**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-QSB**

** **
| **(Mark One)**                                                                                                                                                                                                       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                           | ** ** | ** ** |
| **ý**                                                                                                                                                                                                           | ** ** | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                 |   |   |
| **For the quarterly period ended September 30,  2004**                                                                                                                                                          |
|                                                                                                                                                                                                                 |   |   |
| **o**                                                                                                                                                                                                                | ** ** | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE EXCHANGE ACT** |
|                                                                                                                                                                                                                 |   |   |
| **For the Transition Period From          To          **                                                         |
|                                                                                                                                                                                                                 |   |   |
| **Commission file number                               ** |

 

**SOUTHWEST CASINO CORPORATION**

(Exactname of small business issuer as specified in its charter)

 
| **Nevada**                                                         | ** ** | **87-0686721**                     |
|--------------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization)    |       | (IRS Employer  Identification No.) |
|                                                               |       |                               |
| **2001  Killebrew Drive, Suite 350, Minneapolis, Minnesota 55425** |
| (Address of  principal executive offices)                          |
|                                                               |       |                               |
| **(952) 953-9990**                                                 |
| (Issuer’s  telephone number)                                  |

 

Check whether the issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.   YES  ý   NO  o

 

State the number ofshares outstanding of each of the issuer’s classes of common stock as of thelatest practicable date: **20,953,386**

 

Transitional SmallBusiness Disclosure Format (check one):    Yes  o           No ý

 

 

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**SOUTHWESTCASINO CORPORATION**

 

**FORM10-QSB**

**SEPTEMBER 30,2004**

 

**TABLE OFCONTENTS**

 
| **Description**                                                   |                                                            |
|-------------------------------------------------------------------|-----------------------------------------------------------------|
|                                                              |                                                            |
| PART I. FINANCIAL INFORMATION                                     |                                                            |
| ITEM 1.                                                           | Financial Statements                                            | 3 |
|                                                              | Consolidated  Balance Sheet (Unaudited)                         | 4 |
|                                                              | Consolidated  Statements of Operations (Unaudited)              | 5 |
|                                                              | Statements  of Cash Flows (Unaudited)                           | 6 |
|                                                              | Notes to Unaudited Consolidated  Financial Statements           | 7 |
| ITEM 2.                                                           | Management’s Discussion and Analysis or Plan of  Operation | 15 |
| ITEM 3.                                                           | Controls and Procedures                                         | 21 |
|                                                              |                                                            |
| PART II. OTHER INFORMATION                                        |                                                            |
| **Item 1. Legal Proceedings.**                                    | **22**                                                          |
| **Item  2. Unregistered Sales of Equity Securities**              | **22**                                                          |
| **Item 3. Defaults Upon  Senior Securities.**                     | **22**                                                          |
| **Item  4. Submission of Matters to a Vote of Security Holders.** | **22**                                                          |
| **Item 5. Other Information.**                                    | **22**                                                          |
| **Item  6. Exhibits.**                                            | **22**                                                          |
| ** **                                                        | ** **                                                      | ** ** |
| SIGNATURE PAGE                                                    | 23                                                              |

 

*In thisForm 10-QSB, references to “Southwest,” “the company,” “we,” “our” or “us,”unless the context otherwise requires, refer to Southwest Casino Corporation.*

 

2

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**PART I****– FINANCIAL INFORMATION**

 

**Item 1****.  FinancialStatements.**

 

**SOUTHWEST CASINO CORPORATION**

 

**Table of Contents**

 
| **FINANCIAL STATEMENTS**                              | ** ** |
|-------------------------------------------------------|------------|
| Consolidated  Balance Sheet (Unaudited)               | 4          |
| Consolidated  Statement of Operations (Unaudited)     | 5          |
| Consolidated  Statement of Cash Flows (Unaudited)     | 6          |
| Notes to Unaudited  Consolidated Financial Statements | 7          |

 

3

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**SOUTHWESTCASINO CORPORATION**

**CONSOLIDATEDBALANCE SHEET (UNAUDITED)**

**SEPTEMBER 30,2004**

 
| CURRENT ASSETS                                                                                        |   |        |       |
|-------------------------------------------------------------------------------------------------------|--------|-------------|------------|
| Cash and Cash Equivalents                                                                             |   | $           | 1,313,712  |   |
| Accounts Receivable                                                                                   |   | 178,885     |       |
| Management Fees Receivable                                                                            |   | 153,035     |       |
| Inventories                                                                                           |   | 161,454     |       |
| Prepaid Expenses                                                                                      |   | 383,360     |       |
| Total Current Assets                                                                                  |   | 2,190,446   |       |
| PROPERTY AND EQUIPMENT                                                                                |   |        |       |
| Real Estate Options                                                                                   |   | 616,035     |       |
| Construction in Progress                                                                              |   | 1,121,729   |       |
| Leasehold Improvements                                                                                |   | 13,545,909  |       |
| Furniture and Equipment                                                                               |   | 6,247,772   |       |
| Accumulated Depreciation                                                                              |   | (6,795,365  | )          |
| Net Property and Equipment                                                                            |   | 14,736,080  |       |
| OTHER ASSETS                                                                                          |   |        |       |
| Contract Rights and Finance Costs                                                                     |   | 1,439,085   |       |
| Deposits                                                                                              |   | 120,024     |       |
| Deferred Tax Asset                                                                                    |   | 842,000     |       |
| Total Other Assets                                                                                    |   | 2,401,109   |       |
| TOTAL ASSETS                                                                                          |   | $           | 19,327,635 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                             |   |        |       |
| CURRENT LIABILITIES                                                                                   |   |        |       |
| Accounts Payable                                                                                      |   | $           | 1,226,353  |   |
| Accounts Payable - Construction in Progress                                                           |   | 331,880     |       |
| Accrued Expenses                                                                                      |   | 927,349     |       |
| Notes Payable                                                                                         |   | 478,159     |       |
| Current Portion of Long-Term Debt                                                                     |   | 684,290     |       |
| Convertible Subordinated A Debentures - 9.25%                                                         |   | 150,000     |       |
| Accrued Interest Payable                                                                              |   | 101,750     |       |
| Accrued Liabilities - Related Party                                                                   |   | 630,620     |       |
| Total Current Liabilities                                                                             |   | 4,530,401   |       |
| LONG-TERM LIABILITIES                                                                                 |   |        |       |
| Long-Term Liabilities Net of Current Portion                                                          |   | 8,385,766   |       |
| STOCKHOLDERS’ EQUITY                                                                             |   |        |       |
| Common Stock, $.001 Par Value; 50,000,000 Shares  Authorized 19,250,386 Shares Issued and Outstanding |   | 19,250      |       |
| Preferred Warrants                                                                                    |   | 6,000       |       |
| Additional Paid-in Capital                                                                            |   | 16,636,462  |       |
| Accumulated Deficit                                                                                   |   | (10,250,244 | )          |
| Total Stockholders’ Equity                                                                       |   | 6,411,468   |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                       |   | $           | 19,327,635 |   |

 

See Notes to Unaudited ConsolidatedFinancial Statements

 

4

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**SOUTHWESTCASINO CORPORATION**

