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

** **

**FORM 10-K**

 
| **ý** |   | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT OF 1934**                                                                                                                           |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                      |
|       |   | **For the fiscal year ended  December 31, 2003**                                                                                                                                                                     |
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|       |   | **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 Corp.**                                            |
|----------------------------------------------------------------------------------------|
| (Exact name of registrant  as specified in its charter)                                |
|                                                                                   |   |   |
| **Delaware**                                                                           |   | **42-1483875** |
| (State or  other jurisdiction of incorporation or organization)                        |   | (I.R.S.  Employer Identification No.) |
|                                                                                   |   |   |
| **3rd  Street Ice Harbor, PO Box  1750, Dubuque, Iowa**                           |   | **52001-1750** |
| (Address of  principal executive offices)                                              |   | (Zip Code) |
|                                                                                   |   |   |
| **(563) 583-7005**                                                                     |
| (Registrant’s  telephone number including area code)                              |
|                                                                                   |
| **Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC)**                  |
| (Former  name, former address and former fiscal year, if changed since last report.)   |
|                                                                                   |
| **Securities  registered pursuant to Section 12 (g) of the Act:  **None |

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding twelve months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90days. Yes ý  No o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. Yes o  No ý

 

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

 

All of the common equity interests of Diamond Jo, LLC(formerly known as Peninsula Gaming Company, LLC) (the “Company”) are held byPeninsula Gaming Partners, LLC, and all of the common stock of Peninsula GamingCorp. is held by Diamond Jo, LLC (formerly known as Peninsula Gaming Company,LLC).

 

 

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**TABLEOF CONTENTS**

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

 

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**PART I**

 

**ITEM1.****     BUSINESS**

 

**General**

 

Diamond Jo, LLC (formerly known as PeninsulaGaming Company, LLC), a Delaware limited liability company, is owned byPeninsula Gaming Partners, LLC, a Delaware limited liability company (“PGP”)and our sole managing member.  PeninsulaGaming Corp. is our wholly owned subsidiary, has no assets or operations andwas formed solely to facilitate the offering of our 12 1⁄4% Senior Secured Notesdue 2006 (the “Peninsula Notes”) in certain jurisdictions.  OED Acquisition, LLC, a Delaware limitedliability company (“OEDA”), is a wholly owned subsidiary formed on July 9,2001 to facilitate the purchase of The Old Evangeline Downs, L.C., a Louisianalimited liability company whose name was later changed to The Old EvangelineDowns, LLC, a Delaware limited liability company (“OED”).  OEDA currently owns 100% of the membershipinterests of OED.  OED currently ownsand operates the Evangeline Downs, a horse track in Lafayette, LA.  The Old Evangeline Downs Capital Corp. (“OEDCorp.”) is a wholly owned subsidiary of OED, has no assets or operations andwas formed solely to facilitate the offering of OED’s 13% Senior Secured Notesdue 2010 with Contingent Interest (the “OED Notes”) in certainjurisdictions.  Unless otherwisespecified herein, references to “us,” “our,” “we” or the “Company shall meanDiamond Jo, LLC (formerly, known as Peninsula Gaming Company, LLC).

 

We currently operate two reportable segments:(1) Iowa operations, consisting of the Diamond Jo riverboat casino in Iowaand (2) Louisiana operations, consisting of the casino, racetrack andoff-track beting parlors, or OTB’s operated by OED in Louisiana. Prior to theacquisition of OED, during 2002, the Company operated under one reportablesegment.

 

Our address is 3rd  Street Ice Harbor, PO Box 1750, Dubuque,Iowa, 52004-1750 and ourtelephone number is (563) 583-7005.  OurAnnual Report on Form 10-K, quarterly reports on Form 10-Q and current reportson Form 8-K, and amendments to these reports, filed by us with the SEC areavailable on the SEC’s website at http://www.sec.gov as soon as reasonablypracticable.

 

**Business**

 

*Diamond Jo.*  The Diamond Jo is a three-story,approximately 48,000 square foot riverboat casino, replicating a classic 19thcentury paddlewheel riverboat. The Diamond Jo has an approved capacity for1,394 patrons, features a spacious two-story atrium and a 48-seat capacity deliand offers 749 slot machines and 17 table games on approximately 19,000 squarefeet of gaming space. Adjacent to the Diamond Jo is a two-story, approximately36,000 square foot dockside pavilion, featuring our 142-seat capacityLighthouse Grill restaurant, our 140-seat capacity High Steaks restaurant, our25-seat capacity Club Wild players lounge and our 205-seat capacity Harbor ViewRoom, a full service banquet facility. We share our dockside pavilion with theSpirit of Dubuque dinner-boat. Approximately 1,200 convenient parking spacesare available to our patrons and we offer valet parking. The Diamond Jo is openseven days a week and functions primarily as a dockside riverboat withcontinuous boarding. The Diamond Jo is required by Iowa law to cruise at least100 times per year, for a minimum of two hours per cruise, which we satisfy byconducting a two-hour cruise at 7:30 a.m. on weekdays during the springand summer months. The Diamond Jo operates from, and the dockside pavilion islocated in, the Port of Dubuque, a waterfront development on the MississippiRiver in downtown Dubuque.

 

*Evangeline Downs.*  Our new Evangeline Downs racino in Opelousashas a Southern Louisiana Cajun roadhouse theme on the exterior, with acomplementary regional Acadian atmosphere in the interior. The racino currentlyincludes a casino with 1,627 slot machines, parking spaces for approximately1,900 cars and 5 buses, and several dining options. Our dining options includea 312-seat Cajun buffet, an 82-seat fine dining Evangeline’s restaurant, a192-seat Lagniappe food court and a 202-seat Mojo’s sports bar with anadditional 98-seat screened patio, in addition to a raised bar and lounge areawith 120 seats, known as Zydeco’s, occupying the center of our casino floor.The single floor casino contains 15,000 square feet of defined regulated gamingspace, which equates to a casino floor area of approximately 40,000 squarefeet. We expect to complete construction of a one-mile dirt horse racetrackwith an inner  7/8-mile turf track to replaceour existing horse racetrack described below, stables for 920 horses, a

 

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grandstand and clubhouse with seating for 1,436 patrons, and apron andpatio space for an additional 3,000 patrons in the second half of 2004 for remaining capital expenditures of$17.5 million as of December 31, 2003.

 

*OTBs.*  We currently operate two off-track bettingparlors (“OTB”), one in Port Allen, Louisiana and one in New Iberia, Louisiana.Each of these OTBs offers simulcast pari-mutuel wagering seven days a week andis equipped with a bar to serve alcoholic and non-alcoholic beverages and akitchen that prepares short order food. The Port Allen OTB is locatedimmediately off Interstate 10, across the Mississippi river from Baton Rouge.The two-story Port Allen facility offers off-track betting, 100 video pokermachines which began operating in May 2003, a newly renovated bar, a cafeand a VIP lounge. The New Iberia OTB, located on U.S. Highway 182,approximately 20 miles outside Lafayette, Louisiana, offers off-track bettingand a limited food offering. Under Louisiana’s racing and off-track bettinglaws, we have a right of prior approval with respect to any applicant seeking apermit to operate an OTB within a 55-mile radius of our horse racetrack. Thiseffectively 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.

 

*Existing horseracetrack.*  Ourexisting horse racetrack facility is located approximately five miles north ofLafayette off Interstate 49 and is comprised of a 94,200 square footpari-mutuel wagering complex, an approximate 2,000-space parking lot,  7/8-mile dirt track and stables forapproximately 1,000 horses. The complex features an approximate 750-seatgrandstand, an approximate 3,000-person capacity apron and patio, anapproximately 850-seat restaurant, four concession stands and four bars. Thehorse racetrack offers live thoroughbred and quarter horse races a minimum of80 days a year from mid-April through October. The horse racetrackalso offers simulcast pari-mutuel wagering seven days a week year-round.

 

**Markets**

 

*Dubuque.*  The Diamond Jo operates from, and thedockside pavilion is located in, the Port of Dubuque, a waterfront developmenton the Mississippi River in downtown Dubuque which is accessible from each ofthe major highways in the area. On average, more than 30,000 vehicles pass bythe Diamond Jo each day. Dubuque has a diverse employer base, which includesJohn Deere Dubuque Works, Flexsteel Industries, and Eagle Window and Door,CIGNA Retirement and Investment Services and McKesson, as well as local schoolsand hospitals. The Diamond Jo currently draws approximately 85% of its patronsfrom within a 100-mile radius of Dubuque, an area of approximately2.4 million residents. Dubuque is situated at the intersection ofIllinois, Iowa and Wisconsin and acts as the region’s trade hub. Casino gamingrevenues in Dubuque have grown at a compound annual rate of 7.0% since 1996,and there are no betting or loss limits in Iowa. In addition to the America’sRiver Project, Dubuque contains several tourist attractions, drawing more thanone million visitors annually, and Galena, Illinois, a historic community located15 miles east of Dubuque, draws more than one million visitors annually.

 

During 2003, the City of Dubuquesubstantially completed a $188 million redevelopment project of the Portof Dubuque, where the Diamond Jo is located. This redevelopment project, knownas the America’s River Project, is designed to enhance the attractiveness ofthe Port of Dubuque as a community center and tourist destination. TheAmerica’s River Project is the result of a partnership between city, state andprivate enterprises including the City of Dubuque, the Dubuque Area Chamber ofCommerce, the Dubuque County Historical Society, Dubuque County, the State ofIowa Vision Iowa Fund and Platinum Hospitality Group. The America’s RiverProject is the only place along the entire 2,400-mile stretch of theMississippi River offering a multi-faceted campus celebrating the historical,environmental, educational and recreational majesty of the Mississippi River.Components of the America’s River Project include:

 

(1)                                  TheGrand Harbor Resort and Waterpark featuring 194 guest rooms, including 31suites, 2,500 square feet of meeting space and a 25,000-square foot themedindoor waterpark;

 

(2)                                  TheGrand River Center with 86,000 square feet of state-of-the-art conference andevent space that is connected by an enclosed walkway to the Grand HarborResort;

 

(3)                                  TheNational Mississippi River Museum & Aquarium featuring, among otherthings, several large aquariums, working riverboats, a wetland nature trail,barge theater, touch pools, live animals, and living history presentations, and

 

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(4)                                  TheMississippi Riverwalk area featuring the Alliant Energy Amphitheater forspecial events, music and live entertainment, the Mississippi Riverwalk trail,and the 5,000-square foot River’s Edge Plaza that will serve as the dockingsite for the Delta Queen Company riverboats and other large excursion vessels.

 

*Lafayette andSurrounding Areas.* Louisiana generated approximately $2.0 billion of casino gaming revenuein 2003, excluding Native American casinos. That revenue grew at a compoundannual rate of 8.7% from 1996 to 2001 and 6.0% since 2001. We believe that ourcentralized location in Louisiana will afford us the opportunity to participatein this large and growing market. There are approximately 300,000 adults livingwithin 35 miles of the racino site, mostly within the Lafayette metropolitanarea, our primary market. In addition, there are 1.5 million adults livingwithin 100 miles of the racino site. This area includes secondary markets fromwhich we believe we will attract patrons due to our ease of access from majorinterstates or highways compared to our competitors in those areas, as well asour offering of pari-mutuel live horse racing. Approximately 39,000 vehiclesper day pass through the intersection of Interstate 49 and U.S. Highway190 where the racino site is located. In addition, the racino site is locatedadjacent to a recently opened shopping center, which currently includes aWal-Mart Supercenter. A Lowe’s and a Home Depot are currently underconstruction nearby. We believe these businesses will give us an opportunity toattract additional patrons.

 

**Operating Strategy**

 

*Maintain/DevelopLoyal Local Customer Base.*  We believe that the Diamond Jo is among the principalentertainment venues for residents in and around Dubuque. In order to maintainand enhance goodwill within the Dubuque area, we sponsor numerous communityevents, including air shows, concerts and holiday celebrations, such as 4th ofJuly fireworks. We believe we are Dubuque’s largest sponsor of suchevents. We have also implemented employee incentives and training programsdesigned to provide a high level of personalized service to our customers.Because we believe that Evangeline Downs will become one of the principalentertainment venues for the residents of the Acadian region, which includesLafayette, Opelousas and their surrounding communities, we intend to utilizethese proven strategies for developing a similar loyal local customer base forEvangeline Downs. Our plans include an outdoor entertainment venue, which willpromote headliner and regional acts, and provide for the staging of holidaycelebrations, such as 4th of July fireworks, classic car shows, andvarious festivals.

 

*MaximizeProfitability Through Target Marketing.*  We have developed marketing and promotionalstrategies designed to target and reward frequent gaming customers in ourplayers’ club through mailings, gaming incentives, and food and beveragediscounts. Our state-of-the-art electronic player tracking system allows us tomonitor slot machine activity in real time, as well as the frequency and levelof play for our players’ club members, of which there are more than 100,000 atthe Diamond Jo and already over 40,000 at Evangeline Downs. This system enablesus to focus our marketing efforts on our most valued customers, regularlyadjust our overall game mix to appeal to our target market, and increaserevenues from our existing customer base.

 

*Focus on Slot MachinePlay.* Approximately 88% of the Diamond Jo’s gaming revenue is generated fromslot machines, and all of Evangeline Downs casino gaming revenues are generatedfrom slot machines. Slot machines are typically both the highest margin andmost predictable component of the gaming industry. Slot machines do not havethe staffing requirements of table games nor do they have the variation in holdpercentages attributable to “luck” which characterize the table game side ofthe casino business. We believe that this affords us a more stable andpredictable revenue stream, than those at facilities characterized primarily bytable game operations. The Diamond Jo has added ticket-in ticket-out technologyto over 274 slot machines, and Evangeline Downs plans to have over 1,100 slotmachines with this technology by March 31, 2004. We believe thistechnology enhances customer service, produces operating efficiencies, allowsfor players to continue play during most jackpots and eliminates hopper fillsand the down time associated with them.

 

**Competition**

 

*Diamond Jo.*  The Diamond Jo’s principal competitor is theDubuque Greyhound Park, or DGP, the only other licensed gaming facility inDubuque. The DGP, which opened its casino in 1995, is located three miles northof the Diamond Jo and currently offers 600 slot machines and live greyhoundracing from May through October with simulcasts from other greyhoundtracks. Furthermore, the DGP is permitted to operate up to 1,000 slot machinesand is

 

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in the process of expanding its facilities to accommodate additionalmachines, which expansion is anticipated to be completed by July 2005. TheDGP also offers, on a limited basis, simulcasts of horse races. The DGP isowned and operated by the Dubuque Racing Association, or DRA. As anot-for-profit organization, the DRA distributes a percentage of its cash flowto the City of Dubuque and local charities. Under existing Iowa law, tablegames, video poker, video keno and other electronic games of skill are notpermitted at the DGP. Pending legislation, however, if passed, could permit theDGP under certain circumstances to operate table games.

 

Riverboat gaming licenses in the State ofIowa are granted to not-for-profit “qualified sponsoring organizations” and canbe issued jointly to a not-for-profit qualified sponsoring organization and aboat operator. The granting of new licenses requires regulatory approval, whichincludes, 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.

 

In 1998, the Iowa Gaming Commission adopted arule limiting the number of riverboat gaming licenses in Iowa to ten, subjectto limited exceptions, including licenses issued to purchasers of existinglicensed facilities and licenses issued to replace an existing facility if itslicense is surrendered, not renewed, or revoked. The Commission also prohibitsthe transfer of a license outside the county in which the riverboat operated onMay 1, 1998. There are currently ten licensed riverboat gaming facilitiesoperating in Iowa. The rule also prohibits existing licensees from increasingthe number of gaming positions at their gaming facilities without prior IowaGaming Commission approval.

 

The Dubuque gaming market borders otherneighboring gaming markets. These neighboring markets include:

 

(1)                                  Elginand Aurora, Illinois to the east;

 

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

 

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

 

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

 

We believe that the Diamond Jo competes onlyindirectly with gaming facilities in these neighboring markets. Illinoisenacted legislation providing for dockside gaming in 1999. Illinois limits thenumber of dockside gaming licenses to ten. Nine of the ten licenses havealready been issued—the tenth is currently pending for a dockside gamingfacility in Chicago. We believe that additional competitors are effectivelyprecluded from entering our market due to constraints imposed by existing lawson the availability of gaming licenses.

 

*Evangeline Downs.*  The nearest competitor to Evangeline Downsis a Native American casino located approximately 50 miles to the south ofLafayette and several miles off the highway. Beyond that, patrons in Lafayetteneed to drive approximately 50 miles to reach riverboat casinos in Baton Rougeand approximately 70 miles to reach riverboat casinos in Lake Charles andNative American casinos in Marksville and Kinder. Because our competition inMarksville is situated more than 20 miles off the highway, we believe thatpatrons of the Marksville casino may find the ease of highway access to ourracino more convenient.

 

Louisiana law currently places limitations onthe number and types of gaming facilities that may operate in the State.Currently, there are only four horse racetracks in Louisiana with licenses toconduct live racing. Under the Pari-Mutuel Act, each of the four horseracetracks (including our racino) is permitted to install slot machines at itsfacility. The horse racetrack nearest to the racino site that is allowed tohave gaming operations is located in Vinton, Louisiana, near Lake Charles,which is over 100 miles away. In addition, current Louisiana law permits only15 riverboat gaming licenses to be awarded. The fifteenth and last license wasrecently awarded to operate a riverboat casino to be constructed in LakeCharles. Also, under current Louisiana law, the only non-Native Americanland-based casino permitted to operate in the State is the land-based casinocurrently operating in New Orleans, over 100 miles from Lafayette.

Native American gaming facilities operatepursuant to compacts with the State of Louisiana. There currently are only fourfederally-recognized Native American tribes in Louisiana and only three NativeAmerican casinos currently operating in Louisiana, the closest being inMarksville and Kinder which are approximately 50 miles from the

 

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racino site. The fourth tribe, which does not have a compact with theState of Louisiana as of the date of this filing, has proposed to develop acasino in DeSoto Parish, over 150 miles from the racino.

 

**Worth County, Iowa**

 

On November 11, 2003, we entered into anexclusive agreement with the Worth County Development Authority pursuant towhich the parties agreed to jointly submit an application for a license tooperate a gaming facility in Worth County, Iowa. Under this agreement, we haveagreed to design, construct, operate and manage a casino with no less than 700gaming positions, a waterway, if necessary, a recreational vehicle park with aminimum capacity of 200 spaces, and, upon reaching a targeted rate of return oninvested capital, a 100-room hotel development. Worth County is located on theborder of Minnesota, approximately 200 miles from the Diamond Jo.

 

**Employees**

 

We maintain a staff of approximately 400 to420 full-time equivalent employees at the Diamond Jo and staff approximately820 to 880 full-time equivalent employees at Evangeline Downs, depending uponthe time of the year. None of our employees are covered by a collectivebargaining agreement. We have not experienced any labor problems resulting in awork stoppage, and believe we maintain good relations with our employees.

** **

***Regulatory Matters***

 

We and our subsidiaries are subject to regulation by the State of Iowa,the State 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 gaming facility will become morestringent and burdensome, and that taxes, fees and expenses may increase. It isalso possible that the number of authorized gaming licenses in Iowa mayincrease, which would intensify the competition that we face. Our failure tocomply with detailed regulatory requirements may be grounds for the suspensionor revocation of one or more of our respective licenses which would have amaterial adverse effect on our respective businesses.

 

**Iowa Riverboat Gaming Regulation**

 

Our Diamond Jo operations are subject toChapter 99F of the Iowa Code and the regulations promulgate under that Chapterand the licensing and regulatory control of the Iowa Gaming Commission.

 

Under Iowa law, the legal age for gaming is21, and wagering on a “gambling game” is legal when conducted by a licensee onan “excursion gambling boat.” An “excursion gambling boat” is a self-propelledexcursion boat, and a “gambling game” is any game of chance authorized by theIowa Gaming Commission. While dockside casino gaming is currently authorized bythe Iowa Gaming Commission, a licensed excursion gambling boat is required toconduct at least one two-hour excursion cruise each day for at least100 days during the excursion season to operate during the off-season. Theexcursion season is from April 1st through October 31st of eachcalendar year. The excursions conducted by the Diamond Jo during the 2003cruising season satisfied the requirements of Iowa law for the conduct ofoff-season operations.

 

The legislation permitting riverboat gamingin Iowa authorizes the granting of licenses to “qualified sponsoringorganizations.” A “qualified sponsoring organization” is defined as a nonprofitcorporation organized under Iowa law, whether or not exempt from federaltaxation, or a person or association that can show to the satisfaction of theIowa Gaming Commission that the person or association is eligible for exemptionfrom federal income taxation under §§ 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 with a boatoperator to operate the riverboat on its behalf. A boat operator must beapproved and licensed by the Iowa Gaming Commission. DRA, a not-for-profitcorporation organized for the purpose of operating a pari-mutuel greyhoundracing facility in Dubuque, Iowa, first received a

 

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riverboat gaming license in 1990 and has served as the “qualifiedsponsoring organization” of the Diamond Jo since March 18, 1993. DRAsubsequently entered into the DRA Operating Agreement with Greater DubuqueRiverboat Entertainment Company, the previous owner and operator of the DiamondJo, authorizing Greater Dubuque Riverboat Entertainment Company to operateriverboat gaming operations in Dubuque. The DRA Operating Agreement wasapproved by the Iowa Gaming Commission on March 18, 1993. The term of theDRA Operating Agreement expires on December 31, 2008. We assumed therights and obligations of Greater Dubuque Riverboat Entertainment Company underthe DRA Operating Agreement.

 

Under Iowa law, a license to conduct gamingmay be issued in a county only if the county electorate has approved thegaming. The electorate of Dubuque County, Iowa, which includes the City ofDubuque, approved gaming on May 17, 1994 by referendum. The approvalcovers the gaming conducted by the Diamond Jo. A new referendum must be heldevery eight years in each of the counties where gambling games are conductedand the proposition to continue to allow gambling games in such counties mustbe approved by a majority of the county electorate voting on the proposition. Sucha referendum took place on November 5, 2002 with 79% of the electoratevoting on the proposition favoring continued gaming on riverboats in DubuqueCounty. The next referendum is scheduled for 2010. If any reauthorizationreferendum is defeated, Iowa law provides that any previously issued gaminglicense will remain valid and subject to renewal for a total of nine years fromthe date of original issuance of the license, subject to earlier non-renewal orrevocation under Iowa law and regulations applicable to all licenses.

 

Proposals to amend or supplement Iowa’sgaming statutes are frequently introduced in the Iowa state legislature. Inaddition, the state legislature sometimes considers proposals to amend orrepeal Iowa law and regulations, which could effectively prohibit riverboatgaming in the State of Iowa, limit the expansion of existing operations orotherwise affect our operations. Although we do not believe that a prohibitionof riverboat gaming in Iowa is likely, we can give no assurance that changes inIowa gaming laws will not occur or that the changes will not have a materialadverse effect on our business.

 

In 1998, the Gaming Commission adopted a rulethat prohibits licensees, including the Diamond Jo, from increasing the numberof gaming positions without Iowa Gaming Commission approval. This approval isbased on several factors, including whether the increase will:

 

(1)                                  positively impact thecommunity in which the licensee operates,

 

(2)                                  result in permanentimprovements and land-based developments, or

 

(3)                                  have a detrimentalimpact on the financial viability of other licensees operating in the samemarket.

 

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

 

Substantially all of the Diamond Jo’smaterial transactions are subject to review and approval by the Iowa GamingCommission. All contracts or business arrangements, verbal or written, with anyrelated party or in which the term exceeds three years or the total value ofthe contract exceeds $100,000 qualify for submission to and approval by theIowa Gaming Commission subject to certain limited exceptions. An agreement thatis subject to approval must be submitted within 30 days of execution andapproval must be obtained prior to implementation unless the agreement containsa written clause stating that the agreement is subject to commission approval.Additionally, contracts negotiated between the Diamond Jo and a related partymust be accompanied by economic and qualitative justifications.

 

We must submit detailed financial, operatingand other reports to the Iowa 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 onriverboat gambling equal to five percent of the first one million dollars ofadjusted gross receipts, ten percent on the next two million dollars ofadjusted gross receipts and twenty percent on adjusted gross receipts of morethan three million dollars. In addition, Iowa riverboats share equally in costsof the Iowa

 

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Gaming Commission and related entities to administer gaming in Iowa.For the fiscal year ended December 31, 2003, our share of such expenseswas approximately $605,000. Further, the Diamond Jo pays to the City of Dubuquea fee equal to $.50 per passenger.

 

If the Iowa Gaming Commission decides that agaming law or regulation has been violated, the Iowa Gaming Commission has thepower to assess fines, revoke or suspend licenses or take any other action asmay be reasonable or appropriate to enforce the gaming rules and regulations.In addition, renewal is subject to, among other things, continued satisfactionof suitability requirements.

 

We are required to notify the Iowa GamingCommission of 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. The Iowa Gaming Commissionmay also request that we provide them with a list of persons holding beneficialownership interests in DJL of less than five percent. For purposes of theserules, “beneficial interest” includes all direct and indirect forms of ownershipor control, voting power or investment power held through any contract, lien,lease, partnership, stockholding, syndication, joint venture, understanding,relationship, present or reversionary right, title or interest, or otherwise.The Iowa Gaming Commission may determine that holders of the DJL Notes, ourcommon membership interests and preferred membership interests, and PGP’scommon membership interests and convertible preferred membership interests havea “beneficial interest” in us. The Iowa Gaming Commission may limit, makeconditional, suspend or revoke the license of a licensee in which a director,corporate officer or holder of a beneficial interest in the person includes orinvolves any person or entity which is found to be ineligible as a result ofwant of character, moral fitness, financial responsibility, or professionalqualifications or due to failure to meet other criteria employed by the IowaGaming Commission.

 

If any gaming authority, including the IowaGaming Commission, requires any person, including a record or beneficial ownerof the securities, to be licensed, qualified or found suitable, the person mustapply for a license, qualification or finding of suitability within the timeperiod specified by the gaming authority. The person would be required to payall costs of obtaining the license, qualification or finding of suitability. Ifa record or beneficial owner of any of the DJL Notes or any membership interestof PGP or DJL is required to be licensed, qualified or found suitable and isnot licensed, qualified or found suitable by the gaming commission within theapplicable time period, the DJL Notes or membership interests will be subjectto regulatory redemption procedures. The DJL Notes to be redeemed under arequired regulatory redemption are redeemable by us, in whole or in part, atany time upon not less than 20 business days nor more than 60 businessdays notice, or such earlier date as may be ordered by any governmentalauthority.

