** **

**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

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**FORM 10-KSB**

 

| **(Mark  one)** |                                                                                              |
|-----------------|---------------------------------------------------------------------------------------------------|
|            |                                                                                              |
| **x**           | **ANNUAL REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|            |                                                                                              |
|            |                                                                                              | **For  the fiscal year ended December 31, 2007** |   |
|            |                                                                                              |
| **o**           | **TRANSITION REPORT UNDER  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition periodfrom                        to                            .**

 

**Commissionfile number 000-50572**

 

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**SOUTHWESTCASINO CORPORATION**

(Name of smallbusiness issuer in its charter)

 

| **Nevada**                                                      | ** ** | **87-0686721**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) | ** ** | (I.R.S. Employer  Identification No.) |
| ** **                                                      | ** ** | ** **                            |
| **2001  Killebrew Drive, Suite 350**                       | ** ** | ** **                            |
| **Minneapolis,  Minnesota**                                     | ** ** | **55425**                             |
| (Address of principal  executive offices)                       |       | (Zip Code)                            |

 

**(952)853-9990**

(Issuer’stelephone number, including area code)

 

Securitiesregistered under Section 12(b) of the Exchange Act:

**None.**

 

Securitiesregistered under Section 12(g) of the Exchange Act:

**CommonStock, par value $0.001 per share**

 

Check whether the issuer (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act during the past 12 months (or for such shorter period that theIssuer was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. YES  xNO  o

 

Check if there is no disclosure of delinquent filersin response to Item 405 of Regulation S-B contained herein, and no disclosurewill be contained, to the best of registrant’s knowledge, in definitive proxyor information statements incorporated by reference in Part III of this Form 10-KSBor any amendment to this Form 10-KSB.  x

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). YES  o NO  x

 

The issuer’s revenues for the fiscal year ended December 31,2007 were $19,536,740.

 

As of March 20, 2008, 27,460,953 shares of commonstock of the Issuer were outstanding, and the aggregate market value of thecommon stock of the issuer as of that date (based upon the $0.48 per shareclosing price of the common stock at that date as reported on theOver-The-Counter Bulletin Board), excluding 5,490,629 outstanding sharesbeneficially owned by directors and executive officers, was $10,545,755.

 

Transitional SmallBusiness Disclosure Format (check one): YES  o NO  x

 

 

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**TABLE OFCONTENTS**

 
| Part I                                                                                                                                                |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1. Description of Business                                                                                                                            | 1      |
| Risk Factors                                                                                                                                               | 7      |
| Item 2. Description of Property                                                                                                                            | 11     |
| Item  3. Legal Proceedings                                                                                                                                 | 11     |
| Item 4. Submission of Matters to a Vote of Security  Holders                                                                                               | 12     |
|                                                                                                                                                       |   |
| Part II                                                                                                                                               |   |
| Item 5. Market for Common Equity and Related  Stockholder Matters                                                                                          | 13     |
| Item 6. Management’s Discussion and Analysis or Plan  of Operation                                                                                    | 14     |
| Item 7. Financial Statements                                                                                                                               | F-1    |
| Notes to Consolidated Financial Statements                                                                                                                 | F-7    |
| Item 8. Changes In and Disagreements With Accountants  and Financial Disclosure                                                                            | 22     |
| Item 8A. Controls and Procedures                                                                                                                           | 22     |
| Item  8B. Other Information                                                                                                                                | 22     |
|                                                                                                                                                       |   |
| Part III                                                                                                                                              |   |
| Item 9. Directors, Executive Officers, Promoters,  Control Persons and Corporate Governance; Compliance with  Section 16(A) of the Exchange Act. | 23     |
| Item 10. Executive Compensation                                                                                                                            | 26     |
| Item 11. Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                                                   | 30     |
| Item 12. Certain Relationships and Related  Transactions, and Director Independence                                                                        | 31     |
| Item 13. Exhibits                                                                                                                                          | 32     |
| Item 14. Principal Accountant Fees and Services                                                                                                            | 33     |
|                                                                                                                                                       |   |
| Exhibit Index                                                                                                                                         | E-1    |

 

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**PART I**

 

*As used in this report, referencesto “Southwest”, “the company”, “we”, “our”, or “us”, unless the contextindicates otherwise, refer to Southwest Casino Corporation and its subsidiariesand do not refer to the predecessor corporation, Lone Moose Adventures, Inc. References in this report to “Lone Moose” refer to Lone Moose Adventures, Inc.before our reorganization on July 22, 2004.*

 

*This Annual Report on Form 10-KSBcontains or incorporates by reference not only historical information, but alsoforward-looking statements.  In addition, Southwest or others on Southwest’sbehalf may make forward-looking statements from time to time in oralpresentations, including telephone conferences, in press releases or reports,or elsewhere.  Statements that are not historical are forward-looking andreflect expectations and assumptions.  We try to identify forward-lookingstatements in this report and elsewhere by using words such as “may,” “will,” “should,”“expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,”“predicts,” “potential” or “continue” or the negative of these or similarterms.*

 

*Forward-looking statements involverisks and uncertainties.  These uncertainties include factors that affectall businesses as well as matters specific to Southwest.  We cautionreaders not to place undue reliance on any forward-looking statement thatspeaks only as of the date made and to recognize that forward-lookingstatements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in theforward-looking statements and from historical results, due to the risks anduncertainties described below under the heading “Risk Factors,” as well asothers that we may consider immaterial or do not anticipate at this time. The following risks and uncertainties identified in this report are notexclusive and further information concerning our business, including factorsthat potentially could materially affect our financial results or condition,may emerge from time to time.  We assume no obligation to updateforward-looking statements to reflect actual results or changes in factors orassumptions affecting the forward-looking statements.  We advise you,however, to consult any further disclosures we may make on related subjects inour quarterly reports on Form 10-QSB and current reports on Form 8-Kwe file with or furnish to the Securities and Exchange Commission.*

 

**Item1.****          ****DESCRIPTION OF BUSINESS.**

 

**(a)**                       **Business Development****.**

 

*Corporate Reorganization*

 

On July 22, 2004, Southwest Casino and HotelCorp. merged with Lone Moose Acquisition Corporation, a wholly-owned subsidiaryof Lone Moose Adventures, Inc., a Nevada corporation.  SouthwestCasino and Hotel Corp. was organized under the laws of the State of Minnesotain 1992 under the name “Southwest Casino and Hotel Ventures, Inc.” and hasoperated in the gaming industry since formation.  Lone Moose Acquisition Corporation was formedsolely for the purpose of completing our reorganization.  Southwest Casinoand Hotel Corp. was the surviving corporation in that merger and became awholly-owned subsidiary of Lone Moose Adventures, Inc., which changed itsname to Southwest Casino Corporation.  Under the terms of thereorganization agreement among Southwest Casino and Hotel Corp., Lone MooseAdventures, Inc. and certain shareholders of Lone Moose Adventures, Inc.,Southwest Casino Corporation acquired 100% of the issued and outstanding sharesof Southwest Casino and Hotel Corp. common and preferred stock in exchange formore than 16 million shares of Lone Moose common stock issued to theshareholders of Southwest Casino and Hotel Corp.  Including shares of LoneMoose common stock acquired by principal shareholders of Southwest Casino andHotel Corp. before the reorganization, the former Southwest Casino and HotelCorp. equity security holders acquired approximately 92% of the outstandingsecurities of Southwest Casino Corporation in the reorganization.

 

Lone Moose Adventures, Inc. was formed on January 2,2002 and, before closing the reorganization described above, conducted onlyminimal operations and received only minimal revenue.  Lone Moose wasorganized to take clients on adventure tours in the Wasatch mountain range ofUtah.  Lone Moose conducted fewer than two dozen adventure tours beforeour reorganization.  Upon closing the reorganization, we soldsubstantially all of the assets and liabilities of Lone Moose’s adventure tourbusiness to Lone Moose’s founding shareholders.  Since the reorganizationand sale of the adventure tour business, Southwest has not engaged in anyaspect of the business conducted by Lone Moose before the reorganization.

 

*Prior Bankruptcy*

 

GoldRush I, LLC, a wholly-owned subsidiary of Southwest Casino and Hotel Corp.,filed a voluntary petition for Chapter 11 protection under the United StatesBankruptcy Act as a result of a dispute over rent with the landlord of the GoldRush and Gold Digger’s Casinos in Cripple Creek, Colorado. Gold Rush I wassuccessful in its litigation against the landlord regarding the rent disputeand emerged from bankruptcy on January 10, 2003 when the Bankruptcy Courtconfirmed its reorganization plan, which provided for full payment to allcreditors with interest.

 

**(b)****                                 ****Business of Company****.**

 

**Principal Products or Services andMarkets and Status of Publicly-Announced New Products or Services**

 

Southwest develops, owns, operates, manages andprovides consulting services to casinos, gaming facilities and relatedamenities in various markets across the United States. Based in Minneapolis,Minnesota, we currently own two casinos in Colorado and a 50% membershipinterest in North Metro Harness Initiative, LLC, which is developing RunningAces Harness Park, a harness racetrack and card room in Minnesota.  North Metro is scheduled to begin harnessracing April 11, 2008 and open its 50-table card room in July 2008,after completion of 

 

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50 days of racing. We have approximately 150 full and part-time employees.  We expect Running Aces Harness Park to employmore than 400 additional people when fully operational.

 

Our growth plans include diversifying and expandingexisting operations and pursuing new gaming opportunities.

 

*Casino Operations*

 

Gold Rush I, LLC, a wholly-owned subsidiary ofSouthwest Casino and Hotel Corp. owns and operates the Gold Rush Hotel &Casino and the Gold Digger’s casino in Cripple Creek Colorado. Cripple Creek isa small, historic mining town near Colorado Springs that is permitted to engagein limited stakes ($5.00 per bet limit) gaming. Fifteen casinos operatecurrently in Cripple Creek. The combined Gold Rush and Gold Digger’s facilitiesoffer approximately 406 slot machines and a 4-table card game area.  We also own and operate the Palladium, anoutdoor amphitheater adjacent to the Gold Rush and Gold Digger’s facilitiesthat offers live entertainment and other special events.

 

We also owned andoperated the Uncle Sam’s casino in Cripple Creek, Colorado until June 29,2007.  Uncle Sam’s offered approximately65 slot machines and catered mostly to a local market.  On June 25, 2007, we entered into anagreement with the landlord to purchase the leased real property on which weoperated Uncle Sam’s.  The purchaseagreement provided that Southwest would not be obligated to purchase the realproperty unless we assigned our rights under the purchase agreement to a thirdparty.  On June 26, 2007, Southwestentered into an agreement to assign its rights under the purchase agreement andthe operating lease.  We closed Uncle Sam’scasino on July 29, 2007 and, on July 31, 2007, assigned our rightsunder the purchase agreement and lease and received an assignment fee ofapproximately $487,000.  We transferredthe majority of the equipment and slot machines from Uncle Sam’s to the GoldRush and Gold Diggers casinos.  We alsotransferred all Uncle Sam’s employees to the Gold Rush and Gold Diggers casinosand the Uncle Sam’s customers were offered incentives to migrate their play atUncle Sam’s to the Gold Rush and Gold Diggers casinos.

 

Through North Metro Harness Initiative, LLC, Southwestand its 50 percent partner MTR-Harness, Inc., an affiliate of MTR GamingGroup, Inc., were granted Class A and Class B licenses from theMinnesota Racing Commission on January 19, 2005 to develop and operate aharness racing track and card room facility on approximately 180 acres of landin Columbus Township, Anoka County, Minnesota.  Lawsuits against theMinnesota Racing Commission challenging the validity of those licensesconcluded in favor of the Racing Commission and North Metro during July 2006. This project, named Running Aces Harness Park, is nearing completion andscheduled to open with its first day of live harness racing on April 11,2008.

 

Once constructed and operating, this racing facilitywill offer pari-mutuel wagering on a 5/8-mile track with combined seating forover 2,000 track, restaurant and card room patrons.  In addition, the facility will accommodatesimulcast wagering on live harness racing events broadcast into thefacility.  On January 17, 2008, theMinnesota Racing Commission approved the plan of operation under which NorthMetro will operate a 50-table card room in this facility.  Minnesota law requires us to complete 50 daysof live harness racing before we can open the card room and the approval of theplan of operation is contingent on satisfying that requirement. Under currentlaw, we are only permitted to simulcast harness races at this facility.  We are seeking legislative authorization tosimulcast races by all horse breeds, but cannot provide any assurance that thiseffort will succeed.

 

*Consulting Services*

 

In September 2007, we entered into a consultingagreement to work with Palace Resorts in developing and opening a casino at theMoon Palace Casino, Golf and Spa Resort now under construction in Punta Cana onthe easternmost tip of the Dominican Republic. Under the consulting agreement,we assist Palace Resorts in all phases of design, game selection, training andequipping the casino that will be part of the 1,700-room resort that isscheduled to open in 2008. Southwest receives consulting fees of $50,000 permonth for 10 months beginning in October 2007.  Palace Resorts provides world-class resortvacations at all-inclusive properties throughout Cancun, the Riviera Maya,Nuevo Vallarta, and Cozumel with the Punta Cana, Dominican Republic resort nowunder construction.

 

*Casino Management*

 

Until August 17, 2007, Southwest Casino and HotelCorp. managed the Lucky Star — Concho and Lucky Star —Clinton casinos in Conchoand Clinton, Oklahoma, under the terms of a management agreement with theCheyenne and Arapaho Tribes of Oklahoma. From May 19, 2007 to August 17, 2007, Southwest managed theLucky Star — Concho and Lucky Star — Clinton casinos under Amendment No. 11to the Third Amended and Restated Gaming Management agreement between Southwestand the Cheyenne and Arapaho Tribes of Oklahoma, which extended that agreementfor up to two years.  On August 17,2007, the Supreme Court of the Cheyenne and Arapaho Tribes declared Amendment No. 11invalid.  Also on August 17, 2007,the National Indian Gaming Commission (“NIGC”) reversed its prior approval ofAmendment No. 11.  On August 24,2007, the NIGC rejected our challenge to its decision to reverse thatapproval.  We have not receivedmanagement fees from the Cheyenne and Arapaho Tribes since August 17,2007.

 

On March 24, 2006, weentered into a Gaming Management Agreement with the Otoe-Missouria Tribe ofIndians under which we were to manage the Tribe’s Seven Clans Paradise Casinoin Red Rock, Oklahoma.  TheOtoe-Missouria Tribe submitted the Gaming Management Agreement to the NationalIndian Gaming Commission for approval.  Afterreceiving additional comments on and requested additional changes to themanagement agreement on September 15, 2006, the Tribe did not respond tothe NIGC or to our efforts to complete a revised management agreement.  On July 11, 2007, the NIGC delivered aletter to us and the Chairman of the Tribe requesting that we submit a revisedmanagement agreement or withdraw the request for approval of the currentagreement within 30 days.  We met withrepresentatives of the Tribe’s Economic Development Authority (“OMDA”) on August 6,2007 and discussed the status of the management agreement.  The OMDA has told us that they do not intendto go forward with the management agreement and we have 

 

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withdrawn our request forNIGC review of this management agreement. We continue to seek reimbursementfrom the Otoe-Missouria of expenses we incurred while working with the Tribe in2006.

 

*Prior Business of Lone MooseAdventures, Inc.*

 

Prior to the July 2004 reorganization, Lone Mooseengaged in limited operations primarily related to the provision of adventuretours in the State of Utah. Immediately after closing the reorganization inwhich Lone Moose Adventures became Southwest Casino Corporation and SouthwestCasino and Hotel Corp. became a wholly-owned subsidiary of Southwest CasinoCorporation, we sold substantially all of the assets and liabilities of LoneMoose’s adventure tour business to the founding shareholders of Lone Moose.Since closing the reorganization and sale of assets, Southwest has not engagedin any aspect of the business Lone Moose conducted before the reorganization.

 

**Competition.**

 

The gaming industry, including the development,operation and management of casinos, racetracks and other types of gamingfacilities, is highly competitive, especially given the rapid rate at which theindustry is expanding.  For example, a number of management companies maymake proposals to a particular Native American tribe for the development andmanagement of a single Indian gaming facility, and any gaming facilities developedor managed by us will compete with a rapidly expanding number of other gamingfacilities of varying quality and size, including gaming facilities that arepart of national or regional chains, along with other forms of gaming andentertainment.  Similarly, with respect to projects we are pursuing or maypursue in the future, new competitors could surface at any time and presentalternative proposals for consideration. Many competitors have available tothem substantially greater financial and personnel resources than us.Competition in the future may also be affected by overbuilding which canadversely affect patronage levels. Given the current regulatory climate andlimited number of new gaming opportunities, it is likely that competition inour industry will intensify in the future.

 

The Cripple Creek, Colorado market in which we operatethe Gold Rush Hotel & Casino and the adjoining Gold Digger’s casinoconsists of fifteen gaming facilities with approximately 4,266 machines (as of December 2007),of which we operate 406.  In June 2007we closed the Uncle Sam’s casino that we had operated since 1999 due to poorperformance.  The Cripple Creek marketgenerated total gaming revenues of approximately $155 million during calendaryear 2007.  This is a very competitive market that has shown relativelyslow revenue growth in recent years, even as the number of gaming devicescontinues to grow.  A new casino,expected to offer 700 gaming devices, is under construction, and expected toopen in late spring or early summer 2008. In addition, Colorado banned smoking in casinos beginning January 1,2008, which may negatively impact revenue. Our ability to maintain and grow our Colorado operations is largelydependent on our ability to increase our market share in a highly competitiveenvironment.  We believe that the Gold Rush and Gold Digger’s Casinosattract customers primarily from Colorado Springs, Pueblo and surroundingareas.

 

We own a 50 percent membership interest in North MetroHarness Initiative, LLC, which was granted licenses from the Minnesota RacingCommission to build and operate a harness racing track and card room north ofthe Twin Cities of Minneapolis and St. Paul, Minnesota on January 19,2005.  This facility, when completed, will compete with an existingthoroughbred racetrack and card room on the south side of the Twin Citiesmetropolitan area as well as several Indian gaming facilities located outsideof the Twin Cities areas.

 

For more information regarding the competitiveenvironment in which we operate, please see the “Risk Factors” below under *Item 1. Description of Business* of thisreport.

 

**Dependence on One or a Few MajorCustomers.**

 

Our current gaming activities are concentrated in ourColorado operations.  We currentlyprovide consulting services to Palace Resorts under a consulting agreement thatterminates in August 2008.  The lossof any of these opportunities or constriction in the scope or types of gamingpermitted in these facilities would have a material adverse effect on ourbusiness.

 

During 2007, the management fees we received under agaming management agreement with the Cheyenne and Arapaho Tribes of Oklahomafor the Lucky Star casinos in Concho, Oklahoma and Clinton, Oklahoma was ourprimary source of operating revenue. This management agreement terminated on August 17,2007.  The loss of the management fees wereceived for managing these facilities has had a material adverse effect on ourfinancial condition.

 

**Patents, Trademarks, Licenses,Franchises and Concessions, Royalty Agreements and Labor Contracts.**

 

In addition to the gaming licenses described below, weown a federally registered trademark in the name “Lucky Star” for ourgaming-related businesses.  We do not own any other registered trademarksor patents or other significant intellectual property.

 

**Need for Governmental Approvals ofPrincipal Services.**

 

The gaming industry is highly regulated at the federaland state levels and gaming on tribal land is further regulated by the NationalIndian Gaming Commission and the Bureau of Indian Affairs. We must maintain thegaming licenses applicable to each of our operations in order to continue ourcurrent business and, in most instances, must obtain new or amended gaminglicenses in connection with any expansion of our current operations ordevelopment of new gaming facilities.

 

In Colorado, we hold licenses issued by ColoradoDivision of Gaming for our Gold Rush Hotel & Casino and Gold Digger’scasino in Cripple Creek.  On January 19, 2005, the Minnesota RacingCommission voted to grant North Metro Harness Initiative, LLC, in which we owna 50 percent membership interest, licenses to develop and operate a harnessracetrack and card room.

 

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In connection with these licenses, the ColoradoDivision of Gaming and the Minnesota Racing Commission must approve anyaddition of a director, officer or five percent or greater shareholder.  In addition, any affiliate of ours, such asthe joint ventures we have worked with in pursuit of some of our new gamingopportunities, is subject to review by and the rules and regulations ofany jurisdiction in which we hold a gaming license, and we are subject toreview by and the rules of jurisdictions in which they hold licenses.

 

**Effect of Existing or ProbableGovernmental Regulations on Business.**

 

The gaming industry and our operations within thatindustry are regulated extensively.  Historically, we have provided services to Native American tribes thatare regulated under the federal Indian Gaming Regulatory Act, the rules andregulations of the National Indian Gaming Commission, the rules andregulations of the tribal gaming authority and, in some instances the state inwhich the tribal lands are located.  The Gold Rush Hotel and Casino andGold Digger’s casino in Cripple Creek, Colorado are subject to the ColoradoLimited Gaming Act and related rules and regulations that are enforced bythe Colorado Division of Gaming.  The Minnesota Racing Commissionregulates the activities of North Metro Harness Initiative, LLC, in whichSouthwest Casino and Hotel Corp. owns a 50 percent membership interest, underits class A and class B licenses to develop and operate a harness racetrack andcard room on the north side of the Minneapolis-St. Paul metropolitan area.

 

The process of complying with all applicable state andfederal governmental and tribal regulations is lengthy and has required andwill continue to require the expenditure of substantial time andresources.  There can be no assurance that we will be able to comply on acontinuous or timely basis with all applicable regulations, and delays incompliance, or failure to comply, could have a material adverse effect on ourbusiness, financial condition, results of operations and our ability tomaintain our licenses.  Changes in existing regulations or the adoption ofnew regulations at the federal level or in the states in which we currentlyoperate or are pursuing new opportunities could delay or prevent our compliancewith such regulations.  Our failure to comply with applicable laws orregulations, whether federal, state or tribal, could result in, among otherthings, the termination of management agreements to which we may be a party inthe future or the suspension of one or more of our operations, either of whichwould have a material adverse effect on our business.

 

*Gaming Regulation in Colorado*

 

The Colorado Division of Gaming has broad power toensure compliance with the Colorado gaming laws and regulations (collectively,the “Colorado Regulations”).  The Division may inspect without notice,impound or remove any gaming device. The Colorado Director may examine and copyany licensee’s records, may investigate the background and conduct of licenseesand their employees, and may bring disciplinary actions against licensees andtheir employees.  The Division of Gaming may also conduct detailedbackground investigations of persons who loan money to, or otherwise providefinancing to, a licensee.

 

Colorado issues five types of gaming andgaming-related licenses.  These licenses are revocable andnon-transferable.  All persons employed at our Colorado casinos, andinvolved in gaming operations must obtain a Colorado gaming license.  Alllicenses must be renewed annually, except those for key and support employees, whichmust be renewed every two years.  Failure to maintain any of the licensesor approvals required to operate any of our Colorado casinos would have amaterial adverse effect on our operations.

 

As a general rule, no person may have an “ownershipinterest” in more than three retail gaming licenses in Colorado.  Inaddition, Colorado Regulations restrict the ability of any person with asubstantial interest in a manufacturer or distributor of slot machines to alsohold a substantial interest in a casino operator.  The Division of Gaminghas ruled that a person does not have a “substantial interest” if that person’ssole ownership interest in a licensee is through the ownership of less than 5%of the outstanding voting securities of a publicly traded licensee or publiclytraded affiliated company of a licensee.

 

Under the Colorado Regulations, any person or entityhaving any direct or indirect interest in us may be required to supply theColorado Commission with substantial information, including, but not limitedto, background information, source of funding information, a sworn statementthat such person or entity is not holding his or her interest for any otherparty, and fingerprints.  This information, investigation and licensing asan “associated person” will be required automatically of all persons (otherthan certain institutional investors) that directly or indirectly ownbeneficially 10 percent or more of our outstanding voting securities. Personsthat own more than 10 percent of our outstanding securities must report theirinterest within 10 days and file appropriate applications within 45 days afteracquiring that interest. Persons who directly or indirectly own beneficially 5%or more (but less than 10%) of a direct or indirect beneficial ownership orinterest in our voting securities, must report their interest to the ColoradoCommission within 10 days after acquiring that interest and may be required toprovide additional information and to be found suitable.  All licensingand investigation fees will have to be paid by the person in question. If the personis unable to receive approval from the Division of Gaming or chooses not toprovide information requested by the Division of Gaming that person will berequired to dispose of their Southwest stock holdings in accordance with ourArticles of Incorporation.

 

The Colorado Commission also has the right to requestinformation from any person directly or indirectly interested in, or employedby, a licensee, and to investigate the moral character, honesty, integrity,prior activities, criminal record, reputation, habits and associations of: (1) allpersons licensed pursuant to the Colorado Limited Gaming Act; (2) allofficers, directors and stockholders of a licensed privately held corporation; (3) allofficers, directors and stockholders holding either a 5% or greater interest ora controlling interest in a licensed publicly traded corporation; (4) allgeneral partners and all limited partners of a licensed partnership; (5) allpersons that have a relationship similar to that of an officer, director orstockholder of a corporation (such as members and managers of a limitedliability company); (6) all persons supplying financing or loaning moneyto any licensee connected with the establishment or operation of limitedgaming; (7) all persons having a contract, lease or ongoing financial orbusiness arrangement with any licensee, where such contract, lease orarrangement relates to limited gaming operations, equipment devices orpremises; and (8) all persons contracting with or supplying any goods andservices to the gaming regulators.

 

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The Division of Gaming interprets the ColoradoRegulations to permit investigations of persons or entities providing financingto or acquiring securities from us or our Colorado casinos.  While theColorado Regulations do not require prior approval for credit facilities ordebt securities, the Division reserves the right to approve, require changes toor require the termination of any financing.  In any event, lenders, noteholders, and others providing financing will not be able to exercise certainrights and remedies without the prior approval of the Colorado gamingauthorities.  Information regarding lenders and holders of securities willbe periodically reported to the Colorado gaming authorities.

 

An application for licensure or suitability may bedenied for any cause deemed reasonable by the Colorado Commission or theColorado Director, as appropriate. Specifically, the Colorado Commission andthe Colorado Director must deny a license to any applicant who, among otherthings: (1) fails to prove by clear and convincing evidence that theapplicant is qualified; (2) fails to provide information and documentationrequested; (3) fails to reveal any fact material to qualification, orsupplies information which is untrue or misleading as to a material factpertaining to qualification; (4) has been convicted of, or has a director,officer, general partner, stockholder, limited partner or other person who hasa financial or equity interest in the applicant who has been convicted ofspecified crimes; or (5) has refused to cooperate with any state orfederal body investigating organized crime, official corruption or gamingoffenses.

 

If the Colorado Commission determines that a person orentity is unsuitable to directly or indirectly own interests in our company,one or more of our Colorado casinos may be sanctioned, which may include theloss of our approvals and licenses.

 

In addition, the Colorado Regulations prohibit us frompaying any unsuitable person any dividends or interest upon any votingsecurities or any payments or distributions of any kind (except as set forthbelow), paying any unsuitable person any remuneration for services, orrecognizing the exercise of any voting rights by any unsuitable person.Further, under the Colorado Regulations, we may repurchase voting securitiesfrom anyone found unsuitable at the lesser of the cash equivalent to theoriginal investment or the current market price as of the date of the findingof unsuitability unless such voting securities are transferred to a suitableperson (as determined by the Colorado Commission) within sixty (60) days afterthe finding of unsuitability.

 

Because of their authority to deny an application fora license or suitability, the Colorado Commission and the Colorado Directoreffectively can disapprove a change in corporate position of a licensee and cancause us to suspend or dismiss managers, officers, directors and other keyemployees or sever relationships with other persons who refuse to fileappropriate applications or who the authorities find unsuitable to act in suchcapacities.

 

The sale, lease, purchase and conveyance oracquisition of a controlling interest in a Colorado casino is subject to theapproval of the Colorado Commission. Under some circumstances, we may not sellany interest in our Colorado gaming operations without the prior approval ofthe Colorado Commission.

 

We are required to provide information and fileperiodic reports with the Colorado Division identifying those who have a 5% orgreater ownership, financial or equity interest in us, or who have the abilityto control us or exercise significant influence over us, or who loan money orother things of value to us, or who have the right to share in our limitedgaming revenues, or to whom any interest or share in profits of limited gaminghas been pledged as security for a debt or performance of an act.  Anyperson licensed by the Division of Gaming and any associated person of alicensee must report criminal convictions and criminal charges to the ColoradoDivision.

 

The Colorado Commission has broad authority tosanction, fine, suspend and revoke a license for violations of the ColoradoRegulations. Violations of many provisions of the Colorado Regulations also canresult in criminal penalties.

 

We were fined a total of $55,000 in June 2004 forfailure to comply with Colorado gaming regulations related to maintenance andreview of statistical information regarding slot machine performance and haveentered into an agreement with the Colorado Division of Gaming under which weagreed to bring our practices into compliance. Failure to do so could lead tosuspension or revocation of our license. For more information, see the riskfactor regarding risks we face in connection with obtaining, maintaining andrenewing our gaming licenses under the heading *“RiskFactors”* below in Item 1 of this Report.

 

*Regulation of Horse Racing and CardPlaying in Minnesota*

 

In December 2003, North Metro Harness Initiative,LLC and Southwest Casino and Hotel Corp. filed applications for Class Aand Class B licenses, respectively, to develop and operate a harnessracing track and card room in Anoka County, Minnesota.  The Class Blicense application was subsequently amended and, on January 19, 2005, theMinnesota Racing Commission voted to grant Class A and Class Blicenses to North Metro.  The class A License is effective until revokedor suspended by the Racing Commission, or relinquished by the licensee. The Class B License is renewable each year by the Racing Commission aftera public hearing (if required by the Racing Commission).

 

Minnesota established the Minnesota Racing Commissionto regulate horse racing and card playing in the state under its pari-mutuelhorse racing statute.  North Metro and Southwest, as a 50 percent owner ofNorth Metro, have been subject to the horse racing statute and rules andregulations promulgated under it (the “Racing Act”) since we filed the Class Aand Class B license application.  Our horse racing operations willalso be subject to the federal Interstate Horse Racing Act of 1978.

 

The Racing Commission has broad authority to enforcethe Racing Act and regulate substantially all aspects of horse racing inMinnesota.  The Racing Commission granted and will oversee North Metro’sownership and operating licenses, will: license all employees of North Metro’sracetrack as well as jockeys, trainers, veterinarians and other participants;regulate the transfer of ownership interests in licenses; allocate live racedays and simulcast-only race days; approve race programs; regulate the conductof races; set specifications for the racing ovals, animal facilities, employeequarters and public areas of North Metro’s racetrack; and regulate the types ofwagers on horse races and approve 

 

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significant contractual arrangements with North Metro,including management agreements, simulcast arrangements, totalizator contractsand concessionaire agreements.  Decisions by the Racing Commission inregard to any one or more of these matters could adversely affect the Company’soperations.

 

The Racing Act requires prior approval by the RacingCommission of all officers, directors, 5% shareholders, or other persons havinga present or future direct or indirect financial or management interest in anyperson applying for a Class A and Class B license, and if a change ofownership of more than 5% of the licensee’s shares is made after an applicationis filed or the license issued, the applicant or licensee must notify theRacing Commission of the changes within five days of this occurrence andprovide the information required by the Racing Act.

 

North Metro submitted a card room plan of operationfor approval by the Racing Commission in connection with North Metro’s Class Blicense.  The card room plan has been submitted to the Racing Commission;however under current law North Metro will not receive formal approval of theplan until 50 days of live racing have been completed.  Once the card roomplan of operation is approved, the Racing Commission will regulate the playingof “unbanked” or “player pool” card games at North Metro’s card room, as wellas harness racing.  North Metro must reimburse the Racing Commission forits actual costs, including personnel costs, of regulating the card room. North Metro must have the Class B license and card room authorizationrenewed annually by the Racing Commission after a public hearing (if requiredby the Racing Commission).

 

*Regulation of Indian Gaming*

 

The Company is not currently managing the operationsof Indian-owned casinos or otherwise involved in gaming on Indian land in theUnited States, activities which are subject to the Indian Gaming Regulatory Act(IGRA), which is administered by NIGC, and also are subject to the provisionsof statutes relating to contracts with Indian tribes, which are administered bythe Secretary of the Interior and the Bureau of Indian Affairs (BIA).

 

If we were to enter into new management agreementswith Indian-owned casinos we would be required to provide the NIGC withbackground information on each of our directors and each shareholder who holdsfive percent or more of our outstanding securities, including a completefinancial statement, a description of that person’s gaming experience, and alist of jurisdictions in which that person holds gaming licenses. Backgroundinvestigations of key employees also may be required.  Under IGRA, theChairman of the NIGC must approve any management contracts we enter into aswell as any amendments to those management contracts and certain relatedagreements.

 

The NIGC will not approve a management contract if anyof our directors or a 5% shareholders (i) is an elected member of theIndian tribal government that owns the facility we contract with; (ii) hasbeen or is convicted of a felony gaming offense; (iii) has knowingly andwillfully provided materially false information to the NIGC or the tribe; (iv) hasrefused to respond to questions from the NIGC; or (v) is a person whoseprior history, reputation and associations pose a threat to the public interestor to effective gaming regulation and control, or create or enhance the chanceof unsuitable activities in gaming or the business and financial arrangementsincidental thereto.  In addition, theNIGC will not approve a management contract if we or any of our agents haveattempted to unduly influence any decision or process of tribal governmentrelating to gaming, or if the management company has breached materially theterms of the management contract or the tribe’s gaming ordinance, or a trustee,exercising due diligence, would not approve such management contract.

 

The NIGC also will not approve a management contractunless the NIGC determines that the contract provides, among other things, for (i) adequateaccounting procedures and verifiable financial reports to be furnished to thetribe; (ii) tribal access to the daily operations of the gamingenterprise, including the right to verify daily gross revenues and income; (iii) minimumguaranteed payments to the tribe, which must have priority over the retirementof development and construction costs; (iv) a ceiling on the repayment ofdevelopment and construction costs; and (v) a contract term not exceedingfive years and a management fee not exceeding 30% of profits; provided that theNIGC may approve up to a seven year term and a management fee not to exceed 40%of profits if NIGC is satisfied that the capital investment required, the riskexposure, and the income projections for the particular gaming activity justifythe larger profit allocation and longer term.

 

In addition to IGRA, tribal-owned gaming facilities onIndian land are subject to a number of other federal statutes. The operation ofgaming on Indian land is also dependent upon whether the law of the state inwhich the casino is located permits gaming by non-Indian entities, which maychange over time. Indian tribes are sovereign nations with their own governmentalsystems, which have primary regulatory authority over gaming on land within thetribe’s jurisdiction. Because of their sovereign status, Indian tribes possessimmunity from lawsuits to which the tribes have not otherwise consented orotherwise waived their sovereign immunity defense. Therefore, we may not beable to enforce our contracts with Indian tribes unless the tribe has expresslywaived its sovereign immunity as to the tribe’s contractual obligations. Courtsstrictly construe such waivers.

