**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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** **

**FORM10-KSB**

** **

(Markone)

| **ý**                                                                                                                                                                                                                             | **ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                   |                                                                                    |
| **For the fiscal year ended December 31, 2004**                                                                                                                                                                                        |
|                                                                                                                                                                                                                                   |                                                                                    |
| **o**                                                                                                                                                                                                                                  | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                   |                                                                                    |
| **For the transition period from                 to                .** |
|                                                                                                                                                                                                                                   |                                                                                    |
| **Commission file number 000-50572**                                                                                                                                                                                                   |

 

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**SOUTHWESTCASINO CORPORATION**

(Name of small business 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’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

**None.**

 

Securities registered under Section 12(g) of the Exchange Act:

**Common Stock, par value $0.001 per share**

 

Checkwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. YES  ý NO  o

 

Checkif there is no disclosure of delinquent filers in response to Item 405 ofRegulation S-B contained herein, and no disclosure will be contained, to thebest of Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB. ý

 

TheRegistrant’s revenues for the fiscal year ended December 31, 2004 were$20,208,617.

 

Asof March 24, 2005, 19,388,656 shares of common stock of the Registrant wereoutstanding, and the aggregate market value of the common stock of theRegistrant as of that date (based upon the $2.10 per share closing price of thecommon stock at that date as reported on the Over-The-Counter Bulletin Board),excluding 4,737,500 outstanding shares beneficially owned by directors andexecutive officers, was $30,767,427.

 

Transitional Small Business Disclosure Format (check one):  YES  o NO  ý

 

 

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**PART I**

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# ***As used in this report, references to “Southwest”, “the company”, “we”,“our”, or “us”, unless the context indicates otherwise, refer to SouthwestCasino Corporation and its subsidiaries and do not refer to the predecessorcorporation, Lone Moose Adventures, Inc. References in this report to “Lone Moose” refer to Lone MooseAdventures, Inc. before our reorganization on July 22, 2004.***

 

# **ITEM 1.  DESCRIPTIONOF BUSINESS.**

 

*This Annual Report on Form 10-KSB contains orincorporates by reference not only historical information, but also forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934.  In addition, Southwest or others on Southwest’sbehalf may make forward-looking statements from time to time in oral presentations,including telephone conferences, in press releases or reports, orelsewhere.  Statements that are nothistorical are forward-looking and reflect expectations and assumptions.  We try to identify forward-looking statementsin 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 similar terms.*

 

*Forward-looking statements involve risks anduncertainties.  These uncertaintiesinclude factors that affect all businesses as well as matters specific toSouthwest.  We caution readers not toplace undue reliance on any forward-looking statement that speaks only as ofthe date made and to recognize that forward-looking statements are predictionsof future results, which may not occur as anticipated.  Actual results could differ materially fromthose anticipated in the forward-looking statements and from historicalresults, due to the risks and uncertainties described below under the heading “RiskFactors,” as well as others that we may consider immaterial or do notanticipate at this time.  The followingrisks and uncertainties identified in this report are not exclusive and furtherinformation concerning our business, including factors that potentially couldmaterially affect our financial results or condition, may emerge from time totime.  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 anyfurther disclosures we may make on related subjects in our quarterly reports onForm 10-QSB and current reports on Form 8-K we file with or furnishto the Securities and Exchange Commission.*

 

**(a)****                                 ****BusinessDevelopment****.**

 

*Corporate Reorganization*

 

On July 22, 2004, Lone MooseAdventures, Inc. (now Southwest Casino Corporation), a Nevada corporation, LoneMoose Acquisition Corporation, a Minnesota corporation and wholly-ownedsubsidiary of Lone Moose, and Southwest Casino and Hotel Corp., a Minnesotacorporation, consummated a reorganization under the Agreement and Plan ofReorganization dated July 14, 2004 among Lone Moose, Lone Moose Acquisition Corporation,Southwest Casino and Hotel Corp. and certain shareholders of Lone Moose.  Under the reorganization agreement, LoneMoose Acquisition merged with and into Southwest Casino and Hotel Corp.  Southwest Casino and Hotel Corp. was thesurviving corporation in that merger and became a wholly owned subsidiary ofLone Moose, which changed its name to Southwest Casino Corporation. SouthwestCasino and Hotel Corp. is now a wholly-owned operating subsidiary of SouthwestCasino Corporation.

 

Under the terms of thereorganization agreement, Lone Moose (now Southwest) acquired 100% of theissued and outstanding shares of common stock and series C convertiblepreferred stock of Southwest Casino and Hotel Corp. in consideration for theissuance of 16,161,343 shares of Lone Moose common stock to shareholders ofSouthwest Casino and Hotel Corp.  Inaccordance with the reorganization agreement, each share of Southwest Casinoand Hotel Corp. common stock and series C convertible preferred stock issuedand outstanding immediately before the effective time was cancelled andconverted automatically into the right to receive 0.5 shares of Lone Moosecommon stock.  Including 1,500,000

 

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shares of Lone Moose commonstock acquired by principal shareholders of Southwest Casino and Hotel Corp.before the reorganization under restricted stock purchase agreements, theformer Southwest Casino and Hotel Corp. equity security holders heldapproximately 91.7% of the outstanding securities of Southwest upon closing thereorganization.

 

Excluding the 1,500,000shares of Lone Moose common stock held by Southwest Casino and Hotel Corp.shareholders, Lone Moose had approximately 1,589,000 shares of common stockoutstanding before the reorganization, which represented approximately 8.3% ofthe outstanding securities of Lone Moose (now Southwest Casino Corporation)after the reorganization and after taking into account (i) a reverse split ofits outstanding common stock on the basis of 0.6667 shares for every shareoutstanding on June 7, 2004; (ii) a forward split by dividend declared on July2, 2004 and effective July 13, 2004 on the basis of 7.4672 shares for every oneshare of Lone Moose common stock outstanding; (iii) the cancellation of 333,500shares of common stock of Lone Moose (which became approximately 2,489,192shares after the forward split) held by Christopher B. Glover and Michael C.Brown, founding shareholders of Lone Moose; (iv) the issuance of an aggregateof 150,000 shares of “restricted” Lone Moose common stock to David C. Merrellunder his indemnification agreement dated June 29, 2004; and (v) the issuanceof 719,685 shares of “restricted” Lone Moose common stock to Jenson Services,Inc., a Utah corporation, under an introduction agreement dated June 29, 2004,by and between Jenson Services, Inc. and Lone Moose.

 

Lone Moose Adventures, Inc.

 

Lone Moose Adventures, Inc.was formed on January 2, 2002 and, before closing the reorganization describedabove, conducted only minimal operations and received only minimalrevenue.  Lone Moose was organized totake clients on adventure tours in the Wasatch mountain range of Utah.  Lone Moose conducted fewer than two dozenadventure tours before closing the 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 closing thereorganization and sale of assets, we have not engaged in any aspect of thebusiness Lone Moose conducted before the reorganization.

 

Southwest Casino and HotelCorp.

 

Southwest Casino and HotelCorp., our parent company before the July 2004 reorganization, is now a whollyowned operating subsidiary of Southwest Casino Corporation.  Southwest Casino and Hotel Corp. wasorganized under the laws of the State of Minnesota in 1992 under the originalname “Southwest Casino and Hotel Ventures, Inc.”

 

*Casino Management*

 

Initially, we pursuedmanagement contracts for gaming facilities with Native American tribes. In1993, Southwest Casino and Hotel Corp. was the first company approved by theNational Indian Gaming Commission (NIGC) as a management contractor inconnection with our management contract with the Cheyenne and Arapaho Tribes ofOklahoma for a gaming facility in Concho, Oklahoma.

 

The original term of ouragreement with the Cheyenne and Arapaho Tribes was seven years. In 1999, weextended the agreement for an additional three years. In 2001, we amended theagreement to add a second gaming facility in Clinton, Oklahoma. We amended themanagement agreement again in 2003 to extend our relationship until 2007.  In December 2004, the NIGC notified theTribes that the NIGC is concerned the Tribes are not distributing properly thenet revenue they receive from gaming operations.  The NIGC’s concerns relate to the use ofgaming revenue after we have distributed it to the Tribes and are not relatedto our management of the Tribes’ casinos. However, if the NIGC determines that the Tribes have

 

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committed a substantialviolation it could bring an enforcement action with potential penalties thatinclude, in extreme cases, closing the Tribes’ gaming facilities.

 

After the close of our 2004fiscal year, we announced that Southwest Casino and Hotel Corp. had enteredinto two additional amendments to the management agreement with the Cheyenneand Arapaho Tribes of Oklahoma.  TheTribes approved the amendments on January 22, 2005. Also on that day, theTribes approved entering into a gaming compact with the State of Oklahoma thatwill permit the Tribes to offer an expanded scope of gaming, includingpermitted card games, at their casinos.

 

Under these amendments,Southwest would develop and assist the Tribes in financing up to $15 millionfor expansions of their casinos at Concho and Clinton, Oklahoma, development ofa new gaming facility and resort at Canton, Oklahoma, and construction of anIndian health care building and Bureau of Indian Affairs offices on triballands. Southwest would then manage the expanded gaming operations permittedunder the compact with Oklahoma at all three casinos. In connection withSouthwest’s role in financing, expanding and managing the Tribes’ casinos, ourmanagement agreement would have been extended until May 19, 2011 and Southwest’smanagement fee would have increased.

 

A Cheyenne and ArapahoTribes of Oklahoma Tribal Court ruled the Tribal Council meeting at which theamendments were approved invalid. Southwest cannot predict at this time whether that ruling may bechallenged.  If not, we will again seekapproval of the amendments from the appropriate tribal authority. In addition,the amendments were submitted to the NIGC for approval and cannot becomeeffective until that approval is received. However, the NIGC is unlikely toapprove the amendments until issues regarding the legitimacy of the TribalCouncil meeting at which the amendments were approved are resolved or theamendments are again approved by the appropriate tribal authority.

 

*Casino Operations*

 

During 1998 and 1999, oursubsidiaries — Southwest Casino and Hotel Corp. and Gold Rush I, LLC, aColorado limited liability company — secured three gaming licenses to operatethe Gold Rush, Gold Digger’s and Uncle Sam’s casinos in Cripple Creek,Colorado. Cripple Creek is one of three historic mining towns in Coloradopermitted to engage in limited stakes ($5.00 limit) gaming. All threeproperties were either closed or near closing when we acquired them.

 

In 2002 and 2003, weidentified two additional business opportunities. We entered into a developmentcontract with the city of Rockaway Beach, Missouri to assist them in thedevelopment of a downtown redevelopment and riverboat casino. Rockaway Beach islocated on the White River. We launched an initiative to amend the MissouriConstitution to enable riverboat gaming on the White River at Rockaway Beach.That initiative went to popular vote in the state on August 3, 2004 and wasunsuccessful.  It is unlikely, but stillpossible that this initiative will be revived if the project gains greatersupport from the surrounding communities, including Branson, Missouri.

 

In December 2003, NorthMetro Harness Initiative, LLC, then a wholly owned subsidiary of SouthwestCasino and Hotel Corp., filed an application with the Minnesota RacingCommission to develop a harness racetrack in Columbus Township, Anoka County,Minnesota, approximately 30 miles north of downtown Minneapolis. In June 2004,we sold a 50 percent membership interest in North Metro to MTR-Harness, Inc., asubsidiary of MTR Gaming Group, Inc.  OnJanuary 19, 2005, the Minnesota Racing Commission voted to grant the licensesrequired for development and operation of this facility.  Minnesota law permits licensed racetracks tooperate card rooms with up to 50 tables after approval of a card club plan ofoperation and completion of the first 50-day live race meet at the track.  North Metro anticipates that it will deriverevenues from charges for hosting the “unbanked” or “player pool” games at thecard room,

 

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generally as a percentage ofaccumulated wagers or a “rake” from certain wagers.  North Metro will not have a stake in theoutcome of any card game.

 

North Metro will constructits harness track and entertainment facility on 180-acres located just north ofthe confluence of Interstates 35W and 35E north of the Minneapolis-St. Paulmetropolitan area.  The facility willinclude a harness track and approximately 110,000 square feet of associatedgrandstand, card club, horse barns and maintenance buildings.  It will also include construction of internalroadways, surface parking, wetland mitigation and storm water treatment, aswell as improvements to access roads.  Anorganization opposed to gambling has filed two lawsuits and an organizationrepresenting the owners of thoroughbred horses that race at the state’s otherClass A licensed racetrack has filed an appeal in attempts to block developmentof this facility and overturn the licenses granted to North Metro.

 

*Consulting*

 

In addition to managingNative American gaming facilities and owning and operating our own casinos, wealso provide consulting services for gaming operations. In May 2001, we enteredinto a consulting agreement with the Alabama-Coushatta Tribe of Texas to assistthem in opening a Tribal casino in Livingston, Texas. The operation wasprofitable for eight months. However, when the facility opened there was adispute between the Tribe and the State of Texas regarding the Tribe’sauthority to operate a casino and the types of gaming that were permittedthere. The Tribe commenced a Declaratory Judgment Action against the State ofTexas seeking to clarify the scope of gaming issues.  The Federal District Court for the State ofTexas permitted the Tribe to open and operate the enterprise in November 2001pending resolution of this litigation. In June 2002, the Court ruled that theTribe was not entitled to engage in casino gaming and directed them to closethe facility. The facility closed in accordance with the Court’s order in July2002. The Tribe continues to seek legislation or other authorization to permitthem to reopen. If the Tribe receives legislative authoritzation to reopen, weanticipate that the Tribe will engage in a competitive process to select amanager for its operations.  We do notknow whether we will be included in the Tribe’s selection process, if oneoccurs, or whether we would be selected at the conclusion of that process.

 

*Prior Bankruptcy*

 

Gold Rush I, LLC, awholly-owned subsidiary of Southwest Casino and Hotel Corp., filed a voluntarypetition for Chapter 11 protection under the United States Bankruptcy Act as aresult of a dispute over rent with the landlord of the Gold Rush and Gold Digger’sCasinos in Cripple Creek, Colorado. Gold Rush I was successful in itslitigation against the landlord regarding the rent dispute and emerged frombankruptcy when the Bankruptcy Court confirmed its reorganization plan, whichprovided for full payment to all creditors with interest, on January 10, 2003.

 

**(b)           Business of Company.**

 

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

 

Since its inception, LoneMoose engaged in limited operations primarily related to the provision ofadventure tours in the State of Utah. Immediately after closing thereorganization in which Southwest Casino and Hotel Corp. became a wholly-ownedsubsidiary of Lone Moose, Lone Moose sold substantially all of the assets andliabilities of Lone Moose’s adventure tour business to the foundingshareholders of Lone Moose. Since closing the reorganization and sale ofassets, Southwest has not engaged in any aspect of the business Lone Mooseconducted before the reorganization.

 

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Southwest develops, owns,operates and manages casinos, gaming facilities and related amenities invarious markets across the United States. Based in Minneapolis, Minnesota,Southwest currently has gaming operations in Oklahoma and Colorado withapproximately 194 full and part-time employees. We also manage 312 employees of the tribal enterprises of the Cheyenneand Arapaho Tribes under our management contract for those facilities. Ourgrowth plans include the diversification and expansion of existing operations,project development and the pursuit of new gaming opportunities.

 

*Casino Management*

 

Southwest Casino providesmanagement services in connection with two Lucky Star casino facilities, onelocated in Concho, Oklahoma and the other located in Clinton, Oklahoma, underthe terms of a management agreement with the Cheyenne and Arapaho Tribes ofOklahoma.  We anticipate that a thirdgaming facility will be developed at Canton, Oklahoma, if and when therequisite approvals and financing are secured.

 

*Casino Operations*

 

Southwest Casino owns andoperates three gaming facilities in Cripple Creek, Colorado. Cripple Creek is asmall, historic mining town near Colorado Springs that is permitted to engagein limited stakes ($5.00 limit) gaming. Eighteen casinos operate currently inCripple Creek. The combined Gold Rush and Gold Digger’s facilities offerapproximately 408 slot machines and a 4-table game area while Uncle Sam’sCasino features approximately 67 slot machines.  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.

 

In the past, SouthwestCasino leased and operated B.B. Cody’s Casino in Deadwood, South Dakota. Wesuccessfully negotiated a termination of that lease effective March 10,2004.  We completed the withdrawal,storage and transfer of our South Dakota equipment, and the other tasks relatedto the wind down of our South Dakota operations, in April 2004.

 

Through North Metro HarnessInitiative, LLC, Southwest and its 50 percent partner MTR-Harness, Inc., anaffiliate of MTR Gaming Group, Inc. were granted Class A and Class B licensesfrom the Minnesota Racing Commission on January 19, 2005 to develop and operatea harness racing track on approximately 180 acres of land in Columbus Township,Anoka County, Minnesota.  Ananti-gambling organization has filed two lawsuits and an organizationrepresenting the owners of thoroughbred horses that race at the state's otherClass A licensed track has filed an appeal in attempts to overturn the licensegrants.  We cannot predict the ultimateoutcome of this litigation.  In addition,we have significant additional capital commitments in connection with thisproject.  Failure to meet thesecommitments could lead to dilution of our ownership interest in North Metro anda reduction in the revenue we receive from this project.  Assuming the licenses survive these lawsuits,we meet our capital commitments, and North Metro receives all requisiteapprovals and project financing, we will share the ownership and operation ofthis project with our 50/50 partner, MTR-Harness, Inc.

 

If implemented successfully,this racing facility would offer pari-mutuel wagering on a 5/8-mile track withcombined seating for over 2,000 track, restaurant and card room patrons.  In addition, the facility would accommodatesimulcast wagering on live harness racing events broadcast into the facility.  As part of this harness initiative, we willseek authority from the Minnesota Racing Commission to operate a card room withapproximately 50 gaming tables.  Undercurrent law, before we can open this card room, we must conduct at least 50days of live racing at the track and we are only permitted to simulcast harnessraces.  We intend to seek legislativeauthorization to begin card room operations before completing 50 days of racingand to simulcast races by all horse breeds.

 

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On August 3, 2004, voters inthe State of Missouri defeated a proposed amendment to the state constitutionthat would have permitted construction and operation of a riverboat gamingfacility on the White River. Approval of this amendment was needed in order tocontinue development of a riverboat casino in Rockaway Beach, Missouri in whichwe own a 30 percent interest.  It isunlikely, but still possible that this initiative will be revived if theproject gains greater support from the surrounding communities, including Branson,Missouri.

 

**Competition.**

 

The gaming industry,including the development, operation and management of casinos, racetracks andother types of gaming facilities, is highly competitive, especially given therapid rate at which the industry is expanding.  For example, a number of management companiesmay make proposals to a particular tribe for the development and management ofa single Indian gaming facility, and any gaming facilities developed or managedby us will compete with a rapidly expanding number of other gaming facilitiesof varying quality and size, including gaming facilities that are part ofnational or regional chains, along with other forms of gaming andentertainment.  Similarly, with respectto projects we are pursuing or may pursue in the future, new competitors couldsurface at any time and present alternative proposals for consideration. Manycompetitors have available to them substantially greater financial andpersonnel resources than us. Competition in the future may also be affected byoverbuilding which can adversely affect patronage levels. Given the currentregulatory climate and limited number of new gaming opportunities, it is likelythat competition in our industry will intensify in the future.

 

The approval of a lawpermitting Oklahoma to enter into gaming compacts with Native American tribesin the state permits expansion of Native American gaming opportunities inOklahoma.  Even before the Oklahomavoters approved this measure in November 2004, it caused an increase in competitionin the Oklahoma gaming market. Now that the law is in place, we expectcompetition in this market, in which we currently manage two facilities andplan to develop a third for the Cheyenne and Arapaho Tribes of Oklahoma, toincrease even further.

 

The Cripple Creek, Coloradomarket in which we operate the Gold Rush, Gold Digger’s and Uncle Sam’s casinosconsists of eighteen gaming facilities with approximately 4,786 machines, ofwhich we operate 475.  The Cripple Creekmarket generated total gaming revenues of approximately $148.6 million incalendar year 2004.  This is a verycompetitive market that has shown relatively slow revenue growth in recentyears even as the number of gaming devices continues to grow.  For that reason, our ability to maintain andgrow our Colorado operations is largely dependent on our ability to increaseour market share in a highly competitive environment. Cripple Creek is 40 mileswest of Colorado Springs, Colorado, which is 30 miles south of Denver,Colorado, a metropolitan area that has a population of approximately 2.6million.  We believe that the Gold Rushand Gold Digger’s Casinos attract customers primarily from Colorado Springs,Fort Carson and smaller areas south of Denver while Uncle Sam’s Casino attractscustomers primarily from the local Cripple Creek area.

 

Southwest owns a 50 percentmembership interest in North Metro Harness Initiative, LLC, which was grantedlicenses from the Minnesota Racing Commission to build and operate a harnessracing track north of the Twin Cities of Minneapolis and St. Paul, Minnesota onJanuary 19, 2005.  This facility, ifcompleted, will compete with an existing thoroughbred racetrack and card roomon the south side of the Twin Cities metropolitan area as well as severalIndian gaming facilities located outside of the Twin Cities areas.  In addition, Minnesota’s Governor is activelypromoting a plan to construct a large casino in the Twin Cities area that wouldbe run by three northern Minnesota Indian tribes and contribute a significantportion of its revenue to the state.  Nolocation for this casino, if approved, has been announced and the Governor hasstated that he intends for cities within the Twin Cities area to compete tohost it.  This proposed casino must beapproved by the Minnesota legislature. We cannot predict whether

 

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the plan is likely toreceive legislative approval or, because the location of the proposed casino isnot known, the extent to which it would compete with the North Metro facilityif approved.

 

For more informationregarding the competitive environment in which we operate, please see the “RiskFactors” below under *Item 1. Description ofBusiness* of this report.

 

**Dependence on One or a FewMajor Customers.**

 

Our current gamingactivities are concentrated in our Oklahoma and Colorado operations. 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.

 

We generate a significantportion of our revenue through our management agreement with the Cheyenne andArapaho Tribes of Oklahoma for the Lucky Star casinos in Concho, Oklahoma andClinton, Oklahoma. Our current management agreement runs through May 20, 2007.  The loss of this contract and the managementfees we receive under it would have a material adverse effect on our financialcondition. A copy of the management agreement, as amended, is attached to theCurrent Report on Form 8-K we filed on October 5, 2004. See Exhibits 10.5 to10.9 of that report.

 

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

 

In addition to the gaminglicenses described below, Southwest owns a federally-registered trademark in thename “Lucky Star” for its gaming-related businesses.  Southwest does not own any other registeredtrademarks or patents or other significant intellectual property.

 

**Need for GovernmentalApprovals of Principal Services.**

 

The gaming industry ishighly regulated at the federal and state levels and gaming on tribal land isfurther regulated by the National Indian Gaming Commission and the Bureau ofIndian Affairs. We must maintain the gaming licenses applicable to each of ouroperations in order to continue our current business and, in most instances,must obtain new or amended gaming licenses in connection with any expansion ofour current operations or development of new gaming facilities. At this time,we have a management contract with the Cheyenne and Arapaho Tribes of Oklahomathat has been approved by the National Indian Gaming Commission. Anymodification of this contract must be approved by the NIGC. In addition, wehold licenses issued by Colorado for our Gold Rush, Gold Digger’s and Uncle Sam’scasinos in Cripple Creek.  On January 19,2005, the Minnesota Racing Commission voted to grant North Metro HarnessInitiative, LLC, in which we own a 50 percent membership interest, licenses todevelop and operate a harness racetrack, and we will also seek approval of aplan of operation for a card club at this facility.  In connection with these licenses, theColorado Division of Gaming, the NIGC and the Minnesota Racing Commission mustapprove any addition of a director, officer or five percent or greater shareholder.  In addition, any affiliate of ours, such asthe joint venturers we have worked with in pursuit of some of our new gamingopportunities, is subject to review by and the rules and regulations of anyjurisdiction in which we hold a gaming license, and we are subject to review byand the rules of jurisdictions in which they hold licenses.

 

**Effect of Existing orProbable Governmental Regulations on Business.**

 

The gaming industry and ouroperations within that industry are regulated extensively.  The services we provide to the Cheyenne andArapaho Tribes of Oklahoma at the Lucky Star Casinos are regulated under thenational Indian Gaming Regulatory Act, the rules and regulations of theNational Indian Gaming Commission, and the rules and regulations of theCheyenne and Arapaho Tribes of Oklahoma Gaming

 

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Commission.  The Gold Rush, Gold Digger’s and Uncle Sam’scasinos in Cripple Creek, Colorado are subject to the Colorado Limited GamingAct and related rules and regulations that are enforced by the ColoradoDivision of Gaming.  In addition, onJanuary 19, 2005, the Minnesota Racing Commission voted to grant North MetroHarness Initiative, LLC, in which Southwest Casino and Hotel Corp. owns a 50percent membership interest, Class A and Class B licenses to develop andoperate a harness racetrack and card club on the north side of theMinneapolis-St. Paul metropolitan area.

 

*Regulation of IndianGaming*

 

The terms and conditions ofmanagement contracts for the operation of Indian-owned casinos, and of allgaming on Indian land in the United States, are subject to the Indian GamingRegulatory Act (“IGRA”), which is administered by NIGC, and also are subject tothe provisions of statutes relating to contracts with Indian tribes, which areadministered by the Secretary of the Interior (the “Secretary”) and the BIA.The regulations and guidelines under which NIGC will administer IGRA areevolving. The IGRA and those regulations and guidelines are subject to interpretationby the Secretary and NIGC and may be subject to judicial and legislativeclarification or amendment.

 

We are required to providethe NIGC with background information on each of our directors and eachshareholder who holds five percent or more of our outstanding securities,including a complete financial statement, a description of that person’s gamingexperience, and a list of jurisdictions in which that person holds gaminglicenses. Background investigations of key employees also may be required.