 

As of the date of this report, the Iowa GamingCommission has not required the security holders to apply for a finding ofsuitability to own DJL’s or PGP’s securities. However, the Iowa GamingCommission could require a holder of the securities to submit an application inthe future.

 

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

 

The Horse Racing Act has been in effect since1968 and is the basis for the current statutory scheme regulating live andoff-track betting for horse racing. The Horse Racing Act states, among otherthings, that certain policies of Louisiana with respect to horse racing are toencourage the development of the business of horse racing with pari-mutuelwagering on a high plane; to encourage the development of the breeding andownership of race horses; to regulate the business of horse racing by licensedhorse racing tracks in the state and to provide the orderly conduct of racing;to provide financial assistance to encourage the business of racing horses; andto provide a program for the regulation, ownership, possession, licensing,keeping and inoculation of horses.

 

The Pari-Mutuel Act became effective onJuly 9, 1997, and provides for numerous controls and supervision over theoperation of slot facilities and requires us to comply with complex andextensive requirements. Failure to adhere to these statutes and regulationswill result in serious disciplinary action against us, including monetary finesand suspension or revocation of our licenses.

 

The Pari-Mutuel Act allows only one facilityin each of St. Landry Parish, Bossier Parish, Calcasieu Parish and OrleansParish to be licensed to operate slot machines at a live horse racing facility.OED is presently the only

 

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“eligible facility” in St. Landry Parish under the Pari-Mutuel Act. ThePari-Mutuel Act requires (among other things) that two conditions be met priorto the opening and operation of a slot machine casino at a live racing venue.First, a parish-wide election must approve the operation. In 1997, voters inSt. Landry Parish voted to approve the slot machine casino at the racino site.Secondly, the Pari-Mutuel Act requires that an appropriate tax be levied on theslot machine operation. In 2000, an 18.5% license tax was levied upon taxablenet slot machine proceeds. Therefore, we believe that both of the conditionsrequired by the Pari-Mutuel Act have been met with respect to the racino at oursite in Opelousas within St. Landry Parish.

 

The Pari-Mutuel Act also provides that the“designated gaming space” in any eligible facility cannot exceed 15,000 ft2,that the licensee will not allow underage gaming and that notice of toll-freetelephone assistance for compulsive gamblers will be posted at the facility.

 

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

 

To remain an “eligible facility” under thePari-Mutuel Act, we must, among other things, have a minimum of 80 live racingdays in a consecutive 20-week period each year of live horse race meetings atthe new horse racetrack.

 

**The Louisiana State Gaming Control Board**

 

In 1996, Louisiana created the LouisianaGaming Control Board, which was granted all of the regulatory authority,control and jurisdiction to license and monitor gaming facilities in Louisiana,including our planned racino. To receive a gaming license an applicant and itsmanagement must apply to the Louisiana Gaming Control Board and be investigatedby the Louisiana State Police. The Louisiana Gaming Control Board and LouisianaState Police must determine that the applicant is suitable to conduct thegaming operations, including that the applicant (and its owners, officers,directors and key employees) is of good character, honesty and integrity, thatits prior activities, reputation and associations pose no threat to the publicinterest or to the effective regulation of the industry and that the applicantis capable of conducting the operation of the slot machine facility. TheLouisiana Gaming Control Board must also determine that the applicant hasadequate financing from a source suitable and acceptable to the LouisianaGaming Control Board.

 

The applicant for a gaming license, itsdirectors, officers, key personnel, partners, and persons holding a fivepercent (5%) or greater equity or economic interest in the applicant must befound suitable by the Louisiana Gaming Control Board. To receive a license, theapplicant must file an extensive application with the Louisiana Gaming ControlBoard, disclosing personal, financial, criminal, business and otherinformation. The applicant is required to pay all costs of investigation. Anapplication for a finding of suitability of a person may be denied for anycause deemed reasonable by the Louisiana Gaming Control Board. Any other personwho is found to have a material relationship to or a material involvement witha gaming company also may be investigated or required to be licensed as abusiness associate of an applicant. Key employees, controlling persons orothers who exercise significant influence upon the management or affairs of agaming company may be deemed to have such a relationship or involvement.

 

If the Louisiana Gaming Control Board were tofind a director, officer or key employee of an applicant unsuitable forlicensing purposes or unsuitable to continue having a relationship with anapplicant, the applicant would have to sever all relationships with suchperson. The applicant would have similar obligations with regard to any personwho refuses to file appropriate applications. Each gaming employee must obtaina gaming employee permit which may be revoked upon the occurrence of certainspecified events.

 

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An applicant must also demonstrate that theproposed gaming operation has adequate financial resources generated from suitablesources and adequate procedures to comply with the operating controls andrequirements imposed by the laws and regulations of 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 operateslot machines 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 renewal ofour license upon the termination of its initial term and any renewal term.

 

OED’s gaming license authorizes the use of15,000 square feet of designated gaming space. On February 18, 2003, OEDsubmitted for approval its layout for the casino, which incorporated 1,631 slotmachines. OED’s layout was approved based on the type of machines which wereall upright machines. Should OED change the manufacturer, type and/or design ofits slot machines prior to installation, it must seek approval from theLouisiana Gaming Control Board for the new machines. Once the machines areinstalled, they must be inspected by regulators and tested prior to theapproval of their operation. Moving the machines also requires the LouisianaGaming Control Board’s approval.

 

Maintaining our gaming license is contingentin certain respects on our horse racetrack operations at our planned racino.First, our failure to complete construction of the horse racetrack at theracino or to establish a schedule of live racing meets at the new horseracetrack by January 21, 2005, will result in the cancellation of ourgaming license. While Louisiana allows us to operate slot machines at theracino prior to completion of the new horse racing facility and thecommencement of live racing at the new horse racetrack, Louisiana gamingregulations and our gaming license require that the racino must be constructedand a schedule of live racing meets at the new horse racetrack beestablished by January 21, 2005, or two years from the date of the grantof our gaming license. Second, to maintain our gaming license, we must remainan “eligible facility” under the Pari-Mutuel Act. This means that we must,among other things, have a minimum of 80 live racing days in a consecutive20-week period during each year of live horse race meetings at the new horseracetrack and must be a licensed racing association.

 

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

 

We must also strictly comply with mandatedoperating procedures and supply detailed reports disclosing such compliance.Regulation of a casino’s methods of operations is extensive and will includesubstantially all aspects of our casino operation. Operating procedures thatare subject to regulation include slot machine maintenance and operation, cashmanagement and cash procedures, cage procedures, drop procedures, regulation ofweapons in the casino, parking, access to the premises and records byregulators, gaming credit and advertising, surveillance and security standards,safeguards against underage gambling, compulsive gambling programs, physicallayout and progressive jackpots.

 

The Louisiana Gaming Control Board retainsthe power to suspend, revoke, condition, limit or restrict our license toconduct slot machine operations as a sanction for violating licensing terms orfor any cause they deem reasonable. In addition, monetary fines for violationsmay be levied against us, and our gaming operation revenues may

 

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be forfeited to the state under certain circumstances. Initial enforcementactions against a licensee are brought by the Louisiana State Police and areheard before an administrative law judge to whom the Louisiana Gaming ControlBoard has delegated decision making power. Either party may appeal the rulingof the administrative law judge before the full Louisiana Gaming Control Board.Either party may further appeal the ruling of the Louisiana Gaming ControlBoard in state court. The laws, regulations and procedures pertaining to gamingare subject to the interpretation of the regulatory authorities and may beamended. Any changes in such laws or regulations, or their currentinterpretations, could have a material adverse effect on our business,financial condition, results of operations.

 

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 OED Notes from anyrequirement for prior approval by the Louisiana Gaming Control Board. However,at any time, any holder of the OED Notes may be called before the LouisianaGaming Control Board to undergo a suitability investigation in the event theLouisiana Gaming Control Board determines that such holder exercises a materialinfluence over us or our operations.

 

At any time the Louisiana Gaming ControlBoard may investigate and require the finding of suitability of any shareholderor beneficial 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 riverboator slot project is subject to the approval of the Louisiana Gaming ControlBoard.

 

Although the Pari-Mutuel Act does notspecifically require debt holders to be licensed or to be found suitable, theLouisiana Gaming Control Board, in its sole discretion, may require the holdersof debt securities to file applications and obtain suitability certificatesfrom it. Furthermore, if the Louisiana Gaming Control Board finds that anyholder exercises a material influence over the gaming operations, a suitabilitycertificate will be required from such holder.

 

If the Louisiana Gaming Control Board findsthat any security holder or proposed security holder, including a holder of theNotes, is not qualified pursuant to the existing laws, rules and regulations,and if as a result it determines that the licensee is no longer qualified tocontinue as a licensee, it can propose action necessary to protect the publicinterest, including the suspension or revocation of a license or permit. It mayalso issue, under penalty of revocation of the license, a condition ofdisqualification naming the person and declaring that such person may not(a) receive dividends or interest on securities of the licensee,(b) exercise any right conferred by securities of the licensee, (c) receiveremuneration or any other economic benefit from the licensee or(d) continue in an ownership or economic interest in the licensee orremain as a director, partner, officer, or manager of the licensee. A securityissued by a licensee must generally disclose these restrictions.

 

**Louisiana State Racing Commission**

 

Pari-mutuel betting and the conducting oflive horse race meets in Louisiana are strictly regulated by the LouisianaState Racing Commission, which was created pursuant to the Horse Racing Act.The Louisiana Racing Commission is comprised of ten members and is domiciled inNew Orleans, Louisiana. In order to be approved to conduct a live race meet andto operate pari-mutuel wagering (including off-track betting), an applicantmust show, among other things: racing experience; financial qualifications;moral and financial qualifications of the applicant and the applicant’spartners, officers and officials; the expected effect on the breeding and horseindustry; and the expected effect on the State’s economy.

 

In 2000, we received from the Louisiana StateRacing Commission a license to conduct live race meets and to operatepari-mutuel wagering at our existing horse racetrack. The initial term of thislicense is ten years subject to renewal in 2010. On December 19, 2002, wereceived approval to transfer our operations under our license from LafayetteParish to St. Landry Parish upon completion of the new horse racetrack. As acondition to the approval of our racing license, we are required to offer pari-mutuelwagering in the defined casino gaming space at the time we begin

 

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conducting slot machine gaming. Our racino includes monitors and otherequipment to facilitate live and simulcast wagering within the casino area incompliance with this condition.

 

The Louisiana State Racing Commissionpromulgates rules, regulations and conditions for the holding, conducting andoperating of all racetracks in the state. Failure to adhere to theseregulations may result in substantial fines or the suspension or revocation ofour racing license. A revocation or suspension of the racing license would, inturn, result in the revocation or suspension of our gaming license to conductslot machine operations. Any alteration in the regulation of these activitiescould have a material adverse effect on our operations.

 

**Federal Regulation of Slot Machines**

 

We are required to make annual filings withthe U.S. Attorney General in connection with the sale, distribution oroperation of slot machines. We are currently in compliance with such filingrequirements.

 

**Potential Changes in Tax and RegulatoryRequirements**

 

In the past, federal and state legislatorsand officials have proposed changes in tax laws affecting the gaming industryor the administration of those laws. 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 gaming taxand limitations on the federal income tax deductibility of the cost offurnishing complimentary promotional items to customers, as well as variousmeasures which would require withholding on amounts won by customers or on negotiateddiscounts provided to customers on amounts owed to gaming companies. It is notpossible to determine with certainty the likelihood of possible changes in taxor other laws affecting our industry or in the administration of  those laws. Certain changes, if adopted,could have a material adverse effect on our financial results.

 

**Liquor Regulations**

 

Our sale of alcoholic beverages in Iowa is orwill be subject to licensing, control and regulation by liquor agencies, whichinclude the City of Dubuque and the Alcohol Beverage Control Division of theIowa Department of Commerce. The applicable Iowa liquor laws allow the sale ofliquor during legal hours which are Monday through Saturday from 6 a.m. to2 a.m. the next day and Sunday from 8 a.m. to 2 a.m. on Monday.Subject to few exceptions, all persons who have a financial interest in us, byownership, loan or otherwise, must be disclosed in an application filed with,and are subject to investigation by, Iowa’s liquor agencies. Persons who have adirect or indirect interest in any Iowa liquor license, other than hotel orrestaurant liquor licenses, may be prohibited from purchasing or holding ourExisting Notes. All licenses are subject to annual renewal, are revocable andare not transferable. The liquor agencies have the full power to limit,condition, suspend or revoke any license or to place a liquor licensee onprobation with or without conditions. Any disciplinary action could, andrevocation would, have a material adverse effect upon the operations of ourbusiness. Many of our owners, officers and managers must be investigated by theliquor agencies in connection with our liquor permits. Changes in licensedpositions must be approved by the liquor agencies.

 

Our sale of alcoholic beverages in Louisianais subject to licensing, control and regulation by the State of Louisiana,Department of Revenue, Office of Alcohol and Tobacco Control, as well as thecities of Opelousas, Carencro, Port Allen, New Iberia and the parish of WestBaton Rouge. The applicable liquor laws in the city of Opelousas where theracino is located allow the sale of liquor 24 hours a day 7 days aweek.

 

**United States Coast Guard**

 

The Diamond Jo is also regulated by theUnited States Coast Guard, whose regulations affect boat design and stipulateon-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 must hold, and currently possesses, a Certificate ofInspection and a Certificate of Documentation from the United States CoastGuard. Loss of the Certificate of Inspection would preclude our use of theDiamond Jo as an operating riverboat. In addition, the riverboat is subject toUnited States Coast Guard regulations requiring periodic hull inspections. TheUnited States Coast Guard, upon our request, allowed us to conduct anunderwater hull inspection instead of the traditional out of water dry dockinspection. We completed the underwater

 

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inspection in March 2003. The underwater hull inspection did notresult in any loss of services of the riverboat. We will be required to performanother hull inspection within 60 months from the date of the completionof the underwater hull inspection. At that time, we may again seek approvalfrom the Coast Guard for an underwater hull inspection in order to avoid anyloss of services of the riverboat, although no assurances can be given that theCoast Guard will agree to our request.

 

All of our marine employees employed onUnited States Coast Guard regulated vessels, even those who have nothing to dowith the actual operation of the vessel, such as dealers, cocktail hostessesand security personnel, may be subject to maritime law at certain times of theyear, which, among other things, exempts those employees from state limits onworkers’ compensation awards. We maintain workers’ compensation insurance incompliance with applicable Iowa law.

 

**The Maritime Transportation Security Act andHomeland Security**

 

The Maritime Transportation Security Act waspassed and signed into law following the September 11, 2001 attacks. TheCoast Guard has published regulations implementing the Act, requiring coveredvessels and associated shore facilities to develop and implement comprehensivesecurity plans for preventing and responding to potential terrorist threats. Weare in the process of implementing an Alternative Security Plan at the DiamondJo developed by the American Gaming Association to satisfy the Coast Guardregulations. However, it is not possible to predict the precise impact of theseregulations, or other regulations relating to homeland security contemplated bythe Coast Guard, upon access to our facility or gaming operations.

 

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

 

The Shipping Act of 1916, and the MerchantMarine Act of 1936, and applicable regulations contain provisions which wouldprevent persons who are not citizens of the United States from holding in theaggregate more than 25% of our outstanding membership interests, directly orindirectly. Our and PGP’s respective operating agreements contain prohibitionsagainst any purchase or transfer of our or PGP’s respective membershipinterests to any person or entity if, following the purchase or transfer, morethan 25% of our membership interests are owned, directly or indirectly, bypersons who are not citizens of the United States. Any such purchase ortransfer in violation of our or PGP’s respective operating agreements is nulland void, and we and PGP will not recognize the purchaser, transferee orpurported beneficial owner as a direct or indirect holder of an interest in theCompany or PGP, respectively, for any purpose. To the extent required bymaritime laws, the managing member, managers and the officers of the Companyand PGP must be citizens of the United States.

 

**Other Regulations**

 

We and our subsidiaries are subject tofederal, state and local environmental and safety and health laws, regulationsand ordinances that apply to non-gaming businesses generally, such as the CleanAir Act, Federal Water Pollution Control Act, Occupational Safety and HealthAct, Resource Conservation Recovery Act, Oil Pollution Act of 1990 andComprehensive Environmental Response, Compensation and Liability Act, each asamended. We have not incurred, and do not expect to incur, materialexpenditures with respect to these laws. There can be no assurances, however,that we will not incur material liability under these laws in the future.

 

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

 

We own a fee interest in the docksidepavilion, consisting of approximately 36,000 square feet, a surface parking lotwithin close proximity to the dockside pavilion, and the walkway connecting thedockside pavilion to the ramp, which leads to where the Diamond Jo is moored.

 

In addition to the properties we purchased,we currently lease property used as surface parking consisting of approximately194 parking spaces that are in close proximity to the Diamond Jo. This leasedproperty is currently owned by the City of Dubuque and leased to DRA, which inturn subleases this property to us. The sublease requires us to pay one dollarper year as rent. The terms of the DRA lease with the City of Dubuque and oursublease with the DRA have each been extended through December 31, 2008.

 

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We are also party to a parking agreement byand among the City of Dubuque, DRA, the Dubuque County Historical Society andthe Spirit of Dubuque, which governs the use of additional parking spaces wecurrently use. This parking agreement gives our patrons the right to use theapproximately 194 parking spaces currently subleased from DRA. The agreementalso gives our patrons and employees the non-exclusive right to useapproximately 633 additional parking spaces that are owned by the City ofDubuque and the Dubuque County Historical Society and are located in closeproximity to the Diamond Jo. In exchange for these parking rights and theextension of the sublease with the DRA, we are required, under somecircumstances, to share costs of maintaining the subleased parking lots.

 

We lease the land on which our existing horseracetrack in Lafayette is located and own the related building andimprovements. The ground lease annual rental is $0 per year, and the lease termexpires on the earlier of December 31, 2004 or the first day we open a newracetrack facility for business in St. Landry Parish, Louisiana.

 

Our new racino sits on and is bounded byapproximately 649 acres of owned land located in Opelousas that we purchased in2002 and 2003.

 

Subsequent to the initial acquisition ofapproximately 532 aces of land in 2002, in May 2003 we executed threeseparate purchase agreements to purchase approximately 10.78 acres of landadjacent to the new racino for a total cost of $842,466.

 

In October 2003, we executed twoseparate purchase agreements to purchase approximately 106 acres of landadjacent to the new racino. Under the first purchase agreement, we purchasedapproximately 13 acres for a total purchase price of $550,000. Under the secondpurchase agreement, we purchased an additional 93 acres of land, divided intoseven approximately equal parcels, for a total purchase price of $3,850,000,which was financed by issuing a $3,850,000 note payable to the seller. The noteis payable in seven equal annual installments of $550,000 beginningOctober 24, 2004 and bears interest at a rate of 4.75% of the unpaidbalance due monthly in arrears on the fifth day of each month beginning onDecember 5, 2003. The note is collateralized by a mortgage on theproperty. Simultaneously with the payment of each $550,000 annual installmentdiscussed above, seller agrees to release one of the remaining parcels from themortgage.

 

In addition to our existing horse racetrackand new racino, we own the land, building and improvements of our Port AllenOTB and lease the facility that comprises our New Iberia OTB.

 

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

 

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

 

**ITEM 4.****                                                    ****SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

None.

 

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**PART II**

 

**ITEM 5.****                                                  ****MARKET FOR THE REGISTRANT’S COMMONEQUITY AND RELATED STOCKHOLDER MATTERS**

 

There is no established public trading market for anyof the Company’s common equity securities.

 

As of March 15, 2004, PGP was the only holder ofrecord of the common equity of the Company. The Company paid distributions of $1,557,143, $1,260,012 and $1,760,908in 2003, 2002 and 2001, respectively, to PGP in respect of (i) compensation forcertain consulting and financial advisory services rendered by certainexecutive officers of PGP, (ii) board fees and expenses paid to themembers of the board of managers of PGP, and (iii) tax, accounting, legal andadministrative costs and expenses of PGP.

 

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

 

The following table represents selected financial dataof the Company or its predecessor companies, Greater Dubuque RiverboatEntertainment Company and Harbor Community Investment, L.C., for the five yearsended December 31, 2003.

 

The selected historical financial data for the fiveyears ended December 31, 2003 are derived from audited financialstatements of the Company or its predecessor combined companies.  The Company acquired the operations of thepredecessor companies on July 15, 1999. The selected financial data set forth below should be read inconjunction with, and is qualified in its entirety by reference to,“Management’s Discussion and Analysis of Financial Condition and Results ofOperations,” and the Company’s financial statements and the related notesincluded elsewhere in this document.

 

As set forth in the table below, the amount ofnon-recurring expenses consists of non-recurring charges related to sale ofbusiness and litigation involving the prior owners of the Diamond Jo andGreater Dubuque Riverboat Entertainment Company as well as organizational costsand severance expenses incurred by the Company during the period July 15,1999 (date of inception) to December 31, 1999.  For purposes of determining the ratio of earnings to fixedcharges, earnings are defined as income before income taxes plus fixedcharges.  Fixed charges include interestexpense on all indebtedness, amortization of deferred financing costs and bonddiscount, preferred member distributions and minority interest.  The Company’s ratio of earnings to fixedcharges for the period from July 15, 1999 (date of inception) toDecember 31, 1999 would have been 1.1x if the start-up and organizationalcosts expensed during this period were excluded.

 

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|                                                                      |   | **Diamond Jo, LLC (formerly known as  Peninsula Gaming Company, LLC)** |    | **Pro Forma** |   | **Diamond  Jo, LLC  (formerly  known as  Peninsula  Gaming  Company,  LLC** |   | **Predecessor   Companies** |   |
|---------------------------------------------------------------------------|--------|------------------------------------------------------------------------|---------|---------------|--------|-----------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                      |   | **2003**                                                               |    | **2002**      |   | **2001**                                                                    |   | **2000**                    |   | **1999** |   | **Period  from  July 15,  1999 to  December  31,1999** |   | **Period from  January 1,  1999 to  July 14, 1999** |   |
|                                                                      |   | **(Dollars in thousands)**                                             |    |
| **Statement of Operations Data**                                          |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Revenues:                                                                 |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Casino                                                                    |   | $                                                                      | 56,795  |          | $      | 48,262                                                                      |   | $                           | 47,710 |   | $ | 45,519 |   | $ | 44,916 |   | $ | 21,153 |   | $ | 23,763 |   |
| Racing                                                                    |   | 17,774                                                                 |    | 15,510        |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Food and  beverage                                                        |   | 4,565                                                                  |    | 3,886         |   | 2,745                                                                       |   | 2,663                       |   | 2,643 |   | 1,235 |   | 1,408 |   |
| Other                                                                     |   | 589                                                                    |    | 145           |   | 132                                                                         |   | 169                         |   | 243 |   | 122 |   | 121 |   |
| Less:  Promotional allowances                                        |   | (3,221                                                                 | )       | (2,615        | )      | (2,470                                                                      | )      | (2,599                      | )      | (1,927 | ) | (1,017 | ) | (910 | ) |
| Net revenues                                                              |   | 76,502                                                                 |    | 65,188        |   | 48,117                                                                      |   | 45,752                      |   | 45,875 |   | 21,493 |   | 24,382 |   |
|                                                                      |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Expenses:                                                                 |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Casino                                                                    |   | 23,533                                                                 |    | 20,555        |   | 20,375                                                                      |   | 19,517                      |   | 18,399 |   | 8,599 |   | 9,800 |   |
| Racing                                                                    |   | 14,646                                                                 |    | 12,651        |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Food and  beverage                                                        |   | 4,282                                                                  |    | 3,820         |   | 2,857                                                                       |   | 2,856                       |   | 2,808 |   | 1,328 |   | 1,480 |   |
| Boat  operations                                                          |   | 2,322                                                                  |    | 2,296         |   | 2,259                                                                       |   | 2,242                       |   | 2,100 |   | 991 |   | 1,109 |   |
| Other                                                                     |   | 443                                                                    |    | 27            |   | 22                                                                          |   | 37                          |   | 37 |   | 16 |   | 21 |   |
| Selling,  general and administrative                                      |   | 12,343                                                                 |    | 8,740         |   | 6,681                                                                       |   | 6,459                       |   | 7,383 |   | 3,736 |   | 3,647 |   |
| Depreciation  and amortization                                            |   | 3,324                                                                  |    | 2,950         |   | 3,963                                                                       |   | 3,571                       |   | 2,698 |   | 1,541 |   | 1,157 |   |
| Pre-opening  expense                                                      |   | 3,257                                                                  |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Development  costs                                                        |   | 102                                                                    |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Litigation  settlement                                                    |   |                                                                   |    | 1,600         |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Referendum                                                                |   |                                                                   |    | 771           |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| State of  Wisconsin government relations                                  |   |                                                                   |    | 55            |   | 147                                                                         |   |                        |   |   |   |   |   |   |   |
| Non-recurring  expenses                                                   |   |                                                                   |    |          |   |                                                                        |   |                        |   | 5,005 |   | 3,134 |   | 1,871 |   |
| Total  expenses                                                           |   | 64,252                                                                 |    | 53,465        |   | 36,304                                                                      |   | 34,682                      |   | 38,430 |   | 19,345 |   | 19,085 |   |
|                                                                      |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Income From  Operations                                                   |   | 12,250                                                                 |    | 11,723        |   | 11,813                                                                      |   | 11,070                      |   | 7,445 |   | 2,148 |   | 5,297 |   |
| Other Income  (Expense)                                                   |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Interest  income                                                          |   | 490                                                                    |    | 46            |   | 184                                                                         |   | 434                         |   | 231 |   | 155 |   | 76 |   |
| Interest  expense, net of amounts capitalized                             |   | (25,072                                                                | )       | (11,888       | )      | (9,640                                                                      | )      | (9,507                      | )      | (4,714 | ) | (4,383 | ) | (331 | ) |
| Interest  expense related to preferred members’ interest, redeemable |   | (180                                                                   | )       |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Loss on sale  of assets                                                   |   | (50                                                                    | )       | (8            | )      | (152                                                                        | )      | (122                        | )      | (166 | ) | (68 | ) | (98 | ) |
| Total other  expense                                                      |   | (24,812                                                                | )       | (11,850       | )      | (9,608                                                                      | )      | (9,195                      | )      | (4,649 | ) | (4,296 | ) | (353 | ) |
|                                                                      |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Preferred  member distributions                                           |   | (180                                                                   | )       | (373          | )      | (386                                                                        | )      | (630                        | )      | (289 | ) | (289 | ) |   |   |
| Minority  interest                                                        |   |                                                                   |    | (232          | )      |                                                                        |   |                        |   |   |   |   |   |   |   |
| Net income  (loss) to common interests                                    |   | $                                                                      | (12,742 | )             | $      | (732                                                                        | )      | $                           | 1,819  |   | $ | 1,245 |   | $ | 2,507 |   | $ | (2,437 | ) | $ | 4,944 |   |
|                                                                      |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Ratio of  earnings to fixed charges                                       |   | 0.5                                                                    | x  | 0.9           | x      | 1.2                                                                         | x      | 1.1                         | x      |   |   | .4 | x | 13.5 | x |
|                                                                      |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| **Other Data**                                                            |   |                                                                   |    |          |   |                                                                        |   |                        |   |   |   |   |   |   |   |
| Cash flows  from operating activities                                     |   | $                                                                      | 769     |          | $      | 11,784                                                                      |   | $                           | 7,250  |   | $ | 4,951 |   |   |   | $ | 2,475 |   | $ | 6,134 |   |
| Cash flows  from investing activities                                     |   | (94,695                                                                | )       | (37,790       | )      | (2,816                                                                      | )      | (2,409                      | )      |   |   | (68,611 | ) | 80 |   |
| Cash flows  from financing activities                                     |   | 104,575                                                                |    | (28,993       | )      | (5,273                                                                      | )      | (2,099                      | )      |   |   | 74,055 |   | (8,277 | ) |
| Distributions  to common members                                          |   | 1,557                                                                  |    | 1,260         |   | 1,761                                                                       |   | 1,918                       |   |   |   | 286 |   | 5,258 |   |

 
| **Balance Sheet Data:**                    |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   |   |   | **1999** |   |   |   |
|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|--------|--------|----------|--------|--------|--------|
| Current  assets                            |   | $        | 40,227 |     | $      | 12,160   |   | $        | 8,034  |   | $      | 9,134    |   |   |   | $ | 8,765 |   |   |   |
| Total assets                               |   | 261,519  |   | 126,448  |   | 84,374   |   | 86,788   |   |   |   | 88,175   |   |   |   |
| Current liabilities                        |   | 46,321   |   | 35,358   |   | 3,964    |   | 3,533    |   |   |   | 4,370    |   |   |   |
| Total debt  (1)                            |   | 228,825  |   | 102,944  |   | 70,860   |   | 70,764   |   |   |   | 70,680   |   |   |   |
| Preferred  member interest, redeemable (1) |   | —   |   | 4,000    |   | 4,000    |   | 7,000    |   |   |   | 7,000    |   |   |   |
| Total  members’ equity (deficit)      |   | (10,629  | )      | 3,671    |   | 5,663    |   | 5,604    |   |   |   | 6,277    |   |   |   |
|                                            |        |          |        |          |        |          |        |          |        |        |        |          |        |        |        |  |  |  |  |  |

 

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(1)                                  In May 2003, the FASB issuedStatement No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.” This statement establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity. It requiresthe issuer to classify a financial instrument that is within the scope of thestandard as a liability if such financial instrument embodies an obligation ofthe issuer. As a result of the adoption of SFAS No. 150 on July 1,2003, we reclassified our $4 million mandatory redeemable preferredmembers’ interest from the mezzanine section of the consolidated balancesheet to long-term debt. Further, preferred member distributions paid oraccrued subsequent to

 

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adoption of SFAS No. 150 are required to bepresented as interest expense separately from interest due to other creditors.We are precluded from reclassifying prior period amounts pursuant to thisstandard.

