 |   | 40,000 |   |
| 13% senior  secured notes                                   |       | 6,910                           |       | 6,831                           |       | 6,910 |   | 6,813 |   |
| Senior secured  credit facilities                           |       | —                          |       | —                          |       | 23,800 |   | 23,800 |   |
| Term loan                                                   |       | 4,667                           |       | 4,667                           |       | 8,667 |   | 8,667 |   |
| Notes payable  and capital lease obligations                |       | 8,423                           |       | 8,189                           |       | 7,702 |   | 7,467 |   |
| Preferred members’  interest, redeemable               |       | —                          |       | —                          |       | 4,000 |   | 4,000 |   |
|                                                             |            |                                 |            |                                 |            |  |  |  |  |  |  |  |  |

 

Fair value information isbased on current market interest rates and estimates of market conditions forinstruments with similar terms, maturities, and degrees of risk.

F-21

----

 

**14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)**
| ** **              | ** ** | **2006 Quarters Ended**    | ** ** |
|-------------------------|------------|--------------------------------------|------------|
| ** **              | ** ** | **March 31**                    | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **              | ** ** | **(Dollars in Thousands)** | ** ** |
|                    |       |                                 |       |   |   |   |   |   |   |
| Net revenues            |       | $                                    | 50,713     |   | $ | 64,563 |   | $ | 62,798 |   | $ | 56,343 |   |
| Income from  operations |       | 9,380                                |       | 10,972 |   | 10,980 |   | 7,067 |   |
| Net income (loss)       |       | 2,077                                |       | 2,926 |   | 2,501 |   | (1,176 | ) |
|                         |            |                                      |            |  |  |  |  |  |  |  |  |  |  |

----

| ** **              | ** ** | **2005 Quarters Ended**    | ** ** |
|-------------------------|------------|--------------------------------------|------------|
| ** **              | ** ** | **March 31**                    | ** ** | **June 30(1)** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **              | ** ** | **(Dollars in Thousands)** | ** ** |
|                    |       |                                 |       |   |   |   |   |   |   |
| Net revenues            |       | $                                    | 39,558     |   | $ | 38,641 |   | $ | 42,257 |   | $ | 48,617 |   |
| Income from  operations |       | 6,580                                |       | 4,521 |   | 6,425 |   | 8,067 |   |
| Net income (loss)       |       | (182                                 | )          | (2,320 | ) | (1,184 | ) | 302 |   |
|                         |            |                                      |            |  |  |  |  |  |  |  |  |  |  |

----

(1)             Includesthe impact attributed to the closure of the racetrack from May 13, 2005 toJune 28, 2005 for improvements related to the dirt track.  The Companyreopened the racetrack on June 29, 2005.
| ** **                        | ** ** | **Net Revenues  (dollars in thousands)** | ** ** |
|-----------------------------------|------------|---------------------------------------------------------|------------|
| **2005 Quarters Ended** | ** ** | ** **                                              | ** ** | **Previously   Reported in  10Q’s** | ** ** | **Cash and Free  Play Incentives  Reclass** | ** ** | **Currently  Reported** | ** ** |
| March 31                          |       | $                                                       | 41,304     |   | $ | (1,746 | ) | $ | 39,558 |   |
| June 30                           |       | 40,369                                                  |       | (1,728 | ) | 38,641 |   |
| September 30                      |       | 43,912                                                  |       | (1,655 | ) | 42,257 |   |
| December 31                       |       | 50,536                                                  |       | (1,919 | ) | 48,617 |   |
|                              |       |                                                    |       |   |   |   |   |
| **2006  Quarters Ended**          |       |                                                    |       |   |   |   |   |
| March 31                          |       | 52,434                                                  |       | (1,721 | ) | 50,713 |   |
| June 30                           |       | 67,349                                                  |       | (2,786 | ) | 64,563 |   |
| September 30                      |       | 65,401                                                  |       | (2,603 | ) | 62,798 |   |
|                                   |            |                                                         |            |  |  |  |  |  |  |  |  |  |

**15.  PRO FORMA CONDENSED CONSOLIDATED STATEMENT OFOPERATIONS (UNAUDITED)**

The following pro forma condensed consolidatedstatement of operations sets forth the results of operations for the year endedDecember 31, 2006 on an actual basis and on a pro forma basis to giveeffect to the offering of the additional DJW notes of $20 million in August2006 and $36.5 million in December 2006 and Additional PGL Notes of $22 millionin December 2006 and the application of the net proceeds therefrom as if suchtransactions had occurred on January 1, 2006.
| ** **                                                                | ** ** | **Year Ended December 31, 2006  (in thousands)** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** | **Historical**                                                            | ** ** | **Pro Forma  Adjustments** | ** ** | **Pro Forma** | ** ** |
|                                                                      |       |                                                                      |       |   |   |   |   |
| NET REVENUES                                                              |       | $                                                                         | 234,417    |   | $ | — |   | $ | 234,417 |   |
| EXPENSES                                                                  |       | 196,018                                                                   |       | — |   | 196,018 |   |
| INCOME FROM  OPERATIONS                                                   |       | 38,399                                                                    |       | — |   | 38,399 |   |
| OTHER INCOME  (EXPENSE):                                                  |       |                                                                      |       |   |   |   |   |
| Interest income                                                           |       | 955                                                                       |       | — |   | 955 |   |
| Interest expense, net of amounts capitalized                              |       | (32,741                                                                   | )          | (8,076) | (1) | (40,817 | ) |
| Interest expense related to preferred members’  interest, redeemable |       | (285                                                                      | )          | — |   | (285 | ) |
| Total other expense                                                       |       | (32,071                                                                   | )          | (8,076 | ) | (40,147 | ) |
| NET INCOME (LOSS)                                                         |       | $                                                                         | 6,328      |   | $ | (8,076 | ) | $ | (1,748 | ) |

----

(1)             Represents(a)  $5.4 million of contractual, fixed rate interest on theadditional DJW notes at 11%, (b) $0.5 million of amortization ofdeferred financing costs and discount on the additional DJW notes, (c)$1.9 million of contractual, fixed rate interest on the Additional PGLNotes at 8 3⁄4% and (d) $0.3 million of amortization of deferredfinancing costs and discount on the Additional PGL Notes.