 

Under IGRA, the NIGC mustapprove our management contracts as well as any amendments to our managementcontracts and certain related agreements. Our Gaming Management Agreement with the Cheyenne and Arapaho Tribes ofOklahoma has been approved by the NIGC and our performance under it remainssubject to NIGC regulation. The NIGC may review any management contracts andrelated agreements of ours for compliance with IGRA at any time in the future.The NIGC will not approve a management contract if any of our directors or a 5%shareholders (i) is an elected member of the Indian tribal government that ownsthe facility we contract with; (ii) has been or is convicted of a felony gamingoffense; (iii) has knowingly and willfully provided materially false informationto the NIGC or the tribe; (iv) has refused to respond to questions from theNIGC; or (v) is a person whose prior history, reputation and associations posea threat to the public interest or to effective gaming regulation and control,or create or enhance the chance of unsuitable activities in gaming or thebusiness and financial arrangements incidental thereto.

 

In addition, the NIGC willnot approve a management contract if we or any of our agents have attempted tounduly influence any decision or process of tribal government relating togaming, or if the management company has breached materially the terms of themanagement contract or the tribe’s gaming ordinance, or a trustee, exercisingdue diligence, would not approve such management contract.

 

The NIGC also will notapprove a management contract unless the NIGC determines that the contractprovides, among other things, for (i) adequate accounting procedures andverifiable financial reports to be furnished to the tribe; (ii) tribal accessto the daily operations of the gaming enterprise, including the right to verifydaily gross revenues and income; (iii) minimum guaranteed payments to thetribe, which must have priority over the retirement of development andconstruction costs; (iv) a ceiling on the repayment of development andconstruction costs; and (v) a contract term not exceeding five years and amanagement fee not exceeding 30% of profits; provided that the NIGC may approveup to a seven year term and a management fee not to exceed 40% of profits ifNIGC is satisfied that the capital investment required, the risk exposure, andthe income projections for the particular gaming activity justify the largerprofit allocation and longer term.

 

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Three separate classes oftribal gaming were established under IGRA — Class I, Class II, and Class III.Class I gaming includes all traditional or social games played by a tribe inconnection with celebrations or ceremonies. Class II gaming includes games suchas bingo, pulltabs, punch boards, instant bingo and card games that are notplayed against the house. Class III gaming includes casino-style gamingincluding table games such as blackjack, craps and roulette, as well as gamingmachines such as slots, video poker, lotteries, and pari-mutuel wagering.

 

IGRA prohibits substantiallyall forms of Class III gaming unless the tribe has entered into a writtenagreement with the state in which the casino is located that specificallyauthorizes the types of commercial gaming the tribe may offer (a “tribal-statecompact”). IGRA requires states to negotiate in good faith with tribes thatseek tribal-state compacts, and grants Indian tribes the right to seek afederal court order to compel such negotiations. Many states have refused toenter into such negotiations. Tribes in several states have sought federalcourt orders to compel such negotiations under IGRA; however, the Supreme Courtof the United States held in 1996 that the Eleventh Amendment to the UnitedStates Constitution immunizes states from suit by Indian tribes in federalcourt without the states’ consent.

 

In addition to IGRA,tribal-owned gaming facilities on Indian land are subject to a number of otherfederal statutes. The operation of gaming on Indian land is also dependent uponwhether the law of the state in which the casino is located permits gaming bynon-Indian entities, which may change over time. Any changes in state lawregarding Indian or non-Indian may have a material adverse effect on thecasinos we manage and our business.

 

Indian tribes are sovereignnations with their own governmental systems, which have primary regulatoryauthority over gaming on land within the tribe’s jurisdiction. Because of theirsovereign status, Indian tribes possess immunity from lawsuits to which thetribes have not otherwise consented or otherwise waived their sovereignimmunity defense. Therefore, we are not able to enforce our contracts withIndian tribes unless the tribe has expressly waived its sovereign immunity as tothe tribe’s contractual obligations. Courts strictly construe such waivers. Wehave obtained immunity waivers from the Cheyenne and Arapaho Tribes to enforcethe terms of our management agreement with them, however, the scope of thosewaivers has never been tested in court, and may be subject to dispute.

 

In addition to NIGCregulation, the Cheyenne and Arapaho Tribes of Oklahoma Gaming Commission hasprimary jurisdiction over the Lucky Star casinos we manage for the Cheyenne andArapaho Tribes of Oklahoma.  The GamingCommission enforces the provisions of the Tribes’ gaming ordinance, which aresubject to review by NIGC under standards established by IGRA and have receivedNIGC approval.  The Gaming Commissionapproves games played at the casinos, performs background checks and issueslicenses to all employees of the casinos and to Southwest Casino and HotelCorp. as manager of the casinos.  Inaddition, the Gaming Commission approves our internal control systems andinsures that they meet the minimum internal control standards required by theNIGC, reviews reports required under our Gaming Management Agreement with theTribes, the tribal gaming ordinance and as part of our internal controls, aswell as conducting internal audits of our operations.  If the gaming compact between the Tribes andOklahoma is finalized, the Gaming Commission will also be charged withdeveloping technical standards for new games that can be played at the casinosunder that compact.

 

Under the proposed gamingcompact between the Tribes and Oklahoma, the state of Oklahoma will also haveregulatory authority over the Lucky Star casino operations.  The state regulatory role will be secondaryto that of the Tribes’ Gaming Commission, and we anticipate that it willconsist mostly of monitoring our financial reporting and the work of the GamingCommission.

 

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*Gaming Regulation inColorado*

 

TheColorado Division of Gaming has broad power to ensure compliance with theColorado 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 copy any licensee’s records, mayinvestigate the background and conduct of licensees and their employees, andmay bring disciplinary actions against licensees and their employees.  The Division of Gaming may also conductdetailed background investigations of persons who loan money to, or otherwiseprovide financing to, a licensee.

 

Coloradoissues five types of gaming and gaming-related licenses.  These licenses are revocable andnon-transferable.  All persons employedat our Colorado casinos, and involved in gaming operations must obtain aColorado gaming license.  All licensesmust be renewed annually, except those for key and support employees, whichmust be renewed every two years.  Failureto maintain any of the licenses or approvals required to operate the Gold Rush,Gold Digger’s or Uncle Sam’s casinos would have a material adverse effect onour operations.

 

Asa general rule, no person may have an “ownership interest” in more than threeretail 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 Gaming has ruled that aperson does not have a “substantial interest” if that person’s sole ownershipinterest in a licensee is through the ownership of less than 5% of theoutstanding voting securities of a publicly traded licensee or publicly tradedaffiliated company of a licensee.

 

Underthe Colorado Regulations, any person or entity having any direct or indirectinterest in Southwest may be required to supply the Colorado Commission withsubstantial information, including, but not limited to, background information,source of funding information, a sworn statement that such person or entity isnot holding his or her interest for any other party, and fingerprints.  This information, investigation and licensingas an “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 licensing and investigation fees willhave to be paid by the person in question.

 

TheColorado Commission also has the right to request information from any persondirectly or indirectly interested in, or employed by, a licensee, and toinvestigate the moral character, honesty, integrity, prior activities, criminalrecord, reputation, habits and associations of: (1) all persons licensedpursuant to the Colorado Limited Gaming Act; (2) all officers, directors andstockholders of a licensed privately held corporation; (3) all officers,directors and stockholders holding either a 5% or greater interest or acontrolling interest in a licensed publicly traded corporation; (4) all generalpartners and all limited partners of a licensed partnership; (5) all personsthat have a relationship similar to that of an officer, director or stockholderof a corporation (such as members and managers of a limited liability company);(6) all persons supplying financing or loaning money to any licensee connectedwith the establishment or operation of limited gaming; (7) all persons having acontract, lease or ongoing financial or business arrangement with any licensee,where such contract, lease or arrangement relates to limited gaming operations,equipment devices or premises; and (8) all persons contracting with orsupplying any goods and services to the gaming regulators.

 

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TheDivision of Gaming interprets the Colorado Regulations to permit investigationsof persons or entities providing financing to or acquiring securities from usor 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, note holders, and others providing financing willnot be able to exercise certain rights and remedies without the prior approvalof the Colorado gaming authorities.  Information regarding lenders andholders of securities will be periodically reported to the Colorado gamingauthorities.

 

Anapplication for licensure or suitability may be denied for any cause deemedreasonable by the Colorado Commission or the Colorado Director, as appropriate.Specifically, the Colorado Commission and the Colorado Director must deny alicense to any applicant who, among other things: (1) fails to prove by clearand convincing evidence that the applicant is qualified; (2) fails to provideinformation and documentation requested; (3) fails to reveal any fact materialto qualification, or supplies information which is untrue or misleading as to amaterial fact pertaining to qualification; (4) has been convicted of, or has adirector, officer, general partner, stockholder, limited partner or otherperson who has a financial or equity interest in the applicant who has beenconvicted of, specified crimes; or (5) has refused to cooperate with any stateor federal body investigating organized crime, official corruption or gamingoffenses.

 

Ifthe Colorado Commission determines that a person or entity is unsuitable todirectly or indirectly own interests in our company, one or more of ourColorado casinos may be sanctioned, which may include the loss of our approvalsand licenses.

 

Inaddition, the Colorado Regulations prohibit us from paying any unsuitableperson any dividends or interest upon any voting securities or any payments ordistributions of any kind (except as set forth below), paying any unsuitableperson any remuneration for services, or recognizing the exercise of any votingrights by any unsuitable person. Further, under the Colorado Regulations, wemay repurchase voting securities from anyone found unsuitable at the lesser ofthe cash equivalent to the original investment or the current market price asof the date of the finding of unsuitability unless such voting securities aretransferred to a suitable person (as determined by the Colorado Commission)within sixty (60) days after the finding of unsuitability.

 

Becauseof their authority to deny an application for a license or suitability, theColorado Commission and the Colorado Director effectively can disapprove achange in corporate position of a licensee and can cause us to suspend ordismiss managers, officers, directors and other key employees or severrelationships with other persons who refuse to file appropriate applications orwho the authorities find unsuitable to act in such capacities.

 

Thesale, lease, purchase and conveyance or acquisition of a controlling interestin a Colorado Casino is subject to the approval of the Colorado Commission.Under some circumstances, we may not sell any interest in our Colorado gamingoperations without the prior approval of the Colorado Commission.

 

We are required to provide information and file periodic reports withthe Colorado Division identifying those who have a 5% or greater ownership,financial or equity interest in us, or who have the ability to control us orexercise significant influence over us, or who loan money or other things ofvalue to us, or who have the right to share in our limited gaming revenues, orto whom any interest or share in profits of limited gaming has been pledged assecurity for a debt or performance of an act. Any person licensed by the Division of Gaming and any associated personof a licensee must report criminal convictions and criminal charges to theColorado Division.

 

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TheColorado Commission has broad authority to sanction, fine, suspend and revoke alicense for violations of the Colorado Regulations. Violations of manyprovisions of the Colorado Regulations also can result in criminal penalties.

 

We have been fined 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 Racingand Card Clubs in Minnesota*

 

In December 2003, NorthMetro Harness Initiative, LLC and Southwest Casino and Hotel Corp. filedapplications for Class A and Class B licenses, respectively, to develop andoperate a harness racing track and card club in Anoka County, Minnesota.  The Class B license application wassubsequently amended and, on January 19, 2005, the Minnesota Racing Commissionvoted to grant Class A and Class B licenses to North Metro.  The Class A License is effective untilrevoked or suspended by the Racing Commission, or relinquished by thelicensee.  The Class B License isrenewable each year by the Racing Commission after a public hearing (ifrequired by the Racing Commission).

 

Minnesota established theMinnesota Racing Commission to regulate horse racing and card playing in thestate under its pari-mutuel horse racing statute.  North Metro and Southwest, as a 50 percentowner of North Metro, have been subject to the horse racing statute and rulesand regulations promulgated under it (the “Racing Act”) since we filed theClass A and Class B license application. Our horse racing operations will also be subject to the federalInterstate Horse Racing Act of 1978.

 

The Racing Commission hasbroad authority to enforce the Racing Act and regulate substantially allaspects of horse racing in Minnesota. The Racing Commission granted and will oversee North Metro’s ownershipoperating licenses, will license all employees of North Metro’s racetrack aswell as jockeys, trainers, veterinarians and other participants, regulates thetransfer of ownership interests in licenses, allocates live race days andsimulcast-only race days, approves race programs, regulates the conduct of races,sets specifications for the racing ovals, animal facilities, employee quartersand public areas of North Metro’s racetrack, regulates the types of wagers onhorse races and approves significant contractual arrangements with North Metro,including management agreements, simulcast arrangements, totalizator contractsand concessionaire agreements.  Decisionsby the Racing Commission in regard to any one or more of these matters couldadversely affect the Company’s operations.

 

The Racing Act requiresprior approval by the Racing Commission of all officers, directors, 5%shareholders, or other persons having a present or future direct or indirectfinancial or management interest in any person applying for a Class A and ClassB license, and if a change of ownership of more than 5% of the licensee’sshares is made after an application is filed or the license issued, theapplicant or licensee must notify the Racing Commission of the changes withinfive days of this occurrence and provide the information required by the RacingAct.

 

North Metro intends tosubmit a card club plan of operation for approval by the Racing Commission inconnection with North Metro’s Class B license. If the card club plan of operation is approved and the Racing Commissionwill regulate the playing of “unbanked” or “player pool” card games at NorthMetro’s card club, as well as harness racing. North Metro must reimburse the Racing Commission for its actual costs,including personnel costs, of regulating the card club.  North Metro must have the Class B

 

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license and card clubauthorization renewed annually by the Racing Commission after a public hearing(if required by the Racing Commission).

 

*Securities Law Regulation*

 

We are also subject tocertain aspects of the Sarbanes-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 requires us to take steps to enhancethe direct responsibility of senior members of management for financialreporting and for the quality of financial disclosures we make; establishesclear statutory rules to limit, and to expose to public view, possibleconflicts of interest affecting securities analysts; creates guidelines foraudit committee members’ appointment, compensation and oversight of the work ofour auditors; prohibits certain insider trading during pension fund blackoutperiods; and establishes a federal crime of securities fraud, among otherprovisions.

 

The process of complyingwith all applicable state and federal governmental and tribal regulations islengthy and has required and will continue to require the expenditure ofsubstantial time and resources.  Therecan be no assurance that we will be able to comply on a continuous or timelybasis with all applicable regulations, and delays in compliance, or failure tocomply, could have a material adverse effect on our business, financialcondition, results of operations and continuing licensability.  Changes in existing regulations or theadoption of new regulations at the federal level or in the states in which wecurrently operate or are pursuing new opportunities could delay or prevent ourcompliance with such regulations.  Ourfailure to comply with applicable laws or regulations, whether federal, stateor tribal, could result in, among other things, the termination of managementagreements to which we are a party, or the suspension of one or more of our operations,either of which would have a material adverse effect on our business.

 

**Costs and Effects ofCompliance with Environmental Laws****.**

 

Gold Rush I, LLC, a whollyowned subsidiary of Southwest, leases real property in Cripple Creek, Colorado,a portion of which included a gas station and convenience store.  The gas station and related storage tankswere removed in October 1998, before Gold Rush I leased the property. Weparticipate in a Corrective Action Plan approved by the Colorado Department ofLabor and Employment, Division of Oil and Public Safety related to groundwatermonitoring and remediation at the site. We have spent approximately $82,000monitoring and remediating this site since we leased it in March 1999 andestimate the total cost of remediation at approximately $91,000. We haveapplied for reimbursement of some or all of these expenses from the ColoradoPetroleum Storage Tank Fund but are uncertain whether we will receive some orall of that reimbursement.

 

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

 

We currently employapproximately 194 full and part-time employees and we manage approximately anadditional 312 full and part-time employees of the Cheyenne and Arapaho Tribesof Oklahoma under our management agreement with the Tribes.

 

**Risk Factors**

 

In addition to theinfluences identified elsewhere in this report, there are several importantfactors that could cause our actual results to differ materially from thoseanticipated by us or that are reflected in any of our forward-lookingstatements.  These factors, which mayimpact the success of our operations and our ability to achieve our goals,include the following:

 

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**We have an accumulateddeficit and a history of uncertain profitability**.  We have incurred substantial operating lossessince inception and had an accumulated deficit of $11,426,396 as of December31, 2004. These losses are primarily the result of expenses related to ourongoing pursuit of new gaming opportunities. There can be no assurance that we willbe 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 continuingprofitability of our Oklahoma and Colorado Operations; (b) our ability tomaintain our current gaming licenses and to obtain additional gaming licensesfor new or expanded gaming facilities; (c) our ability to continue to maintainour contractual and working relationships with the Cheyenne and Arapaho Tribeof Oklahoma and to establish working relationships with other Native Americantribes involved in gaming; and (d) our ability to successfully identify, andobtain all necessary approvals and funding related to, any additional futuregaming opportunities.

 

**We have a continuing needfor additional capital**. We anticipate that we will need substantialadditional funding for our current Oklahoma and Colorado operations and toeffectuate our plans to develop a harness racing track and card room inMinnesota.  Failure to meet our capitalcommitments related to the harness racetrack and card room could lead to adilution of our ownership interest in that project.  Moreover, our operating plans and financingneeds are subject to change depending on, among other things, market conditionsand opportunities; land, equipment or other asset-based financing that may beavailable in connection with our development of gaming facilities; cash flowfrom operations, if any; and the number of new gaming projects that we pursue.While additional funds may be provided through borrowings from institutionalinvestors or project partners, equipment leasing or other forms of debt orequity financing, we do not have any unconditional commitments relating toadditional financing and we cannot assure you that additional financing will beavailable when required. Even if financing is available when required, wecannot assure you that it will be on terms favorable to us and our securityholders in terms of cost or dilution.

 

**We will continue to faceintense competition in the gaming industry**.  The gaming industry, including thedevelopment, operation and management of racetracks and other types offacilities, is highly competitive, especially given the rapid rate at which theindustry is expanding. For example, a number of management companies may makeproposals to a particular tribe for the development and management of a singleIndian gaming facility, and any gaming facilities developed or managed by uswill compete with a rapidly expanding number of other gaming facilities ofvarying quality and size, including gaming facilities that are part of nationalor regional chains, and other forms of gaming and entertainment. Many of ourcompetitors have substantially greater financial and personnel resources thanwe do. Competition in the future may also be affected by overbuilding which canadversely affect patronage levels. Given the current regulatory climate andlimited number of lucrative gaming opportunities available, competition islikely to become more intense in the future.

 

**We face risks associatedwith our pursuit of new gaming projects**.  We have pursued, are pursuing, and willcontinue to pursue new gaming projects that involve substantial pre-developmentcommitments of time and money with no assurance we will receive the approvalsneeded to develop and operate the proposed gaming facility. A number of theseprojects require legislation or voter approval, which not only increases thecost of such projects but also increases the risk the project will not be approvedand extends the time required to obtain licenses, complete development andbegin operations. As an example, we pursued development of a gaming project onthe White River at Rockaway Beach, Missouri that required a constitutionalamendment to the Missouri State Constitution. After expending substantial funds and time in pursuit of this venture,the ballot initiative was defeated by Missouri voters on August 3, 2004.  In addition, gaming projects may becontroversial in some areas and face significant opposition from competitors orindividuals and groups opposed to gaming on moral grounds.  In addition to increasing the costs anddifficulties in obtaining required permissions for gaming projects, theseopponents may also use litigation to try to delay or block new projects.  For example, we have received all requiredapprovals to

 

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develop a harness racetrackin Anoka County, Minnesota, but a group opposed to gaming on moral grounds hasfiled two separate lawsuits in attempts to block the project.

 

**We, and the gamingindustry as a whole, are heavily regulated and any change in the regulatoryenvironment could have a material adverse effect on our business and operations**.  The gaming industry is highly regulated atthe federal and state levels and gaming on tribal land is further regulated bythe National Indian Gaming Commission and the Bureau of Indian Affairs. Theprocess of complying with all applicable government and tribal regulations iscomplex and requires us to expend substantial time and resources. We cannotassure you that we will be able to comply on a continuous or timely basis withall applicable regulations, and delays in compliance, or failure to comply,could have a material adverse effect on our business, financial condition,results of operations and our ability to maintain and obtain needed licenses.Changes in existing regulations or the adoption of new regulations at thefederal level or in the states in which we operate or pursue new opportunitiescould delay or prevent our compliance with those regulations. Our failure tocomply with applicable laws or regulations, whether federal, state or tribal,could result in, among other things, the termination of management agreementsto which we are a party or the suspension of some of our operations, both ofwhich would have a material adverse effect on our business.

 

**We will continue to facelegislative and judicial hurdles and adverse legislative and judicial changes**.  The legislative and judicial environmentsrelated to Indian and non-Indian gaming are dynamic and change rapidly. Anyfederal, state or tribal action, adverse legislation, or judicial or regulatoryruling that limits gaming or constricts the scope of our gaming operationscould have a material adverse effect on the gaming industry or our operationsand financial condition. For example, in 2002 we had a profitable consultingarrangement with the Alabama-Coushatta Tribes of Texas that was terminated dueto an adverse ruling from federal district court in favor of the State ofTexas.

 

**Successful Native Americangaming opportunities typically depend upon securing and maintainingTribal-State gaming compacts which are subject to substantial uncertainty**.  The Indian Gaming Regulatory Act of 1988 (“IGRA”)provides the framework for the regulation of Class II and Class III gaming onIndian land.  Before Class III gaming(video games including video slots and video blackjack; table games likeblackjack, craps and roulette; and other gaming events like pari-mutuelwagering) may be conducted on Indian land, the IGRA requires that theapplicable tribe and host state negotiate a tribal-state compact authorizinggaming on the tribe’s land. Tribal-state compacts specify how Class III gamingis to be conducted and allocates oversight responsibilities between the tribeand the state.  A tribal-state compact isnot currently required to conduct Class II gaming for Native American tribessubject to the IGRA.

 

We believe that themanagement and operation of Class III casinos generally present significantlygreater revenue opportunities than Class II gaming facilities.  However, our ability to enter into Class IIIcasino management agreements is dependent upon states entering intotribal-state compacts that permit Class III gaming. The majority of states havenot entered into tribal-state compacts that permit Class III gaming.  We cannot predict with any certainty (a)which additional states, if any, will approve Class III gaming on Indian land;(b) the timing of any such approval; (c) the types of gaming that may bepermitted by any tribal-state compact; or (d) whether any state will attempt torenegotiate or take other steps that may adversely affect existingtribal-compacts.

 

Many states have resisted,and certain states continue to resist, entering into tribal-state compacts.This resistance has, at times, resulted in litigation. Interpretations byfederal district courts of the scope of any particular state’s obligations tonegotiate a tribal-state compact have varied widely and depend in part on thelaws of the particular state in which a tribe is seeking to negotiate acompact. The failure or delay of states to compact with tribes, the repeal oradverse legal interpretation of tribal-state compacts, or the

 

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enactment of amendments thatlimit or affect the types or number of games that can be operated on Indianland under such compacts, could all have a material adverse effect on ourbusiness and current and proposed operations.

 

**Our facilities andoperations, as well as our key personnel and some of our security holders, aresubject to government and tribal background investigations**.  Failure to complete these investigationssatisfactorily could adversely affect our business and operations. Ourfacilities and business operations on Indian land are subject to approval,regulation and oversight by, among others, the National Indian GamingCommission, the Bureau of Indian Affairs, the Secretary of the Interior andvarious tribal authorities. For example, all management agreements (andextensions or renewals of such agreements) for Class II or Class III gamingfacilities on Indian land must be approved by the NIGC and the terms of thesemanagement agreements must conform to various NIGC requirements. The NIGC willnot approve management agreements for Class II Indian gaming facilities (suchas our Oklahoma operations) unless federally conducted background checks of ourdirectors and officers, some of our security holders, and other partiesinterested in our management agreements have been completed satisfactorily.States entering into tribal-state compacts under which we may manage Class IIIgaming facilities may have similar (or more stringent) requirements forbackground checks.

 

Our non-Indian operationsare subject to similar requirements. For example, the State of Coloradocurrently requires extensive background checks in connection with anapplication for gaming licenses. Background checks and related approvals may take many months tocomplete.  The NIGC may, in itsdiscretion, also conduct background checks with respect to Class III managementcontracts.  Although the NIGC has approvedour current management agreement with the Cheyenne and Arapaho Tribes ofOklahoma, including a recent extension, as we pursue additional Indian andnon-Indian opportunities (or as new directors or management personnel areadded), we cannot assure you that the necessary background investigations willbe completed satisfactorily. Furthermore, the NIGC continues to adoptprocedures that effectively expand the NIGC’s role in the classification ofNative American gaming devices and which, if adopted in their present form,could have a material adverse effect upon our operations.

 

**The National Indian GamingCommission has expressed concern about the distribution of gaming proceeds bythe Cheyenne and Arapaho Tribes of Oklahoma, for whom we manage casinos. **In December 2004, the NIGCnotified the Tribes that the NIGC is concerned the Tribes are not distributingproperly the net revenue they receive from gaming operations.  The NIGC’s concerns relate to the use ofgaming revenue after we have distributed it to the Tribes and are not relatedto our management of the Tribes’ casinos. However, if the NIGC determines that the Tribes have committed asubstantial violation of the Indian Gaming Regulatory Act, NIGC rules, or theTribes’ gaming ordinance, it could bring an enforcement action against theTribes.  If an enforcement action were successful,potential penalties range from fines to, in extreme cases, an order closing theTribes’ gaming operations.  Even thoughthe NIGC’s concerns are not related to our management of the Tribes’ casinos,closure of these facilities would eliminate a significant source of ouroperating revenue and have an immediate adverse impact on our business results.

 

**We face risks inconnection with obtaining, maintaining and renewing gaming licenses requiredfor 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, have obtained the governmental licenses, permits andapprovals we believe are necessary for the development and continued managementof the Oklahoma and Colorado operations and development of a harness racingtrack in Minnesota, we cannot

 

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assure you that we will beable to maintain or renew the necessary licenses, approvals and otherclearances required for our operations.

 

**All licenses that havebeen or may be obtained by us or our affiliates are subject to variousconditions and in many cases will be subject to renewal**.  Notwithstanding the fact that we have earneda good reputation at federal, state and tribal levels relative to complianceand licensing ability, there is always the possibility that a failure to complywith gaming regulations or the conditions of any license we hold could have anadverse effect upon our ability to secure, maintain or renew our gaminglicenses.  We were recently fined $50,000by the Colorado Division of Gaming 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, has agreed to take the steps required to insure our compliance in thismatter and, further, has agreed to pay the sum of $5,000 to Colorado’s LimitedGaming Fund as reimbursement for expenses incurred by Colorado in thisinvestigation.  It is difficult topredict with any certainty whether, and to what extent, this occurrence mayhave a material adverse effect on our business or adversely affect our abilityand the ability of our key personnel to obtain or retain required licenses inColorado. In addition, we must disclose this violation to other jurisdictionsin which we hold or apply for gaming licenses. It is difficult to predict whatimpact, if any, that disclosure may have on our licensability in thosejurisdictions.