 

(2)                                  For purposes of determining the ratio ofearnings to fixed charges, earnings are defined as income before income taxesplus fixed charges. Fixed charges include interest expense on all indebtednessand amortization of deferred financing costs. Earnings were insufficient tocover fixed charges for the period from July 15, 1999 to December 31,1999 and for the fiscal years ended December 31, 2002 and 2003 by$2.4 million, $.07 million and $12.7 million, respectively.

 

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

 

The following discussion and analysis should be readin conjunction with, and is qualified in its entirety by, our “Selected FinancialData” and the financial statements and the related notes thereto appearingelsewhere in this report.

 

**Forward Looking Statements**

 

Some statements contained in “Management’s Discussionand Analysis of Financial Condition and Results of Operations” constitute“forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995. Forward-looking statements include the words “may,” “will,” “estimate,”“intend,” “continue,” “believe,” “expect,” or “anticipate” and other similarwords.  These forward-looking statementsgenerally relate to plans and objectives for future operations and are basedupon management’s reasonable estimates 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 may differ from projectedresults due, but not limited, to unforeseen developments, includingdevelopments relating to the following:

 

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

 

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

 

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

 

•                  actions taken or omitted to be taken bythird parties, including customers, suppliers, competitors, members andshareholders, as well as legislative, regulatory, judicial and othergovernmental authorities,

 

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

 

•                  the loss of any license or permit,including the failure to obtain an unconditional renewal of a required gaminglicense on a timely basis,

 

•                  the termination of our operatingagreement with the Dubuque Racing Association, Ltd. or the failure of theDubuque Racing Association, Ltd. to continue as our “qualified sponsoringorganization,”

 

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•                  the loss of our riverboat casino orland-based facilities due to casualty, weather, mechanical failure or anyextended or extraordinary maintenance or inspection that may be required,

 

•                  potential exposure to environmentalliabilities, changes or developments in the laws, regulations or taxes in thegaming or horse racing industry or a decline in the public acceptance of gamingor horse racing and other unforeseen difficulties associated with a newventure,

 

•                  adverse circumstances, changes,developments or events relating to or resulting from our ownership and controlof OED,

 

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

 

**Overview**

 

We own and operate (1) the Diamond Joriverboat casino in Dubuque, Iowa with 749 slot machines and 17 table games,(2) the new Evangeline Downs racino development with 1,627 slot machinesin Opelousas, Louisiana, (3) two OTBs, one in Port Allen, Louisiana andone in New Iberia, Louisiana, and (4) an existing horse racetrack nearLafayette, Louisiana. In December 2003 we began casino operations at thenew racino and expect to begin racing operations in the second half of 2004upon completion of the horse racing facilities for remaining capitalexpenditures of approximately $17.5 million as of December 31, 2003.Upon completion of such horse racing facilities at the new racino, we willclose operations at the existing horse racetrack. During 2003, we alsorenovated our Port Allen OTB and began offering 100 video poker machines inMay 2003. Through December 2003, these video poker machines wereoperated by a third-party until we received a license to operate themourselves.

 

Our operations began with the acquisition ofthe Diamond Jo in 1999 for $77.0 million. The Diamond Jo opened in May1994 and was doubled in size by the replacement of the original smallerriverboat casino with the current riverboat casino in October 1995.

 

During 2002, through a series of relatedtransactions, we acquired OED for approximately $30.5 million. At thattime, OED’s operations consisted of the existing horse racetrack near Lafayetteand the two OTBs. We situated the racino in Opelousas, which is in St. LandryParish, because St. Landry Parish permits slot machines while Lafayette Parish,where the existing horse racetrack is located, does not permit slot machines.

 

From 2000 to 2003 our net revenues have grownfrom $45.8 million to $76.5 million and our Adjusted EBITDA has grownfrom $14.6 million to $19.3 million. During 2003, $22.5 millionand $0.9 million of net revenues and Adjusted EBITDA, respectively, werederived from our operations in Louisiana. Such operations were comprisedlargely of racing operations at the existing horse racetrack near Lafayette andthe two OTBs. We attribute the remaining increase at the Diamond Jo to, amongother things, our successful operating strategies that focus on maintaining aloyal customer base, maximizing game play and profitability through targetedmarketing, and attracting new customers. In addition, during 2003 the City ofDubuque substantially completed its $188 million redevelopment project inthe Port of Dubuque, where the Diamond Jo is located. We expect our operationsto continue to benefit from this redevelopment project, which was designed toenhance the attractiveness of the Port of Dubuque as a convention center andtourist destination, by generating increased foot traffic around the site of,and increased admissions to, the Diamond Jo.

 

We are experiencing substantial growth. TheDiamond Jo’s net revenues grew 11.1% to $54.0 million and Adjusted EBITDAgrew 18.0% to $18.4 million for 2003 compared to 2002. We attribute thisgrowth principally to the completion of the $188 million America’s RiverProject in the Port of Dubuque where the Diamond Jo is located. We believe thisproject, along with our marketing efforts, will continue to foster growth atthe Diamond Jo. In December 2003, we began casino operations at EvangelineDowns which currently has 1,627 slot machines. In January 2004 EvangelineDowns generated casino gaming revenues of $6.0 million, or approximately$193,500 per day. In February 2004 these figures increased to$6.3 million and $216,000 per day, representing a per day increase of11.6%. Evangeline Downs’ database of players increased nearly 100% in January,from approximately 14,400 to approximately 28,500, and over 20% in February, toapproximately 35,100. There currently are over 40,000 players in EvangelineDowns’ database. We believe our casino gaming revenues at Evangeline Downs willcontinue to grow as

 

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we further develop our database of players and switch our focus fromawareness to target marketing. In addition, in December 2003 we beganoperating 100 video poker machines at our OTB in Port Allen, Louisiana.

 

**Results of Operations**

 

Our results of operations discussed belowinclude the combined results of operations of the Diamond Jo riverboat casinoin Dubuque, Iowa for the years ended December 31, 2003, 2002 and 2001 andthe results of operations of Evangeline Downs racino in Opelousas and nearLafayette, Louisiana for the year ended December 31, 2003 and the periodFebruary 15, 2002 (the date OED was acquired) through December 31,2002.

 

*Statement of Operations Data*

 
|                                     |   | **Diamond Jo** |       | **Evangeline Downs** |   |
|------------------------------------------|--------|----------------|------------|----------------------|--------|
| **Years Ended December 31,**        |
|                                     |   | **2003**       |       | **2002**             |   | **2001** |   | **Year Ended  December 31,  2003** |   | **Period from  February 15,  2002 to  December 31,  2002** |   |
| *Revenues:*                              |   |           |       |                 |   |   |   |   |   |   |   |
| Casino                                   |   | $              | 53,567,052 |                 | $      | 48,262,485 |   | $ | 47,710,208 |   | $ | 3,227,477 |   | — |   |
| Racing                                   |   |           |       |                 |   |   |   | 17,773,481 |   | $ | 15,509,989 |   |
| Food and  beverage                       |   | 3,027,064      |       | 2,806,118            |   | 2,745,333 |   | 1,538,374 |   | 1,080,208 |   |
| Other                                    |   | 421,907        |       | 144,817              |   | 131,916 |   | 167,361 |   | — |   |
| Less  promotional allowances             |   | (3,011,987     | )          | (2,615,355           | )      | (2,470,310 | ) | (209,147 | ) | — |   |
| Net revenues                             |   | 54,004,036     |       | 48,598,065           |   | 48,117,147 |   | 22,497,546 |   | 16,590,197 |   |
| *Expenses:*                              |   |           |       |                 |   |   |   |   |   |   |   |
| Casino                                   |   | 21,624,237     |       | 20,554,920           |   | 20,375,265 |   | 1,908,730 |   | — |   |
| Racing                                   |   |           |       |                 |   |   |   | 14,646,351 |   | 12,650,996 |   |
| Food and  beverage                       |   | 2,781,945      |       | 2,822,160            |   | 2,856,568 |   | 1,500,065 |   | 998,205 |   |
| Boat  operations                         |   | 2,322,126      |       | 2,295,771            |   | 2,259,314 |   | — |   | — |   |
| Other                                    |   | 383,030        |       | 27,471               |   | 21,801 |   | 59,934 |   | — |   |
| Selling,  general and administrative     |   | 8,890,080      |       | 7,285,166            |   | 6,680,581 |   | 3,452,507 |   | 1,454,476 |   |
| Depreciation  and amortization           |   | 2,499,597      |       | 2,766,543            |   | 3,963,350 |   | 823,944 |   | 183,826 |   |
| Pre-opening  expense                     |   | —         |       | —               |   | — |   | 3,256,963 |   | — |   |
| Development  costs                       |   | 102,272        |       | —               |   | — |   | — |   | — |   |
| Litigation  settlement                   |   | —         |       | —               |   | — |   | — |   | 1,600,000 |   |
| Referendum                               |   | —         |       | 771,111              |   | — |   | — |   | — |   |
| State of  Wisconsin government relations |   | —         |       | 55,000               |   | 147,163 |   | — |   | — |   |
| Total  expenses                          |   | 38,603,287     |       | 36,578,142           |   | 36,304,042 |   | 25,648,494 |   | 16,887,503 |   |
| Income from  operations                  |   | $              | 15,400,749 |                 | $      | 12,019,923 |   | $ | 11,813,105 |   | $ | (3,150,948 | ) | $ | (297,306 | ) |

 

*2003 Compared to 2002*

 

Net revenues increased 17.4% to$76.5 million for the year ended December 31, 2003 from$65.2 million for the year ended December 31, 2002. The majority ofthis increase is due to an increase in the Diamond Jo’s slot revenue of 10.7%,or $4.5 million, for the year ended December 31, 2003 compared to theyear ended December 31, 2002, primarily due to an increase in coin-in of9.5% over the same period. We believe this increase in slot revenue was largelyattributable to the recent economic development in the Port of Dubuque known asthe America’s River Project, where the Diamond Jo is located, which includesthe opening of a new riverwalk and related amenities, a new riverfront hotel,which includes an indoor water park and the National Mississippi River Museumand Aquarium. The increase in slot revenue was also attributable to(i) the construction of our new outdoor entertainment venue featuringnationally recognized musicians weekly from June through September,(ii) a decrease in competition in the Eastern Iowa market due to thetemporary closing of a Native American casino approximately 125 miles southwestof the Diamond Jo and (iii) internal factors such as targeted promotionsto capitalize on opportunities related to the Port of Dubuque development andreduced competition noted above as well as our continued focus on targetedplayers club

 

18

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promotions and maintenance of our slot mix, which includes the additionof 47 nickel slot machines. In addition, our table game revenue at the DiamondJo increased 13.3%, or $0.8 million, for the year ended December 31,2003 compared to the year ended December 31, 2002, primarily due to anincrease in the total table game drop of 6.0% and a 1.3 percentage pointincrease in our table game hold percentage over the same period. The majorityof the remaining increase in our net revenues was due to an increase in netrevenues at OED. Net revenues at OED increased due primarily to an increase incasino revenue of $3.2 million derived from OED’s new racino which openedits doors to the public on December 19, 2003 and an increase in racingrevenues of $2.3 million due primarily to the fact that we did not acquirea 50% interest in OED until February 15, 2002, as well as an increase invideo poker revenues of approximately $0.6 million at OED’s renovated OTBin Port Allen, Louisiana. Our results of operations during the period endedDecember 31, 2002 only include ten and one-half months of OED operationscompared to a full twelve months of operations during the year endedDecember 31, 2003.

 

Casino gaming win in the Dubuque marketincreased 9.6% to $97.2 million for the year ended December 31, 2003from $88.7 million for the year ended December 31, 2002. We believethis increase was primarily due to our ability to capitalize on the recenteconomic development in the Port of Dubuque, a decrease in competition in theEastern Iowa market, strategic use of targeted players club promotions and acontinued focus on maintenance of our slot mix as noted above combined with acontinued focus by operators at the DGP on maintenance of their slot mix duringsuch periods as well as benefiting from the reduced competition in the EasternIowa market as noted above. Our share of the Dubuque market casino gaming winincreased to 55.1% for the year ended December 31, 2003 from 54.4% for theyear ended December 31, 2002. Our casino revenues at the Diamond Joincreased 11.0% to $53.6 million for the year ended December 31, 2003from $48.3 million for the year ended December 31, 2002. Thispercentage increase was the third highest percentage increase in casinorevenues for all thirteen casinos in the State of Iowa as reported to the IowaGaming Commission for the year ended December 31, 2003 compared to the yearended December 31, 2002. This increase was due to a 10.7% increase in slotrevenues and a 13.3% increase in table game revenues as discussed above. Casinorevenues at the Diamond Jo were derived 87.6% from slot machines and 12.4% fromtable games for the year ended December 31, 2003 compared to 87.8% fromslot machines and 12.2% from table games for the year ended December 31,2002. Consistent with an increase in casino revenue, our casino win per gamingposition per day at the Diamond Jo increased 9.1% to $171 for the year endedDecember 31, 2003 from $157 for the year ended December 31, 2002.Admissions to the casinos in the Dubuque market increased 6.1% to 2,080,000 forthe year ended December 31, 2003 from 1,960,000 for the year endedDecember 31, 2002. For the year ended December 31, 2003, our share ofthe Dubuque market casino admissions increased to 50.7% from 50.5% for the yearended December 31, 2002. Our admissions at the Diamond Jo for the yearended December 31, 2003 increased 6.5% to 1,054,000 from 990,000 for theyear ended December 31, 2002. For the year ended December 31, 2003our casino win per admission at the Diamond Jo increased 4.2% to $50.81 from$48.76 for the year ended December 31, 2002. Casino revenues of $3.2 millionat OED consisted solely of revenues from slot machines at OED’s recently openedracino. Casino win per position at OED was $236 for the year endedDecember 31, 2003.

 

Racing revenues at OED for the year endedDecember 31, 2003 were $17.8 million compared to $15.5 millionfor the period February 15, 2002 (the date OED was acquired) toDecember 31, 2003. The increase in racing revenues was directly related tothe timing of the acquisition of OED as discussed above and an increase invideo poker revenues of $0.6 million resulting from OED’s Port Allen OTBfacility renovation and the installation of 100 video poker machines during thesecond quarter of 2003.

 

Net food and beverage revenues, otherrevenues and promotional allowances increased $0.5 million during the yearended December 31, 2003 compared to the year ended December 31, 2002due primarily to food & beverage revenues generated from OED’s newracino and revenues from the Diamond Jo’s new outdoor entertainment venue asdiscussed above.

 

Casino operating expenses increased 14.5%, or$3.0 million, to $23.5 million for the year ended December 31,2003 from $20.6 million for the year ended December 31, 2002 dueprimarily to (i) casino expenses at OED of $1.9 million primarilyrelated to purse supplements and gaming taxes which are based on net casinorevenues and casino related payroll and (ii) an increase in gaming taxesat the Diamond Jo of $1.1 million associated with our increased casinorevenues. Racing expenses increased 15.8% to $14.6 million for the yearended December 31, 2003 from $12.7 million for the period endedDecember 31, 2002 due primarily to (i) timing of the acquisition ofOED in 2002 as discussed above and (ii) an increase in operating expensesof $0.6 million related to the addition of 100 new video gaming devices atOED’s renovated OTB in Port Allen, Louisiana. Food and beverage expensesincreased

 

19

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12.1%, or $0.5 million, to $4.3 million for the year endedDecember 31, 2003 from $3.8 million for the year endedDecember 31, 2002 due primarily to food and beverage expenses at OEDrelated to the opening of OED’s new racino. Boat operation expenses at theDiamond Jo were substantially unchanged at $2.3 million for the year endedDecember 31, 2003 and 2002. Other expenses increased $0.4 millionprimarily due to costs associated with the Diamond Jo’s new outdoorentertainment venue as discussed above.

 

Selling, general and administrative expensesincreased 41.2% to $12.3 million for the year ended December 31, 2003from $8.7 million for the year ended December 31, 2002. This increasewas due to (i) an increase in general and administrative expenses at OEDof $2.0 million due primarily to payroll, marketing and other general andadministrative expenses associated with the new racino and the timing of theacquisition of OED (as discussed above), including an increase in professionalfees at OED of approximately $0.2 million and an increase in insuranceexpense at OED of approximately $0.2 million, and (ii) an increase ingeneral and administrative expenses at the Diamond Jo of approximately$1.6 million due primarily to an increase in management compensation atthe Diamond Jo of $0.6 million, an increase in donations of$0.3 million related to a charitable giving agreement with an Iowanon-for-profit organization and an increase in insurance expense at the DiamondJo of $0.1 million.

 

Pre-opening expenses of $3.3 million forthe year ended December 31, 2003 relate to payroll and other expensesincurred by OED with respect to start-up activities surrounding the racinoproject. Development costs of approximately $0.1 million related toexpenses incurred relative to us entering into an exclusive agreement with theWorth County Development Authority pursuant to which the parties agreed tojointly submit an application for a license to operate a gaming facility inWorth County, Iowa. Under this agreement, we have agreed to design, construct,operate and manage a casino with no less than 700 gaming positions, a waterway,if necessary, a recreational vehicle park with a minimum capacity of 200spaces, and, upon reaching a targeted rate of return on invested capital, a100-room hotel development. Litigation settlement of $1.6 million for theyear ended December 31, 2002 relates to OED’s settlement with theLouisiana Horsemen’s Benevolent and Protective Association 1993, Inc. (the“LHBPA”) in February 2003. Referendum costs of $0.8 million duringthe year ended December 31, 2002 relate to various advertising andpromotional expenses to promote the approval of continued gaming on riverboatsin Dubuque County in 2002. During 2002, we incurred expenses of $55,000 relatedto a governmental relations services agreement with respect to gaming issuesand developments in the State of Wisconsin which might affect us and our gamingoperations. We do not plan to incur any additional expenses to provide suchgovernmental relations services relative to the State of Wisconsin.

 

Depreciation and amortization expensesincreased 12.6% to $3.3 million for the year ended December 31, 2003from $3.0 million for the year ended December 31, 2002 due primarilyto depreciation of property and equipment at OED’s racino of approximately$0.3 million during the period December 19, 2003 (date at which theracino was opened to the public) through December 31, 2003. During thefirst quarter of 2002, we performed a transitional impairment test on goodwillin accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142“Goodwill and Other Intangible Assets” and determined the estimated fair valueof the Company exceeded its carrying value as of that date. During the firstquarter of 2003, we performed its annual impairment test on goodwill inaccordance with SFAS No. 142 and determined that the estimated fair valuethe Company exceeded its carrying value as of that date. Based on that review,management determined that there was no impairment of goodwill.

 

Net interest expense, including interestexpense related to our redeemable preferred member interests, increased 109.1%to $24.8 million for the year ended December 31, 2003 from$11.8 million for the year ended December 31, 2002. This increase isdue to (i) an increase in net interest expense at OED of $12.7 millionprimarily associated with interest on the OED Notes and on OED’s senior creditfacilities with Wells Fargo Foothill, the amortization and write-off ofdeferred financing costs associated with OED’s term loan with Wells FargoFoothill, the PGP Note (as defined below) and the WET2 Note (as defined below)(all of which were repaid in February 2003 with the proceeds of theoffering of the OED Notes) and timing of the OED acquisition as discussedabove, (ii) our adoption of FASB Statement No. 150 on July 1,2003 which requires that interest expense associated with our redeemablepreferred members interest be included in interest expense (prior toJuly 1, 2003, this amount was included as a separate line item above “Netincome for common members’ interest” and not included in “Total other expenses”with interest expense) and (iii) interest associated with our seniorsecured credit facility with Wells Fargo Foothill dated February 23, 2001(the “DJL Credit Facility”), $12.0 million of which was drawn down by DJLon February 15, 2002 to consummate the acquisition of OED, resulting intwelve months of interest during the year ended December 31, 2003 comparedto only ten and one-half months of interest during the year endedDecember 31, 2002. Interest expense

 

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of approximately $2.2 million and $0.1 million wascapitalized as part of our construction of the racino during 2003 and 2002,respectively. The “PGP Note” means the note payable to PGP, issued by OEDA,bearing interest at a rate of 7% until January 31, 2003, thereafter at 8%until February 28, 2003, thereafter at 9% until March 31, 2003, andthereafter at the greater of 12% or the fixed rate on the OED Notes, andmaturing on June 30, 2003. The “WET2 Note” means the note payable to WET2,bearing interest at a rate of 7% until March 31, 2003, and thereafter atthe greater of 12% or the fixed rate on the OED Notes, and maturing onJune 30, 2003.

 

*2002 Compared to 2001*

 

Net revenues increased 35.5% to$65.2 million for 2002 from $48.1 million for 2001 primarily due tonet revenues from OED of $16.6 million and an increase in the Diamond Jo’scasino revenues of $0.6 million. This increase in casino revenue was dueto an increase in slot revenue of 3.8%, or $1.6 million for 2002 comparedto 2001. This increase in slot revenues was a result of an increased marketingfocus on the addition of new players club members as well as on targetingplayers club promotions towards more profitable market segments and an increasein the number of slot machines on the gaming floor. This increase in slotrevenues was offset by a decrease in table games revenue at the Diamond Jo of$1.0 million. This decrease was a direct result of a 0.9 percentagepoint decrease in our table game hold percentage and a 10.4% decrease in tablegame drop.

 

Casino gaming win in the Dubuque marketincreased 2.8% to $88.7 million for 2002 from $86.3 million for 2001.We believe this increase was primarily due to targeted players club promotionsand a continued focus on maintenance of our slot mix as well as a continuedfocus by operators at the DGP on maintenance of their slot mix during suchperiod. Our share of the Dubuque market casino gaming win decreased slightly to54.4% for 2002 from 55.3% for 2001. This decrease was attributed to a decreasein our table game revenue as discussed above. Our casino revenues increased1.2% to $48.3 million for 2002 from $47.7 million for 2001. Thisincrease was due to an increase in slot revenue offset by a decrease in tablegame revenues as discussed above. Casino revenues were derived 87.8% from slotmachines and 12.2% from table games for 2002 compared to 85.6% from slotmachines and 14.4% from table games for 2001. Consistent with an increase incasino revenue, our casino win per gaming position per day at the Diamond Joincreased 4.0% to $157 for 2002 from $151 for 2001. Admissions to the casinosin the Dubuque market increased slightly to 1,959,709 for 2002 from 1,946,326for 2001. For 2002, our share of the Dubuque market casino admissions decreasedto 50.5% from 51.7% for 2001. We believe this decrease was primarilyattributable to our targeted use of marketing dollars directed primarilytowards more profitable market segments during 2002 compared to 2001. Ouradmissions at the Diamond Jo for 2002 decreased slightly to 989,865 for 2002from 1,006,237 for 2001. For 2002 our casino win per admission at the DiamondJo increased 2.8% to $48.76 from $47.41 for 2001.

 

Racing revenues of $15.5 million relatedsolely to revenues at OED for the period February 15, 2002 (the date OEDwas acquired) to December 31, 2002. Net food and beverage revenues, otherrevenues and promotional allowances increased to $1.4 million for 2002from $0.4 million for 2001 due to food and beverage revenues at OED of$1.0 million.