**CONSOLIDATED STATEMENT OF OPERATIONS(UNAUDITED)**

**FOR THE NINE MONTHS AND THREE MONTHSENDED SEPTEMBER 30, 2004 AND 2003**

 
| ** **                                                    | ** ** | **The Nine Months  Ended  September 30, 2004** | ** ** | **The Nine Months  Ended  September 30, 2003** | ** ** | **The Three Months  Ended  September 30, 2004** | ** ** | **The Three Months  Ended  September 30, 2003** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| REVENUES                                                      |       |                                                |       |                                                |       |                                                 |       |                                                 |       |
| Casino                                                        |       | $                                                   | 11,964,323 |                                                | $          | 11,687,730                                           |       | $                                                    | 4,094,896  |   | $ | 4,329,415 |   |
| Food & Beverage/Hotel                                     |       | 346,285                                             |       | 402,025                                             |       | 154,080                                              |       | 182,290                                              |       |
| Management and Consulting                                     |       | 3,240,787                                           |       | 2,453,388                                           |       | 862,022                                              |       | 781,140                                              |       |
| Entertainment                                                 |       | 102,430                                             |       | 139,512                                             |       | 84,047                                               |       | 104,163                                              |       |
| Other                                                         |       | 70,952                                              |       | 132,948                                             |       | 25,908                                               |       | 22,292                                               |       |
| Total Revenue                                                 |       | 15,724,777                                          |       | 14,815,603                                          |       | 5,220,953                                            |       | 5,419,300                                            |       |
| EXPENSES                                                      |       |                                                |       |                                                |       |                                                 |       |                                                 |       |
| Casino                                                        |       | 8,871,124                                           |       | 8,621,416                                           |       | 3,010,979                                            |       | 3,132,001                                            |       |
| Food & Beverage/Hotel                                     |       | 1,197,170                                           |       | 1,086,483                                           |       | 436,688                                              |       | 389,156                                              |       |
| Corporate Expense                                             |       | 2,903,237                                           |       | 1,761,262                                           |       | 1,506,145                                            |       | 537,559                                              |       |
| Project Development Costs                                     |       | 836,763                                             |       | 1,239,987                                           |       | 267,284                                              |       | 523,876                                              |       |
| Entertainment                                                 |       | 185,861                                             |       | 262,919                                             |       | 145,051                                              |       | 181,757                                              |       |
| Depreciation and Amortization                                 |       | 1,743,100                                           |       | 1,183,379                                           |       | 748,439                                              |       | 392,566                                              |       |
| Total Expenses                                                |       | 15,737,255                                          |       | 14,155,446                                          |       | 6,114,586                                            |       | 5,156,915                                            |       |
| Income (Loss) from Operations                                 |       | (12,478                                             | )          | 660,157                                             |       | (893,633                                             | )          | 262,385                                              |       |
| OTHER INCOME (EXPENSE)                                        |       |                                                |       |                                                |       |                                                 |       |                                                 |       |
| Interest Income                                               |       | 8,622                                               |       | 83,244                                              |       | 830                                                  |       | 20,553                                               |       |
| Interest Expense                                              |       | (903,463                                            | )          | (778,599                                            | )          | (343,628                                             | )          | (279,544                                             | )          |
| Gain (Loss) on Disposition of Property and Equipment          |       | (9,909                                              | )          | (38,021                                             | )          | (4,992                                               | )          | 11,330                                               |       |
| Income from Debt Forgiveness                                  |       | 9,219                                               |       | 40,355                                              |       | —                                               |       | —                                               |       |
| Total Other Income (Expense)                                  |       | (895,531                                            | )          | (693,021                                            | )          | (347,790                                             | )          | (24 7,661                                            | )          |
| Income (Loss) from Continuing Operations Before  Income Taxes |       | (908,009                                            | )          | (32,864                                             | )          | (1,241,423                                           | )          | 14,724                                               |       |
| Income Tax (Expense) Benefit                                  |       | —                                              |       | 10,200                                              |       | 133,000                                              |       | —                                               |       |
| Minority Interest in Income of Consolidated  Subsidiaries     |       | 10,000                                              |       | —                                              |       | —                                               |       | —                                               |       |
| Equity (loss) of Unconsolidated Subsidiary                    |       |                                                |       |                                                |       |                                                 |       |                                                 |       |
| Net of Tax Benefit                                            |       | (2,351,733                                          | )          | —                                              |       | (1,902,148                                           | )          | —                                               |       |
| Income (Loss) from Continuing Operations                      |       | (3,249,742                                          | )          | (22,664                                             | )          | (3,010,571                                           | )          | 14,724                                               |       |
| DISCONTINUED OPERATIONS                                       |       |                                                |       |                                                |       |                                                 |       |                                                 |       |
| Loss from Discontinued Operations                             |       | (256,582                                            | )          | (543,214                                            | )          | —                                               |       | (68,470                                              | )          |
| Income Tax Benefit                                            |       | —                                              |       | 67,640                                              |       | (42,600                                              | )          | —                                               |       |
| Total Discontinued Operations                                 |       | (256,582                                            | )          | (475,574                                            | )          | (42,600                                              | )          | (68,470                                              | )          |
| NET INCOME (LOSS)                                             |       | $                                                   | (3,506,324 | )                                                   | $          | (498,238                                             | )          | $                                                    | (3,053,171 | ) | $ | (53,746 | ) |
| Earnings Per Share                                            |       |                                                |       |                                                |       |                                                 |       |                                                 |       |
| Basic and Diluted                                             |       |                                                |       |                                                |       |                                                 |       |                                                 |       |
| Income (Loss) from Continuing Operations                      |       | $                                                   | (0.37      | )                                                   | $          | (0.01                                                | )          | $                                                    | (0.19      | ) | $ | — |   |
| Discontinued Operations                                       |       | (0.03                                               | )          | (0.13                                               | )          | (0.00                                                | )          | (0.02                                                | )          |
| Net Income                                                    |       | $                                                   | (0.40      | )                                                   | $          | (0.14                                                | )          | $                                                    | (0.19      | ) | $ | (0.02 | ) |
| Weighted Average Shares Outstanding                           |       | 8,836,635                                           |       | 3,724,286                                           |       | 15,918,512                                           |       | 3,724,286                                            |       |

 

See Notes to Unaudited ConsolidatedFinancial Statements

 

5

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**SOUTHWEST CASINO CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003**

 
| ** **                                                                                          | ** ** | **The Nine Months  Ended  September 30, 2004** | ** ** | **The Nine Months  Ended  September 30, 2003** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
|                                                                                                |       |                                                |       |                                                |       |
| Cash Flows from Operating Activities:                                                               |       |                                                |       |                                                |       |
| Net Income (Loss)                                                                                   |       | $                                                   | (3,506,324 | )                                                   | $          | (498,238 | ) |
| Adjustments to Reconcile Net Income (Loss) to Net  Cash Provided by (Used in) Operating Activities: |       |                                                |       |                                                |       |
| Minority Interest                                                                                   |       | (10,000                                             | )          | —                                              |       |
| Depreciation and Amortization                                                                       |       | 1,777,422                                           |       | 1,337,622                                           |       |
| Loss (Gain) on Sale of Assets                                                                       |       | 9,909                                               |       | 38,021                                              |       |
| Equity (Loss) on Unconsolidated Subsidiary                                                          |       | 2,351,733                                           |       | —                                              |       |
| Non Cash Compensation for Stock Issued                                                              |       | 292,500                                             |       | —                                              |       |
| (Income) from Debt Forgiveness                                                                      |       | —                                              |       | (40,355                                             | )          |
|                                                                                                |       |                                                |       |                                                |       |
| Change in Current Assets and Liabilities:                                                           |       |                                                |       |                                                |       |
| (Increase) Decrease in Receivables                                                                  |       | 300,823                                             |       | 162,069                                             |       |
| (Increase) Decrease in Inventories                                                                  |       | 8,798                                               |       | (45,064                                             | )          |
| (Increase) Decrease in Prepaid Expenses                                                             |       | 186,486                                             |       | 25,584                                              |       |
| (Increase) Decrease in Deferred Tax Asset                                                           |       | —                                              |       | (122,993                                            | )          |
| Increase (Decrease) in Accounts Payable                                                             |       | 504,953                                             |       | 62,696                                              |       |
| Increase (Decrease) in Accrued Expenses                                                             |       | 438,617                                             |       | (142,713                                            | )          |
| Increase (Decrease) in Accrued Interest Payable                                                     |       | (233,744                                            | )          | (26,165                                             | )          |
|                                                                                                |       |                                                |       |                                                |       |
| Net Cash Provided by (Used in) Operating Activities                                                 |       | 2,121,173                                           |       | 750,464                                             |       |
|                                                                                                |       |                                                |       |                                                |       |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                |       |                                                |       |                                                |       |
| Proceeds from Sale of Property and Equipment                                                        |       | 30,505                                              |       | 21,032                                              |       |
| Purchase of Property and Equipment                                                                  |       | (2,784,075                                          | )          | (1,116,118                                          | )          |
| Proceeds from Principal Received on Long-Term Notes  Receivable                                     |       | 402,686                                             |       | 945,103                                             |       |
| (Increase) Decrease in Deposits                                                                     |       | 37,940                                              |       | (1,240                                              | )          |
| Investment in Unconsolidated Subsidiary                                                             |       | (2,242,166                                          | )          | —                                              |       |
| Net Cash Provided by (Used in) Investing Activities                                                 |       | (4,555,110                                          | )          | (151,223                                            | )          |
|                                                                                                |       |                                                |       |                                                |       |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                |       |                                                |       |                                                |       |
| Proceeds from Borrowings                                                                            |       | 1,195,405                                           |       | 400,324                                             |       |
| Proceeds from Line of Credit                                                                        |       | 350,000                                             |       | —                                              |       |
| Proceeds from Convertible Demand Notes, net of  issuance net of issuance costs of $182,240          |       | 2,449,760                                           |       | —                                              |       |
| Principal Payments on Borrowings                                                                    |       | (773,701                                            | )          | (1,233,995                                          | )          |
| Payment of Financing Costs                                                                          |       | (79,605                                             | )          | —                                              |       |
| Proceeds from Outside Investors - Minority Interest                                                 |       | 10,000                                              |       | —                                              |       |
| Proceeds from Issuance of Preferred Stock &  Warrants                                           |       | 5,000                                               |       | 250                                                 |       |
| Proceeds from Issuance of Common stock                                                              |       | 75,000                                              |       | —                                              |       |
| Payment of Subordinated Debentures                                                                  |       | (212,500                                            | )          | (34,645                                             | )          |
|                                                                                                |       |                                                |       |                                                |       |
| Net Cash Provided by (Used in) Financing Activities                                                 |       | 3,019,359                                           |       | (868,066                                            | )          |
|                                                                                                |       |                                                |       |                                                |       |
| Net Increase (Decrease) in Cash and Cash Equivalents                                                |       | 585,422                                             |       | (268,825                                            | )          |
|                                                                                                |       |                                                |       |                                                |       |
| CASH AND CASH EQUIVALENTS                                                                           |       |                                                |       |                                                |       |
| Beginning of Year                                                                                   |       | 728,290                                             |       | 1,548,811                                           |       |
| End of Year                                                                                         |       | $                                                   | 1,313,712  |                                                | $          | 1,279,986 |   |
|                                                                                                |       |                                                |       |                                                |       |
| Supplemental Disclosure of Cash Flow Information:                                                   |       |                                                |       |                                                |       |
| Cash Paid for Interest                                                                              |       | $                                                   | 903,463    |                                                | $          | 778,599 |   |
| Cash Paid for Income Taxes                                                                          |       | $                                                   | —     |                                                | $          | 45,153 |   |