 

*Securities Law Regulation*

 

We are also subject to certain aspects of theSarbanes-Oxley Act of 2002.  This Act requires creation of a strong andindependent accounting oversight board to oversee the conduct of auditors ofpublic companies and strengthens auditor independence.  It also requiresus to take steps to enhance the direct responsibility of senior members ofmanagement for financial reporting and for the quality of financial disclosureswe make; establishes clear statutory rules to limit, and to expose topublic view, possible conflicts of interest affecting securities analysts;creates guidelines for audit committee members’ appointment, compensation andoversight of the work of our auditors; prohibits certain insider trading duringpension fund blackout periods; and establishes a federal crime of securitiesfraud, among other provisions.

 

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**Costs and Effects of Compliance withEnvironmental Laws****.**

 

Gold Rush I, LLC leases real property in Cripple Creek,Colorado, a portion of which included a gas station and conveniencestore.  The gas station and related storage tanks were removed in October 1998,before Gold Rush I leased the property. We participate in a Corrective ActionPlan approved by the Colorado Department of Labor and Employment, Division ofOil and Public Safety related to groundwater monitoring and remediation at thesite. We have spent approximately $212,000monitoring and remediating this site since we leased it in March 1999**.** We have applied for reimbursement of someor all of these expenses from the Colorado Petroleum Storage Tank Fund and havereceived a total of approximately $113,000in reimbursement to date.  We have additional requests for reimbursementpending and will continue to request reimbursement of any additional expensesincurred in connection with monitoring and remediation.  We typicallyreceive reimbursement of one-half to two-thirds of our expenses incurred fromthe Petroleum Tank Storage Fund, but are uncertain whether we will continue toreceive some or all of that reimbursement.

 

**Number of Employees****.**

 

We currently employ approximately 150 full andpart-time employees.

 

**Risk Factors**

 

In addition to the influences identified elsewhere inthis report, there are several important factors that could cause our actualresults to differ materially from those anticipated by us or that are reflectedin any of our forward-looking statements.  These factors, which may impactthe success of our operations and our ability to achieve our goals, include thefollowing:

 

**1.****                                     ****Risks related toSouthwest’s financial condition:**

 

**We nolonger receive revenue from our prior Oklahoma management agreement**. Our Gaming Management Agreement with the Cheyenne and Arapaho Tribes ofOklahoma terminated on August 17, 2007. We have not received any revenue from management of the Lucky Star —Concho and Lucky Star — Clinton casinos since that date.  Before August 17, 2007, revenue fromthis management agreement was a significant source of our operating revenue.

 

**Becauseof the terms of its construction financing, it is unlikely that North Metrowill provide significant cash distributions other than cash distributions forpartner income taxes to us for several years.**We currently estimate that North Metro will beginhorseracing operations in April 2008 and the card room will open in July 2008.Under the terms of the construction financing for North Metro, operating cashflow must first be used to repay that financing.  We do not believe North Metro will be a significantsource of cash distributions to us for several years.

 

**We havean accumulated deficit and uncertainty with respect to achieving futureprofitability**.  We have incurred substantial operating lossessince inception and had an accumulated deficit of $11.2 million as of December 31,2007. These losses are primarily the result of expenses related to our ongoingpursuit of new gaming opportunities, including the development of the RunningAces Harness Park owned by North Metro Harness Initiative, LLC.  We cannot provide you any assurance that wewill be able to achieve profitability on a quarterly or annual basis in futureperiods.  Our future operating resultswill depend upon a number of factors, including (a) the continuation andfuture profitability of our Colorado casinos; (b) our ability to establishnew gaming opportunities; (c) our ability to maintain our current gaminglicenses and to obtain additional gaming licenses for new or expanded gamingfacilities; and (d) our ability to successfully identify, secure licensingand maintain all necessary approvals and funding related to any additionalfuture gaming opportunities.

 

**We havea continuing need for additional capital**. We anticipate that we will need substantialadditional funding to provide working capital to meet current and futureobligations, including operating expenses and any obligations we may have tocontribute additional capital to North Metro Harness Initiative, LLC.  We will also need additional funding for anyadditional gaming projects we may choose to pursue.  Failure to meet ourcapital commitments related to the harness racetrack and card room could leadto a dilution of our ownership interest in that project.  Moreover, ouroperating plans and financing needs are subject to change depending on, amongother things, market conditions and opportunities; land, equipment or otherasset-based financing that may be available in connection with our developmentof gaming facilities; cash flow from operations, if any; and the number of newgaming projects that we pursue. While additional funds may be provided throughborrowings from institutional investors or project partners, equipment leasingor other forms of debt or equity financing, we do not have any unconditionalcommitments relating to additional financing and we cannot assure you thatadditional financing will be available when needed. Even if financing isavailable when required, we cannot assure you that it will be on termsfavorable to us and our security holders in terms of cost or dilution.

 

**2.****                                     ****Risks related to ourdevelopment of the North Metro Harness Initiative racetrack and card room:**

 

**It isunlikely that North Metro will provide significant cash distributions to us forseveral years due to restrictions under the construction financing agreementsfor the North Metro Harness Initiative racetrack and card room.** Under the terms of the construction loan for North Metro, operating cashflow from North Metro must first be used to repay the construction loan. NorthMetro will not be permitted to make distributions to its owners (other thanannual distributions for payment of income taxes), including Southwest, unlessit 

 

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exceeds performancethresholds stated in the loan agreements. We do not project that North Metrowill exceed these thresholds for several years.

 

**Southwestand North Metro are dependent on MTR-Harness, Inc., the other 50 percentmember of North Metro, for a portion of the funds needed to continuedevelopment of the North Metro racetrack and card room.** Under the North Metro Harness Initiative, LLC Member Control Agreement,after the Minnesota Racing Commission granted Class A and B racinglicenses to North Metro in January 2005, MTR-Harness, Inc. wasinitially obligated to provide the majority of capital for North Metro’soperation and development and, having done so, Southwest and MTR must now eachprovide 50 percent of any additional funds needed for development or operation.If Southwest is unable to meet any portion of its capital contributionobligation, MTR is also the most likely alternative source of those funds. IfMTR were to fail to make any of its required or agreed upon capitalcontributions to North Metro, North Metro may not have the financial resources requiredto develop its racetrack and card room. If North Metro is unable to develop its racetrack and card room andalternative financing was not available and agreed to, Southwest will notreceive any cash or profit from the operation of the facility and the value ofSouthwest’s investment in North Metro will be materially adversely affected.

 

**Delaysin developing North Metro’s racetrack and card room caused by legal challengesto North Metro’s racing licenses increased the cost of the project.** Legal challenges caused significant delays in developing the North Metroproject.  These delays caused the costsof developing the facility to increase significantly due to, among otherthings, higher purchase prices for real property, fluctuating interest rates andborrowing costs, rising construction and labor costs, rising energy prices, andgeneral inflation.  These increased costshave significantly increased the ultimate development costs for the North Metrofacility which will, in turn, delay and reduce the amount of revenue and profitgenerated by North Metro and available for distribution to Southwest.

 

**Actionsby the Minnesota state legislature may reduce the value of our investment inNorth Metro.**  Legislation has been introduced in theMinnesota Legislature to expand the scope of gaming to permit slot machines(commonly referred to as a “racino”) at Canterbury Park, the other Class Alicensed pari-mutuel wagering racetrack in the state, without affording NorthMetro the same opportunity for 5 years. If any legislation should pass thatexcludes North Metro from any gaming expansions afforded to Canterbury Park orNative American tribes, it would have a material adverse effect on North Metro’sproposed operations.  Similarly, anyexpansion of gaming in Minnesota, whether Native American gaming or otherwise,that excludes North Metro could also have a material adverse effect on NorthMetro and its business. In addition, the legislature has considered, but hadnot adopted a significant tax on card room revenue that, if passed, wouldreduce significantly net revenue generated by North Metro.

 

Todate, North Metro has been unsuccessful in its on-going efforts to securelegislative authorization to offer simulcast wagering on all breeds of horseracing (under current law, North Metro may only simulcast harness races).  North Metro was also unsuccessful in itsefforts to eliminate the requirement that we hold 50 days of live harnessracing before we begin card room operations. We continue to seek a change in the law to allow all-breed simulcasting, which would have a significant positive impact on North Metro’s operatingresults.

 

**3.****                                     ****Regulatory risks relatedto our participation in the gaming industry:**

 

**Changes in the Cripple Creek, Colorado gaming market may negativelyimpact the performance of our Gold Rush Hotel and Casino and the Gold Digger’scasino.**  A new casino, expected to offer700 gaming devices, is under construction in Cripple Creek and expected to openin late spring or early summer 2008.  Ourability to maintain and grow our Colorado operations is largely dependent onour ability to increase our market share in a highly competitiveenvironment.  The opening of this newcasino will increase the level of competition in this market.  At this time, we cannot predict the short orlong term effects of the opening of this facility on our Coloradooperations.  

 

In addition, Colorado banned smoking on casinofloors effective January 1, 2008.  Weexpect this ban will have some negative impact on business volume in theCripple Creek market.  We cannot predictthe impact of this smoking ban on the Gold Rush and Gold Digger’s casinos atthis time.

 

**We, andthe gaming industry as a whole, are heavily regulated and any change in theregulatory environment could have a material adverse effect on our business andoperations**. The gaming industry is highly regulated at the federal and state levels. Theprocess of complying with all applicable government regulations is complex andrequires us to expend substantial time and resources. We cannot assure you thatwe will be able to comply on a continuous or timely basis with all applicableregulations, and delays in compliance, or failure to comply, could have amaterial adverse effect on our business, financial condition, results ofoperations and our ability to maintain and obtain needed licenses. Changes inexisting regulations or the adoption of new regulations at the federal level orin the states in which we operate or pursue new opportunities could delay orprevent our compliance with those regulations. Our failure to comply withapplicable laws or regulations, whether federal, state or local, could resultin, among other things, the termination or suspension of some of ouroperations, both of which would have a material adverse effect on our business.

 

**We facerisks in connection with obtaining, maintaining and renewing gaming licensesrequired for the conduct of our business**.  The development and management of gamingfacilities are subject to extensive licensing requirements and we cannot assureyou that we will be able to obtain or maintain all necessary licenses,approvals and other clearances from regulatory authorities having jurisdictionover our gaming facilities.  Although we, and our affiliates, haveobtained the governmental licenses, permits and approvals we believe arenecessary for the continued operation of our Colorado casinos and developmentof a harness racing track and poker room in Minnesota, we cannot assure youthat we will be able to maintain or renew the necessary licenses, approvals andother clearances required for our operations.

 

**Alllicenses that have been or may be obtained by us or our affiliates are subjectto various conditions and in many cases will be subject to renewal**.  Notwithstanding the fact that wehave earned a good reputation at federal, state and local levels relative tocompliance and licensing ability, there is always the possibility that afailure to comply with gaming regulations or the conditions of any license wehold could have an adverse effect upon our ability to secure, maintain or renewour gaming licenses.  We were fined $50,000 by the Colorado Division ofGaming in June 2004 for failure to properly maintain and reviewstatistical data on slot machine performance after receiving a warning letterregarding this deficiency and failing to comply with its recommended action forcorrection of the deficiency. We entered into a Stipulation and Agreement withthe Colorado Limited Gaming Control Commission in which we admitted that wefailed to comply with the applicable gaming regulations and agreed to takecorrective action immediately. As part of these proceedings, James Druck, inhis capacity as Manager of the facility in question, without any admission ofguilt, agreed to take the steps required to insure our compliance in thismatter and, further, agreed 

 

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to pay the sum of $5,000to Colorado’s Limited Gaming Fund as reimbursement for expenses incurred byColorado in this investigation.  It is difficult to predict with anycertainty whether, and to what extent, this occurrence may have a materialadverse effect on our business or adversely affect our ability and the abilityof our key personnel to obtain or retain required licenses in Colorado. Inaddition, we must disclose this violation to other jurisdictions in which wehold or apply for gaming licenses. It is difficult to predict what impact, ifany, that disclosure may have on our ability to obtain or maintain licenses inthose jurisdictions.

 

**4.****                                     ****Risks related to thegaming industry generally:**

 

**We faceintense competition in the gaming industry**.  The gamingindustry, including the development, operation and management of racetracks andother types of facilities, is highly competitive, especially given the rapidrate at which the industry is expanding. For example, a number of managementcompanies may make proposals to a particular tribe for the development andmanagement of a single Indian gaming facility, and any gaming facilitiesdeveloped or managed by us will compete with a rapidly expanding number ofother gaming facilities of varying quality and size, including gamingfacilities that are part of national or regional chains, and other forms ofgaming and entertainment. Many of our competitors have substantially greaterfinancial and personnel resources than we do. Competition in the future mayalso be affected by overbuilding which can adversely affect patronage levels.Given the current regulatory climate and limited number of lucrative gamingopportunities available, competition is likely to become more intense in thefuture.

 

**We facerisks associated with our pursuit of new gaming projects**. We have pursued, are pursuing, and will continue to pursue new gamingprojects that involve substantial pre-development commitments of time and moneywith no assurance we will receive the approvals needed to develop and operatethe proposed gaming facility. A number of these projects require legislation orvoter approval, which not only increases the cost of such projects but alsoincreases the risk the project will not be approved and extends the timerequired to obtain licenses, complete development and begin operations.  Gaming projects may be controversial in someareas and face significant opposition from competitors or individuals andgroups opposed to gaming on moral grounds. In addition to increasing the costs and difficulties in obtainingrequired approvals for gaming projects, these opponents may also use litigationto try to delay or block new projects. For example, after we received all required approvals to develop aharness racetrack in Anoka County, Minnesota, a group opposed to gaming onmoral grounds delayed the start of construction for almost two years by filingtwo separate lawsuits in attempts to block the project.

 

**We willcontinue to face legislative and judicial hurdles and adverse legislative andjudicial changes**. The legislative and judicial environments related to gaming are dynamic andchange rapidly. Any federal, state or local action, adverse legislation, orjudicial or regulatory ruling that limits gaming or constricts the scope of ourgaming operations could have a material adverse effect on the gaming industryor our operations and financial condition.

 

**We facerisks related to the nature of the gaming industry, including adverse economicand political conditions and changes in the legislative and land use regulatoryclimate**. Similar to investment in other entertainment enterprises, adverse changes ingeneral and local economic conditions may adversely impact investments in thegaming industry.  Examples of economic conditions subject to changeinclude, among others, (a) competition in the form of other gamingfacilities and entertainment opportunities; (b) changes in regional andlocal population and disposable income; (c) unanticipated increases inoperating costs; (d) restrictive changes in zoning and similar land uselaws and regulations, or in health, safety and environmental laws, rules andregulations; (e) risks inherent in owning, financing and developing realestate as part of our casino operations; (f) the inability to secureproperty and liability insurance to fully protect against all losses, or toobtain such insurance at reasonable costs; (g) seasonality; (h) changesor cancellations in local tourist, recreational or cultural events; and (i) changesin travel patterns or preferences (which may be affected by increases ingasoline prices, changes in airline schedules and fares, strikes, weather patternsor relocation or construction of highways, among other factors).

 

**5.****                                     ****Additional Risks:**

 

**Thesuccess of our current operations and our future growth potential are dependentupon key personnel**. Our success depends to a significant extent upon the efforts and abilities ofour executive officers, James B. Druck and Thomas E. Fox.  Each of these individuals has developedrelationships and experience in the gaming industry that are integral to oursuccess. We have entered into employment agreements with Messrs. Druck andFox. We do not maintain key man life insurance on any of theseindividuals.  The loss of the services ofone or more of these individuals could have a material adverse effect on ourbusiness and current and proposed operations.

 

**Thesuccess of our current operations and our future growth potential are dependentupon our relationship with and the performance of certain third parties**.  The successful operation of ourvarious proposed gaming facilities will be dependent to a significant extent onthe efforts of third parties.  For example, (a) with respect to theharness racing track and card room we are developing in Minnesota, the successof that project will depend to a great extent on the expertise of our 50/50partner in that venture, MTR-Harness, Inc., an affiliate of MTR GamingGroup, Inc., in managing racing facilities as well as the ability of ourfinancing sources to meet their commitments to us; (b) with respect to anyother project pursued by us, we may need to form partnerships or secure thirdparty funding in order to meet the financial requirements that will likelytranscend our own financial resources; and (c) with respect to anyfacility located on Indian land, we will not own the facility and will dependon the performance by a tribe of its obligations under the applicablemanagement agreement. The failure of any third party to perform its contractualobligations to us could have a material adverse effect on our business andoperations.  In addition, depending upon the structure of any particularjoint venture, we may be held responsible for the acts or omissions of ourco-venturers.

 

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**We facerisks related to the diminishing control of our existing management**.  Our directors and executiveofficers currently beneficially own (together with their spouses, on afully-diluted basis and including shares that may be received in connectionwith the exercise of outstanding options and warrants) approximately 29% of theoutstanding shares of our common stock. By virtue of the forgoing, ourdirectors and executive officers will have limited voting influence inconnection with the election of our future directors and the control of ourbusiness and affairs.

 

**We havethe ability to issue shares of preferred stock that may reduce the value of ourcommon shares and your rights as a common shareholder**.  Ourshareholders have authorized the issuance of up to 30 million shares ofpreferred stock with rights and preferences to be determined by our Board ofDirectors.  No shares of preferred stockare outstanding and we do not have a current intent to issue any shares ofpreferred stock, although we reserve the right to do so in the future.  It is not possible to determine the actualeffect of the authorization and issuance of the preferred stock on the rightsof Southwest shareholders until our Board determines the rights of the holdersof a series of preferred stock.  However,such effects might include, among other effects:

 

·**                 **restrictions on the payment of dividendsto holders of common stock;

 

·**                 **dilution of voting power to the extentthat holders of preferred stock are given voting rights;

 

·**                 **dilution of equity interest and votingpower if the preferred stock is convertible into common stock;

 

·**                 **restrictions upon any distribution ofassets to the holders of common stock upon liquidation or dissolution, andrestrictions upon the amounts of merger consideration payable to the holders ofcommon stock upon a merger or acquisition of Southwest, until the satisfactionof any liquidation preference granted to the holders of preferred stock;

 

·**                 **redemption rights for holders ofpreferred stock that may restrict the availability of revenue for othercorporate uses, including the payment of dividends; and

 

·**                 **special voting rights for holders ofpreferred stock in connection with major corporate actions such as mergers,acquisitions or other transactions.

 

In addition, anyparticular issuance or series of preferred stock could, depending on the terms,make it more difficult or discourage any attempt to obtain control of Southwestby means of a merger, tender offer, proxy contest or other means.  Issuance of preferred stock could have theeffect of diluting the stock ownership of persons seeking control of ourcompany, and the possibility of such dilution could have a deterrent effect onpersons seeking to acquire control. The Board also could, although it has nopresent intention of so doing, authorize the issuance of preferred stock to aholder who might thereby obtain sufficient voting power to assure that anyproposal to effect certain business combinations or amend our Articles ofIncorporation or Bylaws would not receive the required shareholder approval.Accordingly, the power to issue shares of preferred stock could enable theBoard to make it more difficult to replace incumbent directors and toaccomplish business combinations opposed by the incumbent Board.

 

**Becauseour common stock is traded on the OTC Bulletin Board, your ability to sellshares in the secondary trading market may be limited**.  Our common stock trades on theover-the-counter market on the OTC Bulletin Board.  Consequently, theliquidity of our common stock is impaired, not only in the number of sharesthat are bought and sold, but also through delays in the timing oftransactions, and limited coverage by security analysts and the news media, ifany, of our company.  As a result, prices for shares of our common stockmay be lower and more volatile than might otherwise prevail if our common stockwas quoted on the Nasdaq Stock Market or traded on a national securitiesexchange like The New York Stock Exchange or American Stock Exchange.

 

**Becauseour shares are “penny stocks,” you may have difficulty selling them in thesecondary trading market**.  Federal regulations under the Securities Exchange Act of 1934regulate the trading of so-called “penny stocks,” which are generally definedas any security not listed on a national securities exchange or Nasdaq, pricedat less than $5.00 per share and offered by an issuer with limited net tangibleassets and revenues.  Since our common stock currently trades on the OTCBulletin Board at less than $5.00 per share, our common stock is a “penny stock”and may not be traded unless a disclosure schedule explaining the penny stockmarket and associated risks is delivered to a potential purchaser before anytrade.

 

In addition, because ourcommon stock is not listed on Nasdaq or any national securities exchange andcurrently trades at less than $5.00 per share, trading in our common stock issubject to Rule 15g-9 under the Exchange Act.  Under this rule,broker-dealers must take certain steps prior to selling a “penny stock,” whichsteps include:

 

·**                 **obtaining financial and investmentinformation from the investor;

·**                 **obtaining a written suitabilityquestionnaire and purchase agreement signed by the investor; and

·**                 **providing the investor a writtenidentification of the shares being offered and the quantity of the shares.

 

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If the broker-dealer doesnot follow these penny stock rules, the investor has no obligation to purchasethe shares.  The application of these comprehensive rules will makeit more difficult for broker-dealers to sell our common stock and ourshareholders, therefore, may have difficulty selling their shares in thesecondary trading market.

 

**Our stock price may be volatile and your investment in our common stockcould suffer a decline in value.** The market price of ourcommon stock may fluctuate significantly in response to a number of factors,some of which are beyond our control. These factors include:

 

·            governmentregulatory action affecting our operations;

 

·            actual oranticipated fluctuations in our operating results;

 

·            general marketconditions for the gaming industry;

 

·            broad marketfluctuations; and

 

·            economicconditions in the United States or abroad.

 

**We donot intend to pay any cash dividends in the foreseeable future. * *** We do not intend to pay any cash dividends in theforeseeable future and, therefore, any return on your investment in our commonstock must come from increases in the fair market value and trading price ofour common stock.

 

**Item2.****          ****DESCRIPTION OF PROPERTY**

 

We own, lease or manage the following real property:

 

Gold Rush I, LLC operates the Gold Rush Casino with321 slot machines, four table games, a bar/restaurant and 13 hotel rooms, andthe Gold Digger’s Casino with 86 slot machines and a bar.  Theseproperties are physically connected, but operate under separate Colorado gaminglicenses.  We lease the casino buildings, another building that houses ourmarketing and accounting offices, the Gold Rush Palladium site, two additionalstorefronts and related parking lots under a 20-year lease from Mark andAnnesse Brockley, Cripple Creek Development Corporation and Blue BuildingCorporation that expires in June 2019.  Gold Rush I pays base rent inthe amount of $40,000 per month for this property, plus an additional paymentbased on the combined net income of the Gold Rush and Gold Digger’s casinos.Through 2007, we have not been required to make any additional payments basedon combined net income. In addition, Gold Rush I assumed obligations to makenumerous payments to third parties for outstanding accounts payable and debtobligations related to acquisition and operation of the Gold Rush and GoldDigger’s before we entered into this lease.  These additional payments arecapped at $125,000 per month. If the payments exceed that amount, the excessamount is deducted from the base rent due.  In 2007, these assumedobligations averaged approximately $91,000 per month.

 

Southwest Entertainment, Inc., a wholly ownedsubsidiary of Southwest Casino and Hotel Corp., operates the Gold RushPalladium, an outdoor music amphitheatre with 1,200 seats. The Palladium islocated behind the Gold Rush and Gold Digger’s casinos on a portion of theproperty leased by Gold Rush I, LLC from Mark and Annesse Brockley, CrippleCreek Development Corporation and Blue Building Corporation under the leasedescribed above that expires in June 2019.  Southwest Entertainmenthosts music events at the Palladium intended to increase traffic at the GoldRush and Gold Digger’s casinos. Under the sublease between SouthwestEntertainment and Gold Rush I for this site, Southwest Entertainment isrequired to pay rent of $1,000 per month.

 

In addition to the Gold Rush and Gold Digger’scasinos, the lease with Mark and Annesse Brockley, Cripple Creek Developmentand Blue Building Corporation includes two additional storefronts that wesublease to a third party.  The monthly rent we receive for theseproperties is $1,000.

 

North Metro Harness Initiative, LLC, in which we own a50 percent membership interest, purchased approximately 180 acres of realproperty in Columbus Township, Anoka County, Minnesota during October 2005.North Metro is building a harness racetrack and card room on this site. North Metro also acquired a separate 24-acre parcel in the city of Hugo inWashington County, Minnesota that will be used for wetland mitigation requiredin connection with the development of the harness racetrack and cardroom.  We estimate the total cost of this development to be approximately$62 million. As of December 31, 2007, the members of North Metro haveprovided approximately $21.3 million of that amount.  (See Note 4 tothe Consolidated Financial Statements included in Item 7 of this AnnualReport on Form 10-KSB).

 

Southwest Casino Corporation leases 4,780 square feetof office space at 2001 Killebrew Drive, Suite 350 in Minneapolis,Minnesota with a base rent of approximately $9,000 per month plus certainoperating costs for its corporate offices under a five-year lease that expiresin December 2009.

 

Southwest does not own any interest in real propertysolely for investment purposes.  Southwest does not invest in real estatemortgages or in the securities of persons primarily engaged in real estateactivities.

 

Our management considers our leased propertiessuitable and adequate for our current operations.  In the opinion of ourmanagement, all of these properties are adequately covered by insurance.

 

**Item3.****          ****LEGAL PROCEEDINGS.**

 

*AllegedBreach of Gaming Management Agreement*

 

On July 24, 2007,the Governor of the Cheyenne and Arapaho Tribes of Oklahoma delivered notice toSouthwest that on July 13, 2007 he had initiated an arbitration proceedingagainst us for alleged breach of the Third Amended and Restated GamingManagement Agreement under which we then managed two casinos for theTribes.  On November 2, 2007, wefiled a counterclaim in this proceeding alleging a breach of the GamingManagement Agreement by the tribal Governor. The three-member arbitration panelfor this proceeding was appointed in February 2008.  A scheduling conference with the arbitrationpanel occurred on March 11, 2008. Preliminary pleading documents are to besubmitted to the arbiters during April 2008.

 

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In the arbitrationdemand, the Governor alleged that Southwest breached the management agreementby interfering with or attempting to influence internal affairs or governmentaldecisions of the Tribes in connection with our efforts to extend our gamingmanagement relationship with the Tribes, which terminated on August 17,2007. The Governor sought termination of the agreement and $10 million indamages.  We do not believe we improperlyinterfered with or attempted to influence internal governmental decisions of theTribes and we intend to vigorously defend ourself in this arbitrationproceeding. Under its Gaming Management Agreement with the Tribes, we werepermitted to oppose, publicly or privately, any action by the Tribes that webelieved were not in the best interest of the Tribal gaming operations. Webelieve that all of the actions we have taken on behalf of the gamingoperations we managed or as part of our efforts to extend our gaming managementrelationship with the Tribes are consistent with that provision.

 

In our counterclaim, weallege that the Governor of the Tribes breached the Management Agreement byrefusing to negotiate in good faith for an extension and expansion of thegaming management relationship between Southwest and the Tribes.  We assert that the Management Agreementrequired the Tribes to negotiate this extension and expansion after Southwestled the Tribes’ successful efforts to negotiate and enter into a compact forexpanded gaming with the State of Oklahoma in April 2005.

 

# ***Theft and Distribution of Surveillance Video from Lucky StarClinton casino***

# ** **

# **On August 24,2007, Southwest Casino and Hotel Corp., as exclusive manager of the Lucky Starcasinos of the Cheyenne and Arapaho Tribes of Oklahoma filed a lawsuit againstDoris Thunderbull, Darrell Flyingman, in his individual capacity, and John DoesNo. 1 and 2 alleging theft (conversion) of confidential surveillance videofrom the Lucky Star — Clinton casino and subsequent copyright infringement anddefamation in connection with the posting of the stolen video on the website www.YouTube.comand widespread distribution of DVDs containing the video by mail. Weinitially sought an emergency temporary restraining order barring furtherdistribution of the video. That request was denied on August 27, 2007 and wewithdrew our request for restraining order on September 24, 2007.  Wecontinue to pursue claims for conversion, copyright infringement, tortiousinterference with contract, defamation, and conspiracy against the defendants.**

# ** **

On January 14, 2008,Mr. Flyingman, as Governor of the Tribes, filed a declaratory judgment actionin Cheyenne and Arapaho Trial Court asserting that the Tribes, not Southwest,owned the surveillance footage and the copyright in it.  Southwest filed an answer to the complaintasserting the tribal court did not have jurisdiction and a motion to compelarbitration of the matter on February 15, 2008.  On February 13, 2008, the FederalDistrict Court issued a stay of the proceedings before the Federal Courtpending resolution of the Tribal court proceeding.

 

*OtherLitigation Matters*

 

In addition to thematters described above, we are involved in other various claims, legal actionsand other complaints arising in the ordinary course of business.  In theopinion of management, any losses that may occur from these matters areadequately covered by insurance or are provided for in our financial statementsand the ultimate outcome of these other matters will not have a material effecton our financial position or results of operations.

 

**Item4.****          ****SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS.**

 

No matters were submitted to a vote of securityholders during the fourth quarter of the fiscal year covered by this report.

 

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**PART II**

 

**Item5.****          ****MARKET****FORCOMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

 

**Market Information**

 

Our common stock is quoted on the Over-the-CounterBulletin Board (OTCBB) of the National Association of Securities Dealers, Inc.under the symbol “SWCC.OB.”  The market for shares in our common stock islimited because only a small number of our outstanding shares are available fortrading in the public market. The following table sets forth the high and lowbid prices for our common stock, as reported by the OTCBB, for the fiscalquarters indicated:

 

| ** **                                    | ** ** | **High**   | ** ** | **Low**    | ** ** |
|-----------------------------------------------|------------|------------|------------|------------|------------|
| **Fiscal Year ended December 31, 2007:** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Quarter ended  Dec. 31, 2007             |       | $          | 0.55       |       | $          | 0.34 |   |
| Quarter ended Sept. 30,  2007                 |       | $          | 0.70       |       | $          | 0.32 |   |
| Quarter ended  June 30, 2007             |       | $          | 1.24       |       | $          | 0.50 |   |
| Quarter ended  March 31, 2007            |       | $          | 1.26       |       | $          | 0.59 |   |

 

| ** **                                     | ** ** | **High** | ** ** | **Low** | ** ** |
|------------------------------------------------|------------|----------|------------|---------|------------|
| **Fiscal Year ended  December 31, 2006:** |       |     |       |    |       |
| Quarter ended  Dec. 31, 2006              |       | $        | 0.70       |    | $          | 0.42 |   |
| Quarter ended Sept. 30,  2006                  |       | $        | 0.71       |    | $          | 0.40 |   |
| Quarter ended  June 30, 2006              |       | $        | 0.84       |    | $          | 0.51 |   |
| Quarter ended  March 31, 2006             |       | $        | 0.73       |    | $          | 0.40 |   |

 

                These bid quotations reflect inter-dealer prices, without retailmark-up, mark-down or commission and may not represent actual transactions.

 

**Number of Record Holders**

 

As of March 10, 2008 there were 344 recordholders of our common stock.

 

**Dividends**

 

We have not declared or paid any cash dividend on ourcommon stock.

 

**Sales of Unregistered EquitySecurities during Fourth Fiscal Quarter**

 

We did not sell any unregistered equity securitiesduring the fourth quarter of fiscal 2007.

 

**Repurchases of Equity Securities**

 

We did not purchase any of our equity securitiesduring the fourth quarter of fiscal 2007.

 

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**Item 6.****          ****MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OFOPERATION**.

 

The following is a discussion and analysis of thefinancial position and operating results of Southwest Casino Corporation(referred to in this discussion, together with its consolidated subsidiarieswhere appropriate, as “Southwest Casino”, the “Company”, “we”, “our” and “us”)for the years ended December 31, 2007 and 2006.

 

***Summary ofConsolidated Operating Results:***

 

For the year ended December 31, 2007, we had anet loss of $1,493,699 on revenues of $19,536,740 compared to net income of$1,157,211 on revenues of $21,474,908 for the same period in 2006.  Thisamounts to a basic loss per outstanding share during the year ended December 31,2007 of $0.06 and basic and fully diluted earnings per outstanding share duringthe year ended December 31, 2006 of $0.06.

 

The net loss of $1,493,699 in the year ended December 31,2007, compared to net income of $1,157,211 for the same period in 2006,primarily results from a reduction in revenues of approximately $2.3 millionfrom our management contract with the Cheyenne and Arapaho Tribes of Oklahoma,which terminated on August 17, 2007 and increased operating expenses ofapproximately $1.3 million, primarily due to an increase in corporate expensesof $1.0 million.  We also incurred other expenses of $1.0 million duringthe year ended December 31, 2007 compared to $1.2 million in 2006. Thesignificant components of the $0.2 million decrease related to a decrease ininterest expense of $0.3 million and a gain on the disposition of the Uncle Sam’scasino of $0.5 million, which were offset by the write off of financing costsof $0.6 million.  During the year ended December 31, 2006 werecognized income tax expense of $0.7 million compared to $0 in 2007.

 

***Overview:***

 

Our principal business is the management, operationand development of gaming facilities in emerging and established gamingjurisdictions.  Currently, we operate two casinos in Cripple Creek,Colorado — Gold Rush Hotel and Casino and Gold Digger’s Casino.  Until July 28,2007, we also operated Uncle Sam’s Casino in Cripple Creek.  Until August 17,2007 we managed two Native American gaming operations in Oklahoma for theCheyenne and Arapaho Tribes of Oklahoma, Lucky Star - Concho and Lucky Star —Clinton.  We also own a 50% membership interest in North Metro HarnessInitiative, LLC, (“North Metro”).  North Metro is building a harnessracetrack and 50-table card room in Columbus, Minnesota on the north side ofthe Minneapolis — St. Paul Metropolitan area.  North Metro securedfinancing for the project and began construction in April 2007 and plansto begin harness racing in April 2008 and open the card room aftercompleting 50 days of live racing (as required by Minnesota statue).  In September 2007,we entered into a consulting agreement to work with Palace Resorts indeveloping and opening a casino at the Moon Palace Casino, Golf and Spa Resortnow under construction in Punta Cana on the easternmost tip of the DominicanRepublic. Under the consulting agreement, we will assist Palace Resorts in allphases of design, game selection, training and equipping the casino that willbe part of the 1,700-room resort that is scheduled to open in the last quarterof 2008. Southwest receives a consulting fee of $50,000 per month for 10 months beginning in October 2007 under theconsulting agreement.  Palace Resorts provides world-class resortvacations at all-inclusive properties throughout Cancun, the Riviera Maya,Nuevo Vallarta, and Cozumel with the new resort under construction at PuntaCana, Dominican Republic.

 

From May 19, 2007 to August 19, 2007, wemanaged the Lucky Star — Concho and Lucky Star — Clinton casinos underAmendment No. 11 to the Third Amended and Restated Gaming Managementagreement between Southwest Casino and Hotel Corp. and the Cheyenne and ArapahoTribes of Oklahoma, which extended that agreement for up to two years.  OnAugust 17, 2007, the Supreme Court of the Cheyenne and Arapaho Tribesdeclared Amendment No. 11 invalid.  Also on August 17, 2007, theNational Indian Gaming Commission reversed its prior approvalof Amendment No. 11.  On August 24,2007, the NIGC rejected our challenge to its decision and we have not receivedmanagement fees from the Cheyenne and Arapaho Tribes since August 17,2007.  Due to the loss of management fees from this management contract,in March 2008 we secured additional debt financing to fund our currentoperations including project development costs.