 

**We face special risksrelated to investments in Indian gaming facilities**.  Investment in Indian gaming facilitiesinvolves numerous special risks in addition to those usually associated withcontractual arrangements or real estate development. Advances made by us todevelop, construct and equip Indian gaming facilities will not result in ourownership of, or any security interest in, the gaming facilities located on Indianland or in the Indian land itself.  Ourability to build and maintain healthy personal and professional relationshipswith tribes and their officials is critical to the success and longevity of ourcurrent and proposed gaming activities and our ability to successfully obtain,develop, effectuate, retain and renew management or other types of serviceagreements.  As sovereign nations, tribesestablish their own governmental systems under which tribal officials as wellas tribal boards, commissions, committees and other bodies are subject toreplacement by appointment or election and to policy changes.  Our relationship with a tribe coulddeteriorate for various reasons, including a change in tribal government or tribalpolicies.  Deterioration in the relationshipsbetween us and individual officials or collective bodies of any tribes withwhom we deal could have a material adverse effect on our business andoperations.  Similarly, our businessrelationships with Indian tribes, and revenues generated through serviceagreements with Indian tribes, could be adversely affected or even eliminatedas the result of regulatory or judicial actions taken against the tribe itself,or against a tribe’s leaders or members as individuals. In addition, anyinvestigation of an Indian tribe or tribal member that we work with could leadto an investigation of our relationship with that tribe or tribal member.

 

**We face specific risks andare subject to limitations under our current Oklahoma agreement**.  The duration of the Oklahoma Agreement wasrecently extended until May 19, 2007, and can be further extended only with theconsent of the Cheyenne and Arapaho Tribes of Oklahoma and the approval of theNational Indian Gaming Commission. The Tribes approved two additional amendmentsto the Oklahoma agreement at a Tribal Council meeting on January 22, 2005.  These amendments include an extension of ourcontract until May 19, 2011. However, a tribal court subsequently ruled theTribal Council meeting at which these amendments were approved invalid.  We cannot predict at this time whether thatruling may be challenged.  In addition,amendments cannot become effective until approved by the NIGC.  The NIGC is unlikely to approve anyamendments until issues regarding the legitimacy of the Tribal Council

 

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meeting at which theamendments were approved are resolved or the amendments are again approved bythe appropriate tribal authority.  Wecannot assure you that any further extension will be granted and approved.  In addition, even if granted and approved,the NIGC and the Tribes have the power to unilaterally terminate or void theOklahoma Agreement under certain circumstances.

 

**We have limited recourseagainst Indian Tribes**. Indian tribes are sovereign nations thatare generally immune from legal proceedings commenced in state or federalcourts, and congressional policy has mandated the limited liability of Indiantribes. In addition, because regulatory authorities have broad discretion whengranting, renewing or revoking licenses, approvals and other clearances relatedto the development, management or operation of gaming facilities, an Indiantribe that desires to terminate a management contract with a third partymanagement company may simply elect to refuse to renew a tribal gaming licensebased upon a minor technical default.  Asa result, repayment of any funds advanced by us to, or on behalf of, tribes inconnection with the development or expansion of a gaming facility, and anyadditional return from participation in payments made under gaming managementagreements, will depend upon (a) our ability to enter into, and obtainrequisite regulatory approval with respect to, effective management agreements;(b) the successful development and operation of the gaming facility; and (c) inlight of our limited recourse against any tribe for breach of any agreement,the willingness of the tribe to comply with its obligations under theapplicable agreement.

 

For the foregoing reasons,if a tribe were to breach a management agreement with us, our sole recourse tocollect amounts owed to us under our agreements with that tribe may be toattach undistributed or future proceeds, if any, from the operation of thetribe’s gaming facilities. If gaming operations fail to develop or, ifdeveloped, cease to operate for any reason, our prospects for payment ofamounts owed to us are minimal. Accordingly, if we advance significant funds to tribes for thedevelopment, construction and furnishing of gaming facilities, we may not beable to recover those funds.

 

**We face risks related tothe nature of the gaming industry, including adverse economic and politicalconditions and changes in the legislative and land use regulatory climate**.  Similar to investment in other entertainmententerprises, adverse changes in general and local economic conditions mayadversely impact investments in the gaming industry.  Examples of economic conditions subject tochange include, among others, (a) competition in the form of other gamingfacilities and entertainment opportunities; (b) changes in regional and localpopulation and disposable income; (c) unanticipated increases in operatingcosts; (d) restrictive changes in zoning and similar land use laws andregulations, or in health, safety and environmental laws, rules andregulations; (e) risks inherent in owning, financing and developing real estateas part of our casino operations, (f) the inability to secure property andliability insurance to fully protect against all losses, or to obtain suchinsurance at reasonable costs; (g) seasonality; (h) changes or cancellations inlocal tourist, recreational or cultural events; and (i) changes in travelpatterns or preferences (which may be affected by increases in gasoline prices,changes in airline schedules and fares, strikes, weather patterns or relocationor construction of highways, among other factors).

 

**The success of our currentoperations and our future growth potential are dependent upon key personnel andwill, in the future, be increasingly dependent on our ability to attract andretain additional qualified managers and personnel**.  Our success depends to a significant extentupon the efforts and abilities of our executive officers, James B. Druck,Thomas E. Fox, Jeffrey S. Halpern and Brian L. Foster.  We have entered into employment agreementswith Messrs. Druck, Fox and Halpern. Each of these individuals has developedrelationships and experience in the gaming industry that are integral to oursuccess.  We do not maintain key man lifeinsurance on any of these individuals. The loss of the services of one or more of these individuals could havea material adverse effect on our business and current and proposed operations.

 

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We will also be required torecruit and retain a significant number of management, administrative and otheremployees for any of our proposed gaming facilities that may come tofruition.  We anticipate that we will berequired to develop and undertake a major training program at each new facilitythat we may develop or manage.  Inaddition, with regard to facilities on Indian land, we will generally berequired to recruit and give preference to individuals of Native Americanheritage in order to comply with various tribal employment rights ordinancesthat have been adopted by most tribes, including the Cheyenne and ArapahoTribes. While we believe that we will be able to attract and retain asufficient number of employees to satisfy our current and future requirements,the competition for such employees, particularly at the management level, willincrease significantly in the future if the gaming industry expands throughoutthe United States.  There can be noassurance that we will be able to attract and retain the personnel required tosuccessfully operate our business.

 

In addition, now that we areconducting our gaming operations as a publicly owned corporation, we aresubject to regulations under state and federal securities laws such as theSecurities Act of 1933, the Securities Exchange Act of 1934, and theSarbanes-Oxley Act of 2002. Compliance with these laws and regulations willrequire that we add personnel and recruit independent members for the Board ofDirectors. All of these directors and some new personnel must completebackground investigations before joining our company or performing any servicesfor us. Requiring potential directors and employees to complete theseinvestigations may make it more difficult to recruit qualified candidates anddelays in completing background investigations could adversely impact ourbusiness and, in the case of director candidates, our ability to comply withSarbanes-Oxley Act requirements regarding director independence on a timelybasis.

 

**The success of our currentoperations and our future growth potential are dependent upon our relationshipwith and the performance of certain third parties**.  The successful operation of our variousproposed gaming facilities will be dependent to a significant extent on theefforts of third parties.  For example,(a) with respect to any facility located on Indian land, we will not own thefacility and will depend on the performance by a tribe of its obligations underthe applicable management agreement; (b) with respect to the harness racingtrack and card room proposed for Minnesota, the success of that project willdepend to a great extent on the expertise our 50/50 partner in that venture,MTR-Harness, Inc., an affiliate of MTR Gaming Group, Inc., in managing racingfacilities as well as the ability of our financing sources to meet theircommitments to us; and (c) finally, with respect to any other project pursuedby us, we may need to form partnerships or secure third party funding in orderto meet the financial requirements that will likely transcend our own financialresources. 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 uponthe structure of any particular joint venture, we may be held responsible forthe acts or omissions of our co-venturers.

 

**We face risks related tothe diminishing control of our existing management**.  Our directors and executive officerscurrently beneficially own (together with their spouses, on a fully-dilutedbasis and including shares that may be received in connection with the exerciseof outstanding options and warrants) approximately 28% of the outstandingshares of our common stock. By virtue of the forgoing, our directors and executiveofficers will have limited voting influence in connection with the election ofour future directors and the control of our business and affairs.

 

**Because our common stockis traded on the OTC Bulletin Board, your ability to sell your shares in thesecondary trading market may be limited**.  Our common stock is traded currently on theover-the-counter market on the OTC Bulletin Board.  Consequently, the liquidity of our commonstock is impaired, not only in the number of shares that are bought and sold, butalso through delays in the timing of transactions, and limited coverage bysecurity analysts and the news media, if any, of our company.  As a result, prices for shares of our commonstock may be lower and more volatile than might otherwise

 

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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.

 

**Because our shares are “pennystocks,” you may have difficulty selling them in the secondary trading market**.  Federal regulations under the SecuritiesExchange Act of 1934 regulate the trading of so-called “penny stocks,” whichare generally defined as any security not listed on a national securitiesexchange or Nasdaq, priced at less than $5.00 per share and offered by anissuer with limited net tangible assets and revenues.  Since our common stock currently trades onthe OTC Bulletin Board at less than $5.00 per share, our common stock is a “pennystock” and may not be traded unless a disclosure schedule explaining the pennystock market and associated risks is delivered to a potential purchaser beforeany trade.

 

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 sellinga “penny stock,” which steps include:

 

•                  obtaining financial and investmentinformation from the investor;

 

•                  obtaining a written suitability questionnaireand purchase agreement signed by the investor; and

 

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

 

If the broker-dealer doesnot follow these penny stock rules, the investor has no obligation to purchasethe shares.  The application of thesecomprehensive rules will make it more difficult for broker-dealers to sell ourcommon stock and our shareholders, therefore, may have difficulty selling theirshares in the secondary trading market.

 

**To comply with gamingregulations, we must seek shareholder approval to amend our Articles ofIncorporation to place restrictions on ownership of our securities and addother considerations that could have anti-takeover effects**.  In the near future, we intend to seek anamendment to our Articles of Incorporation of Southwest Casino Corporation toprovide that no person or entity may become one of our 10 largest shareholders,or the beneficial owner of 5% or more of our capital stock, unless such personor entity (a) agrees to provide personal background and financial informationto gaming authorities, (b) consents to a background investigation, and (c)responds to questions from gaming authorities. Whether or not a shareholder is one of our 10 largest shareholders or a5% shareholder, our amended Articles of Incorporation will provide that we mayrepurchase, at fair market value, shares held by any person or entity (y) whorefuses to provide information requested by us or any gaming authority or (z)whose status as a shareholder, in the judgment of our Board of Directors, mayresult in the disapproval, modification, loss, non-renewal or non-reinstatementof any management agreement, or any of our licenses, approvals or consents fromany gaming authority or any other governmental agency.

 

# **Item 2.    DESCRIPTIONOF PROPERTY**

# ** **

We own, lease or manage thefollowing real property:

 

Gold Rush I, LLC, a whollyowned subsidiary of Southwest Casino and Hotel Corp., operates the Gold RushCasino with 322 slot machines, four table games, a bar/restaurant and 13 hotelrooms, and the Gold Digger’s Casino with 86 slot machines and a bar.  These properties are physically connected,but operate under separate Colorado gaming licenses.  The casino buildings, a building that housesour marketing and

 

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accounting offices, the GoldRush Palladium site, two additional storefronts and related parking lots areleased under a 20-year lease from Mark and Annesse Brockley, Cripple CreekDevelopment Corporation and Blue Building Corporation that expires in June2019.  Gold Rush I pays base rent in theamount of $40,000 per month for this property, plus an additional payment basedon the combined net income of the Gold Rush and Gold Digger’s casinos. Through2004, we have not been required to make any additional payments based oncombined 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 are capped at $125,000 per month. If thepayments exceed that amount, the excess amount is deducted from the base rentdue.  In 2004, these assumed obligationsaveraged approximately $97,000 per month. Gold Rush I also held an option to purchase this real estate that expiredon February 28, 2005.

 

Southwest Casino and HotelCorp., a wholly owned subsidiary of Southwest, operates Uncle Sam’s Casino,which operates 67 slot machines and a bar. The building is leased under a 5-year lease from Lois Woods that hasbeen extended for an additional five years and expires in April 2009.  Southwest pays rent in the amount of $14,000per month for this facility.

 

Southwest Entertainment,Inc., a wholly owned subsidiary of Southwest Casino and Hotel Corp., operatesthe Gold Rush Palladium, an outdoor music amphitheatre with 1,200 seats. ThePalladium is located behind the Gold Rush and Gold Digger’s casinos on aportion of the property leased by Gold Rush I, LLC from Mark and AnnesseBrockley, Cripple Creek Development Corporation and Blue Building Corporationunder the lease described above that expires in June 2019.  Southwest Entertainment hosts music events atthe Palladium intended to increase traffic at the Gold Rush and Gold Digger’scasinos. Under the sublease between Southwest Entertainment and Gold Rush I forthis site, Southwest Entertainment is required to pay rent of $1,000 per month.

 

In addition to the Gold Rushand Gold Digger’s casinos, the lease with Mark and Annesse Brockley, CrippleCreek Development and Blue Building Corporation includes two additionalstorefronts that we sublease to a third party. Under the current terms of the sublease, the tenant is making neededimprovements to the real property, from which we will benefit, in lieu of rentpayments, pending completion of those renovations.

 

North Metro HarnessInitiative, LLC, in which Southwest Casino and Hotel Corp. owns a 50 percentmembership interest, holds options to acquire approximately 180 acres of realproperty in Columbus Township, Anoka County, Minnesota. North Metro has notacquired these properties.  North Metrointends to build a harness racetrack and card room on this site.  We estimate the total cost of thisdevelopment to be $48 million. North Metro will provide $10 million of thatamount and will borrow the remainder.

 

Lucky Star Concho and LuckyStar Clinton are enterprises of the Cheyenne and Arapaho Tribes of Oklahoma.Southwest Casino and Hotel Corp. manages these facilities under a NIGC-approvedmanagement agreement that terminates in May 2007.  As of December 31, 2004, these enterprisesoperated 1,050 electronic bingo and pull tab machines, a 500-seat bingo halland a restaurant and snack bar.  In March2005, we removed the bingo seats to create space for a new restaurant and barand additional card games that the casinos will be permitted to offer when thegaming compact between the Tribes and the State of Oklahoma is finalized.

 

Southwest Casino Corporationleases 4,780 square feet of office space at 2001 Killebrew Drive, Suite 350 inMinneapolis, Minnesota with a base rent of $8,784 per month plus certainoperating costs for its corporate offices under a five-year lease that expiresin December 2009.

 

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Southwest does not own anyinterest in real property solely for investment purposes.

 

Our management considers ourleased properties suitable and adequate for our current operations.  In the opinion of our management, all ofthese properties are adequately covered by insurance.

 

# **Item 3.    LEGAL PROCEEDINGS.**

# ** **

North Metro HarnessInitiative, LLC, in which Southwest Casino and Hotel Corp. owns a 50 percentmembership interest, has intervened in litigation between an anti-gamblinggroup and the Minnesota Racing Commission. This litigation began on December 15, 2004 and is pending in the SecondDistrict Court, Ramsey County, Minnesota and alleges that members of theMinnesota Racing Commission violated Minnesota’s “open meeting” law whileconsidering North Metro’s application for licenses to build and operate aharness racetrack and card room in Columbus Township, Anoka County,Minnesota.  The District Court deniedplaintiff’s initial motion to enjoin the Racing Commission from reconsideringan October 2004 decision to deny North Metro’s license applications on December29, 2004. An appellate court subsequently denied an emergency petition seekingthe same relief.  The anti-gambling groupcontinues to pursue this case in an effort to invalidate the licenses granted toNorth Metro by the Racing Commission on January 19, 2005.  In February 2005, the District Court entereda protective order requested by the Racing Commission and in which North Metrojoined limiting the scope and timeframe for discovery in this matter.  North Metro does not believe the RacingCommission violated the Open Meeting Law and that even if a violation of theOpen Meeting Law occurred the remedies for that violation do not includeinvalidation of its licenses. However, if the Court finds a violation of theOpen Meeting Law and holds that the violation can invalidate North Metro’slicenses, the invalidation of the licenses would prevent North Metro fromdeveloping the racetrack and card room and prevent us from realizing anyrevenue or profit from this project.

 

In addition, on March 10,2005, the anti-gambling group filed a petition with Minnesota Court of Appealsappealing the Minnesota Racing Commission’s grant of Class A and Class Blicenses to North Metro to develop and operate the harness racetrack and cardclub.  North Metro and the MinnesotaRacing Commission are the relator and the respondent, respectively, in thisproceeding. The anti-gambling group seeks to have the licenses invalidatedthrough this appeal.  We cannot predictthe outcome of this appeal at this time. The invalidation of the licenses wouldprevent North Metro from developing the racetrack and card room and prevent usfrom realizing revenue or profit from this project.

 

On March 17, 2005, theHorsemen’s Benevolent and Protective Association (“HBPA”), which represents thethoroughbred horse owners that race at the other Class A licensed racetrack inMinnesota, filed a petition requesting the Minnesota Court of Appeals to reviewthe decision of the Minnesota Racing Commission to grant Class A and Class Blicenses to North Metro.  As in the aboveappeal, North Metro is a relator and the Minnesota Racing Commission is therespondent in this proceeding.  The HBPAseeks to invalidate the licenses granted to North Metro with this appeal.  We cannot predict the outcome of this appealat this time. The invalidation of the licenses would prevent North Metro fromdeveloping the racetrack and card room and prevent us from realizing anyrevenue or profit from this project.

 

On March 3, 2005, CorporateCapital Management, LLC served a lawsuit against Southwest claiming failure topay fees or deliver securities related to our 2004 convertible debentureoffering and reorganization and a proposed investment transaction that weannounced publicly on January 28, 2005 and in which the plaintiff played norole.  We believe the claims are withoutmerit.

 

During 2003 and 2002, an employee issued and cashed company checks anddeposited the amounts to the employee’s personal accounts.  Our insurance coverage paid a portion of theloss and we have also written off losses of $100,000 in 2004 and $267,000 in2003.  The employee was terminated inJanuary 2004

 

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and criminal prosecution of the employee remains pending in TellerCounty, Colorado.  We anticipate that theemployee will be required to pay restitution in connection with the criminalproceedings and that some portion of the lost amount may be recovered, but atthis time, we cannot estimate with any certainty what that amount may be.

 

We are involved in other various claims, legal actions and othercomplaints arising in the ordinary course of business.  In the opinion of management, any losses thatmay occur from these matters are adequately covered by insurance or areprovided for in our financial statements and the ultimate outcome of theseother matters will not have a material effect on our financial position orresults of operations.

 

# **Item 4.    SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

No matter was submitted to avote of security holders during the fourth quarter of the fiscal year coveredby this report.

 

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**PART II**

** **

# **Item 5.**    MARKET FOR COMMON EQUITY AND RELATEDSTOCKHOLDER MATTERS

 

**Market Information**

 

Our common stock is quotedon the Over-the-Counter Bulletin Board (OTCBB) of the National Association ofSecurities Dealers, Inc. under the symbol “SWCC.”  Quotation on the OTCBB began February 26,2004.  Before February 26, 2004, ourcommon stock was not quoted on the OTCBB or listed on any exchange. FromFebruary 26, 2004 until completion of our reorganization, our common stock wasquoted under the symbol “LMAV.”  Themarket for shares in our common stock is limited because only a small number ofour outstanding shares are available for trading in the public market. Thefollowing table sets forth the high and low bid prices for our common stock, asreported by the OTCBB, for the fiscal quarters indicated:

 
| ** **                                                  | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|---------|------------|
| **Fiscal Year ended December 31, 2004:**                    |       |     |       |    |       |
| Quarter ended Dec. 31, 2004                                 |       | $        | 1.50       |    | $          | 0.60 |   |
| Quarter ended Sept. 30, 2004                                |       | $        | 2.00       |    | $          | 1.50 |   |
| Quarter ended June 30, 2004                                 |       | $        | 0.00       |    | $          | 0.00 |   |
| Quarter ended March 31, 2004 (beginning  February 26, 2004) |       | $        | 0.00       |    | $          | 0.00 |   |

 

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 24, 2005 therewere 433 record holders of our common stock.

 

**Dividends**

** **

We have not declared or paidany cash dividend on our common stock.

 

**Sales of UnregisteredEquity Securities during Fourth Fiscal Quarter**

 

During the fourth quarter offiscal 2004, we did not issue any equity securities without registration underthe Securities Act of 1933, except as described below:

 

On December 8, 2004, weissued 45,455 shares of common stock to the holders of an outstanding SouthwestCasino and Hotel Corp. Series A convertible debenturewho, under the terms of our redemption offer, elected to convert the principalamount of their debenture to common stock at a conversion price of $1.10 pershare of common stock.

 

On December 8, 2004, weissued 50,000 shares of common stock to Corporate Capital Management, LLC inconsideration of a release of potential claims related to financial advisoryservices provided to us by Corporate Capital Management.

 

On December 8, 2004, weissued 20,000 shares of common stock to a former financial advisor inconsideration of services rendered previously.

 

No underwriting commissionor discounts were paid with respect to the sales of these unregisteredsecurities.  All of the sales were madein reliance on either Section 4(2) of the Securities Act of 1933 as

 

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transactions by an issuernot involving any public offering or Regulation D of the Securities Act.  In all of these transactions, we madeinquiries to establish that the sales qualified for these exemptions from theregistration requirements.  Inparticular, we confirmed that with respect to the exemption claimed underSection 4(2) of the Securities Act that (i) all sales were made by personal contactfrom officers and directors of Southwest or other persons closely associatedwith Southwest, (ii) each investor made representations that he or she wassophisticated in relation to his or her investment (and gave us no reason tobelieve that this representation was incorrect), (iii) each purchaser gaveassurance of investment intent and the certificates for the shares bear alegend accordingly, and (iv) offers and sales within any offering were made toa limited number of persons.

 

**Purchases of EquitySecurities**

** **

We did not purchase any sharesof our common stock or other equity securities during fourth quarter of fiscal2004.

 

# **Item 6.**    MANAGEMENT’S DISCUSSIONAND ANALYSIS OR PLAN OF OPERATION.

# ** **

The followingis a discussion and analysis of the financial position and operating results ofSouthwest Casino Corporation for the years ended December 31, 2004 and 2003,and should be read in conjunction with our financial statements andaccompanying notes.  Statements that arenot historical are forward-looking and involve risks and uncertainties discussedunder the heading *“Risk Factors”* in Item 1 of thisreport.

 

***Overview:***

 

Our principalbusiness is the management, operation and development of gaming facilities inemerging and established gaming jurisdictions.  Currently, we operatethree casinos in Cripple Creek, Colorado — Gold Rush, Gold Digger’s and UncleSam’s.  We also manage two NativeAmerican gaming operations in Oklahoma for the Cheyenne and Arapaho Tribes ofOklahoma - Lucky Star Concho and Lucky Star Clinton.  Lucky Star Concho is located on U.S. Highway81, just north of the Oklahoma community of El Reno.  Lucky Star Clinton is located 60 miles westof Lucky Star Concho in the community of Clinton, Oklahoma on Old Route 66 nearInterstate I-40.  An amendment to ourmanagement contract with the Tribes to develop and manage a third site atCanton, Oklahoma has been ratified by the Tribes and has been submitted to theNational Indian Gaming Commission for approval.

 

In 2004 and2003, we actively pursued additional gaming opportunities—a harness race trackand card room in Minnesota and a riverboat casino in Missouri.  We continually evaluate other management,consulting, development and acquisition opportunities related to gaming thathave the potential to generate new revenue streams for us.

 

***Project Development Costs:***

 

*RockawayBeach* – In September 2002, we responded to a requestfor a proposal from the City of Rockaway Beach, Missouri (approximately 11miles from Branson, Missouri) to build a riverboat and redevelop theirdowntown.  In order to obtain a gaminglicense to build a riverboat on the White River at Rockaway Beach, it is firstnecessary to amend the Missouri Constitution, which currently permitsriverboats only on the Mississippi and Missouri rivers. We were awarded thecontract by the City and began incurring costs associated with pursuing thisopportunity.   In June 2004, weestablished a separate entity (Southwest Missouri Gaming, LLC or SMG) to holdthe development rights.   We transferredour rights and interests in this project to SMG in exchange for a 30% ownershipinterest.  Missouri businessman RobertLow acquired 70% of SMG. The initial commitment by both parties was to providea

 

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totalof $10,000,000 in pre-development funding for the project and we receivedcredit for amounts we had spent to date. As of December 31, 2004, SMG had expended $13,978,766 including ourexpenditures before the formation of SMG. The primary use of the funds was tosecure the necessary amendment to the State Constitution to allow riverboatgaming on the White River at Rockaway Beach. This initiative was defeated in the state-wide primary election heldAugust 3, 2004.  Our allocable share ofSMG expenditures including expenditures made before the formation of SMG andexpenses incurred that were not allowable under our SMG agreement were$2,681,470 in 2004 as compared to $1,302,980 expended in 2003 and $247,721expended in 2002.

 

*North MetroHarness Initiative, LLC* - We also have been pursuing aharness track and card room in Columbus Township, Anoka County, Minnesota.  In December 2003, we filed a licenseapplication with the Minnesota Racing Commission.  This license application was amended to add asubsidiary of MTR Gaming Group, Inc. as our 50% partner. As of December 31,2004, MTR-Harness, Inc. of Minnesota had invested $108,446.  The Minnesota Racing Commission approvedNorth Metro’s licenses on a five to three vote on January 19, 2005.  Under the North Metro Member ControlAgreement, approval of North Metro’s licenses triggered MTR-Harness’ commitmentto contribute $7,490,000 and our obligation to contribute an additional$1,500,000 to North Metro.  During theyears ended December 31, 2004 and 2003, we have expensed $365,132 net of lossallocated to minority interest and $467,407 of costs related to this project,respectively.  In addition, we havecapitalized $1,823,154 in real estate options, construction in progress andcontract rights as of December 31, 2004.