F-22

----

 

**16. CONSOLIDATING FINANCIAL INFORMATION**

The Company, DJL and PGC (which has no assets oroperations) are co-issuers of the Peninsula Gaming Notes of which $233 millionare registered with the U.S. Securities and Exchange Commission. OED is aguarantor of the Peninsula Gaming Notes, and the equity of DJL and OED ispledged as collateral securing obligations under the Peninsula Gaming Notes. InJuly 2005, in connection with the offering of the DJW Notes, DJW wasdesignated as an “unrestricted subsidiary” under the indenture governing thePeninsula Gaming Notes and the liens on the assets and equity of DJW under thePeninsula Gaming Notes were released. Consolidating financial information ofthe co-issuers, the guarantor and the non-guarantor is presented on thefollowing pages.

F-23

----

 

CONSOLIDATING BALANCE SHEETS

(in thousands)
| ** **                                          | ** ** | **At December 31, 2006** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                          | ** ** | **Parent  Co-Issuer —  PGL**  | ** ** | **Subsidiary  Co-Issuer —  DJL** | ** ** | **Subsidiary  Guarantor —  OED** | ** ** | **Subsidiary  Non-Guarantor —DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                          |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| CURRENT ASSETS:                                     |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Cash  and cash equivalents                          |       | $                                       | 20,999     |   | $ | 13,069 |   | $ | 8,889 |   | $ | 13,964 |   |   |   | $ | 56,921 |   |
| Restricted  cash-purse settlements                  |       |                                    |       |   |   | 4,619 |   |   |   |   |   | 4,619 |   |
| Accounts  receivable                                |       |                                    |       | 79 |   | 2,885 |   | 565 |   |   |   | 3,529 |   |
| Receivables  from affiliates                        |       |                                    |       | 1,446 |   |   |   |   |   | $ | (1,446 | ) |   |   |
| Inventories                                         |       |                                    |       | 155 |   | 312 |   | 239 |   |   |   | 706 |   |
| Prepaid  expenses                                   |       | 18                                      |       | 400 |   | 755 |   | 283 |   |   |   | 1,456 |   |
| Total  current assets                               |       | 21,017                                  |       | 15,149 |   | 17,460 |   | 15,051 |   | (1,446 | ) | 67,231 |   |
| RESTRICTED CASH — WORTH  PROJECT               |       |                                    |       |   |   |   |   | 12,981 |   |   |   | 12,981 |   |
| PROPERTY AND EQUIPMENT,  NET                        |       | 119                                     |       | 14,063 |   | 98,474 |   | 52,098 |   |   |   | 164,754 |   |
| OTHER ASSETS:                                       |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Investment  in subsidiaries                         |       | (76,896                                 | )          |   |   |   |   |   |   | 76,896 |   |   |   |
| Deferred  financing costs                           |       |                                    |       | 4,588 |   | 6,502 |   | 5,134 |   |   |   | 16,224 |   |
| Goodwill                                            |       |                                    |       | 53,083 |   |   |   |   |   |   |   | 53,083 |   |
| Licenses  and other intangibles                     |       |                                    |       |   |   | 33,498 |   | 2,023 |   |   |   | 35,521 |   |
| Deposits  and other assets                          |       | 297                                     |       | 3,459 |   | 196 |   | 64 |   |   |   | 4,016 |   |
| Total  other assets                                 |       | (76,599                                 | )          | 61,130 |   | 40,196 |   | 7,221 |   | 76,896 |   | 108,844 |   |
| TOTAL                                               |       | $                                       | (55,463    | ) | $ | 90,342 |   | $ | 156,130 |   | $ | 87,351 |   | $ | 75,450 |   | $ | 353,810 |   |
|                                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES AND MEMBER’S EQUITY  (DEFICIT)** |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| CURRENT LIABILITIES:                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Accounts  payable                                   |       | $                                       | 19         |   | $ | 783 |   | $ | 4,039 |   | $ | 542 |   |   |   | $ | 5,383 |   |
| Construction  payable                               |       |                                    |       | 307 |   | 2,118 |   | 3,106 |   |   |   | 5,531 |   |
| Purse  settlement payable                           |       |                                    |       |   |   | 6,265 |   |   |   |   |   | 6,265 |   |
| Accrued  payroll and payroll taxes                  |       | 999                                     |       | 1,159 |   | 1,537 |   | 880 |   |   |   | 4,575 |   |
| Accrued  interest                                   |       |                                    |       | 1,915 |   | 3,310 |   | 2,212 |   |   |   | 7,437 |   |
| Other  accrued expenses                             |       | 20                                      |       | 1,936 |   | 5,337 |   | 1,733 |   |   |   | 9,026 |   |
| Payable  to affiliates                              |       |                                    |       |   |   | 2,022 |   | 1,908 |   | $ | (1,446 | ) | 2,484 |   |
| Current  maturity of long-term debt and leases      |       |                                    |       | 1,124 |   | 5,728 |   | 1,793 |   |   |   | 8,645 |   |
| Total  current liabilities                          |       | 1,038                                   |       | 7,224 |   | 30,356 |   | 12,174 |   | (1,446 | ) | 49,346 |   |
| LONG-TERM LIABILITIES:                              |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| 8 3⁄4%  senior secured notes, net of discount    |       |                                    |       | 101,507 |   | 150,874 |   |   |   |   |   | 252,381 |   |
| 11%  senior secured notes, net of discount          |       |                                    |       |   |   |   |   | 96,500 |   |   |   | 96,500 |   |
| 13%  senior secured notes, net of discount          |       |                                    |       |   |   | 6,831 |   |   |   |   |   | 6,831 |   |
| Senior  secured credit facilities                   |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Term  loan                                          |       |                                    |       |   |   | 667 |   |   |   |   |   | 667 |   |
| Notes  and leases payable                           |       |                                    |       | 38 |   | 1,735 |   | 1,771 |   |   |   | 3,544 |   |
| Other  accrued expenses                             |       |                                    |       | 150 |   |   |   | 892 |   |   |   | 1,042 |   |
| Total  long-term liabilities                        |       |                                    |       | 101,695 |   | 160,107 |   | 99,163 |   |   |   | 360,965 |   |
| Total  liabilities                                  |       | 1,038                                   |       | 108,919 |   | 190,463 |   | 111,337 |   | (1,446 | ) | 410,311 |   |
|                                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| MEMBER’S DEFICIT                               |       | (56,501                                 | )          | (18,577 | ) | (34,333 | ) | (23,986 | ) | 76,896 |   | (56,501 | ) |
| TOTAL                                               |       | $                                       | (55,463    | ) | $ | 90,342 |   | $ | 156,130 |   | $ | 87,351 |   | $ | 75,450 |   | $ | 353,810 |   |