 

Casino operating expenses at the Diamond Joincreased slightly to $20.6 million for 2002 from $20.4 million for2001 due mainly to an increase in gaming taxes paid, as a result of an increasein gaming revenues, of $0.1 million and an increase in the state admissionfee imposed by the State of Iowa of $0.1 million. Racing expenses at OEDwere $12.7 million for the period February 15, 2002 (the date OED wasacquired) to December 31, 2002. Food and beverage expenses increased to$3.8 million for 2002 from $2.9 million for 2001 due primarily tofood and beverage expenses from OED of $0.9 million. Boat operationexpenses and other expenses were $2.3 million for 2002 and 2001. Selling,general and administrative expenses increased to $8.7 million for 2002from $6.7 million for 2001. This increase in such expenses resulted fromselling, general and administrative expenses at OED of $1.5 million, anincrease in legal expenses of approximately $0.3 million (resultingprimarily from a credit of $0.2 million in legal expense during the prioryear), and an increase in management bonuses of $0.2 million. Depreciationand amortization expenses decreased 25.6% to $3.0 million for 2002 from$4.0 million for 2001. This decrease was due to adoption of SFAS 142which provides that goodwill and certain indefinite lived intangible assetswill no longer be amortized but will be reviewed at least annually forimpairment and written down and charged to income when their recorded valueexceeds their estimated fair value. Goodwill amortization during 2001 wasapproximately $1.4 million. This decrease was offset by an increase indepreciation at the Diamond Jo of $0.2 million and at OED of$0.2 million. Litigation settlement of $1.6 million relates to OED’ssettlement with the LHBPA in February 2003. Although the settlementoccurred after the date of the financial statements, Statement of FinancialAccounting Standards No. 5 “Accounting for Contingencies”

 

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requires DJL to accrue the loss contingency during 2002. During 2002,DJL incurred various advertising, promotional and other referendum relatedexpenses totaling $0.8 million to promote the approval of continued gamingon riverboats in Dubuque County. During 2002 and 2001, DJL incurred expenses of$55,000 and $147,163, respectively, related to a governmental relationsservices agreement with respect to gaming issues and developments in the Stateof Wisconsin which might affect DJL and its gaming operations.

 

Net interest expense increased 25.2% to$11.8 million for 2002 from $9.5 million for 2001. This increase wasdue to an increase in interest expense of $1.2 million associated with oursenior credit facility with Wells Fargo Foothill providing for commitments ofup to $12.5 million which terminate in 2005, $12.0 million of whichwas drawn down by DJL on February 15, 2002 to consummate an investment inOED and net interest expense at OED of $1.1 million. Interest expense ofapproximately $0.1 million was capitalized as part of our construction ofthe racino during 2002.

 

**Liquidity and Capital Resources**

 

*Cash Flows from Operating, Investing andFinancing Activities*

 

Our cash balance increased $10.6 millionduring the year ended December 31, 2003 to $21.2 million from$10.5 million at December 31, 2002.

 

Cash flows used in operating activities of$0.8 million for the year ended December 31, 2003 consisted of a netloss of $12.7 million increased by non-cash charges of $6.7 million,principally depreciation and amortization and write-off and amortization ofdeferred financing costs and an increase in working capital of$6.8 million. The change in working capital is primarily due to anincrease in accrued interest of approximately $5.3 million related to theOED Notes and an increase in accrued payroll of $1.5 million primarilyrelated to the opening of OED’s racino in December 2003.

 

Cash flows used in investing activities forthe year ended December 31, 2003 was $94.7 million consisting of(i) an increase in restricted cash—racino project and restrictedinvestments of $43.9 million related to the investment of unused proceedsfrom the OED Notes into interest bearing cash equivalents and investments whosedistribution is restricted as outlined in the Cash Collateral and DisbursementAgreement, (ii) approximately $55.3 million for construction,architecture fees and other development costs associated with the racinoproject and the purchase of land at St. Landry Parish where the racino is beingdeveloped, (iii) approximately $1.8 million in development costsrelated to the OED acquisition and OED’s racing and gaming licenses and(iv) cash outflows of approximately $2.2 million used for capitalexpenditures mainly related to the purchase of new slot machines at the DiamondJo and video poker machines at OED’s Port Allen OTB, the construction of ourconcert area adjacent to the Diamond Jo which hosts weekly concerts throughoutthe summer months and the renovation of OED’s Port Allen OTB to accommodate thepurchase and installation of 100 video poker machines. These cash outflows wereoffset by (i) cash proceeds from the maturity of restricted investments of$8.1 million, the proceeds of which were used to make the first interestpayment on the OED Notes due September 1, 2003 and (ii) cash proceedsfrom the sale of assets of $0.4 million. We expect additional capitalexpenditures at the Diamond Jo and OED (other than the capital expendituresrelated to the racino project) to be approximately $2.0 million and$1.5 million, respectively, for the year ended December 31, 2004.

 

Cash flows from financing activities for theyear ended December 31, 2003 of $104.6 million reflects the netproceeds from the offering of the OED Notes of $120.7 million, proceedsfrom OED’s draws under its $15.0 million senior secured credit facilitywith Wells Fargo Foothill dated June 24, 2003, as amendedSeptember 22, 2003, December 10, 2003 and December 24, 2003 (the“OED Credit Facility”) and its $16.0 million FF&E credit facility withWells Fargo Foothill dated September 22, 2003 (the “OED FF&EFacility”) of $17.6 million. These proceeds were offset by(i) principal payments to extinguish OED’s obligations under OED’s termloan with Wells Fargo Foothill, the PGP Note and the WET2 Note totaling$20.1 million, (ii) deferred financing costs paid of$11.5 million associated with the issuance of the OED Notes, the OEDCredit Facility and the OED FF&E Credit Facility, (iii) memberdistributions of $1.6 million and (iv) aggregate principal paymentson borrowings under the DJL Credit Facility of $0.6 million.

 

As of December 31, 2003, DJL had$11.3 million outstanding under the DJL Credit Facility and OED had$5.1 million and $12.5 million outstanding under the OED CreditFacility and the OED FF&E Facility, respectively. Approximately $24.2 millionof the net proceeds from the sale of the OED Notes were deposited into aninterest

 

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reserve account in order to pay the first three payments of fixedinterest on the OED Notes. Although OED’s earnings for the year endedDecember 31, 2003 are not sufficient to cover their current fixed charges(which consist of interest on the OED Notes, including capitalized interest),OED does have sufficient funds deposited in the interest reserve account tosatisfy its obligations under the OED Notes until March 1, 2005, afterwhich, OED anticipates satisfying its interest obligations out of earnings fromoperations. In September 2003, $8.1 million of the initial proceedsdeposited into the interest reserve account, along with interest earned onthose proceeds, were used to pay the first fixed interest payment on the OEDNotes.

 

*Financing Activities*

 

The obligations of DJL under the DJL CreditFacility are senior to our obligations under the DJL Notes. The DJL CreditFacility contains, among other things, covenants, representations andwarranties and events of default customary for loans of this type. The mostsignificant covenants include a minimum “EBITDA” (as defined therein)requirement and the maintenance of certain financial ratios that limit ourability to make distributions and incur debt. At December 31, 2003 and2002, DJL was in compliance with all such covenants. At December 31, 2003,DJL had outstanding borrowings of $11.3 million under the DJL CreditFacility.

 

On March 19, 2004, we amended the DJL CreditFacility (the “DJL Credit Facility Amendment”).  Under the terms of the DJL Credit Facility Amendment, the minimuminterest rate on all outstanding borrowings under DJL Credit Facility less than$10.0 million was reduced to 5.5% and the term of the DJL Credit Facility wasextended by one year to March 12, 2006.

 

OED’s obligations under the OED CreditFacility are secured by a lien on substantially all of its and itssubsidiaries’ current and future assets, other than the constructiondisbursement, interest reserve, completion reserve and excess cash flowaccounts and certain other excluded assets as well as a pledge by OEDA of thecapital stock of OED. Pursuant to the intercreditor agreement described below,the lien on the collateral securing the OED Credit Facility is senior to thelien on such collateral securing the OED Notes.

 

The OED Credit Facility consists of arevolving credit facility which permits OED to request advances and letters ofcredit to finance working capital and other general corporate needs. Pursuantto the OED Credit Facility Amendments, OED had the ability to borrow up to$8.5 million (less amounts outstanding under letters of credit) at any onetime outstanding during the period before the date that the casino portion ofthe racino has been completed and, among other things, is open for business tothe general public and construction costs for the casino have been paid in fullor, if such payments are not yet due on such date, that sufficient funds remainin the construction disbursement account to satisfy such payments in full (the“Phase I Completion Date”). All requirements under the definition of the PhaseI Completion Date were met on January 9, 2004. For the period after thePhase I Completion Date but before the second anniversary of the Phase ICompletion Date (the “Second Anniversary”), the total amount of credit thatwill be available to OED will be the lesser of $15.0 million and aspecified borrowing base (the “Borrowing Base”). For the purposes of the OEDCredit Facility, the Borrowing Base is the lesser of 30% of the amount ofcertain costs incurred by OED in connection with the construction of the racinoproject and 20% of the amount of the distressed-sale valuation of its and itssubsidiaries’ operations and assets. After the Second Anniversary, the totalamount of credit that will be available to OED will be the greater of(i) the lesser of $10.0 million and the Borrowing Base or(ii) the aggregate principal amount of all advances outstanding as of theSecond Anniversary. At December 31, 2003, OED had outstanding borrowingsof $5.1 million and outstanding letters of credit of $3.2 millionunder the OED Credit Facility.

 

All revolving loans and letters of credit issuedunder the OED Credit Facility will mature on June 24, 2006. Prior to thematurity date, funds borrowed under the OED Credit Facility may be borrowed,repaid and reborrowed, without premium or penalty. OED’s borrowings under theOED Credit Facility will bear interest at a base rate (a Wells Fargo primerate) plus a margin of 2.50%. The interest rate payable under the OED CreditFacility will increase by 2% per annum during the continuance of an event ofdefault. Under the OED Credit Facility, OED is also required to pay to thelender a letter of credit fee equal to 2% per annum on the daily balance of theundrawn amount of all outstanding letters of credit and to the institutionissuing a letter of credit a fronting fee, in each case payable in arrears on amonthly basis.

 

The OED Credit Facility contains, among otherthings, covenants, representations and warranties and events of defaultcustomary for loans of this type. The most significant covenants include aminimum “EBITDA” (as defined therein) requirement and a maximum capitalexpenditure requirement. At December 31, 2003, OED was in compliance withall such covenants.

 

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Concurrently with the closing of the OEDCredit Facility, the trustee under the indenture for the OED Notes (as securedparty) entered into an intercreditor agreement with Wells Fargo Foothill as thelender under such credit facility, providing, among other things, that the liensecuring the indebtedness under the OED Credit Facility is senior to the liensecuring the indebtedness under the OED Notes (except that the constructiondisbursement, interest reserve, completion reserve and excess cash flowaccounts are security only for the OED Notes).

 

On September 22, 2003, OED entered intothe OED FF&E Facility. Under the OED FF&E Facility, the lender agreesto make a series of term loans, up to a maximum amount of $16.0 million,to finance the purchase of gaming equipment and other furniture, fixtures andequipment. OED’s obligations under the OED FF&E Facility are, subject tocertain limitations, secured by a first priority lien on all of the furniture,fixtures and equipment, and all proceeds and products thereof. AtDecember 31, 2003, OED had outstanding borrowings of $12.5 millionunder the OED FF&E Facility.

 

Loans under the OED FF&E Facility arerepayable in 48 equal monthly installments of principal, commencing onMarch 1, 2004, and continuing on the first day of each month thereafteruntil the unpaid balance of all loans are paid in full. The outstandingprincipal balance and all accrued and unpaid interest under all loans shallalso be due and payable in full on March 1, 2008. Once borrowed, all loansmay be prepaid in whole or in part without penalty or premium at any time duringthe term of this agreement. Amounts borrowed and repaid may not be reborrowed.OED’s borrowings under the OED FF&E Facility bear interest at a base rate(a Wells Fargo prime rate) plus a margin of 2.50%, but at no time shall theinterest rate be less than 6%. The interest rate payable under the OED FF&EFacility will increase by 2% per annum during the continuance of an event ofdefault.

 

The OED FF&E Facility contains, amongother things, covenants, representations and warranties and events of defaultcustomary for loans of this type. The most significant covenants include aminimum “EBITDA” (as defined therein) requirement and a maximum capitalexpenditure requirement. At December 31, 2003 OED was in compliance withall such covenants.

 

In October 2003, OED entered intopurchase agreement to acquire 93 acres of land, divided into sevenapproximately equal parcels, for a total purchase price of $3,850,000. Thepurchase price under this second purchase agreement was financed by the sellerwith OED issuing a $3,850,000 note payable to the seller. The note is payablein seven equal annual installments of $550,000 beginning October 24, 2004and bears interest at a rate of 4.75% of the unpaid balance due monthly inarrears on the fifth day of each month beginning on December 5, 2003. Thenote is collateralized by a mortgage on the property. Simultaneously with thepayment of each $550,000 annual installment discussed above, the seller agreesto release one of the remaining parcels from the mortgage.

 

In March 2003, OED entered into aparticipation agreement with a third party operator to own and operate 100video poker machines at OED’s OTB in Port Allen, Louisiana. InDecember 2003, OED obtained its license to own and operate video pokermachines. In accordance with the participation agreement, OED assumed theremaining balance of an original $663,700 promissory note payable in exchangefor ownership of the 100 video poker machines. The note bears interest at 9.5%and is payable in monthly installments of principal and interest of $31,250with the last payment due July 1, 2005. The note is collateralized by asecurity interest in the machines.

 

On July 15, 1999, DJL authorized andissued $7.0 million of preferred membership units. The holders of all ofour preferred membership interests are entitled to receive, subject to certainrestrictions contained in the indenture governing the DJL Notes, out of fundslegally available therefor, cumulative preferred distributions payablesemiannually at an annual rate of 9% of the original face amount thereof. Otherthan certain limited consent rights and as required by law, holders of ourpreferred membership interests have no voting rights.

 

DJL redeemed $3.0 million in originalface amount of its preferred membership interests on January 19, 2001 at aredemption price of $3.0 million, plus a portion of accrued and unpaiddistributions thereon of $170,000, the balance of which, in an amount equal to$145,000 plus accrued interest on such amount (the “Accrued Preferred Distribution”),was agreed to be paid by DJL at such time that such payment is permitted to bemade pursuant to our existing financing arrangements, but in no event laterthan January 15, 2003. The Accrued Preferred Distribution totaling$171,100 was paid on January 15, 2003. The balance of preferred membershipinterests not redeemed by DJL must be redeemed by DJL on or prior toOctober 13, 2006 at a redemption price of $4.0 million, plus anyaccrued and

 

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unpaid preferred distributions through the date of redemption. AtDecember 31, 2003, accrued distributions related to the preferredmembership interests was approximately $1.1 million.

 

*General*

 

On March 11, 2004, we, along with OED,announced that we intend to refinance the Peninsula Notes and the OED Noteswith a proposed offering of $230 million (which subsequently has beenincreased to $233 million) of senior secured notes due 2012 (the “Notes”)and a new credit facility.  As part ofthe Note offering, we are also seeking requisite regulatory approvals to effecta series of corporate transactions (the “Corporate Transactions”), includingthe creation of a new holding company to be our and OED’s new direct parent anda co-issuer of the Notes.  In the eventregulatory approval of the Corporate Transactions is not obtained, we willstill consummate the Note offering and use the proceeds of the offering torepurchase and redeem the OED Notes and DJL Notes, respectively, and payaccrued dividends on our preferred membership interests.  In such event, however, we will not at suchtime effect the Corporate Transactions or enter into the new credit facility.

 

After the offering of the Notes, we will have thefollowing sources of funds for our business: (i) cash flows from OED’s existingracetrack operations and casino operations, (ii) cash flows from our existingcasino operations, and (iii) available borrowings under the OED Credit Facilityand the DJL Credity Facility or, our new senior credit facility, if enteredinto in connection with the refinancing of our existing senior secured creditfacilities.

 

As part of the Corporate Transactions, we and OEDintend to enter into a new senior secured credit facility in the amount of$35.0 million.  We expect ourobligations under the new senior secured credit facility will be (a) guaranteedby all of our and OED’s domestic subsidiaries, and (b) secured by a securityinterest in all of our and OED’s tangible and intangible assets and those ofour parent’s domestic subsidiaries (including, without limitation, all of theshares of the capital stock of these subsidiaries) but excluding contracts,agreements, licenses (including gaming, and liquor licenses) and other rightsthat by their express terms prohibit the assignment thereof or the grant of asecurity interest therein.

 

All of the net proceeds from the offering ofthe Notes and, if the new senior secured credity facility has been enteredinto, $15.0 million of borrowings under such new senior secured credit facilitywill be used, together with cash on hand, to consummate the above transactionsand pay related fees and expenses.  Webelieve that cash generated from operations, together with remaining amountsavailable under existing credit facilities or the new senior secured credit facility,as applicable, will be sufficient to satisfy our working capital and capitalexpenditure requirements and satisfy our current debt service requirements,including interest payments on the Notes. No assurances can be given, however, that our cash or equivalentson-hand or our ability to generate or borrow cash will be sufficient to meetour obligations.  In such event, we mayhave to refinance our debt, including the Notes, or sell some or all of ourassets (within the restrictions contained in the indenture governing ouroutstanding notes) to meet our obligations.

 

**Contractual Obligations and ContingentLiabilities and Commitments**

 

Our future contractual obligations related tolong-term debt, capital leases and operating leases at December 31, 2003were as follows (in millions of dollars):

 
|                                |   | **Payments due by Period** |   |
|-------------------------------------|--------|----------------------------|--------|
| **Contractual  Obligations**        |   | **Total**                  |   | **Less Than  1 Year** |   | **1-3 Years** |   | **4-5 Years** |   | **Thereafter** |   |
| Long-Term  Debt                     |   | $                          | 231.5  |   | $ | 4.1 |   | $ | 98.3 |   | $ | 4.8 |   | $ | 124.3 |   |
| Operating  Leases                   |   | 1.2                        |   | 0.6 |   | 0.6 |   | — |   | — |   |
| Litigation  Settlement              |   | 1.2                        |   | 0.4 |   | 0.8 |   | — |   | — |   |
| Total  Contractual Cash Obligations |   | $                          | 233.9  |   | $ | 5.1 |   | $ | 99.7 |   | $ | 4.8 |   | $ | 124.3 |   |

 

The following shows our other contingentobligations at December 31, 2003 based on expiration dates (in millions):

 
|                       |   | **Less Than  1 Year** |   | **1-3 Years** |   | **4-5 Years** |   | **Thereafter** |   |
|----------------------------|--------|-----------------------|--------|---------------|--------|---------------|--------|----------------|--------|
| Standby  letters of credit |   | —                |   | $             | 3.7    |          | — |           | — |   |
|                            |        |                       |        |               |        |               |        |                |        |  |

 

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**Off-Balance Sheet Transactions**

 

DJL and OED do not maintain any off-balancesheet transactions, arrangements, obligations or other relationships withunconsolidated entities or others that are reasonable likely to have a materialcurrent or future effect on our or OED’s financial condition, changes infinancial condition, revenues or expenses, results of operations, liquidity,capital expenditures or capital resources.

 

**Seasonality and Inflation**

 

Our operations are subject to seasonalfluctuations. 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 Louisiana operationsare usually stronger during live racing season which runs fromApril through October. In general, our payroll and general andadministrative expenses are affected by inflation. Although inflation has nothad a material effect on our business to date, we could experience moresignificant effects of inflation in future periods.

 

**Recent Accounting Pronouncements**

 

In October 2001, the FASB issued SFASNo. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.SFAS No. 144 addresses financial accounting and reporting for theimpairment or disposal of long-lived assets. This statement supersedes SFASNo. 121, “Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of,” and the accounting and reportingprovisions of APB Opinion No. 30, “Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions.”This new pronouncement also amends ARB No. 51 “Consolidated FinancialsStatements,” to eliminate the exception to consolidation for a subsidiary forwhich control is likely to be temporary. SFAS No. 144 requires that oneaccounting model be used for long-lived assets to be disposed of by sale,whether previously held and used or newly acquired and also broadens thepresentation of discontinued operations to include more disposal transactions.SFAS No. 144 is effective for fiscal years beginning afterDecember 15, 2001 and interim periods within those fiscal years. Adoptionof SFAS No. 144 on January 1, 2002, did not have any impact on ourfinancial position or results of operations for the years endedDecember 31, 2003 and 2002.

 

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

 

In November 2002, the FinancialAccounting Standards Board (FASB) issued Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 expands thedisclosure requirements related to certain guarantees, including productwarranties, and requires DJL to recognize a liability for the fair value of allguarantees issued or modified after December 31, 2002. FIN 45 did notimpact our financial position or net income.

 

In May 2003, the FASB issued StatementNo. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.” This statement establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity. It requiresthe issuer to classify a financial instrument that is within the scope of thestandard as a liability if such financial instrument embodies an obligation ofthe issuer. As a result of the adoption of SFAS No. 150 on July 1,2003, DJL reclassified its $4 million mandatorily redeemable preferredmembers’ interest from the mezzanine section of the Condensed ConsolidatedBalance Sheet to long-term debt. Further, preferred member distributions paidor accrued subsequent to adoption of SFAS No. 150 are required to bepresented as interest expense separately from interest due to other creditors.DJL was not required to record a cumulative effect of change in an accountingprinciple as the redeemable preferred members’

 

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interest was recorded at fair value prior to July 1, 2003. We areprecluded from reclassifying prior period amounts pursuant to this standard.

 

In 2003, the FASB issued Interpretation (FIN)No. 46, Consolidation of Variable Interest Entities, which addresses theconsolidation and related disclosures of these entities by businessenterprises. These are entities in which either the equity investment at risk isnot sufficient to absorb the probable loss without additional subordinatedfinancial support from other parties, or the investors with equity at risk lackcertain essential characteristics of a controlling interest. Under theInterpretation, DJL must consolidate any variable interest entities (VIEs) inwhich DJL holds variable interests and DJL is deemed the primary beneficiary.The effective date for the adoption of FIN 46 for interests in VIEs createdprior to February 1, 2003 was July 1, 2003 and applies immediately tovariable interest entities created after January 31, 2003, and to variableinterest entities in which DJL obtains an interest after that date. Theadoption of FIN 46 did not impact our financial position or net loss availableto common members’ interest.

 

**Critical Accounting Policies**

 

The preparation of financial statements inaccordance with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amount of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting periods. Actual resultscould differ from those estimates. We periodically evaluate our policies andthe estimates and assumptions related to such policies. We also periodicallyevaluate the carrying value of our assets in accordance with generally acceptedaccounting principles. We and our subsidiaries operate in a highly regulatedindustry and are subject to regulations that describe and regulate operatingand internal control procedures. The majority of our revenues are in the formof cash, which by its nature, does not require complex estimations. In addition,we made certain estimates surrounding our application of purchase accountingrelated to the acquisition and the related assignment of costs to goodwill andother intangible assets.

 

In addition, contingencies are accounted forin accordance with SFAS No. 5, “Accounting for Contingencies.” SFASNo. 5 requires that we record an estimated loss from a loss contingencywhen information available prior to issuance of our 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 reasonablyestimated. Accounting for contingencies such as legal matters requires us touse judgment. Many of these legal contingencies can take years to be resolved.Generally, as the time period increases over which the uncertainties areresolved, the likelihood of changes to the estimate of the ultimate outcomeincreases. However, an adverse outcome could have a material impact on ourfinancial condition and operating results.

 

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

 

We are exposed to certain market risks whichare inherent in our financial instruments which arise from transactions enteredinto in the normal course of business. Market risk is the risk of loss fromadverse changes in market prices and interest rates. We do not currentlyutilize derivative financial instruments to hedge market risk. We also do nothold or issue derivative financial instruments for trading purposes.

 

We are exposed to interest rate risk due tochanges in interest rates with respect to our long-term variable interest ratedebt borrowing under DJL ‘s and OED’s credit facilities. As ofDecember 31, 2003, DJL and OED had $11.3 million and$17.6 million, respectively, in borrowings under loan and securityagreements with Wells Fargo Foothill that have variable interest rates. We haveestimated our market risk exposure using sensitivity analysis. We have definedour market risk exposure as the potential loss in future earnings and cash flowwith respect to interest rate exposure of our market risk sensitive instrumentsassuming a hypothetical increase in market rates of interest of one percentagepoint. Assuming DJL and OED borrow the maximum amount allowed under the currentloan and security agreements with Wells Fargo Foothill (currently an aggregateamount of $42.8 million), if market rates of interest on our variable ratedebt increased by one percentage point, the estimated consolidated market riskexposure under the credit facilities would be approximately $0.4 million.

 

We are also exposed to fair value risk due tochanges in interest rates with respect to our long-term fixed interest ratedebt borrowing. Our fixed rate debt instruments are not generally affected by achange in the market rates of interest, and therefore, such instrumentsgenerally do not have an impact on future earnings. However, future

 

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earnings and cash flows may be impacted by changes in interest ratesrelated to indebtedness incurred to fund repayments as such fixed rate debtmatures. The following table contains information relating to our fixed ratedebt borrowings (dollars in millions):

 
| **Description**                                           |   | **Maturity**          |   | **Fixed Interest  Rate** |   | **Cost** |   | **Fair Value** |   |
|-----------------------------------------------------------|--------|-----------------------|--------|--------------------------|--------|----------|--------|----------------|--------|
| 121⁄4% Senior Secured Notes of  DJL                    |   | July 1,  2006    |   | 121⁄4                 | %      | $        | 71.0   |           | $      | 76.7 | * |
| 13% Senior  Secured Notes with Contingent Interest of OED |   | March 1,  2010   |   | 13                       | %      | $        | 123.2  |           | $      | 138.0 | * |
| Note Payable                                              |   | October 1,  2010 |   | 43⁄4                  | %      | $        | 3.9    |           | $      | 3.9 |   |
| Note Payable                                              |   | July 1,  2005    |   | 91⁄2                  | %      | $        | 0.5    |           | $      | 0.5 |   |

 

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*                         Representsfair value as of March 9, 2004 based on information provided by anindependent investment banking firm.

 

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

 

Audited financial statements and the notes thereto arecombined in pages F-1 through F-23

 

**ITEM 9.****                                                    ****CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

None.

 

**ITEM9A.****                                           ****CONTROLSAND PROCEDURES**

 

(a)                                  *Evaluation ofdisclosure controls 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 Rules 13a-14(c) and 15d-14(c)) as of a date within ninety days ofthe filing date of this Form 10-K, 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 internal controls*. There have been no significant changes (including corrective actionswith regard to significant deficiencies or material weaknesses) in our internalcontrols or other factors that could significantly affect these controlssubsequent to the date of the evaluation referenced in paragraph (a) above.