 

***Operating segments:***

 

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

 

**CasinoOperations:**

Gold Rush/Gold Diggers CasinoUncle Sam’s Casino

 

**CasinoManagement:**

Lucky Star –ConchoLucky Star – Clinton

 

**Casino operations**:

 

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

 
| ** **             | ** ** | **2004**   | ** ** | **2003**   | ** ** | **Percentage  Increase  (Decrease)** | ** ** |
|------------------------|------------|------------|------------|------------|------------|--------------------------------------|------------|
|                   |       |       |       |       |       |                                 |       |
| Casino revenues        |       | $          | 14,221,835 |       | $          | 13,855,270                           |       | 2.6 | % |
| Total revenues         |       | 14,744,565 |       | 14,515,003 |       | 1.6                                  | %          |
| Income from operations |       | 1,049,412  |       | 1,837,277  |       | -42.9                                | %          |
| Operating margin       |       | 7.1        | %          | 12.7       | %          |                                 |       |
|                        |            |            |            |            |            |                                      |            |  |  |

 

Gold Rush andGold Digger’s recorded higher revenues in 2004 primarily as a result of anincrease in the

 

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numberof slot machines on the floor in 2004 as compared to 2003.  The decrease in income from operations wasdue to an increase in operating expenses caused by the installation of a newplayer tracking and slot accounting system, increased accounting and compliancepersonnel, and an increase in depreciation expense.  The new player tracking and slot accountingsystem has not been approved by the Colorado Division of Gaming and, as aresult, additional manpower was required to meet reporting requirements.  We are currently testing the new system. Oncethe system is fully operational, we anticipate that it will provide us with acompetitive advantage in the market.

 

**Uncle Sam’s Casino**

 
| ** **             | ** ** | **2004**  | ** ** | **2003**  | ** ** | **Percentage  Increase  (Decrease)** | ** ** |
|------------------------|------------|-----------|------------|-----------|------------|--------------------------------------|------------|
|                   |       |      |       |      |       |                                 |       |
| Casino revenues        |       | $         | 1,274,877  |      | $          | 1,576,297                            |       | -19 | % |
| Total revenues         |       | 1,278,433 |       | 1,579,770 |       | -19                                  | %          |
| Income from operations |       | (519,197  | )          | (482,442  | )          | 8                                    | %          |
| Operating margin       |       | -40.6     | %          | -30.5     | %          |                                 |       |
|                        |            |           |            |           |            |                                      |            |  |  |

 

Uncle Sam’sCasino is a facility with only 67 slot machines that serves the local residentmarket in Cripple Creek.  This market isthe most vulnerable to increased competition. The increase of 628 slot machinesin Cripple Creek and the opening of a new casino that also caters to the localresidents market during 2004 have substantially impacted the casino revenues atthis facility.  We have improved customerservice and will be adding poker on the second floor in the second quarter of2005 in an effort to recapture our share of the market, but cannot assure thatwe will be successful in doing so.

 

**CasinoManagement*:***

 

**Lucky StarConcho**

 

Managementfees from Lucky Star Concho were $2,478,603 in 2004 and $1,980,585 in 2003, anincrease of 25%. Our increase in management fees was driven by increased patronvisits and improved machine selection. In January 2005, the Tribes approved acompact with the state of Oklahoma which will provide the facility withadditional electronic games as well as the ability to offer player banked cardgames.  We anticipate that Lucky StarConcho will begin to realize the benefits of this expanding gaming in thesecond quarter of 2005 but cannot assure you that it will do so. The advantagefrom expanded gaming at the Lucky Star facilities will be at least partiallyoffset by competition from Remington Park, a racetrack in Oklahoma City, thatwill also be allowed to offer the same type of gaming machines as the triballocations, but they will not be allowed player banked card games and theirhours of operations will be limited, whereas the Lucky Star Casinos willcontinue to operate 24 hours a day, seven days a week.

 

**Lucky StarClinton**

 

Managementfees from Lucky Star Clinton were $1,604,586 in 2004 and $1,255,230 in 2003, anincrease of 28%.  Our increase inmanagement fees was driven by increased customer awareness of our location,customer service and improved machine selection.   In January 2005, the Tribes approved acompact with the state of Oklahoma which will provide the facility withadditional electronic games as well as the ability to offer player banked cardgames.  We anticipate that Lucky StarClinton will begin to realize the benefits of this expanding gaming in thesecond quarter of 2005. We anticipate that additional competition will comeinto our market area within the next 9 months, but we believe, although wecannot provide any assurance, that we will continue to benefit from theexpanded gaming permitted under the compact.

 

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We are also currently discussing with the Tribes the possibilities of expandingboth the Concho and Clinton facilities which could have a significant impact onrevenues for 2005.

 

***Other Factors Affecting Our Net Loss:***

 

The following table summarizes some of the factors our managementbelieves are most significant in understanding our financial performance duringthe past two fiscal years.

 
| ** **                                    | ** ** | **2004**   | ** ** | **2003**  | ** ** | **Percentage  Increase  (Decrease)** | ** ** |
|-----------------------------------------------|------------|------------|------------|-----------|------------|--------------------------------------|------------|
| (Income) Expense:                             |       |       |       |      |       |                                 |       |
| Southwest Entertainment                       |       | $          | (146,536   | )         | $          | (183,440                             | )          | -20 | % |
| Corporate Expenses                            |       | 3,861,962  |       | 2,625,847 |       | 47                                   | %          |
| Interest Expense (net)                        |       | (1,122,635 | )          | (907,430  | )          | 24                                   | %          |
| Other (income) Loss                           |       | 690        |       | (54,485   | )          |                                 | N/M        |
| Effective Tax Rate                            |       | 0          | %          | 12        | %          |                                 | N/M        |
| Minority Interests                            |       | 108,446    |       | —    |       |                                 | N/M   |
| Discontinued Operations, Net of Income  Taxes |       | (256,582   | )          | (860,375  | )          | -70                                  | %          |
|                                               |            |            |            |           |            |                                      |            |  |  |

 

----

N/M = Not Material

 

***Southwest Entertainment, Inc***is a wholly owned subsidiary of Southwest Casino and Hotel Corp. that conductsconcerts at the Gold Rush Palladium, a 1,200 seat outdoor amphitheater adjacentto the Gold Rush Casino.   We conductmusical events for the purpose of attracting people to Cripple Creek and ourcasino properties.  During 2004 and 2003,we held six concerts each year.   Theincreased loss during 2003 compared to 2004 was due primarily to the highercost of the acts that performed during 2003.

 

***Corporate expenses***increased 47%, primarily from an increase in legal and accounting expenses of$714,446 over the same period for the prior year. The additional legal andaccounting expenses were incurred in connection with the merger with Lone MooseAdventures, Inc. and additional costs in connection with the filingrequirements for the Securities and Exchange Commission.

 

***Interest Expense***increased 24% as a result of lease financing for the player tracking and slotaccounting system installed at the Colorado casinos in January 2004.

 

***Minority interest***represents minority owner’s share of expense related to North Metro HarnessInitiative, LLC.

 

***Effective tax rates***for all periods are lower than the federal and state statutory rates dueprimarily to the valuation allowance for deferred tax assets and lack ofcertainty that net operating loss carryforwards available to offset futureincome will not be limited under Section 382 of the Internal Revenue Code of1986.

 

***Discontinued Operations***reflect the results of operations for Southwest Casino Deadwood, LLC which weclosed February 28, 2004.  Since 2004includes only two months of operations, the loss is 70% less than the loss in2003.   For calendar year 2003, the lossfrom discontinued operations includes a $282,550 loss on sale and abandonmentof fixed assets used in the operations.

 

29

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***Liquidity and Capital Resources:***

 

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

 

We expect thatcash flows from operations will be sufficient to meet our normal operatingrequirements during the next twelve months, including payment of our accountspayable as of December 31, 2004. However, we will need additional equity and debt financing to fund thedevelopment of the racetrack and card room in Minnesota.  If we raise additional funds through the issuanceof equity securities, our stockholders may experience dilution, which could besignificant.  Furthermore, additionalfinancing may not be available when required or, if available, may not be onterms favorable to us or our stockholders. If financing is not available when needed or on acceptable terms, we maynot be able to participate fully in the development of the racetrack and cardroom in Minnesota or participate in other new opportunities that we believe maybe beneficial to our business.

 

During theyears ended December 31, 2004, 2003 and 2002, we spent $2,681,470, $1,302,980and $247,721, respectively in the unsuccessful pursuit of a riverboat casino inMissouri.  $1,514,900 of theseexpenditures was funded from cash flow from operations, equity financingprovided $1,900,000, and cash provided from debt financing contributed$817,271. In addition, during the years ended December 31, 2004 and 2003, wespent $1,746,427 and $915,195 in pursuit of a license to operate a racetrackand card room in Minnesota.  Theseexpenditures were funded from cash flow from operations of $1,656,782 and cashprovided from accounts payable and debt financing of $1,000,840.

 

We continue toreview additional opportunities to acquire or invest in companies, propertiesand other investments that meet our strategic and return on investment criteria.If a material acquisition or investment is completed, our operating results andfinancial condition could change significantly in future periods.

 

Net cashprovided by operating activities during the year ended December 31, 2004 was$1,565,560 compared to $996,601 during the year ended December 31, 2003, anincrease of $568,959. This increase was due primarily to an increase inaccounts payable and accrued expenses of $923,914; a decrease in receivablesand inventories of $216,056; and a decrease in the net loss from operations of$240,153, excluding depreciation and amortization; all offset by a decrease inaccrued interest payable of ($261,730); an increase in prepaid expenses of($238,841); and an increase in restricted cash of $202,147.

 

Net cash used in investing activities for the year ended December 31,2004 was $(3,911,095) compared to net cash used in investing activities of$(616,487) during the year ended December 31, 2003, an increase of $3,294,608.This increase in use of cash between the years was primarily due to investmentof $2,251,767 in SMG, an unconsolidated subsidiary that pursued the RockawayBeach initiative, a $733,809 reduction in funds provided from collection onnotes receivable, a decrease in deposits of $119,466, offset by a $404,850increase in the amount spent on capitalized licenses, land option payments anddevelopment costs related to North Metro Harness Initiative, LLC.

 

Net cash provided by financing activities for the year ended December31, 2004 was approximately $2,367,801 compared to net cash used in financingactivities for the year ended December 31, 2003 of approximately $(1,200,635),an increase of $3,568,436.  The increasein net cash provided by financing activities was due primarily to the issuanceof $2,449,760 (net of issuance costs) of Convertible Demand Notes thatconverted to common stock after the merger with Lone Moose Adventures, Inc.,additional short term borrowings of $590,672; a draw on our line of credit inthe amount of $350,000; and proceeds

 

30

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from minority interests of $108,446; offsetby settlement of outstanding Convertible Debentures of $262,500.

 

***Convertible Demand Notes.****** ***Duringthe year ended December 31, 2004, we issued $2,632,000 of convertible demandnotes.  The notes accrued interest at 8%,and were due on September 27, 2004.  Thenotes together with accrued interest converted into common stock at a rate of$1.00 per share upon completion of the merger transaction with Lone MooseAdventures, Inc., a publicly traded company, on July 22, 2004.

 

***Promissory Note.****** ***Wehave entered into a collateral agreement and promissory note to collateralize a$500,000 bond related to the development of North Metro Harness Initiative,LLC.  The promissory note is due on June1, 2005, with a variable interest rate (currently 5%).  At December 31, 2004, the note had not beendrawn.  The note is personally guaranteedby four of our stockholders including three of our executive officers.

 

***Summary of Commitments and ContractualObligations:***

 

Under the terms of the Member Control Agreement for North Metro HarnessInitiative, LLC, we committed to contribute an additional $1,500,000 to NorthMetro if it received licenses to build and operate a harness racetrack in ColumbusTownship, Anoka County, Minnesota.  TheMinnesota Racing Commission voted to grant these licenses on January 19,2005.  In addition, we have other severalother financial commitments, including repayment of bank loans, promissorynote, and accounts payable, as well as minimum annual lease payments.

 

The following table summarizes the timing of these future contractualobligations and commitments as of December 31, 2004:

 
| ** **                                             | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------------------------|------------|----------------------------|------------|
| **Contractual Obligations**                            | ** ** | **Total**                  | ** ** | **Less Than  1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5  Years** | ** ** |
| Capital Lease (1)                                      |       | $                          | 15,996,000 |   | $ | 1,507,000 |   | $ | 3,182,000 |   | $ | 2,872,000 |   | $ | 8,435,000 |   |
| Operating Leases (2)                                   |       | $                          | 1,325,000  |   | $ | 291,000 |   | $ | 582,000 |   | $ | 454,000 |   | — |   |
| Commitment to North Metro Harness  Initiative, LLC (3) |       | $                          | 1,500,000  |   | $ | 1,500,000 |   | — |   | — |   | — |   |
| Commitment under Bank Loans                            |       | $                          | 883,000    |   | $ | 883,000 |   | — |   | — |   | — |   |
| Commitment under Promissory Note                       |       | $                          | 370,000    |   | $ | 370,000 |   | — |   | — |   | — |   |
| Accounts Payable (North Metro) (4)                     |       | $                          | 500,000    |   | $ | 500,000 |   | — |   | — |   | — |   |
| Accounts Payable (Southwest)(5)                        |       | $                          | 500,000    |   | $ | 500,000 |   | — |   | — |   | — |   |
| Total Contractual Cash Obligations                     |       | $                          | 21,074,000 |   | $ | 5,551,000 |   | $ | 3,764,000 |   | $ | 3,326,000 |   | $ | 8,435,000 |   |

 

----

(1)          Consistsof capitalized lease for the Gold Rush and Gold Digger’s Casinos, the Gold RushPalladium, and related facilities in Cripple Creek, Colorado.

(2)          Consistsof leases for Uncle Sam’s Casino in Cripple Creek, Colorado; Southwest CasinoCorporation offices in Minneapolis, Minnesota; and office equipment.

(3)          Consistsof additional capital contribution due under Member Control Agreement.  Obligation arose after December 31, 2004 whenthe Minnesota Racing Commission granted licenses on January 19, 2005.

(4)          Consistsof pre-licensing expenditures for North Metro Harness Initiative, LLC that,under the North Metro Member Control Agreement, Southwest Casino and HotelCorp. must pay.

(5)          Doesnot include amounts we anticipate will be paid to IGT in connection with aplayer tracking and slot accounting system installed in our Coloradocasinos.  We anticipate that we will paythe $1,142,000 purchase

 

31

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price of this system over four years at aninterest rate of approximately 7% per year once the system is operational.

 

We expect to continue to spend capital on:

 

•                  reinvesting inour casinos in Cripple Creek, Colorado; and

•                  pursuing newgaming opportunities if and when suitable opportunities arise.

 

The amount of capital we may need will dependon many factors, including the:

 

•                  time and cost necessary for any new gaming opportunities weelect to pursue;

•                  new developments in our relationship with the Cheyenne andArapaho Tribes of Oklahoma; and

•                  new collaborative relationships that we may establish inpursuit of suitable new gaming opportunities.

 

***Off-Balance Sheet Arrangements:***

 

Except for operating leases entered in the ordinary course of businessand customary indemnification obligations under some of our agreements, we donot have any significant off-balance sheet arrangements.

 

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

 

**CompetitivePressures:**

 

Many casinooperators are entering or expanding in our markets – Colorado and Oklahoma –thereby increasing competition. As companies have completed new or expandedprojects, supply has sometimes grown at a faster pace than demand, andcompetition has increased significantly. Furthermore, several operators,including Southwest, have plans for additionaldevelopments or expansions.

 

Although, theshort-term effect on Southwest of these competitive developments generally hasbeen negative, we are not able to determine the long-term impact, whetherfavorable or unfavorable, that development and expansion trends and events willhave on current or future markets. We believe that the geographic diversity ofour operations, our service training, our rewards and customer loyaltyprograms, and our continuing efforts to improve our facilities will insurecontinued customer loyalty and will enable us to face the competitivechallenges present within our industry.

 

**PoliticalUncertainties:**

 

The casinoentertainment industry is subject to political and regulatory uncertainty. Fromtime to time, individual jurisdictions have considered legislation orreferendums that could adversely impact our operations. The likelihood oroutcome of similar legislation and referendums in the future is difficult topredict.

 

The casinoentertainment industry represents a significant source of tax revenues to thevarious jurisdictions in which casinos operate. From time to time, variousstate and federal legislators and officials have proposed changes in tax laws,or in the administration of tax laws, that would affect the industry. It is notpossible to determine with certainty the scope or likelihood of possible futurechanges in tax laws or in the administration of tax laws. If adopted, changesin tax law could have a material adverse effect on our financial results.

 

32

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***Significant Accounting Policies and Estimates:***

 

Oursignificant accounting policies are described in Note 2 to our consolidatedfinancial statements included in Item 7 of this report.  The discussion and analysis of ourconsolidated financial statements and results of operation are based on thoseconsolidated financial statements.  Weprepare our Consolidated Financial Statements in conformity with accountingprinciples generally accepted in the United States. Certain of our accountingpolicies, including, but not limited to, the estimated lives assigned to ourassets, the determination of bad debt, asset impairment, fair value ofguarantees, and the calculation of our income tax liabilities, require that weapply significant judgment in defining the appropriate assumptions forcalculating financial estimates.  Bytheir nature, these judgments are subject to an inherent degree of uncertainty.Our judgments are based on our historical experience, terms of existingcontracts, our observance of trends in the industry,information provided by our customers and information available from otheroutside sources, as appropriate. Although we believe our judgments are reasonable, they are based uponinformation available when they are made. We cannot assure you that our actualresults will not differ significantly from our estimates.

 

***Forward Looking Statements*:**

 

This AnnualReport on Form 10-KSB contains “forward-looking statements” intended to qualifyfor the safe harbor from liability established by the Private SecuritiesLitigation Reform Act of 1995. You can identify these statements by the factthat they do not relate strictly to historical or current facts. Thesestatements often contain words such as “may,” “will,” “project,” “might,” “expect,”“believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or “pursue,”or the negative or other variations thereof or comparable terminology. Inparticular, they include statements relating to, among other things, futureactions, new projects, strategies, future performance, the outcome ofcontingencies such as legal proceedings and future financial results. We havebased these forward-looking statements on our current expectations andprojections about future events.

 

We caution thereader that forward-looking statements involve risks and uncertainties thatcannot be predicted or quantified and, consequently, actual results may differmaterially from those expressed or implied in the forward-looking statements.These risks and uncertainties include, but are not limited to, the followingfactors as well as other factors described from time to time in our reportsfiled with the Securities and Exchange Commission:

 

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

 

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

 

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

 

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

 

•        abilityof our customer-tracking and customer loyalty programs;

 

•        abnormalgaming holds;

 

•        accessto available and feasible financing;

 

33

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

 

•        litigationoutcomes and judicial actions;

 

•        construction factors,including delays, zoning issues, environmental restrictions, soil and waterconditions, weather and other hazards, site access maters and building permitissues;

 

•        the effect of economic,credit and capital market conditions on the economy in general, and on gamingcompanies in particular;

 

•        theeffects of environmental and structural building conditions relating to ourproperties; and

 

•        actsof war or terrorist incidents.

 

Anyforward-looking statements are made pursuant to the Private SecuritiesLitigation Reform Act of 1995 and, as such, speak only as of the date made. Weundertake no obligation to publicly update any forward-looking statements,whether as a result of new information, future events or otherwise.  We advise you, however, to consult anyfurther disclosures we make on related subjects in our quarterly reports onForm 10-QSB and current reports on Form 8-K we file with or furnish to theSecurities and Exchange Commission.

 

34

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**Item 7.  FINANCIAL STATEMENTS**

** **

**SOUTHWEST CASINO CORPORATION**

 

 
| **Table of Contents**                                    | **F-1**                               |
|----------------------------------------------------------|---------------------------------------|
| ** **                                               |
| ** **                                               |
| ** **                                               |
| REPORT OF INDEPENDENT REGISTERED PUBLIC  ACCOUNTING FIRM |
|                                                     | Balance Sheets                        | F-2 |
|                                                     | Operations                            | F-3 |
|                                                     | Changes  in Stockholders’ Equity | F-4 |
|                                                     | Cash Flows                            | F-5 |
|                                                     | Notes to  Financial Statements        | F-6 |

 

 

 

 

----

 

## ** **

## **REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

 

 

The Board of Directors

**Southwest Casino Corporation**

Minneapolis, Minnesota

 

 

We have audited the accompanying consolidated balance sheets of **Southwest Casino Corporation** (the Company) as of December31, 2004 and 2003, and the related consolidated statements of operations,stockholders’ equity and cash flows for the years then ended. These consolidatedfinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financialstatements based upon our audits.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe consolidated financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements. An audit also includesassessing the accounting principles used and significant estimates bymanagement, as well as evaluating the overall financial statement presentation.We believe our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of **Southwest Casino Corporation** as of December 31, 2004 and 2003,and the results of its operations and its cash flows for the years then ended,in conformity with accounting principles generally accepted in the UnitedStates of America.

 

As described in Note 13 to the consolidated financial statements, **Southwest Casino Corporation** recorded a prior periodadjustment related to the correction of an error related to accounting forcapital lease obligations.

 

 

/s/  Eide Bailly LLP

 

 

Minneapolis, Minnesota

March 22, 2005

 

----

| **SOUTHWEST  CASINO CORPORATION**                             |
|---------------------------------------------------------------|
| **Consolidated Balance Sheets**                               |
| **December  31, 2004 and 2003**                               |
|                                                          |   |   |   |   |   |
| ASSETS                                                        | ** ** | ** ** | ** ** | **Restated** | ** ** |
| ** **                                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
| CURRENT ASSETS                                                |   |   |   |   |   |
| Cash and Cash Equivalents                                     |   | $ | 750,556 |   | $ | 728,290 |   |
| Cash - Restricted                                             |   | 202,147 |   | — |   |
| Accounts Receivable                                           |   | 136,247 |   | 124,589 |   |
| Accounts Receivable - Other                                   |   | — |   | 200,000 |   |
| Management Fees Receivable                                    |   | 241,227 |   | 308,154 |   |
| Inventories                                                   |   | 154,724 |   | 168,784 |   |
| Prepaid Expenses                                              |   | 640,610 |   | 571,314 |   |
| Assets Held For Sale                                          |   | — |   | 21,411 |   |
| Notes Receivable - Current Portion                            |   | — |   | 402,686 |   |
| Total Current Assets                                          |   | $ | 2,125,511 |   | $ | 2,525,228 |   |
|                                                          |   |   |   |   |   |
| PROPERTY AND EQUIPMENT                                        |   |   |   |   |   |
| Real Estate Options                                           |   | $ | 657,034 |   | $ | 163,011 |   |
| Construction in Progress                                      |   | 1,208,762 |   | 375,499 |   |
| Leasehold Improvements                                        |   | 15,668,826 |   | 15,627,101 |   |
| Furniture and Equipment                                       |   | 6,387,001 |   | 5,308,409 |   |
| Accumulated Depreciation                                      |   | (7,819,758 | ) | (6,341,164 | ) |
| Net Property and Equipment                                    |   | $ | 16,101,865 |   | $ | 15,132,856 |   |
|                                                          |   |   |   |   |   |
| OTHER ASSETS                                                  |   |   |   |   |   |
| Intangible Assets                                             |   | $ | 1,439,165 |   | $ | 1,529,415 |   |
| Deposits                                                      |   | 100,024 |   | 157,964 |   |
| Deferred Tax Asset                                            |   | 842,000 |   | 842,000 |   |
| Total Other Assets                                            |   | $ | 2,381,189 |   | $ | 2,529,379 |   |
|                                                          |   |   |   |   |   |
| TOTAL ASSETS                                                  |   | $ | 20,608,565 |   | $ | 20,187,463 |   |
|                                                          |   |   |   |   |   |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                    |   |   |   |   |   |
|                                                          |   |   |   |   |   |
| CURRENT LIABILITIES                                           |   |   |   |   |   |
| Accounts Payable                                              |   | $ | 2,468,807 |   | $ | 942,459 |   |
| Accounts Payable - Construction in Progress                   |   | 316,442 |   | 110,821 |   |
| Accrued Expenses                                              |   | 869,579 |   | 709,252 |   |
| Accrued Liabilities - Related Parties                         |   | 707,763 |   | 410,100 |   |
| Notes Payable                                                 |   | 883,101 |   | 241,472 |   |
| Current Portion of Long-Term Liabilities                      |   | 767,436 |   | 690,476 |   |
| Convertible Subordinated Series A Debentures                  |   | 100,000 |   | 362,500 |   |
| Accrued Interest Payable                                      |   | 109,775 |   | 335,494 |   |
| Total Current Liabilities                                     |   | $ | 6,222,903 |   | $ | 3,802,574 |   |
|                                                          |   |   |   |   |   |
| LONG-TERM LIABILITIES                                         |   |   |   |   |   |
| Long-Term Liabilities Net of Current Portion                  |   | $ | 9,017,472 |   | $ | 9,796,052 |   |
|                                                          |   |   |   |   |   |
| STOCKHOLDERS’ EQUITY                                     |   |   |   |   |   |
| Preferred Stock, $.02 Par Value; 30,000,000 Shares Authorized |   |   |   |   |   |
| 8,067,506 Shares Issued and Outstanding *                     |   | $ | — |   | $ | 161,350 |   |
| Common Stock, $.001 and $.02 Par Value, Respectively;         |   |   |   |   |   |
| 50,000,000 Shares Authorized, 19,365,928 and                  |   |   |   |   |   |
| 5,256,786 Shares Issued and Outstanding, Respectively*        |   | 19,366 |   | 105,136 |   |
| Additional Paid-in Capital - Warrants                         |   | 18,875 |   | 1,000 |   |
| Additional Paid-in Capital                                    |   | 16,756,345 |   | 13,310,968 |   |
| Accumulated Deficit                                           |   | (11,426,396 | ) | (6,989,617 | ) |
| Total Stockholders’ Equity                               |   | $ | 5,368,190 |   | $ | 6,588,837 |   |
|                                                          |   |   |   |   |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY               |   | $ | 20,608,565 |   | $ | 20,187,463 |   |