 

See Notes to Unaudited ConsolidatedFinancial Statements

 

6

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**SEPTEMBER 30,2004 AND 2003**

** **

**NOTE1 – ORGANIZATION AND NATURE OF OPERATIONS**

 

Southwest CasinoCorporation

 

The currentstructure of Southwest Casino Corporation resulted from a July 22, 2004reorganization consummated by Lone Moose Adventures, Inc. (now Southwest CasinoCorporation), a Nevada corporation, Lone Moose Acquisition Corporation, aMinnesota corporation and wholly-owned subsidiary of Lone Moose Adventures, SouthwestCasino and Hotel Corp., a Minnesota corporation, and certain shareholders ofLone Moose Adventures.  In thereorganization, Lone Moose Acquisition Corporation merged with and intoSouthwest Casino and Hotel Corp. Southwest Casino and Hotel Corp was the surviving corporation in thatmerger and became a wholly-owned subsidiary of Lone Moose Adventures.  Lone Moose Adventures changed its name toSouthwest Casino Corporation immediately after that merger.  

 

In thereorganization, Lone Moose Adventures (now Southwest Casino Corporation) issued16,161,343 shares of its common stock to shareholders of Southwest Casino andHotel Corp. to acquire 100% of the issued and outstanding shares of commonstock, series C convertible preferred stock, and other convertible securitiesof Southwest Casino and Hotel Corp.  Thereorganization represents a recapitalization of Southwest Casino Corporationwith accounting treatment similar to that used in a reverse acquisition, exceptthat no goodwill or intangible is recorded. A recapitalization is characterized by the merger of a private operatingcompany into a non-operating public shell corporation with nominal net assetsand typically results in the owners and managers of the private company havingeffective operating control after the transaction.  Southwest Casino Corporation continues as thesurviving reporting entity after the reorganization and the former shareholdersof Southwest Casino and Hotel Corp. acquired approximately 92% of the Company'scommon stock.

 

Southwest CasinoCorporation, through its direct and indirect, wholly-owned subsidiaries,operates three casinos in Cripple Creek, Colorado and manages native-Americangaming facilities under contractual agreements. Southwest Casino Corporation’s operations include the followingconsolidated subsidiaries:

 

Southwest Casinoand Hotel Corp.

 

Southwest Casinoand Hotel Corp. was formed in 1992 and provides management consulting servicesfor casinos under contractual agreements and owns and operates Uncle Sam’s Casinoin Cripple Creek, Colorado.  SouthwestCasino and Hotel Corp. leases the building in which Uncle Sam’s operates undera five-year lease that expires in April 2009. 

 

Gold Rush I, LLC

 

Gold Rush I, LLC,was formed during 1999 and owns and operates the Gold Rush Hotel and Casino andGold Digger’s Casino in Cripple, Creek Colorado. Gold Rush I, LLC leases theproperty in which Gold Rush and Gold Digger’s operate under a long-term capitallease.

 

SouthwestEntertainment. Inc.

 

SouthwestEntertainment, Inc., located in Minneapolis, Minnesota, was formed on November 4,1998. The company operates an outdoor amphitheatre for entertainment events inCripple Creek, Colorado.

 

Southwest CasinoDeadwood, LLC

 

Southwest CasinoDeadwood LLC was formed on December 7, 1999 and began operating B.B. Cody’sCasino in Deadwood, South Dakota under lease in July 2000.  During December 2003, the Companydecided to discontinue operations in Deadwood. (See Note 10).

 

7

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**SEPTEMBER 30,2004 AND 2003**

 

North MetroHarness Initiative, LLC.

 

North MetroHarness Initiative, LLC, (a development stage Minnesota limited liabilitycompany), was formed on June 16, 2003 for the purpose of developing,owning, and operating a horse race track and card room north of Minneapolis,Minnesota, in Anoka County.  North Metrowas denied a license by the Minnesota Racing Commission on October 21,2004.  North Metro is currently pursuingreconsideration of its license application by the Minnesota Racing Commissionas well as evaluating other options under Minnesota law.

 

SW Missouri, LLC

 

SW Missouri, LLC is a 30% shareholder in Southwest Missouri Gaming,LLC, which was pursuing state and local regulatory approval and acquiringproperty for a riverboat casino in Rockaway Beach, Missouri.  This initiative was defeated in a statewideprimary election held on August 3, 2004. Southwest Missouri Gaming, LLC is currently evaluating it options forcontinuing this opportunity.

 

**NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

The unaudited financialstatements contained herein have been prepared pursuant to the rules andregulations of the Securities and Exchange Commission. Accordingly, they do notinclude all the information and footnotes required by accounting principlesgenerally accepted in the United States of America.  In the opinion of management, all adjustmentsconsidered necessary for a fair presentation have been included in theaccompanying financial statements. The results of operations for the ninemonths ended September 30, 2004 are not necessarily indicative of theresults to be expected for a full year.

 

These financialstatements should be read in conjunction with the financial statements andnotes included in the Company’s financial statements for the year ended December 31,2003.

 

Principles ofConsolidation

 

The accompanyingconsolidated financial statements include the accounts of Southwest CasinoCorporation and its wholly-owned subsidiaries. All material inter-companytransactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts 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 period. Actual resultscould differ from those estimates.

 

The Company has incurredlosses during the nine months ended September 30, 2004 and is evaluatingits ability to realize the estimated deferred tax assets.  As a result, the Company has not recordedadditional deferred tax assets related to net operating losses for the ninemonths ended September 30, 2004, as the realization of those assets is notassured. 

 

Deferred financing andoffering costs

 

Costs associated withfinancing activities are capitalized and amortized over the life of the relateddebt. Offering costs incurred to raise equity are recorded as a deferred assetand charged against proceeds of the offering.

 

Investments

 

Investments in entitieswhere the Company has more than a 20% but less than a 50% financial and votinginterest are recorded on the equity method of accounting.  When the Company has an investment in excessof 50% but less

 

8

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**SEPTEMBER 30,2004 AND 2003**

 

than 100%, the Companyconsolidates the entity and adjusts the investment by minority interest holderfor the portion of the income or loss allocable to the minority owner.

 

Earnings per share

 

Weighted average shareshave not been adjusted for dilutive securities because the impact of thecalculation would have been anti-dilutive.

 

**NOTE 3-PROMOTIONAL ALLOWANCES**

 

Revenue does not includethe retail amount of rooms, food, and beverage provided gratuitously tocustomers, which was approximately $920,000, and $789,000 for the nine monthsended September 30, 2004 and 2003, respectively.

 

**NOTE4-INVESTMENT**

 

Duringthe nine months ended September 30, 2004 the Company established aseparate entity (SW Missouri, LLC) that invested in Southwest Missouri Gaming,LLC (SMG).  SMG was established to ownand operate a riverboat casino in Rockaway Beach, Missouri.  SW Missouri owns 30% of SMG and hascontributed $3,835,960 to SMG.  SMG is70% owned by an unrelated party who has contributed $10,142,806. Amountsexpended by the Company before formation of SMG were counted as part of SWMissouri’s contribution to SMG. As of September 30, 2004 the Company haswritten off its entire investment due to the failure of a proposed amendment tothe Missouri constitution on August 3, 2004 that was required for thisproject to proceed.  Along with the Cityof Rockaway Beach, Missouri, the Company is evaluating whether to continue topursue this opportunity.  

 

Uponestablishing SMG, the Company adopted the equity method of accounting for itsinvestment in SMG.  Accordingly, theCompany’s allocable portion of net income (loss) has been identified as equityearnings (loss) of unconsolidated subsidiaries on the accompanying consolidatedincome statement.  For the nine monthsended September 30, 2004 and 2003, the total loss related to the RockawayBeach, Missouri development activities was $2,351,733 and $898,299,respectively.

 

**NOTE 5-LINE OF CREDIT**

 

The Company may borrow upto $450,000 under a revolving line of credit. Interest is payable at a variable rate (5.5% as of September 30,2004). The line is due January 19, 2005, and is collateralized bysubstantially all assets of the Company. At September 30, 2004, the line had a balance of $446,292 with$3,708 available to draw.  The line ofcredit is included in notes payable on the accompanying balance sheet.

