** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-QSB**

** **

**(MarkOne)**

** **
| **ý****  ****QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                           |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                           |
| **For the quarterly period ended March 31,  2005**                                                                                                                                                                              |
| ** **                                                                                                                                                                                                                           |
| **o****  ****TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE  ACT**                                                                                                                                  |
| ** **                                                                                                                                                                                                                           |
| **For the Transition Period From                To                ** |
| ** **                                                                                                                                                                                                                           |
| **Commission file number  000-50572**                                                                                                                                                                                                |

 

**SOUTHWEST CASINO CORPORATION**

(Exact name of small businessissuer 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 executiveoffices)

 

**(952) 853-9990**

(Issuer’stelephone number)

 

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the past 12 months (or for such shorter period thatthe 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 of shares outstanding of each of theissuer’s classes of common stock as of the latest practicable date:  19,513,656

 

Transitional Small Business Disclosure Format (checkone):    Yes  o         No ý

 

 

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**SOUTHWEST CASINO CORPORATION**

 

**FORM 10-QSB**

**SEPTEMBER 30,2004**

 

**TABLE OFCONTENTS**

 
| Description    |                                                            |
|----------------|-----------------------------------------------------------------|
|           |                                                            |   |
| PART I.   | FINANCIAL  INFORMATION                                          |   |
| ITEM 1.        | Financial Statements                                            |   |
|           | Consolidated  Balance Sheet (Unaudited)                         |   |
|           | Consolidated  Statements of Operations (Unaudited)              |   |
|           | Statements  of Cash Flows (Unaudited)                           |   |
|           | Notes to  Unaudited Consolidated Financial Statements           |   |
| ITEM  2.       | Management’s  Discussion and Analysis or Plan of Operation |   |
| ITEM 3.        | Controls and  Procedures                                        |   |
|           |                                                            |   |
| PART II.  |  OTHER  INFORMATION                                        |   |
| ITEM 1.        | LEGAL PROCEEDINGS                                               |   |
| ITEM  2.       | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS    |   |
| ITEM  6.       | EXHIBITS                                                        |   |
| SIGNATURE PAGE |                                                            |

 

*In this Form 10-QSB, referencesto “Southwest,” “the company,” “we,” “our” or “us,” unless the contextotherwise requires, refer to Southwest Casino Corporation.*

 

1

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**PART I– FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements.**

 

**SOUTHWEST CASINO CORPORATION**

 

**Table of Contents**

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

 

2

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**SOUTHWESTCASINO CORPORATION**

**ConsolidatedBalance Sheets (Unaudited)**

**March 31,2005**

 
| ASSETS                                                                                                  | ** ** | ** **  | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-------------|------------|
| CURRENT ASSETS                                                                                          |       |        |       |
| Cash and Cash  Equivalents                                                                              |       | $           | 1,522,770  |   |
| Cash -  Restricted                                                                                      |       | 152,095     |       |
| Accounts  Receivable                                                                                    |       | 117,428     |       |
| Management Fees  Receivable                                                                             |       | 415,111     |       |
| Inventories                                                                                             |       | 147,377     |       |
| Prepaid Expenses                                                                                        |       | 307,018     |       |
| Total Current  Assets                                                                                   |       | $           | 2,661,799  |   |
|                                                                                                    |       |        |       |
| PROPERTY AND  EQUIPMENT                                                                                 |       |        |       |
| Real Estate  Options                                                                                    |       | $           | 493,257    |   |
| Construction in  Progress                                                                               |       | 1,224,783   |       |
| Leasehold  Improvements                                                                                 |       | 15,668,827  |       |
| Furniture and  Equipment                                                                                |       | 6,424,271   |       |
| Accumulated  Depreciation                                                                               |       | (8,279,835  | )          |
| Net Property and  Equipment                                                                             |       | $           | 15,531,303 |   |
|                                                                                                    |       |        |       |
| OTHER ASSETS                                                                                            |       |        |       |
| Intangible  Assets                                                                                      |       | $           | 1,415,955  |   |
| Deposits                                                                                                |       | 84,150      |       |
| Deferred Tax  Asset                                                                                     |       | 842,000     |       |
| Total Other  Assets                                                                                     |       | $           | 2,342,105  |   |
|                                                                                                    |       |        |       |
| TOTAL ASSETS                                                                                            |       | $           | 20,535,207 |   |
|                                                                                                    |       |        |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                               |       |        |       |
|                                                                                                    |       |        |       |
| CURRENT  LIABILITIES                                                                                    |       |        |       |
| Accounts Payable                                                                                        |       | $           | 2,797,481  |   |
| Accrued Expenses                                                                                        |       | 932,389     |       |
| Accrued Liabilities  - Related Parties                                                                  |       | 709,683     |       |
| Notes Payable                                                                                           |       | 746,559     |       |
| Current Portion  of Long-Term Liabilities                                                               |       | 770,902     |       |
| Convertible  Subordinated Series A Debentures                                                      |       | 75,000      |       |
| Accrued Interest  Payable                                                                               |       | 76,312      |       |
| Total Current  Liabilities                                                                              |       | $           | 6,108,326  |   |
|                                                                                                    |       |        |       |
| LONG-TERM  LIABILITIES                                                                                  |       |        |       |
| Long-Term  Liabilities Net of Current Portion                                                           |       | $           | 8,838,051  |   |
|                                                                                                    |       |        |       |
| STOCKHOLDERS’  EQUITY                                                                              |       |        |       |
| Common Stock,  $.001 Par Value, 50,000,000 Shares Authorized, 19,513,656 Shares Issued and  Outstanding |       | 19,513      |       |
| Minority  interest in subsidiary                                                                        |       | $           | 690,336    |   |
| Additional  Paid-in Capital - Warrants                                                                  |       | 24,500      |       |
| Additional  Paid-in Capital                                                                             |       | 16,796,198  |       |
| Accumulated  Deficit                                                                                    |       | (11,941,717 | )          |
| Total  Stockholders’ Equity                                                                        |       | 5,588,830   |       |
|                                                                                                    |       |        |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                        |       | $           | 20,535,207 |   |

 

See Notes toUnaudited Consolidated Financial Statements

 

3

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**SOUTHWESTCASINO CORPORATION**