 

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**PART III**

 

**ITEM 10.****                                             ****DIRECTORS AND EXECUTIVE OFFICERS OFREGISTRANT**

 

PGP is the Company’s sole member. The following table sets forth thenames and ages of the executive officers of the Company and of the managers ofPGP.

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

 

**Management Profiles**

 

Following is a brief description of thebusiness experience of each of the executive officers of the Company and of themanagers of PGP listed in the preceding table. Presently, PGP’s board of managersis comprised of five managers; however, the fifth manager has not beenappointed.

 

***M.Brent Stevens.*** Mr. Stevens is our Chief Executive Officer and is the Chairman ofthe Board of Managers of PGP. Since 1990, Mr. Stevens has been employed byJefferies & Company, Inc., and presently is an Executive Vice President inthe Investment Banking department.

 

***Michael S. Luzich.***  Mr. Luzichis our President and Secretary and a manager of PGP. Mr. Luzich is thefounder and President of the Cambridge Investment Group, LLC, an investment anddevelopment company located in Las Vegas, Nevada. Prior to October 1995,Mr. Luzich was a founding partner and director of Fitzgeralds NewYork, Inc. and Fitzgeralds Arizona Management, Inc., which are developmentcompanies responsible for the Turning Stone Casino near Syracuse, New York forthe Oneida Tribe and the Cliff Castle Casino near Sedona, Arizona for theYavapai-Apachi Tribe, respectively.

 

***GeorgeT. Papanier.*** Mr. Papanier is our Chief Operating Officer. Prior to joining theCompany, Mr. Papanier was employed by Resorts Casino Hotel in AtlanticCity, New Jersey as Executive Vice President and Chief Operating Officer fromMay 1997 to March 2000. Prior to that, Mr. Papanier served asSenior Vice President and Chief Financial Officer for Sun International sinceMarch 1997 and Senior Vice President of Finance and Chief FinancialOfficer of Mohegan Sun Casino since October 1995. Mr. Papanier hasbeen in the casino industry for 20 years working for various casinosincluding Sands Hotel and Casino, Golden Nugget Casino Hotel, Bally’s Grand,Trump Plaza Hotel and Casino and Hemmeter Enterprises.

 

***Natalie A. Schramm.***  Ms. Schrammis our Chief Financial Officer. Ms. Schramm was formerly employed by AerieHotels and Resorts in Oak Brook, Illinois as Corporate Accounting Manager since1992. She was responsible for the corporate accounting functions of the SilverEagle, the Eagle Ridge Inn and Resorts, located in Galena, Illinois and theEssex Hotel, located in Chicago, Illinois. She served as Internal Audit Managerfor the Silver Eagle and was a member of a development team that successfullypursued a riverboat gaming license in Indiana.

 

***TerranceW. Oliver.*** Mr. Oliver is a manager of PGP. Since 1993, Mr. Oliver hasserved as a director of and consultant to Mikohn Gaming Corporation, a gamingequipment manufacturer headquartered in Las Vegas. From 1988 until 1993,Mr. Oliver served as Chairman of the Board to the predecessor company ofMikohn. From 1984 until 1996, Mr. Oliver was a founding shareholder, boardmember and executive officer of Fitzgeralds Gaming Corporation. Mr. Oliverretired as the Chief Operating Officer of Fitzgeralds Gaming Corporation in1996.

 

***AndrewWhittaker.*** Mr. Whittaker is a manager of PGP. Since 1990 Mr. Whittakerhas been employed by Jefferies & Company, Inc. where he is presently a ViceChairman.

 

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**Audit Committee**

 

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

 

**Code of Ethics**

 

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

 

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

 

**Summary Compensation Table**

 

The following table sets forth informationfor the years indicated concerning the compensation awarded to, earned by orpaid to our Chief Executive Officer and our four other most highly paidexecutive officers, who each served as executive officers of DJL or OED during2003, for services rendered in all capacities to DJL and OED, as applicable,during such periods.

 
|                             |   |             |   |            |    | **Annual Compensation** |   |                                |   |                        |   |
|----------------------------------|--------|------------------|--------|-----------------|---------|-------------------------|--------|-------------------------------------|--------|-----------------------------|--------|
| **Name and  Principal Position** |   | **Fiscal  Year** |   | **Salary  ($)** |    | **Bonus  ($)**          |   | **Other Annual  Compensation  ($)** |   | **Long-term  Compensation** |   | **All other  Compensation  ($)** |   |
| M. Brent  Stevens(1)             |   | 2003             |   | —          |    | —                  |   | —                              |   | —                      |   | — |   |
| *Chief Executive*                |   | 2002             |   | —          |    | —                  |   | —                              |   | —                      |   | — |   |
| *Officer*                        |   | 2001             |   | —          |    | —                  |   | —                              |   | —                      |   | — |   |
|                             |   |             |   |            |    |                    |   |                                |   |                        |   |   |   |
| George T.  Papanier              |   | 2003             |   | $               | 375,000 |                    | $      | 630,000                             |   | $                           | 9,350  | (2) |   |   | $ | 6,000 | (8) |
| *Chief Operating*                |   | 2002             |   | 350,046         |    | 190,000                 |   | 12,465                              | (3)(4) | —                      |   | $ | 5,500 | (8) |
| *Officer*                        |   | 2001             |   | 299,489         |    | —                  |   | 13,150                              | (4)(5) | —                      |   | 5,250 | (8) |
|                             |   |             |   |            |    |                    |   |                                |   |                        |   |   |   |
| Natalie A.  Schramm              |   | 2003             |   | $               | 149,531 |                    | $      | 42,500                              |   | $                           | 3,360  | (6) |   |   | $ | 6,000 | (8) |
| *Chief Financial*                |   | 2002             |   | 136,955         |    | 40,000                  |   | 3,408                               | (7)    | —                      |   | 5,500 | (8) |
| *Officer*                        |   | 2001             |   | 129,567         |    | 19,328                  |   | 4,200                               | (7)    | —                      |   | 5,082 | (8) |
|                             |   |             |   |            |    |                    |   |                                |   |                        |   |   |   |
| Michael S.  Luzich               |   | 2003             |   | —          |    | —                  |   | —                              |   | —                      |   | — |   |
| *President and*                  |   | 2002             |   | —          |    | —                  |   | —                              |   | —                      |   | — |   |
| *Secretary*                      |   | 2001             |   | —          |    | —                  |   | —                              |   | —                      |   | — |   |

 

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(1)                                  Mr. Stevensreceives board of manager fees for his services as a manager on the board ofmanagers of PGP. See “ —Compensation of Managers.”

 

(2)                                  Representsautomobile allowances.

 

(3)                                  Includes$3,115 in club membership fees and $9,350 in automobile allowances.

 

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

 

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(5)                                  Includes$2,950 in club membership fees and $10,200 in automobile allowances.

 

(6)                                  Representsclub membership fees.

 

(7)                                  Representsclub membership fees.

 

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

 

**Employment and Consulting Agreements**

 

*George T.Papanier—Chief Operating Officer*

 

In July 2000, Mr. Papaniercommenced employment with DJL. Under the terms of his employment,Mr. Papanier is entitled to receive a base annual salary in an amountdetermined by the Board of Managers of PGP each year. Mr. Papanier’s baseannual salary for the 2003 fiscal year was $375,000. Until the Board ofManagers determines Mr. Papanier’s annual base salary for the 2004 fiscalyear, he will receive a pro rata portion of his annual base salary for the 2003fiscal year. In addition to his base salary, Mr. Papanier is entitled toreceive an annual cash bonus based on specified performance criteria withrespect to the prior fiscal year and determined by the Board of Managers ofPGP. Mr. Papanier was paid a bonus of $200,000 in February of 2004 inrespect of performance in the 2003 fiscal year. Mr. Papanier is not partyto a written employment agreement with us.

 

*Natalie A.Schramm—Chief Financial Officer*

 

In April 2000, Ms. Schramm enteredinto an employment agreement with DJL. Under the terms of this employmentagreement, Ms. Schramm is entitled to receive from DJL a base annualsalary that is reviewed on an annual basis and adjusted upward annually by notless than five percent (5%) of the prior year’s compensation. In addition tothe base salary, Ms. Schramm is entitled to receive an annual cash bonuspayable by DJL based on her performance during the previous employment year,which is consistent with our bonus plan for department directors.Ms. Schramm was paid a bonus of $80,000 in February of 2004 for herperformance in the 2003 fiscal year. The employment agreement has an initialterm of three years and, subject to the occurrence of various terminationevents, is renewable automatically for successive one-year terms.

 

*Michael S.Luzich—President and Secretary*

 

Mr. Luzich is party to a consultingagreement with PGP and OED pursuant to which he is entitled to receivecompensation in an aggregate annual amount equal to (a) 2% of ourunconsolidated earnings before interest, taxes, depreciation, amortization andother non-recurring charges during the preceding calendar year, plus(b) 2.5% of OED’s earnings before interest, taxes, depreciation,amortization and other non-recurring charges during the preceding calendar yearcommencing on the first day of the month succeeding the month in which OEDcommences gaming operations. Mr. Luzich is also entitled to additionalcommercially reasonable compensation consistent with the level of compensationpayable under his agreement for consulting services rendered in respect of eachriverboat or land-based casino or gaming operation acquired, directly orindirectly, by PGP in the future. The consulting agreement has a one-year termand, subject to the occurrence of various termination events, is renewableautomatically for successive one-year terms. Under this agreement,Mr. Luzich is also entitled to reimbursement of reasonable businessexpenses as approved by the board of managers of PGP. For the years ended 2003,2002 and 2001, Mr. Luzich received $289,153, $336,829 and $327,128,respectively, under his consulting agreement.

 

**Compensation of Managers**

 

All managers serving on the board of managersof PGP are reimbursed for their travel and out-of-pocket expenses related totheir attendance at board of managers meetings and receive annual payments of$25,000 (other than Mr. Stevens who receives $175,000 annually per gamingproperty).

 

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**Compensation Committee Interlocks and InsiderParticipation**

 

We have no standing compensation committees.All compensation decisions are made by the executive committee of the board ofmanagers of PGP. See “Certain Relationships and Related Party Transactions—OperatingAgreement of PGP.”

 

**ITEM 12.****                                             ****SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

All of the Company’s outstanding common membershipinterests are owned by PGP, its parent and sole manager.  All of Peninsula Gaming Corp.’s outstandingcommon stock and all of the outstanding membership interests in OEDA are ownedby the Company.  OEDA holds a 100%membership interest in OED, which is the sole shareholder of The Old EvangelineDowns Capital Corp.

Greater Dubuque Riverboat Entertainment Companyholds 100% of our issued and outstanding preferred membership interests, which,subject to limited exceptions, have no voting rights, except as required byapplicable law. On July 15, 1999, PGP issued 499,982 convertible preferredmembership interests, each of which is initially convertible into one PGPnon-voting common membership interest, representing 33.33% of the fully dilutedcommon membership interests of PGP on such date. PGP does not have outstandingany of its non-voting common membership interests.

 

Unless otherwise indicated, the address ofeach manager or executive officer of PGP is c/o Diamond Jo, LLC, 400 East ThirdStreet, P.O. Box 1750, Dubuque, Iowa, 52004-1750.

 

The table below sets forth informationregarding the beneficial ownership of the voting common membership interests ofPGP 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. Mr. Stevens holds 248,334 PGP common membershipinterests directly and 413,333 PGP common membership interests indirectlythrough PGP Investors, LLC. Mr. Stevens is the sole managing member of PGPInvestors, LLC and exercises voting and investment power over the PGP commonmembership interests owned by PGP Investors, LLC.  Mr. Stevens and Mr. Whittaker, managers of PGP, are anExecutive Vice President and a Vice Chairman, respectively, of the InitialPurchaser. In addition, the Initial Purchaser and some of its affiliates,officers and employees are members of PGP Investors, LLC. Mr. Whittakerholds an economic interest in approximately 41,667 PGP common membershipinterests indirectly through his membership in PGP Investors, LLC, but does notexercise voting or investment power with respect to these PGP common membershipinterests. Mr. Oliver holds his interest through The Oliver Family Trust.The total holdings of all managers and executive officers as a group includesthe 413,333 PGP common membership interests held by PGP Investors, LLC, overwhich Mr. Stevens exercises voting and investment power.

 

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| **Name and  Address  of Beneficial Owner**                                                          |   | **Voting Common  Membership  Interests  Beneficially  Owned** |   | **Percent of  Class** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|-----------------------|--------|
| M. Brent Stevens  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004    |   | 661,667                                                       |   | 66.17                 | %      |
|                                                                                                |   |                                                          |   |                  |   |
| PGP Investors, LLC(1)  11100 Santa Monica, 10th Floor  Los Angeles, CA 90071                        |   | 413,333                                                       |   | 41.33                 | %      |
|                                                                                                |   |                                                          |   |                  |   |
| Michael S. Luzich  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004   |   | 323,333                                                       |   | 32.33                 | %      |
|                                                                                                |   |                                                          |   |                  |   |
| Terrance Oliver  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004     |   | 15,000                                                        |   | 1.50                  | %      |
|                                                                                                |   |                                                          |   |                  |   |
| Andrew Whittaker(1)  c/o Diamond Jo, LLC  3rd Street Ice Harbor  P.O. Box 1750  Dubuque, Iowa 52004 |   | 41,667                                                        |   | 4.17                  | %      |
|                                                                                                |   |                                                          |   |                  |   |
| All managers  and executive officers as a group (6 persons)                                    |   | 1,000,000                                                     |   | 100.00                | %      |

 

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

 

**ITEM 13.****                                             ****CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

**Relationship with Dubuque Racing Association**

 

The DRA is a not-for-profit corporationorganized for the purpose of operating DGP, a pari-mutuel greyhound racingfacility in Dubuque, Iowa. On February 22, 1993, DRA entered into the DRAOperating Agreement which authorizes us to operate riverboat gaming operationsin Dubuque. The DRA Operating Agreement has since been amended several timesand expires by its terms on March 31, 2008.

 

Under the DRA Operating Agreement, subject tolimited conditions, we are also required to pay the DRA, for the right tooperate the Diamond Jo, an amount equal to the excess of 32% of the first$30 million of the combined gaming revenues of the DRA and the Diamond Jo,plus 8% of the next $12 million of these total gaming revenues, plus, ifthere are no competing gaming operations in neighboring counties of Illinoisand Wisconsin, 8% of the next $4 million of total gaming revenues, overthe DRA’s gaming revenues from DGP. Gaming revenues under this contract meansadjusted gross receipts less gaming taxes. This formula is subject to change ifthe DRA ceases to operate DGP or if we operate a riverboat smaller than thecurrent Diamond Jo. We are currently not required to make any such payments tothe DRA because the DRA’s revenues from DGP are greater than the specifiedpercentage of our total gaming revenues. However, we do pay a fee to the DRAequal to $0.50 per patron.

 

**Managing Member Indemnification**

 

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

 

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**Operating Agreement of PGP**

 

Under PGP’s operating agreement, themanagement of PGP is vested in an executive committee consisting ofMessrs. Michael Luzich and M. Brent Stevens. The executive committee ofPGP manages our operations. The executive committee meets weekly or asotherwise agreed upon between Messrs. Luzich and Stevens.

 

In accordance with PGP’s operating agreement,the board of managers of PGP is composed of five individuals, two of whom mustbe independent 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 sole managingmember, may render financial advisory and consulting services to PGP and isentitled to receive commercially reasonable fees for the services consistentwith 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, PGP’s board of managers iscomposed of four managers. If not appointed earlier, a fifth manager will beappointed by Mr. Stevens at a future meeting of managers. A manager mayresign at any time, and the member who designates a manager may remove orreplace that manager from the board of managers at any time.

 

On May 21, 2003, PGP’soperating agreement was amended to create an executive committee consisting ofMessrs. Luzich and Stevens. Under the amendment, the executive committee managesour business and affairs. The executive committee meets weekly or as otherwiseagreed upon between Messrs. Luzich and Stevens. Other than with respect to anyofficers whose responsibilities include any project or real estate development,all executive officers of PGP and OED shall report to the Chief ExecutiveOfficer of PGP. The executive committee shall, subject to the approval of theboard of managers of PGP, unanimously approve the engagement of all of ourexecutive officers (whose compensation exceeds $100,000 annually), attorneysand accountants. In the event that the executive committee is unable to reach aunanimous determination as to any such engagement within a reasonable period oftime, the executive committee shall submit the prospective engagement to theindependent managers of PGP’s board, whose determination shall be final.

 

**Management Services Agreement**

 

DJL and OEDA (together, the “Operators”)manage and operate OED’s racino near Lafayette, Louisiana and OED’s OTBs in NewIberia and Port Allen, Louisiana pursuant to a management services agreement.Although the Operators may obtain services from affiliates to the extentnecessary to perform their obligations, the Operators are fully responsible forall obligations under the agreement. Fees under the management servicesagreement are shared between DJL and OEDA, with DJL receiving 75% and OEDAreceiving 25% of such fees.

 

Pursuant to the terms of the managementservices agreement, the Operators are entitled to receive pre-opening service feesequal to $40,000 per month, commencing June 27, 2001. Payments in respectof these pre-opening service fees have been accrued but not yet been paid. TheOperators are also entitled to be reimbursed for all reasonable and documentedout-of-pocket expenses permitted to be incurred under the management servicesagreement, including, but not limited to, tax preparation, accounting, legaland administrative fees and expenses. The Operators are also entitled toreceive in the aggregate a basic management fee equal to 1.75% of net revenue(less net food and beverage revenue) and an incentive fee equal to:

 

•                                          3.0%of the first $25.0 million of EBITDA (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.

 

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Under the management services agreement,“EBITDA” is defined 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.

 

**ITEM 14.****                                             ****PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

 
|                |   | **2003** |    | **2002** |   |
|---------------------|--------|----------|---------|----------|--------|
| Audit fees          |   | $        | 425,230 |     | $      | 269,720 |   |
| Audit-related  fees |   | 28,625   |    | 31,875   |   |
| Tax fees            |   | 67,406   |    | 20,090   |   |
| All other  fees (1) |   | 90,951   |    | —   |   |
|                     |        |          |         |          |        |  |  |

 

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(1) All other feesconsist of fees for professional services related to network security testingand fees paid for professional training workshops conducted by our principalaccountants.

 

In accordance with our internal policies, all feesrelated to audit services rendered by our independent accountants are requiredto be approved by our audit committee. In addition, all of the audit services described above in this Item 14for the year ended December 31, 2003 have been approved by our auditcommittee.

 

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**PART IV**

 

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

 

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

 

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

 

(2)                                  Exhibits:

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                                                   |
|---------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                                              |
| *3.1A               |   | Certificate of Formation of Diamond Jo, LLC  (formerly known as Peninsula Gaming Company, LLC)                                                                                                                                                                                    |
|                |   |                                                                                                                                                                                                                                                                              |
| *3.1B               |   | Amendment to Certificate of Formation of  Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC)                                                                                                                                                                       |
|                |   |                                                                                                                                                                                                                                                                              |
| *3.2                |   | Operating Agreement of Diamond Jo, LLC  (formerly known as Peninsula Gaming Company, LLC)                                                                                                                                                                                         |
|                |   |                                                                                                                                                                                                                                                                              |
| *3.3                |   | Articles of Incorporation of Peninsula  Gaming Corp.                                                                                                                                                                                                                              |
|                |   |                                                                                                                                                                                                                                                                              |
| *3.4                |   | By-laws of Peninsula Gaming Corp.                                                                                                                                                                                                                                                 |
|                |   |                                                                                                                                                                                                                                                                              |
| *4.1                |   | Specimen Certificate of Common Stock of  Peninsula Gaming Corp.                                                                                                                                                                                                                   |
|                |   |                                                                                                                                                                                                                                                                              |
| *4.2                |   | Indenture, dated July 15, 1999, by and  among Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC),  Peninsula Gaming Corp. and Firstar Bank of Minnesota, N.A., as trustee                                                                                     |
|                |   |                                                                                                                                                                                                                                                                              |
| ***4.3              |   | First Supplemental Indenture, dated  January 15, 2002, by and among Diamond Jo, LLC (formerly known as  Peninsula Gaming Company LLC) and Peninsula Gaming Corp., as Issuers, the  Subsidiary Guarantors referred to therein and U.S. Bank National Association,  as trustee |
|                |   |                                                                                                                                                                                                                                                                              |
| 10.1*****           |   | Employment Agreement, dated April 1,  2000, by and among Natalie Schramm and Diamond Jo, LLC (formerly known as  Peninsula Gaming Company, LLC)                                                                                                                              |
|                |   |                                                                                                                                                                                                                                                                              |
| *10.2               |   | Indemnification Agreement, dated  June 7, 1999, by and among Natalie Schramm and AB Capital, L.L.C. and  Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC)                                                                                                   |
|                |   |                                                                                                                                                                                                                                                                              |
| *10.3A              |   | Operating Agreement, dated  February 22, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                                                      |
|                |   |                                                                                                                                                                                                                                                                              |
| *10.3B              |   | Amendment to Operating Agreement, dated  February 22, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                                         |
|                |   |                                                                                                                                                                                                                                                                              |
| *10.3C              |   | Amendment to Operating Agreement, dated  March 4, 1993, by and among Dubuque Racing Association, Ltd. and Greater  Dubuque Riverboat Entertainment Company, L.C.                                                                                                             |
|                |   |                                                                                                                                                                                                                                                                              |
| *10.3D              |   | Third Amendment to Operating Agreement, dated  March 11, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                                      |
|                |   |                                                                                                                                                                                                                                                                              |
| *10.3E              |   | Fourth Amendment to Operating Agreement,  dated March 11, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                                     |

 

36

----

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                                 |
|---------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *10.3F              |   | Fifth Amendment to Operating Agreement,  dated April 9, 1993, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                     |
|                |   |                                                                                                                                                                                                                                                            |
| *10.3G              |   | Sixth Amendment to Operating Agreement,  dated November 29, 1993, by and among Dubuque Racing Association, Ltd.  and Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                 |
|                |   |                                                                                                                                                                                                                                                            |
| *10.3H              |   | Seventh Amendment to Operating Agreement,  dated April 6, 1994, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                   |
|                |   |                                                                                                                                                                                                                                                            |
| *10.3I              |   | Eighth Amendment to Operating Agreement,  dated April 29, 1994, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                   |
|                |   |                                                                                                                                                                                                                                                            |
| *10.3J              |   | Ninth Amendment to Operating Agreement,  dated July 11, 1995, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                     |
|                |   |                                                                                                                                                                                                                                                            |
| *10.3K              |   | Tenth Amendment to Operating Agreement,  dated July 15, 1999, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                     |
|                |   |                                                                                                                                                                                                                                                            |
| *10.4               |   | Operating Agreement Assignment, dated  July 15, 1999, by and among Greater Dubuque Riverboat Entertainment  Company, L.C. and Diamond Jo, LLC (formerly known as Peninsula Gaming  Company, LLC)                                                           |
|                |   |                                                                                                                                                                                                                                                            |
| *10.5               |   | First Preferred Ship Mortgage, dated  July 15, 1999, by Diamond Jo, LLC (formerly known as Peninsula Gaming  Company, LLC) in favor of Firstar Bank of Minnesota, N.A., as trustee                                                                         |
|                |   |                                                                                                                                                                                                                                                            |
| *10.6               |   | Mortgage, Leasehold Mortgage, Assignment of  Rents, Security Agreement and Fixture Financing Statement dated July 15,  1999, by Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC) in  favor of Firstar Bank of Minnesota, N.A., as trustee |
|                |   |                                                                                                                                                                                                                                                            |
| *10.7               |   | Ice Harbor Parking Agreement Assignment,  dated July 15, 1999, by and among Greater Dubuque Riverboat  Entertainment Company, L.C. and Diamond Jo, LLC (formerly known as Peninsula  Gaming Company, LLC)                                                  |
|                |   |                                                                                                                                                                                                                                                            |
| *10.8               |   | First Amendment to Sublease Agreement,  dated July 15, 1999, by and among Dubuque Racing Association, Ltd. and  Greater Dubuque Riverboat Entertainment Company, L.C.                                                                                      |
|                |   |                                                                                                                                                                                                                                                            |
| *10.9               |   | Sublease Assignment, dated July 15,  1999, by and among Greater Dubuque Entertainment Company, L.C. and Diamond  Jo, LLC (formerly known as Peninsula Gaming Company, LLC)                                                                                 |
|                |   |                                                                                                                                                                                                                                                            |
| *10.10              |   | Iowa Racing and Gaming Commission Gaming  License, dated July 15, 1999                                                                                                                                                                                     |
|                |   |                                                                                                                                                                                                                                                            |
| *10.11              |   | Assignment of Iowa IGT Declaration and Agreement  of Trust, dated July 15, 1999 by and among Greater Dubuque Riverboat  Entertainment Company, L.C. and Diamond Jo, LLC (formerly known as Peninsula  Gaming Company, LLC)                                 |
|                |   |                                                                                                                                                                                                                                                            |
| ****10.12           |   | Agreement of Sale, dated August 30,  2002, by and among Peninsula Gaming Partners, LLC, OED Acquisition, LLC,  William E. Trotter II and William E. Trotter II Family, LLC.                                                                                |
|                |   |                                                                                                                                                                                                                                                            |
| 10.13*****          |   | Loan and Security Agreement, dated  February 23, 2001, by and between Foothill Capital Corporation and  Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC)                                                                                  |
|                |   |                                                                                                                                                                                                                                                            |
| ****10.14           |   | Amendment Number One to Loan and Security  Agreement, dated February 15, 2002, by and between Foothill Capital  Corporation and Diamond Jo, LLC (formerly known as Peninsula Gaming Company,  LLC)                                                         |
|                |   |                                                                                                                                                                                                                                                            |
| ****10.15           |   | Amendment Number Two to Loan and Security  Agreement, dated October 16, 2002, by and between Foothill Capital  Corporation and Diamond Jo, LLC (formerly known as Peninsula Gaming Company,  LLC)                                                          |

 

37

----

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                          |
|---------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                     |
| ***10.16            |   | Purchase Agreement, dated June 27,  2002, by and among Peninsula Gaming Partners, LLC, a Delaware limited  liability company, The Old Evangeline Downs, L.C., a Louisiana limited  company and BIM3 Investments, a Louisiana partnership            |
|                |   |                                                                                                                                                                                                                                                     |
| ***10.17            |   | First Amendment to Purchase Agreement,  dated January 1, 2002, by and among BIM3 Investments, a Louisiana  partnership, The Old Evangeline Downs, L.C., a Louisiana limited company and  OED Acquisition, LLC, a Delaware limited liability company |
|                |   |                                                                                                                                                                                                                                                     |
| ***10.18            |   | Assignment Agreement, dated  October 23, 2001, by and between Peninsula Gaming Partners and OED  Acquisition, LLC                                                                                                                                   |
|                |   |                                                                                                                                                                                                                                                     |
| ****10.19           |   | Agreement of Sale, dated August 30,  2002, by and among Peninsula Gaming Partners, LLC, OED Acquisition, LLC,  William E. Trotter II and William E. Trotter II Family, LLC.                                                                         |
|                |   |                                                                                                                                                                                                                                                     |
| 12.1†          |   | Computation of ratio of earnings to fixed  charges                                                                                                                                                                                                       |
|                |   |                                                                                                                                                                                                                                                     |
| *****14.1           |   | Code of Ethics of Senior Executive Officers  of Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC)                                                                                                                                        |
|                |   |                                                                                                                                                                                                                                                     |
| 21.1†          |   | Subsidiaries of the Registrant                                                                                                                                                                                                                           |
|                |   |                                                                                                                                                                                                                                                     |
| 31.1†          |   | Certification of M. Brent Stevens, Chief  Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 and Rule 15d-14 of the Securities Exchange Act, as amended.                                                                 |
|                |   |                                                                                                                                                                                                                                                     |
| 31.2†          |   | Certification of Natalie A. Schramm, Chief  Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 and Rule 15d-14 of the Securities Exchange Act, as amended.                                                               |

 

----

†    Filed herewith.