 

F-24

----

 
| ** **                                          | ** ** | **At December 31, 2005** | ** ** |
|-----------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                          | ** ** | **Parent  Co-Issuer —  PGL**  | ** ** | **Subsidiary  Co-Issuer —  DJL** | ** ** | **Subsidiary  Guarantor —  OED** | ** ** | **Subsidiary  Non-Guarantor  —DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                          |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| CURRENT ASSETS:                                     |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Cash  and cash equivalents                          |       | $                                       | (52        | ) | $ | 3,253 |   | $ | 9,011 |   | $ | 566 |   |   |   | $ | 12,778 |   |
| Restricted  cash-purse settlements                  |       |                                    |       |   |   | 5,119 |   |   |   |   |   | 5,119 |   |
| Restricted  cash-interest reserve                   |       |                                    |       |   |   |   |   | 2,281 |   |   |   | 2,281 |   |
| Accounts  receivable                                |       |                                    |       | 168 |   | 2,495 |   | 138 |   |   |   | 2,801 |   |
| Receivables  from affiliates                        |       |                                    |       | 6,651 |   |   |   |   |   | $ | (6,651 | ) |   |   |
| Inventories                                         |       |                                    |       | 114 |   | 258 |   | 121 |   |   |   | 493 |   |
| Prepaid  expenses                                   |       | 38                                      |       | 461 |   | 617 |   | 143 |   |   |   | 1,259 |   |
| Total  current assets                               |       | (14                                     | )          | 10,647 |   | 17,500 |   | 3,249 |   | (6,651 | ) | 24,731 |   |
| RESTRICTED CASH — WORTH  PROJECT               |       |                                    |       |   |   |   |   | 16,848 |   |   |   | 16,848 |   |
| PROPERTY AND EQUIPMENT,  NET                        |       |                                    |       | 16,503 |   | 104,900 |   | 21,990 |   |   |   | 143,393 |   |
| OTHER ASSETS:                                       |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Investment  in subsidiaries                         |       | (68,521                                 | )          |   |   |   |   |   |   | 68,521 |   |   |   |
| Deferred  financing costs                           |       |                                    |       | 4,536 |   | 7,362 |   | 2,365 |   |   |   | 14,263 |   |
| Goodwill                                            |       |                                    |       | 53,083 |   |   |   |   |   |   |   | 53,083 |   |
| Licenses  and other intangibles                     |       |                                    |       |   |   | 33,003 |   | 1,000 |   |   |   | 34,003 |   |
| Deposits  and other assets                          |       | 3                                       |       | 1,160 |   | 134 |   | 10 |   |   |   | 1,307 |   |
| Total  other assets                                 |       | (68,518                                 | )          | 58,779 |   | 40,499 |   | 3,375 |   | 68,521 |   | 102,656 |   |
| TOTAL                                               |       | $                                       | (68,532    | ) | $ | 85,929 |   | $ | 162,899 |   | $ | 45,462 |   | $ | 61,870 |   | $ | 287,628 |   |
|                                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES AND MEMBER’S EQUITY  (DEFICIT)** |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| CURRENT LIABILITIES:                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Accounts  payable                                   |       | $                                       | 11         |   | $ | 1,086 |   | $ | 3,501 |   | $ | 144 |   |   |   | $ | 4,742 |   |
| Construction  payable                               |       |                                    |       |   |   | 2,500 |   | 3,617 |   |   |   | 6,117 |   |
| Purse  settlement payable                           |       |                                    |       |   |   | 7,320 |   |   |   |   |   | 7,320 |   |
| Accrued  payroll and payroll taxes                  |       | 1,753                                   |       | 1,175 |   | 1,331 |   | 8 |   |   |   | 4,267 |   |
| Accrued  interest                                   |       |                                    |       | 1,672 |   | 3,251 |   | 941 |   |   |   | 5,864 |   |
| Other  accrued expenses                             |       | 13                                      |       | 1,524 |   | 5,979 |   | 89 |   |   |   | 7,605 |   |
| Payable  to affiliates                              |       | 298                                     |       |   |   | 7,158 |   | 164 |   | $ | (6,651 | ) | 969 |   |
| Current  maturity of long-term debt                 |       |                                    |       | 5,198 |   | 5,804 |   |   |   |   |   | 11,002 |   |
| Total  current liabilities                          |       | 2,075                                   |       | 10,655 |   | 36,844 |   | 4,963 |   | (6,651 | ) | 47,886 |   |
| LONG-TERM LIABILITIES:                              |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| 8 3⁄4%  senior secured notes, net of discount    |       |                                    |       | 86,858 |   | 143,401 |   |   |   |   |   | 230,259 |   |
| 11%  senior secured notes, net of discount          |       |                                    |       |   |   |   |   | 40,000 |   |   |   | 40,000 |   |
| 13%  senior secured notes, net of discount          |       |                                    |       |   |   | 6,813 |   |   |   |   |   | 6,813 |   |
| Senior  secured credit facilities                   |       |                                    |       | 6,700 |   | 17,100 |   |   |   |   |   | 23,800 |   |
| Term  loan                                          |       |                                    |       |   |   | 4,667 |   |   |   |   |   | 4,667 |   |
| Notes  payable                                      |       |                                    |       | 1,107 |   | 3,358 |   |   |   |   |   | 4,465 |   |
| Other  accrued expenses                             |       |                                    |       | 199 |   |   |   | 146 |   |   |   | 345 |   |
| Total  long-term liabilities                        |       |                                    |       | 94,864 |   | 175,339 |   | 40,146 |   |   |   | 310,349 |   |
| Total  liabilities                                  |       | 2,075                                   |       | 105,519 |   | 212,183 |   | 45,109 |   | (6,651 | ) | 358,235 |   |
|                                                |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| MEMBER’S (DEFICIT)  EQUITY                     |       | (70,607                                 | )          | (19,590 | ) | (49,284 | ) | 353 |   | 68,521 |   | (70,607 | ) |
| TOTAL                                               |       | $                                       | (68,532    | ) | $ | 85,929 |   | $ | 162,899 |   | $ | 45,462 |   | $ | 61,870 |   | $ | 287,628 |   |

 

F-25

----

 