**ConsolidatedStatements of Operations (Unaudited)**

**Forthe three months ended March 31, 2005 and 2004**

 
| ** **                                                | ** ** | ** ** | ** ** | **Restated** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|--------------|------------|
| ** **                                                | ** ** | **2005**   | ** ** | **2004**     | ** ** |
| ** **                                                | ** ** | ** ** | ** ** | ** **   | ** ** |
| **REVENUES**                                              |       |       |       |         |       |
| Casino                                                    |       | $          | 3,563,356  |         | $          | 3,812,407 |   |
| Food &  Beverage/Hotel                           |       | 94,121     |       | 82,930       |       |
| Management and  Consulting                                |       | 1,024,458  |       | 1,290,590    |       |
| Entertainment                                             |       | —     |       | —       |       |
| Other                                                     |       | 33,663     |       | 26,718       |       |
| Total Revenue                                             |       | 4,715,598  |       | 5,212,645    |       |
|                                                      |       |       |       |         |       |
| **EXPENSES**                                              |       |       |       |         |       |
| Casino                                                    |       | $          | 3,117,299  |         | $          | 2,835,139 |   |
| Food &  Beverage/Hotel                           |       | 139,877    |       | 374,907      |       |
| Corporate  Expense                                        |       | 691,406    |       | 637,789      |       |
| Project  Development Costs                                |       | 318,649    |       | 350,794      |       |
| Entertainment                                             |       | 10,873     |       | 8,874        |       |
| Depreciation and  Amortization                            |       | 595,139    |       | 521,184      |       |
| Total Expenses                                            |       | 4,873,243  |       | 4,728,687    |       |
|                                                      |       |       |       |         |       |
| Income from  Operations                                   |       | $          | (157,645   | )            | $          | 483,958 |   |
|                                                      |       |       |       |         |       |
| **OTHER  INCOME (EXPENSE)**                               |       |       |       |         |       |
| Interest Income                                           |       | $          | 2,745      |         | $          | 7,006 |   |
| Interest Expense                                          |       | (286,268   | )          | (271,234     | )          |
| Loss on  Disposition of Property and Equipment            |       | (155       | )          | —       |       |
| Total Other  Income (Expense)                             |       | (283,678   | )          | (264,228     | )          |
|                                                      |       |       |       |         |       |
| Loss from  Continuing Operations Before Income Taxes      |       | (441,323   | )          | 219,730      |       |
|                                                      |       |       |       |         |       |
| Income Tax  Benefit (Expense)                             |       | —     |       | (88,000      | )          |
| Minority Interest  in Income of Consolidated Subsidiaries |       | 34,435     |       | —       |       |
|                                                      |       |       |       |         |       |
| Income (Loss)  from Continuing Operations                 |       | (406,888   | )          | 131,730      |       |
|                                                      |       |       |       |         |       |
| **DISCONTINUED  OPERATIONS**                              |       |       |       |         |       |
| Loss from  Discontinued Operations                        |       | $          | —     |         | $          | (248,191 | ) |
| Income Tax  Benefit                                       |       | —     |       | 88,000       |       |
| Total  Discontinued Operations                            |       | —     |       | (160,191     | )          |
|                                                      |       |       |       |         |       |
| **NET  LOSS**                                             |       | $          | (406,888   | )            | $          | (28,461 | ) |
|                                                      |       |       |       |         |       |
| Earnings per  common share and common equivalent share,   |       |       |       |         |       |
| Basic:                                                    |       |       |       |         |       |
| Loss from  continuing operations                          |       | (0.02      | )          | 0.03         |       |
| Discontinued  operations                                  |       | —     |       | (0.03        | )          |
| Net Income                                                |       | $          | (0.02      | )            | $          | (0.00 | ) |
|                                                      |       |       |       |         |       |
| Common  Equivalent Shares Outstanding                     |       | 19,385,625 |       | 5,256,789    |       |
|                                                      |       |       |       |         |       |
| Earnings per  common share and common equivalent share,   |       |       |       |         |       |
| Fully-diluted:                                            |       |       |       |         |       |
| Loss from  continuing operations                          |       | (0.02      | )          | 0.04         |       |
| Extraordinary  item                                       |       | —     |       | (0.04        | )          |
| Net Income                                                |       | $          | (0.02      | )            | $          | — |   |
|                                                      |       |       |       |         |       |
| Common  Equivalent Shares Outstanding                     |       | 19,385,625 |       | 5,256,789    |       |

 

See Notes toUnaudited Consolidated Financial Statements

 

4

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**SOUTHWESTCASINO CORPORATION**

**ConsolidatedStatements of Cash Flows (Unaudited)**

**Forthe three months ended March 31, 2005 and 2004**

 
| ** **                                                              | ** ** | ** ** | ** ** | **Restated** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|--------------|------------|
| ** **                                                              | ** ** | **2005**   | ** ** | **2004**     | ** ** |
| ** **                                                              | ** ** | ** ** | ** ** | ** **   | ** ** |
| Cash Flows from  Operating Activities:                                  |       |       |       |         |       |
| Net Loss                                                                |       | $          | (406,888   | )            | $          | (28,461 | ) |
| Adjustments to  Reconcile Net Loss to                                   |       |       |       |         |       |
| Net Cash  Provided by (Used In) Operating Activities:                   |       |       |       |         |       |
| Minority  Interest                                                      |       | (34,435    | )          | —       |       |
| Depreciation and  Amortization                                          |       | 595,139    |       | 555,506      |       |
| Write off of  Land Option cost incurred in prior years                  |       | 249,778    |       | —       |       |
| (Gain) Loss on  Disposition of Property and Equipment                   |       | 155        |       | 5,662        |       |
| Common Stock  Issued for Non-Cash Compensation                          |       | 5,625      |       | —       |       |
|                                                                    |       |       |       |         |       |
| Change in  Current Assets and Liabilities,                              |       |       |       |         |       |
| (Increase)  Decrease in Restricted Cash                                 |       | 50,052     |       | —       |       |
| (Increase)  Decrease in Receivables                                     |       | (155,064   | )          | (150,532     | )          |
| (Increase)  Decrease in Inventories                                     |       | 7,347      |       | 12,846       |       |
| (Increase)  Decrease in Prepaid Expenses                                |       | 333,592    |       | (172,392     | )          |
| Increase  (Decrease) in Accounts Payable                                |       | (86,509    | )          | 175,201      |       |
| Increase  (Decrease) in Accrued Expenses                                |       | 52,285     |       | (37,729      | )          |
| Increase  (Decrease) in Accrued Interest Payable                        |       | (33,463    | )          | 8,216        |       |
| Net Cash  Provided By Operating Activities                              |       | $          | 577,614    |         | $          | 368,317 |   |
|                                                                    |       |       |       |         |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                   |       |       |       |         |       |
| Proceeds from  Sale of Property and Equipment                           |       | $          | —     |         | $          | 3,366 |   |
| Purchase of  Property and Equipment                                     |       | (140,101   | )          | (271,547     | )          |
| Payment of  Capitalized License                                         |       | —     |       | —       |       |
| (Increase)  Decrease in Deposits                                        |       | 15,874     |       | 39,032       |       |
| Net Cash (Used  In) Investing Activities                                |       | $          | (124,227   | )            | $          | (229,149 | ) |
|                                                                    |       |       |       |         |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                   |       |       |       |         |       |
| Net Advances  (Payments) on Short-Term Notes Payable                    |       | $          | (136,542   | )            | $          | 200,000 |   |
| Payment of  Deferred Financing and Offering Costs                       |       | —     |       | (95,009      | )          |
| Proceeds from  Principal Received on Long-Term Notes Receivable         |       | —     |       | 298,299      |       |
| Proceeds from  Long-Term Borrowings                                     |       | (175,955   | )          | (254,011     | )          |
| Proceeds from  Outside Investors - Minority Interest                    |       | 616,324    |       | —       |       |
| Proceeds from  Issuance of Preferred Stock & Warrants          |       | 15,000     |       | 750          |       |
| Net Cash  Provided by Financing Activities                              |       | $          | 318,827    |         | $          | 150,029 |   |
|                                                                    |       |       |       |         |       |
| Net Increase  (Decrease) in Cash and Cash Equivalents                   |       | 772,214    |       | 289,197      |       |
|                                                                    |       |       |       |         |       |
| CASH AND CASH  EQUIVALENTS                                              |       |       |       |         |       |
| Beginning of  Year                                                      |       | 750,556    |       | 728,290      |       |
| End of Year                                                             |       | $          | 1,522,770  |         | $          | 1,017,487 |   |
|                                                                    |       |       |       |         |       |
| SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION                       |       |       |       |         |       |
| Interest paid                                                           |       | $          | 267,254    |         | $          | 273,376 |   |
| Income taxes  paid                                                      |       | —     |       | 45,153       |       |
|                                                                    |       |       |       |         |       |
| SUPPLEMENTAL  DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |       |       |       |         |       |
| Warrants issued  in exchange for services                               |       | $          | 5,625      |         | $          | 188,400 |   |
| Purchase of  equipment with financing                                   |       | —     |       | 1,144,500    |       |
| Capital Assets  acquired with Accounts Payable                          |       | 111,194    |       | 248,236      |       |