 

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; however, certain properties are combined into oneoperating segment for financial reporting purposes as they meet the criteriafor aggregation under Statement of Financial Accounting Standards No. 131 “*Disclosures about Segments of an Enterprise and Related Information*”paragraph 17.  We have grouped the following properties into the followingtwo operating segments that are described in further detail below:

 

| **Casino Management and Consulting:** | ** ** | **Casino Operations:**                 |
|---------------------------------------|------------|----------------------------------------|
| Lucky Star — Concho              |       | Gold Rush/ Gold  Digger’s Casinos |
| Lucky Star — Clinton             |       | Uncle Sam’s Casino                |
| Palace Resorts                        |       |                                   |

 

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**Casino Management:**

 

We managed two casinos for the Cheyenne and ArapahoTribes of Oklahoma under the Third Amended and Restated Gaming ManagementAgreement dated June 16, 1995 between us and the Cheyenne and ArapahoTribes of Oklahoma (the “Tribes”) until August 17, 2007.

 

On May 18, 2007, the National Indian GamingCommission approved Amendment No. 11 to the Third Amended and RestatedGaming Management Agreement.  Southwest continued to manage the Tribes’Lucky Star — Concho and Lucky Star — Clinton casinos under the terms of AmendmentNo. 11 until August 17, 2007.

 

The May 18, 2007 NIGC approval was based on a May 18,2007 decision of the Cheyenne and Arapaho Trial Court finding Amendment No. 11valid under the Tribes’ constitution.  On May 21, 2007, the Governorof the Cheyenne and Arapaho Tribes filed an appeal to the Cheyenne and ArapahoSupreme Court seeking to overturn the decision of the tribal Trial Court. On August 17, 2007, the Supreme Court reversed the Trial Court order anddeclared the contract extension invalid. Also on August 17, 2007, the NIGCissued a decision and order reversing its May 18, 2007 approval of thetwo-year contract extension based on the tribal Supreme Court decision. Based on the decision of the NIGC, tribal representatives took control of thecasinos on Sunday, August 19, 2007.  On August 21, 2007,Southwest appealed the decision of the NIGC to reverse its approval of thetwo-year contract extension.  On August 24, 2007, the NIGC rejectedthat appeal and affirmed its decision.  Southwest has not receivedmanagement fees from the casinos since August 17, 2007.

 

**Lucky Star - Concho**

 

We earned management fees of $2,045,984 and $3,501,795from Lucky Star - Concho during the year ended December 31, 2007 and 2006,respectively.  The decrease in management fees for the year ended December 31,2007 compared to the same period in the prior year is due to the amendment ofour management contract in May 2007 that changed the management feestructure and the subsequent termination of the management contract on August 17,2007.

 

**Lucky Star - Clinton**

 

We earned management fees of $1,520,125 and $2,363,885from Lucky Star - Clinton during the year ended December 31, 2007 and2006, respectively.   The decrease in management fees for the yearended December 31, 2007 compared to the same period in the prior year isdue to the amendment of our management contract in May 2007 that changedthe management fee structure and the subsequent termination of the managementcontract on August 17, 2007.

 

**Palace Resorts**

 

In September 2007, we entered into a consultingagreement to work with Palace Resorts to develop and open a casino at the MoonPalace Casino, Golf and Spa Resort, now under construction in Punta Cana on theeasternmost tip of the Dominican Republic. Under the consulting agreement, weimmediately began assisting Palace Resorts in all phases of design, gameselection, training and equipping the casino that will be part of the1,700-room resort scheduled to open in the last quarter of 2008. We receive$50,000 per month for 10 months under the consulting agreement, which began October 2007. Palace Resorts provides world-class resort vacations at all-inclusiveproperties throughout Cancun, the Riviera Maya, Nuevo Vallarta, and Cozumel withthe new resort under construction at Punta Cana, Dominican Republic.  We recognized $150,000 of consulting revenuefor the year ended December 31, 2007.

 

**Otoe-Missouria Tribe of Indians**

 

Southwest entered into a Gaming Management Agreementwith the Otoe-Missouria Tribe of Indians under which we were to manage theTribe’s Seven Clans Paradise Casino in Red Rock, Oklahoma, on March 24,2006.  The Otoe-Missouria Tribe submitted the Gaming Management Agreementto the National Indian Gaming Commission, which must approve it before it canbe effective, on April 10, 2006.   In response to comments fromthe NIGC, Southwest and the Tribe submitted a revised agreement to the NIGC in August 2006. The NIGC provided additional comments on and requested additional changes tothe management agreement on September 15, 2006.  The Tribe did notrespond to the NIGC or to our efforts to complete a revised managementagreement.

 

On July 11, 2007, the NIGC delivered a letter toSouthwest and the Chairman of the Tribe requesting that we submit a revisedmanagement agreement or withdraw the request for approval of the currentagreement within 30 days.  We met with representatives of the Tribe’sEconomic Development Authority (“OMDA”) on August 6, 2007 and discussedthe status of the management agreement.  The OMDA has told us that they donot intend to go forward with the management agreement and we have withdrawnour request for NIGC review of this management agreement. We continue to seekreimbursement from the Otoe-Missouria of expenses we incurred while working withthe Tribe in 2006.

 

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**Casino operations**:

 

**Gold Rush/Gold Digger’s Casino (“GR/GD”)Results**

 

| ** **                   | ** ** | **Year   Ended  December 31, 2007** | ** ** | **Year   Ended   December 31, 2006** | ** ** | **Percentage  Increase   (Decrease)** | ** ** |
|------------------------------|------------|----------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|
| Casino revenues              |       | $                                                  | 14,635,321 |                                                     | $          | 13,930,824                                 |       | 5.1 | % |
| Total revenues               |       | 15,278,862                                         |       | 14,640,824                                               |       | 4.4                                        | %          |
| Profit before income  taxes+ |       | 749,182                                            |       | 768,011                                                  |       | (2.5                                       | )%         |
| Earnings margin*             |       | 4.9                                                | %          | 5.3                                                      | %          |                                       |       |
|                              |            |                                                    |            |                                                          |            |                                            |            |  |  |

 

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+            Profit before income taxes is determinedby reducing total revenues by, among other things, primarily related to interestexpense on our capital lease at the Gold Rush and depreciation and amortizationexpenses.  The capital lease was carried on our Consolidated Balance Sheetin the amount of approximately $7.25 million as of December 31,2007.  Interest expense was $795,000 and $844,000 for the years ended December 31,2007 and 2006, respectively.  Depreciation and amortization expense was$1,450,000 and $1,527,000 for years ended December 31, 2007 and 2006,respectively.

 

*            The earnings margin is calculated bydividing profit before income taxes by total revenues.

 

For the year ended December 31, 2007, GR/GD’stotal casino revenues increased by 5.1% over the prior year.  The CrippleCreek market grew by 1.2% during this same time period.  We increasedmarketing expenses as a result of closing Uncle Sam’s (see below) and offeringincentives to players in order to attract customers who played at Uncle Sam’sto play at GR/GD.  This resulted in a slight decrease in our earningsmargin.

 

We closed Uncle Sam’s casino on July 29,2007.  We transferred approximately eight employees to our GR/GDproperties.  Thus certain salaries and expenses previously incurred byUncle Sam’s have been included with operations of the GR/GD properties sincethe closure of Uncle Sam’s casino on July 29, 2007.  Additionally, the players/customers who played at Uncle Sam’s wereoffered incentives to migrate their play to the Gold Rush and Gold Digger’scasino.    We have estimated that we retained approximately 40%- 70% of the revenues from those players who played previously at Uncle Sam’sand now are playing at the Gold Rush and Gold Diggers casinos.  The GoldRush and Gold Diggers casinos had available capacity to absorb the players fromUncle Sam’s.  The Uncle Sam’s brand name is no longer used in ouroperations.  However, since inception we have used an integrated playersclub for all three Cripple Creek casinos whereby the player could redeem pointsearned at one casino at any of the casinos.

 

We also include within the operating segment “CasinoOperations” our outdoor amphitheatre at the Gold Rush.  Revenues from theamphitheatre are less than 1% of total revenues.

 

**Uncle Sam’s Casino**:

 

| ** **                         | ** ** | **Year   Ended   December 31, 2007** | ** ** | **Year   Ended   December 31, 2006** | ** ** |
|------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| Total revenues                     |       | 464,697                                                  |       | 940,562                                                  |       |
| Profit (loss) before  income taxes |       | 126,011                                                  |       | (574,866                                                 | )          |

 

Operating results at Uncle Sam’s continued todeteriorate in 2007 because the property was small, detached from the GR/GD andwe did not make significant improvements to the property.   On June 25,2007, we entered into an agreement with the landlord to purchase the leasedreal property on which we operated Uncle Sam’s Casino in Cripple Creek,Colorado.  The purchase agreement provided that we would not be obligatedto purchase the real property unless we assigned our rights under the purchaseagreement to a third party.  On June 26, 2007, we entered into anagreement to assign our rights under the purchase agreement and the operatinglease.  On July 29, 2007, we closed Uncle Sam’s Casino and, on July 31,2007, we assigned our rights under the purchase agreement and lease andreceived an assignment fee of approximately $487,000.  We recognized again of $477,407 on this transaction that is recorded in the Consolidated Statementof Operations during year ended December 31, 2007 as a separate line itemwithin Other Income (Expense) and included in the schedule above in Profit(loss) before income taxes.  We transferred the majority of the equipmentand slot machines to the Gold Rush and Gold Diggers casinos in the amount oftheir net book value of approximately $58,000.  Additionally,approximately eight employees were transferred to the Gold Rush and GoldDiggers casinos and the customers were offered incentives to migrate their playat Uncle Sam’s to the Gold Rush and Gold Diggers casinos.

 

***Project Development*** costs for the year ended December 31,2007 and 2006 were $374,384 and $290,623, respectively.  The increase forthe year ended December 31, 2007 is primarily a result of increased costsassociated with the management contract with the Cheyenne and Arapaho Tribessee above discussion under “Casino Management,” and costs associated withobtaining our consulting agreement with Palace Resorts in September 2007.

 

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***Corporate expenses*** were $3,782,615 and $2,774,022 duringthe year ended December 31, 2007 and 2006, respectively, an increase ofapproximately $1.0 million.

 

The increase in corporate expenses of approximately$1.0 million during the year ended December 31, 2007 over the prior yearis primarily due to increased salary and benefit expense of approximately$600,000 which included discretionary performance bonuses approved by the boardof directors in March 2007 of approximately $385,000 (with nocorresponding amount in the same period in 2006), fees for investor relationsand financial consulting services of approximately $215,000 and increased legaland accounting fees of approximately $140,000 due primarily to Sarbanes Oxleycompliance and legal fees associated with the Cheyenne and Arapaho legal andarbitration matters (see Part I Item 3 Legal Proceedings and Note 24 toour Financial Statements in Item 7 within this Form 10-KSB).  Thebonus approved and recorded in March 2007 consists of $210,000 that waspaid in March 2007, and $175,000 to be paid on or after July 1, 2007at such time as management determines that we have sufficient financialresources for the payment.  The $175,000 is accrued as a liability at December 31,2007.

 

***Impairment loss*** was approximately $400,000 for the yearended December 31, 2007.  The impairment loss relates to thewrite-off of costs related to the termination of the management contract withthe Cheyenne and Arapaho Tribes of Oklahoma.

 

***Interest Expense*** was $877,585 and $1,204,296 for the yearended December 31, 2007 and 2006, respectively, a decrease ofapproximately $327,000.  The decrease isprimarily due to lower interest from our $2.5 million term loan as the loan wasfully paid in April 2007.

 

***Write off ofacquisition and financing costs*** of $613,372 during the year ended December 31,2007 relate to the write-off of costs associated with the proposed acquisitionof the Double Eagle and the write-off of financing costs.  See further discussionbelow under “Liquidity and Capital Resources”.

 

***Loss ofunconsolidated subsidiary, net of tax benefit*** represents our share of the losses ofNorth Metro, which were $436,494 and 182,873 for the year ended December 31,2007 and 2006, respectively.    The increase in losses in 2007compared to 2006 is primarily due to increased real estate taxes in 2007, as aresult of higher assessed land values following the purchase of land by NorthMetro in late 2005.

 

***Effective tax rate. *** Forthe year ended December 31, 2007, we did not record a tax benefit for thenet loss as a result of our evaluation of deferred tax assets and our abilityto utilize the deferred tax assets in the future.  During the year ended December 31,2006 we recorded a tax provision of approximately $671,000, a 33.4% effectivetax rate.  As of December 31, 2005, we evaluated all evidence anddetermined that a portion of the deferred tax assets relating to net operatinglosses in previous years would be utilized in 2006 based upon forecasted incomefor 2006.  At December 31, 2006 we recorded 100% valuation allowanceagainst the deferred tax assets due to the uncertainty surrounding the Cheyenneand Arapaho management relationship.  Wecontinue to record a 100% valuation allowance against the deferred tax assetsat December 31, 2007 because of the termination of our managementagreement with the Cheyenne and Arapaho Tribes, effective August 17,2007.  As of December 31, 2007, our deferred tax asset is zero.

 

***Liquidity andCapital Resources:***

 

We generated cash flow from our Oklahoma managementactivities until our management agreement terminated in August 2007, andcontinue to generate cash flow from our casino operations in Colorado.  Weuse the cash flows generated to pay off debt in accordance with our agreements,fund reinvestment in existing properties for both refurbishment and replacementof assets, and to pursue additional growth opportunities.  As the existingcash flows are inadequate to fund our cash requirements we are required to seekand obtain funds provided from financing activities.

 

On January 24, 2007 and February 26, 2007,we entered into a Securities Purchase Agreement (“SPA”) with certaininstitutional and other accredited investors, as defined in Rule 501 ofRegulation D promulgated under the Securities Act of 1933, as amended, underwhich we sold in private placements an aggregate of 7.44 million shares of ourcommon stock with accompanying warrants to purchase an aggregate of 2.98million shares of our common stock, at a purchase price of $0.55 per share ofcommon stock.  The warrants are exercisable for a period of five years,beginning six months after the date of issuance, at an exercise price of $0.61per share.  The number of shares issuable upon exercise of the warrantsand the exercise price of the warrants are adjustable in the event of stocksplits, combinations and reclassifications, but not in the event of theissuance by us of additional securities, unless such issuance is pursuant to arights offering or pro rata distribution to all security holders except theinvestors.

 

The securities that were issued in this privateplacement were not registered under the Securities Act of 1933, asamended.  However, under the terms of the Registration Rights Agreementsdated January 24, 2007 and February 26, 2007 between us and theinvestors, we agreed to register the resale of the shares sold in the privateplacement, including shares issuable upon exercise of the warrants.  Theregistration statement became effective on May 11, 2007.  Under theSecurities 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 $3.94 million, after the deduction of approximately $150,000of direct offering expenses.  The placement agent agreed to accept thecash portion of the placement agent commission in common stock and warrants 

 

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on the same terms as the investors, which resulted inthe placement agent receiving approximately 517,000 shares of common stock andwarrants to purchase an aggregate of approximately 207,000 shares of commonstock.  In addition, the placement agent received a warrant to purchaseapproximately 277,000 shares of common stock, which is exercisable for a periodof five years, beginning six months after the date of issuance, at an exerciseprice 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 and entities in which Mr. Fox holds an ownershipinterest; Jeffrey S. Halpern, Vice President of Government Affairs; Gus A.Chafoulias, Director; and David H. Abramson, Director.  Other than withrespect 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 aCredit Agreement (the “Credit Agreement”) with Black Diamond CommercialFinance, L.L.C. (“Black Diamond”) as agent and lender.  Under the terms ofthe Credit Agreement, North Metro will borrow $41.7 million to construct, equipand open its harness racetrack and card room facility in Columbus, Minnesota onthe north side of the Minneapolis — St. Paul metropolitan area. As part of theloan agreement the members of North Metro agreed to complete aggregatemembershipcontributionsof $20.8 million before closing the loan. The total cost of the project isexpected to approximate $62 million.  As of December 31, 2007,Southwest contributed $9.0 million of the total amount of $21.3 millioncontributed by the members.  Certain amounts related to non-constructioncosts continue to be funded by the members.  These amounts are notconsidered to be material.

 

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 Southwest may be required undercertain circumstances to contribute additional capital to North Metro ifproceeds from financing and equity investments in North Metro are insufficientto complete construction and open the facility.  We believe the financingsand equity contributions available to North Metro will be sufficient toconstruct and open the facility.

 

As a result of the termination of our managementcontract with the Cheyenne and Arapaho Tribes of Oklahoma (see above discussionunder the operating segment “Casino Management”) we have secured additionaldebt financing to fund our future operations including project developmentcosts.   We closed on a bank loan of $1.55 million on March 7,2008.  The interest rate is the primerate plus 1.5% with a minimum interest rate of 7%.  We are required to make interest onlypayments through January 2009 after which time the loan will begin tofully amortize in equal installments over the remaining twelve months.  Eight shareholders of the Company, includinga member of our board of directors, cosigned portions of the loan.  Our three principal executive officers alsoguaranteed portions of this loan.  Asconsideration for the co-signatures and personal guarantees we issued warrantsto purchase 2,300,000 shares of our common stock (one warrant share for eachdollar guaranteed or cosigned) at an exercise price of $0.39 per share.  The warrants have a five-year term.  The Company will be required to seekadditional debt and/or equity financing for future operations including debtrepayment.

 

During January and February 2008,we pursued a financing alternative to the bank loan discussed above. Wewere unable to agree upon the terms with the lender and we ultimately chose notto continue negotiations with the lender. We incurred costs in connection withthis financing of approximately $200,000 that will be expensed during the firstquarter of fiscal year 2008.

 

We continue to review additional opportunities toacquire or invest in companies, properties and other investments that meet ourstrategic and return on investment criteria.  If we complete a materialacquisition or investment, our operating results and financial condition couldchange significantly in future periods.  In addition, any new opportunitywe undertake would in all likelihood require additional equity or debtfinancing.

 

On December 18, 2006, we entered into an AssetPurchase Agreement and a long-term lease with Pinnacle Casinos and Resorts, LLC(“Pinnacle”). Under the Asset Purchase Agreement, we agreed to acquire theoperating assets and lease the real property of the Double Eagle Hotel andCasino and Gold Creek Casino in Cripple Creek, Colorado (collectively, the “DoubleEagle”).  On April 13, 2007, we notified Pinnacle that we had electedto terminate the Asset Purchase Agreement.

 

We terminated the Asset Purchase Agreement in responseto notice we received on April 10, 2007 from Pinnacle that the separateStock Purchase Agreement under which Pinnacle was to acquire all of theoutstanding capital stock of Colorado Casino Resorts, Inc. (“CCRI”), theowner of the Double Eagle, had terminated in accordance with its terms when Pinnacledid not make a required payment. Because Pinnacle was unable to complete itsproposed acquisition of the CCRI stock in accordance with the Stock PurchaseAgreement, as amended, Pinnacle was 

 

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also unable to perform its obligations under the AssetPurchase Agreement with us.  In connection with this acquisition weincurred $126,650 of transaction costs specific to this acquisition that havebeen written-off during the year ended December 31, 2007.

 

We also incurred financing costs with a lender in theamount of approximately $462,000.  These financing costs were initiallyassociated with the financing of the original arrangements to acquire theDouble Eagle. Even though the proposed Double Eagle acquisition ceasedeffective June 30, 2007, the financing arrangement and negotiationscontinued.  In July 2007 we received a revised term sheet from thelender that provided for a non-specific property acquisition line of credit andalso included a working capital amount available immediately, as defined in theagreement.  As part of the terms of this new term sheet we wired anadditional expense deposit to the lender on August 6, 2007.  Wescheduled to close on this financing by the end of August 2007.

 

As a result of the termination of the managementagreement with the Cheyenne and Arapaho Tribes of Oklahoma, effective August 17,2007, the financing contemplated with this lender did not occur and thearrangement was terminated.  Thus we wrote-off amounts related to thefinancing of approximately $462,000 during the year ended December 31,2007.  In October 2007 we incurred$25,000 of additional financing costs which have been written-off in 2007 asthe financing contemplated with this lender did not close.

 

We have recorded the write-off of acquisition andfinancing costs of $613,372 during the year ended December 31, 2007 in theConsolidated Statements of Operations as a separate line item within OtherIncome (Expense).

 

Net cash provided by operating activities during yearended December 31, 2007 was $1,836,855 compared to $4,610,466 during theprior year, a decrease of approximately $2.8 million.  The decreasebetween periods is primarily due to adecrease in revenues of approximately $1.9 million andan increase in operating expenses of approximately $1.3 million, offset bytiming of working capital items.

 

Net cash used in investing activities for the yearended December 31, 2007 and 2006 was $2,902,603 and $1,427,981,respectively, an increase of approximately $1.5 million.  The increase inuse of cash between the periods was due primarily to an increase in ourinvestment in North Metro of approximately $1.6 million in connection with theclosing of the construction financing secured by North Metro in April 2007. We also had additional costs of approximately $439,000 associated withobtaining our two-year extension of the Cheyenne and Arapaho managementcontract, which was subsequently terminated on August 17, 2007. These costs were offset by proceeds from the sale of Uncle Sam’s casino ofapproximately $490,000.

 

Net cash provided by financing activities for the yearended December 31, 2007 was $1,426,889 compared to net cash used infinancing activities for the year ended December 31, 2006 of$2,846,370.  During the years ended December 31, 2007 and 2006 we hadthe following financing activities:

 

·            We completed an equity financingresulting in proceeds of approximately $4.0 million, see further discussionabove.

 

·            We made payments of approximately $1.7million on long-term borrowings compared to approximately $2.7 million duringthe year ended December 31, 2006.

 

·            We paid costs of approximately $322,000related to the redemption of 357,000 shares of common stock in accordance with Article XIof our Articles of Incorporation effective January 22, 2007.  Theshares were redeemed at a price of $0.90 per share based upon the closing stockprice of our common stock as reported on January 22, 2007.  Werecorded the redemption as a reduction to stockholder’s equity for the buy backof shares.  The shares of common stock are included in Treasury Stock inthe Consolidated Statements of Changes in Stockholders’ Equity as of December 31,2007.

 

·            We made payments of approximately$565,000 related to financing and acquisition costs, see discussion above.

 

·            We made payments of $110,000 during theyear ended December 31, 2006 to three officers related to accrued butunpaid compensation from prior years.  No such amount was paid during2007.

 

·            We received proceeds of $30,000 and$12,000 during the years ended December 31, 2007 and 2006 related to theexercise of warrants.

 

***Line of Credit.***   On October 20, 2005, weestablished a $450,000 line of credit with Crown Bank of Minneapolis,Minnesota.  The line of credit is due April 30, 2008 with a variableinterest rate at one percent above prime but not less than 7.5% (8.25% at December 31,2007).  As of December 31, 2007, the outstanding balance was$450,000.  Our three principal officers have guaranteed up to $450,000 ofthis line of credit.

 

***Term Note***.   On October 20, 2005, weentered into a term loan to borrow $2.5 million. The loan terminated on April 30,2007 and had a variable interest rate of one percent above prime but not lessthan 7.5%. Twelve shareholders of the Company, including our three principalofficers and a member of our board of directors, guaranteed the loan. As of April 30,2007 the loan was paid in full.

 

19

----

 

***Equipment Loan.***  On December 23, 2005, wenegotiated a loan of $460,324 to pay off outstanding payables in connectionwith the installation of a player tracking system at our casinos in CrippleCreek, Colorado. The loan is for a term of 48 months with interest equal to theprime rate, which is 7.25% as of December 31, 2007.   Theoutstanding balance as of December 31, 2007 was approximately $240,000.

 

***Seasonality:***

 

We believe that the operations of all casinos owned byus will be affected by seasonal factors, including holidays, weather and travelconditions.

 

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

 

**Competitive Pressures:**

 

Many casino operators are either entering or expandingin our markets thereby increasing competition. As companies have completed newor expanded projects, supply has sometimes grown at a faster pace than demand,and competition has increased significantly. Furthermore, several operators,including Southwest, have plans for additional developments or expansions inour 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 will insure continued customer loyalty andwill enable us to face the competitive challenges present within our industry.

 

The Governor of Colorado signed a bill that removedthe exemption for casinos from the state’s 2006 smoking ban, effective January 1,2008.  We expect the extension of the ban to Colorado casinos will havesome negative impact on business volumes at our Cripple Creek property, themagnitude of which we cannot predict at this time.

 

**Political Uncertainties:**

 

The casino entertainment industry is subject topolitical and regulatory uncertainty.  From time to time, individualjurisdictions have considered actions, legislation or referendums that couldadversely impact our operations.  The likelihood or outcome of similaractions, legislation and referendums in the future is difficult to predict.

 

The casino entertainment industry represents asignificant source of tax revenues to the various jurisdictions in whichcasinos operate.  From time to time, various state and federal legislatorsand officials have proposed changes in tax laws, or in the administration oftax laws, 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, these judgments are subject to aninherent degree of uncertainty.  Our judgments are based on our historicalexperience, terms of existing contracts, our observance of trends in theindustry, information provided by our customers and information available fromother outside sources, as appropriate.  We cannot assure you that ouractual results will not differ from our estimates.  For a discussion ofour significant accounting policies and estimates, please refer to Management’sDiscussion and Analysis or Plan of Operation and Notes to ConsolidatedFinancial Statements presented in the 2007 Financial Statements included in ourAnnual Report on Form 10-KSB.

 

***New AccountingPronouncement*****:**

 

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

 

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.  This statement defines fair value,establishes a framework for measuring fair value and expands the relateddisclosure requirements.  We are currently evaluating the potential impactof this statement.  On February 12,2008 a FASB Staff Bulletin “FSP FAS 157 -2” was issued which defers theeffective date of FAS 157 to fiscal years beginning after November 15,2008, and applies to nonfinancial assets and nonfinancial liabilities.

 

20

----

 

In February 2007, the FASB released SFAS No. 159,“*The Fair Value Option for Financial Assetsand Financial 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 thatbegins on or before November 15, 2007, provided the entity also elects toapply the provisions of FASB Statement No. 157, Fair Value Measurements. We are evaluating the impact of this statement.

 

***Forward-LookingStatements:***

 

This Annual Report on Form 10-KSB contains “forward-lookingstatements.”  You can identify these statements by the fact that they donot relate strictly to historical or current facts. These statements oftencontain words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,”“intend,” “could,” “would,” “estimate,” “continue” or “pursue,” or the negativeor other variations of those words or comparable terminology. In particular,they include statements relating to, among other things, future actions, newprojects, strategies, future performance, the outcome of contingencies such aslegal proceedings and future financial results. We have based theseforward-looking statements on our current expectations and projections aboutfuture events.

 

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

 

·                  the effects of the smoking ban inColorado, effective January 1, 2008 on our casinos in Cripple Creek, CO;

 

·                  the effects of competition, includinglocation of competitors and operating and market competition;

 

·                  access to and the cost of available andfeasible debt or equity financing;

 

·                  our ability to recoup costs of capitalinvestments through higher revenues;

 

·                  success of our customer tracking andcustomer loyalty programs;

 

·                  abnormal gaming holds;

 

·                  litigation outcomes and judicial actions,including gaming legislation, referenda and taxation;

 

·                  the effect of economic, credit andcapital market conditions on the economy in general, and on gaming companies inparticular;

 

·                  construction factors, including delays,zoning issues, environmental restrictions, soil and water conditions, weatherand other hazards, site access matters and building permit issues;

 

·                  the effects of environmental andstructural building conditions relating to the Company’s properties; and

 

·                  changes in laws (including increased taxrates), regulations or accounting standards, third-party relationships andapprovals, and decisions of courts, regulators and governmental bodies.

 

Any forward-lookingstatements speak only as of the date made. We undertake no obligation topublicly update any forward-looking statements, whether as a result of newinformation, future events or otherwise.

 

21

----

 

** **

**Item 7.    FINANCIAL STATEMENTS.**

 

**Table ofContents**

 
| Report  of Independent Registered Public Accounting Firm                                                              | F-2    |
|-----------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                  |   |
| Consolidated  Balance Sheets December 31, 2007 and 2006                                                          | F-3    |
|                                                                                                                  |   |
| Consolidated Statements of Operations for the Years  Ended December 31, 2007 and 2006                            | F-4    |
|                                                                                                                  |   |
| Consolidated Statements of Cash Flows for the Years  Ended December 31, 2007 and 2006                            | F-5    |
|                                                                                                                  |   |
| Consolidated  Statements of Changes in Stockholders’ Equity for the Years Ended  December 31, 2007 and 2006 | F-6    |
|                                                                                                                  |   |
| Notes to Financial Statements                                                                                         | F-7    |

 

F-1

----

 

[Letterhead ofEide Bailly LLP]

 

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 
| The Board of  Directors           |
|-----------------------------------|
| **Southwest  Casino Corporation** |
| Minneapolis,  Minnesota           |

 

We have audited the accompanying consolidated balancesheets of **Southwest Casino Corporation**(the Company) as of December 31, 2007 and 2006, and the relatedconsolidated statements of operations, stockholders’ equity and cash flows forthe years then ended. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based upon our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free ofmaterial misstatement. An audit includes consideration of internal control overfinancial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we do not express such an opinion. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe consolidated financial statements. An audit also includes assessing theaccounting principles used and significant estimates by management, as well asevaluating the overall financial statement presentation. We believe our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of **Southwest Casino Corporation**as of December 31, 2007 and 2006 and the results of its operations itscash flows for the years then ended, in conformity with accounting principlesgenerally accepted in the United States of America.

 
|                    | /s/ Eide Bailly  LLP |
|-------------------------|----------------------|
| Minneapolis,  Minnesota |                 |
| March 31,  2008    |                 |

 

F-2

----

 

**SOUTHWEST CASINO CORPORATION**

**ConsolidatedBalance Sheets**

**December 31, 2007**

 
| ASSETS                                                                                                                                      |       |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| CURRENT ASSETS                                                                                                                              |       |   |   |   |   |
| Cash and Cash Equivalents                                                                                                                   |       | $ | 1,892,401 |   | $ | 1,531,260 |   |
| Accounts Receivable                                                                                                                         |       | 54,582 |   | 157,506 |   |
| Accounts Receivable - Related Party                                                                                                         |       | 41,572 |   |   |   |
| Inventories                                                                                                                                 |       | 141,041 |   | 173,216 |   |
| Prepaid Expenses and Other Current Assets                                                                                                   |       | 679,583 |   | 709,649 |   |
| Total Current Assets                                                                                                                        |       | $ | 2,809,179 |   | $ | 2,571,631 |   |
|                                                                                                                                        |       |   |   |   |   |
| PROPERTY AND EQUIPMENT                                                                                                                      |       |   |   |   |   |
| Leasehold Improvements                                                                                                                      |       | 15,389,750 |   | 15,747,888 |   |
| Furniture and Equipment                                                                                                                     |       | 5,280,282 |   | 6,046,315 |   |
| Accumulated Depreciation                                                                                                                    |       | (10,835,938 | ) | (10,940,192 | ) |
| Net Property and Equipment                                                                                                                  |       | $ | 9,834,094 |   | $ | 10,854,011 |   |
|                                                                                                                                        |       |   |   |   |   |
| OTHER ASSETS                                                                                                                                |       |   |   |   |   |
| Other Assets                                                                                                                                |       | 33,374 |   | 375,287 |   |
| Investment in Unconsolidated Subsidiary                                                                                                     |       | 7,218,720 |   | 5,054,020 |   |
| Total Other Assets                                                                                                                          |       | $ | 7,252,094 |   | $ | 5,429,307 |   |
|                                                                                                                                        |       |   |   |   |   |
| TOTAL ASSETS                                                                                                                                |       | $ | 19,895,367 |   | $ | 18,854,949 |   |
|                                                                                                                                        |       |   |   |   |   |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                  |       |   |
|                                                                                                                                        |       |   |   |   |   |
| CURRENT LIABILITIES                                                                                                                         |       |   |   |   |   |
| Accounts Payable                                                                                                                            |       | $ | 659,284 |   | $ | 535,294 |   |
| Accounts Payable - Related Party                                                                                                            |       | 25,000 |   | — |   |
| Accrued Expenses                                                                                                                            |       | 1,085,797 |   | 972,804 |   |
| Accrued Liabilities - Related Parties                                                                                                       |       | 122,467 |   | 122,467 |   |
| Notes Payable                                                                                                                               |       | 450,000 |   | 446,292 |   |
| Current Portion of Long-Term Liabilities                                                                                                    |       | 1,005,940 |   | 1,720,193 |   |
| Accrued Interest Payable                                                                                                                    |       | 55,465 |   | 5,927 |   |
| Total Current Liabilities                                                                                                                   |       | $ | 3,403,953 |   | $ | 3,802,977 |   |
|                                                                                                                                        |       |   |   |   |   |
| LONG-TERM LIABILITIES                                                                                                                       |       |   |   |   |   |
| Long-Term Liabilities Net of Current Portion                                                                                                |       | $ | 6,486,365 |   | $ | 7,495,224 |   |
|                                                                                                                                        |       |   |   |   |   |
| 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, 27,817,953 Shares  Issued and 27,460,953 Outstanding at December 31, 2007 |       | 27,819 |   | 19,689 |   |
| Additional Paid-in Capital                                                                                                                  |       | 21,496,064 |   | 17,239,894 |   |
| Accumulated Deficit                                                                                                                         |       | (11,196,534 | ) | (9,702,835 | ) |
|                                                                                                                                        |       | 10,327,349 |   |   |   |
| Less Treasury Stock (357,000 shares redeemed)                                                                                               |       | (322,300 | ) |   |   |
|                                                                                                                                        |       |   |   |   |   |
| Total Stockholders’ Equity                                                                                                             |       | 10,005,049 |   | 7,556,748 |   |
|                                                                                                                                        |       |   |   |   |   |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                            |       | $ | 19,895,367 |   | $ | 18,854,949 |   |
|                                                                                                                                             |            |  |  |  |  |  |  |  |

 

SeeNotes to Consolidated Financial Statements

 

F-3

----

 

