**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-QSB**

**(Mark One)**

| **x**                                                                                                                                                                                                                                  | **QUARTERLY REPORT UNDER SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                   |
| **For the  quarterly period ended March 31, 2007**                                                                                                                                                                                     |
|                                                                                                                                                                                                                                   |
| **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 smallbusiness 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, Minnesota55425**

(Address of principalexecutive offices)

**(952) 853-9990**

(Issuer’s telephonenumber)

Check whether the issuer(1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing
| requirements for the past 90 days. |   | YES  x   NO  o |
|------------------------------------|--------|---------------------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act)
|  |   | YES  o   NO   x |
|--|--------|---------------------------------------------------------|

 

State the number of shares outstanding of eachof the issuer’s classes of common stock as of the latest practicabledate:  27,286,443 as of May 8, 2007.

Transitional Small Business Disclosure Format(check one):    Yes  o   No   x

 

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**SOUTHWESTCASINO CORPORATION**

**FORM 10-QSB**

**March31, 2007**

**TABLEOF CONTENTS**
| Description     | ** ** | ** **                                                                                                             | ** ** | ** ** |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|------------|
|            |       |                                                                                                                   |       |       |
| PART I.         |       | FINANCIAL  INFORMATION                                                                                                 |       |       |
| ITEM 1.         |       | Financial  Statements                                                                                                  |       | 1          |
|            |       | Consolidated  Balance Sheet (Unaudited) March 31, 2007                                                                 |       | 2          |
|            |       | Consolidated  Statements of Operations (Unaudited) for the Three Months ended March 31,  2007 and 2006                 |       | 3          |
|            |       | Consolidated  Statements of Cash Flows (Unaudited) for the Three Months ended March 31,  2007 and 2006                 |       | 4          |
|            |       | Consolidated  Statement of Changes in Stockholders’ Equity (Unaudited) for the Three Months  ended March 31, 2007 |       | 5          |
|            |       | Notes to  Unaudited Consolidated Financial Statements                                                                  |       | 6          |
| ITEM 2.         |       | Management’s  Discussion and Analysis or Plan of Operation                                                        |       | 17         |
| ITEM 3.         |       | Controls and  Procedures                                                                                               |       | 26         |
|            |       |                                                                                                                   |       |       |
| PART II.        |       | OTHER INFORMATION                                                                                                      |       |       |
| ITEM 1.         |       | Legal Proceedings                                                                                                      |       | 27         |
| ITEM 2.         |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                           |       | 27         |
| ITEM  6.        |       | Exhibits                                                                                                               |       | 27         |
| SIGNATURE  PAGE |       | 28                                                                                                                     |

 

*In this Form 10-QSB,references to “Southwest,” “the company,” “we,” “our” or “us,” unless thecontext otherwise requires, refer to Southwest Casino Corporation and itsconsolidated subsidiaries.*

i

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**PART I – FINANCIAL INFORMATION**

**Item1.  Financial Statements.**
| **FINANCIAL STATEMENTS**                                                                                    | 1      |
|-------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                        |   |
| Consolidated  Balance Sheet (Unaudited), March 31, 2007                                                     | 2      |
| Consolidated  Statements of Operations (Unaudited) for the Three Months ended March 31,  2007 and 2006      | 3      |
| Consolidated  Statement of Cash Flows (Unaudited) for the Three Months ended March 31, 2007  and 2006       | 4      |
| Consolidated  Statement of Stockholders’ Equity (Unaudited) for the Three Months ended  March 31, 2007 | 5      |
| Notes  to Unaudited Consolidated Financial Statements                                                       | 6      |

 

1

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**SOUTHWEST CASINO CORPORATION**

**ConsolidatedBalance Sheets (Unaudited)**

**March31, 2007**
| ** **                                                                                                                          | ** **                       | **2007**    | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|-------------|------------|
| ASSETS                                                                                                                              |                             |        |       |
| CURRENT ASSETS                                                                                                                      |                             |        |       |
| Cash and Cash  Equivalents                                                                                                          |                             | $           | 2,556,297  |   |
| Accounts Receivable                                                                                                                 |                             | 60,263      |       |
| Management Fees  Receivable                                                                                                         |                             | 729,618     |       |
| Inventories                                                                                                                         |                             | 142,850     |       |
| Prepaid Expenses                                                                                                                    |                             | 564,226     |       |
| Other Current  Assets                                                                                                               |                             | 60,525      |       |
|                                                                                                                                | Total  Current Assets            |        | $          | 4,113,779 |   |
|                                                                                                                                |                             |        |       |
| PROPERTY AND EQUIPMENT                                                                                                              |                             |        |       |
| Leasehold  Improvements                                                                                                             |                             | 15,749,006  |       |
| Furniture and  Equipment                                                                                                            |                             | 6,198,317   |       |
| Accumulated  Depreciation                                                                                                           |                             | (11,355,078 | )          |
|                                                                                                                                | Net  Property and Equipment      |        | $          | 10,592,245 |   |
|                                                                                                                                |                             |        |       |
| OTHER ASSETS                                                                                                                        |                             |        |       |
| Intangible  Assets                                                                                                                  |                             | $           | 105,985    |   |
| Other Assets                                                                                                                        |                             | 634,415     |       |
| Investment in  Unconsolidated Subsidiary                                                                                            |                             | 6,033,848   |       |
|                                                                                                                                | Total  Other Assets              |        | $          | 6,774,248 |   |
|                                                                                                                                |                             |        |       |
| TOTAL ASSETS                                                                                                                        |                             | $           | 21,480,272 |   |
|                                                                                                                                |                             |        |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                          |                             |        |       |
|                                                                                                                                |                             |        |       |
| CURRENT LIABILITIES                                                                                                                 |                             |        |       |
| Accounts Payable                                                                                                                    |                             | $           | 912,956    |   |
| Accrued Expenses                                                                                                                    |                             | 1,068,791   |       |
| Accrued  Liabilities - Related Parties                                                                                              |                             | 122,467     |       |
| Current Portion of  Long-Term Liabilities                                                                                           |                             | 1,290,196   |       |
| Accrued Interest  Payable                                                                                                           |                             | 2,371       |       |
|                                                                                                                                | Total  Current Liabilities       |        | $          | 3,396,781 |   |
|                                                                                                                                |                             |        |       |
| LONG-TERM LIABILITIES                                                                                                               |                             |        |       |
| Long-Term  Liabilities Net of Current Portion                                                                                       |                             | $           | 7,240,454  |   |
|                                                                                                                                |                             |        |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                      |                             |        |       |
|                                                                                                                                |                             |        |       |
| STOCKHOLDERS’ EQUITY                                                                                                           |                             |        |       |
| Preferred Stock,  $.001 Par Value; 30,000,000 Shares Authorized                                                                     |                             | $           | —     |   |
| Common Stock,  $.001 Par Value 75,000,000 Shares Authorized, 27,643,443 Shares Issued and  27,286,443 Outstanding at March 31, 2007 |                             | 27,644      |       |
| Additional  Paid-in Capital                                                                                                         |                             | 21,255,592  |       |
| Accumulated  Deficit                                                                                                                |                             | (10,117,899 | )          |
|                                                                                                                                |                             | 11,165,337  |       |
| Less Treasury  Stock (357,000 shares redeemed)                                                                                      |                             | (322,300    | )          |
|                                                                                                                                |                             |        |       |
|                                                                                                                                | Total  Stockholders’ Equity |        | 10,843,037 |   |
|                                                                                                                                |                             |        |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                     |                             | $           | 21,480,272 |   |

 

See Notes to UnauditedConsolidated Financial Statements

2

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**SOUTHWEST CASINO CORPORATION**

**ConsolidatedStatements of Operations (Unaudited)**

**For theThree Months Ended March 31, 2007 and 2006**
| ** **                                                                               | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                                     |       |       |       |       |       |
| **NET REVENUES**                                                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Casino                                                                                   |       | $          | 3,381,392  |       | $          | 3,501,335 |   |
| Food & Beverage/Hotel                                                                |       | 99,455     |       | 115,264    |       |
| Management and  Consulting                                                               |       | 1,629,823  |       | 1,702,618  |       |
| Entertainment                                                                            |       | —     |       |       |       |
| Other                                                                                    |       | 31,559     |       | 55,295     |       |
|                                                                                     |       | 5,142,229  |       | 5,374,512  |       |
|                                                                                     |       |       |       |       |       |
| **EXPENSES**                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Casino                                                                                   |       | $          | 2,852,643  |       | $          | 2,909,171 |   |
| Food &  Beverage/Hotel                                                               |       | 309,700    |       | 352,879    |       |
| Corporate Expense                                                                        |       | 1,303,585  |       | 624,975    |       |
| Project Development  Costs                                                               |       | 168,276    |       | 96,368     |       |
| Entertainment                                                                            |       | 15,405     |       | 14,831     |       |
| Depreciation and  Amortization                                                           |       | 540,633    |       | 542,307    |       |
|                                                                                     |       | 5,190,242  |       | 4,540,531  |       |
|                                                                                     |       |       |       |       |       |
| **INCOME FROM OPERATIONS**                                                               |       | $          | (48,013    | )          | $          | 833,981 |   |
|                                                                                     |       |       |       |       |       |
| **OTHER INCOME (EXPENSE)**                                                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest Income                                                                          |       | $          | 2,569      |       | $          | 617 |   |
| Interest Expense                                                                         |       | (249,449   | )          | (322,346   | )          |
|                                                                                     |       | (246,880   | )          | (321,729   | )          |
|                                                                                     |       |       |       |       |       |
| **Income(loss) before income  taxes, equity in earnings of unconsolidated subsidiaries** | ** ** | (294,893   | )          | 512,252    | ** ** |
|                                                                                     |       |       |       |       |       |
| Income Taxes                                                                             |       | —     |       | (174,666   | )          |
| Minority Interest in  Loss of Consolidated Subsidiary                                    |       | —     |       |       |       |
| Loss of Unconsolidated  Subsidiaries, Net of Tax Benefit                                 |       | (120,171   | )          | (39,942    | )          |
|                                                                                     |       |       |       |       |       |
| **NET INCOME (LOSS)**                                                                    |       | $          | (415,064   | )          | $          | 297,644 |   |
|                                                                                     |       |       |       |       |       |
| **Income (loss) per share - basic**                                                      |       | $          | (0.02      | )          | $          | 0.02 |   |
| **Income (loss) per share -  diluted**                                                   |       | —     |       | $          | 0.01       |   |
| **Weighted average common shares  outstanding - basic**                                  |       | 24,478,519 |       | 19,637,545 |       |
| **Weighted average common shares outstanding -  diluted**                                |       | —     |       | 22,005,045 |       |

 

See Notes to UnauditedConsolidated Financial Statements

3

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**SOUTHWEST CASINO CORPORATION**