 

See Notes toUnaudited Consolidated Financial Statements

 

5

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**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**March 31,2005 and 2004**

 

**NOTE 1 –ORGANIZATION AND NATURE OF OPERATIONS**

 

Southwest CasinoCorporation

 

The current structure ofSouthwest Casino Corporation resulted from a July 22, 2004 reorganizationconsummated 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,Southwest Casino and Hotel Corp., a Minnesota corporation, and certainshareholders of Lone Moose Adventures. In the reorganization, Lone Moose Acquisition Corporation merged withand into Southwest 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 the reorganization,Lone Moose Adventures (now Southwest Casino Corporation) issued 16,161,343shares of its common stock to shareholders of Southwest Casino and Hotel Corp.to acquire 100% of the issued and outstanding shares of common stock, series Cconvertible preferred stock, and other convertible securities of Southwest Casinoand Hotel Corp.  The reorganizationrepresents a recapitalization of Southwest Casino Corporation with accountingtreatment similar to that used in a reverse acquisition, except that nogoodwill or intangible is recorded.  Arecapitalization is characterized by the merger of a private operating companyinto anon-operating public shell corporation with nominal net assets and typicallyresults in the owners and managers of the private company having effectiveoperating control after the transaction. Southwest Casino Corporation emerged as the surviving reporting entityafter the reorganization.

 

Southwest CasinoCorporation, through its wholly-owned subsidiaries, operates three casinos inCripple Creek, Colorado and manages Native American gaming facilities undercontractual agreements.  Southwest CasinoCorporation’s operations include the following consolidated subsidiaries:

 

Southwest Casino andHotel Corp.

 

Southwest Casino andHotel Corp. was formed in 1992 and provides management consulting services forcasinos under contractual agreements and operates Uncle Sam’s Casino in CrippleCreek, Colorado under a 5-year lease that has been extended for an additional 5years ending in 2009.

 

Gold Rush I, LLC

 

Gold Rush I, LLC, wasformed during 1999 and operates the Gold Rush Hotel and Casino and Gold Digger’sCasino in Cripple Creek, Colorado under a long term capitalized leaseagreement.

 

Southwest Entertainment.Inc.

 

Southwest Entertainment, Inc.,located in Minneapolis, Minnesota, was formed on November 4, 1998. Thecompany operates an outdoor amphitheatre for entertainment events in CrippleCreek, Colorado.

 

Southwest CasinoDeadwood, LLC

 

Southwest CasinoDeadwood, LLC located in Deadwood, South Dakota was formed on December 7,1999 and began operating B.B. Cody’s Casino under lease in July 2000.  During December 2003, the Companydecided to discontinue operations in Deadwood (see Note 11).

 

North Metro HarnessInitiative, LLC.

 

North Metro HarnessInitiative, LLC (a development stage Minnesota limited liability company), wasformed on June 16, 2003 for the purpose of developing, owning, andoperating a harness racetrack and card room north of Minneapolis, Minnesota, inAnoka County.  North Metro was issued alicense by the Minnesota Racing Commission on February 16, 2005.  As a result of the Minnesota RacingCommission’s decision, the Commission is being sued by 

 

6

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two groups opposed to therace track.  North Metro cannot moveforward with its development until this litigation is resolved.

 

SW Missouri, LLC

 

SW Missouri, LLC is a 30%shareholder in Southwest Missouri Gaming, LLC which was pursuing state andlocal regulatory approval and acquiring property for a riverboat casino inRockaway Beach, Missouri.  Thisinitiative was defeated in a statewide primary election held on August 3,2004.  It is unlikely, but still possiblethat this initiative will be revived if the project was to gain greater supportfrom the surrounding communities, including Branson, MO.

 

### **NOTE 2 – SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

###  

The unaudited financial statements of the Company havebeen prepared pursuant to the rules and regulations of the Securities andExchange Commission. Accordingly, they do not include all the information andfootnotes required by accounting principles generally accepted in the UnitedStates of America.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation havebeen included in the accompanying financial statements. The results ofoperations for the three months ended March 31, 2005 and 2004 are notnecessarily indicative of the results 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 31,2004.

 

# **Principles of Consolidation**

# ** **

# **The accompanying consolidated financial statements include the accountsof Southwest Casino Corporation and its subsidiaries.  All material inter-company transactions andbalances have been eliminated in consolidation.**

# ** **

# **Basis of Accounting**

# ** **

# **The consolidated financial statements of the Company are prepared usingthe accrual basis of accounting whereby revenues are recognized when earned andexpenses are recognized when incurred. This basis of accounting conforms to generally accepted accountingprinciples in the United States of America.**

# ** **

Use of Estimates

 

The preparation offinancial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the period. Actual results could differ from those estimates.

 

RevenueRecognition

 

Casino revenue is the netwin from gaming activities, which is the difference between gaming wins andlosses.  Revenue from food, beverage andhotel operations is recorded upon delivery of goods or services, and excludespromotional allowances.  Revenue fromcasino management and consulting contracts with outside parties is recognizedover the term of the agreements. Consideration given in exchange for entering into long-term contracts isamortized over the life of the agreement.

 

Operating Segments

 

The Company hassegregated its activities into three operating segments based on operating andmanagement characteristics related to its sources of revenue or basis foraccumulating assets or expenses.  Thesegments are 

 

7

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defined as casinooperations, casino management for unrelated parties, and casino developmentactivities.  Separate operations areaggregated based on the above general segment descriptions.

 

Investments

 

Investments in entities where the Company has morethan a 20% but less than a 50% financial and voting interest are recorded onthe equity method of accounting.  Whenthe Company has an investment of 50% but less 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.

 

**NOTE 3 – RESTRICTED CASH**

 

Restricted Cash at March 31,2005 represents a bank escrow account set up to repurchase Series Aconvertible subordinated debentures that were outstanding as of July 14,2004.  See Note 8.