CONSOLIDATING STATEMENTS OF OPERATIONS

(in thousands)
| ** **                                         | ** ** | **Year Ended December 31, 2006** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                         | ** ** | **Parent  Co-Issuer —  PGL**               | ** ** | **Subsidiary  Co-Issuer —  DJL** | ** ** | **Subsidiary  Guarantor —  OED** | ** ** | **Subsidiary  Non-Guarantor —  DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                          |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                             |       |                                                 |       | $ | 44,784 |   | $ | 106,558 |   | $ | 49,392 |   |   |   | $ | 200,734 |   |
| Racing                                             |       |                                                 |       |   |   | 22,146 |   |   |   |   |   | 22,146 |   |
| Video Poker                                        |       |                                                 |       |   |   | 3,715 |   |   |   |   |   | 3,715 |   |
| Food and beverage                                  |       |                                                 |       | 2,642 |   | 10,803 |   | 1,870 |   |   |   | 15,315 |   |
| Affiliate management fee  income                   |       |                                                 |       | 2,593 |   |   |   |   |   | $ | (2,593 | ) |   |   |
| Other                                              |       |                                                 |       | 1,948 |   | 1,308 |   | 6,831 |   |   |   | 10,087 |   |
| Less promotional  allowances                       |       |                                                 |       | (4,795 | ) | (9,478 | ) | (3,307 | ) |   |   | (17,580 | ) |
| Total net revenues                                 |       |                                                 |       | 47,172 |   | 135,052 |   | 54,786 |   | (2,593 | ) | 234,417 |   |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                          |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                             |       |                                                 |       | 18,844 |   | 50,133 |   | 15,994 |   |   |   | 84,971 |   |
| Racing                                             |       |                                                 |       |   |   | 18,579 |   |   |   |   |   | 18,579 |   |
| Video Poker                                        |       |                                                 |       |   |   | 2,949 |   |   |   |   |   | 2,949 |   |
| Food and beverage                                  |       |                                                 |       | 2,455 |   | 7,563 |   | 1,683 |   |   |   | 11,701 |   |
| Other                                              |       |                                                 |       | 39 |   | 295 |   | 6,271 |   |   |   | 6,605 |   |
| Selling, general and  administrative               |       | $                                                    | 2,983      |   | 8,387 |   | 16,556 |   | 8,241 |   | 7,757 |   | 43,924 |   |
| Depreciation and  amortization                     |       | 14                                                   |       | 4,176 |   | 13,094 |   | 3,536 |   |   |   | 20,820 |   |
| Pre-opening expense                                |       |                                                 |       |   |   | 19 |   | 947 |   |   |   | 966 |   |
| Development costs                                  |       |                                                 |       | 624 |   | 109 |   | 44 |   |   |   | 777 |   |
| Affiliate management  fees                         |       | 281                                                  |       |   |   | 4,432 |   | 2,396 |   | (2,593 | ) | 4,516 |   |
| Loss on disposal of  assets                        |       |                                                 |       | 58 |   | 78 |   | 74 |   |   |   | 210 |   |
| Corporate expense  allocation                      |       |                                                 |       | 2,879 |   | 2,439 |   | 2,439 |   | (7,757 | ) |   |   |
| Total expenses                                     |       | 3,278                                                |       | 37,462 |   | 116,246 |   | 41,625 |   | (2,593 | ) | 196,018 |   |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS) FROM  OPERATIONS                     |       | (3,278                                               | )          | 9,710 |   | 18,806 |   | 13,161 |   |   |   | 38,399 |   |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE):                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                    |       | 47                                                   |       | 61 |   | 126 |   | 721 |   |   |   | 955 |   |
| Interest expense, net of  amounts capitalized      |       |                                                 |       | (9,125 | ) | (18,467 | ) | (5,149 | ) |   |   | (32,741 | ) |
| Interest expense —  preferred member interest |       |                                                 |       | (285 | ) |   |   |   |   |   |   | (285 | ) |
| Gain from equity  investment in subsidiaries       |       | 9,559                                                |       |   |   |   |   |   |   | (9,559 | ) |   |   |
| Total other expense                                |       | 9,606                                                |       | (9,349 | ) | (18,341 | ) | (4,428 | ) | (9,559 | ) | (32,071 | ) |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| NET INCOME                                         |       | $                                                    | 6,328      |   | $ | 361 |   | $ | 465 |   | $ | 8,733 |   | $ | (9,559 | ) | $ | 6,328 |   |

 

 