**ConsolidatedStatements of Cash Flows (Unaudited)**

**For theThree Months Ended March 31, 2007 and 2006**
| ** **                                                               | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|--------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash Flows from  Operating Activities:                                   |       |       |       |       |       |
| Net Income (Loss)                                                        |       | $          | (415,064   | )          | $          | 297,644 |   |
| Adjustments to  Reconcile Net Income (Loss) to                           |       |       |       |       |       |
| Net Cash Provided by  Operating Activities:                              |       |       |       |       |       |
| Depreciation and  Amortization                                           |       | 540,633    |       | 542,307    |       |
| Amortization of Loan  Costs                                              |       | 43,101     |       | 41,279     |       |
| Stock-based  Compensation Expense                                        |       | 67,221     |       | 23,707     |       |
| Loss of Unconsolidated  Subsidiary                                       |       | 120,171    |       | 51,761     |       |
| Change in Current  Assets and Liabilities,                               |       |       |       |       |       |
| (Increase) Decrease in  Restricted Cash                                  |       | —     |       | 2,656      |       |
| (Increase) Decrease in  Receivables                                      |       | (632,377   | )          | (256,372   | )          |
| (Increase) Decrease in  Inventories                                      |       | 30,366     |       | 2,675      |       |
| (Increase) Decrease in  Prepaid Expenses                                 |       | 24,505     |       | 164,841    |       |
| (Increase) Decrease in  Deferred Tax Asset                               |       | —     |       | 162,347    |       |
| Increase (Decrease) in  Accounts Payable                                 |       | 245,108    |       | (6,617     | )          |
| Increase (Decrease) in  Accrued Expenses                                 |       | 95,987     |       | (96,814    | )          |
| Increase (Decrease) in  Accrued Interest Payable                         |       | (3,556     | )          | 747        |       |
| Net Cash Provided By  Operating Activities                               |       | $          | 116,095    |       | $          | 930,161 |   |
|                                                                     |       |       |       |       |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                    |       |       |       |       |       |
| Purchase of Property  and Equipment                                      |       | (146,016   | )          | (83,402    | )          |
| Payment of Deposit                                                       |       | (10,213    | )          |       |       |
| Investment in Unconsolidated  Subsidiary                                 |       | (1,100,000 | )          | (155,000   | )          |
| Net Cash Used In  Investing Activities                                   |       | $          | (1,256,229 | )          | $          | (238,402 | ) |
|                                                                     |       |       |       |       |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                    |       |       |       |       |       |
| Net Payments on  Short-Term Notes Payable                                |       | $          | (446,292   | )          | $          | (300,000 | ) |
| Principal Payments on  Long-Term Borrowings                              |       | (684,766   | )          | (216,689   | )          |
| Proceeds from Issuance  of Common Stock Upon Exercise of Warrants        |       | —     |       | 12,000     |       |
| Proceeds from Issuance  of Common Stock and Warrants                     |       | 4,065,287  |       |       |       |
| Redemption of Common  Stock                                              |       | (322,300   | )          | —     |       |
| Payment of Deferred  Financing Costs                                     |       | (446,758   | )          |       |       |
| Net Cash Provided  (Used) by Financing Activities                        |       | $          | 2,165,171  |       | $          | (504,689 | ) |
|                                                                     |       |       |       |       |       |
| Net Increase in Cash  and Cash Equivalents                               |       | 1,025,037  |       | 187,070    |       |
|                                                                     |       |       |       |       |       |
| CASH AND CASH  EQUIVALENTS                                               |       |       |       |       |       |
| Beginning of Period                                                      |       | 1,531,260  |       | 1,195,145  |       |
| End of Period                                                            |       | $          | 2,556,297  |       | $          | 1,382,215 |   |
|                                                                     |       |       |       |       |       |
| SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION                        |       |       |       |       |       |
| Interest Paid                                                            |       | $          | 209,904    |       | $          | 280,320 |   |
| Income Taxes Paid                                                        |       | $          | 37,000     |       | $          | 22,500 |   |
|                                                                     |       |       |       |       |       |
| SUPPLEMENTAL  DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES  |       |       |       |       |       |
|                                                                     |       |       |       |       |       |
| Capital Assets Acquired  with Acounts Payable                            |       | $          | 12,703     |       |       |   |
| Deferred Financing  Costs Included in Accounts Payable                   |       | $          | 78,695     |       |       |   |
| Costs Associated with Issuing Common Stock Included  in Accounts Payable |       | $          | 48,462     |       |       |   |

 

See Notes to UnauditedConsolidated Financial Statements

4

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**SOUTHWEST CASINO CORPORATION**

**ConsolidatedStatements of Charges in Stockholder’s Equity (Unaudited)**

**For theThree Months Ended March 31, 2007**
| ** **                                                        | ** ** | **Treasury Stock** | ** ** | **Common Stock** | ** ** | ** **         | ** ** | ** ** | ** ** | ** **               | ** ** |
|-------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|--------------------|------------|------------|------------|--------------------------|------------|
| ** **                                                        | ** ** | **Number of**      | ** ** | ** **            | ** ** | **Number of** | ** ** | ** ** | ** ** | **Additional**           | ** ** | **Retained** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Shares**              | ** ** | **Amount**            | ** ** | **Shares**         | ** ** | **Amount** | ** ** | **Paid-in Capital** | ** ** | **Earnings** | ** ** | **Total** | ** ** |
|                                                              |       |                    |       |                  |       |               |       |       |       |                     |       |   |   |   |   |
| **BALANCE December 31, 2006**                                     |       | —                  |       | $                     | —     |               | 19,688,656 |       | $          | 19,689                   |       | $ | 17,239,894 |   | $ | (9,702,835 | ) | $ | 7,556,748 |   |
| ** **                                                        | ** ** | ** **              | ** ** | ** **            | ** ** | ** **         | ** ** | ** ** | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Issuance of Common  Stock and Warrants, net                       |       |                    |       |                  |       | 7,954,787          |       | 7,955      |       | 3,948,477                |       |   |   | 3,956,432 |   |
| ** **                                                        | ** ** | ** **              | ** ** | ** **            | ** ** | ** **         | ** ** | ** ** | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Redemption of Common  Stock, net                                  |       | (357,000                | )          | (322,300              | )          |               |       |       |       | —                   |       |   |   | (322,300 | ) |
| ** **                                                        | ** ** | ** **              | ** ** | ** **            | ** ** | ** **         | ** ** | ** ** | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stock-based  Compensation Expense Eelated to Options and Warrants |       |                    |       |                  |       |               |       |       |       | 67,221                   |       |   |   | 67,221 |   |
| ** **                                                        | ** ** | ** **              | ** ** | ** **            | ** ** | ** **         | ** ** | ** ** | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Loss                                                          |       |                    |       |                  |       |               |       |       |       |                     |       | (415,064 | ) | (415,064 | ) |
| ** **                                                        | ** ** | ** **              | ** ** | ** **            | ** ** | ** **         | ** ** | ** ** | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| **BALANCE March 31, 2007**                                        |       | (357,000                | )          | $                     | (322,300   | )                  | 27,643,443 |       | $          | 27,644                   |       | $ | 21,255,592 |   | $ | (10,117,899 | ) | $ | 10,843,037 |   |

 

See Notes to UnauditedConsolidated Financial Statements

 

5

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

**NOTE 1 – BASIS OF PRESENTATION**

The unaudited consolidated financial statements ofSouthwest Casino Corporation, a Nevada corporation (the “Company”), have beenprepared pursuant to the rules and regulations of the Securities and ExchangeCommission (“SEC”) applicable to interim financial information. Accordingly,certain information normally included in the annual financial statementsprepared in accordance with accounting principles generally accepted in theUnited States has been condensed or omitted. For further information, pleaserefer to the annual audited consolidated financial statements of the Company,and the related notes included within the Company’s Annual Report onForm 10-KSB for the year ended December 31, 2006, filed with the SEC onMarch 21, 2007.

In the opinion of management, all adjustmentsconsidered necessary for a fair presentation have been included, consistingonly of normal recurring adjustments. The results for the current interimperiod are not necessarily indicative of the results to be expected for thefull year.

**NOTE 2 – MANAGEMENT FINANCIALPLANS**

The Company has completed two closings on an equityfinancing, see Note 5. The net proceeds from the sale of securities wereapproximately $4 million. As a result of the financing agreement entered intoby North Metro, see Note 7, the Company was required to make additionalmembership contributions of approximately $1.25 million to North Metrosubsequent to March 31, 2007. Additionally, the Company’s management contractwith the Cheyenne and Arapaho Tribes expires on May 19, 2007. The Company isseeking an extension of this agreement beyond May 19, 2007, but is uncertainwhether such an extension can be secured. If this agreement is not extended,the Company will lose this revenue source in May 2007, see Note 8, whichdiscusses the recent Tribal Council meeting and status of the contractextension. The Company will be required to seek additional debt or equityfinancing within the next twelve months if the management contract terminates. Wemay also seek debt and equity financing at various times throughout the yearrelated to various initiatives.

**NOTE 3 – STOCK OPTIONS AND AWARDS**

Stock option plans:

On July 15, 2004,Southwest Casino and Hotel Corp. shareholders approved the Southwest Casino andHotel Corp. 2004 Stock Incentive Plan that had been adopted by the company’sBoard of Directors effective June 1, 2004. Under the terms of thereorganization completed July 22, 2004, Southwest Casino Corporation assumedthe rights and obligations of Southwest Casino and Hotel Corp. under this plan.The plan permits Southwest Casino Corporation to issue incentive awards to allemployees of Southwest Casino Corporation or any of its subsidiaries and anynon-employee directors, consultants or independent contractors of the Companyor any of its subsidiaries. Incentive awards under the plan include “incentiveoptions” under Section 422 of the Internal Revenue Code of 1986, “non-statutorystock options” that do not qualify for “incentive option” treatment, stockappreciation rights, restricted stock awards, performance units and stockbonuses. A maximum of 1,500,000 shares of Southwest Casino Corporation commonstock are reserved for issuance under the plan.  As of March 31, 2007, 925,000 options havebeen issued and are outstanding.

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 assumedobligations in the form of stock options to issue 1,575,000 shares of itscommon stock at a weighted average price of $.62 per share.

Valuation and ExpenseInformation under SFAS 123(R)

On January 1, 2006,the Company adopted Statement of Financial Accounting Standards No. 123(revised 2004), *Share-Based Payment*(“SFAS 123(R)”), which requires the measurement and recognition ofcompensation expense for all stock-based payment awards made to employees anddirectors including employee stock options and employee stock purchases basedon estimated fair values. In March 2005, the SEC issued Staff AccountingBulletin No. 107 (“SAB 107”) relating to SFAS 123(R). TheCompany has applied certain provisions of SAB 107 in its adoption ofSFAS 123(R).

SFAS 123(R) requirescompanies to estimate the fair value of share-based payment awards on the dateof grant using an option-pricing model. The value of the portion of the awardthat is ultimately expected to vest is recognized as expense over the requisiteservice periods in the Company’s consolidated statement of operations. SFAS 123(R)

6

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

supersedes the Company’sprevious accounting under the provisions of SFAS No. 123, *Accounting for Stock-Based Compensation*(“SFAS 123”).

The effect of stockoptions issued was to decrease net earnings for the three months ended March31, 2007 and 2006 by $44,304 and $19,331, respectively, and basic and dilutedearnings per share by $0.002 and $0.001, respectively.

Options are granted to employees and directors at prices equal to themarket value of the stock on the dates the options are granted. The optionsgranted have terms of 5 to 10 years from the grant date and granted optionstypically vest quarterly over a one to three year period. The fair value ofeach option is amortized into compensation expense over the period the optionvests. We have estimated fair value of all stock options as of the date ofgrant applying the Black-Scholes pricing valuation model. The application ofthis valuation model involves assumptions that are judgmental and sensitive inthe determination of compensation expense. No options were granted during thethree months ended March 31, 2007

Status of options duringthe three months ended March 31, 2007
| ** **                             | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Contractual  Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|----------------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|-------------------------------------|------------|
| Balance at December 31,  2006          |       | 2,500,000                |       | $                                          | 0.65       |                                     |       |                                |       |   |
| Granted                                |       | 0                        |       |                                       |       |                                     |       |                                |       |
| Forfeited/cancelled/expired            |       | 0                        |       |                                       |       |                                     |       |                                |       |
| Exercised                              |       | 0                        |       |                                       |       |                                     |       |                                |       |
| Balance at March 31,  2007             |       | 2,500,000                |       | $                                          | 0.65       |                                     |       |                                |       |   |
|                                   |       |                     |       |                                       |       |                                     |       |                                |       |
| Options outstanding at  March 31, 2007 |       | 2,500,000                |       | $                                          | 0.65       |                                     | 5.8 years  |                                | $          | 1,120,000 |   |
| Options exercisable at March 31, 2007  |       | 2,111,667                |       | $                                          | 0.65       |                                     | 5.3 years  |                                | $          | 952,000 |   |

 

The aggregate intrinsic value in the preceding tablerepresents the total pre-tax intrinsic value, based on Southwest CasinoCorporation closing stock price of $1.10 on March 31, 2007, that the optionholders would have received had all option holders exercised their options asof that date. As of March 31, 2007, the Company’s unrecognized share-basedcompensation related to stock options was approximately $260,000. This cost isexpected to be expensed over a weighted average period of one andone-half years.

No tax benefit has been recorded on the share based compensationexpense for the three month periods ended March 31, 2007 and 2006.