 

**NOTE 4 –NOTES RECEIVABLE**

 

Notesreceivable at March 31 consists of the following:

 
| ** **                                                                                                                                                                                                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                                                                                                                         |       |     |       |     |       |
| Cheyenne and  Arapaho Business Development Corporation, with monthly payments of $93,721  including principal and interest at 9.25% until the extended maturity date of  May 1, 2004, secured by property in Concho, OK |       | $        | —     |     | $          | 101,819 |   |
|                                                                                                                                                                                                                         |       |     |       |     |       |
| Less amounts  shown as current                                                                                                                                                                                               |       | —   |       | (101,819 | )          |
| Notes receivable  - long-term                                                                                                                                                                                                |       | $        | —     |     | $          | — |   |

 

# **NOTE 5 –PROMOTIONAL ALLOWANCES**

# ** **

# **Revenue does not include the retail amount of rooms, food,and beverages provided gratuitously to customers, which was $296,000 and$280,000 for the three months ended March 31, 2005 and 2004, respectively.**

# ** **

**NOTE 6 –INTANGIBLE ASSETS AND CASINO MANAGEMENT AGREEMENT**

 
| **Intangible Assets consisted of the following at March 31:** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                          |       |     |       |     |       |
| Casino  management contract rights                            |       | $        | 1,104,578  |     | $          | 1,529,415 |   |
| Minnesota  Class A and B Racing License                  |       | 311,377  |       | —   |       |
| Total                                                         |       | $        | 1,415,955  |     | $          | 1,529,415 |   |

 

Futureamortization of management contract rights are as follows:

 
| **Twelve Months Ended March 31,** | ** ** |
|----------------------------------------|------------|
|                                   |       |   |   |
| 2006                                   |       | $ | 509,805 |   |
| 2007                                   |       | $ | 509,805 |   |
| 2008                                   |       | $ | 84,968 |   |

 

TheCompany entered into an agreement with the Cheyenne and Arapaho Tribes ofOklahoma (CATO) for management of its casinos located in Oklahoma which was toexpire on May 19, 2004. In exchange for extending 

 

8

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thecontract through May 19, 2007, the Company has transferred title of atract of land to CATO.  The exchange tookplace in 2003.  Since the asset transferis related to the extension agreement for management services, the cost of theland is being amortized over the term of the agreement.

 

TheCompany earned management revenues of $1,024,458 and $1,290,590 under theagreement with CATO for the three months ended March 31, 2005 and 2004,respectively.

 

**NOTE 7- LINE OF CREDIT**

 

The Company may borrow up to $450,000 under arevolving line of credit.  Interest ispayable at a variable rate (6.75% as of March 31, 2005). The line is due May 5,2006, and is collateralized by substantially all assets.  At March 31, 2005, the line had abalance of $446,292 with $3,708 available to draw.  The line of credit is included in notespayable on the accompanying balance sheet.

 

The Company has entered into a collateral agreementand promissory note to collateralize a $500,000 bond related to the developmentof North Metro Harness Initiative, LLC. The promissory note is due on June 1,2006, with a variable interest ratio (currently 5%).**At March 31, 2005 the note had not been drawn. Thenote is personally guaranteed by four stockholders of the Company.

 

On October 12, 2004, the Company borrowed$500,000 amortized over one year at $42,934 per month, with an interest rate of5.75% guaranteed by the Directors of the Company.  The last payment is due October 31,2005.  The balance of the loan was$295,715 as of March 31, 2005.

 

**NOTE 8 – SUBORDINATED DEBENTURES**

 

During 1993, the Companysold $8,250,000 of Series A convertible subordinated debentures payinginterest at a rate of 9.25% per year and due and payable on July 15,1998.  On July 8, 2004, the Companyoffered to redeem all remaining outstanding Series A debentures, inprincipal amount of $362,500, which were then in default, in exchange forpayment of all principal plus interest accrued through July 14, 2004, orconversion of the principal to common stock plus payment of accrued interestthrough July 14, 2004.  The Companyhas paid all amounts necessary to redeem the remaining Series Aconvertible subordinated debentures in accordance with this offer into anescrow account established for this purpose. On February 14, 2005, a debenture holder converted his $25,000debenture into 22,728 shares of common stock. Therefore, as of March 31,2005, Series A convertible subordinated debentures in the principal amountof $75,000 remained outstanding with accrued interest payable of $76,312.  In accordance with the July 8, 2004redemption offer, we are no longer accruing interest on the outstanding Series Adebenture.

 

**NOTE 9 –PRIOR PERIOD ADJUSTMENT**

 

The statements ofoperations and cash flows for the three months ended March 31, 2004 havebeen restated for correction of an error in the recording of capitalleases.  The adjustments for the threemonths ended March 31, 2004 results in a reduction of net income of $8,324for the quarter ended March 31, 2004 from amounts previously reported.

 

**NOTE 10 –STOCK OPTIONS AND WARRANTS**

 

On March 25, 2005,the Company issued 125,000 shares of common stock to a consultant to theracetrack development who exercised a warrant to purchase those shares at aprice of $0.12 per share.

 

9

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**NOTE 11 –DISCONTINUED OPERATIONSAND IMPAIRMENT**

 

During 2003 as a result of continued losses fromoperations the Company decided to discontinue the operation of its casino inDeadwood, South Dakota. As a result, during 2004, the Company sold or abandonedcertain assets and transferred the remaining assets to other casino operations.As of December 31, 2003, the value of the assets sold was recorded asassets held for sale on the accompanying balance sheet. For the year ended December 31,2003, the Company recorded a loss of $282,550 for the difference between thenet book value of the assets sold or abandoned and the net proceeds receivedsubsequent to December 31, 2003. During the three months ended March 31,2004, the Company incurred an additional loss on disposal of assets ofapproximately $500 related to this discontinued operation.

 

Revenues from the Deadwood Casino totaledapproximately $262,678, for the three months ended March 31, 2004, and areincluded in the casino operations segment.

 

In connection with the discontinued operation, duringthe three months ended March 31, 2004, the Company incurred terminationand severance costs.  The total amountexpected to be incurred is approximately $73,500 which was recorded as anexpense of the discontinued operation in the accompanying statement ofoperations.  The liability related to thetermination and severance benefits is as follows:

 
| Liability  Balance, December 31, 2003 |   | $      | — |   |
|--------------------------------------------|--------|--------|--------|--------|
| Three Months  Ended March 31, 2004:   |   |   |   |
| Costs Charged to  Expense                  |   | 73,500 |   |
|                                       |   |   |   |
| Costs Paid                                 |   | — |   |
|                                       |   |   |   |
| Liability  Balance, March 31, 2004    |   | $      | 73,500 |   |

 

The above costs areincluded in the casino operation segment for segment reporting purposes.

 

The company paid alltermination benefits by June 30, 2004.

 

# **NOTE 12 – RELATED PARTYTRANSACTIONS**

# ** **

The Company has aliability to certain officers and stockholders for unpaid compensation andexpenses of $232,468 and $410,100 as of March 31, 2005 and 2004,respectively.

 

During the three monthsended March 31, 2005 and 2004, the Company paid Berc & FoxLimited $5,075 and $788 for tax and accounting services, respectively.  Thomas Fox is a shareholder and officer inBerc & Fox Limited.

 

**NOTE 13 – PROJECT DEVELOPMENTCOSTS**

 

In February 2004, anoption to purchase the Gold Rush real estate was negotiated with thelessor.  This option was for a term ofone year expiring on February 28, 2005, during which time, the Companycould purchase the lessor’s interest in the property.  As consideration for this option, the Companydismissed certain claims against the lessor and other costs incurred inconnection with a dispute regarding provisions of the lease.  These costs amounted to $249,778.  In the first quarter of 2005 these costs havebeen charged to expense as project development expense because the Company didnot exercise its option to purchase the Gold Rush real estate.  During the first three months of 2004,$90,900 in project costs were incurred in connection with the development ofthe race track and card room in Minnesota, and $259,894 in project costs wereincurred in the pursuit of a riverboat gaming opportunity in Missouri.