 

*                 Previously filed as anexhibit to the registration statement on Form S-4 (Registration Number333-88829) of Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC)and Peninsula Gaming Corp. on October 12, 1999.

 

**          Previously filed as anexhibit to the Form 10-K (Registration Number 333-88829) of Diamond Jo, LLC(formerly known as Peninsula Gaming Company, LLC) and Peninsula Gaming Corp. onMarch 30, 2001.

 

*** Previouslyfiled as an exhibit to the Form 8-K of Diamond Jo, LLC (formerly known asPeninsula Gaming Company, LLC) and Peninsula Gaming  Corp. on March 4, 2002.

 

****Previouslyfiled as an exhibit to the Form 10-Q of Diamond Jo, LLC (formerly known asPeninsula Gaming Company, LLC) and  Peninsula Gaming  Corp. on November 14, 2002.

 

*****Previouslyfiled as an exhibit to the Form 10-K (Registration Number 333-88829) of DiamondJo, LLC (formerly known as Peninsula Gaming Company, LLC) and Peninsula GamingCorp. on March 31, 2002.

 

(b)                                 Reportson Form 8-K.

 

On March 25, 2004, the Company filed a currentreport on Form 8-K dated March 24, 2004, in which the Company announcedcertain operating results for the two month period ended February 29, 2004

 

38

----

 

On March 17, 2004, the Company filed a currentreport on Form 8-K dated March 9, 2004, in which the Companyannounced that it intended to refinance its existing debt with the proceeds ofa note offering, and disclosed certain information to potential investors.

 

39

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the Company has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized, in the City of Dubuque, State of Iowa on March 30, 2004.

 
|   | DIAMOND JO, LLC (FORMERLY KNOWN AS  PENINSULA GAMING COMPANY, LLC) |                       |
|--------|--------------------------------------------------------------------|----------------------------|
|   |                                                               |
|   | By:                                                                | /s/  M. Brent Stevens      |   |
|   |                                                               | M.  Brent Stevens          |
|   |                                                               | *Chief  Executive Officer* |
|   |                                                               |                       |
|   | By:                                                                | /s/  Natalie A. Schramm    |   |
|   |                                                               | Natalie  A. Schramm        |
|   |                                                               | *Chief  Financial Officer* |
|   |                                                               |
|   | PENINSULA GAMING CORP.                                             |
|   |                                                               |
|   | By:                                                                | /s/  M. Brent Stevens      |   |
|   |                                                               | M.  Brent Stevens          |
|   |                                                               | *President  and Treasurer* |
|   |                                                               |
|   | By:                                                                | /s/  Michael S. Luzich     |   |
|   |                                                               | Michael  S. Luzich         |
|   |                                                               | *Vice  President*          |
|        |                                                                    |                            |  |  |

 

**Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons in the capacities and on the dates indicated.**

 
|                       | PENINSULA GAMING PARTNERS, LLC                                                           |
|----------------------------|------------------------------------------------------------------------------------------|
|                       | *Managing  Member of Diamond Jo, LLC (formerly known as  Peninsula Gaming Company, LLC)* |
|                       |                                                                                     |
| Date:  March 30, 2004 | By:                                                                                      | /s/  M. Brent Stevens |   |
|                       |                                                                                     | M.  Brent Stevens |
|                       |                                                                                     | *Chief  Executive Officer and Manager* |
|                       |                                                                                     |   |
| Date:  March 30, 2004 | By:                                                                                      | /s/  Michael S. Luzich |   |
|                       |                                                                                     | Michael  S. Luzich |
|                       |                                                                                     | *President,  Secretary and Manager* |
|                       |                                                                                     |   |
| Date:  March 30, 2004 | By:                                                                                      | /s/  Terrance W. Oliver |   |
|                       |                                                                                     | Terrance  W. Oliver |
|                       |                                                                                     | *Manager  of Peninsula Gaming Partners* |
|                       |                                                                                     |   |
| Date:  March 30, 2004 | By:                                                                                      | /s/  Andrew R. Whittaker |   |
|                       |                                                                                     | Andrew  R. Whittaker |
|                       |                                                                                     | *Manager of Peninsula Gaming Partners* |

 

40

----

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**CONSOLIDATED FINANCIAL STATEMENTS OF DIAMONDJO, LLC**

** **

**(formerly known as Peninsula Gaming Company,LLC)**

 
| Independent Auditors’ Report                                                                                               | F-2    |
|---------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                            |   |
| Consolidated  Balance Sheets at December 31, 2003 and 2002                                                                      | F-3    |
|                                                                                                                            |   |
| Consolidated Statements of Operations for the Years Ended  December 31, 2003, 2002 and 2001                                | F-4    |
|                                                                                                                            |   |
| Consolidated Statements of Changes in Members’  Equity (Deficit) for the Years Ended December 31, 2003, 2002 and 2001 | F-5    |
|                                                                                                                            |   |
| Consolidated Statements of Cash Flows for the Years Ended  December 31, 2003, 2002 and 2001                                | F-6    |
|                                                                                                                            |   |
| Notes to Consolidated Financial Statements                                                                                      | F-7    |
|                                                                                                                            |   |
| Schedule  II: Valuation and Qualifying Accounts                                                                                 | F-23   |

 

F-1

----

 

**INDEPENDENT AUDITORS’ REPORT**

 

To the Members ofDiamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC)Dubuque, Iowa

 

We have audited the accompanying consolidated balance sheets of DiamondJo, LLC (formerly known as Peninsula Gaming Company, LLC) and subsidiaries (the“Company”) as of December 31, 2003 and 2002, and the related consolidatedstatements of operations, changes in members’ equity (deficit), and cash flowsfor the years ended December 31, 2003, 2002 and 2001. Our audits alsoincluded the financial statement schedule listed in the Index to theFinancial Statements at F-23. These financial statements and financialstatement schedule 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 auditing standards generallyaccepted in the United States of America. Those standards require that we planand perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, such financial statements present fairly, in allmaterial respects, the financial position of Diamond Jo, LLC as ofDecember 31, 2003 and 2002, and the results of its operations and its cashflows for the years ended December 31, 2003, 2002 and 2001 in conformitywith accounting principles generally accepted in the United States of America.Also, in our opinion, such financial statement schedule, when considered inrelation to the basic financial statements taken as a whole, presents fairly inall material respects the information set forth therein.

 

As discussed in Note 2 to the consolidated financial statements, effectiveJanuary 1, 2002, the Company changed its method of accounting for goodwilland other intangible assets to conform to Statement of Financial AccountingStandards No. 142, *Goodwill and otherIntangible Assets*.

 

DELOITTE & TOUCHE LLP

 

 

Cedar Rapids, IowaMarch 10, 2004

 

F-2

----

 

**DIAMOND JO, LLC**

**(formerly known as PENINSULA GAMING COMPANY,LLC)**

**CONSOLIDATED BALANCESHEETS DECEMBER 31, 2003 AND 2002**

 
|                                                                                            |   | **December 31,  2003** |        | **December 31,  2002** |   |
|-------------------------------------------------------------------------------------------------|--------|-----------------------------|-------------|-----------------------------|--------|
| CURRENT ASSETS:                                                                                 |   |                        |        |                        |   |
| Cash and cash equivalents                                                                       |   | $                           | 21,158,295  |                        | $      | 10,510,205 |   |
| Restricted cash—purse settlements                                                          |   | 1,589,125                   |        | 840,366                     |   |
| Restricted investments                                                                          |   | 15,778,883                  |        |                        |   |
| Accounts receivable, less allowance for  doubtful accounts of $61,922 and $45,648, respectively |   | 309,188                     |        | 275,822                     |   |
| Interest receivable                                                                             |   | 173,034                     |        |                        |   |
| Inventory                                                                                       |   | 403,376                     |        | 138,405                     |   |
| Prepaid expenses                                                                                |   | 815,009                     |        | 395,056                     |   |
| Total current assets                                                                            |   | 40,226,910                  |        | 12,159,854                  |   |
| RESTRICTED CASH—RACINO PROJECT                                                             |   | 20,013,291                  |        |                        |   |
| PROPERTY AND EQUIPMENT, NET                                                                     |   | 102,477,345                 |        | 25,702,742                  |   |
| OTHER ASSETS:                                                                                   |   |                        |        |                        |   |
| Deferred financing costs, net of  amortization of $5,288,572 and $3,229,782, respectively       |   | 12,702,387                  |        | 4,064,987                   |   |
| Goodwill                                                                                        |   | 53,083,429                  |        | 53,083,429                  |   |
| Other intangibles                                                                               |   | 32,257,963                  |        | 31,329,834                  |   |
| Deposits and other assets                                                                       |   | 757,789                     |        | 106,938                     |   |
| Total other assets                                                                              |   | 98,801,568                  |        | 88,585,188                  |   |
| TOTAL                                                                                           |   | $                           | 261,519,114 |                        | $      | 126,447,784 |   |
| LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)                                                  |   |                        |        |                        |   |
| CURRENT LIABILITIES:                                                                            |   |                        |        |                        |   |
| Accounts payable                                                                                |   | $                           | 2,972,608   |                        | $      | 1,960,200 |   |
| Construction payable—St. Landry Parish                                                     |   | 20,156,591                  |        | 2,376,494                   |   |
| Purse settlement payable                                                                        |   | 1,589,125                   |        | 846,778                     |   |
| Accrued payroll and payroll taxes                                                               |   | 2,788,224                   |        | 1,340,395                   |   |
| Accrued interest                                                                                |   | 9,904,778                   |        | 4,763,919                   |   |
| Other accrued expenses                                                                          |   | 4,811,106                   |        | 3,345,294                   |   |
| Current maturity of long-term debt                                                              |   | 4,098,222                   |        | 600,000                     |   |
| Notes payable                                                                                   |   |                        |        | 4,500,000                   |   |
| Term loan payable                                                                               |   |                        |        | 8,300,000                   |   |
| Note payable to parent                                                                          |   |                        |        | 7,325,000                   |   |
| Total current liabilities                                                                       |   | 46,320,654                  |        | 35,358,080                  |   |
| LONG-TERM LIABILITIES:                                                                          |   |                        |        |                        |   |
| 121⁄4% Senior secured notes, net  of discount                                                |   | 70,616,221                  |        | 70,493,155                  |   |
| 13% Senior secured notes, net of discount                                                       |   | 120,923,436                 |        |                        |   |
| Senior secured facilities                                                                       |   | 15,754,301                  |        | 11,250,000                  |   |
| FF&E credit facility                                                                        |   | 9,921,557                   |        |                        |   |
| Capital lease obligations                                                                       |   |                        |        | 475,781                     |   |
| Notes payable                                                                                   |   | 3,511,654                   |        |                        |   |
| Other accrued expenses                                                                          |   | 1,100,000                   |        | 1,200,000                   |   |
| Preferred members’ interest, redeemable                                                    |   | 4,000,000                   |        |                        |   |
| Total long-term liabilities                                                                     |   | 225,827,169                 |        | 83,418,936                  |   |
| Total liabilities                                                                               |   | 272,147,823                 |        | 118,777,016                 |   |
|                                                                                            |   |                        |        |                        |   |
| COMMITMENTS AND CONTINGENCIES                                                                   |   |                        |        |                        |   |
|                                                                                            |   |                        |        |                        |   |
| PREFERRED MEMBERS’ INTEREST, REDEEMABLE                                                    |   |                        |        | 4,000,000                   |   |
|                                                                                            |   |                        |        |                        |   |
| MEMBERS’ EQUITY (DEFICIT)                                                                  |   |                        |        |                        |   |
| Common members’ interest                                                                   |   | 9,000,000                   |        | 9,000,000                   |   |
| Accumulated deficit                                                                             |   | (19,628,709                 | )           | (5,329,232                  | )      |
| Total members’ equity (deficit)                                                            |   | (10,628,709                 | )           | 3,670,768                   |   |
| TOTAL                                                                                           |   | $                           | 261,519,114 |                        | $      | 126,447,784 |   |

 

See notes to consolidated financial statements.

 

F-3

----

 

**DIAMOND JO, LLC**

**(formerly known as PENINSULA GAMING COMPANY,LLC)**

**CONSOLIDATED STATEMENTSOF OPERATIONS**

**YEARS ENDED DECEMBER 31, 2003, 2002 AND2001**

 
|                                                                           |   | **2003**    |        | **2002**    |   | **2001**   |   |
|--------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|------------|--------|
| REVENUES:                                                                      |   |        |        |        |   |       |   |
| Casino                                                                         |   | $           | 56,794,529  |        | $      | 48,262,485 |   | $ | 47,710,208 |   |
| Racing                                                                         |   | 17,773,481  |        | 15,509,989  |   |       |   |
| Food and beverage                                                              |   | 4,565,438   |        | 3,886,326   |   | 2,745,333  |   |
| Other                                                                          |   | 589,268     |        | 144,817     |   | 131,916    |   |
| Less promotional allowances                                                    |   | (3,221,134  | )           | (2,615,355  | )      | (2,470,310 | )      |
| Total  net revenues                                                            |   | 76,501,582  |        | 65,188,262  |   | 48,117,147 |   |
| EXPENSES:                                                                      |   |        |        |        |   |       |   |
| Casino                                                                         |   | 23,532,967  |        | 20,554,920  |   | 20,375,265 |   |
| Racing                                                                         |   | 14,646,351  |        | 12,650,996  |   |       |   |
| Food and beverage                                                              |   | 4,282,010   |        | 3,820,365   |   | 2,856,568  |   |
| Boat operations                                                                |   | 2,322,126   |        | 2,295,771   |   | 2,259,314  |   |
| Other                                                                          |   | 442,964     |        | 27,471      |   | 21,801     |   |
| Selling, general and administrative                                            |   | 12,342,587  |        | 8,739,642   |   | 6,680,581  |   |
| Depreciation and amortization                                                  |   | 3,323,541   |        | 2,950,369   |   | 3,963,350  |   |
| Pre-opening expense                                                            |   | 3,256,963   |        |        |   |       |   |
| Development costs                                                              |   | 102,272     |        |        |   |       |   |
| Litigation settlement                                                          |   |        |        | 1,600,000   |   |       |   |
| Referendum                                                                     |   |        |        | 771,111     |   |       |   |
| State of Wisconsin government relations                                        |   |        |        | 55,000      |   | 147,163    |   |
| Total expenses                                                                 |   | 64,251,781  |        | 53,465,645  |   | 36,304,042 |   |
| INCOME FROM OPERATIONS                                                         |   | 12,249,801  |        | 11,722,617  |   | 11,813,105 |   |
| OTHER INCOME (EXPENSE):                                                        |   |        |        |        |   |       |   |
| Interest income                                                                |   | 489,800     |        | 46,475      |   | 183,912    |   |
| Interest expense, net of amounts  capitalized                                  |   | (25,071,656 | )           | (11,887,979 | )      | (9,639,947 | )      |
| Interest expense related to preferred  members’ interest, redeemable      |   | (180,000    | )           |        |   |       |   |
| Loss on sale of assets                                                         |   | (49,735     | )           | (8,000      | )      | (151,415   | )      |
| Total other expense                                                            |   | (24,811,591 | )           | (11,849,504 | )      | (9,607,450 | )      |
| NET INCOME (LOSS) BEFORE PREFERRED MEMBER  DISTRIBUTIONS AND MINORITY INTEREST |   | (12,561,790 | )           | (126,887    | )      | 2,205,655  |   |
| LESS PREFERRED MEMBER DISTRIBUTIONS                                            |   | (180,544    | )           | (373,050    | )      | (386,174   | )      |
| LESS MINORITY INTEREST                                                         |   |        |        | (232,056    | )      |       |   |
| NET INCOME (LOSS) TO COMMON MEMBERS’  INTEREST                            |   | $           | (12,742,334 | )           | $      | (731,993   | )      | $ | 1,819,481 |   |

 

See notes to consolidated financial statements.

 

F-4

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**DIAMOND JO, LLC**

**(formerly known as PENINSULA GAMING COMPANY,LLC)**

**CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’EQUITY (DEFICIT)**

**YEARS ENDED DECEMBER 31, 2003, 2002 AND2001**

 
|                                        |   | **COMMON  MEMBERS’  INTEREST** |      | **ACCUMULATED  DEFICIT** |   | **TOTAL  MEMBERS’  EQUITY  (DEFICIT)** |   |
|---------------------------------------------|--------|-------------------------------------|-----------|--------------------------|--------|---------------------------------------------|--------|
| BALANCE, DECEMBER 31, 2000             |   | $                                   | 9,000,000 |                     | $      | (3,395,800                                  | )      | $ | 5,604,200 |   |
| Net income to common members’ interest |   |                                |      | 1,819,481                |   | 1,819,481                                   |   |
| Member distributions                        |   |                                |      | (1,760,908               | )      | (1,760,908                                  | )      |
| BALANCE, DECEMBER 31, 2001             |   | 9,000,000                           |      | (3,337,227               | )      | 5,662,773                                   |   |
| Net loss to common members’ interest   |   |                                |      | (731,993                 | )      | (731,993                                    | )      |
| Member distributions                        |   |                                |      | (1,260,012               | )      | (1,260,012                                  | )      |
| BALANCE, DECEMBER 31, 2002             |   | 9,000,000                           |      | (5,329,232               | )      | 3,670,768                                   |   |
| Net loss to common members’ interest   |   |                                |      | (12,742,334              | )      | (12,742,334                                 | )      |
| Member distributions                        |   |                                |      | (1,557,143               | )      | (1,557,143                                  | )      |
| BALANCE, DECEMBER 31, 2003             |   | $                                   | 9,000,000 |                     | $      | (19,628,709                                 | )      | $ | (10,628,709 | ) |

 

See notes to consolidated financial statements.

 

F-5

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**DIAMOND JO, LLC**

**(formerly known as PENINSULA GAMING COMPANY,LLC)**

**CONSOLIDATED STATEMENTSOF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2003, 2002 AND2001**

 
|                                                                                            |   | **2003**    |        | **2002**    |   | **2001**   |   |
|-------------------------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                           |   |        |        |        |   |       |   |
| Net income (loss)                                                                               |   | $           | (12,742,334 | )           | $      | (731,993   | )      | $ | 1,819,481 |   |
| Adjustments to reconcile net income (loss)  to net cash flows provided by operating activities: |   |        |        |        |   |       |   |
| Depreciation and amortization                                                                   |   | 3,323,541   |        | 2,950,369   |   | 3,963,350  |   |
| Provision for doubtful accounts                                                                 |   | 149,214     |        | 138,751     |   | 152,158    |   |
| Amortization of deferred financing costs  and bond discount                                     |   | 3,161,023   |        | 1,493,671   |   | 911,272    |   |
| Loss on sale of assets                                                                          |   | 49,735      |        | 8,000       |   | 151,415    |   |
| Minority interest                                                                               |   |        |        | 232,056     |   |       |   |
| Changes in operating assets and  liabilities:                                                   |   |        |        |        |   |       |   |
| Restricted cash                                                                                 |   | (748,759    | )           | 639,655     |   |       |   |
| Receivables                                                                                     |   | (355,614    | )           | (91,398     | )      | (183,479   | )      |
| Inventory                                                                                       |   | (264,972    | )           | 5,285       |   | 15,906     |   |
| Prepaid expenses and other assets                                                               |   | (1,071,419  | )           | (27,301     | )      | 326,699    |   |
| Accounts payable                                                                                |   | 2,183,072   |        | 60,088      |   | (375,121   | )      |
| Accrued expenses                                                                                |   | 7,485,459   |        | 5,506,627   |   | 468,743    |   |
| Litigation settlement                                                                           |   | (400,000    | )           | 1,600,000   |   |       |   |
| Net cash flows from operating activities                                                        |   | 768,946     |        | 11,783,810  |   | 7,250,424  |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                           |   |        |        |        |   |       |   |
| Acquisition of subsidiary, net of cash  acquired                                                |   |        |        | (29,275,862 | )      | (500,000   | )      |
| Business acquisition and licensing costs                                                        |   | (1,781,746  | )           | (1,503,944  | )      | (518,047   | )      |
| Racino project development costs                                                                |   | (55,303,006 | )           | (5,315,279  | )      | (246,753   | )      |
| Restricted cash-racino project                                                                  |   | (20,013,291 | )           |        |   |       |   |
| Purchase of restricted investments                                                              |   | (23,922,971 | )           |        |   |       |   |
| Maturity of restricted investments                                                              |   | 8,144,088   |        |        |   |       |   |
| Purchase of property and equipment                                                              |   | (2,206,388  | )           | (1,695,075  | )      | (1,602,930 | )      |
| Proceeds from sale of property and  equipment                                                   |   | 387,906     |        |        |   | 51,378     |   |
| Net cash flows from investing activities                                                        |   | (94,695,408 | )           | (37,790,160 | )      | (2,816,352 | )      |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                           |   |        |        |        |   |       |   |
| Deferred financing costs                                                                        |   | (11,516,099 | )           | (1,703,706  | )      | (511,634   | )      |
| Preferred members’ interest redeemed                                                       |   |        |        |        |   | (3,000,000 | )      |
| Principal payments on debt                                                                      |   | (20,725,000 | )           | (318,379    | )      |       |   |
| Proceeds from senior secured notes                                                              |   | 120,736,000 |        |        |   |       |   |
| Proceeds from senior credit facilities                                                          |   | 5,104,301   |        | 20,450,000  |   |       |   |
| Proceeds from FF&E credit facility                                                          |   | 12,532,493  |        |        |   |       |   |
| Proceeds from notes payable                                                                     |   |        |        | 11,825,000  |   |       |   |
| Member distributions                                                                            |   | (1,557,143  | )           | (1,260,012  | )      | (1,760,908 | )      |
| Net cash flows from financing activities                                                        |   | 104,574,552 |        | 28,992,903  |   | (5,272,542 | )      |
| NET INCREASE (DECREASE) IN CASH                                                                 |   | 10,648,090  |        | 2,986,553   |   | (838,470   | )      |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF  PERIOD                                               |   | 10,510,205  |        | 7,523,652   |   | 8,362,122  |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                      |   | $           | 21,158,295  |        | $      | 10,510,205 |   | $ | 7,523,652 |   |
|                                                                                            |   |        |        |        |   |       |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION:                                             |   |        |        |        |   |       |   |
| Cash paid during the year for interest                                                          |   | $           | 18,331,536  |        | $      | 5,701,057  |   | $ | 8,728,788 |   |
| SUPPLEMENTAL SCHEDULE OF NON-CASH  INVESTING AND FINANCING ACTIVITIES:                     |   |        |        |        |   |       |   |
| Property additions acquired on construction  payable which were accrued, but not paid           |   | $           | 19,681,300  |        | $      | 2,376,494  |   |   |   |
| Property and equipment purchased in  exchange for indebtedness                                  |   | $           | 4,398,940   |        |   |       |   |   |
| Exchange of Private OED Notes for  Registered OED Notes                                         |   | $           | 123,200,000 |        |   |       |   |   |

 

See notes to consolidated financial statements

 

F-6

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**DIAMOND JO, LLC**

**(formerly known as PENINSULA GAMING COMPANY,LLC)**

**NOTESTO CONSOLIDATED****FINANCIALSTATEMENTS**

 

**1. ORGANIZATION, BUSINESS PURPOSE AND BASISOF PRESENTATION**

 

Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC), aDelaware limited liability company (the “Company”), owns and operates theDiamond Jo riverboat casino in Dubuque, Iowa, and is a wholly owned subsidiaryof Peninsula Gaming Partners, LLC, a Delaware limited liability company(“PGP”). Unless the context requires otherwise, references to the “Company,”“we,” “us” or “our” refer to Diamond Jo, LLC. The Company has two direct whollyowned subsidiaries, (i) Peninsula Gaming Corp., which has no assets oroperations and was formed solely to facilitate the offering of the Company’s 121⁄4% Senior Secured Notes due 2006 (the “Peninsula Notes”), and(ii) OED Acquisition, LLC, a Delaware limited liability company (“OEDA”),and the parent company of The Old Evangeline Downs, L.L.C., a Louisiana limitedliability company (“OED”), that currently owns and operates a horse track inLafayette, Louisiana and is constructing a new casino and racetrack facility inSt. Landry Parish, Louisiana (the “racino project”). The Old Evangeline DownsCapital Corp. is a wholly owned subsidiary of OED which has no assets oroperations and was formed solely to facilitate the offering by OED of its 13%Senior Secured Notes due 2010 with Contingent Interest (the “OED Notes”).

 

OED’s results of operations and cash flows for the year endedDecember 31, 2003 and the period February 15, 2002 (date ofacquisition) to December 31, 2002 have been consolidated into theCompany’s consolidated financial statements. During the periodFebruary 15, 2002 to August 30, 2002, the Company had substantivecontrol of OED. On August 31, 2002, OED became an indirect wholly ownedsubsidiary of the Company. All intercompany transactions have been eliminated.

 

**Racino Development**

 

In order to provide funding for the racino project and to repay certainthen existing indebtedness, on February 25, 2003, OED completed a privateplacement of $123.2 million of its 13% Senior Secured Notes due 2010 withContingent Interest (the “Private OED Notes”). On September 10, 2003, OEDexchanged the Private OED Notes for notes registered with the Securities andExchange Commission otherwise identical in all respects to the Private OED Notes(the “Registered OED Notes,” and together with the Private OED Notes, the “OEDNotes”).