 

The Company has enteredinto a collateral agreement and promissory note to collateralize a $500,000bond related to the development of North Metro Harness Initiative, LLC. Thepromissory note is due on June 1, 2005, with a variable interest ratio(currently 5%).**At September 30,2004, the note had not been drawn. The note is personally guaranteed by fourstockholders of the Company.

 

**NOTE6 – CONVERTIBLE DEMAND NOTES**

 

Effective June 29,2004, Southwest Casino and Hotel Corp. issued $2,632,000 of convertible demandnotes.  These notes accrued interest atthe rate of 8% per year and were due on September 27, 2004.  Under the terms of the notes, the principalamount and accrued interest converted automatically to shares of Company commonstock at a rate of $1.00 per share upon consummation of the reorganization ofthe Company completed July 22, 2004. Under the terms of the reorganization, Southwest Casino Corporationissued a total of 2,649,551 shares of common stock to the former holders ofthese notes.

 

**NOTE 7***-***LONG-TERM DEBT**

 

During the nine monthsended September 30, 2004, the Company received approximately $1,145,000from the

 

9

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**SEPTEMBER 30,2004 AND 2003**

 

proceeds of debtfinancing of equipment and software for its casino operations. The debt has aninterest rate of 14.2%, and is due in monthly installments of principal andinterest of approximately $34,900, with a maturity date of February 1,2007.

 

Minimum principalpayments on long-term debt, excluding capital leases, through the maturity ofthe debt are as follows:

 
| **Twelve Months Ended September 30,** | ** ** | **Amount** | ** ** |
|--------------------------------------------|------------|------------|------------|
| 2005                                       |       | $          | 294,311    |   |
| 2006                                       |       | 339,013    |       |
| 2007                                       |       | 371,226    |       |
|                                            |            |            |            |  |

 

# **NOTE8 – STOCKHOLDERS’ EQUITY**

 

The Company hasauthorized the issuance of up to 50,000,000 shares of common stock with a parvalue of $.001.  Each share of commonstock is entitled to one vote on all matters submitted to shareholders.  Under the terms of a gaming license held by asubsidiary of the Company, the Company must amend its Articles of Incorporationto provide that all shares of common stock are subject to redemption, at thediscretion of the Board of Directors, at fair market value if an owner isdetermined to be a disqualified holder. A disqualified holder is a stockholder whose ownership of Company stockor refusal to provide information to the Company or any applicable gamingauthorities may result in the disapproval, modification or non-renewal of anycontract, license or franchise related to the Company’s gaming operations.

 

During the ninemonths ended September 30, 2004, the Company issued the following sharesof common stock: 

 

On June 28,2004, the Company completed a 3-for-2 split of its shares that reduced thenumber of shares outstanding from 644,400 to 429,680.

 

On July 13,2004, the Company completed a 1-for-7.4672 split of its shares that increasedthe number of shares outstanding from 429,680 to 3,208,550.

 

On July 14,2004, the Company issued 1,500,000 shares of its common stock under the termsof stock purchase agreements entered into on June 29, 2004.

 

On July 22,2004, in connection with the Company’s reorganization, the Company issued16,161,343 shares of its common stock to the former holders of Southwest Casinoand Hotel Corp. common stock, series C preferred stock, and convertiblesecurities.  The Southwest Casino andHotel Corp. securities acquired by the Company included the followingsecurities issued by Southwest Casino and Hotel Corp. during the first ninemonths of 2004:

 

•                  On July 15, 2004, 375,000 sharesof common stock issued in exchange for personal guarantees of promissory note(see note 5).

 

•                  On July 22, 2004, 5,299,102shares of common stock issued to the holders of Southwest Casino and HotelCorp. 8% convertible debentures upon consummation of the Company’sreorganization.

 

Also in connectionwith the Company’s July 22, 2004 reorganization, the Company issued150,000 shares of common stock in connection with an indemnification agreementfor the Company, and 719,865 shares of common stock under the terms of anintroduction agreement with the Company. 

 

In addition, on July 22,2004 the Company cancelled 2,149,212 shares of common stock held by thefounding shareholders of Lone Moose Adventures, Inc.  In consideration of (a) the cancellation ofthese shares, (b) the agreement of the founding shareholders to indemnify theCompany against any liabilities arising from the operation of Lone MooseAdventures, Inc. before the reorganization, and (c) the assumption by thefounding shareholders of

 

10

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** **

**SOUTHWESTCASINO CORPORATION**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**SEPTEMBER 30,2004 AND 2003**

 

all of theliabilities of the Company’s former adventure tour business, the Company soldto the founding shareholders substantially all of the assets of the Company’sformer adventure tour business.

 

# **NOTE9 – OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES**

# ** **

On July 15,2004, Southwest Casino and Hotel Corp. shareholders approved the SouthwestCasino and Hotel Corp. 2004 Stock Incentive Plan that had been adopted by thecompany’s Board of Directors effective June 1, 2004.  Under the terms of the reorganizationcompleted July 22, 2004, Southwest Casino Corporation assumed the rightsand obligations of Southwest Casino and Hotel Corp. under this plan.  The plan permits Southwest Casino Corporationto issue incentive awards to all employees of Southwest Casino Corporation orany of its subsidiaries and any non-employee directors, consultants orindependent contractors of the Company or any of its subsidiaries. Incentiveawards under the plan include “incentive options” under Section 422 of theInternal Revenue Code of 1986, “non-statutory stock options” that do notqualify for “incentive option” treatment, stock appreciation rights, restrictedstock awards, performance units and stock bonuses.  A maximum of 1,500,000 shares of SouthwestCasino Corporation common stock are reserved for issuance under the plan.During the first nine months of 2004, Southwest Casino Corporation issued oneincentive stock option to acquire 50,000 shares of common stock at a price of$1.00 per share.

 

In addition to theassumption of the 2004 Stock Incentive Plan, Southwest Casino Corporationassumed outstanding non-plan options to acquire shares of Southwest Casino andHotel Corp. common stock as part of its reorganization.  The Company assumed obligations to acquire675,000 shares of its common stock at price of $.12 per share. Southwest Casinoand Hotel Corp. did not issue any non-plan options during the nine months endedSeptember 30, 2004.

 

As part of the July 22,2004 reorganization, Southwest Casino Corporation assumed outstanding warrantsof Southwest Casino and Hotel Corp. to acquire 937,500 shares of the Company’scommon stock.  These warrants areexercisable at prices ranging from $.12 to $.20 per share as of September 30,2004 and expire at various times through April 13, 2009. The Companyassumed warrants issued during the nine months ended September 30, 2004 toacquire 550,000 shares of Southwest Casino Corporation common stock at a priceof $.12 per share. 

 

During the firstnine months of 2004, Southwest Casino and Hotel Corp. offered to redeem itsoutstanding Series A 9.25% Convertible Subordinated Debentures with anaggregate principal amount of $362,500. Upon consummation of thereorganization, Southwest Casino Corporation assumed Southwest Casino and HotelCorp.’s obligations under the debentures and the offer to redeem thedebentures. During the nine months ended September 30, 2004, SouthwestCasino Corporation redeemed Series A Debentures in an aggregate principalamount of $212,500. 

 

**NOTE 10**- **DISCONTINUED OPERATIONS ANDIMPAIRMENT**

 

During2003, as a result of continued losses from operations, the Company decided todiscontinue the operation of its casino in Deadwood, South Dakota.  As a result, during 2004, the Company sold orabandoned certain assets and transferred the remaining assets to other casinooperations.  As of December 31,2003, the value of the assets sold was recorded as assets held for sale on theaccompanying balance sheet.  For the yearended December 31, 2003, the Company recorded a loss of $282,550 for thedifference between the net book value of the assets sold or abandoned and thenet proceeds received subsequent to December 31, 2003.  During the nine months ended September 30,2004, the Company incurred an additional loss on disposal of assets ofapproximately $50 related to this discontinued operation.

 

Revenuesfrom the Deadwood Casino totaled approximately $263,187 and $1,357,329 for thenine months ended September 30, 2004 and 2003, respectively, and areincluded in the casino operations segment.

 

 **NOTE 11- RELATED PARTYTRANSATIONS**

 

TheCompany has a liability to certain officers and stockholders for unpaidcompensation and expense

 

11

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**SEPTEMBER 30,2004 AND 2003**

 

reimbursementsof $250,161 and $353,376 as of September 30, 2004 and 2003,respectively.   In addition, the Companyhas accrued a $357,670 potential expense related to its investment in SMG.