 

10

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**NOTE 14 – SEGMENT INFORMATION**

 

Segment information related to the three months ended March 31,2005 follows:

 
| ** **                                 | ** ** | **Casino**     | ** ** | **Casino**     | ** ** | **Casino**      | ** ** | **Reconciling** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|----------------|------------|----------------|------------|-----------------|------------|-----------------|------------|------------|------------|
| ** **                                 | ** ** | **Operations** | ** ** | **Management** | ** ** | **Development** | ** ** | **Items (1)**   | ** ** | **Total**  | ** ** |
| Revenues                                   |       | $              | 3,691,140  |           | $          | 1,024,458       |       | $               | —     |       | $          | — |   | $ | 4,715,598 |   |
| Interest revenue                           |       | —         |       | 2,745          |       |            |       | —          |       | 2,745      |       |
| Interest expense                           |       | 265,702        |       | 20,566         |       | —          |       | —          |       | 286,268    |       |
| Depreciation and  amortization             |       | 462,633        |       | 132,506        |       | —          |       | —          |       | 595,139    |       |
| Segment profit  (loss) before income taxes |       | (305,244       | )          | 182,570        |       | (318,649        | )          | 34,435          |       | (406,888   | )          |
| Income tax  expense (benefit)              |       | —         |       | —         |       | —          |       | —          |       | —     |       |
| Segment assets                             |       | 15,425,964     |       | 2,582,151      |       | 2,527,092       |       | —          |       | 20,535,207 |       |
| Expenditures for  segment assets           |       | 1,809          |       | 24,781         |       | 206,262         |       | —          |       | 250,985    |       |
|                                            |            |                |            |                |            |                 |            |                 |            |            |            |  |  |  |  |  |

 

Segment information related to the three months ended March 31,2004 follows:

 
| ** **                                 | ** ** | **Casino**     | ** ** | **Casino**     | ** ** | **Casino**      | ** ** | **Reconciling** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|----------------|------------|----------------|------------|-----------------|------------|-----------------|------------|------------|------------|
| ** **                                 | ** ** | **Operations** | ** ** | **Management** | ** ** | **Development** | ** ** | **Items (2)**   | ** ** | **Total**  | ** ** |
| Revenues                                   |       | $              | 4,184,733  |           | $          | 1,290,590       |       | $               | —     |       | $          | (262,678 | ) | $ | 5,212,645 |   |
| Interest revenue                           |       | —         |       | 7,006          |       | —          |       | —          |       | 7,006      |       |
| Interest expense                           |       | 258,517        |       | 12,717         |       |            |       | —          |       | 271,234    |       |
| Depreciation and  amortization             |       | 552,548        |       | 2,958          |       | —          |       | (34,322         | )          | 521,184    |       |
| Segment profit  (loss) before income taxes |       | (524,731       | )          | 598,873        |       | (350,794        | )          | 248,191         |       | (28,461    | )          |
| Income tax  expense (benefit)              |       | 68,000         |       | 54,000         |       | (34,000         | )          | (88,000         | )          | —     |       |
| Segment assets                             |       | 16,716,925     |       | 3,516,521      |       | 972,034         |       | —          |       | 20,058,483 |       |
| Expenditures for  segment assets           |       | 1,227,837      |       | 2,893          |       | 433,524         |       | —          |       | 1,664,283  |       |
|                                            |            |                |            |                |            |                 |            |                 |            |            |            |  |  |  |  |  |

 

----

(1)   Reconciling item is loss on subsidiaryallocated to minority interest.

(2)   Reconciling items are revenues, loss, depreciation,income tax benefit from discontinued operations.

 

**NOTE 15 – COMMITMENTS ANDCONTINGENCIES**

 

The Company, throughNorth Metro Harness Initiative, LLC (NMHI), has entered into an agreement forthe development of the land, building and related property to operate a racetrack and card room.  Fees related to theagreement total 3% of the project cost, which is defined as the totaldevelopment cost less the cost to purchase the land.  The agreement began on May 1, 2003, andcontinues until the completion of the project, unless earlier terminated.  Fees are payable at a rate of $6,000 permonth, plus applicable out of pocket expenses, beginning on May 1,2003.  Upon the start of construction,two thirds of the expected fee (less previous monthly payments) is due.  If the agreement is terminated prior to thecompletion of the project, any unpaid fees are determined based on thecompleted status of the project at the time of termination, as defined in theagreement.

 

The Company, throughNorth Metro Harness Initiative, LLC (NMHI), has entered into consultingagreements with non-related parties to monitor legislation and perform lobbyingactivities and other public relations and development activities related toestablishing and developing the racetrack and card room.  The agreements are generally on amonth-to-month basis, and may be terminated by either party to theagreement.  The Company has monthlyobligations related to these agreements of approximately $24,000 per month.

 

NMHI has received aletter of commitment for debt financing for approximately 79% of the expectedtotal project cost of the race track and card room, with the remaining 21% tobe provided in the form of equity by the Company.  Terms of the commitment include a $33,000,00010-year amortization, and interest at a variable rate (1.74% above prime rate),with a floor of 7% and a $4,250,0005-year amortization, and interest at a fixed rate of 20%.  In 

 

11

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addition, 50% of netavailable cash flow (after scheduled debt service and income taxes) will berequired to be held in an account to redeem the debt.  Redemption under this provision occurs whenthe account equals the principal amount of the loan outstanding.  Security for the loan will include a firstmortgage, corporate guarantee of the Company, and security interests in otherassets of the Company.  The closing andfunding of the loan is expected to occur after various court challenges to NMHI’sClass A and B racing licenses are resolved.

 

During the three monthsended March 31, 2004, the Company purchased player tracking and slotaccounting software from IGT for $1,142,000. The Company has had discussions with IGT regarding the financing of thispurchase; however, at this time, the Company and IGT have not formalized anagreement.  Accordingly, this amount isincluded in accounts payable. The Company anticipates that IGT will provide theCompany with debt financing over 4 years at an interest rate of approximately7%.  The Company also intends to purchaseadditional software which will allow the Company to offer bonuses to itscustomers once this software is approved by Colorado Division of Gaming.  This additional software would also befinanced by IGT.

 

**NOTE 16 – SUBSEQUENT EVENTS**

 

On April 4, 2005,the Company announced that an investor had determined not to proceed with apreviously-announced proposed private placement of the Company’ssecurities.  The Company had entered intoa term sheet with the investor under which a group of investors would havepurchased up to $50 million of common stock, subject to customary contingenciesstated in the term sheet and described on the Company’s Current Report on Form 8-Kissued January 28, 2005.

 

On April 15, 2005,the Company renewed a revolving line of credit under which it may borrow up to$450,000.  Under the renewed line ofcredit the Company may borrow up to $450,000 at an initial annual interest rateof 6.75%.  This line of credit is due May 5,2006.  Pending renewal of this line ofcredit, which initially expired January 19, 2005, the Company had enteredinto a short term promissory note with the lender on January 19, 2005 thatwas due April 15, 2005 and carried an initial annual interest rate of6.25%.

 

On May 1, 2005, thecompany renewed its collateral agreement and promissory note to collateralize a$500,000 bond related to the development of North Metro Harness Initiative,LLC.  The promissory note is due June 1,2006 with an initial interest rate of 6.75%. At May 13, 2005 the note had not been drawn.  The note is personally guaranteed by fourstockholders of the Company.

 

12

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**Item2.****    Management’s Discussion and Analysis or Plan ofOperation**

 

The following is adiscussion and analysis of the financial position and operating results ofSouthwest Casino Corporation (referred to in this discussion, together with itsconsolidated subsidiaries where appropriate, as “Southwest Casino”, the “Company”,“we”, “our” and “us”) for the three months ended March 31, 2005 and 2004.