**NOTE 4 – WARRANTS**

Status of warrants:
|                                               | ** ** | **Warrants  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|--------------------------------------------|------------|
| Warrants  outstanding as of December 31, 2006 |       | 1,837,500                 |       | $                                          | 0.56       |   |
| Granted                                       |       | 4,258,602                 |       | $                                          | 0.64       |   |
| Exercised                                     |       | 0                         |       |                                       |       |
| Cancelled                                     |       | 0                         |       |                                       |       |
| Warrants outstanding as  of March 31, 2007    |       | 6,096,102                 |       | $                                          | 0.615      |   |

 

Sale of Unregistered Securities

In connection with the Securities Purchase Agreement (“SPA”)entered into on January 24, 2007 and February 26, 2007, the Company issuedwarrants to purchase 2,975,293 shares of common stock to the investors and anadditional 483,309 warrants to purchase shares of common stock to the placementagent in connection with the SPA, see Note 5.

Investor Relations Servicesand Financial Consulting Services

On January 17, 2007, the Company entered into twoagreements with Strategic Growth International, Inc. (“SGI”) regarding investorrelations and financial consulting services. As part of these agreements, theCompany issued to

7

----

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

SGI warrants to purchase 800,000 shares of Southwestcommon stock at a price of $0.63 per share that are exercisable for two yearsfrom the date of the agreements. The exercise price equals the weighted averageclosing price for one Southwest share on the Over-the-Counter Bulletin Boardmarket for the five trading days immediately preceding the date Southwestentered into the Investor Relations Agreement. Beginning July 17, 2007, SGIwill have the right to request the inclusion of the common shares underlyingits warrants on any registration statement that Southwest files on which theshares are eligible for inclusion. Beginning January 17, 2008, SGI will havethe right to require Southwest to file a registration statement covering thoseshares.

Southwest has the right to terminate the agreements atthe end of six months. This right is void if SGI meets certain performancegoals. If Southwest terminates the agreement at the end of six months, thenumber of shares subject to the warrants issued to SGI will be reduced by 50percent. Southwest has the right to terminate the agreement at the end of anymonth of its term during the second year of the agreement. Southwest alsoagreed to indemnify SGI against certain claims that may arise in connectionwith the services provided by SGI under the agreements.

The Company reviewed EITF 96-18 “*Accountingfor Equity Instruments That Are Issued to Other Than Employees for Acquiring,or in Conjunction with Selling, Goods or Services*” in determiningthe fair value of the warrants. The Company valued the warrants based upon theconsideration received. The warrants have been valued at $220,000, which isbeing amortized to consulting expense and additional paid in capital quarterlyover the term of the service agreements.

The following is a description of each agreement:

·                  *InvestorRelations Services:*

Under the terms ofa letter agreement accepted January 17, 2007, Southwest retained SGI to assistthe company as an investor relations advisor and develop a comprehensivefinancial relations program designed to achieve increased awareness ofSouthwest and its business and enhanced liquidity in the public market for theCompany’s stock.

Southwest will paySGI $10,000 per month for a period of two years for these investor relationsservices. Southwest also agreed to reimburse SGI’s reasonable accountableexpenses incurred in connection with services. In addition, Southwest willissue to SGI a warrant to purchase 100,000 shares of Southwest common stock,see terms of warrant described above.

·                  *Financial Consulting Services:*

Southwest alsoentered into an agreement with SGI for financial consulting services on January17, 2007 (the “Consulting Agreement”). Under the Consulting Agreement, SGI willassist Southwest in developing a strategy to raise additional capital forgaming projects the company is pursuing and for general working capital. SGIwill also help Southwest arrange and conduct meetings with potential sources ofcapital and advise Southwest regarding the terms of any proposed financingarrangements.

Southwestis to pay SGI $8,000 per month for 24 months for the financial consultingservices provided under this agreement, however, SGI has agreed to waive themonthly fee in exchange for a warrant to purchase 700,000 shares of Southwestcommon stock, see terms of warrant discussed above.

TheCompany will also be required to pay an additional consulting fee of $100,000or $200,000 if SGI assists the Company in completing an equity or debtfinancing that meets standards stated in the agreement. In addition, if theCompany issues warrants as part of such a debt financing, it will also issuewarrants to purchase 100,000 shares of its common stock to SGI if warrants areissued to the lender, on the same terms as the warrants issued to the lender.

**NOTE 5 – SALE OF UNREGISTEREDSECURITIES**

On January 24, 2007 and February 26, 2007, SouthwestCasino Corporation (“Southwest”) entered into a Securities Purchase Agreement (“SPA”)with certain institutional and other accredited investors, as defined in Rule501 of Regulation D promulgated under the Securities Act of 1933, as amended,pursuant to which Southwest sold in a private placement an aggregate of 7.44million shares of its common stock with accompanying warrants to purchase anaggregate of 2.98 million shares of its common stock, at a purchase price of$0.55 per share of common stock. The warrants are exercisable for a period offive years, beginning six months after the date of issuance, at an

8

----

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

exercise price of $0.61 per share. The number ofshares issuable upon exercise of the warrants and the exercise price of thewarrants are adjustable in the event of stock splits, combinations andreclassifications, but not in the event of the issuance by Southwest ofadditional securities, unless such issuance is pursuant to a rights offering orpro rata distribution to all security holders except the investors.

The securities that were issued in this privateplacement were not registered under the Securities Act of 1933, as amended, andmay not be offered or sold in the United States absent registration or anapplicable exemption from the registration requirements of the Securities Act. Pursuantto the terms of a Registration Rights Agreement dated January 24, 2007 andFebruary 26, 2007 between Southwest and the investors, Southwest has agreed toregister the resale of the shares sold in the private placement, includingshares issuable upon exercise of the warrants. On a registration statement thatbecame effective on May 11, 2007. Pursuant to the Securities PurchaseAgreement, Southwest and the investor parties have made other covenants andrepresentations and warranties regarding matters that are customarily includedin financings of this nature. If certain of its obligations are not met,Southwest has agreed to make pro-rata cash payments as liquidated damages toeach investor.

The private placement resulted in net proceeds toSouthwest of approximately $3.95 million, after the deduction of approximately,$135,000 of direct offering expenses. The placement agent agreed to accept thecash portion of its placement agent commission in common stock and warrants onthe same terms as the investors, which resulted in the placement agentreceiving approximately 517,000 shares of common stock and warrants to purchasean aggregate of approximately 207,000 shares of common stock. In addition, theplacement agent received a warrant to purchase approximately 277,000 shares ofcommon stock, which is exercisable for a period of five years, beginning sixmonths after the date of issuance, at an exercise price of $1.00 per share.

The following officers and directors of Southwestparticipated in the private placement on the same terms as the other investors:James B. Druck, Chief Executive Officer and Director; Thomas E. Fox, Presidentand Chief Operating Officer; Jeffrey S. Halpern, Vice President of GovernmentAffairs; Gus A. Chafoulias, Director; and David H. Abramson, Director. Otherthan with respect to the SPA, there are no material relationships betweenSouthwest and any of the other investors in the private placement.

##### **NOTE6 –********PROMOTIONAL ALLOWANCES**

Revenue does not include the retail amount of rooms, food, andbeverages provided gratuitously to customers, which was $273,000 and $291,000for the three months ended March 31, 2007 and 2006, respectively.

**NOTE 7– NORTH METRO HARNESSINITIATIVE, LLC**

*Organization:*

North Metro Harness Initiative, LLC (a development stage MinnesotaLimited Liability Company)(“North Metro”) was formedon June 16, 2003 for the purpose of developing, owning, and operating a horserace track and card room north of Minneapolis, Minnesota, in Anoka County. NorthMetro has purchased land and obtained zoning, permitting and regulatoryapprovals and begun construction of its facilities. On June 8, 2004, SouthwestCasino and Hotel Corp. (“Southwest”) sold a 50% interest in the Company to MTR– Harness Inc. (“MTR”), a wholly owned subsidiary of MTR Gaming, Inc. for$10,000.

*Accountingfor North Metro:*

The Company evaluates whether North Metro should be treated as avariable interest entity (“VIE”) subject to consolidation during the applicablereporting periods under Financial Accounting Standards Board Interpretation46(R) – *Consolidation of Variable Interest Entities (asamended*). 

Due to contributions of capital made by MTR as of October 20,2005, in accordance with the North Metro Member Control Agreement dated June 8,2004, the Company no longer provides financial support in excess of its 50percent decision making power. As of March 31, 2007 the Company has providedapproximately 41 percent of the financial support, but still retains its 50percent decision making power. Therefore, since October 20, 2005, the Companyhas accounted for its investment in North Metro on the equity method. TheCompany’s investment in North Metro as of March 31, 2007 was $6,033,848, whichis recorded on the Company’s consolidated balance sheet.

9

----

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

For the three months ended March 31, 2007 and 2006,the Company has recorded a loss from this unconsolidated subsidiary, net of taxbenefit of $120,171 and $39,942, respectively, as follows:
|                                                         | ** ** | **Three months  ended  March 31,** | ** ** | **Three months  ended  March 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                     | ** ** | **2006**                                     | ** ** |
| North Metro:                                            |       |                                         |       |                                         |       |
| Revenues                                                |       | $                                            | 25,302     |                                         | $          | — |   |
| Lobbying  expenses                                      |       | $                                            | 54,012     |                                         | $          | 34,000 |   |
| License fees –  Minnesota Racing Commission        |       | 61,411                                       |       | 63,285                                       |       |
| Other expenses                                          |       | 150,220                                      |       | 6,236                                        |       |
| Total expenses                                          |       | $                                            | 265,643    |                                         | $          | 103,521 |   |
| Net (loss)                                              |       | $                                            | (240,341   | )                                            | $          | (103,521 | ) |
| Southwest Casino Corporation:                           |       |                                         |       |                                         |       |
| 50% share of net  (loss)                                |       | (120,171                                     | )          | (51,761                                      | )          |
| Net tax benefit                                         |       | —                                       |       | 11,819                                       |       |
| (Loss) of  unconsolidated subsidiary net of tax benefit |       | $                                            | (120,171   | )                                            | $          | (39,942 | ) |

 

In 2006, North Metro formed a wholly-owned subsidiarythat acquired a nearby motel in December 2006 that North Metro continues tooperate in 2007 and will be used to house personnel involved in the care ofhorses at the track during the racing season. The motel has 15 rooms availableto rent.

Southwest did not record a tax benefit related toNorth Metro’s losses during the three months ended March 31, 2007, whileSouthwest did record a tax benefit during the three months ended March 31,2006, see Note 12.

North Metro Financing Agreement

On April 20, 2007, North Metro entered into a CreditAgreement (the “Credit Agreement”) with Black Diamond Commercial Finance,L.L.C. (“Black Diamond”) as agent and lender. Under the terms of the CreditAgreement, North Metro will borrow $41.7 million to construct, equip and openits harness racetrack and card club facility in Columbus, Minnesota on thenorth side of the Minneapolis – St. Paul metropolitan area. The initial advanceof $5 million of loan proceeds was made April 20, 2007. As part of the loanagreement the members of North Metro agreed to complete aggregate membershipcontributions of $20.8 million prior to closing the loan. The total cost of theproject is expected to approximate $62 million. As of March 31, 2007, Southwesthad contributed $7.47 million and before the April 20, 2007 loan closing datecontributed an additional $1.25 million to fulfill Southwest’s obligationsunder the Credit Agreement.

Under the Credit Agreement, the initial advance ofloan proceeds will be followed by additional advances based on progress inbuilding and opening the racetrack and card room facility. During construction,North Metro will make monthly payments of interest only based on a floatingindex rate plus 4 percent or on a 1-month, 2-month or 3-month LIBOR rate plus 6percent, at North Metro’s option. After the project opens, interest rates willreduce to the applicable index rate plus 2.5 percent or the applicable LIBORrate plus 4.5 percent, again at North Metro’s option. North Metro must also paya fee equal to 4.5% per annum on any unused portion of the $41.7 million creditfacility. Principal payments of $104,250 will be due on the last day of eachfiscal quarter beginning the first full quarter after the project opening, asdefined in the agreement. North Metro will also be required to prepay the loan inan amount equal to 50 percent of the project’s excess cash flow for each fiscalyear beginning with the fiscal year ended December 31, 2008, as defined in theagreement. Final payment equal to all outstanding principal and accruedinterest is due April 20, 2014.