 

----

* Par values and shares issued in 2003 havebeen restated as a result of the reverse merger with Lone Moose

 

SeeNotes to Consolidated Finanacial Statements

 

F-2

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| **SOUTHWEST  CASINO CORPORATION**                              |
|----------------------------------------------------------------|
| **Consolidated Statements of  Operations**                     |
| **For the  Years Ended December 31, 2004 and 2003**            |
| ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | ** ** | ** ** | **Restated** | ** ** |
| ** **                                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
| **REVENUES**                                                   |   |   |   |   |   |
| Casino                                                         |   | $ | 15,496,712 |   | $ | 15,431,567 |   |
| Food & Beverage/Hotel                                      |   | 433,119 |   | 503,632 |   |
| Management and Consulting                                      |   | 4,083,189 |   | 3,235,815 |   |
| Entertainment                                                  |   | 102,430 |   | 142,586 |   |
| Other                                                          |   | 93,167 |   | 159,574 |   |
| Total Revenue                                                  |   | $ | 20,208,617 |   | $ | 19,473,174 |   |
|                                                           |   |   |   |   |   |
| **EXPENSES**                                                   |   |   |   |   |   |
| Casino                                                         |   | $ | 12,018,880 |   | $ | 11,758,754 |   |
| Food & Beverage/Hotel                                      |   | 1,583,978 |   | 1,435,333 |   |
| Corporate Expense                                              |   | 3,861,962 |   | 2,625,847 |   |
| Project Development Costs                                      |   | 835,452 |   | 1,551,422 |   |
| Entertainment                                                  |   | 199,867 |   | 278,535 |   |
| Depreciation and Amortization                                  |   | 2,433,699 |   | 1,711,194 |   |
| Total Expenses                                                 |   | $ | 20,933,838 |   | $ | 19,361,085 |   |
|                                                           |   |   |   |   |   |
| Income from Operations                                         |   | $ | (725,221 | ) | $ | 112,089 |   |
|                                                           |   |   |   |   |   |
| **OTHER INCOME (EXPENSE)**                                     |   |   |   |   |   |
| Interest Income                                                |   | $ | 8,459 |   | $ | 97,100 |   |
| Interest Expense                                               |   | (1,131,094 | ) | (1,004,530 | ) |
| Loss on Disposition of Property and Equipment                  |   | (9,909 | ) | (10,391 | ) |
| Income from Debt Forgiveness                                   |   | 9,219 |   | 64,876 |   |
| Total Other Income (Expense)                                   |   | $ | (1,123,325 | ) | $ | (852,945 | ) |
|                                                           |   |   |   |   |   |
| Loss from Continuing Operations Before Income Taxes            |   | $ | (1,848,546 | ) | $ | (740,856 | ) |
|                                                           |   |   |   |   |   |
| Income Tax Benefit (Expense)                                   |   | — |   | 106,847 |   |
| Minority Interest in Income of Consolidated Subsidiaries       |   | 108,446 |   | — |   |
| Equity (Loss) of Unconsolidated Subsidiary, Net of Tax Benefit |   | (2,361,334 | ) | — |   |
|                                                           |   |   |   |   |   |
| Income (Loss) from Continuing Operations                       |   | $ | (4,101,434 | ) | $ | (634,009 | ) |
|                                                           |   |   |   |   |   |
| **DISCONTINUED OPERATIONS**                                    |   |   |   |   |   |
| Loss from Discontinued Operations                              |   | $ | (256,582 | ) | $ | (978,375 | ) |
| Income Tax Benefit                                             |   | — |   | 118,000 |   |
| Total Discontinued Operations                                  |   | $ | (256,582 | ) | $ | (860,375 | ) |
|                                                           |   |   |   |   |   |
| **NET LOSS**                                                   |   | $ | (4,358,016 | ) | $ | (1,494,384 | ) |
|                                                           |   |   |   |   |   |
| Earnings Per Common Share and Common Equivalent Share,         |   |   |   |   |   |
| Basic:                                                         |   |   |   |   |   |
| Loss from Continuing Operations                                |   | (0.36 | ) | (0.17 | ) |
| Discontinued Operations                                        |   | (0.02 | ) | (0.23 | ) |
| Net Income                                                     |   | $ | (0.38 | ) | $ | (0.40 | ) |
|                                                           |   |   |   |   |   |
| Common Equivalent Shares Outstanding                           |   | 11,460,771 |   | 3,722,224 |   |
|                                                           |   |   |   |   |   |
| Earnings Per Common Share and Common Equivalent Share,         |   |   |   |   |   |
| Fully-diluted:                                                 |   |   |   |   |   |
| Loss from Continuing Operations                                |   | (0.36 | ) | (0.17 | ) |
| Extraordinary Item                                             |   | (0.02 | ) | (0.23 | ) |
| Net Income                                                     |   | $ | (0.38 | ) | $ | (0.40 | ) |
|                                                           |   |   |   |   |   |
| Common Equivalent Shares Outstanding                           |   | 11,460,771 |   | 3,722,224 |   |
|                                                           |   |   |   |   |   |

 

SeeNotes to Consolidated Finanacial Statements

 

F-3

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| **SOUTHWEST  CASINO CORPORATION**                                    |
|----------------------------------------------------------------------|
| **Consolidated Statements of  Changes in Stockholders’ Equity** |
| **For the  Years Ended December 31, 2004 and 2003**                  |
| ** **                                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                           | ** ** | **Series A  Convertible** |   |   |   |   |   | **Additional**

**Paid-in  Capital** |   | **Additional  Paid-in  Capital  Preferred  Warrants** |   |   |   |   |   |   |
| ** **                                                           | ** ** | **Preferred  Stock** |   | **Common  Stock** |   |   |   |   |   |   |
| ** **                                                           | ** ** | **Number  of** | ** ** | ** ** | ** ** | **Number  of** | ** ** | ** ** |   |   | **Retained** |   |   |   |
| ** **                                                           | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** | ** ** | **Earnings** |   | **Total** |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **RESTATED  BALANCE January 1, 2003 ***                              |   | 8,005,006 |   | $ | 160,100 |   | 3,499,286 |   | $ | 69,986 |   | $ | 13,157,718 |   | $ | — |   | $ | (5,226,130 | ) | $ | 8,161,674 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Prior Period  Adjustment (See Note 13)                               |   | — |   | — |   | — |   | — |   | — |   | — |   | (269,103 | ) | (269,103 | ) |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| As Restated                                                          |   | 8,005,006 |   | 160,100 |   | 3,499,286 |   | 69,986 |   | 13,157,718 |   | — |   | (5,495,233 | ) | 7,892,571 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Common Stock for Services                               |   | — |   | — |   | 1,757,500 |   | 35,150 |   | 153,250 |   | — |   | — |   | 188,400 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Preferred Stock                                         |   | 62,500 |   | 1,250 |   | — |   | — |   | — |   | — |   | — |   | 1,250 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Preferred Warrants                                      |   | — |   | — |   | — |   | — |   | — |   | 1,000 |   | — |   | 1,000 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Loss                                                             |   | — |   | — |   | — |   | — |   | — |   | — |   | (1,494,384 | ) | (1,494,384 | ) |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **BALANCE  December 31, 2003**                                       |   | 8,067,506 |   | $ | 161,350 |   | 5,256,786 |   | $ | 105,136 |   | $ | 13,310,968 |   | $ | 1,000 |   | $ | (6,989,617 | ) | $ | 6,588,837 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Common Stock for Services                               |   | — |   | $ | — |   | 187,500 |   | $ | 3,750 |   | $ | 18,750 |   | $ | — |   | $ | — |   | $ | 22,500 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Common Stock for Debt                                   |   | — |   | — |   | 2,649,551 |   | 52,991 |   | 2,596,560 |   | — |   | — |   | 2,649,551 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Conversion to New  Common Stock $.001 par                            |   | (8,067,506 | ) | (161,350 | ) | 8,067,506 |   | (145,715 | ) | 307,065 |   | — |   | — |   | — |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reverse Merger -  Lone Moose                                         |   | — |   | — |   | 3,208,550 |   | 3,208 |   | 75,555 |   | — |   | (78,763 | ) | — |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common Stock  Purchased                                              |   | — |   | — |   | 1,500,000 |   | 1,500 |   | 73,500 |   | — |   | — |   | 75,000 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cancellation of  Stock - Lone Moose                                  |   | — |   | — |   | (2,489,372 | ) | (2,489 | ) | (15,068 | ) | — |   | — |   | (17,557 | ) |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Common Stock for Services                               |   | — |   | — |   | 939,865 |   | 940 |   | 339,060 |   | — |   | — |   | 340,000 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Common Stock for Debt                                   |   | — |   | — |   | 45,455 |   | 45 |   | 49,955 |   | — |   | — |   | 50,000 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Preferred Warrants                                      |   | — |   | — |   | — |   | — |   | — |   | 17,875 |   | — |   | 17,875 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Loss                                                             |   | — |   | — |   | — |   | — |   | — |   | — |   | (4,358,016 | ) | (4,358,016 | ) |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **BALANCE  December 31, 2004**                                       |   | — |   | $ | — |   | 19,365,841 |   | $ | 19,366 |   | $ | 16,756,345 |   | $ | 18,875 |   | $ | (11,426,396 | ) | $ | 5,368,190 |   |
|                                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

* Par values and shares issued in 2003 havebeen restated as a result of the reverse merger with Lone Moose

 

SeeNotes to Consolidated Finanacial Statements

 

F-4

----

 
| **SOUTHWEST CASINO CORPORATION**                               | ** ** |
|----------------------------------------------------------------|------------|
| **Consolidated  Statements of Cash Flows**                     | ** ** |
| **For the Years Ended December 31, 2004 and 2003**             | ** ** |
|                                                           |       |   |   |   |   |
| ** **                                                     | ** ** | ** ** | ** ** | **Restated** | ** ** |
| ** **                                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                           |       |   |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                           |       |   |   |   |   |
| Net Loss                                                       |       | $ | (4,358,016 | ) | $ | (1,494,384 | ) |
| Adjustments to Reconcile Net Loss to                           |       |   |   |   |   |
| Net Cash Provided by (Used In) Operating Activities:           |       |   |   |   |   |
| Minority Interest                                              |       | (108,446 | ) | — |   |
| Depreciation and Amortization                                  |       | 2,468,021 |   | 1,914,389 |   |
| Loss on Disposition of Property and Equipment                  |       | 9,909 |   | 292,941 |   |
| Income from Debt Forgiveness                                   |       | — |   | (64,876 | ) |
| Deferred Taxes                                                 |       | — |   | (270,000 | ) |
| Common Stock Issued for Non-Cash Compensation                  |       | 325,375 |   | 188,400 |   |
| Equity on Unconsolidated Subsidiary                            |       | 2,361,334 |   | — |   |
| Change in Current Assets and Liabilities:                      |       |   |   |   |   |
| (Increase) Decrease in Restricted Cash                         |       | (202,147 | ) | — |   |
| (Increase) Decrease in Receivables                             |       | 243,714 |   | 104,374 |   |
| (Increase) Decrease in Inventories                             |       | 14,706 |   | (62,010 | ) |
| (Increase) Decrease in Prepaid Expenses                        |       | (70,610 | ) | 168,231 |   |
| Increase (Decrease) in Accounts Payable                        |       | 797,672 |   | 217,846 |   |
| Increase (Decrease) in Accrued Expenses                        |       | 309,767 |   | (34,321 | ) |
| Increase (Decrease) in Accrued Interest Payable                |       | (225,719 | ) | 36,011 |   |
| Net Cash Provided By (Used In) Operating Activities            |       | $ | 1,565,560 |   | $ | 996,601 |   |
|                                                           |       |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                           |       |   |   |   |   |
| Proceeds from Sale of Property and Equipment                   |       | $ | 5,725 |   | $ | 34,267 |   |
| Purchase of Property and Equipment                             |       | (1,918,543 | ) | (1,720,829 | ) |
| Proceeds from Principal Received on Long-Term Notes Receivable |       | 402,686 |   | 1,136,495 |   |
| (Increase) Decrease in Deposits                                |       | 57,940 |   | (61,526 | ) |
| Purchase of Investments                                        |       | — |   | (4,894 | ) |
| Payment of Capitalized License                                 |       | (207,136 | ) | — |   |
| Investment in Unconsolidated Investment                        |       | (2,251,767 | ) | — |   |
| Net Cash Provided by (Used In) Investing Activities            |       | $ | (3,911,095 | ) | $ | (616,487 | ) |
|                                                           |       |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                           |       |   |   |   |   |
| Net Advances (Payments) on Short-Term Notes Payable            |       | $ | 590,672 |   | $ | (189,431 | ) |
| Proceeds from Line of Credit                                   |       | 350,000 |   | — |   |
| Proceeds from Convertible Demand Notes,                        |       |   |   |   |   |
| Net of Issuance Costs of $182,240                              |       | 2,449,760 |   | — |   |
| Proceeds from Long-Term Borrowings                             |       | — |   | — |   |
| Principal Payments on Long-Term Borrowings                     |       | (948,577 | ) | (949,704 | ) |
| Proceeds from Outside Investors - Minority Interest            |       | 108,446 |   | — |   |
| Proceeds from Issuance of Preferred Stock & Warrants       |       | 5,000 |   | 2,250 |   |
| Proceeds from Issuance of Common Stock                         |       | 75,000 |   | — |   |
| Settlement of Convertible Subordinated Debentures              |       | (262,500 | ) | (63,750 | ) |
| Net Cash Provided by (Used In) Financing Activities            |       | $ | 2,367,801 |   | $ | (1,200,635 | ) |
|                                                           |       |   |   |   |   |
| Net Increase (Decrease) in Cash and Cash Equivalents           |       | $ | 22,266 |   | $ | (820,521 | ) |
|                                                           |       |   |   |   |   |
| CASH AND CASH EQUIVALENTS                                      |       |   |   |   |   |
| Beginning of Year                                              |       | 728,290 |   | 1,548,811 |   |
| End of Year                                                    |       | $ | 750,556 |   | $ | 728,290 |   |
|                                                           |       |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION               |       |   |   |   |   |
| Interest Paid                                                  |       | $ | 1,364,671 |   | $ | 968,519 |   |
| Income Taxes Paid                                              |       | 1,138 |   | 45,153 |   |
|                                                           |       |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH                            |       |   |   |   |   |
| INVESTING AND FINANCING ACTIVITIES                             |       |   |   |   |   |
| Common Stock Issued in Exchange for Compensation               |       | 325,375 |   | 188,400 |   |
| Equipment Purchased Through Financing                          |       | 986,929 |   | — |   |
|                                                           |       |   |   |   |   |

 

SeeNotes to Consolidated Finanacial Statements

 

F-5

----

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

** **

** **

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

 

Southwest Casino Corporation

 

The current structure of Southwest CasinoCorporation resulted from a July 22, 2004 reorganization consummated by LoneMoose Adventures, Inc. (now Southwest Casino Corporation), a Nevadacorporation, Lone Moose Acquisition Corporation, a Minnesota corporation andwholly-owned subsidiary of Lone Moose Adventures, Southwest Casino and HotelCorp., a Minnesota corporation, and certain shareholders of Lone MooseAdventures. In the reorganization, Lone Moose Acquisition Corporation mergedwith and into Southwest Casino and Hotel Corp. Southwest Casino and Hotel Corp.was the surviving corporation in that merger and became a wholly-owned subsidiaryof Lone Moose Adventures. Lone Moose Adventures changed its name to SouthwestCasino Corporation immediately after that merger.

 

In the reorganization, Lone Moose Adventures(now Southwest Casino Corporation) issued 16,161,343 shares of its common stockto shareholders of Southwest Casino and Hotel Corp. to acquire 100% of theissued and outstanding shares of common stock, series C convertible preferredstock and other convertible securities of Southwest Casino and Hotel Corp. Thereorganization represents a recapitalization of Southwest Casino Corporationwith accounting treatment similar to that used in a reverse acquisition, exceptthat no goodwill or intangible is recorded. A recapitalization is characterizedby the merger of a private operating company into a non-operating public shellcorporation with nominal net assets and typically results in the owners andmanagers of the private company having effective operating control after thetransaction. Southwest Casino Corporation emerged as the surviving reportingentity after the reorganization.

 

Southwest Casino Corporation, through itswholly-owned subsidiaries, operates three casinos in Cripple Creek, Coloradoand manages Native-American gaming facilities under contractual agreements.Southwest Casino Corporation’s operations include the following consolidatedsubsidiaries:

 

Southwest Casino and HotelCorp.

 

Southwest Casino and Hotel Corp. was formed in 1992and provides management consulting services for casinos under contractualagreements and operates Uncle Sam’s Casino in Cripple Creek, Colorado under afive-year lease which was extended for an additional five years ending in 2009.

 

Gold Rush I, LLC

 

Gold Rush I, LLC, was formed during 1999 andoperates the Gold Rush Hotel and Casino and Gold Digger’s Casino in CrippleCreek, Colorado under a long term capitalized lease agreement.

 

Southwest Entertainment. Inc.

 

Southwest Entertainment, Inc., located inMinneapolis, Minnesota, was formed on November 4, 1998. The Company operates anoutdoor amphitheatre for entertainment events in Cripple Creek, Colorado.

 

 

F-6

----

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31,2004 AND 2003**

 

Southwest Casino Deadwood, LLC

 

Southwest Casino Deadwood, LLC located in DeadwoodSouth Dakota was formed on December 7, 1999 and began operating B.B. Cody’s Casinounder lease in July 2000. During December 2003, the Company decided to discontinueoperations in Deadwood (See Note 16).

 

North Metro Harness Initiative, LLC.

 

North Metro Harness Initiative, LLC, (a developmentstage Minnesota limited liability company), was formed on June 16, 2003 for thepurpose of developing, owning and operating a horse race track and card roomnorth of Minneapolis, Minnesota, in Anoka County. North Metro was issuedlicenses by the Minnesota Racing Commission on February 16, 2005. As a resultof the Minnesota Racing Commissions decision, the Commission is being sued by agroup opposed to the race track and an organization that represents the ownersof thoroughbred horses that race at the state’s other Class A licensed racetrack in attempts to overturn the licenses. North Metro can not move forwardwith its financing until this matter is resolved.

 

SW Missouri, LLC

 

SW Missouri, LLC is a 30% shareholder inSouthwest Missouri Gaming, LLC which was pursuing state and local regulatoryapproval and acquiring property for a riverboat casino in Rockaway Beach, Missouri.This initiative was defeated in a state-wide primary election held on August 3,2004. It is unlikely, but still possible that thisinitiative will be revived if the project was to gain greater support from thesurrounding communities including Branson, MO.

 

###  

### **NOTE 2 — SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

# ** **

# **Principles of Consolidation**

# ** **

# **The accompanying consolidated financial statementsinclude the accounts of Southwest Casino Corporation, its wholly-ownedsubsidiaries, and North Metro Harness Initiative, LLC in which it has acontrolling interest. All material inter-company transactions and balances havebeen eliminated 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. This basis ofaccounting conforms to generally accepted accounting principles in the UnitedStates of America.**

 

Use of Estimates

 

The preparation of financial statements in conformity with generallyaccepted accounting principles in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the period. Actual results could differ from thoseestimates.

 

F-7

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

Cash Equivalents

 

The Company considers all highly liquid debt instruments purchased witha maturity of three months or less when purchased to be cash equivalents.

 

Revenue Recognition

 

Casino revenue is the net win from gaming activities, which is thedifference between gaming wins and losses. Revenue from food, beverage andhotel operations are recorded upon delivery of goodsor services, 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 receivables are uncollateralized obligations under normaltrade terms requiring payment within 20 days from invoice date and do notaccrue interest. Accounts receivables are stated at the amount billed to thecustomer. Payments of accounts receivables are allocated to the specificinvoices identified on the customer’s remittance advice or, if unspecified, areapplied to the earliest unpaid invoices.

 

The carrying amount of receivables is reduced by a valuation allowancethat reflects management’s best estimate of the amounts that will be collected.Management reviews all trade receivable balances that exceed 30 days from theinvoice date and, based on an assessment of the current creditworthiness,estimates the portion, if any, of the balance that will not be collected.

 

# **Net Income PerShare — 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 exclude thedilutive effect of options, warrants and convertible securities, while dilutedearnings per share include such effects only during years when the Companyreports net income.**

 

### Inventories

 

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

 

Concentrations of CreditRisk

 

The Company’s cash balances maintained inbank depositories periodically exceed federally insured limits.

 

Advertising Costs

 

The Company expenses advertising costs asincurred. Advertising expense for the years ended December 31, 2004 and2003 was approximately $395,000 and $602,000, respectively.

 

F-8

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

Employee Benefit Plan

 

The Company has established a definedcontribution profit sharing plan for its eligible employees. To be eligible, anemployee must be 21 years of age and have completed one year of service. Contributionsto the plan are made at the discretion of management, based on results ofoperations from year to year. No discretionary contributions were made during2004 or 2003.

 

The Company has adopted a 401(k) retirementplan. The plan provides for employee pre-tax salary deferrals of up to 10% of aparticipant’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, andhave attained the age of 21. A participant is fully-vested after one year of service,as defined in the plan. The Company’s matching contribution for the years 2004and 2003 was $85,186 and $55,235, respectively.

 

Property and Equipment

 

Real estate options include costs related toagreements for options to purchase land.

 

Construction in progress consists of amountsincurred for the architectural, engineering and other construction planningcosts that meet capitalization criteria. As of December 31, 2004 constructionin progress consisted of architectural, zoning, engineering and constructionpermit application costs.

 

Property and equipment are carried on thebooks at cost. Depreciation on property and equipment is calculated using thestraight-line method over their estimated useful lives, which range from threeto ten 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 notincrease the useful lives of the assets, are charged to expense as incurred.

 

Depreciationexpense was $1,228,737 and $985,854 for the years ended December 31, 2004 and2003, respectively.

 

Leaseholdsattributable to the lease in Note 12**havebeen capitalized in accordance with generallyaccepted accounting principles and are being amortized over twenty yearsusing the straight-line method.

 

Amortizationexpense for these leaseholds was $725,340 for each of the years ended December31, 2004 and 2003.

 

Long-lived assets to be held and used are testedfor recoverability whenever events or changes in circumstances indicate thatthe related 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**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

Income Taxes

 

Provisions for income taxes are based ontaxes payable or refundable for the current year and deferred taxes ontemporary differences between the amount of taxable income and pretax financialincome and between the tax bases of assets and liabilities and their reportedamounts in the financial statements. Deferred tax assets and liabilities areincluded in the financial statements at currently enacted income tax ratesapplicable to the period in which the deferred tax assets and liabilities areexpected to be realized or settled as prescribed in FASB Statement No. 109,Accounting for Income Taxes. As changes in tax laws or rate are enacted,deferred tax assets and liabilities are adjusted through the provision for incometaxes.

 

Organization and Start-Up Costs

 

Organization and start-up costs are expensedas incurred. Organization costs consist of amounts related to the formation ofa company. Start-up costs consist of amounts incurred during the developmentstage related to the operation, management and development of a company, whichdo not qualify as a capitalized cost. For federal and state income tax purposesthe Company plans to elect to capitalize and amortize start-up costs pursuantto Internal Revenue Code (IRC) Section 195 (B).

 

Stock Based Compensation

 

The Company uses the intrinsic value methodof accounting for compensation costs for stock based awards. Under theintrinsic value method, the fair value of the shares less the amount theemployee is required to pay for the shares is recorded as compensation expenseover the applicable period of service related to the award.

 

Operating Segments

 

The Company has segregated its activitiesinto three operating segments based on operating and management characteristicsrelated to its sources of revenue or basis for accumulating assets or expenses.The segments are defined as casino operations, casino management for unrelatedparties and casino development activities. Separate operations are aggregatedbased on the above general segment descriptions.

 

 

**NOTE 3 — RESTRICTED CASH**

 

Restricted Cash at December 31, 2004represents a bank escrow account set up to repurchase Series Aconvertible subordinated debentures that were outstanding as of July 14, 2004 (SeeNote 9).

 

F-10

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

**NOTE 4 — NOTES RECEIVABLE**

** **
| ** **                                                                                                                                                                                                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Notes receivable  at December 31 consists of the following:                                                                                                                                                             |       |     |       |     |       |
|                                                                                                                                                                                                                    |       |     |       |     |       |
| Cheyenne and  Arapaho Business Development Corporation, with monthly payments of $93,721  including principal and interest at 9.25% until the extended maturity date of  May 1, 2004, secured by property in Concho, OK |       | $        | —     |     | $          | 402,686 |   |
|                                                                                                                                                                                                                    |       |     |       |     |       |
| Less amounts  shown as current                                                                                                                                                                                          |       | —   |       | (402,686 | )          |
| Notes receivable  — long-term                                                                                                                                                                                      |       | $        | —     |     | $          | — |   |

** **

 

# **NOTE 5 — PROMOTIONALALLOWANCES**

 

# **Revenue does not include the retail amount of rooms,food and beverage provided gratuitously to customers, which was $1,291,714 and$975,540 in 2004 and 2003, respectively.**

 

 

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

** **
| Intangible  Assets consisted of the following at December 31: | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                          |       |     |       |     |       |
| Casino  management contract rights                            |       | $        | 1,232,029  |     | $          | 1,529,415 |   |
| Minnesota Class  A and B Racing License                       |       | 207,136  |       | —   |       |
| Total                                                         |       | $        | 1,439,165  |     | $          | 1,529,415 |   |
|                                                          |       |     |       |     |       |

 

 

The Company entered into an agreement with theCheyenne and Arapaho Tribes of Oklahoma (CATO) for management of its casinoslocated in Oklahoma which was to expire on May 19, 2004. In exchange forextending the contract through May 19, 2007, the Company has transferred titleof a tract of land to CATO.  The exchangetook place in 2003.  Since the assettransfer is related to the extension agreement for management services, thecost of the land is being amortized over the term of the agreement.