**SOUTHWESTCASINO CORPORATION**

**Consolidated Statements of Operations**

**Forthe Year Ended December 31, 2007 and 2006**

 
| ** **                                                                         | ** ** | **For the year**                   | ** ** | **For the year**                   | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **                                                                         | ** ** | **ended  December 31,  2007** | ** ** | **ended  December 31,  2006** | ** ** |
|                                                                               |       |                               |       |                               |       |
| **NET REVENUES**                                                                   | ** ** | ** **                         | ** ** | ** **                         | ** ** |
| Casino                                                                             |       | $                                  | 15,087,784 |                               | $          | 14,844,607 |   |
| Food & Beverage/Hotel                                                     |       | 501,057                            |       | 556,475                            |       |
| Management and Consulting                                                          |       | 3,716,109                          |       | 5,865,680                          |       |
| Entertainment                                                                      |       | 67,807                             |       | 17,429                             |       |
| Other                                                                              |       | 163,983                            |       | 190,717                            |       |
|                                                                               |       | 19,536,740                         |       | 21,474,908                         |       |
|                                                                               |       |                               |       |                               |       |
| **EXPENSES**                                                                       | ** ** | ** **                         | ** ** | ** **                         | ** ** |
| Casino                                                                             |       | $                                  | 11,685,289 |                               | $          | 11,492,218 |   |
| Food & Beverage/Hotel                                                     |       | 1,379,610                          |       | 1,410,887                          |       |
| Corporate Expense                                                                  |       | 3,782,615                          |       | 2,774,022                          |       |
| Project Development Costs                                                          |       | 374,384                            |       | 290,623                            |       |
| Entertainment                                                                      |       | 187,333                            |       | 117,905                            |       |
| Impairment Loss - Management Contract                                              |       | 400,435                            |       |                               |       |
| Depreciation and Amortization                                                      |       | 1,781,570                          |       | 2,169,990                          |       |
|                                                                               |       | 19,591,236                         |       | 18,255,645                         |       |
|                                                                               |       |                               |       |                               |       |
| **INCOME (LOSS) FROM OPERATIONS**                                                  |       | $                                  | (54,496    | )                                  | $          | 3,219,263 |   |
|                                                                               |       |                               |       |                               |       |
| **OTHER INCOME (EXPENSE)**                                                         | ** ** | ** **                         | ** ** | ** **                         | ** ** |
| Interest Income                                                                    |       | $                                  | 3,421      |                               | $          | 2,849 |   |
| Interest Expense                                                                   |       | (877,585                           | )          | (1,204,296                         | )          |
| Gain (Loss) on Disposition of Property and Equipment                               |       | 7,420                              |       | (6,932                             | )          |
| Gain on Disposition of Casino                                                      |       | 477,407                            |       |                               |       |
| Write-off of Acquisition and Financing Costs                                       |       | (613,372                           | )          | —                             |       |
|                                                                               |       | (1,002,709                         | )          | (1,208,379                         | )          |
|                                                                               |       |                               |       |                               |       |
| ** **                                                                         | ** ** | ** **                         | ** ** | ** **                         | ** ** |
| **Income before income taxes, equity in earnings  of unconsolidated subsidiaries** |       | (1,057,205                         | )          | 2,010,884                          |       |
|                                                                               |       |                               |       |                               |       |
| Income Taxes                                                                       |       | —                             |       | (670,800                           | )          |
| Loss of Unconsolidated Subsidiaries, Net of Tax Benefit                            |       | (436,494                           | )          | (182,873                           | )          |
|                                                                               |       |                               |       |                               |       |
| Income (Loss) from Continuing Operations                                           |       | (1,493,699                         | )          | 1,157,211                          |       |
|                                                                               |       |                               |       |                               |       |
| **NET INCOME (LOSS)**                                                              |       | $                                  | (1,493,699 | )                                  | $          | 1,157,211 |   |
|                                                                               |       |                               |       |                               |       |
| **Income (loss) per share - basic**                                                |       | $                                  | (0.06      | )                                  | $          | 0.06 |   |
| **Income (loss) per share -  diluted**                                             |       | —                             |       | $                                  | 0.06       |   |
| **Weighted average common shares  outstanding - basic**                            |       | 26,847,743                         |       | 19,675,779                         |       |
| **Weighted average common shares  outstanding - diluted**                          |       | —                             |       | 20,651,331                         |       |

 

SeeNotes to Consolidated Financial Statements

 

F-4

----

 

**SOUTHWEST CASINO CORPORATION**

**ConsolidatedStatements of Cash Flows**

**For the Year EndedDecember 31, 2007 and 2006**

 
| ** **                                                              | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                    |       |       |       |       |       |
| Cash Flows from Operating  Activities:                                  |       |       |       |       |       |
| Net Income (Loss)                                                       |       | $          | (1,493,699 | )          | $          | 1,157,211 |   |
| Adjustments to Reconcile Net Income (Loss) to                           |       |       |       |       |       |
| Net Cash Provided by Operating Activities:                              |       |       |       |       |       |
| Depreciation and Amortization                                           |       | 1,781,570  |       | 2,169,990  |       |
| Amortization of Loan Costs                                              |       | 56,619     |       | 162,906    |       |
| Impairment Loss - Management Contract                                   |       | 400,435    |       |       |       |
| Write-off of Acquisition and Financing Costs                            |       | 613,372    |       |       |       |
| (Gain) Loss on Disposition of Property and Equipment                    |       | (7,420     | )          | 6,932      |       |
| Issuance of Common Stock for Services                                   |       | 12,500     |       |       |       |
| Stock Based Compensation Expense                                        |       | 278,833    |       | 175,078    |       |
| Loss of Unconsolidated Subsidiary                                       |       | 436,494    |       | 244,673    |       |
| Gain on Disposition of Casino                                           |       | (477,407   | )          |       |       |
| Change in Current Assets  and Liabilities,                              |       |       |       |       |       |
| (Increase) Decrease in Restricted Cash                                  |       | —     |       | 2,656      |       |
| (Increase) Decrease in Receivables                                      |       | 102,924    |       | 411,288    |       |
| (Increase) Decrease in Receivables - Related Party                      |       | (41,572    | )          |       |       |
| (Increase) Decrease in Inventories                                      |       | 32,175     |       | (24,933    | )          |
| (Increase) Decrease in Prepaid Expenses                                 |       | (30,327    | )          | (14,360    | )          |
| (Increase) Decrease in Other Assets                                     |       | 48,375     |       | (42,849    | )          |
| (Increase) decrease in Deferred Tax Asset                               |       | —     |       | 573,000    |       |
| Increase (Decrease) in Accounts Payable                                 |       | (33,909    | )          | (96,067    | )          |
| Increase (Decrease) in Accrued Expenses                                 |       | 108,354    |       | (103,434   | )          |
| Increase (Decrease) in Accrued Interest Payable                         |       | 49,538     |       | (11,625    | )          |
| Net Cash Provided By Operating Activities                               |       | $          | 1,836,855  |       | $          | 4,610,466 |   |
|                                                                    |       |       |       |       |       |
| CASH FLOWS FROM INVESTING  ACTIVITIES                                   |       |       |       |       |       |
| Purchase of Property and Equipment                                      |       | (364,062   | )          | (426,927   | )          |
| Proceeds from Sale of Property and Equipment                            |       | 15,121     |       | —     |       |
| Proceeds from Disposition of Casino                                     |       | 490,018    |       | —     |       |
| Receipt (Payment) of Deposit                                            |       | (3,318     | )          | (728       | )          |
| Payment of Costs Associated with Management and Consulting Contracts    |       | (439,168   | )          |       |       |
| Investment in Unconsolidated Subsidiary                                 |       | (2,601,194 | )          | (1,000,326 | )          |
| Net Cash Used in Investing Activities                                   |       | $          | (2,902,603 | )          | $          | (1,427,981 | ) |
|                                                                    |       |       |       |       |       |
| CASH FLOWS FROM FINANCING  ACTIVITIES                                   |       |       |       |       |       |
| Net Payments on Short-Term Notes Payable                                |       | $          | 3,708      |       |       |   |
| Principal Payments on Long-Term Borrowings                              |       | (1,723,112 | )          | (2,675,826 | )          |
| Proceeds from Issuance of Common Stock upon Exercise of Warrants        |       | 30,000     |       | 12,000     |       |
| Proceeds from Issuance of Common Stock and Warrants                     |       | 4,003,360  |       |       |       |
| Redemption of Common Stock                                              |       | (322,300   | )          | —     |       |
| Payment of Financing Costs                                              |       | —     |       | (72,544    | )          |
| Payment of Financing Costs Written-Off                                  |       | (564,767   | )          |       |       |
| Payments for Liabilities Owed to Related Parties                        |       |       |       | (110,000   | )          |
| Net Cash Provided (Used) by Financing Activities                        |       | $          | 1,426,889  |       | $          | (2,846,370 | ) |
|                                                                    |       |       |       |       |       |
| Net Increase in Cash and Cash Equivalents                               |       | 361,141    |       | 336,115    |       |
|                                                                    |       |       |       |       |       |
| CASH AND CASH EQUIVALENTS                                               |       |       |       |       |       |
| Beginning of Period                                                     |       | 1,531,260  |       | 1,195,145  |       |
| End of Period                                                           |       | $          | 1,892,401  |       | $          | 1,531,260 |   |
|                                                                    |       |       |       |       |       |
| SUPPLEMENTAL DISCLOSURE OF  CASH FLOW INFORMATION                       |       |       |       |       |       |
| Interest Paid                                                           |       | $          | 825,492    |       | $          | 1,006,812 |   |
| Income Taxes Paid                                                       |       | $          | 41,632     |       | $          | 22,506 |   |
|                                                                    |       |       |       |       |       |
|                                                                    |       |       |       |       |       |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH  INVESTING AND FINANCING ACTIVITIES |       |       |       |       |       |
|                                                                    |       |       |       |       |       |
| Capital assets acquired with acounts payable                            |       | $          | 135,492    |       | $          | 7,303 |   |
| Capital assets acquired with acounts payable - related party            |       | $          | 25,000     |       |       |   |
| Financing costs included in accounts payable                            |       | $          | 13,606     |       | $          | 11,352 |   |
| Costs related to management contract included in accounts payable       |       | $          | 27,455     |       |       |   |
|                                                                         |            |            |            |            |            |  |  |  |  |

 

SeeNotes to Consolidated Financial Statements

 

F-5

----

** **

**SOUTHWEST CASINO CORPORATION**

**ConsolidatedStatements of Changes in Stockholders’ Equity**

**For the Years EndedDecember 31, 2007 and 2006**

 
| ** **                                                        | ** ** | **Treasury Stock** | ** ** | **Common Stock** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **          | ** ** |
|-------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|---------------|------------|------------|------------|---------------------|------------|
| ** **                                                        | ** ** | **Number of**      | ** ** | ** **       | ** ** | **Number of** | ** ** | ** ** | ** ** | **Additional**      | ** ** | **Retained** | ** ** | ** ** | ** ** |
| ** **                                                        | ** ** | **Shares**         | ** ** | **Amount**       | ** ** | **Shares**    | ** ** | **Amount** | ** ** | **Paid-in Capital** | ** ** | **Earnings** | ** ** | **Total** | ** ** |
| ** **                                                        | ** ** | ** **         | ** ** | ** **       | ** ** | ** **    | ** ** | ** ** | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **BALANCE December 31, 2005**                                |       |               |       |             |       | 19,588,656    |       | $          | 19,589     |                | $          | 17,052,916 |   | $ | (10,860,046 | ) | $ | 6,212,459 |   |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| Issuance of  Common Stock Upon Exercise of Warrants               |       |               |       |             |       | 100,000       |       | 100        |       | 11,900              |       |   |   | 12,000 |   |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| Stock-Based Compensation  Expense Related to Options and Warrants |       |               |       |             |       |          |       |       |       | 175,078             |       |   |   | 175,078 |   |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| Net Income                                                        |       |               |       |             |       |          |       |       |       |                |       | 1,157,211 |   | 1,157,211 |   |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| **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      |       | 3,935,012           |       |   |   | 3,942,967 |   |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| Exercise of  Warrants and Issuance of Common Stock                |       |               |       |             |       | 150,000       |       | 150        |       | 29,850              |       |   |   | 30,000 |   |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| Issuance of  Common Stock for Services                            |       |               |       |             |       | 24,510        |       | 25         |       | 12,475              |       |   |   | 12,500 |   |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| Redemption of  Common Stock                                       |       | (357,000           | )          | (322,300         | )          |          |       |       |       | —              |       |   |   | (322,300 | ) |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| Stock-Based  Compensation Expense Related to Options and Warrants |       |               |       |             |       |          |       |       |       | 278,833             |       |   |   | 278,833 |   |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| Net Loss                                                          |       |               |       |             |       |          |       |       |       |                |       | (1,493,699 | ) | (1,493,699 | ) |
|                                                              |       |               |       |             |       |          |       |       |       |                |       |   |   |   |   |
| **BALANCE December 31, 2007**                                |       | (357,000           | )          | $                | (322,300   | )             | 27,817,953 |       | $          | 27,819              |       | $ | 21,496,064 |   | $ | (11,196,534 | ) | $ | 10,005,049 |   |

 

SeeNotes to Consolidated Financial Statements

 

F-6

----

** **

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2007 AND 2006**

 

**NOTE 1 — ORGANIZATION ANDNATURE OF OPERATIONS**

** **

Southwest Casino Corporation

 

Southwest Casino and Hotel Corp. is the primary,wholly-owned operating subsidiary of Southwest Casino Corporation and was theparent company until the July 2004 reorganization that resulted in thecurrent structure.  Southwest Casino and Hotel Corp. was organized underthe laws of the State of Minnesota in 1992 under the name “Southwest Casino andHotel Ventures, Inc.”  The Company has operated in the gamingindustry since formation.

 

On July 22, 2004, Southwest Casino and HotelCorp. merged with Lone Moose Acquisition Corporation, a wholly-owned subsidiaryof Lone Moose Adventures, Inc., a Nevada corporation.  Lone MooseAcquisition Corporation was formed solely for the purpose of completing ourreorganization.  Southwest Casino and Hotel Corp. was the survivingcorporation in that merger and became a wholly-owned subsidiary of Lone MooseAdventures, Inc., which changed its name to Southwest CasinoCorporation.  The reorganization represented a recapitalization ofSouthwest Casino Corporation with accounting treatment similar to that used ina reverse acquisition, except that no goodwill or intangible is recorded. A recapitalization is characterized by the merger of a private operatingcompany into a non-operating public shell corporation with nominal net assetsand typically results in the owners and managers of the private company havingeffective operating control after the transaction.  Southwest CasinoCorporation emerged as the surviving reporting entity after the reorganization.

 

The Company’s principal business is the management,operation and development of gaming facilities in emerging and establishedgaming jurisdictions.  Southwest Casino Corporation, through itswholly-owned subsidiaries, operates two casinos in Cripple Creek, Colorado —Gold Rush Hotel and Casino and Gold Digger’s Casino.  Until July 28,2007, the Company also operated Uncle Sam’s Casino in Cripple Creek. Until August 17, 2007 the Company managed two Native American gamingoperations in Oklahoma for the Cheyenne and Arapaho Tribes of Oklahoma, LuckyStar - Concho and Lucky Star — Clinton.  The Company also owns a 50%membership interest in North Metro Harness Initiative, LLC, (“North Metro”). North Metro is building a harness racetrack and 50-table card room in Columbus,Minnesota on the north side of the Minneapolis — St. Paul Metropolitanarea.  In September 2007, the Company entered into a consultingagreement to work with Palace Resorts in developing and opening a casino at theMoon Palace Casino, Golf and Spa Resort now under construction in Punta Cana onthe easternmost tip of the Dominican Republic.

 

Southwest Casino Corporation’s operations include thefollowing consolidated and unconsolidated subsidiaries:

 

Southwest Casino and Hotel Corp.

 

Southwest Casino and Hotel Corp. was formed in 1992and provides management and consulting services for casinos under contractualagreements and operated Uncle Sam’s Casino in Cripple Creek, Colorado until July 2007,see Note 7.

 

Gold Rush I, LLC

 

Gold Rush I, LLC, was formed during 1999 and operatesthe Gold Rush Hotel and Casino and Gold Digger’s Casino both in Cripple Creek,Colorado under a long-term capitalized lease agreement.

 

Southwest Entertainment. Inc.

 

Southwest Entertainment, Inc., located inMinneapolis, Minnesota, was formed on November 4, 1998. The companyoperates an outdoor amphitheatre for entertainment events in Cripple Creek,Colorado.

 

North Metro Harness Initiative, LLC (Unconsolidated)

 

North Metro Harness Initiative, LLC (North Metro) (adevelopment stage Minnesota limited liability company) was formed on June 16,2003 for the purpose of developing, owning, and operating a harness racetrackand card room north of Minneapolis, Minnesota, in Anoka County.  NorthMetro was issued licenses to own and operate the racetrack by the MinnesotaRacing Commission on February 16, 2005.  Southwest Casino Corporationowns a 50% interest in North Metro.

 

SW Missouri, LLC

 

SW Missouri, LLC was formed on May 25,2004.  Its sole asset is a 30% membership interest in Southwest MissouriGaming, LLC (which is currently a shell company).

 

F-7

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

Southwest Missouri Gaming, LLC (unconsolidated)

 

SW Missouri, LLC owns a 30% membership interest inSouthwest Missouri Gaming, LLC, which was formed March 29, 2004. This entity had no activities in 2006 or 2007.

 

Southwest Eagle, LLC

 

On February 22, 2006, the Company formed a newsubsidiary, Southwest Charitable Enterprises, LLC, a Minnesota limitedliability company.  Southwest is the sole member of Southwest CharitableEnterprises, LLC, which was established to pursue business opportunities incharitable gaming.  In December 2006, the subsidiary’s name waschanged to Southwest Eagle, LLC for purposes of the Double Eagle acquisitionthat never came to fruition.

 

**NOTE 2 — SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

Principles of Consolidation

 

The accompanying consolidated financial statementsinclude the accounts of Southwest Casino Corporation, its wholly-ownedsubsidiaries (referred to as “the Company” or “Southwest”), and North MetroHarness Initiative, LLC, which is accounted for as an equity investment, seeNote 4.  All material inter-company transactions and balances have beeneliminated in consolidation.

 

Basis of Accounting

 

The consolidated financial statements of the Companyare prepared using the accrual basis of accounting whereby revenues arerecognized when earned and expenses are recognized when incurred.  Thisbasis of accounting conforms to generally accepted accounting principles in theUnited States of America.

 

Use of Estimates

 

The preparation of financial statements in conformitywith generally accepted accounting principles in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the period.  Actual results could differ fromthose estimates.

 

Cash Equivalents

 

The Company considers all highly liquid debtinstruments purchased with a maturity of three months or less when purchased tobe cash equivalents.

 

Revenue Recognition

 

Casino revenue is the net win from gaming activities,which is the difference between gaming wins and losses.  Revenue fromfood, beverage and hotel operations is recorded upon delivery of goods orservices, and excludes promotional allowances.  Revenue from casinomanagement and consulting contracts with outside parties is recognized over theterm of the agreements.  Consideration given in exchange for entering intolong-term contracts is amortized over the life of the agreement.

 

Receivables and Credit Policies

 

Accounts receivable are carried at face value less anestimated allowance for doubtful accounts. The carrying amount of receivablesis reduced by a valuation allowance that reflects management’s best estimate ofthe amounts that will be collected.  Management reviews all tradereceivable balances that exceed 30 days from the invoice date and, based on anassessment of the current creditworthiness, estimates the portion, if any, ofthe balance that will not be collected.

 

F-8

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

Net Income Per Share — Basic and Diluted

 

Net income per share is computed by dividing the netincome for the period by the weighted average number of common sharesoutstanding during the period presented.  Basic earnings per share excludethe dilutive effect of options and warrants, while diluted earnings per shareinclude such effects only during years when the Company reports net income.

 

Inventories

 

Inventories consist principally of food and beverageproducts and gift shop merchandise.  Inventories are carried at cost,determined under the first-in, first-out (FIFO) method.

 

Concentrations of Credit Risk

 

The Company’s cash balances maintained in bankdepositories periodically exceed federally insured limits.

 

Advertising Costs

 

The Company expenses advertising costs asincurred.  Advertising expense for the years ended December 31, 2007and 2006 was approximately $287,925 and $343,000, respectively.

 

Employee Benefit Plan

 

The Company has established a defined contributionprofit sharing plan for its eligible employees.  To be eligible, anemployee must be 21 years of age and have completed one year of service. Contributions to the plan are made at the discretion of management, based onresults of operations from year to year.  No discretionary contributionswere made during 2007 or 2006.

 

The Company has adopted a 401(k) retirementplan.  The plan provides for employee pre-tax salary deferrals of up to 100%of a participant’s compensation (not to exceed federal limits) and a matchingcontribution by the Company — dollar for dollar up to 3% and fifty cents perdollar up to 5% of the participant’s compensation. Employees are eligible forthe plan if they have completed one year of service, as defined in the plan,and are at least 21 years old.  A participant is fully-vested after oneyear of service, as defined in the plan.  The Company’s matchingcontribution made and expensed for the years 2007 and 2006 was $134,789 and$109,383, respectively.

 

Property and Equipment

 

Property and equipment are carried on the books atcost.  Depreciation on property and equipment is calculated using thestraight-line method over their estimated useful lives, which range from 3 to10 years.  Upon sale or retirement, the cost and related accumulateddepreciation are eliminated from the respective accounts, and the resultinggain or loss is included in the income statement.

 

Repair and maintenance charges, which do not increasethe useful lives of the assets, are charged to expense as incurred.

 

Depreciation expense was $797,140 and $934,840 for theyears ended December 31, 2007 and 2006, respectively.

 

Leaseholds attributable to the lease in Note 12 havebeen capitalized in accordance with generally accepted accounting principlesand are being amortized over the length of the lease, 20 years, using thestraight-line method.

 

Amortization expense for these leaseholds was $725,340for each of the years ended December 31, 2007 and 2006.   Totalaccumulated amortization of these leaseholds was $6,316,503 and $5,591,163 at December 31,2007 and 2006, respectively.

 

Long-lived assets to be held and used are tested forrecoverability whenever events or changes in circumstances indicate that therelated carrying amount may not be recoverable. When required, impairmentlosses on assets to be held and used are recognized based on the fair value ofthe asset. Certain long-lived assets to be disposed of by sale are reported atthe lower of carrying amount or fair value less cost to sell.

 

F-9

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

## Income taxes

 

The Company accounts for income taxes under theprovisions of Statement of Financial Accounting Standards No. 109, *Accounting for Income Taxes (SFAS No. 109).*Under this method, the Company determines deferred tax assets and liabilitiesbased upon the difference between the financial statement and tax bases ofassets and liabilities using enacted tax rates in effect for the year in whichthe differences are expected to affect taxable income. The tax consequences ofevents recognized in the current year’s consolidated financial statements areincluded in determining income taxes currently payable. However, because taxlaws and financial accounting standards differ in their recognition andmeasurement of assets, liabilities, equity, revenue, expenses, gains andlosses, differences arise between the amount of taxable income and pretaxfinancial income for a year and between the tax bases of assets or liabilitiesand their reported amounts in the consolidated financial statements.

 

Because it is assumed that the reported amounts ofassets and liabilities will be recovered and settled, respectively, adifference between the tax basis of an asset or a liability and its reportedamount in the balance sheet will result in a taxable or a deductible amount insome future years when the related liabilities are settled or the reported amountsof the assets are recovered, hence giving rise to deferred tax assets andliabilities. The Company must then assess the likelihood that deferred taxassets will be recovered from future taxable income and, to the extentmanagement believes that recovery is not likely, they must establish avaluation allowance. The Company recorded a 100 percent valuationallowance against all deferred income tax assets as of December 31, 2007and 2006.  See Note 15.

 

Stock based compensation

 

Effective the beginning of fiscal year 2006, theCompany adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)No. 123 (revised 2004) (“SFAS 123(R)”), *Share-Based Payment*, which is a revision of SFAS 123, *Accounting for Stock-Based Compensation*.The Company implemented SFAS 123(R) using the modified prospective method,which does not result in the restatement of previously issued financialstatements.  In all prior periods, the Company accounted for stock-basedcompensation awards to employees using the intrinsic value method prescribed byAPB Opinion No. 25 and, as such, recognized no compensation cost foremployee stock options, but rather disclosed the related pro forma effect onnet loss, see Note 13.

 

Operating segments

 

The Company has segregated its activities into threeoperating segments based on operating and management characteristics related toits sources of revenue or basis for accumulating assets or expenses.  Thesegments are defined as casino operations, casino management for unrelated parties,and project development activities.  Separate operations are aggregatedbased on the above general segment descriptions.

 

Legal defense costs

 

The Company does not accrue for estimated future legaland related defense costs, if any, to be incurred in the event of any pendingor threatened litigation or other disputed matters but rather, records such asperiod costs when the services are rendered.

 

Other comprehensive income

 

The Company does not have amounts to be disclosed asother comprehensive income.

 

Reclassifications

 

Certain minor reclassifications to previously reportedamounts have been made to conform to the current year presentation.

 

New accounting standards

 

Effective January 1, 2006, the company adoptedSFAS No. 123(R) using the modified prospective method.  See Note13 for information regarding stock-based compensation.

 

The Company adopted Statement of Financial AccountingStandards Interpretation No. 48 “Accounting *for Uncertainty in Income Taxes*” (“Interpretation No. 48”)effective January 1, 2007, see Note 15.

 

In September 2006, the FASB issued Statement ofFinancial Accounting Standards No. 157, “Fair Value Measurements” (“FAS157”) which is effective for fiscal years beginning after November 15,2007 and for interim periods within those years.  This statement definesfair value, 

 

F-10

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

establishes a framework for measuring fair value andexpands the related disclosure requirements.  The Company is currentlyevaluating the potential impact of this statement.  On February 12, 2008 a FASB StaffBulletin “FSP FAS 157 -2” was issued which defers the effective date of FAS 157to fiscal years beginning after November 15, 2008, and applies tononfinancial assets and nonfinancial liabilities.

 

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

 

Management Financial Plans

 

The Company has completed two closings on an equityfinancing, see Note 10. The net proceeds from the sale of securities wereapproximately $4 million.  In connectionwith the financing agreement entered into by North Metro, see Note 4, theCompany was required to make additional membership contributions to North Metroof approximately $2.35 million to North Metro from January 1, 2007 to thetime the loan closed on April 20, 2007.  Due to the loss ofmanagement fees from the termination of our management contract with theCheyenne and Arapaho Tribes of Oklahoma (see Note 5) the Company securedadditional debt financing in March 2008 (see Note 26) to fund our currentoperations including project development costs.   The Company believes the amount of fundsreceived from the debt financing will be adequate to fund operations during the2008 fiscal year; however the Company will have to seek additional debt orequity financing for future operations.

 

**NOTE 3 —PROMOTIONAL ALLOWANCES**

 

Revenue does not include the retail amount of rooms,food, and beverage provided gratuitously to customers, which was $1,197,558 and$1,155,521in 2007 and 2006, respectively.

 

**NOTE 4—UNCONSOLIDATED SUBSIDIARY**

 

**North Metro Harness Initiative, LLC (“NorthMetro”)**

 

*Organization**:*

 

North Metro (a development stage Minnesota LimitedLiability Company) was formed on June 16, 2003 for the purpose ofdeveloping, owning, and operating a horse race track and card room north ofMinneapolis, Minnesota, in Anoka County.  North Metro has purchased landand obtained zoning, permitting and regulatory approvals for the proposedoperations.  On June 8, 2004, Southwest Casino and Hotel Corp. (“Southwest”)sold a 50% interest in the Company to MTR — Harness Inc. (“MTR”), a whollyowned subsidiary of MTR Gaming, Inc. for $10,000, and a commitment to makeadditional contributions as discussed below.

 

Under the North Metro Member Control Agreement dated June 8,2004, MTR was required to contribute $7,500,000, upon satisfaction of certainconditions and Southwest was required to contribute $2,500,000.  Theamounts contributed in excess of the amounts agreed to under the Member ControlAgreement were agreed upon by Southwest and MTR as managing members of theCompany.  These amounts were contributed on an equal basis.

 

As specified in the Company’s Member ControlAgreement, membership interests include financial rights, governance rights andvoting rights.  Voting rights are assigned to members based on theirproportionate voting interest.  Financial rights include allocation of netprofits, losses and distributions.  Governance rights include all of amember’s rights other than financial rights and the right to assign financialrights.  A member of the Company may only assign governance and votingrights to another party with the consent of the remaining members, whichconsent may be withheld in any member’s sole and absolute discretion.  Ifa member assigns membership rights to another party and the other member ormembers do not consent to the assignee becoming a substitute member, theassignee will only be entitled to receive those distributions and allocationsthat would have been made to the assigning member and the assignee will nothave any voting or governance rights.  As of December 31, 2007,Southwest and MTR each hold 50% of the voting rights.  Financial and governance rights aredetermined in accordance with the Member Control Agreement dated June 8,2004.

 

Net income, losses and distributions are allocated ona 50/50 basis to members in accordance with the member control agreement.

 

North Metro’s Member Control Agreement requires NorthMetro to make tax distributions to members on a quarterly and annual basisequal to 40% of the estimated taxable income of the company for the applicabletime period, with annual tax distributions reduced by the amount of any 

 

F-11

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

quarterly tax distributions made during the taxyear.  The tax distributions were reduced to 35% under the CreditAgreement with Black Diamond, described below. Tax distributions to the members shall be made in proportion to eachmember’s respective share of the taxable income of North Metro.

 

North Metro was formally organized as a limitedliability company on June 16, 2003.  Prior to that date, agreementswere consummated and amounts related to the business purpose of the Companywere directly incurred and paid by Southwest or entities related to Southwest.

 

North Metro will do business in Minnesota under thename “Running Aces Harness Park”.

 

*Accounting for North Metro**:*

 

The Company evaluates whether North Metro should betreated as a variable interest entity (“VIE”) subject to consolidation duringthe applicable reporting periods under Financial Accounting Standards BoardInterpretation 46(R) - *Consolidation ofVariable Interest Entities (as amended*).

 

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 provided financial support in excess of its 50percentdecisionmaking power. As of December 31, 2007, the Company has providedapproximately 42 percent of the financial support, but still retains its 50percent decision making power.  Therefore, since October 20, 2005,the Company has accounted for its investment in North Metro on the equitymethod.  The Company’s investment in North Metro as of December 31,2007 and 2006 was $7,218,720 and $5,054,020, respectively, which is recorded onthe Company’s consolidated balance sheets.

 

As of December 31, 2007, the Company hascontributed $7,320,974 in consideration of its membership interests in NorthMetro.  In addition, the Company has advanced $1,656,051 for costs relatedto North Metro that the Company paid, and which exceeded the Company’s agreedpre-license capital contribution of $1,000,000, before the Minnesota RacingCommission granted racing licenses to North Metro.  These advances,together with interest, will only be paid out of first available cash fromoperations (and then after certain distributions to the members for income taxpurposes).  The pre-licensing advances to North Metro are characterized asa membership preferred contribution made by the Company under the North MetroHarness Initiative, LLC Member Control Agreement dated June 8, 2004. The Company treats these payments as an additional investment in NorthMetro.  The Company has combined the advances (accounted for as amembership preferred contribution) and its capital contributions into aninvestment in an unconsolidated subsidiary on its financial statements and hasaccounted for this investment and all North Metro activity since October 20,2005 under the equity method of accounting.

 

For the years ended December 31, 2007 and 2006,the Company has recorded a loss from this unconsolidated subsidiary, net of taxbenefit of $436,494 and $182,873.

 

F-12

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

The following represents summary financial informationfor North Metro as of December 31, 2007 and 2006:

 

| ** **                                             | ** ** | **As of and For** | ** ** | **As of and For** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **The Year**                | ** ** | **The Year**                | ** ** |
| ** **                                             | ** ** | **Ended**                        | ** ** | **Ended**                        | ** ** |
| ** **                                             | ** ** | **December 31,**            | ** ** | **December 31,**            | ** ** |
| ** **                                             | ** ** | **2007**                         | ** ** | **2006**                         | ** ** |
| North Metro:                                           |       |                             |       |                             |       |
| Total current assets                                   |       | $                                | 2,185,535  |                             | $          | 644,250 |   |
| Total assets                                           |       | 51,556,814                       |       | 15,587,187                       |       |
| Total current liabilities                              |       | 4,903,259                        |       | 1,084,062                        |       |
| Total liabilities                                      |       | 33,051,334                       |       | 1,411,109                        |       |
| Results of operations:                                 |       |                             |       |                             |       |
| Revenues                                               |       | $                                | 107,715    |                             | $          | — |   |
| Lobbying expenses                                      |       | 133,992                          |       | 126,000                          |       |
| License fees — Minnesota Racing Commission        |       | 263,810                          |       | 248,907                          |       |
| Other expenses                                         |       | 568,602                          |       | 135,722                          |       |
| Total expenses                                         |       | 966,404                          |       | 510,629                          |       |
| Other Income (Expense)                                 |       |                             |       |                             |       |
| Interest Income                                        |       | 20,704                           |       | 21,280                           |       |
| Interest Expense                                       |       | (35,004                          | )          | —                           |       |
| Net (loss)                                             |       | $                                | (872,989   | )                                | $          | (489,349 | ) |
|                                                   |       |                             |       |                             |       |
| Southwest Casino  Corporation:                         |       |                             |       |                             |       |
| 50% share of net (loss)                                |       | (436,494                         | )          | (244,675                         | )          |
| Net tax benefit                                        |       |                             |       | 61,802                           |       |
| (Loss) of unconsolidated subsidiary net of tax benefit |       | $                                | (436,494   | )                                | $          | (182,873 | ) |

 

In 2006, North Metro formed a wholly-owned subsidiarythat acquired a nearby motel in December 2006 that North Metro continuesto operate 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 year ended December 31, 2007, whileSouthwest did record a tax benefit during the year ended December 31,2006, see Note 15.

 

At December 31, 2007, North Metro’s assetsconsisted principally of cash, land, construction in progress and relateddeposits and financing costs. Liabilities consisted primarily of constructionpayables and borrowings under its financing agreement discussed below.

 

North Metro Financing Agreement

 

On April 20, 2007, North Metro entered into aCredit Agreement (the “Credit Agreement”) with Black Diamond CommercialFinance, 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 room facility in Columbus, Minnesota on thenorth side of the Minneapolis — St. Paul metropolitan area.  As part of the loan agreement the members ofNorth Metro agreed to complete aggregate membership contributions of $20.8million prior to closing the loan. The total cost of the project is expected toapproximate $62 million.  As of December 31, 2007, Southwestcontributed $9.0 million of the total amount of $21.3 million contributed bythe members.  Certain amounts related to non-construction costs continueto be funded by the members (the Company contributed $250,000 subsequent to theloan closing thru the end of fiscal year 2007). These amounts are not considered to be material to the total cost of theproject.  Under the Credit Agreement, the initial advance of loan proceedswas followed by additional advances based on progress in building and openingthe racetrack and card room facility. During construction, North Metro ismaking monthly payments of interest only based on a floating index rate plus 4percent or on a 1-month, 2-month or 3-month LIBOR rate plus 6 percent, at NorthMetro’s option. After the project opens, interest rates will reduce to theapplicable index rate plus 2.5 percent or the applicable LIBOR rate plus 4.5percent, again at North Metro’s option. North Metro must also pay a fee equalto 4.5% per annum on any unused portion of the $41.7 million credit facility.Principal payments of $104,250 will be due on the last day of each fiscalquarter beginning 

 

F-13

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

the first full quarter after the project opening, asdefined in the agreement. North Metro will also be required to prepay the loanin an amount equal to 50 percent of the project’s excess cash flow for eachfiscal year beginning with the fiscal year ended December 31, 2008, asdefined in the agreement. Final payment equal to all outstanding principal andaccrued interest 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, North Metro’s ability todispose of assets, transfer or pledge equity interests, incur indebtedness, andmake investments or distributions. Financial covenants applicable to NorthMetro include, among other things, limits on capital expenditures afteropening, 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 by June 30,2008, and failure to operate the card room that is part of the North Metroproject at any time after July 1, 2008, would constitute a default underthe Credit Agreement.