 

***Overview:***

 

Our principal business isthe management, operation and development of gaming facilities in emerging andestablished gaming jurisdictions. Currently, we operate three casinos in Cripple Creek, Colorado — GoldRush, Gold Digger’s and Uncle Sam’s.  Wealso manage two Native American gaming operations in Oklahoma for the Cheyenneand Arapaho Tribes of Oklahoma - Lucky Star Concho and Lucky Star Clinton.  Lucky Star Concho is located on U.S. Highway81, just north of the Oklahoma community of El Reno.  Lucky Star Clinton is located 60 miles westof Lucky Star Concho in the community of Clinton, Oklahoma on Old Route 66 nearInterstate I-40.  An amendment to ourmanagement contract with the Tribes to develop and manage a third site atCanton Lake has been ratified by the Tribes and has been submitted to theNational Indian Gaming Commission for approval.

 

We continually evaluateother management, consulting, development and acquisition opportunities relatedto gaming that have the potential to generate new revenue streams for us.  In January 2005, North Metro HarnessInitiative, LLC, which is 50% owned by Southwest Casino and Hotel Corp., wasgranted Class A and Class B licenses that will enable us to operate aharness race track and a 50 table card room in Columbus Township, Anoka County,Minnesota.  A local citizens group and agroup representing the owners of horses that race at Minnesota’s other Class Alicensed racetrack have two lawsuits pending against the Minnesota RacingCommission in attempts to revoke our licenses. We believe that these attempts to revoke our license will beunsuccessful, but it has delayed construction until this matter is resolved.  At this time, we can not predict when thelitigation will be resolved.

 

***Operating segments:***

 

Our executive officersreview operating results, assess performance and make decisions related to theallocation of resources on a property-by-property basis. We, therefore, believethat each property is an operating segment. In order to provide more detail in a more understandable manner thanwould be possible on a consolidated basis, and to facilitate discussion ofoperating revenue, we have grouped our properties as follows:

 

**CasinoOperations:**

Gold Rush/ Gold Digger’sCasino

Uncle Sam’s Casino

 

**CasinoManagement:**

Lucky Star – Concho

Lucky Star – Clinton

 

**Casinooperations**:

 

**GoldRush/Gold Digger’s Casino Results**

 
| **First Quarter**       | ** ** | **2005**  | ** ** | **2004**  | ** ** | **Percentage  Increase  (Decrease)** | ** ** |
|-------------------------|------------|-----------|------------|-----------|------------|--------------------------------------|------------|
|                    |       |      |       |      |       |                                 |       |
| Casino revenues         |       | $         | 3,333,104  |      | $          | 3,462,843                            |       | (3.7 | )% |
| Total revenues          |       | 3,460,279 |       | 3,571,834 |       | (3.1                                 | )%         |
| Income from  operations |       | 174,104   |       | 306,455   |       | (43.2                                | )%         |
| Operating margin        |       | 5.0       | %          | 8.6       | %          |                                 |       |
|                         |            |           |            |           |            |                                      |            |  |  |

 

Gold Rush/Gold Digger’srecorded lower revenues in the first quarter of 2005 than in the first quarterof 2004 as a result of increased competition in town — more than 600 slotmachines were added to the market in 2004 — and bad 

 

13

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weather on key weekendsin the first quarter of this year. Because Cripple Creek, Colorado sits high in the Rocky Mountains anddraws the majority of its business from cities and towns at lower elevations,weekend snow storms discourage many patrons from driving the mountain pass toour casinos, which has a significant impact on our operating results.  In contrast to the snowy weekend weather of2005, in the first quarter of 2004 we enjoyed an unusually mild winter thatcontributed to increased revenues for 2004. We kept 2005 operating expenses in line with 2004 operating expenses despiteincreases in costs associated with our new player tracking and slot accountingsystem, which has not been approved by the Colorado Division of Gaming and,therefore, requires additional manpower to meet reporting requirements.  We are currently testing the new system. Oncethe system is fully operational, we anticipate that we will have a competitiveadvantage in the market and will be able to stabilize accounting and reportingcosts.

 

**UncleSam’s Casino**

 
| **First Quarter**       | ** ** | **2005** | ** ** | **2004** | ** ** | **Percentage  Increase  (Decrease)** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|--------------------------------------|------------|
|                    |       |     |       |     |       |                                 |       |
| Casino revenues         |       | $        | 230,252    |     | $          | 349,564                              |       | (34.1 | )% |
| Total revenues          |       | 230,861  |       | 350,221  |       | (34.0                                | )%         |
| Income from  operations |       | (190,471 | )          | (100,479 | )          | 89                                   | %          |
| Operating margin        |       | (82.5    | )%         | (28.7    | )%         |                                 |       |
|                         |            |          |            |          |            |                                      |            |  |  |

 

Uncle Sam’s Casino is afacility with only 67 slot machines that serves primarily the local residentsmarket in Cripple Creek.  The localresident market is the most vulnerable to increased competition. The increaseof over 600 slot machines in Cripple Creek during 2004 and the opening of a newcasino that also caters to the local residents market in July 2004 hassubstantially impacted the casino revenues at this facility.  In addition, a casino adjacent to ourlocation began construction on an expansion next door that has made it moredifficult for patrons to frequent our facility. In the second quarter, we have added poker on the second floor of ourfacility, but it is too early to predict the impact on revenues.

 

**CasinoManagement*:***

 

**LuckyStar Concho**

 

Management fees fromLucky Star Concho were $583,429 in the first three months of 2005 and $828,362in the first three months of 2004, a decrease of 29.6%.  The decrease in management fees is the directresult of the decrease in our management fee percentage that took effect inconnection with the extension of our management agreement in May, 2004.  Actual operating revenue for this facility inthe first quarter of 2005 have exceeded the results for the first quarter of2004, which has partially offset the decrease in our management fee percentage.

 

In April 2005, theTribes’ compact with the state of Oklahoma was approved and, as a result, weare currently negotiating with the Tribes for a Class III license thatwill allow the facility to offer additional types of electronic games.  In April 2005, we began playing playerbanked card games allowed under the compact. We anticipate that we will begin to realize the benefits of theseexpanded gaming opportunities in the second quarter of 2005. The advantage fromexpanded gaming at the Lucky Star facilities will be at least partially offsetby competition from Remington Park, a racetrack in Oklahoma City, that willalso be allowed to offer the same type of gaming machines as the triballocations, but they will not be allowed player banked card games and theirhours of operations will be limited whereas we will continue to operate 24hours a day/7 days a week.

 

**LuckyStar Clinton**

 

Management fees fromLucky Star Clinton were $441,029 in the first three months of 2005 and $462,228in the first three months of 2004, a decrease of 4.6%.  The decrease in management fees is the directresult of the decrease in our management fee percentage which took effect inconnection with the extension of our management agreement in May, 2004.  The actual operating results for the facilityin the first quarter exceeded the results for the first quarter of 2004 by amargin that almost completely offset the decrease in management feepercentage.  In April 2005, the 

 

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Tribes’ compact with thestate of Oklahoma was approved and as a result, we are currently negotiatingwith the Tribes for a Class III license which will allow the facility tooffer additional electronic games.  Weanticipate that Lucky Star Clinton will begin to realize the benefits of thisexpanding gaming once we secure a Class III license from the Tribes. Weanticipate that additional competition will come into this market area withinthe next nine months.