 

The construction and development of the racino project is expected tobe completed in two phases. The first phase involves the construction of thecasino and related casino amenities which was substantially completed andopened to the public on December 19, 2003. Construction of the secondphase, which involves the construction of the horse racetrack and relatedfacilities, is currently underway. OED expects to begin scheduling live racingmeets at the racino in December 2004, at which time it expects to ceaseoperations at its existing horse racetrack.

 

The total remaining capital expenditures expected to complete theracino project as of December 31, 2003 is approximately$17.5 million. The source of funds to complete construction anddevelopment of the racino will be (i) a portion of the proceeds from theoffering of the OED Notes, (ii) available borrowings under OED’s$15.0 million senior secured credit facility, (iii) availableborrowings under OED’s $16.0 million furniture, fixtures and equipmentfinancing facility and (iv) cash flows from existing racetrack operationsand future cash flows from future racino operations. See Note 4 forfurther information about the OED Notes, the senior credit facility and thefurniture, fixtures and equipment financing facility.

 

**2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

***Consolidation***—Theconsolidated financial statements include the financial information of theCompany and its wholly-owned direct and indirect subsidiaries Peninsula GamingCorp., OEDA, OED and The Old Evangeline Downs Capital Corp. All significantintercompany transactions have been eliminated.

 

F-7

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***Cash and Cash Equivalents***—TheCompany considers all cash on hand and in banks, certificates of deposit andother highly liquid debt instruments purchased with original maturities ofthree months or less to be cash equivalents.

 

***Restricted Cash***—Restrictedcash represents amounts 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.

 

***RestrictedInvestments***—As of December 31, 2003, OED hadapproximately $15.8 million invested in government securities withoriginal maturities of greater than 90 days from the date of initialinvestment. These investments have been classified as held-to-maturity and havecontractual maturities of $8.0 million on both February 15, 2004 andAugust 15, 2004. Proceeds from the maturity of these investments will beused to help make payments of fixed interest on the OED Notes due March 1,2004 and September 1, 2004 in accordance with the terms of the CashCollateral and Disbursement Agreement, dated February 25, 2003, among OED,U.S. Bank National Association (as trustee and disbursement agent) and anindependent construction consultant (the “Cash Collateral and DisbursementAgreement”).

 

***Allowance forDoubtful Accounts***—The allowance for doubtfulaccounts is maintained at a level considered adequate to provide for possiblefuture losses. The provision for doubtful accounts of $184,179, $138,751 and$152,158 were recorded in 2003, 2002 and 2001, respectively.

 

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

 

***RestrictedCash—Racino Project***—”Restricted cash—racinoproject” represents unused proceeds from the sale of the OED Notes, the use anddisbursement of which are restricted to the design, development, construction,equipping and opening of the racino in accordance with the Cash Collateral andDisbursement Agreement. As of December 31, 2003, OED had$14.4 million in cash equivalents deposited in a construction disbursementaccount, $0.2 million in cash equivalents deposited in an interest reserveaccount that will be used toward payment of fixed interest on the OED Notes,$5.0 million in cash equivalents deposited in a completion reserve accountthat will be used to fund potential cost overruns and contingency amounts withrespect to the design, development, construction, equipping and opening of theracino and $0.4 million in cash in a local financial institution. Thefunds deposited in these accounts are invested in cash or securities that arereadily convertible to cash.

 

***Property andEquipment***—Property and equipment are recorded atcost and capitalized lease assets are recorded at their fair market value atthe inception of the lease. Major renewals and improvements are capitalized,while maintenance and repairs are expensed as incurred. Depreciation andamortization are computed on a straight-line basis over the following estimateduseful lives:

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

 

----

*                                 The Company currentlyleases the land on which the OED building and leasehold improvements arelocated. The ground lease annual rental is $0 per year and the lease termexpires on the earlier of December 31, 2004 or the first day the Companyopens a new racetrack facility for business in St. Landry Parish, Louisiana.

 

***Long-Lived Assets***—EffectiveJanuary 1, 2002, the Company assesses the impairment of long-lived assets,excluding goodwill and indefinite-lived intangible assets, in accordance withSFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets”. SFAS No. 144 addresses financial accounting and reporting for theimpairment or disposal of long-lived assets. This statement supersedes SFASNo. 121, “Accounting for the Impairment

 

F-8

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of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” andthe accounting and reporting provisions of APB Opinion No. 30, “Reportingthe Results of Operations—Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions.” This new pronouncement also amends ARB No. 51 “ConsolidatedFinancials Statements,” to eliminate the exception to consolidation for asubsidiary for which control is likely to be temporary. SFAS No. 144requires that one accounting model be used for long-lived assets to be disposedof by sale, whether previously held and used or newly acquired and alsobroadens the presentation of discontinued operations to include more disposaltransactions. The Company evaluates the carrying value of long-lived assetswhen events and circumstances warrant such a review. If the carrying value ofthe long-lived asset is considered impaired, a loss is recognized based on theamount by which the carrying value exceeds the fair market value of the asset.The adoption of SFAS No. 144 did not have an impact on our financial positionor results of operations for the years ended December 31, 2003 and 2002.

 

***Capitalized Interest***—TheCompany capitalizes interest costs associated with debt incurred in connectionwith the racino project. When debt is specifically identified as being incurredin connection with the development of the racino project, the Companycapitalizes interest on amounts expended on the racino project at the Company’saverage cost of borrowed money. Capitalization of interest will cease when theproject is substantially complete. The amount capitalized during 2003 and 2002was $2.2 million and $0.1 million, respectively.

 

***Deferred FinancingCosts***—Costs associated with the issuance of debt(see Note 4) have been deferred and are being amortized over the life ofthe related indenture/agreement using the effective interest method.

 

***Goodwill and OtherIntangible Assets***—At December 31, 2003 and2002, “Goodwill” and “Other intangibles” consists of goodwill, licensing costsand the acquired tradename associated with the purchase of the Diamond Jo andOED. To the extent the purchase price exceeded the fair value of the netidentifiable assets acquired, such excess has been recorded as goodwill.SFAS No. 142 “Goodwill and Other Intangible Assets” provides that goodwilland certain indefinite lived intangible assets will no longer be amortized butwill be reviewed at least annually for impairment and written down and chargedto income when their recorded value exceeds their estimated fair value. Duringthe first quarter of 2002, the Company performed a transitional impairment teston goodwill, recorded within the Diamond Jo segment, in accordance with SFASNo. 142 and determined that the estimated fair value of the Diamond Joexceeded its carrying value as of that date. During the first quarter of 2003,the Company performed its annual impairment test on goodwill in accordance withSFAS No. 142 and determined that the estimated fair value of the DiamondJo exceeded its carrying value as of that date. Based on that review, managementdetermined that there was no impairment of goodwill. Goodwill amortizationduring 2001 was $1,413,987. Assuming the non-amortization provisions of thesestandards had been adopted at the beginning of 2001, the Company’s adjusted netincome for 2001 would have been $3,233,468.

 

As of December 31, 2003, the Company had recorded approximately$3.8 million on its balance sheet for directly related legal and otherincremental costs associated with the acquisition of OED and obtaining therelevant gaming licenses to conduct gaming operations associated with theracino project in Louisiana. These costs are included as a cost of theacquisition and have been evaluated under SFAS No. 141 “BusinessCombinations” and SFAS No. 142. Intangible assets of $28.4 millionacquired as part of the OED acquisition were identified and valued as follows(in millions):

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

 

For purposes of the valuations set forth above, each of the identifiedintangible assets were treated as having indefinite lives and valuedseparately. The methodology employed by an independent valuation specialist toarrive at such valuations required evaluating the fair market value of the existinghorse racing business on a stand-alone basis without taking into account anyright to obtain slot machine and electronic video game licenses. Such valuationwas based in part upon other transactions in the industry and OED’s historicalresults of operations. A value was also derived for the tradename using marketbased royalty rates. A significant portion of the purchase price isattributable to the slot machine and electronic video game license rights,which were valued based upon the market value paid by other operators and uponprojected cash flows from operations. These valuations and related intangibleassets are

 

F-9

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subject to impairment by, among other things, significant changes inthe gaming tax rates in Louisiana, significant new competition which couldsubstantially reduce profitability, non-renewal of OED’s racing or gaminglicenses due to regulatory matters, changes to OED’s tradename or the way OED’stradename is used in connection with its business and regulatory changes thatcould adversely affect OED’s business by, for example, limiting or reducing thenumber of slot machines or video poker machines that they are permitted tooperate.

 

***ConstructionPayable—St. Landry Parish***—At December 31,2003 and 2002, OED had $20.2 million and $2.4 million, respectively,in payables and accruals related to construction and development costsassociated with the racino project.

 

***FinancialInstruments***—The carrying amount for financialinstruments included among cash and cash equivalents, accounts receivable,restricted cash, accounts payable and security deposits approximates their fairvalue based on the short maturity of those instruments.

 

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

 

***PromotionalAllowances***—Food, beverage, and other itemsfurnished without charge to customers are included in gross revenues at a valuewhich approximates retail and then deducted as promotional allowances to arriveat net revenues. The cost of such complimentary services have been included ascasino expenses on the accompanying statements of operations. Such estimatedcosts of providing complimentary services allocated from the food and beverageand other operating departments to the casino department were $689,972 and$35,642 for food and beverage and other, respectively, in 2003, $592,539 and$4,672, respectively, in 2002 and $568,098 and $8,977, respectively, in 2001.

 

***Selling, general andadministrative***—In October 2002, the Companyentered into a charitable giving agreement with an Iowa non-for-profitorganization in which the Company has agreed, subject to certain contingencies,to give such organization a total contribution of $450,000. The agreement callsfor a payment of $50,000 upon the signing of the agreement and $50,000 onMarch 1 of each of the next seven years beginning on March 1, 2003.The first two payments were made by the Company in October 2002 andMarch 2003, respectively. As all significant contingencies surrounding theagreement were met during the third quarter of 2003, the Company expensed theremaining unpaid contribution of $350,000. Such expense is included in “Selling,general and administrative” expenses in the Consolidated Statement ofOperations.

 

***Development expense***—During2003, the Company entered into an exclusive agreement with the Worth CountyDevelopment Authority pursuant to which the parties agreed to jointly submit anapplication for a license to operate a gaming facility in Worth County, Iowa.Under this agreement, we have agreed to design, construct, operate and manage acasino with no less than 700 gaming positions, a waterway, if necessary, arecreational vehicle park with a minimum capacity of 200 spaces, and, uponreaching a targeted rate of return on invested capital, a 100-room hoteldevelopment. During 2003, the Company incurred expenses of $102,272 related tothe Company entering into this agreement.

 

***Referendum Expenses***—Inaccordance with Iowa law, a referendum must be held every eight years in eachof the counties where gambling games are conducted and the proposition tocontinue to allow gambling games in such counties must be approved by a majorityof the county electorate voting on the proposition. Such a referendum tookplace on November 5, 2002. During 2002, the Company incurred variousadvertising, promotional and other referendum related expenses totaling$771,111 to promote the approval of continued gaming in Dubuque County. Themeasure was approved on November 5, 2002 with 79% of the electorate votingon the proposition favoring continued gaming on riverboats in Dubuque County.As the Company will not be required to be a part of another referendum until2010, such referendum related costs are not expected to be incurred in thefuture until that time.

 

***State of WisconsinGovernment Relations***—During 2002 and 2001, theCompany incurred expenses for a governmental relations services agreement withrespect to gaming issues and developments in Wisconsin which might

 

F-10

----

 

affect the Company and its gaming operations. Such expenses in 2002 and2001 totaled $55,000 and $147,163, respectively.

 

***Minority Interest***—Minorityinterest on the Consolidated Statement of Operations represents the 50% portionof net income from OED allocated to the remaining 50% membership interestholder in OED during the period February 15, 2002 through August 30,2002.

 

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

 

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

 

In addition, contingencies are accounted for in accordance with SFAS No. 5,“Accounting for Contingencies.” SFAS No. 5 requires that we record anestimated loss from a loss contingency when information available prior toissuance of our 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 us to use judgment. Many of these legalcontingencies can take years to be resolved. Generally, as the time periodincreases over which the uncertainties are resolved, the likelihood of changesto the estimate of the ultimate outcome increases. However, an adverse outcomecould have a material impact on our financial condition and operating results.

 

***Concentrations ofRisk***—The Company’s customer base consists ofeastern Iowa and southwest Louisiana. Although the Company is directly affectedby the economic viability of the area, management does not believe significantrisk exists at December 31, 2003.

 

The Company maintains deposit accounts at three banks. AtDecember 31, 2003 and 2002, and various times during the years then ended,the balance at the banks exceeded the maximum amount insured by the FDIC.Management believes any credit risk related to the uninsured balance isminimal.

 

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

 

***Recently Issued Accounting Standards***—InJuly 2002, the FASB issued SFAS No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities”. This statement addressesfinancial accounting and reporting for costs associated with exit or disposalactivities and nullifies the previous guidance on the subject. This statementrequires, among other things, that a liability for a cost associated with anexit or disposal activity be recognized when the liability is incurred. Theprovisions for this statement are effective for exit or disposal activitiesthat are initiated after December 31, 2002. The adoption of SFAS No. 146did not have a material effect on the Company’s results of operations orfinancial position of the Company for the year ended December 31, 2003.

 

F-11

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InNovember 2002, the Financial Accounting Standards Board (FASB) issuedInterpretation No. 45, Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN45). FIN 45 expands the disclosure requirements related to certain guarantees,including product warranties, and requires the Company to recognize a liabilityfor the fair value of all guarantees issued or modified after December 31,2002. FIN 45 did not impact the Company’s financial position or net income.

 

In 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation ofVariable Interest Entities, which addresses the consolidation and relateddisclosures of these entities by business enterprises. These are entities inwhich either the equity investment at risk is not sufficient to absorb theprobable loss without additional subordinated financial support from otherparties, or the investors with equity at risk lack certain essentialcharacteristics of a controlling interest. Under the Interpretation, theCompany must consolidate any variable interest entities (VIEs) in which theCompany holds variable interests and the Company is deemed the primarybeneficiary. The effective date for the adoption of FIN 46 for interests inVIEs created prior to February 1, 2003 was July 1, 2003 and appliesimmediately to variable interest entities created after January 31, 2003,and to variable interest entities in which the Company obtains an interestafter that date. The adoption of FIN 46 did not impact the Company’s financialposition or net loss available to common members’ interest.

 

In May 2003, the FASB issued Statement No. 150, “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity.” This statement establishes standards for how an issuer classifies andmeasures certain financial instruments with characteristics of both liabilitiesand equity. 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 ofSFAS No. 150 on July 1, 2003, DJL reclassified its $4 millionmandatorily redeemable preferred members’ interest from the mezzaninesection of the consolidated balance sheet to long-term debt. Further, preferredmember distributions paid or accrued subsequent to adoption of SFASNo. 150 are required to be presented as interest expense separately frominterest due to other creditors. DJL was not required to record a cumulativeeffect of change in an accounting principle as the redeemable preferredmembers’ interest was recorded at fair value prior to July 1, 2003. We areprecluded from reclassifying prior period amounts pursuant to this standard.

 

**3. PROPERTY AND EQUIPMENT**

 

Property and equipment at December 31 is summarized as follows:

 
|                                            |   | **2003**    |        | **2002**   |   |
|-------------------------------------------------|--------|-------------|-------------|------------|--------|
| Land and land improvements                      |   | $           | 13,686,570  |       | $      | 1,110,000 |   |
| Building and improvements                       |   | 51,991,698  |        | 8,387,134  |   |
| Riverboats and improvements                     |   | 8,305,022   |        | 8,300,776  |   |
| Furniture, fixtures and equipment               |   | 28,472,602  |        | 7,942,095  |   |
| Computer equipment                              |   | 5,196,966   |        | 962,700    |   |
| Vehicles                                        |   | 176,235     |        | 130,753    |   |
| Equipment held under capital lease  obligations |   |        |        | 704,527    |   |
| Construction in progress                        |   | 6,034,867   |        | 7,455,885  |   |
| Subtotal                                        |   | 113,863,960 |        | 34,993,870 |   |
| Accumulated depreciation                        |   | (11,386,615 | )           | (9,291,128 | )      |
| Property and equipment, net                     |   | $           | 102,477,345 |       | $      | 25,702,742 |   |

 

F-12

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**4. DEBT**

 

The Company’s debt consists of the following at December 31:

 
|                                                                                                                                                                                                                                                                                                                                                                     |   | **2003**    |        | **2002**    |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|
| 121⁄4% Senior Secured Notes due  July 1, 2006, net of discount of $383,779 and $506,845, respectively,  secured by assets of the Diamond Jo.                                                                                                                                                                                                                     |   | $           | 70,616,221  |        | $      | 70,493,155 |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| 13% Senior Secured Notes of OED due  March 1, 2010 with Contingent Interest, net of discount of $2,276,564,  secured by certain assets of OED.                                                                                                                                                                                                                      |   | 120,923,436 |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| Line of Credit with Wells Fargo Foothill,  Inc., interest rate at greater of LIBOR + 3% or Prime + .75%, however, at no  time shall the interest rate be lower than 8.5%, (current rate of 8.5%)  principal payments of $50,000 due monthly beginning October 2002 through  February 2005, maturing March 12, 2005, secured by assets of the  Diamond Jo. |   | 11,250,000  |        | 11,850,000  |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| $15.0 million Loan and Security Agreement  of OED with Wells Fargo Foothill, Inc., interest rate at Prime + 2.50%  (current rate of 6.5%), maturing June 24, 2006, secured by certain  assets of OED.                                                                                                                                                               |   | 5,104,301   |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| $16.0 million Loan and Security Agreement  of OED with Wells Fargo Foothill, Inc., interest rate at Prime + 2.50%  (current rate of 6.5%), due in 48 equal monthly principal payments beginning  on March 1, 2004, secured by certain assets of OED.                                                                                                                |   | 12,532,493  |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| Promissory note payable to third party,  interest at 4.75% payable monthly in arrears, annual principal payments of  $550,000 due each October beginning in 2004, secured by mortgage on  certain real property of OED.                                                                                                                                             |   | 3,850,000   |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| Note payable to IGT, interest rate at 9.5%,  monthly payments of principal and interest of $31,250, with final payment due  July 1, 2005, secured by certain assets of OED.                                                                                                                                                                                         |   | 548,940     |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| Preferred membership interests-redeemable,  interest at 9%, due October 13, 2006.                                                                                                                                                                                                                                                                                   |   | 4,000,000   |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| Term loan with Foothill Capital  Corporation, interest at Prime + 3.75%, however, at no time shall the  interest rate be lower than 7.5% (current rate of 8.0%), maturing the earlier  of (a) June 30, 2003 or (b) the date on which OED consummates its  financing of the racino project, secured by substantially all the assets of  OED.                         |   |        |        | 8,300,000   |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| Note payable to PGP, issued by OEDA,  interest rate of 7% until January 31, 2003, thereafter 8% until  February 28, 2003, thereafter 9% until March 31, 2003, thereafter  the greater of 12% or the fixed rate on the notes expected to be issued to  finance the racino project, maturing on June 30, 2003.                                         |   |        |        | 7,325,000   |   |
|                                                                                                                                                                                                                                                                                                                                                                     |   |        |        |        |   |
| Note payable to WET2, interest rate of 7%  until March 31, 2003, thereafter the greater of 12% or the fixed rate on  the notes expected to be issued to finance the racino project, maturing on  June 30, 2003.                                                                                                                                                |   |        |        | 4,500,000   |   |
| Total debt                                                                                                                                                                                                                                                                                                                                                               |   | 228,825,391 |        | 102,468,155 |   |
| Less current portion                                                                                                                                                                                                                                                                                                                                                     |   | (4,098,222  | )           | (20,725,000 | )      |
| Total long term debt                                                                                                                                                                                                                                                                                                                                                     |   | $           | 224,727,169 |        | $      | 81,743,155 |   |

 

F-13

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On July 15, 1999, the Company completed a private placement of$71 million aggregate principal amount of Peninsula Notes. The PeninsulaNotes bear interest at a rate of 121⁄4% per year which is payablesemi-annually on January 1 and July 1 of each year. The PeninsulaNotes are secured by all of our current and future tangible and intangibleassets (with the exception of certain excluded assets). OEDA is an unrestrictedsubsidiary of the Company under the Peninsula Notes pursuant to the indenturegoverning the Peninsula Notes, and therefore is not an obligor with respect tothe Peninsula Notes and does not otherwise provide credit support with respectto the Company’s payment obligations under such notes. The Peninsula Notes,which mature on July 1, 2006, are redeemable at the Company’s option, inwhole or in part at any time or from time to time, on and after July 1,2003 at certain specified redemption prices set forth in the indenturegoverning the Peninsula Notes.

 

The indenture governing the Peninsula Notes contains a number ofrestrictive covenants and agreements, including covenants that limit theCompany’s ability to, among other things: (1) incur more debt;(2) pay dividends, redeem stock or make other distributions;(3) issue stock of subsidiaries; (4) make investments;(5) create liens; (6) enter into transactions with affiliates;(7) merge or consolidate; and (8) transfer or sell assets. AtDecember 31, 2003, the Company was in compliance with all such covenants.The events of default under the indenture include provisions that are typicalof senior debt financings. Upon the occurrence and continuance of certainevents of default, the trustee or the holders of not less than 25% in aggregateprincipal amount of outstanding Peninsula Notes may declare all unpaidprincipal and accrued interest on all of the Peninsula Notes to be immediatelydue and payable. Upon the occurrence of a change of control (as defined in theindenture governing the Peninsula Notes), each holder of Peninsula Notes willhave the right to require the Company to purchase all or a portion of suchholder’s Peninsula Notes pursuant to the offer described in the indenture at apurchase price equal to 101% of the principal amount thereof plus accrued andunpaid interest, if any, to the date of repurchase.

 

On February 25, 2003, OED completed the private placement of$123.2 million aggregate principal amount of OED Notes. The OED Notes bearinterest at a rate of 13% per year which is payable semi-annually onMarch 1 and September 1 of each year, beginning September 1,2003. Contingent interest will accrue on the OED Notes beginning in the firstfull fiscal year after the casino begins operations. The amount of contingentinterest will be equal to 5.0% of OED’s cash flow for the applicable period,subject to certain limitations. OED may defer paying a portion of contingentinterest under certain circumstances set forth in the indenture governing theOED Notes. Neither the Company nor any of its direct subsidiaries is an obligorunder the OED Notes or is required to provide credit support with respect toOED’s payment obligations thereunder.

 

At the end of each six-month period after the casino portion of theracino begins operations, OED is required under the indenture governing the OEDNotes to offer to purchase the maximum principal amount of OED Notes that maybe purchased, with an amount equal to the sum of (i) 50% of OED’s excesscash flow for such period (if any) and (ii) the then available balance in anexcess cash flow account, which account at any time shall not exceed$10.0 million. For 45 days following the expiration of each initialexcess cash flow offer to purchase, the holders of the OED Notes have the rightto request that OED make an offer to purchase OED Notes with the funds in theexcess cash flow account subject to certain limitations, including that OEDshall not be required to make more than one offer at any one time. All suchoffers to purchase OED Notes shall be made at 101% of the principal amount,plus accrued and unpaid interest.

 

The OED Notes are secured by all of OED’s current and future assets(with the exception of certain excluded assets), including the remaining unusedproceeds from the offering of the OED Notes which have been deposited intoOED’s construction disbursement, interest reserve and completion reserveaccounts. The OED Notes, which mature on March 1, 2010, are redeemable atOED’s option, in whole or in part at any time or from time to time, on andafter March 1, 2007 at certain specified redemption prices set forth inthe indenture governing the OED Notes. The indenture governing the OED Notescontains a number of restrictive covenants and agreements, including covenantsthat limit the ability of OED 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) agree to payment restrictionsaffecting the subsidiary guarantors; (6) consolidate or merge;(7) sell or otherwise transfer or dispose of assets, including equityinterests of subsidiaries; (8) enter into transactions with affiliates;(9) designate subsidiaries as unrestricted subsidiaries; (10) useproceeds of permitted asset sales and (11) change its line of business. AtDecember 31, 2003, OED was in compliance with all such covenants. Theevents of default under the indenture include provisions that are typical ofsenior debt financings. Upon the occurrence and continuance of certain

 

F-14

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events of default, the trustee or the holders of not less than 25% inaggregate principal amount of outstanding OED Notes may declare all unpaidprincipal and accrued interest on all of the OED Notes to be immediately dueand payable. Upon the occurrence of a change of control (as defined in theindenture governing the OED Notes), each holder of OED Notes will have theright to require OED to purchase all or a portion of such holder’s OED Notes ata purchase price equal to 101% of the principal amount thereof plus accrued andunpaid interest, if any, to the date of repurchase.

 

The obligations of the Company under it’s senior secured creditfacility dated February 23, 2001 (the “DJL Credit Facility”) are senior tothe Company’s obligations under the Peninsula Notes. The DJL Credit Facilitycontains, among other things, covenants, representations and warranties andevents of default customary for loans of this type. The most significantcovenants include a minimum EBITDA requirement and the maintenance of certainfinancial ratios that limit our ability to make distributions and incur debt.At December 31, 2003 and 2002, the Company was in compliance with all suchcovenants. At December 31, 2003, the Company had outstanding borrowings of$11.3 million and outstanding letters of credit of $0.5 million underthe DJL Credit Facility.

 

On June 24, 2003, OED entered into a new $15.0 million seniorsecured credit facility with Wells Fargo Foothill, Inc. as lender (the“OED Credit Facility”). The OED Credit Facility was amended by the partiesthereto on September 22, 2003, December 10, 2003 andDecember 24, 2003 (the “OED Credit Facility Amendments”). OED’s obligationsunder the OED Credit Facility are secured by a lien on substantially all of itsand its subsidiaries’ current and future assets, other than the constructiondisbursement, interest reserve, completion reserve and excess cash flowaccounts and certain other excluded assets as well as a pledge by OEDA of thecapital stock of OED. Pursuant to the intercreditor agreement described below,the lien on the collateral securing the OED Credit Facility is senior to thelien on such collateral securing the OED Notes.