 

Additional Membership Contribution, Pledge,Subordination and Sponsor Support Agreements of Southwest

 

While the Credit Agreement does not provide forrecourse against Southwest in the case of a default by North Metro, Southwesthas pledged its membership interest in North Metro and North Metro pledged itsmembership interest in North Metro Hotel, LLC as security for repayment of theloan under the terms of a Pledge Agreement with Black Diamond (the “PledgeAgreement”).

 

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 Southwest may be required undercertain circumstances to contribute additional capital to North Metro iffinancings and equity investments are insufficient to complete construction andopen the facility.  The Company believesthe financings and equity investments secured by North Metro will be sufficientto construct and open the facility.

 

**NOTE 5 — TERMINATION OF MANAGEMENTCONTRACT WITH THE CHEYENNE AND ARAPAHO TRIBES AND RELATED LITIGATION**

 

Management and consulting revenue of $3,566,109 and$5,865,680 included on the Consolidated Statement of Operations for the yearended December 31, 2007 and 2006 relate to revenues earned from themanagement agreement with the Cheyenne and Arapaho Tribes of Oklahoma. Asdescribed below, the Cheyenne and Arapaho Tribes contract with the Company hasterminated and the Company has not and will not receive any revenues frommanaging those casinos after August 17, 2007. In addition, as describedbelow, the remaining contract costs, recorded as an intangible asset, on theCompany’s Consolidated Balance Sheet have been written off.

 

On May 18, 2007, the National Indian GamingCommission (“NIGC”) approved Amendment No. 11 to the Third Amended andRestated Gaming Management Agreement dated June 16, 1995 between theCompany and the Cheyenne and Arapaho Tribes of Oklahoma (the “Tribes”). Southwest continued to manage the Tribes’ Lucky Star — Concho and Lucky Star —Clinton casinos under the terms of Amendment No. 11 until August 17,2007.

 

The May 18, 2007 NIGC approval was based on a May 18,2007 decision of the Cheyenne and Arapaho Trial Court finding Amendment No. 11valid under the Tribes’ constitution.  On May 21, 2007, the Governorof the Cheyenne and Arapaho Tribes filed an appeal to the Cheyenne and ArapahoSupreme Court seeking to overturn the decision of the tribal Trial Court. On August 17, 2007, The Supreme Court reversed the Trial Court order anddeclared the contract extension invalid. Also on August 17, 2007, the NIGCissued a decision and order reversing its May 18, 2007 approval of thetwo-year contract extension based on the tribal Supreme Court decision. Based on the decision of the NIGC, tribal representatives took control of thecasinos on Sunday, August 19, 2007.  On August 21, 2007,Southwest appealed the decision of the NIGC to reverse its approval of thetwo-year contract extension.  On August 24, 2007, the NIGC rejectedthat appeal and affirmed its decision. Southwest has not managed the casinossince August 17, 2007.

 

In connection with obtaining the two-year extension onMay 18, 2007, the Company incurred approximately $438,000 of directcosts.  The Company had accounted forthese costs as an intangible asset to be expensed overthe two-year term of the extension of the management 

 

F-14

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

contract beginning May 19, 2007. As a result ofthe termination effective August 17, 2007 the remaining unamortized costsof approximately $400,000 were expensed consistent with Statement of FinancialAccounting Standards No. 144 “*Accountingfor the Impairment or Disposal of Long-Lived Assets*” (“SFAS #144”)and included as a separate line-item as an impairment loss on the ConsolidatedStatement of Operations for the year ended December 31, 2007.

 

The Company accounted for this contract and includedthe revenues and costs in its operating segment “Casino Management” inaccordance with Statement of Financial Accounting Standards No. 131 “ *Disclosures about Segments of an Enterprise andRelated Information* “ (“SFAS #131”), see Note 18.  The Companyhas also disclosed information about this major customer in accordance withSFAS #131 paragraph #39.  In connection with the termination of thisagreement, the Company applied Statement of Financial Accounting Standards No. 142“*Goodwill and Other Intangible Assets*”and SFAS #144 in recognizing the impairment loss.  The Company alsoconsidered SFAS #144 paragraph #41 relating to the reporting of discontinuedoperations and has determined that this does not meet those requirements andhas reported the transaction in continuing operations.

 

The Company is involved in litigation related to themanagement contract and its termination, see Note 24.

 

**NOTE 6 — CONSULTING AGREEMENT WITHPALACE RESORTS**

 

In September 2007, the Company entered into aconsulting agreement to work with Palace Resorts in developing and opening acasino at the Moon Palace Casino, Golf and Spa Resort, now under constructionin Punta Cana on the easternmost tip of the Dominican Republic.  Under the consulting agreement, Southwestimmediately began assisting Palace Resorts in all phases of design, gameselection, training and equipping the casino that will be part of the1,700-room resort scheduled to open in the last quarter of 2008. Southwestreceives $50,000 per month for 10 months, which began in October 2007. Palace Resorts provides world-class resort vacations at all-inclusiveproperties throughout Cancun, the Riviera Maya, Nuevo Vallarta, and Cozumel withthe new resort now under construction in Punta Cana, Dominican Republic.  The Company recognized $150,000 of consultingrevenue for the year ended December 31, 2007.

 

**NOTE 7 — SALE OF UNCLE SAM’S CASINO**

 

On June 25, 2007, the Company entered into anagreement with the landlord to purchase the leased real property on which itoperated Uncle Sam’s Casino in Cripple Creek, Colorado.  The purchaseagreement provided that the Company would not be obligated to purchase the realproperty unless the Company assigned its rights under the purchase agreement toa third party.  On June 26, 2007, the Company entered into anagreement to assign its rights under the purchase agreement and the operatinglease.  On July 29, 2007 the Company closed Uncle Sam’s Casino and onJuly 31, 2007 the Company assigned its rights under the purchase agreementand lease and received an assignment fee of approximately $487,000.  TheCompany recognized a gain of $477,407 on this transaction that is recorded inthe Consolidated Statement of Operations during the year ended December 31,2007 as a separate line item within Other Income (Expense).  The Companytransferred the majority of the equipment and slot machines to the Gold Rushand Gold Diggers casinos in the amount of the net book value of approximately$58,000.  Additionally, the Uncle Sam’s employees were transferred to theGold Rush and Gold Diggers casinos and the customers were offered incentives tomigrate their play at Uncle Sam’s to the Gold Rush and Gold Diggers casinos.

 

The Company has recorded the transaction involvingUncle Sam’s casino in continuing operations as the Company reviewed SFAS #144and determined that it did not meet the requirements for accounting asdiscontinued operations.   The transaction was completed and recordedduring the year ended December 31, 2007.

 

**NOTE 8 — SHORT-TERM NOTES PAYABLE**

 

On April 16, 2007, the Company entered into theThird Amendment to the Revolving Credit and Term Loan Agreement with CrownBank.  The agreement has been amended to extend the maturity date of the$450,000 revolving line of credit to April 30, 2008.  The amendmentdid not alter the terms of the $2.5 million term loan and the Company made thefinal payment on the term loan on April 30, 2007.  Additionally,under the amendment, three principal officers of the Company each agreed toincrease their personal guarantees of the line of credit from $100,000 to$150,000 plus expenses.  As of December 31, 2007, $450,000 isoutstanding under the Revolving Credit facility.

 

The interest rate is Prime +1%, and not less than7.5%.  As of December 31, 2007 the interest rate is 8.25%.  At December 31,2007, the full amount of the line was drawn and outstanding.  Subsequent to December 31, 2007, the line ofcredit was repaid, see Note 26.

 

F-15

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

**NOTE 9 — EARNINGS PER SHARE**

 

For all periods, basic earnings (loss) per share iscalculated by dividing earnings (loss) by the weighted-average number of commonshares outstanding.  Diluted earnings per share for the year ended December 31,2006, reflect the effect of all potentially dilutive common shares outstandingby dividing net earnings by the weighted-average of all common and potentiallydilutive shares outstanding.  The Company had a net loss for the yearended December 31, 2007; therefore a calculation of loss per share on afully diluted basis would be anti-dilutive, thus stock options and warrants topurchase 8,446,102 common shares were not included in the calculation of lossper share for 2007, but were outstanding at December 31, 2007, see Notes 13and 14. Additional options and warrants were granted subsequent to December 31,2007, see Note 26.

 

The following is a reconciliation of basic and dilutedearnings per share:

 

| **Year ended December 31, 2006:** | ** ** | **Net Earnings  (Numerator)** | ** ** | **Weighted Average  Equity  (Denominator)** | ** ** | **Earnings  Per Share** | ** ** |
|-------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------------------|------------|------------------------------|------------|
|                                                  |       |                               |       |                                             |       |                         |       |
| Basic Earnings per Share                              |       | $                                  | 1,157,211  |                                             | 19,675,779 |                         | $          | .06 |   |
| Effect of Dilutive  Securities:                       |       |                               |       |                                             |       |                         |       |
| Outstanding Options and Warrants                      |       | —                             |       | 975,552                                          |       |                         |       |
|                                                  |       | $                                  | 1,157,211  |                                             | 20,651,331 |                         | $          | .06 |   |

 

Options and warrants to purchase 1,395,000 shares ofcommon stock at an exercise price of $1.00 per share, options to purchase675,000 shares at $0.65 and options to purchase 50,000 shares of common stockat an exercise price of $0.75 per share were not included in the computation ofdiluted earnings per share for the year ended December 31, 2006 becausethe exercise price was greater than the average market price of common sharesduring the period.  All of these options were outstanding as of December 31,2006.

 

**NOTE 10 — STOCKHOLDERS’ EQUITY**

 

The Company has authorized the issuance of up to75,000,000 shares of common stock with a par value of $.001 and up to30,000,000 shares of undesignated preferred stock with a par value of $0.001per share with preferencesand designations determined by the Board ofDirectors.  As of December 31, 2007, there were no shares ofpreferred stock designated or outstanding.  Each share of common stock isentitled to one vote on all matters submitted to shareholders.  Under theterms of a gaming license held by a subsidiary of the Company, the Company hasamended its Articles of Incorporation to provide that all shares of commonstock are subject to redemption, at the discretion of the Board of Directors,at fair market value if an owner is determined to be a disqualifiedholder.  A disqualified holder is a stockholder whose ownership of Companystock or refusal to provide information to the Company or any applicable gamingauthorities may result in the disapproval, modification or non-renewal of any contract,license or franchise related to the Company’s gaming operations.

 

During the years ended December 31, 2007 and2006, the company issued the following shares of common stock:

 

**Year Ended December 31, 2007**

 

On January 24, 2007 and February 26, 2007,Southwest Casino Corporation (“Southwest”) entered into a Securities PurchaseAgreement (“SPA”) with certain institutional and other accredited investors, asdefined in Rule 501 of Regulation D promulgated under the Securities Actof 1933, as amended, under which Southwest sold in a private placement anaggregate of 7.44 million shares of its common stock with accompanying warrantsto purchase an aggregate of 2.98 million shares of its common stock, at apurchase price of $0.55 per share of common stock. The warrants are exercisablefor a period of five years, beginning six months after the dateof issuance, at an exercise price of$0.61 per share. The number of shares issuable upon exercise of the warrantsand the exercise price of the warrants are adjustable in the event of stocksplits, combinations and reclassifications, but not in the event of theissuance by Southwest of additional securities, unless such issuance ispursuant to a rights offering or pro rata distribution to all security holdersexcept the investors.

 

The securities that were issued in this privateplacement were not registered under the Securities Act of 1933 but did include registrationrights in accordance with the terms of a Registration Rights Agreement dated January 24,2007 and February 26, 2007 between Southwest and the investors.  Under this agreement, Southwest 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.  Under 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.

 

F-16

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

Theprivate placement resulted in net proceeds to Southwest of approximately $3.94million, after the deduction of approximately, $150,000 of direct offeringexpenses. The placement agent agreed to accept the cash portion of itsplacement agent fee in common stock and warrants on the same terms as theinvestors, which resulted in the placement agent receiving approximately517,000 shares of common stock and warrants to purchase an aggregate ofapproximately 207,000 additional 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 and entities in which Mr. Fox holds anownership interest; Jeffrey S. Halpern, Vice President of Government Affairs;Gus A. Chafoulias, Director; and David H. Abramson, Director. Other than withrespect to the SPA, there are no material relationships between Southwest andany of the other investors in the private placement.

 

On December 27, 2007, the Company issued 150,000shares upon exercise of warrants to purchase 150,000 shares of common stock andthe receipt of $30,000 in cash.

 

In October 2007, the Company issued 24,510 sharesof common stock in connection with a financing transaction that did notoccur.  The shares were valued at $12,500(also the Company paid and expensed an additional $12,500), see Note 21.

 

In January 2007, the Company redeemed 357,000shares, see Note 23.

 

**Year Ended December 31, 2006**

 

On February 16, 2006, the Company issued 100,000shares upon exercise of warrants to purchase 100,000 shares of common stock andthe receipt of $12,000 in cash.

 

**NOTE 11 — OPERATING LEASES**

 

On May 1, 1998, the Company entered into afive-year agreement to lease property located in Cripple Creek, Colorado. The lease started the first day of the month that Uncle Sam’s began operations,April 9, 1999, and terminated on March 31, 2004.  The leaserequired payments of $12,000 per month.  During February 2004, theCompany extended the lease for an additional five years. The new lease paymentsare $14,000 per month, expiring March 2009.  The lease agreement includes provisionswhereby the Company had the option to purchase the property for $2,000,000 plus50% of the increase in the fair market value of the building as of the expirationof the initial term.  In July 2007,the Company assigned its rights under the purchase agreement and leaseagreement with the lessor to a third-party, see Note 7.

 

The Company also leases office space for corporateoffices.  The lease expires December 31, 2009.  Rent expense was approximately $215,300 and$284,400 for the years ended December 31, 2007 and 2006,respectively.  Future operating leasepayments (base rent) required as of December 31, 2007 are as follows:

 

| 2008  |   | $       | 110,000 |   |
|-------|--------|---------|---------|--------|
| 2009  |   | 110,000 |    |
| Total |   | $       | 220,000 |   |

 

F-17

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

**NOTE 12— LONG-TERM OBLIGATIONS**

 

## CapitalLease

 

On April 9, 1999,the Company entered into a 20-year capital lease for the land and buildingsrelating to The Gold Rush Hotel and Casino and Gold Digger’s Casino.  Theamount capitalized is based upon:

 

| Present  value of $53,437 monthly payments for 20 years    |   | $         | 5,799,170  |   |
|------------------------------------------------------------|--------|-----------|------------|--------|
| Principal  due on assumed obligations of outstanding debts |   | 8,707,661 |       |
|                                                       |   | $         | 14,506,831 |   |

 

Under this capital lease,the Company is required to make additional rent payments if the net income fromthe Gold Rush and Gold Digger’s casinos exceeds certain thresholds stated inthe lease. Under the terms of this lease the Company is permitted toallocate a portion of its general overhead expenses to these operations whencalculating net income for purposes of determining additional rent due. Todate, the Company has not been required to make additional rent payments.

 

Future minimum lease payments required under thecapital leases as of December 31, 2007, are as follows:

 

| 2008                                     |   | $          | 1,524,273 |   |
|------------------------------------------|--------|------------|-----------|--------|
| 2009                                     |   | 1,265,651  |      |
| 2010                                     |   | 1,111,783  |      |
| 2011                                     |   | 1,077,766  |      |
| 2012                                     |   | 923,396    |      |
| Thereafter                               |   | 5,031,146  |      |
| Total  minimum lease payments            |   | 10,934,015 |      |
| Less  amount representing interest       |   | (3,681,462 | )         |
| Present  value of minimum lease payments |   | 7,252,553  |      |
| Less  current portion                    |   | 890,859    |      |
| Long-term  portion                       |   | $          | 6,361,694 |   |

 

**Crown Bank TermLoan and IGT Note**

 

On October 20, 2005, the Company entered into aterm loan to borrow $2.5 million.  The loan was secured by the majority ofthe Company’s assets.  The interest rate was Prime +1%, not less than7.5%, and the loan was due April 30, 2007.  The loan required twelveequal monthly principal payments of $208,333 beginning April 1, 2006.  The loan was guaranteed by twelveshareholders of the Company, including three principal officers.

 

In October 2006, the Company entered into anamendment of its term loan with Crown Bank.  The agreement was amended toallow the Company to repay the remaining principal in seven equal paymentsbeginning November 1, 2006 through April 30, 2007 as opposed to theoriginal agreement under which the Company would have been required to repaythe remaining principal in five equal principal payments through March 1,2007.  The final payment was made inaccordance with the amendment in April 2007.  As of December 31, 2007 and 2006 theprincipal balance outstanding was $0 and $744,049.

 

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 theprime rate (7.25% at December 31, 2007). As of December 31, 2007 and 2006 the principal balance outstandingwas $239,752 and $354,833.

 

F-18

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

Future minimum principal payments required as of December 31,2007 are:

 

| 2008   |   | $       | 115,081 |   |
|--------|--------|---------|---------|--------|
| 2009   |   | 115,081 |    |
| 2010   |   | 9,590   |    |
|   |   |    |    |
| Total: |   | $       | 239,752 |   |

** **

**NOTE13 —STOCK OPTIONS**

** **

Stock option plans:

 

On July 15, 2004, Southwest Casino and HotelCorp. shareholders approved the Southwest Casino and Hotel Corp. 2004 StockIncentive Plan that had been adopted by the company’s Board of Directorseffective June 1, 2004.  Under the terms of the reorganizationcompleted July 22, 2004, Southwest Casino Corporation assumed the rightsand obligations of Southwest Casino and Hotel Corp. under this plan.  Theplan 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.  The plan was amended with shareholder approval in June 2007,increasing the number of shares of Southwest Casino Corporation common stockreserved for issuance under the plan from 1,500,000 to 3,000,000.  As of December 31, 2007, 925,000 optionswere issued and are outstanding.

 

In addition to the assumption of the 2004 StockIncentive Plan, Southwest Casino Corporation assumed outstanding non-planoptions to acquire shares of Southwest Casino and Hotel Corp. common stock aspart of its reorganization.  The Company assumed obligations in the formof stock options to issue 1,575,000 shares of its common stock at a weightedaverage exercise price of $.62 per share.

 

Valuation and Expense Information under SFAS 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) supersedes the Company’s previous accounting under theprovisions of SFAS No. 123, *Accountingfor Stock-Based Compensation* (“SFAS 123”). As permitted bySFAS 123, the Company measured compensation cost for options grantedbefore January 1, 2006, in accordance with Accounting Principles BoardOpinion (APB) No. 25, *Accountingfor Stock Issued to Employees* and related interpretations.Accordingly, before January 1, 2006 no accounting recognition was given tostock options granted at fair market value until they were exercised. Uponexercise, net proceeds, including tax benefits realized, were credited toequity.

 

The Company adoptedSFAS 123(R) using the modified prospective transition method, whichrequires the application of the accounting standard as of January 1, 2006,the first day of the Company’s fiscal year 2006.

 

Options are granted to employees and directors atprices equal to the market value of the stock on the dates the options aregranted. The options granted have terms of 5 to 10 years from the grant dateand granted options typically vest quarterly over a one to three yearperiod.  The fair value of each option is amortized into compensationexpense over the period the option vests.  We have estimated fair value ofall stock options as of the date of grant applying the Black-Scholes pricingvaluation model.  The application of this valuation model involvesassumptions that are judgmental and sensitive in the determination ofcompensation expense.  The key assumptions used in determining the fairvalue of options during the year ended December 31, 2006 were:

 

| ** **                               | ** ** | **Year Ended  December 31, 2006** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|
| Expected  price volatility               |       | 105% - 112                                       | %          |
| Risk-free  interest rate                 |       | 4.42% - 5.05                                     | %          |
| Weighted  average expected life in years |       | 10 years                                         |       |
| Dividend  yield                          |       | 0                                                | %          |
| Pre-vesting  forfeiture rate             |       | 0                                                | %          |
| Weighted-average  Fair value             |       | $                                                | 0.61       |   |
|                                          |            |                                                  |            |  |

 

No options were granted during the year ended December 31,2007.

 

F-19

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

Historical informationwas the primary basis for the selection of the expected volatility, expecteddividend yield, and the expected lives of the options.  The risk-freeinterest rate was selected based upon yields of U.S. Treasury issues with aterm equal to the expected life of the option being valued.  SFAS 123(R) requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimates.Pre-vesting forfeitures were estimated to be zero for the year ended December 31,2006 based primarily on historical experience.  If pre-vesting forfeituresoccur in the future, the Company will record the benefit related to thoseforfeitures as the forfeitures occur.

 

Status of options:

 

| ** **                                     | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average Exercise  Price** | ** ** | **Weighted  Average  Contractual  Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|-------------------------------------|------------|
| Balance  at December 31, 2005             |       | 1,775,000                |       | $                                          | 0.64       |                                     |       |                                |       |   |
| Granted  (1)                                   |       | 725,000                  |       | $                                          | 0.66       |                                     |       |                                |       |   |
| Forfeited/cancelled/expired                    |       | —                   |       |                                       |       |                                     |       |                                |       |
| Exercised                                      |       | —                   |       |                                       |       |                                     |       |                                |       |
| Balance  at December 31, 2006             |       | 2,500,000                |       | $                                          | 0.65       |                                     |       |                                |       |   |
| Granted                                        |       | —                   |       | $                                          |       |                                     |       |                                |       |
| Forfeited/cancelled/expired                    |       | —                   |       |                                       |       |                                     |       |                                |       |
| Exercised                                      |       | —                   |       |                                       |       |                                     |       |                                |       |
| Balance  at December 31, 2007             |       | 2,500,000                |       | $                                          | 0.65       |                                     |       |                                |       |   |
|                                           |       |                     |       |                                       |       |                                     |       |                                |       |
| Options  outstanding at December 31, 2007 |       | 2,500,000                |       | $                                          | 0.65       |                                     | 5.1 years  |                                | $          | — |   |
| Options  exercisable at December 31, 2007 |       | 2,310,417                |       | $                                          | 0.65       |                                     | 4.8 years  |                                | $          | — |   |

----

| (1) — See Note 19 |
|------------------------|

 

The aggregate intrinsic value in the preceding tablerepresents the total pre-tax intrinsic value, based on Southwest CasinoCorporation closing stock price of $0.364 on December 31, 2007, that theoption holders would have received had all option holders exercised theiroptions as of that date.  As of December 31, 2007, the Company’sunrecognized share-based compensation related to stock options wasapproximately $131,000.  This cost is expected to be expensed over aweighted average period of less than one year. The Company recognized compensation expense during the years ended December 31,2007 and 2006 of $173,416 and $166,703, respectively.

 

Subsequent to December 31,2007, additional options were granted under the 2004 Stock Incentive Plan, seeNote 26.

 

On November 10, 2005, the FASB issued FASB StaffPosition No. FAS 123(R)-3 (“FSP 123(R)”), Transition Election Related toAccounting for the Tax Effects of Share-Based Payment Awards.  FSP123(R)-3 permits the Company to elect from alternative transition methods forcalculating the pool of tax benefits available to absorb tax deficienciesrecognized subsequent to the adoption of FAS 123(R).  No tax benefit hasbeen recorded on the share based compensation expense for the years ended December 31,2007 and 2006.

 

F-20

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

**NOTE 14 — WARRANTS**

 

Status of warrants:

 

| ** **                                         | ** ** | **Warrants  Outstanding** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|----------------------------------------------------|------------|---------------------------|------------|--------------------------------------------|------------|
| Warrants  outstanding as of December 31, 2005 |       | 2,087,500                 |       | $                                          | 0.51       |   |
| Granted                                            |       | 0                         |       |                                       |       |
| Exercised                                          |       | (100,000                  | )          | 0.12                                       |       |
| Cancelled                                          |       | (150,000                  | )          | 0.20                                       |       |
| Warrants  outstanding as of December 31, 2006 |       | 1,837,500                 |       | $                                          | 0.56       |   |
| Granted                                            |       | 4,258,602                 |       | 0.64                                       |       |
| Exercised                                          |       | (150,000                  | )          | 0.20                                       |       |
| Cancelled                                          |       | 0                         |       |                                       |       |
| Warrants  outstanding as of December 31, 2007 |       | 5,946,102                 |       | $                                          | 0.63       |   |

 

As part of the July 22, 2004 reorganization,Southwest Casino Corporation assumed outstanding warrants of Southwest Casinoand Hotel Corp. (predecessor parent company which was reorganized in July 2004with the new parent being Southwest Casino Corporation a public entity, seeNote 1) to acquire 1,187,500 shares of the Company’s common stock of whichwarrants to purchase 387,500 shares with a weighted average exercise price of$0.80 per share remained outstanding as of December 31, 2007.  Thesewarrants expire at various times through July 2009.

 

At December 31, 2007 and 2006, the Company had5,946,102 and 1,837,500 shares of common stock reserved for the exercise ofwarrants that have been granted in connection with debt and equity offeringsand in lieu of cash payment for services provided.  The Company received$30,000 and $12,000 during 2007 and 2006, respectively on the exercise ofwarrants. The warrants expire at various times through 2012.  The Companyhas not computed any value or recognized any expense for those warrants wherethe conditions to exercise were considered unlikely to occur.

 

Sale of UnregisteredSecurities

 

In connection with theSecurities Purchase Agreement (“SPA”) entered into on January 24, 2007 andFebruary 26, 2007, the Company issued warrants to purchase 2,975,293shares of common stock to investors and warrants to purchase and an additional483,309 shares of common stock to the placement agent, see Note 10.

 

Investor Relations Services and Financial ConsultingServices

 

On January 17, 2007,the Company entered into two agreements with Strategic Growth International, Inc.(“SGI”) regarding investor relations and financial consulting services. As partof these agreements, the Company issued to SGI warrants to purchase 800,000shares of Southwest common stock at aprice of $0.63 per share that are exercisable for two years from the date of theagreements.  Beginning January 17,2008, SGI will have the right to require Southwest to file a registrationstatement covering those shares.

 

Southwest has the right to terminate the agreement atthe end of any month of its term during the second year of the agreement.Southwest also agreed to indemnify SGI against certain claims that may arise inconnection with the services provided by SGI under the agreements.

 

The Company reviewed EITF 96-18 “ *Accounting for Equity Instruments That Are Issued toOther Than Employees for Acquiring, or in Conjunction with Selling, Goods orServices* “ in determining the fair value of the warrants. TheCompany valued the warrants based upon the consideration received. The warrantshave been valued at $220,000, which is being amortized to consulting expenseand additional paid in capital quarterly over the term of the serviceagreements.  For the year ended December 31, 2007, $105,417 has beenexpensed.

 

F-21

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

The following is a description of each agreement:

 

·           *Investor RelationsServices:*

 

Underthe terms of a letter agreement accepted January 17, 2007, Southwestretained SGI to assist the company as an investor relations advisor and developa comprehensive financial relations program designed to achieve increasedawareness of Southwest and its business and enhanced liquidity in the publicmarket for the Company’s stock.

 

Southwest agreed to 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 these services. In addition, Southwestissued to SGI a warrant to purchase 100,000 shares of Southwest common stock,see terms of warrant described above.

 

·           *Financial ConsultingServices:*

 

Southwest also entered into an agreement with SGI for financialconsulting services on January 17, 2007 (the “Consulting Agreement”).Under the Consulting Agreement, SGI will assist Southwest in developing astrategy to raise additional capital for gaming projects the company ispursuing and for general working capital. SGI will also help Southwest arrangeand conduct meetings with potential sources of capital and advise Southwestregarding the terms of any proposed financing arrangements.

 

Southwest is topay SGI $8,000 per month for 24 months for the financial consulting servicesprovided under this agreement, however, SGI agreed to waive the monthly fee inexchange for a warrant to purchase 700,000 shares of Southwest common stock,see terms of warrant discussed above.

 

The Company willalso be required to pay an additional consulting fee of $100,000 or $200,000 ifSGI assists the Company in completing equity or debt financing, respectively,that meets standards stated in the agreement. In addition, if the Company issues warrants as part of such a debtfinancing, it will also issue warrants to purchase 100,000 shares of its commonstock to SGI, on the same terms as the warrants issued as part of debtfinancing.

 

**NOTE 15 — PROVISION FOR INCOME TAXES**

 

| ** **     | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| Current        |       |     |       |     |       |
| Federal        |       | $        | —     |     | $          | (683,701 | ) |
| State          |       | —   |       | (88,479  | )          |
| Total Current  |       |     |       | (772,180 | )          |
|           |       |     |       |     |       |
| Deferred       |       |     |       |     |       |
| Federal        |       | —   |       | 89,764   |       |
| State          |       | —   |       | 11,616   |       |
| Total Deferred |       | —   |       | 101,380  |       |
|           |       |     |       |     |       |
| Total          |       | $        | —     |     | (670,800   | ) |
|                |            |          |            |          |            |  |  |

 

A reconciliation of the income tax provision withamounts determined by applying the federal statutory rate to income beforeincome taxes is as follows:

 

| ** **                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Federal  statutory income tax rate |       | 34.0     | %          | (34.0    | )%         |
| State  and local income tax rate   |       | 4.4      | %          | (4.4     | )%         |
| Change  in valuation allowance     |       | (38.4    | )%         | 5.0      | %          |
| Effective  Tax Rate                |       | —   | %          | (33.4    | )%         |

 

F-22

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

The net tax effects of temporary differences betweenthe carrying amounts of assets and liabilities for financial reporting purposesand the amounts used for income tax purposes are reflected in deferred incometaxes. Significant components of the Company’s deferred tax liabilities as of December 31,2007 and 2006 are as follows:

 

| ** **                                    | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-----------------------------------------------|------------|------------|------------|------------|------------|
| Current  deferred tax assets (liabilities)    |       | $          | —     |       | $          | — |   |
| Non-current  deferred tax assets:             |       |       |       |       |       |
| Operating loss and contribution carryforwards |       | 1,718,000  |       | 1,473,000  |       |
| Property and Equipment                        |       | 418,000    |       | 329,000    |       |
| Alternative minimum tax carryforward          |       | 58,000     |       | 58,000     |       |
| Total Deferred                                |       | 2,194,000  |       | 1,860,000  |       |
|                                          |       |       |       |       |       |
| Less  Valuation Allowance                     |       | (2,194,000 | )          | (1,860,000 | )          |
| Net  Deferred Tax Asset                       |       | $          | —     |       | $          | — |   |

 

Property and equipment deferred tax asset includes thedevelopment and pre-opening expenses capitalized for tax purposes in connectionwith the development of the racetrack and card room.

 

As of December 31, 2007, the Company has federaland state net operating loss carryforwards of approximately $4.5 million. Theseoperating losses expire between 2021 and 2027.  The Internal Revenue Codelimits the availability of net operating loss carryforwards to offset futuretaxable income if there has been a “change of ownership” as defined in Section 382of the Internal Revenue Code.  Such a “change of ownership” could betriggered by sales of the Company’s securities by the Company or its shareholders. Additionally, the excess of the alternative minimum tax (“AMT”) over regularfederal income tax is a tax credit, which can be carried forward indefinitelyto reduce future federal income tax liability.  At December 31, 2007,the Company has available $58,000 of AMT credit carryforward.  The incometax rate does not correspond to statutory tax rates due to the difference inthe valuation allowance for deferred tax assets.

 

The Company adoptedStatement of Financial Accounting Standards Interpretation No. 48 “*Accounting for Uncertainty in Income Taxes*”(“Interpretation No. 48) effective January 1, 2007. Interpretation No. 48 clarifies the accounting for uncertain tax positionsin accordance with SFAS 109, “Accounting for Income Taxes.”  Pursuant toInterpretation No. 48, the Company is required to recognize in itsfinancial statements the largest tax benefit of a tax position that is “more-likely-than-not”to be sustained on audit, based solely on the technical merits of the positionas of the reporting date. Only tax positions that meet the “more-likely-than-not”threshold at that date may be recognized.  The term “more-likely-than-not”means a likelihood of more than 50 percent.

 

The Company accounts forinterest and penalties (if any) as interest expense in the Statement ofOperations.

 

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

 

The Company’s tax returnsfor the tax years 2003 through 2006 remain subject to examination by major taxjurisdictions.  However, as the Company has net operating losses fromprior years these tax returns can also be examined once these net operatinglosses 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 as of December 31, 2007 and2006 based upon the uncertainty and ultimate termination of the Company’s managementcontract with the Cheyenne and Arapaho Tribes, see Note 5.  As a result of this evaluation, a tax benefitwas reduced by a comparable valuation allowance for the year ended December 31,2007.  As of December 31, 2007 and 2006 the Company’s deferred taxasset is zero.

 

At December 31,2003, the Company established a deferred tax asset relating to net operatinglosses.  As of December 31, 2005, management evaluated all evidenceand determined that a portion of the deferred tax assets relating to net operatinglosses would be utilized in 2006 based upon forecasted income for the Companyin 2006.  During the year ended December 31, 2006, the Companyrecorded a tax provision to reduce the previously established deferred taxasset.

 

F-23

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

**NOTE 16 — RELATED PARTY TRANSACTIONS**

 

In addition to $140,000 of unpaid bonuses to officers,see Note 24, the Company has a liability to certain officers and stockholdersfor unpaid compensation and expenses of $122,467 as of December 31, 2007and 2006, relating to periods prior to December 31, 2003.  At its meeting on April 26, 2006, theindependent members of the Company’s Board of Directors approved one-timepayments to James Druck, CEO, Thomas Fox, President, and Jeffrey Halpern, VicePresident of Government Affairs, as partial repayments of the Company’soutstanding liabilities for their unpaid salaries, the majority of which isfrom years before 1998.  The Board approved payments of $50,000 to Mr. Druckand Mr. Halpern and $10,000 to Mr. Fox.  The Company made thesepayments to Mr. Halpern on April 28, 2006 and Mr. Druck and Mr. Foxon May 15, 2006.

 

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 private placement of common stockwith accompanying warrants that closed on January 24 and February 26,2007.  See Note 10.

 

During the year ended December 31, 2006, theCompany paid Berc & Fox Limited $17,950 for tax and accountingservices.  North Metro paid Berc & Fox Limited $975 during theyears ended December 31, 2006 for tax services.  The operations ofBerc & Fox were acquired in January 2007 by Virchow Krause,Ltd.  Thomas Fox, our President, is a shareholder and officer in Berc &Fox Limited.  In 2007, as a result of thesale of Berc & Fox Limited, certain furniture and equipment wereacquired from Berc & Fox Limited by the Company in the amount of$25,000.  This amount is included inaccounts payable at December 31, 2007. Subsequent to the year ended December 31, 2007 this furniture andequipment was sold to North Metro for $25,000.