 

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 2006.

 

***Project Development Costs:***

 

In February 2004, anoption to purchase the Gold Rush real estate was negotiated with thelessor.  This option was for a term ofone year expiring on February 28, 2005, during which time, the Companycould purchase the lessor’s interest in the property.  As consideration for this option, the Companydismissed certain claims against the lessor and other costs incurred inconnection with a dispute regarding provisions of the lease.  These costs amounted to $249,778.  In addition, during the first three months of2005, NMHI incurred $68,871 of project development costs.  In the first quarter of 2005 these costs havebeen charged to expense as project development expense because the Company didnot exercise its option to purchase the Gold Rush real estate.  During the first three months of 2004,$90,900 in project costs were incurred in connection with the development ofthe race track and card room in Minnesota, and $259,894 in project costs wereincurred in the pursuit of a riverboat gaming opportunity in Missouri.

 

**OtherFactors Affecting Net Income:**

 
| **First Quarter**                             | ** ** | **2005** | ** ** | **2004** | ** ** | **Percentage  Increase  (Decrease)** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|--------------------------------------|------------|
| (Income) Expense                              |       |     |       |     |       |                                 |       |
| Southwest  Entertainment                      |       | $        | (23,175    | )        | $          | (21,067                              | )          | 10 | % |
| Corporate  Expenses                           |       | 691,406  |       | 637,789  |       | 8.4                                  | %          |
| Interest Expense  (net)                       |       | (283,523 | )          | (264,228 | )          | 7.3                                  | %          |
| Other (income)  Loss                          |       | 693      |       | (54,485  | )          | N/M                                  |       |
| Effective Tax  Rate                           |       | 0        | %          | 0        | %          | N/M                                  |       |
| Minority  Interests                           |       | 34,435   |       | —   |       | N/M                                  |       |
| Discontinued  Operations, Net of Income Taxes |       | 0        |       | (160,191 | )          |                                 |       |
|                                               |            |          |            |          |            |                                      |            |  |  |

 

----

N/M = Not Material

 

***Southwest Entertainment, Inc.*** isa wholly 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.  During the firstthree months of the year we do not host any concerts so the increase inexpenses is due to increased expenses to maintain the facility and equipment.

 

***Corporate expenses*** increased 8.4%primarily from an increase in advisory fees, licensing fees and increased rentexpense over the same period for the prior year. The advisory fees of $30,000were incurred in connection with a contract entered into in July, 2004.  The additional licensing fees of $18,000 wereincurred in connection with filings with the Colorado Division of Gaming andthe National Indian Gaming Commission for a potential additional member of ourboard of directors.  We also signed alease for office space in 2004 which increased our rent expense by $14,000 forthe first quarter of 2005.

 

***Interest Expense*** increased 7.3% as aresult of additional financing incurred in connection with the player trackingsystem in Colorado and financing to support project development expenses inconnection with the race track and card room in Minnesota.

 

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

 

15

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***Effective tax rates*** for all periodsare lower than the federal and state statutory rates due primarily to thevaluation 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 theresults of operations for Southwest Casino Deadwood, LLC which we closed February 28,2004.

 

***Liquidity and Capital Resources:***

 

We generate cash flowfrom our Oklahoma management activities and casino operations in Colorado.  We use the cash flows generated to fundreinvestment in existing properties for both refurbishment and replacement ofassets, and to pursue additional growth opportunities.  We supplement the cash flows generated by ouroperations with funds provided by financing activities to balance our cashrequirements.

 

Our cash flows fromoperations will be sufficient to meet our normal operating requirements duringthe next twelve months.  However, we willneed additional equity and debt financing to fund the development of theracetrack and card room in Minnesota, and to pay for the player tracking andslot accounting system installed in Colorado.

 

We continue to reviewadditional opportunities to acquire or invest in companies, properties andother investments that meet our strategic and return on investment criteria. Ifwe complete a material acquisition or investment, our operating results andfinancial condition could change significantly in future periods.

 

Net cash provided byoperating activities during the first three months of 2005 was $577,614compared to $368,317 during the first three months of 2004, an increase of $209,297.The increase between periods is due primarily to a decrease in prepaid expensesof $333,592 in the first quarter of 2005 and an increase of prepaid expenses inthe first quarter of 2004 of $172,392 offset by increase in accounts payable infirst quarter of 2004 of $175,201 and a decrease in accounts payable in thefirst quarter of 2005 of $86,509.

 

Net cash used ininvesting activities for the first three months of 2005 was $124,227 comparedto net cash used in investing activities of $229,149 during the first threemonths of 2004, a decrease of $104,922.  The decrease in use of cash between the yearswas primarily due to the purchase of the player tracking system by the GoldRush in 2004.

 

Net cash provided byfinancing activities for the three months ended March 31, 2005 was$318,827 compared to net cash used in financing activities for the three monthsended March 31, 2004 of $150,029, an increase of $168,798.  The increase in net cash provided by financingactivities was due primarily to proceeds received from an outside investor inNMHI of $616,324 offset by a decrease in short term borrowings of $136,542 inthe first three months of 2005 and an increase in short term borrowings of$200,000 and proceeds received from a Note Payable of $298,299 in the firstthree months of 2004.

 

***Lineof Credit.***  Werenewed our $450,000 line of credit on April 15, 2005 until May 5,2006 with a variable interest rate (currently 6.35%). At March 31, 2005,$446,292 had been drawn on the line of credit. The note is secured by the assets of Southwest Casino and Hotel Corp.including management fees from our management contract in Oklahoma.

 

***Promissory Note.* **We haveentered into a collateral agreement and promissory note to collateralize a$500,000 bond related to the development of North Metro Harness Initiative,LLC.  The promissory note was renewed on May 1,2005 and is due on June 1, 2006, with a variable interest rate (currently6.75%).  At March 31, 2005, the notehad not been drawn.  The note ispersonally guaranteed by four of our stockholders.

 

***Effects of CurrentEconomic and Political Conditions:***

 

**Competitive Pressures:**

 

Many casino operators are either entering or expanding inour markets — Colorado and Oklahoma — thereby increasing competition. Ascompanies have completed new or expanded projects, supply has sometimes grownat a faster pace than demand, and competition has increased significantly.Furthermore, several operators, including 

 

16

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Southwest, have plans for additional developments orexpansions.

 

Although, the short-term effect on Southwest Casino of suchcompetitive developments generally has been negative, we are not able todetermine the long-term impact, whether favorable or unfavorable, thatdevelopment and expansion trends and events will have on current or futuremarkets. We believe that the geographic diversity of our operations, ourservice training, our rewards and customer loyalty programs, and our continuingefforts to improve our facilities will insure continued customer loyalty andwill enable us to face the competitive challenges present within our industry.

 

**Political Uncertainties:**

 

The casino entertainment industry is subject to politicaland regulatory uncertainty.  From time totime, individual jurisdictions have considered legislation or referendums thatcould adversely impact our operations. The likelihood or outcome of similar legislation and referendums in thefuture is difficult to predict.

 

The casino entertainment industry represents a significantsource of tax revenues to the various jurisdictions in which casinosoperate.  From time to time, variousstate and federal legislators and officials have proposed changes in tax laws,or in the administration of tax laws, that would affect the industry.  It is not possible to determine withcertainty the scope or likelihood of possible future changes in tax laws or inthe administration of tax laws.  Ifadopted, changes in tax law could have a material adverse effect on ourfinancial results.