 

The OED Credit Facility consists of a revolving credit facility whichpermits OED to request advances and letters of credit to finance workingcapital and other general corporate needs. Pursuant to the OED Credit FacilityAmendments, OED had the ability to borrow up to $8.5 million (less amountsoutstanding under letters of credit) at any one time outstanding during theperiod before the date that the casino portion of the racino has been completedand, among other things, is open for business to the general public and constructioncosts for the casino have been paid in full or, if such payments are not yetdue on such date, that sufficient funds remain in the construction disbursementaccount to satisfy such payments in full (the “Phase I Completion Date”). Allrequirements under the definition of the Phase I Completion Date were met onJanuary 9, 2004. For the period after the Phase I Completion Date butbefore the second anniversary of the Phase I Completion Date (the “SecondAnniversary”), the total amount of credit that will be available to OED will bethe lesser of $15.0 million and a specified borrowing base (the “BorrowingBase”). For the purposes of the OED Credit Facility, the Borrowing Base is thelesser of 30% of the amount of certain costs incurred by OED in connection withthe construction of the racino project and 20% of the amount of thedistressed-sale valuation of its and its subsidiaries’ operations and assets.After the Second Anniversary, the total amount of credit that will be availableto OED will be the greater of (i) the lesser of $10.0 million and theBorrowing Base or (ii) the aggregate principal amount of all advancesoutstanding as of the Second Anniversary. At December 31, 2003, OED hadoutstanding borrowings of $5.1 million and outstanding letters of creditof $3.2 million under the OED Credit Facility.

 

All revolving loans and letters of credit issued under the OED CreditFacility will mature on June 24, 2006. Prior to the maturity date, fundsborrowed under the OED Credit Facility may be borrowed, repaid and reborrowed,without premium or penalty. OED’s borrowings under the OED Credit Facility willbear interest at a base rate (a Wells Fargo prime rate) plus a margin of 2.50%.The interest rate payable under the OED Credit Facility will increase by 2% perannum during the continuance of an event of default. Under the OED CreditFacility, OED is also required to pay to the lender a letter of credit feeequal to 2% per annum on the daily balance of the undrawn amount of alloutstanding letters of credit and to the institution issuing a letter of credita fronting fee, in each case payable in arrears on a monthly basis.

 

The OED Credit Facility contains, among other things, covenants,representations and warranties and events of default customary for loans ofthis type. The most significant covenants include a minimum EBITDA requirementand a maximum capital expenditure requirement. At December 31, 2003, OEDwas in compliance with all such covenants.

 

F-15

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Concurrently with the closing of the OED Credit Facility, the trusteeunder the indenture for the OED Notes (as secured party) entered into anintercreditor agreement with Wells Fargo Foothill, Inc. as the lenderunder such credit facility, providing, among other things, that the liensecuring the indebtedness under the OED Credit Facility is senior to the liensecuring the indebtedness under the OED Notes (except that the constructiondisbursement, interest reserve, completion reserve and excess cash flowaccounts are security only for the OED Notes).

 

On September 22, 2003, OED entered into a new $16.0 millionsenior secured credit facility with Wells Fargo Foothill, Inc. as lender(the “OED FF&E Facility”). Under the OED FF&E Facility, the lenderagrees to make a series of term loans, up to a maximum amount of$16.0 million, to finance the purchase of gaming equipment and otherfurniture, fixtures and equipment. OED’s obligations under the OED FF&EFacility are, subject to certain limitations, secured by a first priority lienon all of the furniture, fixtures and equipment, and all proceeds and productsthereof. At December 31, 2003, OED had outstanding borrowings of$12.5 million under the OED FF&E Facility.

 

Loans under the OED FF&E Facility shall be repayable in 48 equalmonthly installments of principal, commencing on March 1, 2004, andcontinuing on the first day of each month thereafter until the unpaid balanceof all loans are paid in full. The outstanding principal balance and allaccrued and unpaid interest under all loans shall also be due and payable infull on March 1, 2008. Once borrowed, all loans may be prepaid in whole orin part without penalty or premium at any time during the term of thisagreement. Amounts borrowed and repaid may not be reborrowed. OED’s borrowingsunder the OED FF&E Facility will bear interest at a base rate (a WellsFargo prime rate) plus a margin of 2.50%, but at no time shall the interestrate be less than 6%. The interest rate payable under the OED FF&E Facilitywill increase by 2% per annum during the continuance of an event of default.

 

TheOED FF&E Facility contains, among other things, covenants, representationsand warranties and events of default customary for loans of this type. The mostsignificant covenants include a minimum EBITDA requirement and a maximumcapital expenditure requirement. At December 31, 2003 OED was incompliance with all such covenants.

 

In October 2003, OED entered into a purchase agreement to acquire93 acres of land, divided into seven approximately equal parcels, for a totalpurchase price of $3,850,000. The purchase price under this purchase agreementwas financed by the seller with OED issuing a $3,850,000 note payable to theseller. The note is payable in seven equal annual installments of $550,000beginning October 24, 2004 and bears interest at a rate of 4.75% of theunpaid balance due monthly in arrears on the fifth day of each month beginningon December 5, 2003. The note is collateralized by a mortgage on theproperty. Simultaneously with the payment of each $550,000 annual installmentdiscussed above, seller agrees to release one of the remaining parcels from themortgage.

 

In March 2003, OED entered into a participation agreement with athird party operator to own and operate 100 video poker machines at OED’s OTBin Port Allen, Louisiana. In December 2003, OED obtained its license toown and operate video poker machines. In accordance with the participationagreement, OED assumed the remaining balance of an original $663,700 promissorynote payable in exchange for ownership of the 100 video poker machines. Thenote bears interest at 9.5% and is payable in monthly installments of principaland interest of $31,250 with the last payment due July 1, 2005. The noteis collateralized by a security interest in the machines.

 

On July 15, 1999, the Company authorized and issued$7.0 million of preferred membership units. The holders of all of theCompany’s preferred membership interests are entitled to receive, subject tocertain restrictions contained in the indenture governing the Notes, out offunds legally available therefor, cumulative preferred distributions payablesemiannually at an annual rate of 9% of the original face amount thereof. Otherthan certain limited consent rights and as required by law, holders of theCompany’s preferred membership interests have no voting rights.

 

The Company redeemed $3.0 million in original face amount of itspreferred membership interests on January 19, 2001 at a redemption priceof $3.0 million, plus a portion of accrued and unpaid interest thereon of$170,000, the balance of which, in an amount equal to $145,000 plus accruedinterest on such amount (the “Accrued Preferred Distribution”), was agreed tobe paid by the Company at such time that such payment is permitted to be madepursuant to the Company’s existing financing arrangements, but in no eventlater than January 15, 2003. The Accrued Preferred Distribution totaling$171,100 was paid on January 15, 2003. The balance of preferred membershipinterests not redeemed by the Company must be redeemed by the Company90 days after the seventh anniversary of the closing

 

F-16

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date of the acquisition at a redemption price of $4.0 million,plus any accrued and unpaid preferred interest through the date of redemption.Interest for the years ended December 31, 2003, 2002 and 2001 (other thanthe Accrued Preferred Distribution) was $360,544, $373,050 and $386,174,respectively. At December 31, 2003 and 2002, accrued interest related tothe preferred membership interests was approximately $1.1 million and$0.9 million respectively. In accordance with the adoption ofSFAS 150 on July 1, 2003, interest associated with preferredmembership interests after July 1, 2003 has been recorded as “Interestexpense related to preferred members’ interest, redeemable” on the ConsolidatedStatement of Operations.

 

Concurrently with the issuance of the OED Notes, our obligations underthe Term Loan, the PGP Note and the WET2 Note were repaid inFebruary 2003.

 

**5. CAPITAL LEASE OBLIGATION**

 

Capital lease obligations at December 31 are as follows:

 
|                           |   | **2003** |   | **2002** |   |
|--------------------------------|--------|----------|--------|----------|--------|
| Liability under capital leases |   | $        | 0      |     | $      | 475,781 |   |
| Less current portion           |   |     |   |     |   |
|                           |   | $        | 0      |     | $      | 475,781 |   |

 

On September 6, 2002, the Company entered into a purchase andlicense agreement (the “CDS Agreement”) with Casino Data Systems (“CDS”). TheCDS Agreement contains various requirements including upgrades to Diamond Jo’scurrent slot information system, installation of the CDS slot informationsystem as part of the racino project and equipment purchases. If and when suchrequirements are met, CDS agreed to waive any claimed liability orresponsibility of the Company for payment of the outstanding capital leaseliability of $475,781. As the Company substantially met all of the requirementsincluded in the CDS Agreement as of December 31, 2003, the Company nolonger has any obligation to CDS related to this capital lease. The capitallease liability was primarily offset against the capital assets acquired underthe original capital lease as well as assets acquired under the CDS Agreement.Amortization of the capital lease asset was included in depreciation expensefor the years ended December 31, 2003, 2002 and 2001.

 

**6. LITIGATION SETTLEMENT**

 

On November 8, 1994, the Louisiana Horsemen’s Benevolent andProtective Association 1993, Inc. (“LHBPA”) filed a lawsuit against alllicensed horse racetracks in the State of Louisiana. The lawsuit alleged thatLHBPA did not receive the appropriate share of net revenues from video pokerdevices located at licensed horse racetracks. In February 2003, OEDentered into a settlement agreement with LHBPA for $1.6 million. The termsof the settlement agreement requires OED to make payments of $400,000 annuallybeginning in March 2003, with additional $400,000 payments due inMarch 2004 through 2006.

 

In accordance with Statement of Financial Accounting StandardsNo. 5 “Accounting for Contingencies,” the Company recorded an expense andrelated accrual of $1.6 million in the financial statements as ofDecember 31, 2002. Of the total $1.6 million accrual,$0.4 million has been included in “Other accrued expenses” in the “CurrentLiabilities” section with the remaining $1.2 million recorded under“Other accrued expenses” in the “Long-term liabilities” section of theConsolidated Balance Sheet.

 

**7. EMPLOYEE BENEFIT PLAN**

 

The Company has qualified defined contribution plans undersection 401(k) of the Internal Revenue Code for employees of the DiamondJo and Evangeline Downs. Under the plans, eligible employees may elect to deferup to 60% of their salary, subject to Internal Revenue Service limits. TheCompany 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 at the Diamond Jo and Evangeline Downs were$234,002, $227,351 and $227,596 in 2003, 2002 and 2001, respectively.

 

F-17

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**8. LEASING ARRANGEMENTS**

 

***GroundLease—Lafayette***—The Company currently leases theland on which the OED racetrack is located. The ground lease annual rental is$0 per year and the lease term expires on the earlier of December 31, 2004or the first day the Company opens a new racetrack facility for business inSt. Landry Parish, Louisiana.

 

***New Iberia***—TheCompany is under a twelve-month lease which runs from September 1, 2002through August 31, 2003 with lease payments of $5,000 due each month,after which the lease will revert to a month-to-month contract for $5,000 permonth to lease the New Iberia off-track betting parlor. The lease requirespayment of property taxes, maintenance and insurance on the property. Duringthe year ended December 31, 2003 and the period February 15, 2002(date of acquisition) to December 31, 2002, OED paid $60,000 and $52,321,respectively, in rent for the New Iberia off-track betting parlor.

 

***Pari-MutuelProcessing Equipment***—OED entered into a five-yearlease agreement commencing on February 15, 2001 for computerizedpari-mutuel central processing equipment, terminals and certain associatedequipment at OED. Additionally, the lease agreement provides the Company withpari-mutuel services whereby the leased equipment automatically registers andtotals the amounts wagered on the races held at the race track or simulcast toit and to its respective off-track wagering parlors, and displays the win poolodds, payoffs, and other pertinent horse racing information needed to operatelive meet horse racing and off-track betting. The Company pays 0.43% of thehandle for the services provided during both live meet racing days andoff-track betting racing days. The charges are subject to a minimum of $1,950per live meet race day and $1,150 per off-track betting race day. Additionally,if a race day is not completed, the Company must pay 50% of the minimum if lessthan four races are declared official and 100% of the minimum if four or moreraces are declared official. In 2003, OED had 87 live meet racing days and 223off-track betting days. OED paid $466,923 and $378,204 during the year endedDecember 31, 2003 and the period February 15, 2002 (date ofacquisition) to December 31, 2002, respectively, related to thepari-mutuel processing equipment lease.

 

In 2004, OED is scheduled to run 116 live meet racing days and 249off-track betting days. The total minimum rental payments for the leasementioned in the preceding paragraph assuming 116 live meet racing days and 249off-track betting days for each of the years ended December 31 aresummarized as follows:

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

 

The Company leases various other equipment under noncancelableoperating leases. The leases require fixed monthly payments to be made rangingfrom $60 to $2,553 and certain other gaming machines and tables requirecontingent monthly rental payments based on usage of the equipment. The leasesexpire on various dates through 2008. Rent expense in 2003, 2002 and 2001 was$1,123,459, $1,236,088 and $1,348,670, respectively.

 

The future minimum rental payments required under these leases for theyears ended December 31 are summarized as follows:

 
| 2004   |   | $      | 63,561  |   |
|--------|--------|--------|---------|--------|
| 2005   |   | 30,630 |    |
| 2006   |   | 30,630 |    |
| 2007   |   | 12,763 |    |
|   |   | $      | 137,584 |   |

 

**9. COMMITMENTS AND CONTINGENCIES**

 

Under the Company’s and PGP’s operating agreements, the Company and PGPhave agreed, subject to few exceptions, to indemnify and hold harmless ourmembers, PGP and PGP members, as the case may be, from liabilities incurred asa result of their positions as our sole manager and as members of the Companyor PGP, as the case may be.

 

F-18

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On June 25, 2002, PGP entered into an agreement with William E.Trotter, II (“Trotter”) and William E. Trotter, II Family L.L.C., a Louisianalimited liability company (“WET2LLC”) to acquire (i) all of Trotter’sinterests in two promissory notes issued by OED in connection with DJL’sacquisition of OED, and (ii) all of Trotter’s membership interests owned byWET2LLC (together, the “Trotter Purchase”). On August 30, 2002, OEDAconsummated the Trotter Purchase for a purchase price consisting of cash of$15,546,000, plus a contingent fee of one half of one percent (0.5%) of the netslot revenues generated by OED’s racino located in St. Landry Parish,Louisiana, for a period of ten years commencing on December 19, 2003, thedate the racino’s casino opened to the general public.

 

The Company is involved in a lawsuit with a former employee. Managementbelieves that such lawsuit is without merit and that the ultimate dispositionof this action should not have a material adverse effect on the financialcondition of the Company; however, no assurance can be given as to the ultimatedisposition of such action.

 

Other than as noted above, we are not a party to, and none of ourproperty is the subject of, any other pending legal proceedings other thanlitigation arising in the normal course of business. We do not believe thatadverse determinations in any or all such other litigation would have amaterial adverse effect on our financial condition, results of operations orcash flows.

 

**10. MEMBERS’ EQUITY**

 

On July 15, 1999, the Company 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 indenture governing the Peninsula Notes, isentitled to dividends and other distributions if, as and when declared by theCompany’s managers out of funds legally available therefor.

 

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

 

Dubuque Racing Association, Ltd. (the “Association”), a qualifiedsponsoring organization, presently holds a license to conduct gambling gamesunder Chapter 99F and other Iowa statutes. The Association owns DubuqueGreyhound Park, a traditional greyhound racetrack with 600 slot machines andamenities including a gift shop, restaurant and clubhouse. The Company enteredinto a contract (the “Operating Agreement”) with the Association relating tothe operation of an excursion gambling riverboat for excursion seasons throughDecember 31, 2008, under gambling licenses held jointly. Under the termsof the Operating Agreement, subject to certain conditions, the Associationshall receive the greater of the Association’s gaming revenues from thegreyhound park for the period, or a percentage of the total combined gamingrevenues of the Association from the greyhound park and the Company as follows:

 

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

 

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

 

•    8% of total combined gamingrevenues between $42,000,000 and $46,000,000 during any period for which noexcursion boat gambling or land based gambling operation is carried on from aWisconsin or Illinois gambling operation in Grant County, Wisconsin, or JoeDavies County, Illinois.

 

Gaming revenues under this contract means adjusted gross receipts, lessgaming taxes.

 

The Association’s gaming revenues from the greyhound park in 2003, 2002and 2001 were $34,688,572, $30,041,841, and $27,108,884, respectively, whichare higher than the previously described thresholds, therefore, no paymentshave been made to the Association in 2003, 2002 and 2001 under the OperatingAgreement.

 

F-19

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Commencing April 1, 2000, the Company had been obligated to pay,and has paid, the Association the sum of $.50 for each patron admitted on theboat, which, based upon recent annual attendance, approximates $500,000annually. During 2003, 2002 and 2001, these payments approximated $527,000,$495,000 and $503,000, respectively.

 

In the event the Company elects to sell or lease the excursion gamblingboat, its furnishings and gambling equipment and/or its interest in any ticketsale facility or other buildings located in the Dubuque Ice Harbor used inconnection with the operation of an excursion gambling boat to a third partythat does not agree to operate these assets subject to the terms and conditionsof the Operating Agreement, and obtains an acceptable offer from such thirdparty for the purchase or lease thereof, the Association shall have the optionto purchase or lease these assets on the same terms as those offered by suchthird party.

 

**12. TRANSACTIONS WITH RELATED PARTIES**

 

During 2003, 2002 and 2001, the Company paid $1,557,143, $1,260,012 and$1,760,908, respectively, to PGP primarily in respect of (i) certainconsulting and financial advisory services, (ii) board fees and expensespaid to the members of the board of managers of PGP and (iii) tax,accounting, legal and administrative costs and expenses of PGP.

 

During 2003, OEDA accrued board fees payable to a member of the boardof managers of the Company of $175,000. This amount was paid inJanuary 2004.

 

During the period February 15, 2002 through December 31,2002, OED paid principal of $18,379 and interest of $297,536 to WET2 related toWET2’s 50% interest in the Old OED Notes. WET2, through its affiliate WET2LLC,owned 50% of the membership interests of OED until August 30, 2002.

 

**13. SEGMENT INFORMATION**

 

Pursuant to the provisions of SFAS No. 131 “Disclosures AboutSegments of an Enterprise and Related Information,” the Company has determinedthat, in connection with the acquisition of OED, the Company currently operatestwo reportable segments: (1) Iowa operations, which comprise the DiamondJo riverboat casino in Iowa and (2) Louisiana operations, which comprisethe casino, racetrack and OTB’s operated by OED in Louisiana. Prior to theacquisition of OED, during 2002, the Company operated under one reportablesegment.

 

The accounting policies for each segment are the same as thosedescribed in Note 2 above. The Company and the gaming industry useearnings before interest, taxes, depreciation and amortization (“EBITDA”) as ameans to evaluate performance. EBITDA should not be considered as analternative to, or more meaningful than, net income (as determined inaccordance with accounting principles generally accepted in the United Statesof America).

 

The table below presents information about reported segments as of andfor the years ended (in thousands):

 
|               |   | **Net Revenues** |   |
|--------------------|--------|-----------------------|--------|
|               |   | **2003**              |   | **2002** |   |
| Diamond Jo(1) |   | $                     | 54,004 |   | $ | 48,598 |   |
| OED(2)             |   | 22,498                |   | 16,590 |   |
| Total              |   | $                     | 76,502 |   | $ | 65,188 |   |

 
|                                        |   | **Adjusted  EBITDA(3)** |    |
|---------------------------------------------|--------|-------------------------|---------|
|                                        |   | **2003**                |    | **2002** |   |
| Diamond Jo(1)                          |   | $                       | 18,353  |   | $ | 15,558 |   |
| OED(2)                                      |   | 930                     |    | 1,486 |   |
| Total Adjusted EBITDA(3)                    |   | 19,283                  |    | 17,044 |   |
| Diamond Jo:                            |   |                    |    |   |   |
| Development costs                           |   | (103                    | )       |   |   |
| Charitable giving agreement                 |   | (350                    | )       |   |   |
| Referendum expense                          |   |                    |    | (771 | ) |
| Depreciation and amortization               |   | (2,500                  | )       | (2,767 | ) |
| Interest expense, net                       |   | (11,050                 | )       | (10,466 | ) |
| Loss on sale of assets                      |   | (50                     | )       | (8 | ) |
| Preferred member distributions              |   | (181                    | )       | (373 | ) |
| OED:                                        |   |                    |    |   |   |
| Pre-opening expense                         |   | (3,257                  | )       |   |   |
| Litigation settlement                       |   |                    |    | (1,600 | ) |
| Depreciation and amortization               |   | (824                    | )       | (184 | ) |
| Interest expense, net                       |   | (13,710                 | )       | (1,375 | ) |
| Minority interests                          |   |                    |    | (232 | ) |
| Net income to common members’ interest |   | $                       | (12,742 | ) | $ | (732 | ) |
|                                        |   |                    |    |   |   |
| Net Cash flow from operating activity       |   | 769                     |    | 11,784 |   |
| Net Cash flow from investing activity       |   | (94,695                 | )       | (37,790 | ) |
| Net Cash flow from financing activity       |   | 104,575                 |    | 28,993 |   |

 

F-20

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|            |   | **Total Assets** |   |
|-----------------|--------|-----------------------|--------|
|            |   | **2003**              |   | **2002** |   |
| Diamond Jo |   | $84,704               |   | $83,706 |   |
| OED             |   | 176,815               |   | 42,742 |   |
| Total           |   | $261,519              |   | $126,448 |   |

 

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(1)                                  Reflects results ofoperations of the Diamond Jo for the years ended December 31, 2003and 2002.

 

(2)                                  Reflects results ofoperations of OED for the year ended December 31, 2003 and the periodFebruary 15, 2002 (date of acquisition) to December 31, 2002.

 

(3)                                  Adjusted EBITDA isdefined as net income to common members’ interest plus depreciation andamortization, pre-opening expense, expenses associated with the charitablegiving agreement, development expense, referendum expense and litigationsettlement (see Note 2 for discussion on development costs, expensesassociated with the charitable giving agreement and referendum expense andNote 6 for discussion on litigation settlement).

 

**14.****                               SUBSEQUENTEVENTS (UNAUDITED)**

 

On March 11, 2004,the Company and OED announced that they intend to refinance the Peninsula andthe OED Notes with a proposed offering of $230 million (which subsequentlyhas been increased to $233 million) of senior secured notes due 2012 and anew credit facility.  As part of thisnote offering, they are also seeking requisite regulatory approvals to effect aseries of corporate transactions, including the creation of a new holdingcompany to be the new direct parent of the Company and OED and a co-issuer ofthe new senior secured notes.  In theevent regulatory approval of the corporate transactions is not obtained, theCompany and OED will still consummate the note offering and use the proceeds ofthe offering to repurchase and redeem the OED Notes and Peninsula Notes,respectively.  In such event, however,they will not at such time effect the corporate transactions or enter into thenew credit facility.

 

On March 9, 2004,the Company commenced a tender offer and consent solicitation to repurchase allof its outstanding OED Notes and to solicit consents to certain proposedamendments to the indenture governing the OED Notes as set forth in theCompany’s Offer to Purchase and Consent Solicitation Statement, datedMarch 9, 2004 (the “Statement”). As of March 19, 2004, the expiration date of the consent solicitation,the Company had received the requisite consents and tenders from holders of amajority of the aggregate principal amount of the outstanding OED Notes, whichconsents and tenders are irrevocable subject to certain limited exceptions setforth in the Statement.  The tenderoffer is scheduled to expire on April 5, 2004, unless extended or earlierterminated.

 

In March 2004, the Company amended the DJL Credit Facility (the “DJLCredit Facility Amendment”).  Under theterms of the DJL Credit Facility Amendment, the minimum interest rate on alloutstanding borrowings under the DJL Credit Facility less than $10.0 million isreduced to 5.5% and the term of the DJL Credit Facility was extended by oneyear to March 12, 2006.

 

* * * * *

 

F-21

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**15.****                               QUARTERLYRESULTS OF OPERATIONS (UNAUDITED)**

 
|                                                     |   | **2003 Quarters Ended** |   |
|----------------------------------------------------------|--------|-----------------------------------|--------|
| **(Dollars in Thousands)**                     |
|                                                     |   | **March 31**                 |   | **June 30** |   | **September 30** |   | **December 31** |   |
| Net revenues                                             |   | $                                 | 15,670 |   | $ | 19,559 |   | $ | 20,993 |   | $ | 20,280 |   |
| Income from Operations                                   |   | 3,165                             |   | 3,679 |   | 4,479 |   | 927 |   |
| Net income (loss) before preferred member  distributions |   | (1,874                            | )      | (2,923 | ) | (2,170 | ) | (5,595 | ) |
| Net income (loss)                                        |   | $                                 | (1,965 | ) | $ | (3,013 | ) | $ | (2,170 | ) | $ | (5,594 | ) |

 
|                                                     |   | **2002 Quarters Ended** |   |
|----------------------------------------------------------|--------|-----------------------------------|--------|
| **(Dollars in Thousands)**                     |
|                                                     |   | **March 31**                 |   | **June 30** |   | **September 30** |   | **December 31** |   |
| Net revenues                                             |   | $                                 | 13,308 |   | $ | 18,474 |   | $ | 18,180 |   | $ | 15,226 |   |
| Income from Operations                                   |   | 2,949                             |   | 3,923 |   | 4,201 |   | 650 |   |
| Net income (loss) before preferred member  distributions |   | 322                               |   | 1,049 |   | 1,159 |   | (2,657 | ) |
| Net income (loss)                                        |   | $                                 | 194    |   | $ | 795 |   | $ | 969 |   | $ | (2,690 | ) |

 

F-22

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**SCHEDULE II**

 

**DIAMOND JO, LLC**

**(formerly known as PENINSULA GAMING COMPANY,LLC) VALUATION AND QUALIFYING ACCOUNTS**

**For the Years Ended December 31, 2003,2002 and 2001**

**(in thousands)**

 
| **Description**                    |   | **Balance at  Beginning  of Year** |   | **Charged to  Costs and  Expenses** |   | **Deductions(a)** |   | **Balance at  End of Year** |   |
|------------------------------------|--------|------------------------------------|--------|-------------------------------------|--------|-------------------|--------|-----------------------------|--------|
| Year ended December 31, 2003: |   |                               |   |                                |   |              |   |                        |   |
| Allowance for doubtful accounts    |   | $                                  | 46     |                                | $      | 184               |   | $                           | (168   | ) | $ | 62 |   |
| Year ended December 31, 2002: |   |                               |   |                                |   |              |   |                        |   |
| Allowance for doubtful accounts    |   | $                                  | 57     |                                | $      | 139               |   | $                           | (150   | ) | $ | 46 |   |
| Year ended December 31, 2001: |   |                               |   |                                |   |              |   |                        |   |
| Allowance for doubtful accounts    |   | $                                  | 43     |                                | $      | 152               |   | $                           | (138   | ) | $ | 57 |   |

 

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(a)                                  Amounts written off.

 

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