 

As of December 31, 2007 the Company has areceivable due from North Metro of approximately $41,000 for reimbursement ofsalary, benefits and travel.  This amountwas subsequently paid to the Company by North Metro.

 

During the year ended December 31, 2007, theCompany paid Jennifer Sparlin Druck $1,000 for entertainment services at theGold Rush Palladium.  No amounts were paid during 2006.  Ms. Druckis the wife of James Druck, an officer of the Company.

 

**NOTE 17 — PROJECT DEVELOPMENT COSTS**

 

The Company continues to pursue additional gamingopportunities and as a result continues to incur project developmentexpenses.  For the years ended December 31, 2007 and 2006,development expenses were $374,384 and $290,623.

 

**NOTE 18 — SEGMENTED INFORMATION**

 

The Company has grouped its operations into threesegments, Casino Operations, Casino Management and Project Development. The segment Casino Operations includes the Company’s operations in CrippleCreek, Colorado where the Company operates two casinos and an outdooramphitheatre.  In July 2007 the Company disposed of a casino, seeNote 7.  The segment Casino Management relates to our management andconsulting business.  The segment Project Development relates to theCompany’s investments in projects under development including any acquisitionefforts. These include North Metro; see Note 4, and other developmentactivities and their related specific costs. Corporate expenses are included as a reduction in Casino Managementincome.  Corporate expenses have not been allocated to Casino Operationsor Project Development.

 

F-24

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

Segmented information related to the year ended December 31,2007 follows:

 

| ** **                                                                                                                          | ** ** | **Casino  Operations** | ** ** | **Casino  Management** | ** ** | **Project  Development** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|--------------------------|------------|------------|------------|
| Revenues                                                                                                                            |       | $                      | 15,820,631 |                   | $          | 3,716,109                |       | $          | —     |   | $ | 19,536,740 |   |
| Interest  revenue                                                                                                                   |       | 131                    |       | 3,290                  |       | —                   |       | 3,421      |       |
| Interest  expense                                                                                                                   |       | 794,714                |       | 82,871                 |       | —                   |       | 877,585    |       |
| Depreciation &  amortization                                                                                               |       | 1,505,089              |       | 276,481                |       | —                   |       | 1,781,570  |       |
| Impairment  loss, see Note 5                                                                                                        |       |                   |       | 400,435                |       |                     |       | 400,435    |       |
| Segmented  profit (loss) before income taxes                                                                                        |       | 753,554                |       | (823,003               | )          | (1,424,250               | )          | 1,493,699  |       |
| Income  tax expense (benefit)                                                                                                       |       | —                 |       | —                 |       | —                   |       | —     |       |
| Gain on disposition of casino (included in above  segment   profit (loss) before income taxes), see Note 7                          |       | 477,407                |       |                   |       |                     |       | 477,407    |       |
| Write-off of acquisition and financing costs  (included in   above segment profit (loss) before income taxes), see   Note 21        |       |                   |       |                   |       | 613,372                  |       | 613,372    |       |
| Loss of unconsolidated subsidiary, net of tax  benefit   (included in above segment profit (loss) before income  taxes), see Note 4 |       |                   |       |                   |       | 436,494                  |       | 436,494    |       |
| Investment  in unconsolidated subsidiary, see Note 4                                                                                |       |                   |       |                   |       | 7,218,720                |       | 7,218,720  |       |
| Total  segmented assets                                                                                                             |       | 12,294,773             |       | 378,874                |       | 7,221,720                |       | 19,895,367 |       |
| Expenditures  for segmented assets                                                                                                  |       | 342,771                |       | 24,609                 |       | 2,601,194                |       | 2,968,574  |       |
|                                                                                                                                     |            |                        |            |                        |            |                          |            |            |            |  |  |  |  |

 

Segmented information related to the year ended December 31,2006 follows:

 

| ** **                                                                                                               | ** ** | **Casino  Operations** | ** ** | **Casino  Management** | ** ** | **Project  Development** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|--------------------------|------------|------------|------------|
| Revenues                                                                                                                 |       | $                      | 15,609,228 |                   | $          | 5,865,680                |       | $          | —     |   | $ | 21,474,908 |   |
| Interest  Revenue                                                                                                        |       | 659                    |       | 2,190                  |       | —                   |       | 2,849      |       |
| Interest  Expense                                                                                                        |       | 844,465                |       | 359,831                |       | —                   |       | 1,204,296  |       |
| Depreciation &  amortization                                                                                    |       | 1,646,473              |       | 523,517                |       | —                   |       | 2,169,990  |       |
| Segmented  profit (loss) before income taxes                                                                             |       | 91,007                 |       | 2,210,500              |       | (473,496                 | )          | 1,828,011  |       |
| Income  tax expense (benefit)                                                                                            |       | 30,487                 |       | 737,672                |       | (97,359                  | )          | 670,800    |       |
| Loss of unconsolidated subsidiary, net of tax  benefit   (included in above segment profit (loss) before income   taxes) |       |                   |       |                   |       | 182,873                  |       | 182,873    |       |
| Investment  in unconsolidated subsidiary                                                                                 |       |                   |       |                   |       | 5,054,020                |       | 5,054,020  |       |
| Total  segmented assets                                                                                                  |       | 12,942,003             |       | 833,926                |       | 5,079,020                |       | 18,854,949 |       |
| Expenditures  for segmented assets                                                                                       |       | 417,948                |       | 9,707                  |       | 1,000,326                |       | 1,427,981  |       |
|                                                                                                                          |            |                        |            |                        |            |                          |            |            |            |  |  |  |  |

 

Corporate expenses are included as a reduction inCasino Management income.  Corporate expenses have not been allocated toCasino Operations or Project Development.

 

During the years ended December 31, 2007 and 2006we recognized revenues of $3,566,109 and $5,865,680, respectively, included inthe operating segment Casino Management which related to our managementcontract with the Cheyenne and Arapaho Tribes of Oklahoma which terminatedeffective August 17, 2007, see Note 5.

 

**NOTE 19 — BOARD OF DIRECTORS**

 

On January 10, 2006, as part of the Company’scompensation for independent members of its Board of Directors, Southwestgranted non-qualified options to purchase 150,000 shares of its common stock ata price of $0.65 per share to each of the four independent members of its Boardof Directors.  These options vest in 12 equal installments on the last dayof each fiscal quarter of the company over the next three years and remainexercisable for 10 years.  If a director’s service on the Southwest Boardterminates due to mandatory retirement, the option will continue to vest andremain exercisable for the full 10 years.  If a director’s serviceterminates due to death or disability, the option will remain exercisable, tothe extent vested at the time service terminated, for 12 months.  If adirector’s service terminates for any other reason, the option 

 

F-25

----

 

**SOUTHWEST CASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2007 AND 2006**

 

will remain exercisable, to the extent vested at thetime service terminated, for 90 days. If a change in control of Southwestoccurs, as defined in the Company’s 2004 Stock Incentive Plan, the option willimmediately vest in full and remain exercisable for the entire 10-year term.

 

Subsequent to December 31,2007, additional options were granted, see Note 26.

 

On January 10, 2006, the Board of Directorsestablished an Audit Committee and elected David Abramson, Jim Holmes, andGregg Schatzman to serve on the Committee.  The Board of Directors electedDavid Abramson as Chair of its Audit Committee.  Mr. Abramsonreceived an option to purchase 75,000 shares of common stock, on the same termsas described in the preceding paragraph, in consideration of his service asAudit Committee Chair.

 

On February 1, 2006, the Board of Directorsestablished a Compensation Committee and a Nominating Committee.  On November 5,2007 the Board broadened the Nominating Committee’s responsibilities andrenamed it Governance and Nominating Committee. The Board elected GusChafoulias and David Abramson as its members and elected Gus Chafoulias as itsChair. The Board elected Jim Holmes and Gregg Schatzman to serve on theCompensation Committee and elected Gregg Schatzman as its Chair.

 

**NOTE 20 — FAIR VALUE OF FINANCIALINSTRUMENTS**

 

The Company believes it is not practical to estimatethe fair value of its investment in North Metro because there is no establishedmarket for these securities and it is inappropriate to estimate future cashflows because they are dependent on the ability of North Metro to develop,construct and then generate earnings from the operation of its proposed harnesstrack and card room.  There were no other financial instruments with significantdifferences between the carrying amount and the fair value due to the shortmaturity of the instruments.

 

**NOTE 21 — ACQUISITION AND FINANCINGCOSTS**

 

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”).  Under the Asset Purchase Agreement,Southwest Eagle had agreed to acquire the operating assets and lease the realproperty of the Double Eagle Hotel and Casino and Gold Creek Casino in CrippleCreek, Colorado (collectively, the “Double Eagle”).

 

On April 13, 2007, Southwest Casino Corporationand its wholly-owned subsidiary Southwest Eagle notified Pinnacle thatSouthwest had elected to terminate the Asset Purchase Agreement betweenSouthwest Eagle and Pinnacle dated December 18, 2006 and all relatedagreements.

 

Southwest terminated the Asset Purchase Agreement inresponse to notice Southwest received on April 10, 2007 from Pinnacle thatthe separate Stock Purchase Agreement under which Pinnacle was to acquire allof 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 was also unable to perform itsobligations under the Asset Purchase Agreement with Southwest Eagle.  TheCompany incurred $126,650 of transaction costs specific to this acquisition.

 

The Company also incurred financing costs with alender in the amount of approximately $461,722.  These financingcosts were initially associated with the financing of the Company’s efforts toacquire the Double Eagle, which ceased effective June 30, 2007, butnegotiations then continued for alternate financing.  As a result of the termination of themanagement agreement with the Cheyenne and Arapaho Tribes of Oklahoma,effective August 17, 2007, the financing contemplated with this lender didnot occur and the arrangement was terminated.

 

In October 2007, the Company incurred additionalfinancing costs of $25,000, see Note 10.

 

The Company wrote-off amounts related to theacquisition described above and financing costs of $613,372 included as aseparate line item within Other Income (Expense) in the Consolidated Statementof Operations for the year ended December 31, 2007.

 

**NOTE 22 — SETTLEMENT AGREEMENT**

 

On February 15, 2006, the Company entered into aSettlement and Release Agreement with MBC Global, LLC.  Under the terms ofthe Settlement and Release Agreement, the Company paid MBC $66,000 that theCompany had previously agreed it owed to MBC under a terminated advisoryservices agreement and the Company and MBC released each other from all claimsraised in an arbitration proceeding initiated by MBC in September 2005. The Company did not release MBC from any potential liability related to itsactions on behalf of the Company in its 2004 sale of convertible notes andcorporate reorganization, and MBC did not release any rights to indemnificationit may have under the terminated advisory agreement.

 

F-26

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2007 AND 2006**

 

**NOTE 23— REDEMPTION OF SECURITIES**

 

The Company redeemed 357,000 shares of common stock inaccordance with Article XI of the Company’s Articles of Incorporationeffective January 22, 2007.  The shares were redeemed at a price of$0.90 per share based upon the closing stock price of the Company’s commonstock as reported on January 22, 2007.  The Company recorded theredemption as a reduction to stockholders’ equity for the buy back ofshares.  The shares of common stock are included in Treasury Stock in theConsolidated Statements of Changes in Stockholders’ Equity as of December 31,2007.

 

**NOTE 24 — COMMITMENTS ANDCONTINGENCIES**

 

In 2004, the Company purchased player trackingsoftware and slot accounting software from IGT.  On December 29,2005, the Company entered into an agreement with IGT to finance $460,324 of thepurchase price for this system over 48 months with interest rate equal to theprime rate, which was 7.25% at December 31, 2007 (see Note 12).  Inaddition, the Company agreed to purchase additional software for $200,000,which will allow the Company to offer bonusing to its customers.  Thepurchase is contingent upon IGT receiving necessary approvals for the bonusingsystem from the Colorado Division of Gaming.

 

Under the Company’s employment agreements with JamesB. Druck, CEO, Thomas E. Fox, President and COO, and Jeffrey S. Halpern, VicePresident of Government Affairs, which were effective July 1, 2004, theseexecutives can elect to continue their employment in a reduced capacity, withcontinuing medical benefits and a salary equal to their base pay at the time oftermination for 12 months and not less than $25,000 after 12 months if theCompany terminates the executive’s employment without cause or in connectionwith a change in control of the Company (as defined in the employmentagreement) or if the executive terminates his employment with the Company forgood cause (as defined in the employment agreement).  The initial term ofthese agreements expired July 1, 2006, after which the agreement renewedand will continue to renew automatically for additional one-year terms unlessterminated.

 

The Company has entered into employment agreementswith certain other key employees of the Company. The agreements provide forcertain benefits to the employee as well as severance if the employee isterminated without cause or due to a “constructive termination” as defined inthe agreements.  The severance amounts depend upon the term of theagreement and can be up to six months of base salary and bonus.

 

Bonuses:

 

On March 27, 2007 the board of directors approvedperformance bonuses to officers and employees of the Company in the amount of$385,000, which amount was recorded as an expense effective that date.  Ofthat amount, the Company has paid $210,000 during theyear ended December 31, 2007. Bonuses in the amount of $175,000 were to be paid on or after July 1, 2007when management determines the Company has sufficient financial resources forpayment.  Unpaid bonuses in the amount of $175,000 are reflected as aliability at December 31, 2007.

 

LegalMatters:

 

*AllegedBreach of Gaming Management Agreement*

 

On July 24, 2007,the Governor of the Cheyenne and Arapaho Tribes of Oklahoma delivered notice toSouthwest that on July 13, 2007 he had initiated an arbitration proceedingagainst Southwest for alleged breach of the Third Amended and Restated GamingManagement Agreement under which Southwest then managed two casinos for theTribes.  On November 2, 2007,Southwest filed a counterclaim in this proceeding alleging a breach of theGaming Management Agreement by the tribal Governor. The three-memberarbitration panel for this proceeding was appointed in February 2008.  A scheduling conference with the arbitrationpanel occurred on March 11, 2008. Preliminary pleading documents are to besubmitted to the arbiters during April 2008. 

 

In the arbitrationdemand, the Governor alleged that Southwest breached the management agreementby interfering with or attempting to influence internal affairs or governmentaldecisions of the Tribes in connection with Southwest’s efforts to extend itsgaming management relationship with the Tribes, which terminated on August 17,2007. The Governor sought termination of the agreement and $10 million indamages.  Southwest does not believe ithas improperly interfered wiath or attempted to influence internal governmentaldecisions of the Tribes and Southwest intends to vigorously defend itself inthis arbitration proceeding. Under its Gaming Management Agreement with theTribes, Southwest was permitted to oppose, publicly or privately, any action bythe Tribes that Southwest believes is not in the best interest of the Tribalgaming operations. Southwest believes that all of the actions it has taken onbehalf of the gaming operations it managed or as part of its efforts to extendits gaming management relationship with the Tribes are consistent with thatprovision.

 

F-27

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2007 AND 2006**

 

In its counterclaim,Southwest alleges that the Governor of the Tribes breached the ManagementAgreement by refusing to negotiate in good faith for an extension and expansionof the gaming management relationship between Southwest and the Tribes.  Southwest asserts that the ManagementAgreement required the Tribes to negotiate this extension and expansion afterSouthwest led the Tribes’ successful efforts to negotiate and enter into acompact for expanded gaming with the State of Oklahoma in April 2005.

 

The Company does not expect any material adverseconsequence from this action. Accordingly, no provision has been made in thefinancial statements for any such losses.

 

# ***Theft and Distribution of Surveillance Video from Lucky StarClinton casino***

# ** **

On August 24, 2007,Southwest Casino and Hotel Corp., as exclusive manager of the Lucky Starcasinos of the Cheyenne and Arapaho Tribes of Oklahoma filed a lawsuit againstDoris Thunderbull, Darrell Flyingman, in his individual capacity, and John DoesNo. 1 and 2 alleging theft (conversion) of confidential surveillance videofrom the Lucky Star — Clinton casino and subsequent copyright infringement anddefamation in connection with the posting of the stolen video on the websiteYouTube.com and widespread distribution of DVDs containing the video bymail.  Southwest initially sought an emergency temporary restraining orderbarring further distribution of the video. That request was denied on August 27,2007 and Southwest withdrew its request for restraining order on September 24,2007.  Southwest continues to pursue claims for conversion, copyrightinfringement, and tortuous interference with contract, defamation, andconspiracy against the defendants.

 

On January 14, 2008,the Mr. Flyingman, as Governor of the Tribes, filed a declaratory judgmentaction in Cheyenne and Arapaho Trial Court asserting that the Tribes, notSouthwest owned the surveillance footage and the copyright in it.  Southwest filed an answer to the complaintasserting the tribal court did not have jurisdiction and a motion to compelarbitration of the matter on February 15, 2008.

 

On February 13,2008, the Federal District Court issued a stay of the proceedings before theFederal Court pending resolution of the Tribal court proceeding.

 

Other:

 

The Company is involved in various claims, legalactions and complaints arising in the ordinary course of business.  In theopinion of management, any losses that may occur from these matters areadequately covered by insurance or are provided for in our financialstatements, and the ultimate outcome of these other matters will not have amaterial effect on our financial position or results of operations.

 

**NOTE 25 — MANAGEMENT CONTRACT WITHOTOE-MISSOURIA TRIBE OF INDIANS**

 

Southwest entered into a Gaming Management Agreementwith the Otoe-Missouria Tribe of Indians under which Southwest was to managethe Tribe’s Seven Clans Paradise Casino in Red Rock, Oklahoma, on March 24,2006.  The Otoe-Missouria Tribe submitted the Gaming Management Agreementto the National Indian Gaming Commission, which must approve it before it canbe effective, on April 10, 2006.   In response to comments fromthe NIGC, Southwest and the Tribe submitted a revised agreement to the NIGC in August 2006. The NIGC provided additional comments on and requested additional changes tothe management agreement on September 15, 2006.  The Tribe did notrespond to the NIGC or to Southwest’s efforts to complete a revised managementagreement.

 

On July 11, 2007, the NIGC delivered a letter toSouthwest and the Chairman of the Tribe requesting that we submit a revisedmanagement agreement or withdraw the request for approval of the currentagreement within 30 days.  Southwest met with representatives of the Tribe’sEconomic Development Authority (“OMDA”) on August 6, 2007 and discussedthe status of the management agreement.  The OMDA told the Company they donot intend to go forward with the management agreement and as such the Companyhas withdrawn the request for NIGC review of this management agreement. TheCompany continues to seek reimbursement from the Otoe-Missouria of expensesincurred by Southwest while working with the Tribe in 2006.  In accordance with Statement of FinancialAccounting Standards No. 5 “*Accounting forContingencies*” the potential reimbursement if it is received will berecorded in the period it is received.

 

**NOTE 26 — SUBSEQUENT EVENTS**

 

Crown Bank Loan:

 

On March 7, 2008, the Company entered into a series of eightpromissory notes with Crown Bank of Minneapolis, Minnesota.  Under the Notes, Crown Bank loaned theCompany an aggregate $1.55 million.  Eachof the Notes accrues interest at a floating rate of prime plus 1.5 percent,with a minimum interest rate of 7.0 percent (currently 7.0%).  Under the Notes, the Company will makemonthly payments of interest only until January 11, 2009.  Beginning February 11, 2009, the Companywill repay the outstanding principal balance and accrued interest in 

 

F-28

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**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2007 AND 2006**

 

12 equal monthly installments with the final payment due January 11,2010.  The Company may prepay anyoutstanding amounts under the Notes at any time without premium or penalty.

 

Eachof the Notes is co-signed by a shareholder of the Company.  Each of these co-signers is fully obligatedto Crown Bank and individually liable for the principal amount and any accruedand unpaid interest and costs outstanding under the co-signed note.  As a condition to entering into the Notes,Crown Bank required James Druck, Chief Executive Officer, Thomas Fox, Presidentand Chief Operating Officer, and Jeffrey Halpern, Vice President of GovernmentAffairs of the Company to increase their previously existing $150,000 personalguarantees of the Company’s outstanding $450,000 line of credit to $250,000 andextend those guarantees to cover both the line of credit and the promissorynotes through their respective repayment terms.

 

The promissorynotes contain customary events of default, including, without limitation,payment defaults, insolvency or bankruptcy, death or incompetency of aco-signer, business termination, misrepresentation, monetary judgment defaultsand other material changes.

 

Inconsideration of co-signing the promissory notes or increasing and extendingpersonal guarantees to cover the promissory notes, the Company issued five-yearfully exercisable warrants to purchase an aggregate of 2,300,000 shares of itscommon stock at an exercise price of $0.39 per share to the shareholderco-signers and Mr. Druck, Mr. Fox and Mr. Halpern.  Each co-signer received a warrant to purchaseone share of Southwest Casino Corporation common stock for each $1.00 inprincipal amount of the promissory note co-signed by that shareholder.  In consideration of the increase in theamount and extension of the term of their respective guarantees, Mr. Druck,Mr. Fox and Mr. Halpern each received warrants to purchase one shareof Southwest Casino Corporation common stock for each $1.00 of guarantee, or250,000 shares.  The $0.39 per shareexercise price of these warrants represented the average closing market priceof one share of Southwest Casino Corporation’s common stock over the 5 tradingdays preceding the closing of the loan transaction.  Warrant holders also received the right tohave the shares of Southwest Casino Corporation common stock purchasable uponexercise of their warrants included in any registration statement thatSouthwest Casino Corporation may file in the future (“piggy-back rights”) underthe terms of a separate Registration Rights Agreement dated March 7, 2008.

 

In further considerationof co-signing the promissory notes, the Company also entered into a PledgeAgreement with the co-signers and guarantors under which it pledged its sharesof Southwest Casino and Hotel Corp. to the co-signers and guarantors to secureany liabilities or obligations they may incur under the promissory notes.  The co-signers’ and guarantors’ right torecovery under the Pledge Agreement is limited to the actual costs paid by theco-signers or guarantors and subject to a prior security interest in the membershipinterests of North Metro Harness Initiative, LLC that Southwest Casino &Hotel owns, as well as the terms of the North Metro Harness Initiative, LLCMember Control Agreement.

 

TheCompany, the co-signers, and Messrs. Druck, Fox and Halpern also enteredinto a Contribution Agreement dated March 7, 2008.  Under the Contribution Agreement, the Companyagreed to reimburse to any co-signer or guarantor any amount paid in connectionwith the promissory notes for reason other than Southwest’s inability topay.  If Southwest is unable to repay thenotes, each of the co-signers and Mr. Druck, Mr. Fox and Mr. Halpernagreed in the Contribution Agreement to indemnify each other so that anypayments made by co-signers or guarantors will be made in proportion to theoriginal principal amount of the promissory note co-signed or personalguarantee given to the total amount of all promissory note and loan guarantees.

 

TheCompany intends to use the proceeds from the loan transaction for generalworking capital, including additional membership contributions to North MetroHarness Initiative, LLC if required under the terms of the constructionfinancing for that facility or agreed to between the members of North MetroHarness Initiative.  The Company hasreserved from the proceeds of the loan $96,875 to make the estimatedinterest-only payments due under the notes through January 11, 2009.  The Company will record the transaction inthe first quarter of fiscal year 2008, which will include a valuation of thewarrants given in connection with the debt financing.  The Company is in the process of valuing thewarrants.

 

Other:

 

During January and February 2008,the Company pursued a financing alternative to the Crown Bank loan discussedabove. The Company was unable to agree upon the terms with the lender andthe company ultimately chose not to continue negotiations with the lender. TheCompany incurred costs in connection with this financing of approximately$200,000 that will be expensed during the first quarter of fiscal year 2008.

 

Option grant to employees, directors and consultant:

 

On March 20,2008, the Board of Directors awarded options to purchase an aggregate of1,192,500 shares of the Company’s common stock to executive officers andemployees of the Company.  All of theoptions were granted under the Company’s 2004 Stock Incentive Plan.  The options have a 10-year term and anexercise price $0.48 per share, the closing market price for one share of theCompany’s common stock on 

 

F-29

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**SOUTHWESTCASINO CORPORATION**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2007 AND 2006**

 

thedate of grant.  The options wereimmediately exercisable with respect to 25% of the shares awarded and becomeexercisable with respect to the remaining shares in equal installments on thelast day of each fiscal quarter over a three-year period.

 

Alsoon March 20, 2008, the Board of Directors granted options to purchase675,000 shares of the Company’s common stock to the independent members of theBoard.  These options were also grantedunder the Company’s 2004 Stock Incentive Plan. The options have a 10-year term and an exercise price $0.48 per share,the closing market price for one share of the Company’s common stock on thedate of grant.  The options becomeexercisable in equal installments on the last day of each fiscal quarter beginningon the last day of the fourth quarter of 2008 (the first quarter after theoptions granted to our independent directors on January 10, 2006 are fullyvested), over a three-year period.

 

TheBoard of Directors awarded two non-qualified options to purchase 50,000 sharesof Southwest common stock each to a consultant to the company on March 20,2008.  These options are also grantedunder the company’s 2004 Stock Incentive Plan, have a 10-year term, and anexercise price of $0.48 per share.  Theseoptions become exercisable upon Southwest’s achievement of certain goalsrelated to the services provided by the consultant to Southwest.

 

TheCompany is in the process of valuing the options granted March 20, 2008and will disclose and begin to recognize that value in its financial statementsfor the first quarter of 2008.

 

CrownBank Line of Credit:

 

As aresult of securing the financing described above, the Company repaid the$450,000 outstanding under the line of credit from Crown Bank on March 25,2008, see Note 8.

 

F-30

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**Item 8.            CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.**

 

None.

 

**Item 8A(T).    CONTROLS AND PROCEDURES.**

 

**Management’s Report on InternalControl over Financial Reporting**.

 

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) ofthe Securities Exchange Act of 1934.  Our internal control system wasdesigned to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial reporting and the preparation offinancial statements for external purposes, in accordance with generallyaccepted accounting principles.  Because of its inherent limitations,internal control over financial reporting may not prevent or detectmisstatements.  Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

Our management, including our Chief Executive Officer,who serves as our principal executive officer, and our President and ChiefOperating Officer, who serves as our principal financial officer, conducted anevaluation of the effectiveness of internal control over financial reportingusing the criteria set forth by the Committee of Sponsoring Organizations ofthe Treadway Commission in Internal Control — IntegratedFramework.  Based on its evaluation, our management concluded thatour internal control over financial reporting was effective as of December 31,2007.

 

This Annual Report does not include an attestationreport of our registered public accounting firm regarding internal control overfinancial reporting.  Management’s report was not subject toattestation by our registered public accounting firm pursuant to temporary rules ofthe Securities and Exchange Commission that permit us to provide onlymanagement’s report in this Annual Report.

 

There have not been any changes in our internalcontrol over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act) that occurred during thefiscal quarter ended December 31, 2007 that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

This report shall not be deemed to be filed forpurposes of Section 18 of the Securities Exchange Act of 1934, orotherwise subject to the liabilities of that section, and is not incorporatedby reference into any filing of the Company, whether made before or after thedate hereof, regardless of any general incorporation language in such filing.

 

**Changes in Internal Control OverFinancial Reporting**

 

During our last fiscal quarter of 2007, there was nochange in our internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

**Item 8B.         OTHERINFORMATION.**

Not applicable.

 

22

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### **PART III**

### ** **

**Item 9.**            DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS, ANDCORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGEACT.

 

Our directors and executive officers, their ages andthe offices they held with Southwest Casino Corporation, as of March 12,2008, are as follows:

 

| **  Name** | ** ** | **Age** | ** ** | **Position**                                        |
|----------------------|------------|---------|------------|-----------------------------------------------------|
| James B. Druck       |       | 66      |       | Chief Executive  Officer and Director               |
|                 |       |    |       |                                                |
| David H.  Abramson   |       | 66      |       | Director                                            |
|                 |       |    |       |                                                |
| Gus A.  Chafoulias   |       | 72      |       | Director                                            |
|                 |       |    |       |                                                |
| Jim Holmes           |       | 65      |       | Director                                            |
|                 |       |    |       |                                                |
| Gregg P.  Schatzman  |       | 54      |       | Director                                            |
|                 |       |    |       |                                                |
| Thomas E. Fox        |       | 60      |       | President and  Chief Operating Officer              |
|                 |       |    |       |                                                |
| Jeffrey S.  Halpern  |       | 65      |       | Vice President  of Government Affairs and Secretary |
|                 |       |    |       |                                                |
| Brian L. Foster      |       | 39      |       | Vice President  of Native American Operations       |
|                 |       |    |       |                                                |
| Tracie L. Wilson     |       | 41      |       | Chief Financial  Officer                            |

 

*James B. Druck*.  Mr. Druck joined theSouthwest Casino Corporation Board of Directors and was appointed as our ChiefExecutive Officer and Secretary on July 22, 2004 in connection with theclosing of the reorganization in which Southwest Casino and Hotel Corp. becamea wholly-owned subsidiary of Southwest Casino Corporation (formerly Lone MooseAdventures).  Mr. Druck has been a director of Southwest Casino andHotel Corp. since its inception.  He served as President of SouthwestCasino and Hotel Corp. from October 1992 until June 2004, at whichtime he became the Chief Executive Officer of Southwest Casino and HotelCorp.  From 1967 until April 1993, Mr. Druck was an attorney inprivate practice in Minneapolis, Minnesota.  His practice focusedprimarily in the areas of real estate development and finance.

 

*Thomas E. Fox*.  Mr. Fox was elected to theSouthwest Casino Corporation Board of Directors and appointed as our President,Chief Operating Officer, and Chief Financial Officer on July 22, 2004 inconnection with the closing of the reorganization in which Southwest Casino andHotel Corp. became a wholly-owned subsidiary of Southwest CasinoCorporation.  Mr. Fox resigned from our Board of Directors on December 7,2005 in connection with the election of four new independent directors.  Mr. Foxresigned his position as Chief Financial Officer in June 2006 inconnection with the hiring of our new CFO.  Mr. Fox has been aCertified Public Accountant since November 1969.  He began his careerwith Arthur Andersen & Co. in June 1969, and was promoted to taxmanager in June 1973.  In September 1976, Mr. Foxco-founded the accounting firm of Berc & Fox, Limited.  He joinedSouthwest Casino and Hotel Corp. as Chief Financial Officer in November 1993and was appointed to the Board of Directors of Southwest Casino and Hotel Corp.in January 2000.

 

*Jeffrey S. Halpern*.  Mr. Halpern has served asour Vice President of Government Affairs and Secretary since November 21,2005.  Mr. Halpern was appointed Chairman of the Southwest CasinoCorporation Board of Directors on July 22, 2004 in connection with theclosing of the reorganization in which Southwest Casino and Hotel Corp. becamea wholly-owned subsidiary of Southwest Casino Corporation.  He resignedfrom his position as Chairman of the Board of Directors on December 7,2005 in connection with the election of four new independent boardmembers.  Mr. Halpern had been a director of Southwest Casino andHotel Corp. since its inception in 1992.  He served as Chairman of theBoard and Chief Executive Officer of Southwest Casino and Hotel Corp. from October 1992until June 2004.  Mr. Halpern also serves currently as adirector and Vice President of Government Affairs and Secretary of SouthwestCasino and Hotel Corp.  From 1967 until July 1993, Mr. Halpernwas an attorney in private practice in Minneapolis, Minnesota. His practicefocused primarily in the areas of corporate finance and securities.

 

*Brian L. Foster*.  Brian Foster is our VicePresident of Native American Operations and managed our Native American gamingoperations in Oklahoma.  In addition to these titles, Mr. Foster wasthe General Manager of the Lucky Star Casino, an enterprise of the Cheyenne andArapaho Tribes of Oklahoma from 1995 to August 17, 2007.  Mr. Fosterwas also the Chairman of the Oklahoma Indian Gaming Association from 2003 to2007 and served as that organization’s Vice Chairman in 2000 and 2001.

 

*Tracie L. Wilson*.  Tracie Wilson joined Southwest onJune 7, 2006 as our Chief Financial Officer.  Ms. Wilson hasalso served as Chief Financial Officer of Southwest Casino and Hotel Corp.since June 7, 2006.   Before joining Southwest, Ms. Wilsonserved as a consultant to 

 

23

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and, most recently, as the Director of FinancialReporting for Lakes Entertainment, Inc. where she had worked since January 2005. From December 1999 through December 2004, Ms. Wilson heldpositions as Director of Finance and as Vice President of Finance and Treasurerof Netco Communications Corporation, a global network information technologycompany.  Before joining Netco Communications, Ms. Wilson served as aCPA in the public accounting firms of Grant Thornton LLP and Deloitte &Touche LLP from 1989 to 1999. Ms. Wilson is a Certified Public Accountant(inactive license holder) and received a Bachelor of Science in Business fromthe University of Colorado.

 

*David H. Abramson*.  David Abramson joined theSouthwest Board of Directors on December 7, 2005 and was elected to chairits Audit Committee on January 10, 2006.  He is also a member of theBoard’s Nominating Committee.  Mr. Abramson is the Chairman and CEOof David Abramson & Associates, LLC, a retained executive search andleadership development firm he founded in January 2002.  Immediatelybefore founding David Abramson & Associates, he was a Senior VicePresident of AXA Financial/Equitable Life Insurance and the Chairman and CEO ofGrant Thornton Advisors, a joint venture of AXA Financial/Equitable LifeInsurance and Grant Thornton, LLP, from January to December 2001. Before this, Mr. Abramson had an extensive career at Grant Thornton,certified public accountants, beginning in 1967 during which he was a member ofthe National Leadership and Senior Management Team and the Managing Partner ofand an audit partner in the Minneapolis office.  Among many boardmemberships, Mr. Abramson has been the Chairman of Board of Directors ofthe Minneapolis Chamber of Commerce, President and Board member of theMinnesota Society of Certified Public Accountants, Chairman and board member ofthe Minnesota Cooperation Office for Job Creation, and a member of theGoverning Council of the American Institute of CPAs.  Mr. Abramsonholds a B.S. in Accounting from the Carlson School of Management and an MBAfrom the University of Michigan.

 

*Gus A. Chafoulias*.  Gus Chafoulias joined toSouthwest’s Board of Directors on December 7, 2005 and was elected chairof its Nominating Committee on February 1, 2006.  He is also a memberof the Board’s Compensation Committee.  Mr. Chafoulias is Chairman ofthe Board of Chafoulias Management Company, where he has worked since1987.  Mr. Chafoulias has developed more than 3 million square feetof apartments and commercial space during more than 40 years in the developmentbusiness.  One of Mr. Chafoulias’ liquor stores, which Mr. Chafouliashas owned and operated since 1957, has been voted as a top ten liquor retailerin the United States.  Mr. Chafoulias is also a United Way Alexis deTocqueville Society member, Leadership 100 board member, and Blue Cross BlueShield Champions of Health award winner.  He has served on numerous boardsof directors including the Rochester (MN) Chamber of Commerce, DiversityCouncil, U.S. Bank, Medvision, and Comfortex, Inc.  In addition toSouthwest, Mr. Chafoulias currently serves on the boards of JaguarCommunications and Festival Airlines.