North Metro may prepay the loan, in whole or in part,at any time, subject to the payment of certain fees and costs. The loan issecured by substantially all of the assets of North Metro. The Credit Agreementdoes not provide for recourse against the members of North Metro.

The Credit Agreement contains standard affirmative andnegative covenants regarding North Metro and its wholly-owned subsidiary NorthMetro Hotel, LLC that restrict, among other things, the ability to dispose ofassets, transfer or pledge equity interests, incur indebtedness, and makeinvestments or distributions. Financial covenants

10

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

applicable to North Metro include, among other things,limits on capital expenditures after opening, minimum EBITDA requirements,satisfaction of leverage ratio limits, and delivery of financial statements.

In addition to customary and standard events ofdefault included in the Credit Agreement, failure to substantially complete (asdefined in the Credit Agreement) construction of the North Metro project byJune 30, 2008, and failure to operate the card room that is part of the NorthMetro project at any time after July 1, 2008, would constitute a default underthe Credit Agreement.

Additional MembershipContribution, Pledge, Subordination and Sponsor Support Agreements of Southwest

In connection with the closing of the loan, Southwestwas required to make additional membership contributions to North Metro, asdiscussed above. To date, Southwest has contributed approximately $8.7 millionto North Metro, including the membership preferred capital contributiondiscussed below.

While the Credit Agreement does not provide forrecourse against Southwest in the case of a default by North Metro, Southwest has pledged its membership interest in North Metro and NorthMetro pledged its membership interest in North Metro Hotel, LLC as security forrepayment of the loan under the terms of a Pledge Agreement with Black Diamond(the “Pledge Agreement”).

Southwest also entered into a Subordination Agreementwith Black Diamond (the “Subordination Agreement”) under which Southwest hasagreed that repayment of a $1.65 million membership preferred capitalcontribution to North Metro, which North Metro was to repay to Southwest out ofthe first available revenue from operations, will be subordinated to thepayments due under the loan agreements.

In addition, Southwest entered into a Sponsor SupportAgreement (the “Support Agreement”) under which each member of North Metro hasagreed to contribute additional capital to North Metro if proceeds from theloan are insufficient to complete construction and open the facility.

**NOTE8 – MANAGEMENT CONTRACT**

Cheyenne andArapaho Tribal Council Meeting

The Company has anagreement with the Cheyenne and Arapaho Tribes of Oklahoma (CATO) formanagement of CATO’s casinos located in Concho and Clinton, Oklahoma thatexpires on May 19, 2007. 

The Tribal Council of theCheyenne and Arapaho Tribes of Oklahoma (the “Tribes”) voted for the secondtime on March 31, 2007 to approve an extension and expansion of the gamingmanagement relationship between the Tribes and Southwest. The Tribal Councilincludes all adult enrolled members of the Tribes and is one of the fourbranches of government under the Tribes’ 2006 Constitution. The Tribal Councilhad previously adopted resolutions on February 24, 2007 approving proposedterms for, and authorizing an attorney for the Tribes to review the final termsof, gaming management and development agreements under which Southwest will: 

·                       continueto manage the Tribes’ existing Lucky Star casinos in Concho and Clinton,Oklahoma; 

·                       expand the Lucky Star Concho andClinton facilities to provide more gaming space and greater amenities; 

·                       assume the management of andexpand the Tribes’ existing casinos in Watonga and Canton Lake, Oklahoma; and 

·                       develop and manage new gamingfacilities on tribal land in four other Oklahoma cities, Seiling, Colony,Hammon and Elk City. 

Under the resolutionsadopted February 24th,the final agreements were to be presented to the Tribal Council at the March 31st meeting for approval. Before the March 31st Tribal Council meeting, Southwest negotiatedwith the attorney appointed by the Tribal Council the terms of eight newagreements: four new gaming management agreements; four agreements forexpansions of existing casinos and/or development of new casinos; and anamendment to extend the current Gaming Management Agreement until the Chairmanof the National Indian Gaming Commission approves the new management agreementfor the Lucky Star - Concho and Lucky Star - Clinton facilities. Southwest also provided copies of the draft gamingmanagement agreement to the tribal Governor who declined to review the draftagreements or negotiate their terms with Southwest. The amendment and each ofthe new agreements was made available to members of the Tribes before and atthe March 31st Tribal Council meeting. 

11

----

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

Under those agreementsand consistent with the resolutions adopted by the Tribal Council on February24th and March 31st, Southwest’s management relationshipwith the Tribes will continue for an additional 5 years beginning on the daySouthwest begins management of the Tribes’ gaming facilities under the newagreements. In addition to expanding the Lucky Star casinos managed bySouthwest for the Tribes and expanding or developing casinos in six otherlocations, the resolutions adopted by the Tribal Council and the contractsprovided at the March 31st meeting require Southwest to manageconstruction and pay up to $5 million of the costs of a proposed Indian HealthService clinic building out of the management fees it receives.

The Tribal Councilresolutions direct the Governor of the Tribes to enter into the gamingmanagement agreements on behalf of the Tribes within five days of finalapproval by the Tribal Council and direct the tribal Legislature to ratify theagreements no later than five days after the tribal Governor signs it or, ifthe Governor does not sign, no later than 10 days after final approval by theTribal Council. The Tribal Legislature ratified the agreements on April 14,2007.  The tribal Governor has activelyopposed any extension of our management relationship with the Tribes and hasdisputed the authority of the Tribal Council and the tribal legislature tocause him to take any action on a gaming management agreement or enter into agaming management agreement without his approval. On April 3, 2007, the tribalGovernor filed a lawsuit in the Cheyenne and Arapaho district court allegingthat the resolutions adopted by the Tribal Council at the March 31, 2007 andFebruary 24, 2007 meetings violate the Tribes’ Constitution.  Southwest’s motion to intervene in thisproceeding was granted on April 13, 2007. On May 2, 2007, Southwest filed itsresponse to the Governor’s allegations and a request for an order directing theGovernor to sign the management agreements. On May 8, 2007, Southwest filed a motion for an expedited hearing on thematter.  The Tribal Trial Court hasscheduled that hearing for May 18, 2007.

The validity of theFebruary 24, 2007 Tribal Council meeting has also been challenged in theCheyenne and Arapaho tribal court. A tribal court judge ruled that the meetingwould be considered valid until a formal hearing on the issue could be held,likely in May. Based on the challenge to validity of the February 24th meeting,Southwest believes the validity of the March 31, 2007 Tribal Council meetingmay also be challenged in tribal court.

Although we have receivedTribal Council approval as discussed above, additional approvals are requiredto continue our management relationship with the Cheyenne and Arapaho Tribesbeyond May 19, 2007. In general, gaming management agreements between NativeAmerican tribes and management contractors must be approved by the Chairman ofthe National Indian Gaming Commission (NIGC) before becoming effective.  Southwest submitted the executed agreementsto the National Indian Gaming Commission for approval in accordance with theIndian Gaming Regulatory Act on April 19, 2007, after ratification by theTribal Legislature.  Because of theuncertainty regarding whether we will receive the required approvals andsucceed in any legal action needed to proceed with the extension of ourmanagement relationship beyond May 19, 2007, we remain uncertain whether wewill be able to do so.

Notice of Termination ofManagement Contract 

On March 30, 2007, thetribal Governor of the Cheyenne and Arapaho Tribes of Oklahoma, delivered aletter to Southwest alleging that Southwest had breached the terms of the ThirdAmended and Restated Gaming Management Agreement under which Southwestcurrently manages two casinos for the Cheyenne and Arapaho Tribes and notifyingSouthwest that the Tribes intend to terminate that agreement.  Under its current terms, this managementagreement will expire on May 19, 2007. In the tribal Governor’s letter, the tribal Governor alleged thatSouthwest had breached the management agreement by interfering with orattempting to influence internal affairs or governmental decisions of theTribes in connection with Southwest’s ongoing efforts to extend its gamingmanagement relationship with the Tribes.

The Company does notbelieve it has improperly interfered with or attempted to influence internalgovernmental decisions of the Tribes and Southwest will challenge any effort toterminate the Gaming Management Agreement on those grounds. Under its GamingManagement Agreement with the Tribes, Southwest is permitted to oppose,publicly or privately, any action by the Tribes that Southwest believes is notin the best interest of the Tribal gaming operations. Southwest believes thatall of the actions it has taken on behalf of the gaming operations it managesor as part of its efforts to extend its gaming management relationship with theTribes are consistent with that provision.

Under the terms of theGaming Management Agreement, the Tribes must give Southwest 60 days notice of abreach before termination.  Southwest hasthe right to cure any alleged breach during that 60-day period, and if it doesso, the Tribes will not have the right to terminate the Agreement.  Under the agreement, any dispute betweenSouthwest

12

----

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

and the Tribes regardinga breach of the agreement must be settled through binding arbitration under theCommercial Arbitration Rules of the American Arbitration Association.Arbitration awards may be enforced in the United States District Court for theDistrict of Oklahoma.

**NOTE 9 -LINE OF CREDIT**

On October 20, 2005, the Company entered into anagreement to borrow up to $450,000 under a revolving line of credit due April30, 2007 (see Note 18 regarding the amendment entered into subsequent to March31, 2007).  The interest rate is Prime+1%, and not less than 7.5%.  Currentlythe interest rate is 9.25%.  At March 31,2007, $450,000 was available to borrow. The loan is guaranteed to the extent of $300,000 by three principalofficers of the Company (see Note 18 regarding increase in the amount guaranteedto $450,000 subsequent to March 31, 2007).

**NOTE 10 — REDEMPTION OF SECURITIES**

The Company redeemed 357,000 shares of common stock inaccordance with Article XI of the Company’s Articles of Incorporation effectiveJanuary 22, 2007.  The shares were redeemed at a price of $0.90 per sharebased upon the closing stock price of the Company’s common stock as reported onJanuary 22, 2007.  The Company recordedthe redemption as a reduction to stockholder’s equity for the buy back ofshares.  The shares of common stock areincluded in Treasury Stock in the Consolidated Statements of Changes inStockholders’ Equity as of March 31, 2007.

**NOTE 11 –EARNINGS (LOSS) PER SHARE**

For all periods, basicearnings (loss) per share is calculated by dividing earnings (loss) by theweighted-average number of common shares outstanding.  Diluted earnings per share for the threemonths ended March 31, 2006, reflect the effect of all potentially dilutivecommon shares outstanding by dividing net earnings by the weighted-average ofall common and potentially dilutive shares outstanding.  The Company had a net loss for the threemonths ended March 31, 2007; therefore a calculation of earnings per share on afully diluted basis would be anti-dilutive.

##### The following is a reconciliationof basic and diluted earnings per share:

| ** **                                                      | ** ** | **Net Earnings** | ** ** | **Weighted Average  Equity** | ** ** | **Earnings  Per Share** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------|------------|-----------------------------------|------------|------------------------------|------------|
| ** **                                                      | ** ** | **(Numerator)**       | ** ** | **(Denominator)**                 | ** ** | ** **                   | ** ** |
| **Three months ended March 31, 2006:** |       |                  |       |                              |       |                         |       |
| Basic Earnings  per Share                                       |       | $                     | 297,644    |                              | 19,637,545 |                         | $          | 0.02 |   |
| Effect of Dilutive  Securities:                                 |       |                  |       |                              |       |                         |       |
| Outstanding Options and Warrants                                |       |                  |       | 2,367,500                         |       |                         |       |
|                                                            |       | $                     | 297,644    |                              | 22,005,045 |                         | $          | 0.01 |   |

 

##### Options and warrants topurchase 1,395,000 shares of common stock at a price of $1.00 per share andoptions to purchase 675,000 shares of common stock at a price of $0.65 pershare were not included in the computation of diluted earnings per sharebecause the exercise price was greater than the average market price of commonshares during the first three months of 2006. All of these options were outstanding as of March 31, 2006.