 

Management revenues of $4,083,189 and $3,235,815were earned related to the agreement with CATO for the years ended December 31,2004 and 2003, respectively. The termination of this contract or closure ofCATO’s gaming facilities and the resulting loss of management fees we receiveunder the agreement would have a materially adverse impact on our financialcondition. If the agreement is unilaterally terminated by CATO our remedies maybe limited as a result of the sovereign status of Indian nations and the limitsgranted them by the federal law. The NIGC has the authority to take actionagainst CATO for failure to comply with federal or tribal laws or regulationswhich, in extreme circumstances, could include closure of CATO’s gamingfacilities.

 

F-11

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

Amortization expense of the contract rights for theyears ended December 31, 2004 and 2003 was $297,386 and $0, respectively. Amortizationexpense during the remainder of the agreement is estimated as follows:

 

| **Year ended December 31,** | ** ** | **Amount** | ** ** |
|-----------------------------|------------|------------|------------|
| 2005                        |       | $          | 509,800    |   |
| 2006                        |       | 509,800    |       |
| 2007                        |       | 212,414    |       |
|                             |            |            |            |  |

 

The Company has also expended funds to acquire aClass A and a Class B License from the Minnesota Racing Commission. Althoughthis license is renewed on an annual basis the costs of obtaining the initiallicense are considered to have an indefinite useful life because it is expectedto generate cash flows indefinitely.

 

 

**NOTE 7 — NEWVENTURES**

 

During 2004, the Companyestablished a separate entity (SW Missouri, LLC) that invested in SouthwestMissouri Gaming, LLC (SMG).  SMG was established to own and operate ariverboat casino in Rockaway Beach, Missouri.  SW Missouri owns 30% of SMG and hascontributed $3,835,960 to SMG. SMG is 70% owned by an unrelated party who hascontributed $10,142,806. Amounts expended by the Company before formation ofSMG were counted as part of SW Missouri’s contribution to SMG. As of December31, 2004, the Company has written off its entire investment due to the failureof a proposed amendment to the Missouri constitution on August 3, 2004 that wasrequired for this project to proceed.   The Company still owes its partner Prime Inc.$367,000 for its share of expenses in connection with the unsuccessfulinitiative. In January, 2005 the Company signed a one year note agreeing to pay Prime Inc. $5,000 a month, aprincipal payment of $100,000 on July 1, 2005 and the balance of the note onDecember 31, 2005 , the interest rate is Prime + 2 points adjusted monthly. Thenote is secured by slot machines owned by Gold Rush I, LLC. It is unlikely, butstill possible, that this initiative will be revived if the project gainsgreater support from the surrounding communities, including Branson, Missouri.

 

Upon establishing SMG, theCompany adopted the equity method of accounting for its investment inSMG.  Accordingly, the Company’s allocable portion of net income (loss)has been identified as equity earnings (loss) of unconsolidated subsidiaries onthe accompanying consolidated income statement.  For the calendar yearended December 31, 2004 and 2003, the total loss related to the Rockaway Beach,Missouri development activities was $2,723,208 and $1,084,015, respectively.

 

F-12

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

**—**

**NOTE 8 — SHORT-TERM NOTES PAYABLE**

 
| Short-term notes  payable consisted of the following at December 31:                                                                                                                                                                                   |   | **2004**   | ** ** | **2003**   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
|                                                                                                                                                                                                                                                   |   |       |       |       |   |
| Associated Bank  Line of Credit                                                                                                                                                                                                                        |   |       |       |       |   |
| The Company  borrowed up to $450,000 under this line of credit. Interest rate is Prime + 1,  currently 6.25% due April 15, 2005.                                                                                                                       |   | $          | 446,292    |       | $      | 100,000 |   |
| Associated Bank                                                                                                                                                                                                                                        |   |       |       |       |   |
| On October 12,  2004, the Company borrowed $500,000 amortized over one year at $42,934 per  month, interest rate of 5.75% guaranteed by the Directors of the Company and  an investor. Last payment due October 12, 2005.                              |   | 418,599    |       | **—** |   |
| Hanson  Distributing                                                                                                                                                                                                                                   |   |       |       |       |   |
| The Company  financed the purchase of slot machines for one year at an interest rate of  0%. Weekly payments of varied amounts are due until maturity in June 2003 at  which time any remaining balance is then due. Collateralized by slot  machines. |   | **—** |       | 103,897    |   |
| Aristocrat                                                                                                                                                                                                                                             |   |       |       |       |   |
| The Company  financed the purchase of slot machines for three months at an interest rate  of 0%. Monthly payments of $20,056 are due until maturity. Collateralized by  slot machines.                                                                 |   | **—** |       | 22,468     |   |
| I.G.T.                                                                                                                                                                                                                                                 |   |       |       |       |   |
| The Company  financed the purchase of slot machines for nine months at an interest rate of  0%. Monthly payments of $15,107 are due until maturity in December 2003.  Collateralized by slot machines.                                                 |   | **—** |       | 15,107     |   |
| AICCO, Inc.                                                                                                                                                                                                                                            |   |       |       |       |   |
| The Company  financed various insurance policies at an interest rate of 7.42%. Monthly  payments of $4,552 are due until maturity in April 2005.                                                                                                       |   | 18,210     |       | **—** |   |
|                                                                                                                                                                                                                                                   |   |       |       |       |   |
| Total Notes  Payable                                                                                                                                                                                                                                   |   | $          | 883,101    |       | $      | 241,472 |   |

 

F-13

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

** **

**NOTE 9 — SUBORDINATED DEBENTURES**

 

During 1993, the Company sold $8,250,000 ofSeries A convertible subordinated debentures payinginterest at a rate of 9.25% per year and due and payable on July 15, 1998.  On July 8, 2004, the Company offered toredeem all remaining outstanding Series A debentures, in principal amount of$362,500, which were then in default, in exchange for payment of all principalplus interest accrued through July 14, 2004, or conversion of the principal tocommon stock plus payment of accrued interest through July 14, 2004.  The company has paid all amounts necessary toredeem the remaining Series A convertible subordinateddebentures in accordance with this offer into an escrow account established forthis purpose. As of December 31, 2004, Series A convertible subordinateddebentures in the principal amount of $100,000 remained outstanding. AfterDecember 31, 2004, we redeemed additional Series Adebentures in the principal amount of $25,000. In accordance with the July 8,2004 redemption offer, we are no longer accruing interest on the outstandingSeries A debenture.

 

As of December 31, 2004 and 2003, theoutstanding balance related to the subordinated debentures was as follows:

 
| ** **                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Subordinated  debentures payable |       | $        | 100,000    |     | $          | 362,500 |   |
| Accrued interest  payable        |       | 101,750  |       | 335,494  |       |
|                                  |            |          |            |          |            |  |  |

 

 

**NOTE 10 — STOCKHOLDERS’ EQUITY**

 

The Company has authorized the issuance of upto 50,000,000 shares of common stock with a par value of $.001.  Each share of common stock is entitled to onevote on all matters submitted to shareholders. Under the terms of a gaming license held by a subsidiary of the Company,the Company must amend its Articles of Incorporation to provide that all sharesof common stock are subject to redemption, at the discretion of the Board ofDirectors, at fair market value if an owner is determined to be a disqualifiedholder. A disqualified holder is a stockholder whose ownership of Company stockor refusal to provide information to the Company or any applicable gamingauthorities may result in the disapproval, modification or non-renewal of anycontract, license, or franchise related to the Company’s gaming operations.

 

During the year ended December 31, 2004, theCompany issued the following shares of common stock:

 

On June 28, 2004, the Company completed a3-for-2 split of its shares that reduced the number of shares outstanding from644,400 to 429,680.

 

On July 13, 2004, the Company completed a1-for-7.4672 split of its shares that increased the number of sharesoutstanding from 429,680 to 3,208,550.

 

On July 14, 2004, the Company issued1,500,000 shares of its common stock under the terms of stock purchaseagreements entered into on June 29, 2004.

 

F-14

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

On July 22, 2004, in connection with theCompany’s reorganization, the Company issued 16,161,343 shares of its commonstock to the former holders of Southwest Casino and Hotel Corp. common stock,series C preferred stock, and convertible securities. The Southwest Casino andHotel Corp. securities acquired by the Company included the followingsecurities issued by Southwest Casino and Hotel Corp. during the first ninemonths of 2004:

 

•                  On July 15,2004, 375,000 shares of common stock issued in exchange for personal guaranteesof promissory note (see Note 8).

 

•                  On July 22,2004, 5,299,102 shares of common stock issued to the holders of SouthwestCasino and Hotel Corp. 8% convertible debentures upon consummation of theCompany’s reorganization.

 

Also in connection with the Company’s July22, 2004 reorganization, the Company issued 150,000 shares of common stock inconnection with an indemnification agreement for the Company, and 719,865shares of common stock under the terms of an introduction agreement with theCompany.

 

In addition, on July 22, 2004, the Companycancelled 2,489,372 shares of common stock held by the founding shareholders ofLone Moose Adventures, Inc.  Inconsideration of (a) the cancellation of these shares, (b) the agreement of thefounding shareholders to indemnify the Company against any liabilities arisingfrom the operation of Lone Moose Adventures, Inc. before the reorganization and(c) the assumption by the founding shareholders of all of the liabilities ofthe Company’s former adventure tour business, the Company sold to the foundingshareholders substantially all of the assets of the Company’s former adventuretour business.

 

On December 8, 2004, the Company issued50,000 shares to Corporate Capital Management LLC in settlement of all claimsagainst the Company related to the convertible debt offering and proposedP.I.P.E. transaction, 20,000 shares to Isle Capital LLC for services and 45,455to Series A convertible bondholder in exchange for a $50,000 bond.

 

 

**NOTE 11 — OPERATING LEASES**

 

OnMay 1, 1998, the Company entered into a five-year agreement with Lois Woods tolease property located at 251 East Bennett Avenue in Cripple Creek, Colorado.  The lease started the first day of the monththat Uncle Sam’s began operations, April 9, 1999, and terminated on March 31,2004.  The lease required payments of$12,000 per month.  During February 2004,the Company extended the lease for an additional five years. The new leasepayments are $14,000 per month, expiring March 2009.

 

Thelease agreement includes provisions whereby the Company has the option topurchase the property for $2,000,000 plus 50% of the increase in the fairmarket value of the building as of the expiration of the initial term. In theevent of termination by the tenant, the landlord may assess a penalty of$144,000.

 

TheCompany also leases office space for corporate offices.  The lease expires December 31, 2009.

 

Rentexpense was approximately $197,300 and $171,000 for the years ended December31, 2004 and 2003, respectively.

 

F-15

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

Futureoperating lease payments required as of December 31, 2004 are as follows:

 

 
| 2005   |   | $       | 291,000   |   |
|--------|--------|---------|-----------|--------|
| 2006   |   | 291,000 |      |
| 2007   |   | 291,000 |      |
| 2008   |   | 291,000 |      |
| 2009   |   | 158,400 |      |
|   |   |    |      |
|   |   | $       | 1,322,400 |   |
|        |        |         |           |        |  |

 

 

**NOTE 12 — CAPITAL LEASE**

 

On April 9, 1999, the Company entered into a twenty-yearcapital lease with Cripple Creek Development Co, Blue Building Development,Inc. and Mark and Annesse Brockley (the Lessors) for the land and buildingsrelating to The Gold Rush Hotel and Casino and Gold Digger’sCasino. The amount 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 |   |
|                                                       |   |      |       |
|                                                            |        |           |            |        |  |

 

 

Future minimum leasepayments required under the capital leases as of December 31, 2004, were asfollows:

** **
| 2005                                     |   | $          | 1,507,065 |   |
|------------------------------------------|--------|------------|-----------|--------|
| 2006                                     |   | 1,610,011  |      |
| 2007                                     |   | 1,571,956  |      |
| 2008                                     |   | 1,571,956  |      |
| 2009                                     |   | 1,299,752  |      |
| Thereafter                               |   | 8,434,589  |      |
| Total miniumum  lease payments           |   | 15,995,329 |      |
| Less-amount  representing interest       |   | (6,199,277 | )         |
| Present value of  minimum lease payments |   | 9,796,052  |      |
| Less-current  portion                    |   | (767,436   | )         |
| Long-term  portion                       |   | $          | 9,028,616 |   |
|                                     |   |       |      |

 

F-16

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

**NOTE 13 — PRIOR PERIOD ADJUSTMENT**

 

Retainedearnings at the beginning of 2003 have been adjusted. These adjustmentsresulted from additional depreciation in the amount of $394,586 along with areduction in interest expense in the amount of $125,483. The capitalized leasewas understated by an amount required to be paid on an underlying loan and anerror in the treatment of interest only loans. The adjustments for the yearended December 31, 2004 and 2003 results in a reduction of net income of$39,743 and $55,355, respectively. For the year ended December 31, 2003, basicand diluted net loss per share increased by $.01 as a result of the priorperiod adjustment.

 

 

**NOTE 14 — STOCK OPTIONS AND WARRANTS**

 

On July 15, 2004, Southwest Casino and HotelCorp. shareholders approved the Southwest Casino and Hotel Corp. 2004 Stock IncentivePlan that had been adopted by the Company’s Board of Directors effective June1, 2004. Under the terms of the reorganization completed July 22, 2004,Southwest Casino Corporation assumed the rights and obligations of SouthwestCasino and Hotel Corp. under this plan. The plan permits Southwest CasinoCorporation to issue incentive awards to all employees of Southwest CasinoCorporation or any of its subsidiaries and any non-employee directors,consultants or independent contractors of the Company or any of itssubsidiaries. Incentive awards under the plan include “incentive options” underSection 422 of the Internal Revenue Code of 1986, “non-statutory stock options”that do not qualify for “incentive option” treatment, stock appreciationrights, restricted stock awards, performance units and stock bonuses. A maximumof 1,500,000 shares of Southwest Casino Corporation common stock are reservedfor issuance under the plan. During calendar year 2004, Southwest CasinoCorporation issued incentive stock options to acquire 145,000 shares of commonstock at a price of $1.00 per share.

 

In addition to the assumption of the 2004Stock Incentive Plan, Southwest Casino Corporation assumed outstanding non-planoptions to acquire shares of Southwest Casino and Hotel Corp. common stock aspart of its reorganization.  The Companyassumed obligations to issue 1,575,000 shares of its common stock at a weightedaverage price of $0.62 per share. Southwest Casino and Hotel Corp. did notissue any non-plan options during the calendar year 2004.

 

As part of the July 22, 2004 reorganization,Southwest Casino Corporation assumed outstanding warrants of Southwest Casinoand Hotel Corp. to acquire 1,212,500 shares of the Company’s common stock. Thesewarrants are exercisable subject to the occurrence of certain events at aweighted average price of $0.36 per share as of December 31, 2004 and expire atvarious times through June 10, 2009. The Company also agreed to issue warrantsto acquire 1,400,000 shares of Southwest Casino Corporation common stock at aprice of $1.00 per share upon the successful closing of a private placement.

 

The Company granted stock options andwarrants to purchase shares of its common stock to various investors, directorsand key employees. The exercise price of all stock options and warrants grantedhave been set at prices equal to or above the fair market value of the Company’sstock on the date of grant. The number of shares reserved for issuance is equalto the number of shares into which all outstanding stock options and warrantswould be converted, if exercised.

 

F-17

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 
| A summary of  changes in options outstanding is as follows: |   |                                |       |                                           |   |
|-------------------------------------------------------------|--------|-------------------------------------|------------|------------------------------------------------|--------|
|                                                        |   | **Options  and**

**Warrants  (1)** | ** ** | **Weighted  Average Exercise Price Per Share** |   |
|                                                        |   |                                |       |                                           |   |
| Balance at  December 31, 2002                               |   | 2,023,000                           |       | $                                              | 0.95   |   |
| Options  cancelled                                          |   | (1,873,000                          | )          | $                                              | 1.01   |   |
| Options and  Warrants issued                                |   | 887,500                             |       | $                                              | 0.13   |   |   |
| Balance at  December 31, 2003                               |   | 1,037,500                           |       | $                                              | 0.14   |   |   |
| Options and  Warrants issued                                |   | 3,295,000                           |       | $                                              | 0.85   |   |   |
| Balance at  December 31, 2004                               |   | $4,332,500                          |       | $                                              | 0.68   |   |   |
|                                                        |   |                                |       |                                           |   |
|                                                             |        |                                     |            |                                                |        |  |  |  |

 

 

(1)          Adjustedfor 1 for 2 reverse stock split

 

Asallowed under the provisions of SFAS No. 123, “Accounting for Stock-BasedCompensation,” we apply the provisions of Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” and related interpretationsto account for our stock option plans and, accordingly, do not recognizecompensation expense. Furthermore, no stock option-based employee compensationcost is reflected in net income, as all options granted had an exercise priceequal to the market value of the underlying common stock on the date of grant. Hadcompensation expense for the stock option been determined in accordance withSFAS No. 123, total stock-based employee compensation expense, net of taxeffects, would have been $77,079 and $27,000 for the years ended  December 31, 2004, and 2003, respectively,and our pro forma Net income and Earnings per share for the indicated periodswould have been:

 

|                |   | **2004**     | ** ** | **2003**  |       |
|---------------------|--------|--------------|------------|-----------|------------|
|                |   | **As**       | ** ** | **Pro**   | ** ** | **As** | ** ** | **Pro** |   |
|                |   | **Reported** | ** ** | **Forma** | ** ** | **Reported** | ** ** | **Forma** |   |
| Net Income  (Loss)  |   | $            | (4,466,462 | )         | $          | (4,543,541 | ) | $ | (1,439,029 | ) | $ | (1,470,529 | ) |
| Earnings per  share |   |         |       |      |       |   |   |   |   |
| Basic               |   | $            | (0.23      | )         | $          | (0.23 | ) | $ | (0.19 | ) | $ | (0.20 | ) |
| Diluted             |   | $            | (0.23      | )         | $          | (0.23 | ) | $ | (0.19 | ) | $ | (0.20 | ) |
|                |   |         |       |      |       |   |   |   |   |
|                     |        |              |            |           |            |  |  |  |  |  |  |  |  |  |  |  |

 

 

In December 2004, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 123(revised 2004), “Share-Based Payment,” which we are required to apply as of thefirst interim or annual reporting period that begins after June 15, 2005.SFAS No. 123(R) requires that we recognize an expense for ourequity-based compensation programs, including stock options. We are currentlyevaluating the provisions of SFAS No. 123(R) to determine its impacton our future financial statements.

 

F-18

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

The fair value of each option grant isestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted average assumptions:

 

                
| ** **                                | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Expected  Dividend Yield                  |       | 0.00     | %          | 0.00     | %          |
| Expected Stock  Price Volatility          |       | 0.00     | %          | 0.00     | %          |
| Average  Risk-Free Interest Rate          |       | 3.78     | %          | 4.27     | %          |
| Expected Average  Life of Options (years) |       | 5.69     |       | 10.00    |       |

 

 

# **At December 31, 2004 and 2003, the Company had 2,250,000and 62,500 shares of common stock reserved for the exercise of warrants thathave been granted in connection with debt and equity offerings and in lieu ofcash payment for services provided subject to achievement of certain objectives.  The warrants are exercisable at a weightedaverage price $0.78 and $0.08 respectively. The warrants expire at varioustimes through July 19, 2009.  Inconnection with the issuance of these warrants the Company has recognized $12,875of expense in calendar year 2004.**The fairvalue of each warrant is estimated on the date of grant using the Black-Scholesoption-pricing model based on an average risk-free interest rate of 3.17%, anexpected average life of 3.8 years, no volatility and no expected dividends. Forthose warrants where the conditions required to exercise were consideredunlikely to occur, the Company has not computed any value.

# ** **

 

# **NOTE 15 — PROVISION FORINCOME TAXES**

 
| ** **                                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|
| The provision  for income taxes consists of the following: |       |     |       |     |       |
| Current                                                    |       |     |       |     |       |
| Federal                                                    |       | $        | —     |     | $          | — |   |
| State                                                      |       | —   |       | (45,153  | )          |
| Total Current                                              |       | —   |       | (45,153  | )          |
|                                                       |       |     |       |     |       |
| Deferred                                                   |       |     |       |     |       |
| Federal                                                    |       | —   |       | 235,000  |       |
| State                                                      |       | —   |       | 35,000   |       |
| Total Deferred                                             |       | —   |       | 270,000  |       |
|                                                       |       |     |       |     |       |
| Total                                                      |       | $        | —     |     | $          | 224,847 |   |
|                                                       |       |     |       |     |       |

 

 

F-19

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

The net tax effects of temporary differencesbetween the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes are reflected in deferredincome taxes. Significant components of the Company’s deferred tax liabilitiesas of December 31, 2004 and 2003 are as follows:

 
| ** **                                                    | ** ** | **2004**   | ** ** | **2003**  | ** ** |
|---------------------------------------------------------------|------------|------------|------------|-----------|------------|
|                                                          |       |       |       |      |       |
| Current deferred  tax assets (liabilities):                   |       | $          | —     |      | $          | — |   |
|                                                          |       |       |       |      |       |
| Noncurrent deferred  tax assets (liabilities):                |       |       |       |      |       |
| Property and  equipment                                       |       | 15,000     |       | (294,000  | )          |
| Operating loss  and contribution carryforwards                |       | 3,571,000  |       | 1,920,000 |       |
| Conversion from  cash basis to accrual basis for tax purposes |       | —     |       | 140,000   |       |
| Total Deferred                                                |       | 3,586,000  |       | 1,766,000 |       |
|                                                          |       |       |       |      |       |
| Less valuation  allowance                                     |       | (2,744,000 | )          | (924,000  | )          |
|                                                          |       |       |       |      |       |
| Net deferred tax  asset                                       |       | $          | 842,000    |      | $          | 842,000 |   |
|                                                          |       |       |       |      |       |

 

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

 
| ** **                                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Federal  statutory income tax rate                               |       | -34.0    | %          | -34.0    | %          |
| State and local  income tax rate                                 |       | -4.4     | %          | -4.4     | %          |
| Effect of  realization of deferred tax liability                 |       |     |       |     |       |
| (asset) related  to net operating losses and valuation allowance |       | 38.4     | %          | 26.4     | %          |
| Effective Tax  Rate                                              |       | 0.0      | %          | -15.0    | %          |
|                                                             |       |     |       |     |       |

 

As of December 31, 2004, the Company has federaland state net operating loss carry-forwards of approximately $9,300,000. Theseoperating losses expire between 2015 and 2024. Net operating loss carry-forwardsavailable to offset future taxable income may be subject to the limitationsunder Section 382 of the Internal Revenue Code due to changes in the equityownership of the Company.  The income taxrate does not correspond to statutory tax rates due to the difference in thevaluation allowance for deferred tax assets.

 

F-20

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

**NOTE 16 — DISCONTINUED OPERATIONSAND IMPAIRMENT**

 

During 2003, as a result of continued lossesfrom operations, the Company decided to discontinue the operation of its casinoin Deadwood, South Dakota. As a result, during 2004, the Company sold orabandoned certain assets and transferred the remaining assets to other casinooperations. As of December 31, 2003, the value of the assets sold wasrecorded as assets held for sale on the accompanying balance sheet. For theyear ended December 31, 2003, the Company recorded a loss for the differencebetween the net book value of the assets sold or abandoned and the net proceedsreceived subsequent to December 31, 2003, as follows:

 
| Total cost of  property and equipment sold                          |   | $       | 176,901 |   |
|---------------------------------------------------------------------|--------|---------|---------|--------|
| Total  accumulated depreciation of property and equipment sold      |   | 126,972 |    |
| Net book value  of property and equipment sold                      |   | 49,929  |    |
| Sales price                                                         |   | 21,411  |    |
| Loss on disposal  of assets held for sale                           |   | $       | 28,518  |   |
|                                                                |   |    |    |
| Total cost of  property and equipment abandoned                     |   | $       | 310,654 |   |
| Total accumulated  depreciation of property and equipment abandoned |   | 56,622  |    |
| Net book value  of property and equipment abandoned                 |   | 254,032 |    |
|                                                                |   |    |    |
| Loss on  disposition and abandonment of property and equipment      |   | $       | 254,032 |   |
|                                                                |   |    |    |
|                                                                     |        |         |         |        |  |  |  |

 

The above loss is included in loss fromdiscontinued operations on the accompanying statements of operations for theyear ended December 31, 2003.

 

Revenues from the Deadwood casino totaledapproximately $263,187 and $1,702,372, respectively, for the years endedDecember 31, 2004 and 2003, and are included in the casino operations segment.

 

# ** **

# **NOTE 17 — RELATED PARTYTRANSACTIONS**

 

TheCompany has a liability to certain officers and stockholders for unpaidcompensation and expense reimbursements of $340,492 and $410,100 as of December31, 2004 and 2003, respectively.

 

Duringthe years ended December 31, 2004 and 2003, the Company issued stock toemployees in exchange for unpaid compensation at the estimated fair marketvalue of $.01 and $.06 per share, respectively.

 

Duringthe years ended December 31, 2004 and 2003, the Company paid Berc & FoxLimited $41,275 and $17,508 for tax and accounting services, respectively.  Thomas Fox, an officer of the Company is ashareholder and officer in Berc & Fox Limited.

 

Duringthe years ended December 31, 2004 and 2003, the Company paid Jennifer SparlinDruck $1,000 each year for entertainment services at the Gold RushPalladium.  Ms. Druck is the wife ofJames Druck, an officer of the Company.