 

*Jim Holmes.* Jim Holmes was elected a Director ofSouthwest on December 7, 2005 and serves on the Board’s Audit Committeeand Compensation Committee.  Mr. Holmes is a 1965 graduate of WestPoint’s U.S. Military Academy and has a master’s degree in law enforcementadministration from Central Missouri State University.  Mr. Holmeshas significant experience on both the regulatory and business sides of thegaming industry.  Since 1991, Mr. Holmes has been President of JimHolmes and Company and, beginning in 1987, has acted as a national andinternational gaming consultant for lottery operations, bingo projects, casinosand Indian gaming, specializing in start-up operations and risk analysis. In addition, from March 2005 to October 2005 Mr. Holmes was anExecutive Vice President for Cadillac Jack, Inc., a slot machinemanufacturer, and from February 2001 to January 2004, Mr. Holmeswas president of API Technologies, LLC.  From January 2000 to January 2001,Mr. Holmes was Executive Vice President of Sierra Design Group.  In1985, Mr. Holmes was appointed by then Governor Ashcroft as the firstExecutive Director of the Missouri Lottery.  Before working to establishthe Missouri Lottery, he spent 15 years with the FBI in Missouri as both aSpecial Agent and Supervisor.

 

*Gregg P. Schatzman*.  Gregg Schatzman joined Southwest’sBoard of Directors on December 7, 2005.  He also serves on the Board’sAudit Committee and Compensation Committee, which he chairs.  Mr. Schatzmanhas in-depth experience as both a regulator and an operator in the gamingindustry.  Mr. Schatzman has been the Managing Director of Schatzman &Associates, LLC, which provides consulting services to gaming companies and lawfirms regarding casino operations and regulatory issues, since June 2003. From March 2003 to June 2003, he was a partner and owner of CastawaysHotel and Casino in Las Vegas, Nevada and owned and worked as Executive VicePresident of VSS Enterprises, LLC, from March 1999to May 2003.  Mr. Schatzman’s 13 years in casino operationsincluded work as an Executive Vice President of Primadonna Resorts, Inc.;a Vice President and General Manager for Ameristar Casinos and Vice Presidentand General Manager for Gem Gaming and worked with Trump casinos.  Beforejoining the business side of the gaming industry, Mr. Schatzman spent 10years as a gaming regulator with the Nevada Gaming Control Board, rising fromFinancial Investigator to Chief of Investigations.  As Chief ofInvestigations, Mr. Schatzman supervised the work of the 80 agents in theInvestigations and Corporate Securities Divisions of the Gaming Control Board.

 

Each of Mr. Abramson, Mr. Chafoulias, Mr. Holmesand Mr. Schatzman has been determined to be “independent” under the rules ofthe Nasdaq stock market.

 

**FamilyRelationships**

 

No family relationships exist among our directors andexecutive officers.

 

24

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**Legal Proceedings**

 

To the knowledge of ourmanagement, during the past five years, no present or former director, personnominated to become a director, executive officer, promoter or control personof our company, except as disclosed below:

 

·                  was a general partner or executive officer ofany business by or against which any bankruptcy petition was filed, whether atthe time of such filing or two years prior the filing;

 

·                  was convicted in a criminal proceeding ornamed the subject of a pending criminal proceeding (excluding trafficviolations and other minor offenses);

 

·                  was subject to any order, judgment or decree,not subsequently reversed, suspended or vacated, of any court of competentjurisdiction, permanently or temporarily enjoining, barring, suspending orotherwise limiting his or her involvement in any type of business, securitiesor banking activities.

 

·                  was found by a court of competentjurisdiction in a civil action, or by the Securities and Exchange Commission orthe Commodity Futures Trading Commission to have violated federal or statesecurities or commodities law, and the judgment has not been subsequentlyreversed, suspended, or vacated.

 

*PriorBankruptcy Proceeding of Subsidiary*

 

James B. Druck, Jeffrey S.Halpern and Thomas E. Fox are Managers of Gold Rush I, LLC, a Colorado limitedliability company and a wholly-owned subsidiary of Southwest Casino and HotelCorp.  In August 2001, Cripple Creek Development Corp., a Coloradocorporation, Blue Building Development, Inc., a Wyoming corporation, MarkBrockley, an individual, and Annesse Brockley, an individual, initiated alawsuit against Gold Rush I, LLC, and Southwest Casino and Hotel Corp. inDistrict Court, Teller County, Colorado (01-CV-156).  The plaintiffalleged that the defendants failed to pay certain obligations to the plaintiffsunder the terms of their lease agreement and breach of contract.  Thelease included a provision that capped the maximum monthly amount required tobe paid to Mr. Brockley’s creditors.  In the early years of theoperation, Mr. Brockley’s obligations to creditors far exceeded this capand Southwest paid these obligations as they came due.  Under the lease,Southwest set off against current rent the amount of the excess payments. In the lawsuit, Mr. Brockley sought to evict Gold Rush I from the premisesfor failing to pay amounts claimed to be owed under the Lease.  Gold RushI responded by denying any failure to pay.

 

Before an evidentiaryhearing in this lawsuit was completed, Gold Rush I filed a voluntary petitionfor reorganization under Chapter 11 of the United States Bankruptcy Code in theBankruptcy Court for the District of Minnesota (Case No. 01-33755) toensure that we did not lose possession of the premises while the underlyingclaims were litigated.  On October 15, 2001, the Colorado DistrictCourt entered an Order in which it found (a) that Gold Rush I was not indefault under the lease, (b) that Gold Rush I had made payments in excessof the monthly caps provided in the lease (which overpayments the courtsubsequently quantified at $554,362.09), and (c) that GoldRush I was entitled to offset theoverpayments against rent and other payments due under the terms of thelease.  Mr. Brockley appealed the Colorado District Court’s Order tothe Colorado Court of Appeals, which dismissed the appeal on May 21,2002.  After successfully defending the lawsuit brought by its landlord,Gold Rush I emerged from bankruptcy on January 10, 2003, when theBankruptcy Court confirmed its reorganization plan, which provided for fullpayment to all creditors, with interest.

 

*ColoradoRegulatory Proceeding*

 

In June 2004, SouthwestCasino and Hotel Corp. paid a $50,000 fine by the Colorado Division of Gamingfor failure to properly maintain and review statistical data on slot machineperformance after receiving a warning letter regarding this deficiency andfailing to comply with its agreement to correct the deficiency.  SouthwestCasino and Hotel Corp. paid the full amount of the fine.  As part of theseproceedings, James Druck, in his capacity as manager of the facility inquestion, without any admission of guilt, agreed to take the necessary steps toensure Southwest Casino and Hotel Corp.’s compliance in this matter and,further, agreed to pay $5,000 to the Limited Gaming Fund to reimburse expensesincurred by Colorado in this investigation.

 

**AuditCommittee and Audit Committee Financial Expert.**

 

Southwest’s Board ofDirectors created an Audit Committee on January 10, 2006 and elected DavidAbramson to serve as Chairman of that committee.  The Board of Directorshas determined that Mr. Abramson qualifies as an audit committee financialexpert and as an independent member of our Board of Directors under SEC rules andthe rules of the Nasdaq stock market.  The other members of our AuditCommittee are Jim Holmes and Gregg Schatzman, both of whom qualify asindependent members of our Board of Directors under SEC rules and the rules ofthe Nasdaq stock market.

 

Our Board of Directors alsocreated a Compensation Committee and a Nominating Committee on February 1,2006.  The Board of Directors has determined that all of the members ofthese committees are independent under the rules of the Nasdaq stockmarket.

 

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**Section 16(a) BeneficialOwnership Reporting Compliance**

 

Based solely upon a reviewof Forms 3, 4 and 5 and amendments to Forms 3, 4 and 5 furnished to us duringour most recent fiscal year, we are not aware of any director, officer, orbeneficial owner of more than 10 percent of any class of our registeredsecurities that failed to file on a timely basis, as disclosed in Forms 3, 4and 5 and amendments to those Forms, reports required under Section 16(a) ofthe Securities Exchange Act of 1934 during 2007.

 

**Code ofConduct and Ethics for Employees, Officers and Directors**

 

EffectiveDecember 20, 2007, our Board of Directors adopted a revised Code ofConduct and Ethics for Southwest’s directors, officers and employees.  The revised Code of Conduct and Ethicssupercedes the Code of Conduct of the Company adopted on or before June 29,2004.

 

Therevised Code of Conduct and Ethics significantly expands upon the prior Code ofConduct to be more consistent with our focus on integrity and ethical conductin our business dealings with players, the investing public, regulators,vendors and employees.  The revised Codeof Conduct and Ethics documents our expectations with regard to: Compliancewith Laws, Rules and Regulations; Conflicts of Interest; Insider Trading;Corporate Opportunities; Competition and Fair Dealing; Discrimination andHarassment; Health and Safety; Record-Keeping; Confidentiality; Protection andProper Use of Southwest’s Assets; Payments to Government Personnel; CorporateDisclosures; and Waivers of the Code of Conduct and Ethics.  The revised Code of Conduct and Ethics alsoaddresses methods for employees to report violations of the revised Code,including providing for confidential, anonymous reporting of violations bytelephone or through the Internet.

 

Acopy of the revised Code of Conduct and Ethics was filed as Exhibit 14.1to the Current Report on Form 8-K we filed on December 24, 2008.

 

**Item 10.**            **EXECUTIVE COMPENSATION**

 

The following table providessummary information concerning cash and non-cash compensation paid to or earnedby our principal executive officer and our two other highest paid executiveofficers during the Southwest Casino Corporation fiscal year ended December 31,2007. We will provide a copy of our revised Code of Conduct and Ethics to anyperson, without charge, upon written request submitted to our office at 2001Killebrew Drive, Suite 350, Minneapolis, MN 55425, Attn: Investor Relations. Weintend to disclose any amendments to and any waivers from a provision of ourCode of Conduct and Ethics on a Form 8-K with the SEC.

 

**SUMMARY COMPENSATION TABLE**

 
| **Name And**                 | ** ** | ** ** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Stock  Award(s)** | ** ** | **Option  Awards** | ** ** | **Nonequity  Incentive  Plan  Compensation** | ** ** | **Non qualified  deferred  compensation  earnings** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|------------|------------|------------|------------|-----------|------------|---------------------|------------|--------------------|------------|----------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|
| **Principal Position**       | ** ** | **Year**   | ** ** | **($)**    | ** ** | **($)**   | ** ** | **($)**             | ** ** | **($)**            | ** ** | **($)**                                      | ** ** | **($)**                                                  | ** ** | **($)**                          | ** ** | **($)**   | ** ** |
| James B. Druck,                   |       | 2007       |       | 243,100    |       | 55,000    |       | —              |       | —             |       | —                                       |       | —                                                   |       | 48,637                           | (2)        | 346,737   |       |
| *CEO &  Director*        |       | 2006       |       | 220,000    | (1)        | —    |       | —              |       | —             |       | —                                       |       | —                                                   |       | 44,988                           | (2)        | 264,988   |       |
|                              |       |       |       |       |       |      |       |                |       |               |       |                                         |       |                                                     |       |                             |       |      |       |
| Thomas E. Fox,                    |       | 2007       |       | 243,100    |       | 55,000    |       | —              |       | —             |       | —                                       |       | —                                                   |       | 42,200                           | (2)        | 340,300   |       |
| *President &  COO*       |       | 2006       |       | 220,000    | (1)        | —    |       | —              |       | —             |       | —                                       |       | —                                                   |       | 31,961                           | (2)        | 251,961   |       |
|                              |       |       |       |       |       |      |       |                |       |               |       |                                         |       |                                                     |       |                             |       |      |       |
| Brian L. Foster,                  |       | 2007       |       | 46,500     | (3)        | 192,422   |       | —              |       | —             |       | —                                       |       | —                                                   |       | 17,536                           | (4)        | 256,458   |       |
| *VP Native American Operations -* |       | 2006       |       | —     | (3)        | 203,790   |       | —              |       | —             |       | —                                       |       | —                                                   |       | 14,746                           | (4)        | 218,536   |       |

 

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(1)          Does not include $50,000 paid to Mr. Druckand $10,000 paid to Mr. Fox during the second quarter of 2006 as partialpayment of salary earned in years before 1998 but not paid.

 

(2)          Consists of company paid medical, dental, lifeand disability insurance, 401(k) matching funds, and a car allowance.

 

(3)          Mr. Foster managed two gaming facilitiesowned by the Cheyenne and Arapaho Tribes of Oklahoma until August 17,2007.  Mr. Foster also received compensation, including a salary,directly from the Cheyenne and Arapaho Tribes of Oklahoma tribal enterprises.

 

(4)          Consists of company paid medical, dental,life and disability insurance, and 401(k) matching funds.

 

*JamesDruck Employment Agreement*

 

In July 2004, weentered into an employment agreement with James B. Druck under which Mr. Druckserves as our Chief Executive Officer. The initial term of this agreementcontinued until July 1, 2006, after which the term renews automaticallyfor additional one-year periods unless terminated earlier by either party.Under this agreement, Mr. Druck receives a base salary of $220,000 peryear, an automobile allowance of $1,000 per month, and is eligible for anadditional performance bonus if granted by our Board of Directors.  Anyadjustment to base salary will be determined by the Board of Directors. Effective April 1, 2007, the base salary was increased to $250,800 peryear.  Bonuses are discretionary and nobonus was awarded during fiscal year 2006.  Our Board of Directorsapproved bonus payments of $110,000 at its meeting on March 13, 2007.  The initial $55,000 of that bonus was paid onMarch 31, 2007 and the remaining $55,000 will be paid on or after July 1,

 

26

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2007, at such time asmanagement determines that Southwest has sufficient financial resources for thepayments.  As of December 31, 2007the $55,000 remaining bonus payment is included in accrued liabilities on theConsolidated Balance Sheet.  This is thefirst bonus or salary increase awarded to Mr. Druck since entering intotheir employment agreements in 2004. Under the employment agreement Mr. Druck was also granted anon-plan option to purchase 300,000 shares of our common stock at a price of$1.00 per share that is now fully vested.   After the initial two-year term of the agreement if Mr. Druck isterminated without cause, in connection with a change in control of thecompany, or if Mr. Druck terminates his employment for “good reason”, Mr. Druckmay elect to continue employment with us in a diminished capacity. If Mr. Druckso elects, Mr. Druck will continue to receive his base salary and medicalbenefits for 12 months. After 12 months, Mr. Druck will receive a salaryof not less than $25,000 and continuing medical benefits.  Mr. Druckis also subject to customary assignment of inventions, confidentiality,non-solicitation and non-compete provisions.

 

*Thomas FoxEmployment Agreement*

 

In July 2004, weentered into an employment agreement with Thomas E. Fox under which Mr. Foxserves as our President and Chief Operating Officer. The initial term of thisagreement continued until July 1, 2006, after which the term renewsautomatically for additional one-year periods unless terminated earlier byeither party. Under this agreement, Mr. Fox receives a base salary of$220,000 per year, an automobile allowance of $1,000 per month, and is eligiblefor an additional performance bonus if granted by our Board of Directors. Any adjustment to base salary will be determined by the Board of Directors.  Effective April 1, 2007; the base salarywas increased to $250,800 per year. Bonuses are discretionary and no bonus was awarded during fiscal year2006.  Our Board of Directors approved bonus payments of $110,000 at itsmeeting on March 13, 2007.  Theinitial $55,000 of that bonus was paid on March 31, 2007 and the remaining$55,000 will be paid on or after July 1, 2007, at such time as managementdetermines that Southwest has sufficient financial resources for thepayments.  As of December 31, 2007 the$55,000 remaining bonus payment is included in accrued liabilities on theConsolidated Balance Sheet.  This is thefirst bonus or salary increase awarded to Mr. Fox since entering intotheir employment agreements in 2004. Under the employment agreement Mr. Fox was also granted a non-planoption to purchase 300,000 shares of our common stock at a price of $1.00 pershare that is now fully vested.    Afterthe initial two-year term of the agreement if Mr. Fox is terminatedwithout cause, in connection with a change in control of the company, or if Mr. Foxterminates his employment for “good reason”, Mr. Fox may elect to continueemployment with us in a diminished capacity. If Mr. Fox so elects, Mr. Foxwill continue to receive his base salary and medical benefits for 12 months.After 12 months, Mr. Fox will receive a salary of not less than $25,000and continuing medical benefits.  Mr. Fox is also subject tocustomary assignment of inventions, confidentiality, non-solicitation andnon-compete provisions.

 

*Change inControl Arrangements.*

 

Under our employmentagreements with Mr. Druck and Mr. Fox, if either of them isterminated within nine months after a change in control occurs, they may electto continue their employment with us in a diminished capacity and receivecontinuing salary and medical benefits at his then base rate for 12 monthsafter which his salary may be reduced to not less than $25,000 with continuingmedical benefits.  In addition, any unexpired stock options will vestimmediately.

 

For purposes of theseemployment agreements, a “change in control” includes:

 

**·**                 any merger, acquisition, reorganization orconsolidation after which the shareholders of Southwest immediately before thetransaction do not own a majority of the surviving corporation;

 

·                  any sale, lease, license or transfer ofsubstantially all of our assets;

 

·                  any statutory exchange of securities withanother entity (except where we are the acquiring entity);

 

·                  acquisition by any individual or group ofmore than 50 percent of our outstanding voting stock from existingshareholders;

 

·                  members of our Board of Directors as of July 1,2004 or new board members approved by a majority of those board members ceaseto constitute a majority of our Board of Directors; or

 

·                  any other transaction or series oftransactions (other than venture capital or institutional investor financings)that the SEC would require us to report.

 

Under our 2004 StockIncentive Plan, incentive awards granted under the plan will become fullyexercisable after certain changes in control of our company, such as:

 

·                  the sale, lease, exchange or other transferof all or substantially all of our assets;

 

·                  our shareholders approve any plan of orproposal for the liquidation or dissolution of our company;

 

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·                  any person becomes the beneficial owner of:

 

·                  20% or more, but not 50% or more, of thecombined voting power of our outstanding securities ordinarily having the rightto vote at elections of directors, unless the transaction resulting in theirownership was approved in advance by the “continuity directors” who are membersof the Board of Directors at the time of the special meeting or whosenomination for election meets certain approval requirements related to continuitywith our current Board of Directors; or

 

·                  50% or more of the combined voting power ofour outstanding securities ordinarily having the right to vote at elections ofdirectors (regardless of any approval by the “continuity directors”); providedthat a traditional institution or venture capital financing transaction areexcluded from this definition;

 

·                  we are a party to a merger or consolidationthat results in our shareholders beneficially owning securities representing:

 

·                  more than 50%, but less than 80%, of thecombined voting power of the surviving corporation’s then outstandingsecurities ordinarily having the right to vote at elections of directors,unless the merger or consolidation was approved in advance by the “continuitydirectors”; or

 

·                  50% or less of the combined voting power ofthe surviving corporation’s then outstanding securities ordinarily having theright to vote at elections of directors (regardless of any approval by the “continuitydirectors”);

 

·                  a change in control that outside legalcounsel determines must be reported under Section 13 or 15(d) of theExchange Act, whether or not we are then subject to these reportingrequirements; or

 

·                  the “continuity directors” cease, for anyreason, to constitute at least a majority of the Board of Directors, at anytime after the date that our securities are first sold in a registered publicoffering.

 

### **OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR END TABLE**

### ** **

The following table providesinformation regarding unexercised options for our named executive officers thatremain outstanding at December 31, 2007.

 
| ** **   | ** ** | **Option Awards**                                                                 | ** ** | **Stock Awards**                                                                    | ** ** |
|--------------|------------|----------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| **Name**     | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)  Unexercisable** | ** ** | **Equity  Incentive  Plan  Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options (#)** | ** ** | **Option  Exercise  price  ($/share)** | ** ** | **Option  Expiration  Date** | ** ** | **Number  of  Shares  or Units  of Stock  that  have  not  Vested  (#)** | ** ** | **Market  Value of  Shares  or Units  of Stock  that  have  not  Vested  ($)** | ** ** | **Equity  Incentive  Plan  Awards:  Number  of Shares  that have  not  Vested (#)** | ** ** | **Equity  Incentive  Plan  Awards;  Market  Value of  Shares or  Units of  Stock that  have not  Vested ($)** | ** ** |
| James Druck  |       | 300,000                                                                                | (1)(2)     | —                                                                                   |       | — |   | 1.00 |   | 6/30/2009 |   | — |   | — |   | — |   | — |   |
|         |       |                                                                                   |       |                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Thomas Fox   |       | 300,000                                                                                | (1)(2)     | —                                                                                   |       | — |   | 1.00 |   | 6/30/2009 |   | — |   | — |   | — |   | — |   |
|         |       |                                                                                   |       |                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Brian Foster |       | 250,000                                                                                |       | —                                                                                   |       | — |   | 0.12 |   | 12/7/2013 |   | — |   | — |   | — |   | — |   |

 

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(1)          Does not include warrants issued to Mr. Druck,Mr. Fox or parties in which Mr. Fox has a beneficial ownershipinterest in connection with (a) their participation in our October 2005private placement of warrants in connection with guaranteeing a $2.5 millionterm loan with Crown Bank that was paid in full in April 2007, (b) ourJanuary and February 2007 private placement of common stock withaccompanying warrants, and (c) their participation our March 2008private placement of warrants in connection with guaranteeing a $1.55 millionloan with Crown Bank.

 

(2)          Does not include optionsto purchase 170,000 shares of our common stock awarded to each of Mr. Druckand Mr. Fox on March 20, 2008. These options were issued under our 2004 Stock Incentive Plan.  The exercise price under each of theseoptions is $0.48 per share, the closing market price for one share of SouthwestCasino Corporation common stock on the grant date.  The options became exercisable immediatelywith respect to 42,500 shares and will become exercisable with respect to theremaining shares in equal installments on the last day of each fiscal quarterover a three-year period.

 

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### ** **

### **DIRECTORCOMPENSATION**

### ** **

The following table statesinformation concerning the compensation of members of our Board of Directorsduring the fiscal year ended December 31, 2007.

 
| **Name**              | ** ** | **Fees  earned  or paid  in cash  ($)** | ** ** | **Stock   Awards  ($)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-equity  incentive  plan  compensation  ($)** | ** ** | **Non-qualified deferred  compensation earnings ($)** | ** ** | **All other  compensation  ($)** | ** ** | **Total ($)** | ** ** |
|-----------------------|------------|---------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|----------------------------------------------------|------------|-----------------------------------------------------------------|------------|---------------------------------------|------------|--------------------|------------|
| David H. Abramson(1)  |       | $                                                 | 14,500     |                         | —     |                    | —     |                                               | —     |                                                            | —     |                                  | —     |               | $          | 14,500 |   |
| Gus A. Chafoulias(2)  |       | $                                                 | 14,000     |                         | —     |                    | —     |                                               | —     |                                                            | —     |                                  | —     |               | $          | 14,000 |   |
| Jim Holmes (2)        |       | $                                                 | 14,000     |                         | —     |                    | —     |                                               | —     |                                                            | —     |                                  | —     |               | $          | 14,000 |   |
| Gregg P. Schatzman(2) |       | $                                                 | 14,500     |                         | —     |                    | —     |                                               | —     |                                                            | —     |                                  | —     |               | $          | 14,500 |   |

 

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 (1)       As of December 31, 2007, Mr. Abramsonhad options to acquire an aggregate of 225,000 shares of common stock at aprice of $0.65 per share outstanding that had been awarded to him in 2006 inconnection with his service as an independent director and Chairman of theAudit Committee of the Board of Directors. Does not include options to purchase an aggregate of 225,000 shares ofcommon stock at a price of $0.48 per share that were awarded to Mr. Abramsonon March 20, 2008 in connection with his continued service as anindependent director and Chairman of the Audit Committee.

 

(2)          As of December 31, 2007, Messrs. Chafoulias,Holmes and Schatzman each had options to acquire an aggregate of 150,000 sharesof common stock at a price of $0.65 per share outstanding that had been awardedto them in 2006 in connection with their service as independent directors.  Does not include options to purchase 150,000shares of common stock at a price of $0.48 per share that were awarded to eachof Messrs. Chafoulias, Holmes and Schatzman on March 20, 2008 inconnection with their continued service as independent directors.

 

Our Board of Directorsconsists of four independent, non-employee directors and James Druck, our CEO. Mr. Druckdoes not receive any additional compensation for his service as a director.

 

Beginning in the first quarterof 2006, the non-employee members of our Board of Directors receive a quarterlyretainer of $2,500, with an initial retainer of $5,000 paid for the fourthquarter of 2005, their first quarter of service. Each director also received anon-qualified option to purchase 150,000 shares of Southwest common stock underour 2004 Stock Incentive Plan. These options were granted on January 10,2006 and have an exercise price of $0.65 per share. The options becomeexercisable in 12 equal quarterly installments on the last day of each quarterover three years. We also pay directors meeting fees of $1,000 for eachin-person meeting and $500 for each telephonic meeting at which formal actionis taken by our board or any committee of the board. These meeting fees do notapply to one in-person meeting of the Board of Directors and one meeting ofeach committee on which a board member serves each quarter. The increasedretainer during the first quarter of a director’s service is intended tocompensate the director for the extra time and meetings required to orient adirector to Southwest and the work of our Board.

 

We also issued anon-qualified option to purchase 75,000 shares of Southwest common stock, onthe same terms as described above, to David Abramson to compensate him for hiswork as Chairman of the Audit Committee of the Board of Directors.

 

On March 20, 2008, weissued additional non-qualified options to purchase 150,000 shares of ourcommon stock under our 2004 Stock Incentive Plan to each of our independent directors.  These options have an exercise price of $0.48per share and become exercisable in 12 equal quarterly installments on the lastday of each quarter over three years beginning on the last day of the fourthquarter of 2008 (the first quarter after the options granted to our independentdirectors on January 10, 2006 are fully vested).  We also issued an additional non-qualifiedoption to purchase 75,000 shares of our common stock, on the same terms, toDavid Abramson to compensate him for his work as Chairman of the AuditCommittee of the Board of Directors.

 

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** **

**Item 11.**            **SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

** **

**SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

The following table statesthe information known to us with respect to the beneficial ownership of ourcommon stock as of March 20, 2008 for (1) each person known by us tobeneficially own more than 5% of our common stock, (2) each of ourexecutive officers, (3) each of our directors, and (4) all of ourexecutive officers and directors as a group.

 

Shares are deemed “beneficiallyowned” by a person if that person, directly or indirectly, has sole or sharedpower to vote or to direct the voting of those shares or sole or shared powerto dispose or direct the disposition of those shares.  Except as otherwise indicated, we believethat each of the beneficial owners of our capital stock listed below, based oninformation provided by these owners, has sole dispositive and voting powerwith respect to its shares, subject to community property laws whereapplicable, except as descried in the notes below.  Shares not outstanding but deemedbeneficially owned by virtue of the right of a person or member of a group toacquire them within 60 days are treated as outstanding only when determiningthe amount and percent owned by that person or group.

 

| ** **                                                      | ** ** | **Common Stock** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------|------------|
| ** Name and Address**                            | ** ** | **Number**            | ** ** | **Percent** | ** ** |
| James B. Druck (1)                                              |       | 2,259,825             | (2)        | 8.0 | % |
| David H. Abramson (3)                                           |       | 273,250               | (4)        | 1.0 | % |
| Gus A. Chafoulias (5)                                           |       | 962,186               | (6)        | 3.4 | % |
| Jim Holmes (1)                                                  |       | 137,500               | (7)*       |   |   |
| Gregg P. Schatzman (1)                                          |       | 137,500               | (7)*       |   |   |
| Thomas E. Fox (1)                                               |       | 2,683,870             | (8)        | 9.5 | % |
| Jeffrey S. Halpern (1)                                          |       | 2,331,105             | (9)        | 8.3 | % |
| Brian L. Foster (1)                                             |       | 250,000               | (10)*      |   |   |
| Tracie L. Wilson (1)                                            |       | 91,929                | (11)*      |   |   |
| All executive officers and   directors as a group (9   persons) |       | 9,127,165             | (12)       | 29.4 | % |

 

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* Less than 1 percent

 

(1)          Address: 2001 Killebrew Drive, Suite 350,Minneapolis, MN 55425

(2)          Includes (i) 100,000 shares held by Mr. Druck’swife, (ii) 353,125 shares of common stock issuable upon exercise ofoptions, and (iii) 327,200 shares issuable upon exercise of warrants.

(3)          Address:  Parkdale Plaza, 1660 S.Highway 100, Suite 500, Minneapolis, MN 55416.

(4)          Includes 206,250 shares issuable uponexercise of stock options and 12,000 shares issuable upon exercise of awarrant.

(5)          Address:  121 23rd Avenue SW, Rochester,MN 55902.

(6)          Includes 137,500 shares issuable uponexercise of stock options and 522,728 shares issuable upon exercise ofwarrants.

(7)          Consists of 137,500 shares issuable uponexercise of stock options.

(8)          Includes: (i) 159,152 shares held byF&B Properties, a partnership in which Mr. Fox is a 50% generalpartner; (ii) 181,819 shares held by BFL General Partnership, apartnership in which Mr. Fox is a general partner, (iii) 353,125shares issuable upon exercise of stock options; (iv) 300,000 sharesissuable upon exercise of warrants; (v) 54,546 shares issuable uponexercise of a warrant held by F&B Properties; and (vi) 72,728 sharesissuable upon exercise of a warrant held by BFL General Partnership.  Does not include 381,819 shares and warrantsto purchase 152,728 shares held by Richfield Hotel Associates LimitedPartnership (“RHALP”).  Mr. Fox isgeneral partner of a partnership that is a limited partner of RHALP and doesnot have or share investment control over RHALP and disclaims any beneficialownership interest in these shares.

(9)          Includes:(i) 40,000 shares held by Mr. Halpern’s wife; (ii) 353,125shares issuable upon exercise of stock options; and (iii) 327,280 sharesissuable upon exercise of warrants.

(10)    Consists of 250,000 shares issuable uponexercise of a stock option.

(11)    Consists of 91,929 shares issuable uponexercise of stock options.

(12)     Includes: (i) an aggregate of 2,020,054shares issuable upon exercise of options; (ii) 1,616,482 shares issuableupon exercise of warrants; (iii) 340,971 shares held by partnerships inwhich an executive officer is a general partner; and (iv) 140,000 sharesheld by spouses of executive officers.

 

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** **

**SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLAN**

 

The following tablesummarizes our equity compensation plan information as of December 31,2007. Options granted in the future under the plan are within the discretion ofour Board of Directors and therefore cannot be ascertained at this time:

 
| **Plan Category**                                          | ** ** | **Number of  Securities to be  Issued Upon  Exercise of  Outstanding  Options, Warrants  and Rights** | ** ** | **Weighted-Average  Exercise Price of  Outstanding  Options, Warrants  and Rights** | ** ** | **Number of  Securities Remaining  Available for Future  Issuance Under Equity  Compensation Plans  (excluding securities  reflected in column (a))** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by  security holders:        |       |                                                                                                                                     |       |                                                                                                    |       |                                                                                                                                                                                                         |       |
|                                                            |       |                                                                                                                                     |       |                                                                                                    |       |                                                                                                                                                                                                         |       |
| 2004 Stock Incentive Plan (1)(3)                                |       | 925,000                                                                                                                                  |       | $                                                                                                       | 0.70       |                                                                                                                                                                                                         | 2,075,000  |   |
|                                                            |       |                                                                                                                                     |       |                                                                                                    |       |                                                                                                                                                                                                         |       |
| Equity compensation plans not approved by  security holders (2) |       | 1,775,000                                                                                                                                |       | $                                                                                                       | 0.57       |                                                                                                                                                                                                         | 0          |   |
|                                                            |       |                                                                                                                                     |       |                                                                                                    |       |                                                                                                                                                                                                         |       |
| **Total**                                                       |       | 2,700,000                                                                                                                                |       | $                                                                                                       | 0.62       |                                                                                                                                                                                                         | 575,000    |   |

 

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(1)          Our only equity compensation plan under whichshares of our common stock may be issued is the 2004 Stock Incentive Plan thatwas maintained by Southwest Casino and Hotel Corp. before the consummation ofour reorganization and was assumed by Southwest Casino Corporation under theterms at the time of consummation of our reorganization. Southwest Casino andHotel Corp. shareholders approved the 2004 Stock Incentive Plan at a specialmeeting on July 14, 2004.  The planwas amended to increase the number of shares available for grant under the planfrom 1,500,000 to 3,000,000, which was approved by the shareholders on June 14,2007.  We do not have any other equitycompensation plans.

 

(2)          Consists of individual option and warrantagreements issued by Southwest Casino and Hotel Corp. before July 22,2004, that Southwest Casino Corporation assumed under the terms and at the timeof consummation of the reorganization.

 

(3)          Does not include optionsto purchase 1,867,500 shares awarded under our 2004 Stock Incentive Plan on March 20,2008.

 

**Item 12.**            **CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

We issued warrants topurchase 250,000 shares of its common stock at a price of $0.39 per share toeach of James B. Druck, CEO, Thomas E. Fox, President and COO, and Jeffrey S.Halpern, Vice President of Government Affairs, on March 10, 2008.  These warrants are exercisable for a periodof five years.  We issued these warrantsto Messrs. Druck, Fox and Halpern in consideration of their agreement toincrease the amount of their personal guarantees of our indebtedness from$150,000 to $250,000 and to extend the termination date of those guaranteesfrom April 19, 2008 to January 11, 2010.

 

We issued a warrant topurchase 300,000 shares of our common stock at a price of $0.39 per share toGus Chafoulias, a member of the company’s Board of Directors, on March 10,2008.  This warrant is exercisable for aperiod of five years.  We issued thiswarrant to Mr. Chafoulias in consideration of his agreement to co-sign a$300,000 promissory note with Southwest Casino & Hotel Corp. for abank loan to Southwest.

 

OnJanuary 24 and February 26, 2007, we held separate closings in aprivate placement of common stock with accompanying warrants in which we raised$4.1 million.  We sold units consistingof one share of common stock and a warrant to purchase 0.4 shares of commonstock at a price of $0.55 per unit.  Thewarrants are exercisable for five years at a price of $0.61 per share.  James B. Druck, CEO, Thomas E. Fox, Presidentand COO, Jeffrey S. Halpern, Vice President of Government Affairs, GusChafoulias, Director and David Abramson, Director each participated in thisoffering on the same terms as all other investors.  The amounts of their respective investmentswere:

 

| **Name**        | ** ** | **Title**        | ** ** | **Common Shares** | ** ** | **Warrant Shares** | ** ** | ** ** | **Price** |
|-----------------|------------|------------------|------------|-------------------|------------|--------------------|------------|------------|-----------|
| James Druck     |       | CEO, Director    |       | 68,000            |       |               | 27,200     |       |      | $ | 37,400 |
| Thomas Fox      |       | President, COO   |       | 318,183           |       |               | 127,274    | *          |      | $ | 175,000 |
| Jeffrey Halpern |       | VP Govt. Affairs |       | 68,200            |       |               | 27,280     |       |      | $ | 37,510 |
| Gus Chafoulias  |       | Director         |       | 181,819           |       |               | 72,728     |       |      | $ | 100,000 |
| David Abramson  |       | Director         |       | 30,000            |       |               | 12,000     |       |      | $ | 16,500 |

 

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*                 Consistsof common shares and warrants to purchase common shares acquired by entities inwhich Mr. Fox has an ownership interest. Does not include 381,819 shares and warrants to purchase 152,728 sharesheld by Richfield Hotel Associates Limited Partnership (“RHALP”).  Mr. Fox is general partner of apartnership that is a limited partner of RHALP and does not have or shareinvestment control over RHALP and disclaims any beneficial ownership interestin these shares.