 

**NOTE 12- SEGMENT INFORMATION**

 

Segmentinformation related to the nine months ended September 30, 2004 follows:

 
| ** **                               | ** ** | **Casino  Operations** | ** ** | **Casino  Management** | ** ** | **Casino  Development** | ** ** | **Reconciling  Items** | ** ** | **Total**  | ** ** |
|------------------------------------------|------------|------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|------------|------------|
| Revenues                                 |       | $                      | 12,747,177 |                   | $          | 3,240,787               |       | —                 |       | $          | (263,187   | ) | $ | 15,724,777 |   |
| Interest revenue                         |       | —                 |       | 8,622                  |       | —                  |       | —                 |       | 8,622      |       |
| Interest expense                         |       | 846,116                |       | 57,347                 |       | —                  |       | —                 |       | 903,463    |       |
| Depreciation & amortization          |       | 1,599,346              |       | 178,076                |       | —                  |       | (34,322                | )          | 1,743,100  |       |
| Segment profit (loss) beforeincome taxes |       | (260,564               | )          | (429,138               | )          | (474,889                | )          | 256,852                |       | (908,009   | )          |
| Income tax expense (benefit)             |       | —                 |       | —                 |       | —                  |       | —                 |       | —     |       |
| Segment assets                           |       | 15,138,488             |       | 2,593,963              |       | 1,595,184               |       | —                 |       | 19,327,635 |       |
| Expenditure for segment assets           |       | 1,714,905              |       | 10,123                 |       | 1,059,047               |       | —                 |       | 2,784,075  |       |
|                                          |            |                        |            |                        |            |                         |            |                        |            |            |            |  |  |  |  |

 

Segment information related to the nine months ended September 30,2003 follows:

 
| ** **                                | ** ** | **Casino  Operations** | ** ** | **Casino  Management** | ** ** | **Casino  Development** | ** ** | **Reconciling  Items** | ** ** | **Total**  | ** ** |
|-------------------------------------------|------------|------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|------------|------------|
| Revenues                                  |       | $                      | 13,719,544 |                   | $          | 2,453,388               |       | —                 |       | $          | (1,357,329 | ) | $ | 14,815,603 |   |
| Interest revenue                          |       | —                 |       | 83,244                 |       | —                  |       | —                 |       | 83,244     |       |
| Interest expense                          |       | 751,786                |       | 27,221                 |       | —                  |       | (408                   | )          | 778,599    |       |
| Depreciation & amortization           |       | 1,395,257              |       | 8,840                  |       | —                  |       | (220,718               | )          | 1,183,379  |       |
| Segment profit (loss) before income taxes |       | (115,755               | )          | 779,664                |       | (1,239,987              | )          | 543,214                |       | 32,864     |       |
| Income tax expense (benefit)              |       | (15,640                | )          | 105,360                |       | (167,560                | )          | 67,640                 |       | (10,200    | )          |
| Segment assets                            |       | 15,581,268             |       | 3,309,296              |       | 286,730                 |       | —                 |       | 19,177,294 |       |
| Expenditure for segment assets            |       | 881,318                |       | 10,853                 |       | 223,947                 |       | —                 |       | 1,116,118  |       |
|                                           |            |                        |            |                        |            |                         |            |                        |            |            |            |  |  |  |  |

 

**NOTE 13- LAND OPTION AGREEMENTS**

 

TheCompany, through North Metro Harness Initiative, LLC, has a real estate optionagreement for the purchase of approximately 165 acres of land. The option agreementcommenced on March 1, 2003 and shall expire on August 1, 2005.Payments under the option agreement include $30,000 for the first four monthsof the option term, $15,000 per month during the next seven months of theoption term and $20,000 per month for the next twelve months of the option termand $40,000 per month for the remaining term of the option. The purchase priceof the land ranges from $7,775,000 to $8,450,000 during the remaining term ofthe option, depending on the date the option is exercised. The purchase priceof the land will be reduced by amounts previously paid for the option.

 

TheCompany, through North Metro Harness Initiative, LLC, has a real estate optionagreement for the purchase of approximately 13.4 acres of land. The option agreementcommenced on July 17, 2003 and will expire on July 18, 2005. Paymentsunder the option agreement include $1,000 for the first 4 months of the optionterm, $1,000 per month during the next 7 months of the option term and $2,000per month for the remaining term of the option. If the property is purchased during the first 12 months of the optionterm, the purchase price of the property has been fixed at $650,000. If theproperty is purchased during the second 12 months of the option term, thepurchase price of the property has been fixed at $700,000. The purchase priceof the land will be reduced by amounts previously paid for the option.

 

**NOTE 14- COMMITMENTS AND CONTINGENCIES**

 

TheCompany, through North Metro Harness Initiative, LLC, has entered into an agreementfor the development of

 

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**SEPTEMBER 30,2004 AND 2003**

 

theland, building and related property to operate a racetrack and card room. Feesrelated to the agreement total 3% of the project cost, which is defined as thetotal development cost less the cost to purchase the land. The agreement beganon May 1, 2003, and continues until the completion of the project, unlessearlier terminated. Fees are payable at a rate of $6,000 per month, plusapplicable out of pocket expenses, beginning on May 1, 2003. Upon the start ofconstruction, two thirds of the expected fee (less previous monthly payments)is due. If the agreement is terminated prior to the completion of the project,any unpaid fees are determined based on the completed status of the project atthe time of termination, as defined in the agreement.

 

TheCompany has entered into consulting agreements with unrelated parties tomonitor legislation and perform lobbying activities, and other public relationsand development activities related to establishing and developing the racetrackand card room.  The agreements aregenerally on a month-to-month basis, and may be terminated by either party tothe agreement.  The Company has monthlyobligations related to these agreements of approximately $24,000 permonth.  The Company is currently reviewingthese monthly expenditures in light of the negative decision by the Racing Commissionon October 21, 2004.

 

NorthMetro Harness Initiative, LLC (NMHI) received a revised letter of commitmentfor debt financing for approximately $37,250,000, or approximately 80% of theexpected total project cost of the race track and card room, with the remaining20% to be provided in the form of equity by the NMHI.  The financing will be composed ofapproximately $33,000,000 first mortgage loan and approximately $4,250,000mezzanine loan. Terms of the first mortgage include a 10-year amortization, andinterest at a variable rate (2% above prime rate), with a floor of 7%.  In addition, a service fee of .25% of theoutstanding loan balance may be required on an annual basis. The mezzanine loanwill include a 5-year amortization at a fixed rate not to exceed 20%. Inaddition, 50% of net available cash flow (after scheduled debt service andincome taxes) will be required to be held in an account to redeem thedebt.  Redemption under this provisionoccurs when the account equals the principal amount of the loanoutstanding.  Security for the loan willinclude a first mortgage, corporate guarantee of the Company, and securityinterests in other assets of the Company. The closing and funding of the loan was to occur by November 15,2004; however, this will not occur until and unless NMHI can secure a licensefrom the Minnesota Racing Commission.

 

Duringthe years ended December 31, 2003 and 2002, an employee issued and cashedCompany checks and deposited the amounts to the employee’s personalaccounts.  During January 2004, theemployee left the employment of the Company. The Company intends to initiate a cause of action against the formeremployee to recover the lost amount.  TheCompany has received $100,000 from insurance coverage on the claim against theformer employee, and the Company intends to seek additional recovery of aportion of the amount from the former employee. Management is unsure of the amount that will be recovered from theformer employee and therefore, the Company has written off a $100,000receivable in the nine months ended September 30, 2004, which had beenrecorded at December 31, 2003.

 

The purchaseagreement to sell 50% of its ownership interest in North Metro HarnessInitiative, LLC, has been finalized and a contribution of $10,000 has beenreceived. The agreement requires the Company to contribute $2,500,000 for its50% interest, and the buyer to contribute an additional $7,490,000 for its 50%interest in North Metro Harness Initiative, LLC upon issuance of a license bythe Minnesota Racing Commission.  Asdiscussed previously, the license has been denied as of October 21,2004.  NMHI is seeking reconsideration ofthis decision. 

 

# **NOTE15 – SUBSEQUENT EVENTS**

# ** **

On October 12,2004, Southwest Casino Corporation, through its subsidiary Southwest Casino andHotel Corp. entered into a promissory note to borrow $500,000.  The promissory note bears interest at a rateof 6 percent per year, is due October 12, 2005 and requires the Company tomake 12 equal monthly payments in the amount of $42,993.86.

 

On October 15, 2004, Southwest Casino Corporation entered into aStock Purchase Agreement under which we issued 900,000 shares of “restricted”common stock to a private, London-based investment company in exchange for991,080 of the investment company’s common shares.  In addition, we issued 45,000 shares of ourcommon stock to the broker/dealer through whom we entered into this transactionunder the terms of an advisory services letter

 

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** **

**SOUTHWESTCASINO CORPORATION**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**SEPTEMBER 30,2004 AND 2003**

 

agreement dated October 15, 2004. The shares issued to the investment trust and the broker/dealer are heldin escrow pending final approval of the listing of the shares in the investmentcompany as an investment trust on the London Stock Exchange. The closing ofthis transaction is contingent upon the listing of the shares we received onthe London Stock Exchange.  Underthe terms of the Stock Purchase Agreement, 30 percent ofthe shares issued to Southwest will be held in escrow for one year. If theprice of Southwest stock is less than the $2.00 per share purchase price afterone year, some or all of these escrowed shares will be returned to the investmentcompany so that the price per share paid by the investment company equals theprice of our common stock after one year. If the price of our common stock ismore than 30 percent less than $2.00 after one year, only the escrowed shareswill be returned.  Southwest is permittedto sell, on a cumulative basis, up to 10 percent of the investment companyshares acquired by it each month.  Theinvestment company cannot sell its Southwest shares for a period of 12 monthsafter the closing of this transaction and cannot engage in any short saletransactions in Southwest stock until after it has disposed of all Southwestshare acquired under the Stock Purchase Agreement. After 12 months, each monththe investment company may sell not more 15 percent of the total trading ofSouthwest shares volume during the prior month, except that the investmentcompany is also permitted to make block sales of 50,000 or more shares that donot count toward that 15 percent limit.