**NOTE 12 –INCOME TAXES**

The Company adoptedStatement of Financial Accounting Standards Interpretation No. 48 “*Accounting for Uncertainty in Income Taxes*” (“InterpretationNo. 48) effective January 1, 2007. Interpretation No. 48 clarifies the accounting for uncertain taxpositions in accordance with SFAS 109, “Accounting for Income Taxes.”  Pursuant to Interpretation No. 48, theCompany is required to recognize in its financial statements the largest taxbenefit of a tax position that is “more-likely-than-not” to be sustained onaudit, based solely on the technical merits of the position as of the reportingdate. Only tax positions that meet the “more-likely-than-not” threshold at thatdate may be recognized.  The term “more-likely-than-not”means a likelihood of more than 50 percent.

The Company accounts forinterest and penalties as interest expense in the Statement of Operations.

The Company does not haveany unrecorded tax benefits as of January 1, 2007 or March 31, 2007.

13

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**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

The Company’s tax returnsfor the tax years 2003 through 2006 remain subject to examination by major taxjurisdictions.  However, as the Companyhas net operating losses from prior years these tax returns can also beexamined once these net operating losses are utilized in future tax filings.

Management evaluated itsprobable ability to utilize deferred tax assets arising from net operating losscarry forwards, deferred tax assets and other ordinary items and determinedthat a valuation allowance was appropriate during the three months ended March31, 2007 based upon the uncertainty of continuing the management relationshipwith the Cheyenne and Arapaho Tribes past May 19, 2007.   As a result of this evaluation, a taxbenefit during the three months ended March 31, 2007 was not recognized.  As of March 31, 2007, the Company’s deferredtax asset is zero.

At December 31, 2003, theCompany established a deferred tax asset relating to net operating losses.  As of December 31, 2005, management evaluatedall evidence and determined that a portion of the deferred tax assets relatingto net operating losses would be utilized in 2006 based upon forecasted income forthe Company in 2006.  During the threemonths ended March 31, 2006, the Company recorded a tax provision to reduce thepreviously established deferred tax asset.

**NOTE 13 –RELATED PARTY TRANSACTIONS**

The Company has a liability to certain officers and stockholdersfor unpaid compensation and expenses of $122,467 as of March 31, 2007, relatingto periods prior to December 31, 2003.

James B. Druck, Chief Executive Officer and Director;Thomas E. Fox, President and Chief Operating Officer; Jeffrey S. Halpern, VicePresident of Government Affairs; Gus A. Chafoulias, Director; and David H.Abramson, Director each participated in our January 24, 2007 and February26, 2007 private placement of common stock with accompanying warrants.  See Note 5.

##### **NOTE 14 – PROJECT DEVELOPMENT COSTS**

The Company continues to pursue additional gamingopportunities and as a result continues to incur project developmentexpenses.  For the three months endedMarch 31, 2007 and 2006, development expenses were $168,276 and $96,368, respectively.

**NOTE 15 – SEGMENT INFORMATION**

Segment information related to the three monthsended March 31, 2007 follows:
| ** **                                   | ** ** | **Casino  Operations** | ** ** | **Casino  Management** | ** ** | **Project  Development** | ** ** | **Total**  | ** ** |
|----------------------------------------------|------------|------------------------|------------|------------------------|------------|--------------------------|------------|------------|------------|
| Revenues                                     |       | $                      | 3,512,406  |                   | $          | 1,629,823                |       | $          | —     |   | $ | 5,142,229 |   |
| Segmented profit  (loss) before income taxes |       | (266,183               | )          | 139,566                |       | (288,447                 | )          | (415,064   | )          |
| Segmented assets                             |       | 12,833,030             |       | 2,603,394              |       | 6,043,848                |       | 21,480,272 |       |
|                                              |            |                        |            |                        |            |                          |            |            |            |  |  |  |  |

 

Segment information related to the three monthsended March 31, 2006 follows:
| ** **                                   | ** ** | **Casino  Operations** | ** ** | **Casino  Management** | ** ** | **Project  Development** | ** ** | **Total**  | ** ** |
|----------------------------------------------|------------|------------------------|------------|------------------------|------------|--------------------------|------------|------------|------------|
| Revenues                                     |       | $                      | 3,671,894  |                   | $          | 1,702,618                |       | $          | —     |   | $ | 5,374,512 |   |
| Segmented profit  (loss) before income taxes |       | (237,757               | )          | 846,377                |       | (148,129                 | )          | 460,491    |       |
| Segmented assets                             |       | 13,586,182             |       | 2,215,545              |       | 4,401,608                |       | 20,203,335 |       |
|                                              |            |                        |            |                        |            |                          |            |            |            |  |  |  |  |

 

##### **NOTE 16 - COMMITMENTS AND CONTINGENCIES**

In 2004, the Companypurchased player tracking software and slot accounting software from IGT.  On December 29, 2005, the Company reached anagreement with IGT to finance $460,324 of the purchase price for this systemover 48 months with interest rate equal to the prime rate, which is currently7.5%.  In addition, the Company agreed topurchase additional software for $200,000, which will allow the Company tooffer bonusing to its customers.  Thepurchase is contingent upon IGT receiving necessary approvals for the bonusingsystem from the Colorado Division of Gaming.

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**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

Under the Company’semployment agreements with James B. Druck, CEO, Thomas E. Fox, President andCOO, and Jeffrey S. Halpern, Vice President of Government Affairs, which wereeffective July 1, 2004, these executives can elect to continue their employmentin a reduced capacity, with continuing medical benefits and a salary equal totheir base pay at the time of termination for 12 months and not less than$25,000 after 12 months, if the Company terminates the executive’s employmentwithout cause or in connection with a change in control of the Company (asdefined in the employment agreement) or if the executive terminates hisemployment with the Company for good cause (as defined in the employmentagreement).  The initial term of theseagreements expired July 1, 2006, after which the agreement renewed and willcontinue to renew automatically for additional one-year terms unlessterminated.

The Company has enteredinto employment agreements with certain other key employees of the Company. Theagreements provide for certain benefits to the employee as well as severance ifthe employee is terminated without cause or due to a “constructive termination”as defined in the agreements.  Theseverance amounts depend upon the term of the agreement and can be up to sixmonths of base salary and bonus.

##### Management Agreement:

The Company has an agreement with the Cheyenne andArapaho Tribes of Oklahoma (CATO) for management of CATO’s casinos located inConcho and Clinton, Oklahoma that expires on May 19, 2007.  The management fees received from this contractare significant to the Company’s cash flow from operations.  The Company is currently working to extendthe Company’s management relationship with CATO, see Note 8.

Bonuses:  

On March 27, 2007the board of directors approved bonuses to officers and employees of theCompany in the amount of $385, 000, of which $200,000 was paid during the threemonths ended March 31, 2007 and $10,000 was paid in April 2007.  Bonuses in the amount of $175,000 remain tobe paid on or after July 1, 2007, at such time as management determines thatSouthwest has sufficient financial resources for the payments.  Bonuses in the amount of $185,000 have beenrecorded as a liability as of March 31, 2007.

Other:

The Company is involvedin various claims, legal actions and complaints arising in the ordinary courseof business.  In the opinion ofmanagement, any losses that may occur from these matters are adequately coveredby insurance or are provided for in our financial statements, and the ultimateoutcome of these other matters will not have a material effect on our financialposition or results of operations.

**NOTE 17 - NEW ACCOUNTINGPRONOUNCEMENTS**

The Company adopted Statement of Financial AccountingStandards Interpretation No. 48 “*Accounting for Uncertaintyin Income Taxes*” (“Interpretation No. 48”) effective January 1,2007, see Note 12.

In September 2006, the FASB issued Statement ofFinancial Accounting Standards No. 157, “Fair Value Measurements” which iseffective for fiscal years beginning after November 15, 2007 and forinterim periods within those years.  Thisstatement defines fair value, establishes a framework for measuring fair valueand expands the related disclosure requirements.  The Company is currently evaluating thepotential impact of this statement.

In February 2007, the FASB released SFAS No. 159, “*The Fair Value Option for Financial Assets andFinancial Liabilities—Including an amendment of FASB Statement No. 115*”This Statement permits entities to choose to measure many financial instrumentsand certain other items at fair value. This Statement is effective as of thebeginning of an entity’s first fiscal year that begins after November 15, 2007.Early adoption is permitted as of the beginning of a fiscal year that begins onor before November 15, 2007, provided the entity also elects to apply theprovisions of FASB Statement No. 157, Fair Value Measurements.  TheCompany is evaluating the impact of this statement.

**NOTE 18 –SUBSEQUENT EVENTS**

Extensionof Crown Bank Loan

OnApril 16, 2007, the Company entered into the Third Amendment to the RevolvingCredit and Term Loan Agreement with Crown Bank. The agreement has been amended to extend the maturity date of the$450,000 revolving line of credit to April 30, 2008.  The amendment did not alter the terms of the$2.5 million term loan and

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**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(UNAUDITED)**

**MARCH 31, 2007 AND 2006**

theCompany made the final payment on the term loan on April 30, 2007.  Additionally, under the amendment, three principalofficers of the Company each agreed to increase their personal guarantees ofthe line of credit from $100,000 to $150,000 plus expenses.  As of March 31, 2007, $297,619 wasoutstanding under the Term Loan and $0 was outstanding under the Revolving Creditfacility.

Casino Acquisition 

On December 18, 2006, Southwest Eagle, LLC (“SouthwestEagle”), a wholly-owned subsidiary of Southwest Casino Corporation, enteredinto an Asset Purchase Agreement and a long-term lease with Pinnacle Casinosand Resorts, LLC (“Pinnacle”).

On April 13, 2007,Southwest Casino Corporation and its wholly-owned subsidiary Southwest Eagle,notified Pinnacle that Southwest had elected to terminate the Asset PurchaseAgreement between Southwest Eagle and Pinnacle dated December 18, 2006 and allrelated agreements. Under the Asset Purchase Agreement, Southwest Eagle hadagreed to acquire the operating assets and lease the real property of theDouble Eagle Hotel and Casino and Gold Creek Casino in Cripple Creek, Colorado(collectively, the “Double Eagle”).

Southwest terminated theAsset Purchase Agreement in response to notice Southwest received on April 10,2007 from Pinnacle that the separate Stock Purchase Agreement under whichPinnacle was to acquire all of the outstanding capital stock of Colorado CasinoResorts, Inc. (“CCRI”), the owner of the Double Eagle, had terminated inaccordance with its terms when Pinnacle did not make a required payment.Because Pinnacle was unable to complete its proposed acquisition of the CCRIstock in accordance with the Stock Purchase Agreement, as amended, Pinnacle isalso unable to perform its obligations under the Asset Purchase Agreement withSouthwest Eagle.  In connection with thisacquisition we have recorded approximately $572,000 of deferred financing costsincluded in Other Assets in the unaudited consolidated balance sheet as ofMarch 31, 2007.  We intend to continue topursue this opportunity.

Management Contract

Refer to Note 8.

Registration Statement

Refer to Note 5.

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

The following is a discussion and analysis of the financial positionand operating results of Southwest Casino Corporation (referred to in thisdiscussion, together with its consolidated subsidiaries where appropriate, as “SouthwestCasino”, “Southwest”, the “Company”, “we”, “our” and “us”) for the three monthsended March 31, 2007 and 2006.

***Summary ofConsolidated Operating Results:***

For the quarter ended March 31, 2007, we had a netloss of $415,064 on revenues of $5,142,229 compared to net income of $297,644on revenues of $5,374,512 for the same period in 2006.  This amounts to basic and fully diluted lossof $0.02 per outstanding share during the first quarter of 2007, as compared toearnings of $0.02 per outstanding share ($0.01 per share on a fully-dilutedbasis) during the first quarter of 2006.

This decrease in netincome of approximately $713,000****wasdue primarily to an $881,000 reduction in income from operations due primarilyto a decrease in revenues of approximately $233,000 resulting from poor weatherexperienced in January and February 2007, increased corporate expenses ofapproximately $679,000, and increased project development expenses of $72,000, whichwas offset by decreased casino operating expenses of approximately$100,000.  The decrease in income fromoperations was offset by a tax provision of $174,000 recorded during thequarter ended March 31, 2006 with no corresponding amount in 2007.