 

Asof December 31, 2007, we had a receivable due from North Metro ofapproximately $41,000 for reimbursement of salary, benefits and travel.  This amount was subsequently paid to us byNorth Metro.

 

Asof December 31, 2007, we had accrued liabilities in the amount of $140,000for bonuses awarded but not paid to executive officers of the company.

 

Wehad outstanding liabilities to James B. Druck, Thomas E. Fox and Jeffrey S.Halpern for unpaid compensation and expense reimbursements of $122,467 as of December 31,2007 and $122,467 as of December 31, 2006.

 

Southwest Casino and Hotel Corp. and NorthMetro Harness Initiative, LLC purchased furniture and equipment from Berc &Fox for $25,000 during 2007.  Theoperations of Berc & Fox were sold in January 2007 and as aresult certain furniture and equipment were available for purchase.  The purchase price for the furniture andequipment was less than their value as determined by independent third-partyappraisers.  Thomas Fox, our Presidentand COO, is a shareholder and officer in Berc & Fox Limited.

 

During the year ended December 31,2007, we paid Jennifer Sparlin Druck $1,000 for performing at the Gold RushPalladium.  Ms. Druck is the wife of James B. Druck.

 

Virginia Skruppy is a part-time employee ofNorth Metro.  Ms. Skruppy is thewife of Tom Fox, our President.  Ms. Skruppydid not receive compensation from North Metro during 2007 and we anticipatethat her earnings in 2008 will not exceed $20,000.

 

Each of Mr. Abramson, Mr. Chafoulias,Mr. Holmes and Mr. Schatzman has been determined to be “independent”under the rules of the Nasdaq stock market.

 

**Item 13.**            **EXHIBITS**

 

Please see the Exhibit Indexat page E-1 of this Report.

 

A copy of any exhibitslisted or referred to in this Report will be furnished at a reasonable cost toany person who is a stockholder upon receipt of a written request for anexhibit.  These requests should be sent to:  Southwest CasinoCorporation, 2001 Killebrew Drive, Suite 350, Minneapolis, Minnesota 55425Attn:  Stockholder Information.

 

The following is a list of each management contractor compensatory plan or arrangement required to be filed as an exhibit to thisAnnual Report on Form 10-KSB under Item 13:

 

### **A.**                                   2004Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to ourCurrent Report on Form 8-K filed August 6, 2004).

### ** **

### **B.**                                     Stock Option Agreementbetween Southwest and James B. Druck dated July 1, 2004 (incorporated byreference to Exhibit 10.2 to our Current Report on Form 8-K filedAugust 6, 2004).

### ** **

### **C.**                                     Stock Option Agreementbetween Southwest and Jeffrey S. Halpern dated July 1, 2004 (incorporatedby reference to Exhibit 10.3 to our Current Report on Form 8-K filedAugust 6, 2004).

### ** **

### **D.**                                    Option Agreement betweenSouthwest and Thomas E. Fox datedJuly 1, 2004 (incorporated byreference to Exhibit 10.4 to our Current Report on Form 8-K filedAugust 6, 2004).

### ** **

### **E.**                                      Employment Agreement datedeffective July 1, 2004, between Southwest Casino and Hotel Corp. and JamesB. Druck (incorporated by reference to Exhibit 10.13 to our Current Reporton Form 8-K filed August 6, 2004).

### ** **

### **F.**                                      Employment Agreement datedeffective July 1, 2004, between Southwest Casino and Hotel Corp. andJeffrey S. Halpern (incorporated by reference to Exhibit 10.14 to ourCurrent Report on Form 8-K filed August 6, 2004).

### ** **

### **G.**                                     Employment Agreement datedeffective July 1, 2004, between Southwest Casino and Hotel Corp. andThomas E. Fox (incorporated by reference to Exhibit 10.15 to our CurrentReport on Form 8-K filed August 6, 2004).

### ** **

### **H.**                                    Form ofIndemnification Agreements by and between Southwest Casino and Hotel Corp. andits corporate officers (incorporated by reference to Exhibit 10.17 to ourCurrent Report on Form 8-K filed August 6, 2004).

### ** **

I.                                         Form of Stock Option Agreement dated January 10,2006 between Southwest and each of the independent members of our Board ofDirectors (incorporated by reference to Exhibit 4.8 to our Annual Reporton Form 10-KSB filed March 31, 2006).

 

J.                                        Stock Option Agreement dated January 10,2006 between Southwest and David H. Abramson, Chairman of the Audit Committeeof the Board of Directors (incorporated by reference to Exhibit 4.9 to ourAnnual Report on Form 10-KSB filed March 31, 2006)

 

K.                                    Form of Indemnification Agreements byand between Southwest and each of the independent members of Southwest’s Boardof Directors (incorporated by reference to Exhibit 10.35 to our AnnualReport on Form 10-KSB filed March 31, 2006)

 

L.                                      Employment Agreement between Southwest andTracie L. Wilson dated June 29, 2006 (incorporated by reference to Exhibit 10.1to the Quarterly Report on Form 10-QSB filed August 14, 2006).

 

M.                                 Stock Option Agreement between Southwest andTracie L. Wilson dated June 29, 2006 (incorporated by reference to Exhibit 10.2to the Quarterly Report on Form 10-QSB filed August 14, 2006).

 

### **N.**                                    Stock Option Agreementbetween Southwest and James B. Druck dated March 20, 2008 (Filedherewith).

### ** **

### **O.**                                    Stock Option Agreementbetween Southwest and Thomas E. Fox datedMarch 20, 2008 (Filed herewith).

### ** **

### **P.**                                      Stock Option Agreementbetween Southwest and Jeffrey S. Halpern dated March 20, 2008 (Filedherewith).

### ** **

### **Q.**                                    Stock Option Agreementbetween Southwest and Tracie L. Wilson dated March 20, 2008 (Filedherewith).

 

R.                                     Form of Option Agreement dated March 20,2008 between Southwest and each of the independent members of our Board ofDirectors.  (Filed herewith).

 

S.                                      Stock Option Agreement dated January 10,2006 between Southwest and David H. Abramson, Chairman of the Audit Committeeof the Board of Directors.  (Filedherewith)

 

32

----

 

**Item 14.**            **PRINCIPAL ACCOUNTANT FEESAND SERVICES.**

 

The following table presentsfees billed by Eide Bailly LLP, our principal accountant, for the audit of ourconsolidated financial statements and other professional services provided to usfor the fiscal years ended December 31, 2007 and 2006.

 

| ** **         | ** ** | **Aggregate Amount Billed** | ** ** |
|--------------------|------------|---------------------------------------|------------|
| ** **         | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| ** **         | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Audit Fees         |       | $                                     | 172,263    | (1) | $ | 141,521 | (1) |
| Audit-Related Fees |       | $                                     | 6,709      | (2) | $ | 0 | (2) |
| Tax Fees           |       | $                                     | 0          | (3) | $ | 0 | (3) |
| All Other Fees     |       | $                                     | 10,492     | (4) | $ | 8,604 | (4) |

 

----

 (1)       Aggregate fees billed for professionalservices rendered to us for audit of our consolidated financial statements byyear (including estimated fees for the fiscal year 2007 audit for which we havenot yet been billed), review of the consolidated financial statements includedin our quarterly reports on Form 10-QSB, and other services normallyprovided in connection with our statutory and regulatory filings orengagements.

 

(2)          These other audit-related services consistedof accounting research and related issues and assistance with response to SECcorrespondence.  Our Board of Directors has considered whether the provisionof these services is compatible with maintaining Eide Bailly LLP’s independenceand has determined that it is.

 

(3)          We did not pay nor incur any fees for taxservices provided by our principal accountants.

 

(4)          Consists of Fees paid for an audit of our 401(k) employeebenefit plan and finance charges.

 

**AuditCommittee Pre-Approval Policy**

 

On February 14, 2006, ourBoard of Directors adopted a written charter for our Audit Committee thatrequires Audit Committee preapproval of all future audit and permissiblenon-audit services provided to us by our independent public accountants.

 

All services provided to usby Eide Bailly for 2007 and 2006 were approved in advance by the AuditCommittee.

 

33

----

 

**SIGNATURES**

 

Pursuant to the requirementsof Section 13 or 15 of the Securities Exchange Act of 1934, the Issuer hasduly caused this Report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                | SOUTHWEST CASINO  CORPORATION |
|---------------------|-------------------------------|
|                |                          |   |
| March 31, 2008 | By:                           | /s/ James B. Druck |
|                |                          | James B. Druck |
|                |                          | Chief Executive Officer |

 

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this Report has been signed below bythe following persons on behalf of the Issuer on March 31, 2008 in thecapacities indicated.

 
| **Name**               | ** ** | **Title**                                                  |
|------------------------|------------|------------------------------------------------------------|
|                   |       |                                                       |
| /s/ James B. Druck     |       | Chief Executive Officer  (principal executive officer) and |
|                   |       | Director                                                   |
|                   |       |                                                       |
| /s/ Thomas E. Fox      |       | President and Chief  Operating Officer                     |
|                   |       | (principal financial  officer and principal                |
|                   |       | accounting officer)                                        |
|                   |       |                                                       |
| /s/ David H. Abramson  |       | Director                                                   |
|                   |       |                                                       |
| /s/ Gus A. Chafoulias  |       | Director                                                   |
|                   |       |                                                       |
| /s/ Jim Holmes         |       | Director                                                   |
|                   |       |                                                       |
| /s/ Gregg P. Schatzman |       | Director                                                   |

 

34

----

 

**SOUTHWEST CASINO CORPORATION**

 

**EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSBFOR THE FISCAL YEAR ENDED DECEMBER 31, 2006**

** **
| **Exhibit  No.** | ** ** | **Exhibit***                                                                                                                                                                                                                     | ** ** | **Method of Filing**                                                                                                              |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 2.1              |       | Agreement and Plan of  Reorganization dated July 14, 2004, by and among Lone Moose  Adventures, Inc., Lone Moose Acquisition Corporation. Southwest Casino  and Hotel Corp. certain of the shareholders of Lone Moose. |       | Incorporated by reference  to Exhibit 2.1 in the Current Report on Form 8-K filed  August 6, 2004.                           |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 2.2              |       | Asset Purchase Agreement,  dated July 14, 2004, by and among Lone Moose Adventures, Inc.,  Christopher B. Glover and Michael C. Brown                                                                                  |       | Incorporated by reference  to Exhibit 2.2 in the Current Report on Form 8-K filed  August 6, 2004                            |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 3.1              |       | Articles of Incorporation  of Southwest Casino Corporation, as amended                                                                                                                                                           |       | Incorporated by reference  to Exhibit 3.1 in the Quarterly Report on Form 10-QSB filed  November 14, 2005.                   |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 3.2              |       | Bylaws of Lone Moose  Adventures, Inc. (now Southwest Casino Corporation)                                                                                                                                                   |       | Incorporated by reference  to Exhibit 3.2 contained in Lone Moose’s Registration Statement on Form SB-2  (File No.333-88810) |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 4.1              |       | Assumption Agreement,  dated July 22, 2004, by and between Southwest Casino Corporation (f/k/a  Lone Moose Adventures, Inc.) and Southwest Casino and Hotel Corp.                                                      |       | Incorporated by reference  to Exhibit 4.1 to the Current Report on Form 8-K filed  August 6, 2004.                           |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 4.2              |       | Registration Rights  Agreement, dated June 29, 2004, by and among Lone Moose  Adventures, Inc., David C. Merrell and Jenson Service, Inc.                                                                         |       | Incorporated by reference  to Exhibit 4.2 to the Current Report on Form 8-K filed  August 6, 2004.                           |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 4.3              |       | Warrant, dated  July 22, 2004, between Southwest Casino Corporation and MBC                                                                                                                                                 |       | Incorporated by reference  to Exhibit 4.3 to the Annual Report on Form 10-KSB filed March 31, 2006.                                         |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 4.4              |       | Registration Rights Agreement,  dated June 29, 2004, by and among Southwest Casino and Hotel Corp. and  the 8% convertible demand note holders                                                                              |       | Incorporated by reference  to Exhibit 4.5 to the Current Report on Form 8-K filed  August 6, 2004.                           |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 4.5              |       | Form of Warrant,  dated October 20, 2005, between Southwest Casino Corporation and  non-affiliate guarantors                                                                                                           |       | Incorporated by reference  to Exhibit 4.1 to the Current Report on Form 8-K filed  October 26, 2005.                         |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 4.6              |       | Form of Warrant,  dated October 20, 2005, between Southwest Casino Corporation and James  B. Druck, Thomas E. Fox, and Jeffrey S. Halpern as loan guarantors                                                           |       | Incorporated by reference  to Exhibit 4.6 to the Annual Report on Form 10-KSB filed March 31, 2006.                                         |
|             |       |                                                                                                                                                                                                                             |       |                                                                                                                                        |
| 4.7              |       | Form of Registration  Rights Agreement, dated October 20, 2005, between Southwest Casino  Corporation and warrantholders.                                                                                              |       | Incorporated by reference  to Exhibit 4.2 to the Current Report on Form 8-K filed  October 26, 2005.                         |

 

E-1

----

 

 
|  4.8 |   | Form of Option  Agreement, dated January 10, 2006, between Southwest Casino Corporation  and each of David Abramson, Gus Chafoulias, Jim Holmes and Gregg Schatzman,  independent members of Southwest’s Board of Directors |   | Incorporated by reference  to Exhibit 4.8 to the Annual Report on Form 10-KSB filed March 31, 2006.                |
|-----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 4.9       |   | Option Agreement dated  January 10, 2006 between Southwest and David H. Abramson, Chairman of  the Audit Committee of the Board of Directors                                                                                          |   | Incorporated by reference  to Exhibit 4.9 to the Annual Report on Form 10-KSB filed March 31, 2006.                |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 4.10      |   | Form of Series A Common  Stock Warrant dated as of January 24, 2007 issued by Southwest Casino  Corporation to each of the purchasers party to the Securities Purchase  Agreement                                                          |   | Incorporated by reference  to Exhibit 10.2 to the Current Report on Form 8-K filed January 30, 2007.               |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 4.11      |   | Form of Registration  Rights Agreement dated as of January 24, 2007 by and among Southwest Casino  Corporation and the purchasers named therein                                                                                            |   | Incorporated by reference  to Exhibit 10.3 to the Current Report on Form 8-K filed January 30, 2007.               |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 4.12      |   | Form of Series A Common  Stock Warrant dated as of February 26, 2007 issued by Southwest Casino  Corporation to each of the purchasers party to the Securities Purchase  Agreement                                                         |   | Incorporated by reference  to Exhibit 10.47 to the Registration on Form SB-2 filed February 28, 2007.              |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 4.13      |   | Form of Registration  Rights Agreement dated as of February 26, 2007 by and among Southwest Casino  Corporation and the purchasers named therein                                                                                           |   | Incorporated by reference  to Exhibit 10.48 to the Registration on Form SB-2 filed February 28, 2007.              |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 4.42      |   | Form of Warrant issued  March 10, 2008 by Southwest Casino Corporation                                                                                                                                                                     |   | Incorporated by reference  to Exhibit 4.1 to the Current Report on Form 8-K filed March 13, 2008.                  |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 4.15      |   | Form of Registration  Rights Agreement, dated March 10, 2008, between Southwest Casino Corporation  and non-affiliate guarantors and James B. Druck, Thomas E. Fox, Jeffrey S.  Halpern and Gus A Chafoulias                               |   | Incorporated by reference  to Exhibit 4.2 to the Current Report on Form 8-K filed March 13, 2008.                  |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 10.1      |   | 2004 Stock Incentive Plan                                                                                                                                                                                                                  |   | Incorporated by reference  to Exhibit 10.1 to the Current Report to Form 8-K filed  August 6, 2004. |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 10.2      |   | Option Agreement dated  July 1, 2004, between Southwest Casino and James B. Druck                                                                                                                                                     |   | Incorporated by reference  to Exhibit 10.2 to the Current Report on Form 8-K filed  August 6, 2004. |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 10.3      |   | Option Agreement dated  July 1, 2004, between Southwest Casino and Jeffrey S. Halpern                                                                                                                                                 |   | Incorporated by reference  to Exhibit 10.3 to the Current Report on Form 8-K filed  August 6, 2004. |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 10.4      |   | Option Agreement dated  July 1, 2004, between Southwest Casino and Thomas E. Fox                                                                                                                                                      |   | Incorporated by reference  to Exhibit 10.4 to the Current Report on Form 8-K filed  August 6, 2004. |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 10.5      |   | Third Amended and Restated  Gaming Management Agreement dated June 16, 1995 between The Cheyenne and  Arapaho Tribes of Oklahoma and Southwest Casino and Hotel Corp.                                                                 |   | Incorporated by reference  to Exhibit 10.5 to the Current Report on Form 8-K filed  August 6, 2004. |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
| 10.6      |   | Amendment No. 2 to  Third Amended and Restated Gaming Management Agreement dated June 5,  1999 between The Cheyenne and Arapaho Tribes of Oklahoma and Southwest Casino  and Hotel Corp.                                         |   | Incorporated by reference  to Exhibit 10.6 to the Current Report on Form 8-K filed  August 6, 2004. |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |
|      |   |                                                                                                                                                                                                                                       |   |                                                                                                               |

 

\

E-2

----

 
| 10.7   |   | Amendment No. 3 to  Third Amended and Restated Gaming Management Agreement dated November 13,  2000 between The Cheyenne and Arapaho Tribes of Oklahoma and Southwest Casino  and Hotel Corp.                                                                                           |   | Incorporated by reference  to Exhibit 10.7 to the Current Report on Form 8-K filed  August 6, 2004.                                            |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.8   |   | Amendment No. 7 to  Third Amended and Restated Gaming Management Agreement dated  September 4, 2003 between The Cheyenne and Arapaho Tribes of Oklahoma  and Southwest Casino and Hotel Corp.                                                                                           |   | Incorporated by reference  to Exhibit 10.8 to the Current Report on Form 8-K filed  August 6, 2004.                                            |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.9   |   | Member Control Agreement  of North Metro Harness Initiative, LLC, dated June 8, 2004                                                                                                                                                                                                         |   | Incorporated by reference  to Exhibit 10.10 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.10  |   | BLN Office Park Lease  dated August 10, 2004, between Southwest Casino and Hotel Corp. and BLN  Office Park Associates.                                                                                                                                                                      |   | Incorporated by reference  to Exhibit 10.10 to the Registration Statement on Form SB-2 filed February  28, 2007.                                              |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.11  |   | Lease dated  March 1999, by and between Cripple Creek Development Corp. d/b/a Gold  Rush Hotel & Casino, Blue Building Development, Inc. d/b/a Gold  Digger’s Casino, Mark Brockley, Annesse Brockley, Gold Rush I, LLC and  Southwest Casino and Hotel Corp., as amended |   | Incorporated by reference  to Exhibit 10.11 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.12  |   | Employment Agreement,  dated effective July 1, 2004, between Southwest Casino and Hotel Corp.  and James B. Druck                                                                                                                                                                            |   | Incorporated by Reference  to Exhibit 10.13 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.13  |   | Employment Agreement,  dated effective July 1, 2004, between Southwest Casino and Hotel Corp.  and Jeffrey S. Halpern                                                                                                                                                                        |   | Incorporated by Reference  to Exhibit 10.14 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.14  |   | Employment Agreement,  dated effective July 1, 2004, between Southwest Casino and Hotel Corp.  and Thomas E. Fox                                                                                                                                                                             |   | Incorporated by reference  to Exhibit 10.15 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.15  |   | Form of  Indemnification Agreements by and between Southwest Casino and Hotel Corp.  and corporate officers and directors                                                                                                                                                                    |   | Incorporated by reference  to Exhibit 10.17 to the Current Report on Form 8-K/A filed  October 5, 2004.                                        |
| 10.16  |   | Indemnification Agreement,  dated June 29, 2004, by and between Lone Moose Adventures, Inc. and  David C. Merrell                                                                                                                                                                       |   | Incorporated by reference  to Exhibit 10.18 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.17  |   | Introduction Agreement,  dated June 29, 2004, by and between Lone Moose Adventures, Inc. and  Jenson Services, Inc.                                                                                                                                                                |   | Incorporated by reference  to Exhibit 10.19 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.18  |   | Lease, dated May 1,  1998, by and between Lois L. Woods and Southwest Casino and Hotel Corp., as  amended                                                                                                                                                                                    |   | Incorporated by reference  to Exhibit 10.18 to the Registration on Form SB-2 filed February 28, 2007.                                                         |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.19  |   | Commitment Letter, dated  October 14, 2003, by and between Southwest Casino and Hotel Corp. and  Oppenheimer & Co. Inc.                                                                                                                                                             |   | Incorporated by reference  to Exhibit Incorporated by reference to Exhibit 10.21 to the  Current Report on Form 8-K filed August 6, 2004. |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.20  |   | Member Control Agreement,  dated June 14, 2004, by and between SW Missouri, LLC and Southwest  Casino and Hotel Corp.                                                                                                                                                                        |   | Incorporated by reference  to Exhibit 10.22 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.21  |   | Operating Agreement of  Southwest Missouri Gaming, LLC dated June 16, 2004.                                                                                                                                                                                                                  |   | Incorporated by reference  to Exhibit 10.23 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.22  |   | Management Agreement dated  June 16, 2004 by and among Southwest Missouri Gaming, LLC, Robert E. Low  and W Missouri, LLC.                                                                                                                                                                   |   | Incorporated by reference  to Exhibit 10.24 to the Current Report on Form 8-K filed  August 6, 2004.                                           |
|   |   |                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                          |
| 10.23  |   | Stipulation and Agreement,  dated June 17, 2004, by and among Southwest Casino and Hotel Corp., and  the Colorado Division of Gaming                                                                                                                                                         |   | Incorporated by reference  to Exhibit 10.25 to the Current Report on Form 8-K filed  August 6, 2004.                                           |

 

E-3

----

 
| 10.24  |   | Revolving Credit and Term  Loan Agreement, dated October 20, 2005, between Southwest Casino and  Hotel Corp. and Crown Bank                                                                                                       |   | Incorporated by reference  to Exhibit 10.1 to the Current Report on Form 8-K filed  October 26, 2005.  |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.25  |   | Guaranty by Corporation,  dated October 20, 2005, by Southwest Casino and Hotel Corp. for the  benefit of Crown Bank                                                                                                              |   | Incorporated by reference  to Exhibit 10.2 to the Current Report on Form 8-K filed  October 26, 2005.  |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.26  |   | Security Agreement, dated  October 20, 2005, between Southwest Casino Corporation and Crown Bank                                                                                                                                  |   | Incorporated by reference  to Exhibit 10.3 to the Current Report on Form 8-K filed  October 26, 2005.  |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.27  |   | Stock Pledge Agreement,  dated October 20, 2005, between Southwest Casino Corporation and Crown  Bank                                                                                                                             |   | Incorporated by reference  to Exhibit 10.4 to the Current Report on Form 8-K filed  October 26, 2005.  |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.28  |   | Security Agreement, dated  October 20, 2005, between Southwest Casino and Hotel Corp. and Crown  Bank                                                                                                                             |   | Incorporated by reference  to Exhibit 10.5 to the Current Report on Form 8-K filed  October 26, 2005.  |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.29  |   | Membership Interest Pledge  Agreement, dated October 20, 2005 between Southwest Casino and Hotel  Corp. and Crown Bank (50% North Metro Harness Initiative, LLC)                                                                  |   | Incorporated by reference  to Exhibit 10.6 to the Current Report on Form 8-K filed  October 26, 2005.  |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.30  |   | Membership Interest Pledge  Agreement, dated October 20, 2005 between Southwest Casino and Hotel  Corp. and Crown Bank (Gold Rush I, LLC, Southwest Casino Deadwood, LLC and SW  Missouri, LLC)                                   |   | Incorporated by reference  to Exhibit 10.7 to the Current Report on Form 8-K filed  October 26, 2005.  |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.31  |   | Stock Pledge Agreement,  dated October 20, 2005, between Southwest Casino and Hotel Corp. and  Crown Bank (Southwest Entertainment, Inc.)                                                                                    |   | Incorporated by reference  to Exhibit 10.8 to the Current Report on Form 8-K filed  October 26, 2005.  |
| 10.32  |   | Form of Personal  Guaranty by James Druck, Thomas Fox and Jeffrey Halpern, officers of  Southwest Casino Corporation, dated October 20, 2005, for the benefit of  Crown Bank                                                 |   | Incorporated by reference  to Exhibit 10.9 to the Current Report on Form 8-K filed  October 26, 2005.  |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.33  |   | Form of Personal  Guaranty by non-affiliates dated October 20, 2005 for the benefit of  Crown Bank                                                                                                                           |   | Incorporated by reference  to Exhibit 10.10 to the Current Report on Form 8-K filed  October 26, 2005. |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.34  |   | Form of Personal  Guaranty by Trust dated October 20, 2005 for the benefit of Crown Bank                                                                                                                                     |   | Incorporated by reference  to Exhibit 10.11 to the Current Report on Form 8-K filed  October 26, 2005. |
|   |   |                                                                                                                                                                                                                                   |   |                                                                                                                  |
| 10.35  |   | Form of  Indemnification Agreements by and between Southwest Casino Corporation and  each of David H. Abramson, Gus A. Chafoulias, Jim Holmes and Gregg P.  Schatzman, independent members of Southwest’s Board of Directors |   | Incorporated by reference  to Exhibit 10.35 to the Annual Report on Form 10-KSB filed March 31, 2006.                 |

 

E-4

----

 
| 10.36  |   | Gaming Management  Agreement, dated March 24, 2006, between Southwest Casino and Hotel  Corp. and the Otoe-Missouria Tribe of Indians (not effective until approved  by the National Indian Gaming Commission)                                                               |   | Incorporated by reference  to Exhibit 10.36 to the Annual Report on Form 10-KSB filed March 31, 2006.    |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.37  |   | Employment Agreement  between Southwest and Tracie L. Wilson dated June 29, 2006                                                                                                                                                                                                  |   | Incorporated by reference  to Exhibit 10.1 to the Quarterly Report on Form 10-QSB filed August 14, 2006. |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.38  |   | Stock Option Agreement  between Southwest and Tracie L. Wilson dated June 29, 2006                                                                                                                                                                                                |   | Incorporated by reference  to Exhibit 10.2 to the Quarterly Report on Form 10-QSB filed August 14, 2006. |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.39  |   | Asset Purchase Agreement  dated December 18, 2006 by and among Southwest Eagle, LLC, Richard F.  Fabiano, Frank R. Spadafore, Dorian N. Lange and Pinnacle Casinos and  Resorts, LLC, and Colorado Casino Resorts, Inc., Double Eagle Resorts, Inc.  and Gold Creek Ventures, LLC |   | Incorporated by reference  to Exhibit 10.1 to the Current Report on Form 8-K filed December 21, 2006.    |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.40  |   | Lease dated December 20,  2006 by and between Pinnacle Casinos and Resorts, LLC, Colorado Casino  Resorts, Inc. and Southwest Eagle, LLC                                                                                                                                          |   | Incorporated by reference  to Exhibit 10.2 to the Current Report on Form 8-K filed December 21, 2006.    |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.41  |   | Form of Securities  Purchase Agreement dated as of January 24, 2007 by and among Southwest Casino  Corporation and the purchasers named therein                                                                                                                                   |   | Incorporated by reference  to Exhibit 10.1 to the Current Report on Form 8-K filed January 30, 2007.     |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.42  |   | Amended and Restated Lease  dated January 31, 2007 by and between Pinnacle Casinos and Resorts, LLC,  Colorado Casino Resorts, Inc. and Southwest Eagle, LLC                                                                                                                      |   | Incorporated by reference  to Exhibit 10.1 to the Current Report on Form 8-K filed January 31, 2007.     |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.43  |   | Right of Access and Use  Agreement dated January 31, 2007 by and between Pinnacle Casinos and Resorts,  LLC, Colorado Casino Resorts, Inc. and Southwest Eagle, LLC                                                                                                               |   | Incorporated by reference  to Exhibit 10.2 to the Current Report on Form 8-K filed January 31, 2007.     |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.44  |   | Form of Securities  Purchase Agreement dated as of February 26, 2007 by and among Southwest  Casino Corporation and the purchasers named therein                                                                                                                                  |   | Incorporated by reference  to Exhibit 10.46 to the Registration on Form SB-2 filed February 28, 2007.    |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.45  |   | Credit Agreement Dated  April 20, 2007 by and among North Metro Harness Initiative, LLC and the other  persons party hereto designated as loan parties and Black Diamond Commercial  Finance, L.L.C. and the other financial institutions party hereto as Lenders                 |   | Incorporated by reference  to Exhibit 10.1 to Current Report on Form 8-K filed April 24, 2007.           |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.46  |   | Pledge Agreement dated  April 20, 2007 between Southwest Casino and Hotel Corp. and Black Diamond  Commercial Finance, L.L.C.                                                                                                                                                     |   | Incorporated by reference  to Exhibit 10.2 to Current Report on Form 8-K filed April 24, 2007.           |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.47  |   | Sponsor Support Agreement  dated April 20, 2007 by and among Southwest Casino and Hotel Corp., Southwest  Casino Corporation and Black Diamond Commercial Finance, L.L.C.                                                                                                         |   | Incorporated by reference  to Exhibit 10.3 to Current Report on Form 8-K filed April 24, 2007.           |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.48  |   | Subordination Agreement  dated April 20, 2007 by and among Southwest Casino and Hotel Corp., North  Metro Harness Initiative, LLC and Black Diamond Commercial Finance, L.L.C.                                                                                                    |   | Incorporated by reference  to Exhibit 10.4 to Current Report on Form 8-K filed April 24, 2007.           |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.49  |   | Form of Promissory Note  among Southwest Casino & Hotel Corp., Crown Bank N.A. and co-signers  entered into March 7, 2008.                                                                                                                                                    |   | Incorporated by reference  to Exhibit 10.1 to the Current Report on Form 8-K filed March 13, 2008        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.50  |   | Contribution Agreement  among Southwest Casino & Hotel Corp., co-signers and guarantors dated  March 7, 2008                                                                                                                                                                  |   | Incorporated by reference  to Exhibit 10.2 to the Current Report on Form 8-K filed March 13, 2008        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.51  |   | Stock Pledge Agreement  dated March 7, 2008 among Southwest Casino Corporation, co-signers and  guarantors.                                                                                                                                                                       |   | Incorporated by reference  to Exhibit 10.3 to the Current Report on Form 8-K filed March 13, 2008        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.52  |   | Form of Amended and  Restated Personal Guaranty by James Druck, Thomas Fox and Jeffrey Halpern,  officers of Southwest Casino Corporation, dated March 7, 2008, for the  benefit of Crown Bank                                                                                    |   | Incorporated by reference  to Exhibit 10.4 to the Current Report on Form 8-K filed March 13, 2008        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.53  |   | Stock Option Agreement  between Southwest and James B. Druck dated March 20, 2008.                                                                                                                                                                                                |   | (Filed herewith).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.54  |   | Stock Option  Agreement between Southwest and Thomas E. Fox dated March 20, 2008.                                                                                                                                                                                                 |   | (Filed herewith).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.55  |   | Stock Option Agreement  between Southwest and Jeffrey S. Halpern dated March 20, 2008.                                                                                                                                                                                            |   | (Filed herewith).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.56  |   | Stock Option  Agreement between Southwest and Tracie L. Wilson dated March 20, 2008.                                                                                                                                                                                              |   | (Filed herewith).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.57  |   | Form of Option Agreement  dated March 20, 2008 between Southwest and each of the independent members of  our Board of Directors.                                                                                                                                             |   | (Filed herewith).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                              |   |                                                                                                     |
| 10.58  |   | Stock Option Agreement  dated January 10, 2006 between Southwest and David H. Abramson, Chairman of  the Audit Committee of the Board of Directors.                                                                                                                               |   | (Filed herewith).                                                                                        |

 

E-5

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| 14.1   |   | Code of Conduct                                                                                                  |   | Incorporated by reference  to Exhibit 14 to the Annual Report on Form 10-KSB filed  June 29, 2004.      |
|--------|--------|------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                             |   |                                                                                                                   |
| 14.2   |   | Southwest Casino  Corporation Code of Conduct and Ethics effective December 20, 2007                             |   | Incorporated by reference  to Exhibit 14.1 to the Current Report on Form 8-K filed December 24, 2007.                  |
|   |   |                                                                                                             |   |                                                                                                                   |
| 16.1   |   | Letter on change in  certifying public accountant                                                                |   | Incorporated by reference  to Exhibit 16.1 to the Current Report on Form 8-K filed  September 13, 2004. |
|   |   |                                                                                                             |   |                                                                                                                   |
| 21.1   |   | List of Subsidiaries of  Southwest Casino Corporation                                                            |   | Incorporate by reference  to Exhibit 21.1 to the Annual Report on Form 10-KSB filed March 21, 2007.                    |
|   |   |                                                                                                             |   |                                                                                                                   |
| 23.1   |   | Consent of Independent  Auditors                                                                                 |   | Incorporated by reference  to Exhibit 23.1 to the Registration on Form SB-2 filed February 28, 2007.                   |
|   |   |                                                                                                             |   |                                                                                                                   |
| 23.2   |   | Consent of Oppenheimer,  Wolff & Donnelly (included in Exhibit 5.1)                                          |   | Incorporated by reference  to Exhibit 5.1 to the Registration on Form SB-2 filed February 28, 2007.                    |
|   |   |                                                                                                             |   |                                                                                                                   |
| 31.1   |   | Certification of Chief Executive  Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934  |   | Filed with this report.                                                                                                |
|   |   |                                                                                                             |   |                                                                                                                   |
| 31.2   |   | Certification of Chief  Financial Officer under Rule 13a-14(a) of the Securities Exchange  Act of 1934 |   | Filed with this report.                                                                                                |
|   |   |                                                                                                             |   |                                                                                                                   |
| 32.1   |   | Certification of Chief  Executive Officer under 18 U.S.C. Section 1350                                      |   | Filed with this report.                                                                                                |
|   |   |                                                                                                             |   |                                                                                                                   |
| 32.2   |   | Certification of Chief  Financial Officer under 18 U.S.C. Section 1350                                      |   | Filed with this report.                                                                                                |

 

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*Pursuant toItem 601(b)(2) of Regulation S-B, the registrant agrees to furnish,supplementally, a copy of any exhibit or schedule omitted from any filedexhibit to this report to the Securities and Exchange Commission upon request.

 

E-6

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