 

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**Item 2****.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

The following is adiscussion and analysis of the financial position and operating results ofSouthwest Casino Corporation. (referred to in this discussion, together withits consolidated subsidiaries where appropriate, as “Southwest Casino”, the “Company”,“we”, “our” and “us”) for the three months and nine months ended September 30,2004.

 

***Overview:***

 

Our principal business isthe management, operation and development of gaming facilities in emerging andestablished gaming jurisdictions.  Currently, we operate three casinos inCripple Creek, Colorado — Gold Rush, Gold Digger’s and Uncle Sam’s.  We also manage two Native American gamingoperations in Oklahoma for the Cheyenne and Arapaho Tribes of Oklahoma - LuckyStar Concho and Lucky Star Clinton. Lucky Star Concho is located on U.S. Highway 81, just north of theOklahoma community of El Reno.  LuckyStar Clinton is located 60 miles west of Lucky Star Concho in the community ofClinton, Oklahoma on Old Route 66 near Interstate I-40.  An amendment to our management contract withthe Tribes to develop and manage a third site at Canton Lake has been ratifiedby the Tribes and has been submitted to the National Indian Gaming Commissionfor approval. 

 

We are actively pursuingan additional gaming opportunity, a harness race track and card room in AnokaCounty, Minnesota (the “Harness Initiative”).  On October 21, 2004 the Minnesota Racing Commission voted five tothree not to approve our license application for the harness track.  We are currently pursuing reconsideration ofour application by the Commission as well as evaluating other options underMinnesota law.  We also pursuedunsuccessfully a gaming opportunity consisting of a riverboat casino inRockaway Beach, Missouri during 2002-2004. The opportunity required an amendment to the Missouri Constitution toallow a riverboat on the White River at that location.  The proposed amendment was defeated by the Missourielectorate on August 3, 2004.  Weare presently evaluating whether it is appropriate to continue to pursue thisopportunity.

 

We continually evaluateother management, consulting, development and acquisition opportunities relatedto gaming that have the potential to generate new revenue streams for theCompany. 

 

***Operatingsegments:***

 

The executive officers ofthe Company review operating results, assess performance and make decisionsrelated to the allocation of resources on a property-by-property basis. We,therefore, believe that each property is an operating segment.  In order to provide more detail in a moreunderstandable manner than would be possible on a consolidated basis, and tofacilitate discussion of operating revenue, we have grouped our properties asfollows: 

 
| **Casino  Operations:**         | ** ** | **Casino  Management:**   |
|---------------------------------|------------|---------------------------|
| Gold  Rush/ Gold Diggers Casino |       | Lucky Star – Concho  |
| Uncle  Sam’s Casino        |       | Lucky Star – Clinton |

 

**Casino operations:**

 

**Gold Rush/Gold Digger’s CasinoResults**

 
| ** **                 | ** ** | **Third Quarter** | ** ** | **Percentage  Increase** | ** ** | **First Nine Months** | ** ** | **Percentage  Increase** | ** ** |
|----------------------------|------------|-------------------|------------|--------------------------|------------|-----------------------|------------|--------------------------|------------|
| **2004**                   | ** ** | **2003**          | ** ** | ** **               | **2004**   | ** **            | **2003**   |
| **Casino revenues**        |       | $                 | 3,770,999  |                     | $          | 3,954,890             |       | -4.6                     | %          | $ | 10,942,814 |   | $ | 10,483,086 |   | 4.4 | % |
| **Total revenues**         |       | 3,950,339         |       | 4,158,111                |       | -5.0                  | %          | 11,357,258               |       | 11,015,310 |   | 3.1 | % |
| **Income from operations** |       | 491,016           |       | 758,701                  |       | -35.3                 | %          | 1,307,495                |       | 1,710,351 |   | -23.6 | % |
| **Operating margin**       |       | 12.4              | %          | 18.2                     | %          |                  |       | 11.5                     | %          | 15.5 | % |   |   |
|                            |            |                   |            |                          |            |                       |            |                          |            |  |  |  |  |  |  |  |  |

 

*Third Quarter:*Gold Rush/Gold Digger’s recorded lower revenues in the third quarter of 2004than the third quarter of 2003 primarily as a result of the addition of 628slot machines in the Cripple Creek market between 2003 and 2004.  The decrease in income from operations in thethird quarter was due to the decrease in Casino revenues and an increase indepreciation expenses.  Operatingexpenses were marginally lower in the third quarter of 2004.

 

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*First Nine Months:*  Revenues from operations increased 3.1% inthe first nine months of 2004.  Thisincrease was less than anticipated by management, primarily due to increasedcompetition in the market. In addition, operating expenses increased 5% as aresult of higher labor costs, increased incentives to customers and thegraduated gaming tax rate in Colorado.  Gold Rush/Gold Digger’s slot machines are at practical capacity on theweekends.  Management is working onexpansion plans that will allow revenues to continue to grow, but until we canadd additional machines to the floor, we anticipate that revenues will notexceed 2003 revenues in the fourth quarter of 2004.

 

**Uncle Sam’s Casino Results**

 
| ** **                        | ** ** | **Third quarter** | ** ** | **Percentage  Increase** | ** ** | **First nine months** | ** ** | **Percentage  Increase** | ** ** |
|-----------------------------------|------------|-------------------|------------|--------------------------|------------|-----------------------|------------|--------------------------|------------|
| **2004**                          | ** ** | **2003**          | **2004**   | ** **               | **2003**   |
| **Casino revenues**               |       | $                 | 323,897    |                     | $          | 374,525               |       | -14                      | %          | $ | 1,021,509 |   | $ | 1,204,644 |   | -15 | % |
| **Total revenues**                |       | 324,545           |       | 375,886                  |       | -14                   | %          | 1,024,302                |       | 1,207,393 |   | -15 | % |
| **Income from operations (loss)** |       | (88,038           | )          | (123,850                 | )          | -29                   | %          | (340,217                 | )          | (334,733 | ) | 2 | % |
| **Operating margin**              |       | -27.1             | %          | -32.9                    | %          |                  |       | -33.2                    | %          | -27.7. | % |   |   |
|                                   |            |                   |            |                          |            |                       |            |                          |            |  |  |  |  |  |  |  |  |

 

*Third Quarter:*Uncle Sam’s Casino is a facility with only 67 slot machines and as a resultmainly serves the local resident market in Cripple Creek, which is the mostvulnerable to increased competition. The increase in the number of slotmachines in Cripple Creek has substantially impacted the casino revenues atthis facility. Operating expenses decreased by 5% in 2004 due in part todecrease in customer incentives which have a direct correlation to casinorevenues.

 

*First Nine Months:*  Revenues decreased by 15% and expensesincluding depreciation decreased by 12% which resulted in an increase in lossfrom operations of 2%.  As discussedabove, Uncle Sam’s is a small facility which is impacted greatly by increasedcompetition in the market.

 

**Casino Management*:***

 

**Lucky Star Concho**

 

*Third Quarter:*Management fees from Lucky Star – Concho were $505,002 in 2004 and $431,661 in2003, an increase of 17%.  Our increasein management fees was driven by increased patron visits and improved machineselection.  Over the next three months,we anticipate that Lucky Star Concho will continue to outperform 2003.   

 

*First Nine Months:*Management fees from Lucky Star Concho were $2,015,588 in the first nine monthsof 2004 compared with $1,521,393 in the first nine months of 2003, an increaseof 32%.  This increase in management feeswas driven by the same factors that contributed to our growth in the thirdquarter.  In addition, our management feestructure was higher during the first five months of the year because thethree-year extension of or management contract included a 33% reduction in ourfee structure for both the Concho and the Clinton Lucky Star facilities.

 

We are encouraged that agaming measure on the November 2nd Oklahoma state-wide ballotwas approved that, if approved by the Tribes, will enable the Tribes to enterinto a gaming compact with the State that will allow player banked card gamesand an increase in and clarification of the scope of other games that can beplayed in Oklahoma.  The advantage gainedfrom expanded gaming at the Lucky Star facilities as permitted under this newlaw will be at least partially offset by competition from Remington Park, aracetrack in Oklahoma City that will be allowed to offer the same type ofgaming machines as the tribal locations. However, Remington Park will not be allowed player banked card games andtheir hours of operations will be limited whereas the Lucky Star facilitieswill continue to operate 24 hours per day and 7 days per week.