F-26

----

|                                                    | ** ** | **Year Ended December 31, 2005** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                         | ** ** | **Parent  Co-Issuer —  PGL**               | ** ** | **Subsidiary  Co-Issuer —  DJL** | ** ** | **Subsidiary  Guarantor —  OED** | ** ** | **Subsidiary  Non-Guarantor —  DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                          |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                             |       |                                                 |       | $ | 51,536 |   | $ | 95,254 |   |   |   |   |   | $ | 146,790 |   |
| Racing                                             |       |                                                 |       |   |   | 17,578 |   |   |   |   |   | 17,578 |   |
| Video Poker                                        |       |                                                 |       |   |   | 2,339 |   |   |   |   |   | 2,339 |   |
| Food and beverage                                  |       |                                                 |       | 2,720 |   | 10,791 |   |   |   |   |   | 13,511 |   |
| Affiliate management fee  income                   |       |                                                 |       | 2,097 |   |   |   |   |   | $ | (2,097 | ) |   |   |
| Other                                              |       |                                                 |       | 310 |   | 1,017 |   | $ | 1,383 |   |   |   | 2,710 |   |
| Less promotional  allowances                       |       |                                                 |       | (4,459 | ) | (9,396 | ) |   |   |   |   | (13,855 | ) |
| Total  net revenues                                |       |                                                 |       | 52,204 |   | 117,583 |   | 1,383 |   | (2,097 | ) | 169,073 |   |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                          |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                             |       |                                                 |       | 21,108 |   | 46,072 |   |   |   |   |   | 67,180 |   |
| Racing                                             |       |                                                 |       |   |   | 15,335 |   |   |   |   |   | 15,335 |   |
| Video Poker                                        |       |                                                 |       |   |   | 1,767 |   |   |   |   |   | 1,767 |   |
| Food and beverage                                  |       |                                                 |       | 2,517 |   | 7,332 |   |   |   |   |   | 9,849 |   |
| Other                                              |       |                                                 |       | 37 |   | 305 |   | 1,378 |   |   |   | 1,720 |   |
| Selling, general and  administrative               |       | $                                                    | 1,420      |   | 9,579 |   | 15,549 |   |   |   | 1,906 |   | 28,454 |   |
| Depreciation and  amortization                     |       |                                                 |       | 4,136 |   | 12,090 |   | 23 |   |   |   | 16,249 |   |
| Pre-opening expense                                |       |                                                 |       |   |   | 171 |   | 139 |   |   |   | 310 |   |
| Development costs                                  |       | 223                                                  |       | 147 |   | 205 |   |   |   |   |   | 575 |   |
| Affiliate management  fees                         |       | 418                                                  |       |   |   | 3,576 |   | 160 |   | (2,097 | ) | 2,057 |   |
| Loss (gain) on disposal  of assets                 |       |                                                 |       | 3 |   | (19 | ) |   |   |   |   | (16 | ) |
| Corporate expense  allocation                      |       |                                                 |       | 1,034 |   | 872 |   |   |   | (1,906 | ) |   |   |
| Total expenses                                     |       | 2,061                                                |       | 38,561 |   | 103,255 |   | 1,700 |   | (2,097 | ) | 143,480 |   |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS) FROM  OPERATIONS                     |       | (2,061                                               | )          | 13,643 |   | 14,328 |   | (317 | ) |   |   | 25,593 |   |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE):                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                    |       |                                                 |       | 23 |   | 70 |   | 423 |   |   |   | 516 |   |
| Interest expense, net of  amounts capitalized      |       |                                                 |       | (9,406 | ) | (17,904 | ) | (1,823 | ) |   |   | (29,133 | ) |
| Interest expense —  preferred member interest |       |                                                 |       | (360 | ) |   |   |   |   |   |   | (360 | ) |
| Loss from equity  investment in subsidiaries       |       | (1,323                                               | )          |   |   |   |   |   |   |  1,323 |   |   |   |
| Total  other expense                               |       | (1,323                                               | )          | (9,743 | ) | (17,834 | ) | (1,400 | ) | 1,323 |   | (28,977 | ) |
|                                               |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| NET INCOME (LOSS)                                  |       | $                                                    | (3,384     | ) | $ | 3,900 |   | $ | (3,506 | ) | $ | (1,717 | ) | $ | 1,323 |   | $ | (3,384 | ) |

 

F-27

----

| ** **                                                                | ** ** | **Year Ended December 31, 2004** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                | ** ** | **Parent  Co-Issuer —  PGL**               | ** ** | **Subsidiary  Co-Issuer —  DJL** | ** ** | **Subsidiary  Guarantor —  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| REVENUES:                                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                                                 |       | $ | 51,233 |   | $ | 68,957 |   |   |   |   |   | $ | 120,190 |   |
| Racing                                                                    |       |                                                 |       |   |   | 17,380 |   |   |   |   |   | 17,380 |   |
| Video poker                                                               |       |                                                 |       |   |   | 2,715 |   |   |   |   |   | 2,715 |   |
| Food and beverage                                                         |       |                                                 |       | 2,897 |   | 8,567 |   |   |   |   |   | 11,464 |   |
| Affiliate management  fee income                                          |       |                                                 |       | 1,445 |   |   |   | $ | 245 |   | $ | (1,690 | ) |   |   |
| Other                                                                     |       |                                                 |       | 488 |   | 946 |   |   |   |   |   | 1,434 |   |
| Less promotional  allowances                                              |       |                                                 |       | (4,786 | ) | (6,678 | ) |   |   |   |   | (11,464 | ) |
| Total net  revenues                                                       |       |                                                 |       | 51,277 |   | 91,887 |   | 245 |   | (1,690 | ) | 141,719 |   |
|                                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| EXPENSES:                                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Casino                                                                    |       |                                                 |       | 20,984 |   | 37,095 |   |   |   |   |   | 58,079 |   |
| Racing                                                                    |       |                                                 |       |   |   | 14,010 |   |   |   |   |   | 14,010 |   |
| Video poker                                                               |       |                                                 |       |   |   | 2,034 |   |   |   |   |   | 2,034 |   |
| Food and beverage                                                         |       |                                                 |       | 2,641 |   | 6,577 |   |   |   |   |   | 9,218 |   |
| Other                                                                     |       |                                                 |       | 390 |   | 686 |   |   |   |   |   | 1,076 |   |
| Selling, general and  administrative                                      |       | $                                                    | 375        |   | 9,117 |   | 14,204 |   |   |   | 551 |   | 24,247 |   |
| Depreciation and  amortization                                            |       |                                                 |       | 2,679 |   | 9,677 |   |   |   |   |   | 12,356 |   |
| Pre-opening expense                                                       |       |                                                 |       |   |   | 367 |   |   |   |   |   | 367 |   |
| Development expense                                                       |       | 242                                                  |       |   |   |   |   |   |   |   |   | 242 |   |
| Management severance  and recruiting                                      |       | 36                                                   |       | 294 |   | 191 |   |   |   | 72 |   | 593 |   |
| Affiliate management  fees                                                |       |                                                 |       |   |   | 2,360 |   | 87 |   | (1,690 | ) | 757 |   |
| Gain on disposal of  assets                                               |       |                                                 |       | (498 | ) | (218 | ) |   |   |   |   | (716 | ) |
| Corporate expense  allocation                                             |       |                                                 |       | 343 |   | 280 |   |   |   | (623 | ) |   |   |
| Total expenses                                                            |       | 653                                                  |       | 35,950 |   | 87,263 |   | 87 |   | (1,690 | ) | 122,263 |   |
|                                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| INCOME (LOSS) FROM  OPERATIONS                                            |       | (653                                                 | )          | 15,327 |   | 4,624 |   | 158 |   |   |   | 19,456 |   |
|                                                                      |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE):                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                           |       |                                                 |       | 40 |   | 130 |   |   |   |   |   | 170 |   |
| Interest expense, net  of amounts capitalized                             |       |                                                 |       | (9,930 | ) | (16,845 | ) |   |   |   |   | (26,775 | ) |
| Loss on early  retirement of debt                                         |       |                                                 |       | (8,840 | ) | (28,726 | ) |   |   |   |   | (37,566 | ) |
| Interest expense  related to preferred members’ interest, redeemable |       |                                                 |       | (360 | ) |   |   |   |   |   |   | (360 | ) |
| Loss from equity  investment in subsidiaries                              |       | (44,422                                              | )          |   |   |   |   |   |   | 44,422 |   |   |   |
| Total other  expense                                                      |       | (44,422                                              | )          | (19,090 | ) | (45,441 | ) |   |   | 44,422 |   | (64,531 | ) |
| NET INCOME (LOSS)                                                         |       | $                                                    | (45,075    | ) | $ | (3,763 | ) | $ | (40,817 | ) | $ | 158 |   | $ | 44,422 |   | $ | (45,075 | ) |