 

F-21

----

 

**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

** **

**NOTE 18 — SEGMENT INFORMATION**

 

Segmentinformation related to the year ended December 31, 2004 follows:

 

 
| ** **                                 | ** ** | **Casino   Operations** | ** ** | **Casino  Management** | ** ** | **Casino Development** | ** ** | **Reconciling  Items** | ** ** | **Total**  | ** ** |
|--------------------------------------------|------------|-------------------------|------------|------------------------|------------|-----------------------------|------------|------------------------|------------|------------|------------|
|                                       |       |                    |       |                   |       |                        |       |                   |       |       |       |
| Revenues                                   |       | $                       | 16,388,615 |                   | $          | 4,083,189                   |       | $                      | —     |       | $          | (263,187 | ) | $ | 20,208,617 |   |
| Interest Revenue                           |       | —                  |       | 8,459                  |       | —                      |       | —                 |       | 8,459      |       |
| Interest Expense                           |       | 1,053,859               |       | 77,235                 |       | —                      |       | —                 |       | 1,131,094  |       |
| Depreciation and  Amortization             |       | 1,973,346               |       | 494,675                |       | —                      |       | (34,322                | )          | 2,433,699  |       |
| Segment Profit  (Loss) Before Income Taxes |       | (931,679                | )          | (337,997               | )          | (3,196,786                  | )          | 2,617,916              |       | (1,848,546 | )          |
| Income Tax  Expense (Benefit)              |       | —                  |       | —                 |       | —                      |       | —                 |       | —     |       |
| Segment Assets                             |       | 16,138,945              |       | 2,640,537              |       | 1,829,083                   |       | —                 |       | 20,608,565 |       |
| Expenditure for  Segment Assets            |       | 706,683                 |       | 24,781                 |       | 1,187,079                   |       | —                 |       | 1,918,543  |       |
|                                            |            |                         |            |                        |            |                             |            |                        |            |            |            |  |  |  |  |  |

 

 

Segmentinformation related to the year ended December 31, 2003 follows:

 

 
| ** **                                 | ** ** | **Casino  Operations** | ** ** | **Casino  Management** | ** ** | **Casino  Development** | ** ** | **Reconciling  Items** | ** ** | **Total**  | ** ** |
|--------------------------------------------|------------|------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|------------|------------|
|                                       |       |                   |       |                   |       |                    |       |                   |       |       |       |
| Revenues                                   |       | $                      | 17,939,731 |                   | $          | 3,235,815               |       | $                      | —     |       | $          | (1,702,372 | ) | $ | 19,473,174 |   |
| Interest Revenue                           |       | —                 |       | 97,100                 |       | —                  |       | —                 |       | 97,100     |       |
| Interest Expense                           |       | 967,578                |       | 37,360                 |       | —                  |       | (408                   | )          | 1,004,530  |       |
| Depreciation and  Amortization             |       | 1,902,937              |       | 11,452                 |       | —                  |       | (203,195               | )          | 1,711,194  |       |
| Segment Profit  (Loss) Before Income Taxes |       | (890,941               | )          | 723,132                |       | (1,551,422              | )          | 978,375                |       | (740,856   | )          |
| Income Tax  Expense (Benefit)              |       | (112,917               | )          | 97,720                 |       | (209,650                | )          | 118,000                |       | (106,847   | )          |
| Segment Assets                             |       | 16,475,434             |       | 3,134,670              |       | 577,359                 |       | —                 |       | 20,187,463 |       |
| Expenditure for  Segment Assets            |       | 1,333,761              |       | —                 |       | 387,068                 |       | —                 |       | 1,720,829  |       |
|                                            |            |                        |            |                        |            |                         |            |                        |            |            |            |  |  |  |  |  |

 

 

ReconcilingItems are the adjustments required to remove the impact of the discontinuedoperations and loss from unconsolidated subsidiary reflected in the separate segments.

 

 

#### **NOTE 19 — BANKRUPTCY FILING**

 

In 2001, a dispute arose between the Lessor(Note 12) and Gold Rush I, LLCover the amount of rent paid. The Lessor filed a motion to remove Gold Rush I, LLC from the property. Inorder to insure that Gold Rush I, LLCwould retain possession of the property, management elected to file forprotection from creditors under Chapter 11 of the Bankruptcy Code on August 31,2001.

 

F-22

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

On October 15, 2001, the Teller CountyDistrict Court in Colorado ruled that GoldRush I, LLC was not in default under the lease, having properly treatedcertain excess payments as offsets. In addition, the Company had a remainingcredit toward continuing obligations under the lease in the amount of $277,798.This decision was later amended to $284,457.

 

On September 11, 2002, the Bankruptcy Courtapproved Gold Rush I, LLC’s plan of reorganization. The plan provides that allcreditors will be paid the full amount owed to them. On January 10, 2003, thebankruptcy case was closed.  Liabilitiesrelated to the bankruptcy claim are scheduled for payment through February,2005, and are included as part of accounts payable.

 

 

**NOTE 20 — FAIR VALUE OF FINANCIALINSTRUMENTS**

 

The carrying amount of the Company’s notereceivable approximates its fair value due to the fact that the note is maturingduring the next year. The carrying amount of the Company’s debentures payable,together with accrued interest payable, approximates the fair value of theinstrument based on the approximate interest rate applicable to comparable debtinstruments with similar credit risks. There were no other financial instruments with significant differencesbetween the carrying amount and the fair value due to the short maturity of theinstruments.

 

 

**NOTE 21 — LAND OPTION AGREEMENTS**

 

The Company, through North Metro HarnessInitiative, LLC has a real estate option agreement for the purchase of approximately165 acres of land. The option agreement commenced on March 1, 2003, and shallexpire on August 1, 2005. Payments under the option agreement include $30,000for the first four months of the option term, $15,000 per month during the nextseven months of the option term, and $20,000 per month for the next twelvemonths of the option term, and $40,000 per month for the remaining term of theoption. The purchase price of the land is $8,450,000 during the remaining termof the option. The purchase price of the land will be reduced by amountspreviously paid for the option.

 

The Company, through North Metro HarnessInitiative, LLC has a real estate option agreement for the purchase of approximately13.4 acres of land. The option agreement commenced on July 17, 2003, and shallexpire on July 18, 2005. Payments under the option agreement include $1,000 forthe first four months of the option term, $1,000 per month during the next sevenmonths of the option term and $2,000 per month for the remaining term of theoption. The purchase price of the property has been fixed at $700,000. Thepurchase price of the land will be reduced by amounts previously paid for theoption.

 

During 2003, the Company entered into fivereal estate option agreements for the purchase of property in Rockaway Beach,Missouri. Two of the agreements expire on January 1, 2008, with the remainingthree agreements expiring on January 1, 2006. The total purchase price underthe five agreements is approximately $1,341,400. The agreements require monthlyoption payments totaling approximately $900. The Company terminated these realestate option agreements in 2004 after the Missouri voters rejected theconstitutional amendment to allow riverboat gaming on the White River at RockawayBeach, Missouri and the land options cost previously capitalized were writtenoff in 2004.

 

F-23

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

**NOTE 22 — COMMITMENTS ANDCONTINGENCIES**

 

The Company, through North Metro HarnessInitiative, LLC (NMHI), has entered into an agreement for the development ofthe land, building and related property to operate a race track and card room.Fees related to the agreement total 3% of the project cost, which is defined asthe total development cost less the cost to purchase the land. The agreementbegan on May 1, 2003, and continues until the completion of the project, unlessearlier terminated. Fees are payable at a rate of $6,000 per month, plusapplicable out of pocket expenses, beginning on May 1, 2003. Upon the start ofconstruction, two thirds of the expected fee (less previous monthly payments)is due. If the agreement is terminated prior to the completion of the project,any unpaid fees are determined based on the completed status of the project atthe time of termination, as defined in the agreement.

 

The Company has entered into consultingagreements with non-related parties to monitor legislation and perform lobbyingactivities, and other public relations and development activities related toestablishing and developing the race track, card room. The agreements aregenerally on a month-to-month basis, and may be terminated by either party tothe agreement. The Company has terminated all monthly agreements related to theriverboat casino and reduced the monthly commitments to monitor legislation andperform lobbying activities and other public relations and developmentactivities related to the race track and card room to approximately $11,000 permonth which is paid by NMHI in which the Company is a 50% member.

 

NMHI has received a letter of commitment fordebt financing for approximately 79% of the expected total project cost of therace track and card room, with the remaining 21% to be provided in the form ofequity by the Company. Terms of the commitment include a $33,000,000 ten-yearamortization, and interest at a variable rate (1.74% above prime rate), with afloor of 7% and a $4,250,000 five-year amortization, and interest at a fixedrate of 20%. In addition, 50% of net available cash flow (after scheduled debtservice and income taxes) will be required to be held in an account to redeemthe debt. Redemption under this provision occurs when the account equals theprincipal amount of the loan outstanding. Security for the loan will include afirst mortgage, corporate guarantee of the Company, and security interests inother assets of the Company. The closing and funding of the loan is expected tooccur after various court challenges to NMHI’s Class A and B racing licensesare resolved.

 

During the years ended December 31, 2003 and2002, an employee issued and cashed Company checks and deposited the amounts tothe employee’s personal accounts. During January 2004, the employee left theemployment of the Company. The Company has insurance coverage which paid$100,000 of the claim against the former employee. In the year ended December31, 2004, the Company wrote off $100,000 which had been set up as a receivablefrom the former employee in 2003. The Company still anticipates that someportion of the lost amount may be recovered, but at this time, it can notestimate with any certainty what that amount may be. A loss of $100,000 and $267,000has been included in casino expense for the years ended December 31, 2004 and2003, respectively.

 

During 2004, the Company purchased playertracking and slot accounting software from IGT for $1,142,000. The Company hashad discussions with IGT regarding the financing of this purchase; however, atthis time, the Company and IGT have not formalized an agreement. Accordingly,this amount is included in accounts payable. The Company anticipates that IGTwill provide the Company with debt financing over four years at an interest rateof approximately 7%. The Company also intends to purchase additional softwarewhich will allow the Company to offer bonuses to its customers once thissoftware is approved by Colorado Division of Gaming. This additional softwarewould also be financed by IGT.

 

F-24

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**SOUTHWESTCASINO CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER31, 2004 AND 2003**

 

 

In December 2004, the Board of Directorsdetermined that it would not proceed with a stock purchase agreement underwhich we issued 900,000 shares of “restricted stock” to a private, London-basedinvestment company in exchange for 991,080 of the investment company’s commonshares. The closing of this transaction was contingent upon the listing of theshares of we received on the London Stock Exchange. The shares of theinvestment company were not listed as of December 31, 2004, and we formallyterminated the agreement with the investment company on January 13, 2005.

 

 

**NOTE 23 — SUBSEQUENT EVENTS**

 

On January 20, 2005,Southwest Casino Corporation announced that the Minnesota Racing Commissionapproved the application of North Metro Harness Initiative, LLC, in whichSouthwest Casino’s wholly owned subsidiary Southwest Casino and Hotel Corp.holds a 50% membership interest, for Class A and Class B licenses to developand operate a harness racing facility in the Twin Cities Metropolitan Area. Acitizens group opposed to gambling has filed two lawsuits and an organizationthat represents the owners of thoroughbred horses that race at the state’sother Class A licensed race track has filed an appeal in attempts to overturnthe licenses.

 

On January 24, 2005,Southwest Casino Corporation announced that it had entered into two amendmentsto its Gaming Management Agreement with the Cheyenne and Arapaho Tribes ofOklahoma regarding expansion of the Tribes’ gaming facilities, extension of theManagement Agreement, and an increase in management fees. On March 16, 2005,the Tribal Courts declared that the Tribal Council meeting at which theextension of the Management Agreement was approved was not a validmeeting.  Southwest cannot predict atthis time whether this ruling may be challenged. If not, we will again seekapproval of the amendments from the appropriate tribal authority.

 

On January 28, 2005,Southwest Casino Corporation announced that on January 27, 2005 it executed aterm sheet for a private sale of 10,000,000 shares of its common stock withaccompanying warrants and options at a price of $0.60 per share. In connectionwith the sale of these shares the purchasers would also receive the right toappoint a new management team and four members of an expanded five member Boardof Directors. Closing of the transaction is subject to conditions including satisfactorycompletion of due diligence by both parties and approval by Southwest’sshareholders. The due diligence by both parties has not been completed.

 

On February 28, 2005, ourright to purchase assets subject to the capital lease as described in Note 12expired. At this time, we have not attempted to negotiate a new lease purchaseoption. The estimated loss on the expiration of this option is approximately$250,000 and will be recorded during the first quarter of 2005.

 

F-25

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| **Item 8.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE.** |
|-------------|--------------------------------------------------------------------------------------------|

# ** **

# ** **

None.

 

**Item 8A.         CONTROLS AND PROCEDURES.**

 

We maintain disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e) designed to ensure that information required to be disclosed by us inthe reports we file or submit under the Securities Exchange Act of 1934, asamended, is recorded processed, summarized, and reported, within the timeperiods specified in the Securities and Exchange Commission’s rules and formsand that this information is accumulated and communicated to our management,including our principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisionsregarding required disclosure.  Ourmanagement evaluated, with the participation of our Chief Executive Officer andChief Financial Officer, the effectiveness of the design and operation of ourdisclosure controls and procedures as of December 31, 2004.  Based on that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of that date.

 

**Changes in InternalControls over Financial Reporting**

 

There was no change in ourinternal control over financial reporting during the fourth quarter endedDecember 31, 2004 that has materially affected, or is reasonably likely toaffect materially our internal control over financial reporting.

 

**Item8B.         OTHER INFORMATION.**

 

Not applicable.

 

35

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** **

**PART III**

** **
| **Item 9.** | **DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL  PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.** |
|-------------|-----------------------------------------------------------------------------------------------------------------------|

# ** **

 

**Directors, ExecutiveOfficers, Promoters and Control Persons**

 

Our directors and executiveofficers, their ages and the offices they held with Southwest CasinoCorporation, as of December 31, 2004, are as follows:

 
| **Name**           | ** ** | **Age** | ** ** | **Position**                                                               |
|--------------------|------------|---------|------------|----------------------------------------------------------------------------|
| James B. Druck     |       | 63      |       | Chief Executive Officer, Secretary and Director                            |
| Thomas E. Fox      |       | 57      |       | President, Chief Financial Officer, Chief Operating Officer, and  Director |
| Jeffrey S. Halpern |       | 62      |       | Chairman of Board of Directors and Assistant Secretary                     |
| Brian L. Foster    |       | 36      |       | Vice President of Native American Operations                               |

 

Informationregarding the business experience of our executive officers and directors:

 

*JamesB. Druck*.  Mr. Druckjoined the Southwest Casino Corporation Board of Directors and was appointed asour Chief Executive Officer and Secretary on July 22, 2004 in connection withthe closing of the reorganization in which Southwest Casino and Hotel Corp.became a wholly-owned subsidiary of Southwest Casino Corporation (formerly LoneMoose Adventures). Mr. Druck has been a director of Southwest Casino and HotelCorp. since its inception.  He served asPresident of Southwest Casino and Hotel Corp. from October 1992 until June2004, and now is the Chief Executive Officer and Secretary of Southwest Casinoand Hotel Corp. From 1967 until April 1993, Mr. Druck was an attorney inprivate practice in Minneapolis, Minnesota. His practice focused primarily in the areas of real estate developmentand finance.

 

*ThomasE. 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 Casino Corporation.Mr. Fox has been a Certified Public Accountant since November 1969.  He began his career with Arthur Andersen& Co. in June 1969, and was promoted to tax manager in June 1973.  In September 1976, Mr. Fox co-founded theaccounting firm of Berc & Fox, Limited. He joined Southwest Casino and Hotel Corp. as Chief Financial Officer inNovember 1993 and was appointed to the Board of Directors of Southwest Casinoand Hotel Corp. in January 2000.  Mr. Foxcontinues to serve as a director and President, Chief Operating Officer, andChief Financial Officer of Southwest Casino and Hotel Corp.

 

*JeffreyS. Halpern*.  Mr. Halpernwas appointed Chairman of the Southwest Casino Corporation Board of Directorsand Assistant Secretary on July 22, 2004 in connection with the closing of thereorganization in which Southwest Casino and Hotel Corp. became a wholly-ownedsubsidiary of Southwest Casino Corporation. Mr. Halpern has been a director ofSouthwest Casino and Hotel Corp. since its inception in 1992.  He served as Chairman of the Board and ChiefExecutive Officer of Southwest Casino and Hotel Corp. from October 1992 untilJune 2004. Mr. Halpern also serves currently in the position of Chairman of theBoard and Assistant Secretary of Southwest Casino and Hotel Corp.  From 1967 until July 1993, Mr. Halpern was anattorney in private practice in Minneapolis, Minnesota. His practice focusedprimarily in the areas of corporate finance and securities.

 

36

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*BrianL. Foster*. Brian Foster is our Vice President of NativeAmerican Operations and manages our Native American gaming operations inOklahoma. In addition to these titles, Mr. Foster has been the General Managerof the Lucky Star Casino, an enterprise of the Cheyenne and Arapaho Tribes ofOklahoma, since 1995 and our Vice President of Bingo Operations since 1998. Mr.Foster is the Chairman of the Oklahoma Indian Gaming Association and served asthat organization’s Vice Chairman in 2000 and 2001.

 

**FamilyRelationships.**

 

Nofamily relationships exist among our directors and executive officers.

 

**LegalProceedings.**

 

Tothe knowledge of our management, during the past five years, no present orformer director, person nominated to become a director, executive officer,promoter or control person of our company, except as disclosed below:

 

•       Was ageneral partner or executive officer of any business by or against which anybankruptcy petition was filed, whether at the time of such filing or two yearsprior the filing;

 

•       Wasconvicted in a criminal proceeding or named the subject of a pending criminalproceeding (excluding traffic violations and other minor offenses);

 

•       Wassubject to any order, judgment or decree, not subsequently reversed, suspendedor vacated, of any court of competent jurisdiction, permanently or temporarilyenjoining, barring, suspending or otherwise limiting his or her involvement inany type of business, securities or banking activities.

 

•       Wasfound by a court of competent jurisdiction in a civil action, or by theSecurities and Exchange Commission or the Commodity Futures Trading Commissionto have violated federal or state securities or commodities law, and thejudgment has not been subsequently reversed, suspended, or vacated.

 

*PriorBankruptcy Proceeding of Subsidiary*

 

JamesB. Druck, Jeffrey S. Halpern and Thomas E. Fox are Managing Members of GoldRush I, LLC, a Colorado limited liability company and a wholly-owned subsidiaryof Southwest Casino and Hotel Corp.  InAugust 2001, Cripple Creek Development Corp., a Colorado corporation, BlueBuilding Development, Inc., a Wyoming corporation, Mark Brockley, anindividual, and Annesse Brockley, an individual, initiated a lawsuit againstGold Rush I, LLC, and Southwest Casino and Hotel Corp. in District Court,Teller County, Colorado (01-CV-156).  Theplaintiff alleged that the defendants failed to pay certain obligations to theplaintiffs under the terms of their lease agreement and breach ofcontract.  The lease included a provisionthat capped the maximum monthly amount required to be paid to Mr. Brockley’screditors.  In the early years of theoperation, Mr. Brockley’s obligations to creditors far exceeded this cap andSouthwest paid these obligations as they came due. Under the lease, Southwestset off against current rent the amount of the excess payments.  In the lawsuit, Mr. Brockley sought to evictGold Rush I from the premises for failing to pay amounts claimed to be owedunder the Lease.  Gold Rush I respondedby denying any failure to pay.

 

Anevidentiary hearing on Mr. Brockley’s eviction claim began in the ColoradoDistrict Court on August 22, 2001. Because the hearing could not be completed that day, it was continued toAugust 31, 2001.  Before the hearing wasreconvened, Gold Rush I filed a voluntary petition for reorganization under

 

 

37

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Chapter11 of the United States Bankruptcy Code in the Bankruptcy Court for theDistrict of Minnesota (Case No. 01-33755) to ensure that we did not losepossession of the premises while the underlying claims were litigated.  After considering several motions, theBankruptcy Court directed that the Colorado Court determine (1) whether GoldRush I was in default under the terms and conditions of the lease, and if so,the nature and amounts of the defaults; and (2) whether Gold Rush I madepayments in excess of the caps provided in the lease, and the amounts, if any,paid in excess of the caps.  The ColoradoDistrict Court conducted a hearing on these three issues on October 5, 2001.  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 excess ofthe monthly caps provided in the lease (which overpayments the courtsubsequently quantified at $554,362.09), and (c) that Gold Rush I was entitledto offset the overpayments against rent and other payments due under the termsof the lease.  Gold Rush I was successfulin its litigation against the landlord regarding the rent dispute and emergedfrom bankruptcy when the Bankruptcy Court confirmed its reorganization plan,which provided for full payment to all creditors, with interest, on January 10,2003.

 

Mr.Brockley appealed the Colorado District Court’s Order to the Colorado Court ofAppeals, which dismissed the appeal on May 21, 2002.

 

*ColoradoRegulatory Proceeding*

 

SouthwestCasino and Hotel Corp. was recently fined $50,000 by the Colorado Division ofGaming for failure to properly maintain and review statistical data on slotmachine performance after receiving a warning letter regarding this deficiencyand failing to comply with its agreement to correct the deficiency. SouthwestCasino and Hotel Corp. paid the full amount of the fine.  As part of these proceedings, James Druck, inhis capacity as manager of the facility in question, without any admission ofguilt, agreed to take the necessary steps to ensure Southwest Casino and HotelCorp.’s compliance in this matter and, further, agreed to pay $5,000 to theLimited Gaming Fund to reimburse expenses incurred by Colorado in thisinvestigation.

 

**AuditCommittee Financial Expert.**

 

TheBoard of Directors has determined that we do not have an audit committeefinancial expert serving on the Board of Directors and have not established astanding audit committee. Our Board of Directors consists entirely of executiveofficers of Southwest who are in the process of recruiting independentdirectors to serve on the Board, including a member who would qualify as an “auditcommittee financial expert.”  Once theBoard of Directors has at least two independent directors, it intends to createan Audit Committee, Compensation Committee and Nominating and GovernanceCommittee.

 

**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 2004.

 

**Code of Conduct and Ethicsfor Employees, Officers and Directors**

** **

We have adopted a Code ofConduct that applies to our principal executive officer, principal financialofficer, principal accounting officer or controller or persons performingsimilar functions and meets the requirements of the SEC.  A copy of our Code of Conduct was filed as anexhibit to our Annual Report on

 

 

38

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Form 10-KSB filed June 29,2004.  We intend to disclose anyamendments to and any waivers from a provision of our Code of Ethics on a Form8-K filed with the SEC.

 

**Item 10.  EXECUTIVE COMPENSATION**

 

Summaryof Cash and Other Compensation.

 

Thefollowing table provides summary information concerning cash and non-cashcompensation paid to or earned by our Chief Executive Officer and our executiveofficers who received or earned cash and non-cash salary and bonus of more than$100,000 during the Southwest Casino Corporation fiscal year endedDecember 31, 2004. Please note that we completed a corporatereorganization with Lone Moose Adventures, Inc. on July 22, 2004 that isdescribed under *Item 1. DESCRIPTION OF BUSINESS — (a) Business Development — CorporateReorganization* in this report. The information below reflectscompensation paid to the executive officers of Southwest Casino and Hotel Corp.and Southwest Casino Corporation by Southwest for the past two fiscalyears.  In addition, under Item 402 ofRegulation S-B we must disclose compensation information for Christopher B.Glover, the Chief Executive Officer of Lone Moose Adventures before the reorganization.  The compensation information regarding Mr.Glover represents compensation paid by Lone Moose Adventures, Inc. before ourreorganization.

 

**Summary Compensation Table**

 
| ** **                                      | ** ** | **Annual  Compensation** | ** ** | **Long-Term  Compensation  Securities  Underlying** |       | **All  Other  Compensation** |       |
|-------------------------------------------------|------------|--------------------------|------------|-----------------------------------------------------|------------|------------------------------|------------|
| **Name and  Principal Position**                | ** ** | **Year**                 | ** ** | **Salary  ($)**                                     | ** ** | **Bonus  ($)**               | ** ** | **Options  (#)** |   | **($)** |   |
|                                            |       |                     |       |                                                |       |                         |       |   |   |   |   |
| James B. Druck                                  |       | 2004                     |       |                                                | 220,000    |                         |       | 64,497 | (1) | 300,000 | (3) | 48,085 | (4) |
| *Chief Executive Officer and Secretary*         |       | 2003                     |       | 220,000                                             |       | 108,490                      | (2)        | 0 |   |   | 32,424 | (4) |
| Thomas E. Fox                                   |       |                     |       |                                                |       |                         |       |   |   |   |   |
| *President, Chief Operating*                    |       | 2004                     |       |                                                | 220,000    |                         |       | 57,912 | (1) | 300,000 | (3) |   | 31,854 | (4) |
| *Officer and Chief Financial Officer*           |       | 2003                     |       | 220,000                                             |       | 94,936                       |       | 0 |   | 49,887 | (4) |
| Jeffrey S. Halpern                              |       | 2004                     |       |                                                | 120,000    |                         |       | 58,349 | (1) | 300,000 | (3) |   | 37,230 | (4) |
| *Chairman of the Board and Assistant Secretary* |       | 2003                     |       | 120,000                                             |       | 54,120                       | (2)        | 0 |   | 41,960 | (4) |
| Brian L. Foster                                 |       |                     |       |                                                |       |                         |       |   |   |   |   |
| *Vice President of Native*                      |       | 2004                     |       | 0                                                   | (5)        | 100,772                      | (6)        | 0 |   | 17,189 | (8) |
| *American Operations*                           |       | 2003                     |       |                                                | 0          | (5)                          |       | 113,411 | (7) | 250,000 |   |   | 9,349 | (8) |
| Christopher B. Glover                           |       |                     |       |                                                |       |                         |       |   |   |   |   |
| *President, Lone Moose*                         |       | 2004                     |       | 6,000                                               | (9)        | 0                            |       | 0 | (10) | 0 |   |
| *Adventures, Inc.*                              |       | 2003                     |       |                                                | 12,000     |                         | 0          |   | 0 | (10) | 0 |   |

 

----

| (1) |   | Represents bonus  awarded for performance during 2003 and paid during 2004. No bonus was  awarded for 2004.                                                                                                                                |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Represents bonus  awarded for performance during 2002 and paid during 2003.                                                                                                                                                                |
| (3) |   | Consists of options to  acquire 300,000 shares of common stock granted to the executive under the  terms of employment agreements entered into with Southwest on July 1, 2004.                                                             |
| (4) |   | Consists of company paid  medical, dental, life and disability insurance, 401k matching funds, and a  car allowance.                                                                                                                       |
| (5) |   | Mr. Foster manages two  gaming facilities owned by the Cheyenne and Arapaho Tribes of Oklahoma. Mr.  Foster also receives compensation, including a salary, directly from the  Cheyenne and Arapaho Tribes of Oklahoma tribal enterprises. |
| (6) |   | Represents bonus  awarded for performance and paid during 2004.                                                                                                                                                                            |
| (7) |   | Represents bonus  awarded for performance and paid during 2003.                                                                                                                                                                            |
| (8) |   | Consists of company  paid medical, dental, life and disability insurance, and 401k matching funds.                                                                                                                                         |

 

 

 

39

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| (9)  |   | Lone Moose Adventures,  Inc. accrued salary for an officer/shareholder starting April 1, 2002 at the  rate of $1,000 per month, but did not make any payment. Under the terms of  our reorganization, Southwest did not assume any obligation for accrued but  unpaid wages. |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (10) |   | Does not include 83,333  shares of restricted stock issued to Mr. Glover by Lone Moose Adventures,  Inc. during January 2002.                                                                                                                                                |

 

OptionGrants in Last Fiscal Year.