 

**Lucky Star Clinton**

 

*Third Quarter*:Management fees from Lucky Star Clinton were $357,020 in the third quarter of2004 and $349,479 in the third quarter of 2003, an increase of 2%.  This relatively small increase in managementfees despite strong performance at this location was caused by the reduction inour management fee structure that took effect in May 2004.  Over the next three months, we anticipatethat Lucky Star Clinton will continue to outperform 2003.

 

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Correspondingly, ourmanagement fees in 2004 will exceed our management fees in 2003, although notto the same degree as in the first six months of 2004 because of the reducedfee structure.

 

*First Nine Months:*Management fees from Lucky Star Clinton were $1,225,199 in the first ninemonths of 2004 and $931,995 in 2003, an increase of 31%.  The ability to enter into a Compact with theState of Oklahoma as discussed above will also benefit Clinton.  Moreover, the Clinton facility is unlikely beimpacted negatively by Remington Park’s new gaming machines because it is notproximate to Oklahoma City.

 

We are also currentlydiscussing with the Tribes the possibilities of expanding both the Concho andClinton facilities which would have a significant impact on revenues for 2005.

 

***Casinodevelopment Costs:***

 

*Rockaway Beach*– In September 2002 we responded to a request for a proposal from the Cityof Rockaway Beach, Missouri (approximately 11 miles from Branson, Missouri) tobuild a riverboat gaming complex and redevelop their downtown.  In order to obtain a gaming license to builda riverboat on the White River at Rockaway Beach, it was first necessary toamend the Missouri Constitution, which currently permits riverboats only on theMississippi and Missouri rivers. We were awarded the contract by the City andbegan incurring costs associated with pursuing this opportunity.   In June 2004, we established a separateentity (Southwest Missouri Gaming, LLC or SMG) to hold the developmentrights.   We transferred our rights andinterests in this project to SMG in exchange for a 30% ownership interest.  Missouri businessman Robert Low acquired 70%of SMG. The initial commitment by both parties was to provide a total of  $10,000,000 in pre-development funding forthe project and we received credit for amounts we had spent to date.  As of September 30, 2004, SMG hadexpended $13,978,766. The primary use of the funds was to secure an amendmentto the State Constitution to allow riverboat gaming on the White River atRockaway Beach.  This initiative wasdefeated in the primary election held August 3, 2004.  In the third quarter of 2004, our allocableshare of SMG expenditures was $1,902,148 as compared to $412,101 expended inthe third quarter of 2003

 

*North Metro Harness Initiative,LLC* -  We are alsopursuing a harness track and card room in Columbus Township, Anoka County,Minnesota.  If licensed, the track wouldbe the second of only two race tracks with pari-mutuel betting permitted bycurrent law in the seven-county metropolitan area of Minneapolis - St. Paul.There are, however, nineteen Native American operated casinos with a broaderscope of gaming in the State of Minnesota, four of which are proximate to themetropolitan area.  There are also NativeAmerican casino operations in the adjoining state of Wisconsin.  In December 2003, we filed a licenseapplication with the Minnesota Racing Commission.  This license application was amended to add asubsidiary of MTR Gaming Group, Inc. as our 50% partner.  MTR’s initial investment was $10,000 and theyhave committed to contribute an additional $7,500,000 upon the approval of thelicense.  The Minnesota Racing Commissiondenied our license on a five to three vote October 21, 2004.  We are currently pursuing reconsideration ofour application by the Racing Commission and evaluating other options underMinnesota law. During the third quarter of 2004 and 2003, we have expensed$267,284 and $111,775 of costs related to this project, respectively.  During the first nine months of 2004 and2003, we have expensed $474,889 and $336,116 of project costs,respectively.  In addition, we havecapitalized $1,595,184 in real estate options, construction in progress,contract rights and financing costs as of September 30, 2004.  If the Racing Commission does not reconsiderour application, these amounts are likely to be written off.

 

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***OtherFactors Affecting Net Income*:**

 

 

 
| **Income/(Expense)**                         | ** ** | **Third quarter** | ** ** | **Percentage  Increase  (Decrease)** | ** ** | **First nine months** | ** ** | **Percentage  Increase  (Decrease)** | ** ** |
|----------------------------------------------|------------|-------------------|------------|--------------------------------------|------------|-----------------------|------------|--------------------------------------|------------|
| **2004**                                     | ** ** | **2003**          | **2004**   | ** **                           | **2003**   |
| Southwest Entertainment, Inc                 |       | (73,306           | )          | (89,466                              | )          | -18                   | %          | $                                    | (120,227   | ) | (158,760 | ) | -24 | % |
| Corporate Expenses                           |       | (1,506,145        | )     | (537,559                             | )          | 180                   | %          | (2,903,237                           | )     | (1,761,262 | )  | 65 | % |
| Interest Expense (net)                       |       | (342,796          | )     | (258,991)                            |       | 32                    | %          | (894,841                             | )          | (695,355 | ) | 29 | % |
| Effective tax rate                           |       | 0                 | %          | 0                                    | %          |                  |       | 0                                    | %          | 20 | % |   |   |
| Minority interests                           |       |              |       |                                 |       | N/M                   |       | 10,000                               |       | 0 |   | N/M |   |
| Discontinued operations, net of income taxes |       | (42,600           | )          | (68,470                              | )          | N/M                   |       | (256,582                             | )          | (475,574 | ) | -46 | % |
|                                              |            |                   |            |                                      |            |                       |            |                                      |            |  |  |  |  |  |

 

----

N/M = Not Material

 

**Southwest Entertainment, Inc** is awholly owned subsidiary of Southwest Casino and Hotel Corp. that conductsconcerts at the Gold Rush Palladium, a 1,200 seat outdoor amphitheater adjacentto the Gold Rush Casino.  We conductmusical events for the purpose of attracting people to Cripple Creek and ourcasino properties. 

 

*ThirdQuarter:* During the third quarter of 2004, we conducted fiveconcerts as compared to four concerts during the third quarter of 2003.  The loss was reduced by 18% due to thecomparative price of the acts in each season. 

 

*Firstnine months:* During2004 and 2003, we held six concerts.  The increased loss during 2003 is due primarily to the higher cost ofthe acts that performed during 2003

 

**Corporate expenses** increased 180%in the third quarter of 2004 due primarily to legal, accounting and consultingfees. For the first nine months, corporate expenses increased 65%, againprimarily due to an increase in legal, accounting and consulting fees incurredduring the third quarter. The additional legal, accounting and consulting feeswere incurred in connection with our reorganization and merger with Lone MooseAdventures, Inc.

 

**Interest Expense** was higher in the third quarter of2004 by 32% as a result of lease financing for the player tracking systeminstalled at the Colorado casinos in January 2004. Interest expense alsoincreased 29% for the first nine months of 2004 again primarily as a result ofthe lease financing on the player tracking system.

 

**Minority interest** representsminority owner’s share of expense related to North Metro Harness Initiative,LLC.

 

**Effective tax rates** for allperiods are lower than the federal and state statutory rates due primarily tothe valuation allowance for deferred tax assets and lack of certainty that netoperating loss carryforwards available to offset future income will not belimited under Section 382 of the Internal Revenue Code of 1986.

 

**Discontinued Operations** reflect the results of operationsfor SW Casino Deadwood, LLC which we closed February 28, 2004.  For the third quarter of 2004, there were nooperations in SW Casino Deadwood, LLC. Since the first nine months of 2004include only two months of operations the loss is -46% less than the loss forthe same period in 2003

 

***Liquidityand Capital Resources***

 

*Firstnine months –*

 

Net cash providedby operating activities during the first nine months 2004 was $2,121,173compared to $750,464 during the nine months ended September 30, 2003, anincrease of $1,370,709.  The increasebetween years is due primarily to an increase in accounts payable and accruedexpenses of $1,023,587, a decrease in receivables,

 

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inventories andprepaid expenses of $496,107, offset by a decrease in accrued interest payableof $207,579, and a decrease in net income of $126,550 (excluding depreciationand amortization, loss from an unconsolidated subsidiary, gains on sale ofassets, and non cash compensation). 

 

Net cash used ininvesting activities for the nine months ended September 30, 2004 was$4,555,110 compared to net cash used in investing activities of $151,223 duringthe nine months ended September 30, 2003, an increase of $4,403,807. Theincrease in use of cash between the years was primarily due to the purchase ofa player tracking system for the owned casinos in Colorado at a cost of$1,144,500, land option and development costs related to North Metro HarnessInitiative, LLC of $1,059,047 and investment in SMG, a unconsolidatedsubsidiary that pursued the Rockaway Beach initiative, of $2,242,166. 