 

***Significant AccountingPolicies and Estimates:***

 

We prepare our Consolidated Financial Statements inconformity with accounting principles generally accepted in the UnitedStates.  Certain of our accountingpolicies, including, but not limited to, the estimated lives assigned to ourassets, the determination of bad debt, asset impairment, fair value ofguarantees, and the calculation of our income tax liabilities, require that weapply significant judgment in defining the appropriate assumptions forcalculating financial estimates.  Bytheir nature, these judgments are subject to an inherent degree ofuncertainty.  Our judgments are based onour historical experience, terms of existing contracts, our observance oftrends in the industry, information provided by our customers and informationavailable from other outside sources, as appropriate.  We cannot assure you that our actual resultswill not differ from our estimates.  Fora discussion of our significant accounting policies and estimates, please referto Management’s Discussion and Analysis or Plan of Operation and Notes toConsolidated Financial Statements presented in the 2004 Financial Statementsincluded in our Annual Report on Form 10-KSB.

 

***Forward-Looking Statements:***

 

This Quarterly Report on Form 10-QSB contains “forward-lookingstatements” intended to qualify for the safe harbor from liability establishedby the Private Securities Litigation Reform Act of 1995.  You can identify these statements by the factthat they do not relate strictly to historical or current facts. Thesestatements often contain words such as “may,” “will,” “project,” “might,” “expect,”“believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or “pursue,”or the negative or other variations of those words or comparableterminology.  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-looking statements on our currentexpectations and projections about future events.

 

We caution the reader that forward-looking statementsinvolve risks and uncertainties that cannot be predicted or quantified and,consequently, actual results may differ materially from those expressed orimplied in the forward-looking statements. These risks and uncertaintiesinclude, but are not limited to, the following factors as well as other factorsdescribed from time to time in our reports filed with the Securities andExchange Commission:

 

•      changes in laws (including increased tax rates),regulations or accounting standards, third-party relations and approvals, anddecisions of courts, regulators and governmental bodies applicable to us;

•      the effects of competition, including location ofcompetitors and operating and market competition;

•      our ability to build and maintain healthy personal andprofessional relationships with tribes and their officials;

 

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•      the potential change of policies and personnel of tribalgovernments which could adversely affect our relationships.

•      ability of our customer-tracking and customer loyaltyprograms;

•      abnormal gaming holds;

•      access to available and feasible financing;

•      our ability to recoup costs of capital investments throughhigher revenues;

•      litigation outcomes and judicial actions;

•      construction factors, including delays, zoning issues,environmental restrictions, soil and water conditions, weather and otherhazards, site access matters and building permit issues;

•      the effect of economic, credit and capital marketconditions on the economy in general, and on gaming companies in particular;

•      the effects of environmental and structural buildingconditions relating to our properties; and

•      acts of war or terrorist incidents.

 

Anyforward-looking statements are made pursuant to the Private SecuritiesLitigation Reform Act of 1995 and, as such, speak only as of the date made. Weundertake no obligation to publicly update any forward-looking statements,whether as a result of new information, future events or otherwise.  We advise you, however, to consult anyfurther disclosures we make on related subjects in any annual, quarterly andcurrent reports that we file with or furnish to the Securities and ExchangeCommission.

 

***Risk Factors***

 

In reviewing this quarterly report on Form 10-QSB, you should carefullyconsider the matters concerning Southwest Casino Corporation described underthe heading “Risk Factors” in the annual report on Form 10-KSB filed by theCorporation on March 31, 2005, which are incorporated in this document byreference.

 

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**Item 3.  Controls and Procedures**

 

**Evaluation of Disclosure Controls andProcedures**

 

We maintain disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) designed to ensure that information required to be disclosed by usin the reports we file or submit under the Securities Exchange Act of 1934, asamended, is recorded processed, summarized, and reported, within the timeperiods specified in the Securities and Exchange Commission’s rules andforms and that this information is accumulated and communicated to ourmanagement, including our principal executive and principal financial officers,or persons performing similar functions, as appropriate to allow timelydecisions 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 March 31,2005.   Based on that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of that date.

 

**Changes in Internal Controls**

 

There was no change in our internal control overfinancial reporting that occurred during our quarter ended March 31, 2005that has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II- OTHER INFORMATION**

** **

**Item 1. Legal Proceedings.**

** **

**SeeItems 3 and 9 of our Annual Report on Form 10-KSB, filed March 31,2005, for a description of Southwest’s pending legal proceedings.**

** **

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.**

** **

During the first quarterof fiscal 2005, we did not issue any equity securities without registrationunder the Securities Act of 1933, except as described below:

 

On February 14,2004, we issued 22,728 shares of common stock to the holders of an outstandingSouthwest Casino and Hotel Corp. Series A convertible debenture who, underthe terms of our redemption offer, elected to convert the principal amount oftheir debenture to common stock at a conversion price of $1.10 per share ofcommon stock.

 

On March 25, 2005,we issued 125,000 shares of common stock upon to an unrelated third party whohas provided services in connection with the North Metro Harness Initiativeracetrack project upon exercise of an outstanding warrant to purchase thoseshares at a price of $0.12 per share.

 

No underwritingcommission or discounts were paid with respect to the sales of theseunregistered securities.  All of the sales were made in reliance on eitherSection 4(2) of the Securities Act of 1933 as transactions by anissuer not involving any public offering or Regulation D of the SecuritiesAct.  In all of these transactions, we made inquiries to establish thatthe sales qualified for these exemptions from the registrationrequirements.  In particular, we confirmed that with respect to theexemption claimed under Section 4(2) of the Securities Act that (i) allsales were made by personal contact from officers and directors of Southwest orother persons closely associated with Southwest, (ii) each investor maderepresentations that he or she was sophisticated in relation to his or herinvestment (and gave us no reason to believe that this representation wasincorrect), (iii) each purchaser gave assurance of investment intent andthe certificates for the shares bear a legend accordingly, and (iv) offersand sales within any offering were made to a limited number of persons.

 

**Item 6. Exhibits**

** **

**Thefollowing exhibits are attached to this Quarterly Report on Form 10-QSB:**

** **

**10.1**         Promissory Note, dated October 12, 2004, bySouthwest Casino and Hotel Corp. to Associated Bank Minnesota, N.A.

** **

**10.2**         Promissory Note, dated January 19, 2005, bySouthwest Casino and Hotel Corp. to Associated Bank Minnesota, N.A.

** **

**10.3**         Promissory Note, dated April 15, 2005, bySouthwest Casino and Hotel Corp. to Associated Bank Minnesota, N.A.

** **

**10.4**         Promissory Noted, dated May 1, 2005, by NorthMetro Harness Initiative, LLC and Southwest Casino and Hotel Corp. toAssociated Bank Minnesota, N.A.

** **

**31.1**         Certification of Chief Executive Officer Pursuant toSEC Rule 13a-14.

** **

**31.2**         Certification of Chief Financial Officer Pursuant toSEC Rule 13a-14

** **

**32.1**         Certification of Chief Executive Officer Pursuant to18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

** **

**32.2**         Certification of Chief Financial Officer Pursuant to18.U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

** **

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** **

**SIGNATURES**

 

In accordance with the requirements of the Securitiesand Exchange Act of 1934, the registrant caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

 
| May 16,  2005 | **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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