 

F-28

----

 

CONSOLIDATINGSTATEMENTS OF CASH FLOWS

(in thousands)
| ** **                                                                        | ** ** | **Year Ended December 31, 2006** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **Parent  Co-Issuer —  PGL**               | ** ** | **Subsidiary  Co-Issuer —  DJL** | ** ** | **Subsidiary  Guarantor —  OED** | ** ** | **Subsidiary  Non-Guarantor —  DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                              |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net  income                                                                       |       | $                                                    | 6,328      |   | $ | 361 |   | $ | 465 |   | $ | 8,733 |   | $ | (9,559 | ) | $ | 6,328 |   |
| Adjustments  to reconcile net income to net cash flows from operating activities: |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation  and amortization                                                    |       | 14                                                   |       | 4,176 |   | 13,094 |   | 3,536 |   |   |   | 20,820 |   |
| Provision  for doubtful accounts                                                  |       |                                                 |       | 145 |   |   |   |   |   |   |   | 145 |   |
| Amortization  of deferred financing costs and bond discount                       |       |                                                 |       | 1,146 |   | 1,735 |   | 670 |   |   |   | 3,551 |   |
| Non-cash  equity based and other compensation                                     |       | 8,766                                                |       |   |   |   |   |   |   |   |   | 8,766 |   |
| Corporate  expense allocation                                                     |       | (7,757                                               | )          | 2,879 |   | 2,439 |   | 2,439 |   |   |   |   |   |
| Loss  on disposal of assets                                                       |       |                                                 |       | 58 |   | 78 |   | 74 |   |   |   | 210 |   |
| Income  from equity investment in subsidiaries                                    |       | (9,559                                               | )          |   |   |   |   |   |   | 9,559 |   |   |   |
| Changes  in operating assets and liabilities:                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Restricted  cash — purse settlements                                         |       |                                                 |       |   |   | 500 |   |   |   |   |   | 500 |   |
| Receivables                                                                       |       | (1                                                   | )          | (56 | ) | (390 | ) | (427 | ) |   |   | (874 | ) |
| Receivables  from affiliates                                                      |       |                                                 |       | 5,205 |   |   |   |   |   | (5,205 | ) |   |   |
| Payable  to affiliates                                                            |       |                                                 |       |   |   | (5,136 | ) | 1,744 |   | 5,205 |   | 1,813 |   |
| Inventories                                                                       |       |                                                 |       | (41 | ) | (54 | ) | (118 | ) |   |   | (213 | ) |
| Prepaid  expenses and other assets                                                |       | 11                                                   |       | (2,238 | ) | (200 | ) | (194 | ) |   |   | (2,621 | ) |
| Accounts  payable                                                                 |       | 5                                                    |       | (5 | ) | (978 | ) | 309 |   |   |   | (669 | ) |
| Accrued  expenses                                                                 |       | 460                                                  |       | 170 |   | (793 | ) | 4,228 |   |   |   | 4,065 |   |
| Net cash flows from  operating activities                                         |       | (1,733                                               | )          | 11,800 |   | 10,760 |   | 20,994 |   |   |   | 41,821 |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Increase  in cash value of life insurance                                         |       | (283                                                 | )          |   |   |   |   |   |   |   |   | (283 | ) |
| Business  acquisition and licensing costs                                         |       |                                                 |       |   |   | (495 | ) | (1,025 | ) |   |   | (1,520 | ) |
| Proceeds  from restricted cash                                                    |       |                                                 |       |   |   |   |   | 6,148 |   |   |   | 6,148 |   |
| Construction  project development costs                                           |       |                                                 |       |   |   |   |   | (23,893 | ) | 246 |   | (23,647 | ) |
| Purchase  of property and equipment                                               |       | (130                                                 | )          | (1,733 | ) | (6,258 | ) | (4,604 | ) |   |   | (12,725 | ) |
| Proceeds  from sale of property and equipment                                     |       |                                                 |       | 271 |   | 22 |   |   |   | (246 | ) | 47 |   |
| Net cash flows from  investing activities                                         |       | (413                                                 | )          | (1,462 | ) | (6,731 | ) | (23,374 | ) |   |   | (31,980 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Deferred  financing costs                                                         |       |                                                 |       | (806 | ) | (428 | ) | (3,159 | ) |   |   | (4,393 | ) |
| Principal  payments on debt                                                       |       |                                                 |       | (1,309 | ) | (5,930 | ) | (2,052 | ) |   |   | (9,291 | ) |
| Redemption  of preferred member’s interest                                   |       |                                                 |       | (4,000 | ) |   |   |   |   |   |   | (4,000 | ) |
| Proceeds  from senior secured notes                                               |       |                                                 |       | 14,520 |   | 7,260 |   | 56,500 |   |   |   | 78,280 |   |
| Proceeds  from senior credit facilities                                           |       |                                                 |       | 11,100 |   | 17,200 |   | 1,385 |   |   |   | 29,685 |   |
| Payments  on senior credit facilities                                             |       |                                                 |       | (17,800 | ) | (34,300 | ) | (1,385 | ) |   |   | (53,485 | ) |
| Member  distributions                                                             |       | 23,197                                               |       | (2,227 | ) | 12,047 |   | (35,511 | ) |   |   | (2,494 | ) |
| Net cash flows from  financing activities                                         |       | 23,197                                               |       | (522 | ) | (4,151 | ) | 15,778 |   |   |   | 34,302 |   |
|                                                                              |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                             |       | 21,051                                               |       | 9,816 |   | (122 | ) | 13,398 |   |   |   | 44,143 |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                   |       | (52                                                  | )          | 3,253 |   | 9,011 |   | 566 |   |   |   | 12,778 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |       | $                                                    | 20,999     |   | $ | 13,069 |   | $ | 8,889 |   | $ | 13,964 |   | $ |   |   | $ | 56,921 |   |