***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 Hotel and Casino, Gold Digger’s and UncleSam’s.  We also manage two Native American gaming operations in Oklahomafor the Cheyenne and Arapaho Tribes of Oklahoma, Lucky Star - Concho and LuckyStar - Clinton.  Lucky Star - Concho islocated on U.S. Highway 81, just north of the Oklahoma community of ElReno.  Lucky Star - Clinton is located 60miles west of Lucky Star - Concho in the community of Clinton, Oklahoma on OldRoute 66 near Interstate I-40.  We alsoown a 50% membership interest in North Metro Harness Initiative, LLC, (“NorthMetro”).  North Metro is building aharness racetrack and 50-table card room in Columbus Township, Anoka County,Minnesota.  North Metro secured financingfor the project and began construction in April 2007 and plans to begin harnessracing in Spring 2008 and open the card room after completing 50 days of liveracing (as required by Minnesota statue).

On March 24, 2006,Southwest entered into a Gaming Management Agreement with the Otoe-MissouriaTribe of Indians under which Southwest will manage the Tribe’s Seven ClansParadise Casino in Red Rock, Oklahoma, just south of Ponca City and north ofStillwater.  The Otoe-Missouria Tribe submitted the Gaming ManagementAgreement to the National Indian Gaming Commission, who must approve it beforeit can be effective, on April 10, 2006.  The agreement has a five-yearterm that begins the day Southwest takes over management of the casino. We cannot provide any services or receive any compensation under this agreementuntil it has been approved by the Chairman of the NIGC.  At this time wecannot predict how long that approval process may take or if approval will bereceived.  Also, while the Otoe-Missouria Tribe agreed to the originalterms of the management agreement, it has not responded, and we cannot predictwhen or if it will respond, to comments and questions raised by the NIGC inconnection with the NIGC’s review of that agreement.

We continually evaluate other management, consulting,development and acquisition opportunities related to gaming that have thepotential to generate new revenue streams for us.

***Operating segments:***

Our executive officers review operating results,assess performance and make decisions related to the allocation of resources ona property-by-property basis. We, therefore, believe that each property is anoperating 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 Management:**     |   | **Casino Operations:**                |
|----------------------------|--------|---------------------------------------|
| Lucky Star —  Concho  |   | Gold Rush/ Gold Digger’s Casinos |
| Lucky Star —  Clinton |   | Uncle Sam’s Casino               |

 

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**CasinoManagement:**

We manage two casinos forthe Cheyenne and Arapaho Tribes of Oklahoma under the Third Amended andRestated Gaming Management Agreement dated June 16, 1995.  This Agreement has been extended twice andcurrently expires on May 19, 2007.

The Tribal Council of theCheyenne and Arapaho Tribes of Oklahoma (the “Tribes”) voted for the secondtime to approve an extension and expansion of the gaming managementrelationship between the Tribes and Southwest on March 31, 2007.  The Tribal Council includes all adultenrolled members of the Tribes and is one of the four branches of governmentunder the Tribes’ 2006 Constitution. The Tribal Council had previously adoptedresolutions on February 24, 2007 approving proposed terms for, and authorizingan attorney for the Tribes to review the final terms of, gaming management anddevelopment agreements under which we will:

·                       continue to manage the Tribes’existing Lucky Star casinos in Concho and Clinton, Oklahoma;

·                       expand the Lucky Star Concho andClinton facilities to provide more gaming space and greater amenities;

·                       assume the management of andexpand the Tribes’ existing casinos in Watonga and Canton Lake, Oklahoma; and

·                       developand manage new gaming facilities on tribal land in four other Oklahoma cities,Seiling, Colony, Hammon and Elk City.

Under the resolutionsadopted February 24th the final agreements were to be presented tothe Tribal Council at the March 31st meeting for approval.  Before the March 31st Tribal Council meeting, we negotiated with theattorney appointed by the Tribal Council the terms of eight new agreements:four new gaming management agreements; four agreements for expansions ofexisting casinos and/or development of new casinos; and an amendment to extendthe current Gaming Management Agreement until the Chairman of the NationalIndian Gaming Commission approves the new management agreement for the LuckyStar - Concho and Lucky Star - Clinton facilities.  We also provided copies of the draft gamingmanagement agreement to the tribal Governor who declined to review the draftagreements or negotiate their terms with us. The amendment and each of the new agreements was made available tomembers of the Tribes before and at the March 31st Tribal Council meeting.

Under those agreementsand consistent with the resolutions adopted by the Tribal Council on February24th and March 31st, our management relationship with theTribes will continue for an additional 5 years beginning on the day we beginmanagement of the Tribes’ gaming facilities under the new agreements.  In addition to expanding the Lucky Star casinosmanaged by us for the Tribes and expanding or developing casinos in six otherlocations, the resolutions adopted by the Tribal Council and the contractsprovided at the March 31st meeting require us to manage construction andpay up to $5 million of the costs of a proposed Indian Health Service clinicbuilding out of the management fees we receive.

The Tribal Councilresolutions direct the Governor of the Tribes to enter into the gamingmanagement agreements on behalf of the Tribes within five days of finalapproval by the Tribal Council and direct the tribal Legislature to ratify theagreements no later than five days after the tribal Governor signs it or, ifthe Governor does not sign, no later than 10 days after final approval by theTribal Council. The Tribal Legislature ratified the agreements on April 14,2007.  The tribal Governor has activelyopposed any extension of our management relationship with the Tribes and hasdisputed the authority of the Tribal Council and the tribal legislature to causehim to take any action on a gaming management agreement or enter into a gamingmanagement agreement without his approval. On April 3, 2007, the tribalGovernor filed a lawsuit in the Cheyenne and Arapaho district court allegingthat the resolutions adopted by the Tribal Council at the March 31, 2007 andFebruary 24, 2007 meetings violate the Tribes’ Constitution.  Our motion to intervene in this proceedingwas granted on April 13, 2007.  On May 2,2007, we filed our response to the Governor’s allegations and a request for anorder directing the Governor to sign the management agreements.  On May 8, 2007 we requested and expeditedhearing in this case.  The Tribal TrialCourt has scheduled that hearing on May 18, 2007.

The validity of theFebruary 24, 2007 Tribal Council meeting has also been challenged in theCheyenne and Arapaho tribal court.  Atribal court judge ruled that the meeting would be considered valid until aformal hearing on the issue could be held, likely in May.  Based on the challenge to validity of theFebruary 24th meeting, Southwest believes the validity ofthe March 31, 2007 Tribal Council meeting may also be challenged in tribalcourt.

Although we have receivedTribal Council approval as discussed above, additional approvals are requiredto continue our management relationship with the Cheyenne and Arapaho Tribesbeyond May 19, 2007. In general,

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gaming managementagreements between Native American tribes and management contractors must beapproved by the Chairman of the National Indian Gaming Commission (NIGC) beforebecoming effective.  On April 19, 2007,we submitted the amendment, the management agreement and theexpansion/development agreements to the NIGC for approval under the IndianGaming Regulatory Act.  Because of theuncertainty regarding whether we will receive the required approvals andsucceed in any legal action needed to proceed with the extension of ourmanagement relationship beyond May 19, 2007, we remain uncertain whether wewill be able to do so.

Notice of Termination ofManagement Contract 

On March 30, 2007, thetribal Governor of the Cheyenne and Arapaho Tribes of Oklahoma, delivered aletter to us alleging that we had breached the terms of the Third Amended andRestated Gaming Management Agreement under which we currently manage twocasinos for the Cheyenne and Arapaho Tribes and notifying us that the Tribesintend to terminate that agreement. Under its current terms, this management agreement will expire on May19, 2007.  In his letter, the tribalGovernor alleged that we had breached the management agreement by interferingwith or attempting to influence internal affairs or governmental decisions ofthe Tribes in connection with our ongoing efforts to extend our gamingmanagement relationship with the Tribes.

We do not believe we haveimproperly interfered with or attempted to influence internal governmentaldecisions of the Tribes and we will challenge any effort to terminate theGaming Management Agreement on those grounds. Under our Gaming ManagementAgreement with the Tribes, we are permitted to oppose, publicly or privately,any action by the Tribes that we believe are not in the best interest of theTribal gaming operations. We believe that all of the actions we have taken onbehalf of the gaming operations we manage or as part of our efforts to extendour gaming management relationship with the Tribes are consistent with thatprovision.

Under the terms of theGaming Management Agreement, the Tribes must give us 60 days notice of a breachbefore termination.  We have the right tocure any alleged breach during that 60-day period, and if we do so, the Tribeswill not have the right to terminate the Agreement.  Under the agreement, any dispute between usand the Tribes regarding a breach of the agreement must be settled throughbinding arbitration under the Commercial Arbitration Rules of the AmericanArbitration Association. Arbitration awards may be enforced in the UnitedStates District Court for the District of Oklahoma.

###### **LuckyStar - Concho**

We earned management fees of $916,605 and $1,070,755 from Lucky Star -Concho during the three months ended March 31, 2007 and 2006, respectively, adecrease of 14.4%.   The decrease inmanagement fees in the first quarter of 2007 compared to the same period in theprior year is due to poor weather experienced in January and February 2007 andgreater competition from other tribal gaming operations closer to Oklahoma Cityand from Remington Park, a racetrack in Oklahoma City that began offeringelectronic gaming near the end of 2005.

**LuckyStar - Clinton**

We earned management fees of $713,218 and $631,863 from Lucky Star -Clinton during the three months ended March 31, 2007 and 2006, respectively, anincrease of 12.9%.   The increase inmanagement fees is the result of an improved mix of games on the floor,including the use of slim line cabinets which allowed us to put more gamingmachines in the same amount of space, and the successful renegotiation ofmachine vendor fees on a number of our more popular electronic games.

Because of the uncertainty surrounding the continuation of ourmanagement relationship with the Cheyenne and Arapaho Tribes of Oklahoma beyondMay 19, 2007 we are unable to give an outlook on revenues for the remainder of2007.

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**Casinooperations**:

**GoldRush/Gold Digger’s Casino Results** 
|                  | ** ** | **Three  Months  Ended  March 31,** | ** ** | **Three  Months  Ended  March 31,** | ** ** | **Percentage  Increase** | ** ** |
|------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------|------------|
| ** **       | ** ** | **2007**                                 | ** ** | **2006**                                 | ** ** | **(Decrease)**           | ** ** |
| Casino revenues  |       | $                                        | 3,172,513  |                                     | $          | 3,293,463                |       | (3.7 | )% |
| Total revenues   |       | 3,298,429                                |       | 3,462,784                                |       | (4.7                     | )%         |
| EBITDA           |       | 457,258                                  |       | 549,588                                  |       | (16.8                    | )%         |
| Operating margin |       | 13.9                                     | %          | 15.9                                     | %          |                     |       |
|                  |            |                                          |            |                                          |            |                          |            |  |  |

 

Three Months Ended March31, 2007 v March 31, 2006:

Gold Rush/Gold Digger’s (“GRGD”)recorded a 3.7% decrease in casino revenues for the first quarter of 2007compared to the first quarter of 2006 primarily due to bad weather experiencedin January and February 2007.  TheCripple Creek market also decreased by approximately 2.0%.  EBITDA decreased by approximately 16.8% as aresult of increased marketing expenses which were committed in 2006 relating toJanuary and February 2007 as well as an increase in marketing expenses in March2007 to make-up for the poor patronage in January and February 2007.  We continue to see high gas prices reduce thenumber of visits our patrons are able to make as most live about an hour’sdrive from Cripple Creek.  We also haveincreased competition as a nearby competitor expanded their facility by about80 machines year-over-year, which has had an adverse impact on us.

**Uncle Sam’s Casino Results**:
|                  | ** ** | **Three  Months  Ended  March 31,** | ** ** | **Three  Months  Ended  March 31,** | ** ** | **Percentage  Increase** | ** ** |
|------------------|------------|------------------------------------------|------------|------------------------------------------|------------|--------------------------|------------|
| ** **       | ** ** | **2007**                                 | ** ** | **2006**                                 | ** ** | **(Decrease)**           | ** ** |
| Casino revenues  |       | $                                        | 208,879    |                                     | $          | 207,872                  |       | 0.5 | % |
| Total revenues   |       | 213,977                                  |       | 209,110                                  |       | 2.3                      | %          |
| EBITDA           |       | (107,195                                 | )          | (139,744                                 | )          | 23.3                     | %          |
| Operating margin |       | (50.1                                    | )%         | (66.8                                    | )%         |                     |       |
|                  |            |                                          |            |                                          |            |                          |            |  |  |

 

Three Months EndedSeptember 30, 2006 v September 30, 2005:

Uncle Sam’s enjoyed a2.3% increase in total revenues for the first quarter compared to the prioryear.  Late in the second quarter of2006, Uncle Sam’s opened the Altitude Night Club & Bar which helpedincrease traffic and revenues during the quarter; particularly on weekendscompared to the first quarter of 2006. The higher revenues along with reduced expenses helped improve EBITDA byapproximately $33,000.