 

Net cash providedby (used in) financing activities for the nine months ended September 30,2004 was approximately $3,019,359 compared to net cash used in financingactivities of approximately ($868,066), an increase of  $3,887,425. The increase in net cash provided by financing activities was dueprimarily to the issuance of Convertible Demand Notes in the principal amountof $2,632,000 that converted to common stock following our July 2004merger with Lone Moose Adventures, Inc, a net increase in proceeds from equipmentfinancing by Gold Rush I, LLC of $806,811, a draw on our line of credit in theamount of  $350,000, and a reduction of$336,151 in principal payments made on our financing in Colorado during thenine month period ended September 30, 2004.

 

***ConvertibleDemand Notes ***Duringthe nine months ended September 30, 2004, the Company issued $2,632,000 inprincipal amount of convertible demand notes. The notes accrued interest at a rate of 8% per year and were due on September 27,2004.  The notes together with accruedinterest converted into common shares of the Company’s stock at a rate of $1.00per share upon the completion of a merger transaction on July 22, 2004with Lone Moose Adventures, Inc., a publicly traded company.

 

***Lineof Credit ***TheCompany has entered into a collateral agreement and promissory note tocollateralize a $500,000 bond related to the development of North Metro HarnessInitiative, LLC.  The promissory note isdue on June 1, 2005, with a variable interest ratio (currently 5%).  At September 30, 2004, the note had notbeen drawn.  The note is personallyguaranteed by four stockholders of the Company.

 

***Effects ofCurrent Economic and Political Conditions:***

 

**CompetitivePressures:**

 

Many casino operators areeither entering orexpanding in ourmarkets – Colorado and Oklahoma, thereby increasing competition. As companieshave completed new or expanded existing projects, supply has sometimes grown ata faster pace than demand, and competition has increased significantly.Furthermore, several operators, including Southwest, have plans for additionaldevelopments or expansions.

 

Although, the short-termeffect on the Company of such competitive developments generally has beennegative, we are not able to determine the long-term impact, whether favorableor unfavorable, that development and expansion trends and events will have oncurrent or future markets. We believe that the geographic diversity of ouroperations, our service training, our rewards and customer loyalty programs,and our continuing efforts to improve our facilities will insure continuedcustomer loyalty and will enable us to face the competitive challenges presentwithin our industry.

 

**PoliticalUncertainties:**

 

The casino entertainmentindustry is subject to political and regulatory uncertainty. From time to time,individual jurisdictions have considered legislation or referendums that couldadversely impact our operations. The likelihood or outcome of similarlegislation and referendums in the future is difficult to predict.

 

The casino entertainmentindustry represents a significant source of tax revenues to the variousjurisdictions in which casinos operate. From time to time, various state andfederal legislators and officials have proposed changes in tax laws, or in theadministration of tax laws, that would affect the industry. It is not possibleto determine with certainty the scope or likelihood of possible future changesin tax laws or in the administration of tax laws. If

 

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adopted, changes in taxlaw could have a material adverse effect on our financial results. 

 

***SignificantAccounting Policies and Estimates:***

 

We prepare ourConsolidated Financial Statements in conformity with accounting principlesgenerally accepted in the United States. Certain of our accounting policies,including, but not limited to, the estimated lives assigned to our assets, thedetermination of bad debts, asset impairment, fair value of guarantees, and thecalculation of our income tax liabilities, require that we apply significantjudgment in defining the appropriate assumptions for calculating financialestimates. By their nature, these judgments are subject to an inherent degreeof uncertainty. Our judgments are based on our historical experience, terms ofexisting contracts, our observance of trends in the industry, informationprovided by our customers and information available from other outside sources,as appropriate.  We cannot assure youthat our actual results will not differ from our estimates. For a discussion ofour significant accounting policies and estimates, please refer to Management’sDiscussion and Analysis of Financial Condition and Results of Operations andNotes to Consolidated Financial Statements presented in our 2003 FinancialStatements.  There were no newlyidentified significant accounting estimates in the first nine months of 2004,nor were there any material changes to the critical accounting policies andestimates.

 

***PrivateSecurities Litigation Reform Act*:**

 

This Quarterly Reportcontains “forward-looking statements” intended to qualify for the safe harborfrom liability established by the Private Securities Litigation Reform Act of1995. You can identify these statements by the fact that they do not relatestrictly to historical or current facts. These statements often contain wordssuch as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,”“could,” “would,” “estimate,” “continue” or “pursue,” or the negative or othervariations thereof or comparable terminology. In particular, they includestatements relating to, among other things, future actions, new projects,strategies, future performance, the outcome of contingencies such as legalproceedings and future financial results. We have based these forward-lookingstatements on our current expectations and projections about future events. 

 

We caution the readerthat forward-looking statements involve risks and uncertainties that cannot bepredicted or quantified and, consequently, actual results may differ materiallyfrom those expressed or implied in the forward-looking statements. These risksand uncertainties include, but are not limited to, the following factors aswell as other factors described from time to time in our reports filed with theSecurities and Exchange Commission: 

 

•                  theeffects of competition, including location of competitors and operating andmarket competition;

•                  ourability to build and maintain healthy personal and professional relationshipswith tribes and their officials;

•                  thepotential change of policies and personnel of tribal governments which couldadversely affect our relationships;

•                  abilityof our customer-tracking and customer loyalty programs;

•                  ourability to recoup costs of capital investments through higher revenues;

•                  actsof war or terrorist incidents;

•                  abnormalgaming holds;

•                  accessto available and feasible financing; 

•                  theeffects of environmental and structural building conditions relating to theCompany’s properties;

•                  theeffect of economic, credit and capital market conditions on the economy ingeneral, and on gaming companies in particular;

•                  construction factors, includingdelays, zoning issues, environmental restrictions, soil and water conditions,weather and other hazards, site access matters and building permit issues;

•                  changesin laws (including increased tax rates), regulations or accounting standards,third-party    relations and approvals,and decisions of courts, regulators and governmental bodies; and

•                  litigationoutcomes and judicial actions, including gaming legislative action, referendaand taxation.

 

Any forward-lookingstatements are made pursuant to the Private Securities Litigation Reform Act of1995 and, as such, speak only as of the date made. We undertake no obligationto publicly update any forward-looking statements, whether as a result of newinformation, future events or otherwise. 

 

**RiskFactors**

 

In reviewing thisQuarterly Report on Form 10-QSB, you should carefully consider the mattersconcerning Southwest Casino Corporation described under the heading “RiskFactors” in the Current Report on Form 8-K/A filed by the Company onOctober 5, 2004, which are incorporated in this document by reference.

 

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**Item 3****. Controls and Procedures**

 

**Evaluation of Disclosure Controls andProcedures**

 

We maintaindisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) that are designed to ensure that information required to bedisclosed by us in the reports we file or submit under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized, and reported,within the time periods specified in the Securities and Exchange Commission’srules and forms and that such information is accumulated and communicated toour management, including our principal executive and principal financialofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure. Our management evaluated, with the participation of our Chief ExecutiveOfficer and Chief Financial Officer, the effectiveness of the design andoperation of our disclosure controls and procedures as of the end of the periodcovered in this Quarterly Report on Form 10-QSB.  Based on that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of the end of such period.  

 

**Changes in Internal Controls**

 

There was nochange in our internal control over financial reporting that occurred duringour quarter ended September 30, 2004 that has materially affected, or isreasonably likely to materially affect our internal control over financialreporting.

 

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** **

**PART II**- OTHER INFORMATION

** **

**Item 1.  Legal Proceedings.**

** **

**None**

** **

**Item2.  Unregistered Sales of Equity Securities.**

** **

**See Item 5.01, Changes in Controlof Registrant in the Current Report on Form 8-K/A filed October 5, 2004.**

** **

**Item 3.  Defaults Upon Senior Securities.**

** **

**None.**

** **

**Item 4.  Submission of Matters to a Vote ofSecurity Holders.**

** **

**None.**

** **

**Item 5.  Other Information.**

** **

**None.**

** **

**Item 6.  Exhibits.**

** **

**(a)**                                  Exhibits:

 

31.1                           Certification of Chief Executive OfficerPursuant to SEC Rule 13a-14.

 

31.2                           Certification of Chief Financial OfficerPursuant to SEC Rule 13a-14.

 

32.1                           Certification of Chief Executive OfficerPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906of the Sarbanes-Oxley Act of 2002

 

32.2                           Certification of Chief Financial OfficerPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906of the Sarbanes-Oxley Act of 2002

 

 

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**SIGNATURES**

 

In accordance with therequirements of the Securities and Exchange Act of 1934, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
| November 15, 2004 | **SOUTHWEST CASINO CORPORATION** |
|------------------------|----------------------------------|
|                   |                             |
|                   | By:                              |   | /s/ James B. Druck |   |
|                   |                             | James B. Druck |
|                   |                             | Chief Executive Officer and Secretary  (principal executive officer) |
|                   |                             |   |
|                   | By:                              |   | /s/ Thomas E. Fox |   |
|                   |                             | Thomas E. Fox |
|                   |                             | President and Chief Financial Officer  (principal financial and accounting officer) |

 

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