 

F-29

----

 
| ** **                                                                               | ** ** | **Year Ended December 31, 2005** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **Parent  Co-Issuer   —PGL**               | ** ** | **Subsidiary  Co-Issuer   —DJL** | ** ** | **Subsidiary  Guarantor   —OED** | ** ** | **Subsidiary  Non-Guarantor   —DJW** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net  income (loss)                                                                       |       | $                                                    | (3,384     | ) | $ | 3,900 |   | $ | (3,506 | ) | $ | (1,717 | ) | $ | 1,323 |   | $ | (3,384 | ) |
| Adjustments  to reconcile net income (loss) to net cash flows from operating activities: |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation  and amortization                                                           |       |                                                 |       | 4,136 |   | 12,090 |   | 23 |   |   |   | 16,249 |   |
| Provision  for doubtful accounts                                                         |       |                                                 |       | 136 |   |   |   |   |   |   |   | 136 |   |
| Amortization  of deferred financing costs and bond discount                              |       |                                                 |       | 1,147 |   | 1,817 |   | 176 |   |   |   | 3,140 |   |
| Non-cash  equity based and other compensation                                            |       | 1,208                                                |       |   |   |   |   |   |   |   |   | 1,208 |   |
| Corporate  expense allocation                                                            |       | (1,906                                               | )          | 1,034 |   | 872 |   |   |   |   |   |   |   |
| Loss  (gain) on disposal of assets                                                       |       |                                                 |       | 3 |   | (19 | ) |   |   |   |   | (16 | ) |
| Loss  from equity investment in subsidiaries                                             |       | 1,323                                                |       |   |   |   |   |   |   | (1,323 | ) |   |   |
| Changes  in operating assets and liabilities:                                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Restricted  cash-purse settlements                                                       |       |                                                 |       |   |   | (1,448 | ) |   |   |   |   | (1,448 | ) |
| Receivables                                                                              |       |                                                 |       | (223 | ) | (1,573 | ) | (138 | ) |   |   | (1,934 | ) |
| Receivables  from affiliates                                                             |       |                                                 |       | 627 |   |   |   |   |   | (627 | ) |   |   |
| Payable  to affiliates                                                                   |       | 298                                                  |       |   |   | (221 | ) | 164 |   | 627 |   | 868 |   |
| Inventories                                                                              |       |                                                 |       | (8 | ) | (121 | ) | (121 | ) |   |   | (250 | ) |
| Prepaid  expenses and other assets                                                       |       | (40                                                  | )          | (194 | ) | 536 |   | (153 | ) |   |   | 149 |   |
| Accounts  payable                                                                        |       | (25                                                  | )          | (24 | ) | 2,697 |   | 143 |   |   |   | 2,791 |   |
| Accrued  expenses                                                                        |       | 210                                                  |       | (30 | ) | 2,873 |   | 965 |   |   |   | 4,018 |   |
| Net cash flows from  operating activities                                                |       | (2,316                                               | )          | 10,504 |   | 13,997 |   | (658 | ) |   |   | 21,527 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Business  acquisition and licensing costs                                                |       |                                                 |       |   |   | (441 | ) | (1,000 | ) |   |   | (1,441 | ) |
| Deposits  to restricted cash                                                             |       |                                                 |       |   |   |   |   | (19,129 | ) |   |   | (19,129 | ) |
| Construction  project development costs                                                  |       |                                                 |       |   |   | (7,768 | ) | (18,181 | ) |   |   | (25,949 | ) |
| Purchase  of property and equipment                                                      |       |                                                 |       | (1,754 | ) | (4,022 | ) |   |   |   |   | (5,776 | ) |
| Proceeds  from sale of property and equipment                                            |       |                                                 |       | 96 |   | 53 |   | 4 |   |   |   | 153 |   |
| Net cash flows from  investing activities                                                |       |                                                 |       | (1,658 | ) | (12,178 | ) | (38,306 | ) |   |   | (52,142 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Deferred  financing costs                                                                |       |                                                 |       | (368 | ) | (375 | ) | (2,540 | ) |   |   | (3,283 | ) |
| Principal  payments on debt                                                              |       |                                                 |       | (1,423 | ) | (7,693 | ) |   |   |   |   | (9,116 | ) |
| Proceeds  from senior secured notes                                                      |       |                                                 |       |   |   |   |   | 40,000 |   |   |   | 40,000 |   |
| Proceeds  from senior credit facilities                                                  |       |                                                 |       | 8,500 |   | 13,333 |   | 1,200 |   |   |   | 23,033 |   |
| Payments  on senior credit facilities                                                    |       |                                                 |       | (9,118 | ) | (4,003 | ) |   |   |   |   | (13,121 | ) |
| Member  distributions                                                                    |       | 2,265                                                |       | (6,618 | ) | (1,141 | ) | 870 |   |   |   | (4,624 | ) |
| Net cash flows from  financing activities                                                |       | 2,265                                                |       | (9,027 | ) | 121 |   | 39,530 |   |   |   | 32,889 |   |
|                                                                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                    |       | (51                                                  | )          | (181 | ) | 1,940 |   | 566 |   |   |   | 2,274 |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                          |       | (1                                                   | )          | 3,434 |   | 7,071 |   |   |   |   |   | 10,504 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                                 |       | $                                                    | (52        | ) | $ | 3,253 |   | $ | 9,011 |   | $ | 566 |   | $ |   |   | $ | 12,778 |   |

 