***Project Development***costs for the three months ended March 31, 2007 and 2006 were $168,276 and$96,368, respectively.  The increase ofapproximately $72,000 is a result of increased costs associated with obtainingour contract extension with the Cheyenne and Arapaho Tribes, see abovediscussion under “Casino Management”.

***Corporate expenses*** were $1,303,585 and$624,975 during the three months ended March 31, 2007 and 2006, respectively anincrease of approximately $679,000.  Theincrease in corporate expenses during the three months ended March 31, 2007over the comparable period in 2006 is primarily due to increased salary andbenefit expense of approximately $437,000 (which included discretionary bonusesapproved by the board of directors in March 2007 of approximately $385,000 withno corresponding amount in the same period in 2006), fees for investorrelations and financial consulting services of approximately $57,000, increasedfees with the National Indian Gaming Association of approximately $37,000, increasedlegal and accounting fees of approximately $40,000 and increased travel relatedexpenses of approximately $19,000.  Thebonus approved in March 2007 consisted of $210,000 which

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was paid on March31, 2007, $10,000 paid in April 2007, and $175,000 to be paid on or after July1, 2007 at such time as management determines that Southwest has sufficientfinancial resources for the payment.  The$175,000 is accrued as a liability at March 31, 2007.  On March 27, 2007 the board of directorsapproved bonuses to officers and employees of the Company in the amount of$385, 000, of which $200,000 was paid during the three months ended March 31,2007 and $10,000 was paid in April 2007. Bonuses in the amount of $175,000 remain to be paid on or after July 1,2007, at such time as management determines that Southwest has sufficientfinancial resources for the payments. Bonuses in the amount of $185,000 have been recorded as a liability asof March 31, 2007.

***Interest Expense***was $249,449 and $322,346 for the three months ended March 31, 2007 and 2006,respectively.  Interest expense decreasedapproximately $73,000 primarily due to paying less interest on our $2.5 millionterm loan as we had lower principal outstanding in the first quarter 2007 comparedto the first quarter of 2006 as a result of monthly principal amortizationpayments beginning that began April 1, 2006.

***Loss ofunconsolidated subsidiary, net of tax benefit*** representsour share of the losses of North Metro, which were $120,171 and $39,942 duringthe three months ended March 31, 2007 and 2006, respectively.  The increase in losses in 2007 compared to2006 is a result of increased real estate taxes in 2007 due to higher assessedland values following the purchase of land by North Metro in late 2005.

***Effective tax rate***for the three months ended March 31, 2007 we did not record a tax benefit forthe net loss as a result of our evaluation of deferred tax assets and ourability to utilize the deferred tax assets in the future.  In the first quarter of 2006 we recorded atax provision that resulted in an effective tax rate of 34%.  As of December 31, 2005, we evaluated allevidence and determined that a portion of the deferred tax assets relating tonet operating losses in previous years would be utilized in 2006 based uponforecasted income for 2006.  We evaluatedthe valuation allowance against the deferred tax assets at March 31, 2007 anddid not reverse the valuation allowance because we are uncertain whether wewill continue our management relationship with the Cheyenne and Arapaho Tribespast May 2007.  As of March 31, 2007, ourdeferred tax asset is zero.

***Liquidity and Capital Resources:***

We generate cash flow from our Oklahoma managementactivities and casino operations in Colorado.  We use the cash flowsgenerated to pay off debt in accordance with our agreements, fund reinvestmentin existing properties for both refurbishment and replacement of assets, and topursue additional growth opportunities.  To balance our cash requirements wesupplement the cash flows generated by our operations with funds provided byfinancing activities.

On January 24, 2007 and February 26, 2007, we enteredinto a Securities Purchase Agreement (“SPA”) with certain institutional andother accredited investors, as defined in Rule 501 of Regulation D promulgatedunder the Securities Act of 1933, as amended, under which we sold in privateplacements an aggregate of 7.44 million shares of our common stock withaccompanying warrants to purchase an aggregate of 2.98 million shares of ourcommon stock, at a purchase price of $0.55 per share of common stock.  Thewarrants are exercisable for a period of five years, beginning six months afterthe date of issuance, at an exercise price of $0.61 per share.  The numberof shares issuable upon exercise of the warrants and the exercise price of thewarrants are adjustable in the event of stock splits, combinations andreclassifications, but not in the event of the issuance by us of additionalsecurities, unless such issuance is pursuant to a rights offering or pro ratadistribution to all security holders except the investors.

The securities that were issued in this privateplacement were not registered under the Securities Act of 1933, as amended, andmay not be offered or sold in the United States absent registration or anapplicable exemption from the registration requirements of the SecuritiesAct.  Pursuant to the terms of the Registration Rights Agreements datedJanuary 24, 2007 and February 26, 2007 between us and the investors, we agreedto register the resale of the shares sold in the private placement, includingshares issuable upon exercise of the warrants, on a registration statement thatbecame effective on May 11, 2007.  Underthe Securities Purchase Agreement, we and the investor parties have made othercovenants and representations and warranties regarding matters that arecustomarily included in financings of this nature.  If certain of ourobligations are not met, we have agreed to make pro-rata cash payments asliquidated damages to each investor.

The private placement resulted in net proceeds to usof approximately $3.95 million, after the deduction of approximately $135,000of direct offering expenses.  The placement agent agreed to accept thecash portion of the placement agent commission in common stock and warrants onthe same terms as the investors, which resulted in the placement agentreceiving approximately 517,000 shares of common stock and warrants to purchasean aggregate of approximately 207,000 shares of common stock.  In addition, the placement agent received awarrant to

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purchase approximately 277,000 shares of common stock,which is exercisable for a period of five years, beginning six months after thedate of issuance, at an exercise price of $1.00 per share.

The following officers and directors participated inthe private placement on the same terms as the other investors: James B. Druck,Chief Executive Officer and Director; Thomas E. Fox, President and ChiefOperating Officer; Jeffrey S. Halpern, Vice President of Government Affairs;Gus A. Chafoulias, Director; and David H. Abramson, Director.  Other thanwith respect to their participation in this offering, there are no materialrelationships between us and any of the other investors in the privateplacement.

On April 20, 2007, North Metro entered into a CreditAgreement (the “Credit Agreement”) with Black Diamond Commercial Finance,L.L.C. (“Black Diamond”) as agent and lender.  Under the terms of theCredit Agreement, North Metro will borrow $41.7 million to construct, equip andopen its harness racetrack and card club facility in Columbus, Minnesota on thenorth side of the Minneapolis — St. Paul metropolitan area.  The initialadvance of $5 million of loan proceeds was made April 20, 2007.  As part of the loan agreement the members ofNorth Metro agreed to complete aggregate membership contributions of $20.8million prior to closing the loan.  Thetotal cost of the project is expected to approximate $62 million.  As of March 31, 2007, we had contributed$7.47 million and before the April 20, 2007 loan closing date we contributed anadditional $1.25 million to fulfill our obligations under the Credit Agreement.

While the Credit Agreement does not provide forrecourse against us in the case of a default by North Metro, we have pledgedour membership interest in North Metro and North Metro pledged its membershipinterest in North Metro Hotel, LLC as security for repayment of the loan underthe terms of a Pledge Agreement with Black Diamond (the “Pledge Agreement”).

We also entered into a Subordination Agreement withBlack Diamond (the “Subordination Agreement”) under which we agreed thatrepayment of a $1.65 million membership preferred capital contribution to NorthMetro, which North Metro was to repay to us out of the first available revenuefrom operations, will be subordinated to the payments due under the loanagreements.

In addition, we entered into a Sponsor SupportAgreement (the “Support Agreement”) under which each member of North Metroagreed to contribute additional capital to North Metro if proceeds from theloan are insufficient to complete construction and open the facility.  We believe the loan financing secured byNorth Metro will be sufficient to construct and open the facility.

If we are unsuccessful in continuing our managementrelationship with the Cheyenne and Arapaho Tribes past May 2007 we than willhave to raise additional capital through debt or equity financing.    We continue to review additionalopportunities to acquire or invest in companies, properties and otherinvestments that meet our strategic and return on investment criteria.  If we complete a material acquisition orinvestment, our operating results and financial condition could changesignificantly in future periods.  Inaddition, any new opportunity would in all likelihood require new equity ordebt financing. 

On December 18, 2006, we entered into an AssetPurchase Agreement and a long-term lease with Pinnacle Casinos and Resorts, LLC(“Pinnacle”).

On April 13, 2007, wenotified Pinnacle that we had elected to terminate the Asset Purchase Agreementbetween us and Pinnacle dated December 18, 2006 and all related agreements.Under the Asset Purchase Agreement, we had agreed to acquire the operatingassets and lease the real property of the Double Eagle Hotel and Casino andGold Creek Casino in Cripple Creek, Colorado (collectively, the “Double Eagle”).

We terminated the AssetPurchase Agreement in response to notice we received on April 10, 2007 fromPinnacle that the separate Stock Purchase Agreement under which Pinnacle was toacquire all of the outstanding capital stock of Colorado Casino Resorts, Inc. (“CCRI”),the owner of the Double Eagle, had terminated in accordance with its terms whenPinnacle did not make a required payment. Because Pinnacle was unable tocomplete its proposed acquisition of the CCRI stock in accordance with theStock Purchase Agreement, as amended, Pinnacle is also unable to perform itsobligations under the Asset Purchase Agreement with us.  In connection with this acquisition we haverecorded approximately $572,000 of deferred financing costs included in OtherAssets in the unaudited consolidated balance sheet as of March 31, 2007.  We intend to continue to pursue thisopportunity.  

Net cash provided byoperating activities during the three months ended March 31, 2007 was $116,095compared to $930,161 during the same period in the prior year, a decrease ofapproximately $814,000.  The decreasebetween periods is primarily due to a decrease in our management fees receivedin the first quarter of 2007 that resulted from 

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receiving a management fee payment of approximately $400,000 in lateDecember 2006 from the Cheyenne and Arapaho management contract that wasreceived in January of the same period in the prior year, decreased payments ofaccounts payable and accrued liabilities of approximately $265,000 and anincrease in project development costs of approximately $72,000.

Net cash used in investing activities for the threemonths ended March 31, 2007 and 2006 was $1,256,229 and $238,402, respectively,an increase of approximately $1,018,000.  The increase in use of cashbetween the periods was due primarily to an increase in our investment in NorthMetro of approximately $945,000 in connection with the closing of theconstruction financing secured by North Metro in April 2007.  We contributed $1.1 million during thequarter ended March 31, 2007 to North Metro and we made additional capitalcontributions of approximately $1.25 million in April 2007 to fulfill themembership contribution requirements of the loan agreement discussedabove.  

Net cash provided byfinancing activities for the three months ended March 31, 2007 was $2,165,171compared to net cash used in financing activities for the three months endedMarch 31, 2006 of $504,689.  During thethree months ended March 31, 2007 we had the following financing activities:

·                  We completed anequity financing resulting in proceeds of approximately $4.1 million, seefurther discussion above.  

·                  Duringthe three months ended March 31, 2007 we made payments of approximately$685,000 on long-term borrowings compared to approximately $217,000 during thethree months ended March 31, 2006.  

·                  Wepaid costs of approximately $322,000 related to the redemption of 357,000shares of common stock in accordance with Article XI of our Articles ofIncorporation effective January 22, 2007.  The shares were redeemed at aprice of $0.90 per share based upon the closing stock price of our common stockas reported on January 22, 2007.  Werecorded the redemption as a reduction to stockholder’s equity for the buy backof shares.  The shares of common stockare included in Treasury Stock in the Consolidated Statements of Changes inStockholders’ Equity as of March 31, 2007. 

·                  Wemade payments of approximately $447,000 related to our proposed acquisition ofthe Double Eagle Hotel and Casino in Cripple Creek, Colorado, see furtherdiscussion above 

·                  We made paymentson our line of credit of $446,292 compared to $300,000 in the first quarter of2006.  

***Line of Credit.***  On October 20, 2005, we established a $450,000 line of credit with CrownBank of Minneapolis, Minnesota.  The lineof credit is due April 30, 2008 with a variable interest rate at onepercent above prime but not less than 7.5% (9.25% at March 31, 2007).  As of March 31, 2007, the outstanding balancewas $0.  Our three principal officers have guaranteed up to $450,000 ofthis line of credit. 

***Term Note*.**  On October 20, 2005, the Company entered intoa term loan to borrow $2.5 million. The loan is due April 30, 2007 with avariable interest rate at one percent above prime but not less than 7.5% (9.25%at March 31, 2007). Twelve shareholders of the Company, including our threeprincipal officers and a member of our board of directors, guarantee the loan.The term note provided for interest only until April 1, 2006 at which time webegan making principal payments.  As ofApril 30, 2007 the loan has been paid in full.  

***Equipment Loan.*** On December 23, 2005, the Company negotiated aloan of $460,324 to pay off outstanding payables in connection with theinstallation of a player tracking system at our three casinos in Cripple Creek,Colorado. The loan is for a term of 48 months with interest equal to the primerate, which is 8.25% as of September 30, 2006***.***  The outstanding balance as of March 31, 2007was approximately $326,000.

***Effects of Current Economic and Political Conditions:***

**CompetitivePressures:**

Many casino operators are either entering or expandingin our 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 Southwest, have plans for additionaldevelopments or expansions in our markets.

Although, the short-term effect on Southwest of thesecompetitive 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

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will insure continued customer loyalty and will enableus to face the competitive challenges present within our industry.

**PoliticalUncertainties:**

The casino entertainment industry is subject topolitical and regulatory uncertainty.  From time to time, individual jurisdictionshave considered legislation or referendums that could adversely impact ouroperations.  The likelihood or outcome of similar legislation andreferendums in the future 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, various state and federal legislators andofficials have proposed changes in tax laws, or in the administration of taxlaws, that would affect the industry.  It is not possible to determinewith certainty the scope or likelihood of possible future changes in tax lawsor in the administration of tax laws.  If adopted, changes in tax lawcould have a material adverse effect on our financial results.

***SignificantAccounting Policies and Estimates:***

We prepare our Consolidated Financial Statements inconformity with accounting principles generally accepted in the UnitedStates.  Certain of our accounting policies, including, but not limitedto, the estimated lives assigned to our assets, the determination of bad debt,asset impairment, valuation of stock option or warrant awards, and incometaxes, require that we apply significant judgment in defining the appropriateassumptions for calculating financial estimates.  By their nature, thesejudgments are subject to an inherent degree of uncertainty.  Our judgmentsare based on our historical experience, terms of existing contracts, ourobservance of trends in the industry, information provided by our customers andinformation available from other outside sources, as appropriate.  Wecannot assure you that our actual results will not differ from ourestimates.  For a discussion of our significant accounting policies andestimates, please refer to Management’s Discussion and Analysis or Plan ofOperation and Notes to Consolidated Financial Statements presented in the 2006Financial Statements included in our Annual Report on Form 10-KSB.

***New Accounting Pronouncements*:**

We adopted Statement of Financial Accounting StandardsInterpretation No. 48 “*Accounting for Uncertaintyin Income Taxes*” (“Interpretation No. 48) effective January 1, 2007,which did not have a significant impact to our financial statements.  

In September 2006, theFASB issued Statement of Financial Accounting Standards No. 157, “FairValue Measurements” which is effective for fiscal years beginning afterNovember 15, 2007 and for interim periods within those years.  This statement defines fair value,establishes a framework for measuring fair value and expands the relateddisclosure requirements.  We arecurrently evaluating the potential impact of this statement.

In February 2007, theFASB released SFAS No. 159, “ *The Fair ValueOption for Financial Assets and Financial Liabilities—Including an amendment ofFASB Statement No. 115* “ This Statement permits entities to chooseto measure many financial instruments and certain other items at fair value.This Statement is effective as of the beginning of an entity’s first fiscalyear that begins after November 15, 2007. Early adoption is permitted as of thebeginning of a fiscal year that begins on or before November 15, 2007, providedthe entity also elects to apply the provisions of FASB Statement No. 157, FairValue Measurements.  We are evaluating the impact of this statement.

***Non-GAAPFinancial Measures:***

Our executive officersconsider “EBITDA” (earnings before interest, taxes, depreciation andamortization) a useful tool for measuring the operating performance ofSouthwest.  EBITDA is also a widely usedmeasure of operating performance in the gaming industry and a principal basisfor valuation of gaming companies.  Weuse EBITDA to establish budgets, analyze results as compared to our budgets,and as a basis for incentive compensation for some personnel.  However, EBITDA is not a measurement offinancial performance under accounting principles generally accepted in theUnited States and should not be considered an alternative to net income, cashflows from operating activities, or other performance measures derived inaccordance with accounting principles generally accepted in the United Statesas indicators of our operating performance or as measures of ourliquidity.  Southwest has significantuses of cash flows, including capital expenditures, interest payments and debtprincipal repayments that are not reflected in our EBITDA calculations.  Our management uses EBITDA, and we present itin this discussion and analysis, only as a supplement to measures prepared inaccordance with accounting principles generally accepted in

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the United States.  Please be aware that other companies in ourindustry may calculate EBITDA differently than we do, which limits itsusefulness as a comparative measure. 

***Forward-LookingStatements:***

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 identifythese statements by the fact that they do not relate strictly to historical or currentfacts. These statements 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 include statements relating to, among otherthings, future actions, new projects, strategies, future performance, theoutcome of contingencies such as legal proceedings and future financialresults. We have based these forward-looking statements on our currentexpectations and projections about future events. 

We caution the reader thatforward-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: 

·                  theapproval, continuation or extension of management contracts with our Tribalpartners;

·                  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;

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

·                  accessto available and feasible financing; 

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

·                  successof our customer tracking and customer loyalty programs;

·                  abnormalgaming holds;

·                  litigationoutcomes and judicial actions, including gaming legislation, referenda and taxation;

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

·                  constructionfactors, including delays, zoning issues, environmental restrictions, soil andwater conditions, weather and other hazards, site access matters and buildingpermit issues;

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

·                  changes in laws(including increased tax rates), regulations or accounting standards,third-party relationships and approvals, and decisions of courts, regulatorsand governmental bodies; and

Any forward-looking statements are made pursuant tothe Private Securities Litigation Reform Act of 1995 and, as such, speak onlyas of the date made. We undertake no obligation to publicly update anyforward-looking statements, whether as a result of new information, futureevents or otherwise. 

***RiskFactors***

In reviewing this quarterly report on Form 10-QSB, youshould carefully consider the matters concerning Southwest Casino Corporationdescribed under the heading “Risk Factors” in the annual report on Form 10-KSBfiled by the Corporation on March 21, 2007, which are incorporated in thisdocument by reference.

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**Item3.  Controls and Procedures**

(a)  Evaluation of Disclosure Controls andProcedures

The company’s principal executive officer (ChiefExecutive Officer) and principal financial officer (President and ChiefOperating Officer) have evaluated the company’s disclosure controls andprocedures as of March 31, 2007, and have concluded that these controlsand procedures are effective to ensure that information required to bedisclosed by the company in the reports that it files or submits under theSecurities Exchange Act of 1934 (as defined in Exchange Act Rules 13a — 15(e)and 15d — 15(e)) is recorded, processed, summarized, and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms. These disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to bedisclosed by the company in the reports that it files or submits is accumulatedand communicated to management, including the principal executive officer andthe principal financial officer, as appropriate to allow timely decisionsregarding required disclosure.

(b)  Changes in Internal Controls over FinancialReporting

During the three months ended March 31, 2007, nochange occurred in the company’s internal control over financial reporting thatmaterially affected, or is likely to materially affect, the company’s internalcontrol over financial reporting.

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**PART II- OTHER INFORMATION**

**Item1.  Legal Proceedings.**

At a special meeting heldon March 31, 2007, the Tribal Council of the Cheyenne and Arapaho Tribes ofOklahoma voted to approve agreements to extend and expand the gaming managementrelationship between Southwest and the Tribes and to authorize and direct theGovernor of the Tribes to sign those agreements.  On April 3, 2007, the Governor filed adeclaratory judgment action in the Tribal trial court asking the court todeclare those resolutions invalid.  TheTribal court granted our motion to intervene in this case on April 13, 2007.  On May 2, 2007, we filed our response to theGovernor’s allegations and a request for an order director the Governor to signthe management agreements.  On May 8,2007, we requested an expedited hearing in this case, which the Tribal courthas scheduled for May 18, 2007.

In addition, we are involvedin various claims, legal actions and other complaints arising in the ordinarycourse of business.  In the opinion of management, any losses that mayoccur from these matters are adequately covered by insurance or are providedfor in our financial statements and the ultimate outcome of these other matterswill not have a material effect on our financial position or results ofoperations.

**Item 2. Unregistered Sales of Equity Securitiesand Use of Proceeds**

(a)           Please see our Current Reports onForm 8-K filed January 30, 2007 and February 27, 2007 for information regardingsales of unregistered securities during the first quarter of 2007 in which weraised approximately $4.1 million.  Therewere no sales of our company’s unregistered equity securities during the firstquarter of 2007 that were not disclosed in a current report on Form 8-K beforethe filing of this report.  

(c)           The following table summarizesinformation regarding repurchases of shares of Southwest Casino Corporationcommon stock during the first quarter of 2007:
| **Period**               | ** ** | **Total number   of shares   purchased** | ** ** | **Average price  paid per share** | ** ** | **Total number of  shares purchased as  part of publicly  announced plans or  programs (2)** | ** ** | **Maximum number of  shares that may yet be  purchased under the  plans or programs (2)** | ** ** |
|--------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Jan. 1 to Jan.  31, 2007 |       | 357,000                                                      | (1)        | $                                                | 0.90       |                                                                                                                                      | 0          |                                                                                                                                             | 0          |   |
| Feb. 1 to Feb.  28, 2007 |       | 0                                                            |       | 0                                                |       | 0                                                                                                                                         |       | 0                                                                                                                                                |       |
| Mar. 1 to Mar 31, 2007   |       | 0                                                            |       | 0                                                |       | 0                                                                                                                                         |       | 0                                                                                                                                                |       |
|                          |            |                                                              |            |                                                  |            |                                                                                                                                           |            |                                                                                                                                                  |            |  |

 

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(1)           Consistsof 357,000 shares of common stock repurchased from three shareholders inaccordance with Article XI of our Articles of Incorporation.  Article XI provides for repurchase of sharesif the Board of Directors determines that continued ownership of those sharescould negatively impact any gaming license or approval required for the company’soperations.

(2)           Southwest does not currently have anypublicly announced plans or programs for the repurchase of its securities.

**Item 6.  Exhibits**

The following exhibitsare attached to this Quarterly Report on Form 10-QSB:
| 31.1 |   | Certification of Chief Executive Officer Pursuant to  SEC Rule 13a-14.                                                                                                       |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2 |   | Certification of Principal Financial and Accounting  Officer Pursuant to SEC Rule 13a-14                                                                                     |
| 32.1 |   | Certification of Chief Executive Officer Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                    |
| 32.2 |   | Certification of Principal Financial and Accounting  Officer Pursuant to 18.U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

In accordance with therequirements of the Securities and Exchange Act of 1934, as amended, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
| May 15, 2007 | **SOUTHWEST CASINO CORPORATION** |
|--------------|----------------------------------|
|         |                             |   |
|         |                             |   |
|         | By:                              | /s/ James B.  Druck |   |
|         |                             | James B. Druck |
|         |                             | Chief Executive  Officer |
|         |                             | (principal  executive officer) |
|         |                             |   |
|         | By:                              | /s/ Thomas E.  Fox |   |
|         |                             | Thomas E. Fox |
|         |                             | President and  Chief Operating Officer |
|         |                             | (principal  financial and accounting officer) |

 

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