F-30

----

| ** **                                                                               | ** ** | **Year Ended December 31, 2004** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **Parent  Co-Issuer —  PGL**               | ** ** | **Subsidiary  Co-Issuer —  DJL** | ** ** | **Subsidiary  Guarantor —  OED** | ** ** | **Other** | ** ** | **Consolidating  Adjustments** | ** ** | **Consolidated** | ** ** |
|                                                                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net income  (loss)                                                                       |       | $                                                    | (45,075    | ) | $ | (3,763 | ) | $ | (40,817 | ) | $ | 158 |   | $ | 44,422 |   | $ | (45,075 | ) |
| Adjustments to  reconcile net income (loss) to net cash flows from operating activities: |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Depreciation and  amortization                                                           |       |                                                 |       | 2,679 |   | 9,677 |   |   |   |   |   | 12,356 |   |
| Provision for  doubtful accounts                                                         |       |                                                 |       | 106 |   |   |   |   |   |   |   | 106 |   |
| Amortization of  deferred financing costs and bond discount                              |       |                                                 |       | 1,057 |   | 1,566 |   |   |   |   |   | 2,623 |   |
| Write-off of  deferred financing costs and bond discount                                 |       |                                                 |       | 2,503 |   | 11,283 |   |   |   |   |   | 13,786 |   |
| Corporate  expense allocation                                                            |       | (623                                                 | )          | 343 |   | 280 |   |   |   |   |   |   |   |
| Gain on disposal  of assets                                                              |       |                                                 |       | (498 | ) | (218 | ) |   |   |   |   | (716 | ) |
| Loss from equity  investment in subsidiaries                                             |       | 44,422                                               |       |   |   |   |   |   |   | (44,422 | ) |   |   |
| Changes in  operating assets and liabilities:                                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Restricted  cash—purse settlements                                                  |       |                                                 |       |   |   | (2,082 | ) |   |   |   |   | (2,082 | ) |
| Receivables                                                                              |       |                                                 |       | (107 | ) | (333 | ) |   |   |   |   | (440 | ) |
| Receivables from  affiliates                                                             |       |                                                 |       | (1,612 | ) |   |   | (70 | ) | 1,682 |   |   |   |
| Payable to  affiliates                                                                   |       |                                                 |       |   |   | 1,918 |   |   |   | (1,682 | ) | 236 |   |
| Inventories                                                                              |       |                                                 |       | 8 |   | 152 |   |   |   |   |   | 160 |   |
| Prepaid expenses  and other assets                                                       |       |                                                 |       | (187 | ) | (954 | ) |   |   |   |   | (1,141 | ) |
| Accounts payable                                                                         |       | 36                                                   |       | (115 | ) | 4,359 |   |   |   |   |   | 4,280 |   |
| Accrued expenses                                                                         |       | 347                                                  |       | (4,269 | ) | (1,871 | ) | (175 | ) |   |   | (5,968 | ) |
| Net cash flows  from operating activities                                                |       | (893                                                 | )          | (3,855 | ) | (17,040 | ) | (87 | ) |   |   | (21,875 | ) |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Business  acquisition and licensing costs                                                |       |                                                 |       |   |   | (304 | ) |   |   |   |   | (304 | ) |
| Construction  project development costs                                                  |       |                                                 |       |   |   | (38,227 | ) |   |   |   |   | (38,227 | ) |
| Proceeds from  restricted cash, net                                                      |       |                                                 |       |   |   | 20,013 |   |   |   |   |   | 20,013 |   |
| Maturity and  sale of restricted investments                                             |       |                                                 |       |   |   | 15,779 |   |   |   |   |   | 15,779 |   |
| Purchase of  property and equipment                                                      |       |                                                 |       | (2,576 | ) | (2,572 | ) |   |   |   |   | (5,148 | ) |
| Proceeds from  sale of property and equipment                                            |       |                                                 |       | 539 |   | 562 |   |   |   |   |   | 1,101 |   |
| Net cash flows  from investing activities                                                |       |                                                 |       | (2,037 | ) | (4,749 | ) |   |   |   |   | (6,786 | ) |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                   |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Deferred financing  costs                                                                |       |                                                 |       | (6,117 | ) | (8,042 | ) |   |   |   |   | (14,159 | ) |
| Principal  payments on debt                                                              |       |                                                 |       | (71,229 | ) | (134,971 | ) |   |   |   |   | (206,200 | ) |
| Proceeds from  senior secured notes                                                      |       |                                                 |       | 86,658 |   | 143,070 |   |   |   |   |   | 229,728 |   |
| Proceeds from  senior credit facilities                                                  |       |                                                 |       | 11,618 |   | 8,270 |   |   |   |   |   | 19,888 |   |
| Payments on  senior credit facilities                                                    |       |                                                 |       | (16,750 | ) | (5,604 | ) |   |   |   |   | (22,354 | ) |
| Proceeds from  FF&E credit facility                                                  |       |                                                 |       |   |   | 3,468 |   |   |   |   |   | 3,468 |   |
| Proceeds from  term loan                                                                 |       |                                                 |       |   |   | 14,667 |   |   |   |   |   | 14,667 |   |
| Member  distributions                                                                    |       | 892                                                  |       | (7,510 | ) | (500 | ) | 87 |   |   |   | (7,031 | ) |
| Net cash flows from  financing activities                                                |       | 892                                                  |       | (3,330 | ) | 20,358 |   | 87 |   |   |   | 18,007 |   |
| NET DECREASE IN CASH  AND CASH EQUIVALENTS                                               |       | (1                                                   | )          | (9,222 | ) | (1,431 | ) |   |   |   |   | (10,654 | ) |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF YEAR                                          |       |                                                 |       | 12,656 |   | 8,502 |   |   |   |   |   | 21,158 |   |
| CASH AND CASH EQUIVALENTS AT END OF YEAR                                                 |       | $                                                    | (1         | ) | $ | 3,434 |   | $ | 7,071 |   | $ |   |   | $ |   |   | $ | 10,504 |   |

 

F-31

----

 

**FINANCIALSTATEMENT SCHEDULE**

**PENINSULA GAMING, LLC**

**VALUATION AND QUALIFYING ACCOUNTS**

**For the Years Ended December 31,2006, 2005 and 2004**

**(in thousands)**
| **Description**                  | ** ** | **Balance at  Beginning  of Year** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Deductions(1)** | ** ** | **Balance at  End of Year** | ** ** |
|----------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|-------------------|------------|--------------------------------------------|------------|
|                             |       |                                         |       |                                          |       |              |       |                                       |       |
| Year ended December 31,  2006:   |       |                                         |       |                                          |       |              |       |                                       |       |
| Allowance for  doubtful accounts |       | $                                            | 73         |                                          | $          | 145               |       | $                                          | (179       | ) | $ | 39 |   |
| Year ended December 31,  2005:   |       |                                         |       |                                          |       |              |       |                                       |       |
| Allowance for  doubtful accounts |       | $                                            | 47         |                                          | $          | 136               |       | $                                          | (110       | ) | $ | 73 |   |
| Year ended December 31,  2004:   |       |                                         |       |                                          |       |              |       |                                       |       |
| Allowance for doubtful  accounts |       | $                                            | 62         |                                          | $          | 106               |       | $                                          | (121       | ) | $ | 47 |   |

----

(1)           Amounts written off.

 

S-1

----