 

Thefollowing table summarizes grants of options to purchase shares of SouthwestCasino Corporation (or options to purchase shares of Southwest Casino and HotelCorp. assumed by Southwest Casino Corporation in the reorganization) during thefiscal year ended December 31, 2004 to each of the executive officers named inthe above Summary Compensation Table.

 
| ** **             | ** ** | **Individual  Grants**                                       | ** ** |
|------------------------|------------|--------------------------------------------------------------|------------|
| **Name**               | ** ** | **Number  of  Securities  Underlying  Options  Granted (#)** | ** ** | **Percent  of  Total Options  Granted to  Employees in  Fiscal Year** | ** ** | **Exercise  Price  ($Per Share)(2)** | ** ** | **Expiration  Date** | ** ** |
| James B. Druck (1)     |       | 300,000                                                      |       | 28.7 | % | $ | 1.00 |   | July  21, 2009 |   |
| Thomas E. Fox (1)      |       | 300,000                                                      |       | 28.7 | % | $ | 1.00 |   | July  21, 2009 |   |
| Jeffrey S. Halpern (1) |       | 300,000                                                      |       | 28.7 | % | $ | 1.00 |   | July  21, 2009 |   |
| Brian L. Foster        |       | 0                                                            |       | — |   | — |   | — |   |
| Christopher B. Glover  |       | 0                                                            |       | — |   | — |   | — |   |

 

----

| (1) |   | Consists of non-plan  options to acquire 300,000 shares of Southwest Casino Corporation common  stock granted to each of Messrs. Druck, Fox and Halpern under their  employment agreements dated July 1, 2004.  Each of these options  was immediately exercisable on the date of grant as to 100,000 shares and  1/24 of the remaining shares vest on the first day of each of the next 24  months beginning August 1, 2004. Vesting of these options may accelerate if  specified milestones are achieved. Each of these options also becomes  exercisable upon a change in control. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | The per share exercise  price of each option granted in 2004 is equal to the fair market value of a share  of the common stock on the date of grant as determined by our Board of  Directors.                                                                                                                                                                                                                                                                                                                                                                                                    |

 

 

AggregatedOption Exercises in Last Fiscal Year and Fiscal Year-End Option Values.

 

Thefollowing table summarizes the number and value of options held by each of theexecutive officers named in the above Summary Compensation Table atDecember 31, 2004.  None of these executive officers exercised anystock options during the fiscal year ended December 31, 2004.

 
| ** **            | ** ** | **Number of Securities  Underlying Unexercised  Options at December 31, 2004** | ** ** | **Value of Unexercised  In-the-Money Options  at December 31, 2004 (1)** | ** ** |
|-----------------------|------------|-------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| **Name**              | ** ** | **Exercisable**                                                                     | ** ** | **Unexercisable**                                                             | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| James B. Druck        |       | 141,665                                                                             |       | 158,335                                                                       |       | 0 |   | 0 |   |
| Thomas E. Fox         |       | 141,665                                                                             |       | 158,335                                                                       |       | 0 |   | 0 |   |
| Jeffrey S. Halpern    |       | 141,665                                                                             |       | 158,335                                                                       |       | 0 |   | 0 |   |
| Brian L. Foster       |       | 250,000                                                                             |       | 0                                                                             |       | $ | 120,000 |   | 0 |   |
| Christopher B. Glover |       | 0                                                                                   |       | 0                                                                             |       | 0 |   | 0 |   |
|                       |            |                                                                                     |            |                                                                               |            |  |  |  |  |  |

 

----

| (1) |   | Based on the difference between the fair market  value of one share of common stock at December 31, 2004 of $0.60 per share,  and the exercise price of the options which range from $0.12 to $1.00 per  share. Options are in the money if the market price of the shares exceeds the  option exercise price. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

40

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Compensation of Directors.

 

All of the current membersof our Board of Directors are also employees of Southwest.  These individuals do not receive anyadditional compensation for their service as directors.  Our Board of Directors is in the process ofrecruiting independent directors to serve on the Board and will addressdirector compensation issues in connection with that recruiting process.

 

Employment Contracts.

 

*James Druck Employment Agreement*

 

In July 2004, we enteredinto an employment agreement with James B. Druck under which Mr. Druck servesas our Chief Executive Officer and Secretary. The initial term of thisagreement continues until July 1, 2006, after which the term renewsautomatically for additional one-year periods unless terminated earlier byeither party. Under this agreement, Mr. Druck 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 bedetermined by the Board of Directors. This bonus is discretionary and no bonus was awarded for fiscal year2004, although Mr. Druck received a bonus for fiscal year 2003 that was paidduring 2004.  Mr. Druck also was granteda non-plan option to purchase 300,000 shares of our common stock at a price of$1.00 per share. This option was immediately exercisable as to 100,000 sharesand 1/24 of the remaining shares will vest on the first day of each of the next24 months beginning August 1, 2004. Vesting of this option may accelerate ifspecified milestones are achieved. If Mr. Druck is terminated without cause, inconnection with a change in control of the company, or if Mr. Druck terminateshis employment for “good reason”, Mr. Druck may elect to continue employment withus in a diminished capacity. If Mr. Druck so elects and his employment wasterminated during its initial term, Mr. Druck will continue to receive his basesalary and medical benefits for 18 months. After 18 months, Mr. Druck willreceive a salary of not less than $25,000 and continuing medical benefits. IfMr. Druck is so terminated after the initial term, he will receive continuingsalary and medical benefits at his then base rate for 12 months after which hissalary may be reduced to not less than $25,000 with continuing medicalbenefits.  Mr. Druck is also subject tocustomary assignment of inventions, confidentiality, non-solicitation andnon-compete provisions.

 

*Thomas Fox Employment Agreement*

 

In July 2004, we enteredinto an employment agreement with Thomas E. Fox under which Mr. Fox serves asour President, Chief Operating Officer and Chief Financial Officer. The initialterm of this agreement continues until July 1, 2006, after which the termrenews automatically for additional one-year periods unless terminated earlierby either 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 adjustmentto base salary will be determined by the Board of Directors. This bonus isdiscretionary and no bonus was awarded for fiscal year 2004, although Mr. Foxreceived a bonus for fiscal year 2003 that was paid during 2004.  Mr. Fox also was granted a non-plan option topurchase 300,000 shares of our common stock at a price of $1.00 per share. Thisoption was immediately exercisable as to 100,000 shares and 1/24 of theremaining shares will vest on the first day of each of the next 24 monthsbeginning August 1, 2004. Vesting of this option may accelerate if specifiedmilestones are achieved. If Mr. Fox is terminated without cause, in connectionwith a change in control of the company, or if Mr. Fox terminates hisemployment for “good reason”, Mr. Fox may elect to continue employment with usin a diminished capacity. If Mr. Fox so elects and his employment wasterminated during its initial term, Mr. Fox will continue to receive his basesalary and medical benefits for 18 months. After 18 months, Mr. Fox willreceive a salary of not less than $25,000 and continuing medical benefits. IfMr. Fox is so terminated after the initial term, he will receive continuingsalary and medical benefits at his then base rate for 12 months after which hissalary may be

 

 

41

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reduced to not less than$25,000 with continuing medical benefits. Mr. Fox is also subject to customary assignment of inventions,confidentiality, non-solicitation and non-compete provisions.

 

*Jeffrey Halpern EmploymentAgreement*

 

In July 2004, we enteredinto an employment agreement with Jeffrey S. Halpern under which Mr. Halpernserves as the Chairman of our Board of Directors and Assistant Secretary. Theinitial term of this agreement continues until July 1, 2006, after which theterm renews automatically for additional one-year periods unless terminatedearlier by either party. Under this agreement, Mr. Halpern receives a basesalary of $120,000 per year, an automobile allowance of $1,000 per month, and iseligible for an additional performance bonus if granted by our Board ofDirectors. Any adjustment to base salary will be determined by the Board ofDirectors.  This bonus is discretionaryand no bonus was awarded for fiscal year 2004, although Mr. Halpern received abonus for fiscal year 2003 that was paid during 2004.  Mr. Halpern also was granted a non-planoption to purchase 300,000 shares of our common stock at a price of $1.00 pershare. This option was immediately exercisable as to 100,000 shares and 1/24 ofthe remaining shares will vest on the first day of each of the next 24 monthsbeginning August 1, 2004. Vesting of this option may accelerate if specifiedmilestones are achieved. If Mr. Halpern is terminated without cause, inconnection with a change in control of the company, or if Mr. Halpernterminates his employment for “good reason”, Mr. Halpern may elect to continueemployment with us in a diminished capacity. If Mr. Halpern so elects and hisemployment was terminated during its initial term, Mr. Halpern will continue toreceive his base salary and medical benefits for 18 months. After 18 months,Mr. Halpern will receive a salary of not less than $25,000 and continuingmedical benefits. If Mr. Halpern is so terminated after the initial term, hewill receive continuing salary and medical benefits at his then base rate for12 months after which his salary may be reduced to not less than $25,000 withcontinuing medical benefits.  Mr. Halpernis also subject to customary assignment of inventions, confidentiality,non-solicitation and non-compete provisions.

 

 

42

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**2004 Stock Incentive Plan.**

 

**From time to time, we grantincentive awards under our 2004 Stock Incentive Plan.  The incentive plan was approved by the Boardof Directors on June 1, 2004 and approved by shareholders on July 14,2004.  The incentive plan provides forthe grant to employees, officers, directors, consultants and independentcontractors of our company and our subsidiaries of incentive awards to purchaseshares of common stock that qualify as “incentive stock options” within themeaning of Section 422 of the Internal Revenue Code of 1986, as amended, aswell as non-statutory options that do not qualify as incentive stock options,stock appreciation rights, restricted stock awards, performance units and stockbonuses.  This incentive plan isadministered by the Board of Directors, which determines the persons who are toreceive awards, as well as the type, terms and number of shares subject to eachaward.**

 

**We have reserved an aggregate of1,500,000 shares of Southwest common stock for awards under the incentiveplan.  As of July December 31, 2004,options to purchase an aggregate of 145,000 shares of Southwest common stockwere outstanding under the incentive plan and a total of 1,355,000 shares ofSouthwest common stock remained available for grant.  As of December 31, 2004, the outstandingoptions under the incentive plan were held by four individuals all with anexercise price of $1.00 per share.**

** **

**Incentive stock options grantedunder the incentive plan may not have an exercise price less than the fairmarket value of Southwest common stock on the date of the grant (or, if grantedto a person holding more than 10% of our voting stock, at less than 110% offair market value).  Non-statutory stockoptions granted under the incentive plan may not have an exercise price lessthan 85% of fair market value on the date of grant.  Aside from the maximum number of shares ofSouthwest common stock reserved under the plans, there is no minimum or maximumnumber of shares that may be subject to options under the incentive plan.  However, the aggregate fair market value ofthe stock subject to incentive stock options granted to any optionee that areexercisable for the first time by an optionee during any calendar year may notexceed $100,000.  Options generallyexpire when the optionee’s employment or other service with us terminates.  Options generally may not be transferred,other than by will or the laws of descent and distribution, and only theoptionee can exercise the option during the optionee’s lifetime.  The term of each option, which is fixed bythe Board of Directors at the time of grant, may not exceed 10 years from thedate the option is granted (except that an incentive stock option may beexercisable only for 10 years and an incentive stock option granted to a personholding more than 10% of our voting stock may be exercisable only for fiveyears regardless of the availability of such exemption).**

** **

**The incentive plan containschange in control provisions, as described below under the heading “Change inControl Arrangements.”**

** **

**Change in Control Arrangements.**

** **

***Druck, Fox andHalpern Employment Agreements***

** **

Underour employment agreements with Messrs. Druck, Fox and Halpern, if any of themis terminated within nine months after a change in control occurs, they mayelect to continue their employment with us in a diminished capacity. If theterminated employee so elects and his employment was terminated during theinitial term of the employment agreement, the terminated employee will continueto receive his base salary and medical benefits for 18 months. After 18 months,he will receive a salary of not less than $25,000 and continuing medical benefits.If the employee is so terminated after the initial term of the employmentagreement, he will receive continuing salary and medical benefits at his thenbase rate for 12 months after which his salary may be reduced to not less than$25,000 with continuing medical benefits. In addition, any unexpired stock options will vest immediately.

 

 

43

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Forpurposes of these employment agreements, a “change in control” includes:

 

**•       anymerger, acquisition, reorganization or consolidation after which theshareholders of Southwest immediately before the transaction do not own amajority of the surviving corporation;**

**•       anysale, lease, license or transfer of substantially all of our assets;**

**•       anystatutory exchange of securities with another entity (except where we are theacquiring entity);**

**•       acquisitionby any individual or group of more than 50 percent of our outstanding votingstock from existing shareholders;**

**•       membersof our Board of Directors as of July 1, 2004 or new board members approved by amajority of those board members cease to constitute a majority of our Board ofDirectors; or**

**•       anyother transaction or series of transaction (other than venture capital orinstitutional investor financings) that the SEC would require us to report.**

 

*2004Stock Incentive Plan*

 

**Under our 2004 Stock IncentivePlan, incentive awards granted under the plan will become fully exercisableafter certain changes in control of our company, such as:**

** **

**•       thesale, lease, exchange or other transfer of all or substantially all of ourassets;**

**•       ourshareholders approve any plan of or proposal for the liquidation or dissolutionof our company;**

**•       anyperson becomes the beneficial owner of:**

**•       20%or more, but not 50% or more, of the combined voting power of our outstandingsecurities ordinarily having the right to vote at elections of directors,unless the transaction resulting in their ownership was approved in advance bythe “continuity directors” who are members of the Board of Directors at thetime of the special meeting or whose nomination for election meets certainapproval requirements related to continuity with our current Board ofDirectors; or**

**•       50%or more of the combined voting power of our outstanding securities ordinarilyhaving the right to vote at elections of directors (regardless of any approvalby the “continuity directors”); provided that a traditional institution orventure capital financing transaction are excluded from this definition;**

**•       weare a party to a merger or consolidation that results in our shareholdersbeneficially owning securities representing:**

**•       morethan 50%, but less than 80%, of the combined voting power of the survivingcorporation’s then outstanding securities ordinarily having the right to voteat elections of directors, unless the merger or consolidation was approved inadvance by the “continuity directors”; or**

**•       50%or less of the combined voting power of the surviving corporation’s thenoutstanding securities ordinarily having the right to vote at elections ofdirectors (regardless of any approval by the “continuity directors”);**

**•       achange in control that outside legal counsel determines must be reported underSection 13 or 15(d) of the Exchange Act, whether or not we are then subject tothese reporting requirements; or**

**•       the“continuity directors” cease, for any reason, to constitute at least a majorityof the Board of Directors, at any time after date that our securities are firstsold in a registered public offering.**

 

 

44

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| **Item  11.** | **SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS.** |
|---------------|-------------------------------------------------------------------------------------------------------|

** **

 

**Security Ownership ofCertain Beneficial Owners and Management**

 

Thefollowing table states the information known to us with respect to thebeneficial ownership of our common stock as of March 15, 2005 for (1) eachperson known by us to beneficially own more than 5% of our common stock, (2)each of the executive officers named in the Summary Compensation Table underthe heading “Summary of Cash and Other Compensation,” (3) each of ourdirectors, and (4) all of our executive officers and directors as a group.

 

Sharesare deemed “beneficially owned” by a person if that person, directly orindirectly, has sole or shared power to vote or to direct the voting of thoseshares or sole or shared power to dispose or direct the disposition of thoseshares.  Except as otherwise indicated, we believe that each of thebeneficial owners of our capital stock listed below, based on information providedby these owners, has sole dispositive and voting power with respect to itsshares, subject to community property laws where applicable. Shares notoutstanding but deemed beneficially owned by virtue of the right of a person ormember of a group to acquire them within 60 days are treated as outstandingonly when determining the amount and percent owned by that person or group.

 

| ** **                                                  | ** ** | **Common  Stock** | ** ** |
|-------------------------------------------------------------|------------|-------------------|------------|
| **Name**                                                    | ** ** | **Number**        | ** ** | **Percent** | ** ** |
| James B. Druck (1)                                          |       | 1,854,165         | (2)        | 9.0 | % |
| Thomas E. Fox (1)                                           |       | 1,826,953         | (3)        | 8.8 | % |
| Jeffrey S. Halpern (1)                                      |       | 1,844,165         | (4)        | 8.9 | % |
| Brian L. Foster                                             |       | 250,000           | (5)        | 1.3 | % |
| Christopher B. Glover                                       |       | 0                 |       |   |   |
| All executive officers and directors as a group (4 persons) |       | 5,775,283         | (6)        | 28.0 | % |

 

----

| (1) |   | Address:  2001 Killebrew Drive, Suite 350, Minneapolis, Minnesota 55425.                                                                                                                                                       |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Includes:  241,665 shares of common stock issuable upon exercise of an option.                                                                                                                                                 |
| (3) |   | Includes:  (i) 22,788 shares held by F&B Properties, a partnership in which Mr. Fox  is a 50% general partner and (ii) 241,665 shares of common stock issuable  upon exercise of an option.                                |
| (4) |   | Includes:  (i) 40,000 shares held by Mr. Halpern’s wife and (ii) 241,665 shares of  common stock issuable upon exercise of an option.                                                                                     |
| (5) |   | Consists  250,000 shares of our common stock issuable upon exercise of an option.                                                                                                                                              |
| (6) |   | Includes:  (i) an aggregate of 974,995 shares issuable upon exercise of options, (ii)  40,000 shares held by a director’s spouse and (iii) 22,788 shares held by a  partnership in which a director is a general partner. |

 

**Securities Authorized forIssuance under Equity Compensation Plan**

 

The following tablesummarizes our equity compensation plan information as of December 31,2004. Options granted in the future under the plan are within the discretion ofour Board of Directors and therefore cannot be ascertained at this time:

 
| ** **                                                     | ** ** | **Number  of Securities to be  Issued Upon Exercise   of Outstanding Options,** | ** ** | **Weighted-Average    Exercise Price of  Outstanding Options,** | ** ** | **Number  of Securities Remaining  Available for Future Issuance   Under Equity Compensation  Plans (excluding securities** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
| **Plan Category**                                              | ** ** | **Warrants  and Rights**                                                        | ** ** | **Warrants  and Rights**                                        | ** ** | **reflected  in column (a)**                                                                                                | ** ** |
|                                                           |       |                                                                            |       |                                                            |       |                                                                                                                        |       |
| Equity compensation plans approved by security holders:        |       |                                                                            |       |                                                            |       |                                                                                                                        |       |
|                                                           |       |                                                                            |       |                                                            |       |                                                                                                                        |       |
| 2004 Stock Incentive Plan (1)                                  |       | 145,000                                                                         |       | $                                                               | 1.00       |                                                                                                                        | 1,355,000  |   |
|                                                           |       |                                                                            |       |                                                            |       |                                                                                                                        |       |
| Equity compensation plans not approved by security holders (2) |       | 2,425,000                                                                       |       | $                                                               | 0.46       |                                                                                                                        | 0          |   |
| **Total**                                                      |       | 2,570,000                                                                       |       | $                                                               | 0.49       |                                                                                                                        | 1,355,000  |   |

 

 

45

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| (1) |   | Our only equity compensation plan under which shares  of our common stock may be issued is the 2004 Stock Incentive Plan that was  maintained by Southwest Casino and Hotel Corp. before the consummation of our  reorganization and was assumed by Southwest Casino Corporation under the  terms and at the time of consummation of the reorganization. Southwest Casino  and Hotel Corp. shareholders approved the 2004 Stock Incentive Plan at a  special meeting on July 14, 2004. We do not have any other equity  compensation plans. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Consists of individual option and warrant agreements  issued by Southwest Casino and Hotel Corp. before the consummation of our  reorganization that Southwest Casino Corporation assumed under the terms and  at the time of consummation of the reorganization.                                                                                                                                                                                                                                                                           |

 

 

**Item12.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

Immediatelyafter completing our July 22, 2004 reorganization, we sold substantiallyall of the Lone Moose Adventures, Inc. adventure tour business assets to LoneMoose’ founding shareholders, Christopher B. Glover and Michael C. Brown. Inexchange for these assets, Messrs. Glover and Brown (a) assumed all of thepre-closing liabilities of the adventure tour business previously operated byLone Moose (which liabilities exceeded the net book value of Lone Mooseimmediately before the reorganization), (b) agreed to indemnify Lone Moose (nowSouthwest Casino Corporation) for any liabilities or damages related to LoneMoose’s existence and operations before the closing of the reorganization, and(c) delivered for cancellation certificates representing all of the commonstock of Lone Moose (an aggregate of 2,489,192 shares) held by Messrs. Gloverand Brown.

 

EffectiveJune 29, 2004, James B. Druck, Thomas E. Fox and Jeffrey S. Halpern eachpurchased for investment 500,000 shares of Lone Moose common stock at apurchase price of $0.05 per share. All of these shares are restrictedsecurities under applicable federal and state securities laws, and are furthersubject to a lock-up/leak-out agreement restricting the manner and timing ofany subsequent resales.

 

OnMarch 19, 2004, Southwest Casino and Hotel Corp. issued 125,000 shares of itscommon stock to each of James B. Druck, Thomas E. Fox and Jeffrey S. Halpern inconsideration of their agreements to guarantee personally a $500,000 letter ofcredit supporting a bond required in connection with North Metro HarnessInitiative’s application for licenses to develop and operate a harnessracetrack in Columbus Township, Anoka County, Minnesota.  These shares converted into 62,500 shareseach of Southwest Casino Corporation common stock in connection with our July22, 2004 reorganization.

 

OnDecember 8, 2003, Southwest Casino and Hotel Corp. issued 895,000, 1,085,000,and 530,000 shares of its common stock to James B. Druck, Thomas E. Fox, andJeffrey S. Halpern, respectively, in lieu of $53,700, $65,100, and $31,800 owedto each of them, respectively, in unpaid compensation.  The shares were value at $0.06 per share forthis purpose.  These shares convertedinto 447,500, 542,500, and 265,000 shares, respectively, of Southwest CasinoCorporation common stock in connection with our July 22, 2004 reorganization.

 

TheCompany had aggregate outstanding liabilities to James B. Druck, Thomas E. Foxand Jeffrey S. Halpern for unpaid compensation and expense reimbursements of$340,492 as of December 31, 2004 and $410,100 as of December 31, 2003.

 

 

46

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Duringthe years ended December 31, 2004 and 2003, Southwest paid Berc & FoxLimited $41,275 and $17,508 for tax and accounting services, respectively.  Thomas Fox is a shareholder and officer inBerc & Fox Limited.

 

Duringthe years ended December 31, 2004 and 2003, Southwest paid Jennifer SparlinDruck $1,000 each year for entertainment services at the Gold Rush Palladium.  Ms. Druck is the wife of James B. Druck.

 

**ITEM13.  EXHIBITS**

 

Reference is made to theExhibit Index at page 50 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 sentto:  Southwest Casino Corporation, 2001Killebrew Drive, Suite 350, Minneapolis, Minnesota 55435 Attn:  Stockholder Information.

 

The following is a list ofeach management contract or compensatory plan or arrangement required to befiled as an exhibit to this Annual Report on Form 10-KSB under Item 13(a):

 

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

###  

### B.            Option Agreement dated July 1, 2004, betweenSouthwest and James B. Druck (incorporated by reference to Exhibit 10.2 to ourCurrent Report on Form 8-K filed August 6, 2004).

###  

### C.            Option Agreement dated July 1, 2004, betweenSouthwest Casino and Jeffrey S. Halpern (incorporated by reference to Exhibit10.3 to our Current Report on Form 8-K filed August 6, 2004).

###  

### D.            Option Agreement dated July 1, 2004, betweenSouthwest Casino and Thomas E. Fox (incorporated by reference to Exhibit 10.4to our Current Report on Form 8-K filed August 6, 2004).

###  

### E.             Employment Agreement dated effective July 1, 2004,between Southwest Casino and Hotel Corp. and James B. Druck (incorporated byreference to Exhibit 10.13 to our Current Report on Form 8-K filed August 6,2004).

###  

### F.             Employment Agreement dated effective July 1, 2004,between Southwest Casino and Hotel Corp. and Jeffrey S. Halpern (incorporatedby reference to Exhibit 10.14 to our Current Report on Form 8-K filed August 6,2004).

###  

### G.            Employment Agreement dated effective July 1, 2004,between Southwest Casino and Hotel Corp. and Thomas E. Fox (incorporated byreference to Exhibit 10.15 to our Current Report on Form 8-K filed August 6,2004).

###  

### H.            Form of Indemnification Agreements by and betweenSouthwest Casino and Hotel Corp. and each of James B. Druck, Jeffrey S.Halpern, Thomas E. Fox and Brian L. Foster (incorporated by reference toExhibit 10.17 to our Current Report on Form 8-K filed August 6, 2004).

 

 

47

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I.              Form of Lock-Up/Leak-out Agreement by and betweenSouthwest and James B. Druck, Thomas E. Fox, and Jeffrey S. Halpern(incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-Kfiled August 6, 2004).

 

# **ITEM 14.  PRINCIPALACCOUNTANT FEES AND SERVICES.**

# ** **

The following table presents fees billed by EideBaillyLLP, our principal accountant, for the audit of Southwest Casino Corporation’sconsolidated financial statements and other professional services provided toSouthwest Casino Corporation for the fiscal year ended December 31, 2004 andfor the audit of Southwest Casino and Hotel Corp.’s consolidated financialstatements for the fiscal year ended December 31, 2003.

 
| ** **             | ** ** | **Aggregate  Amount Billed  by ($)** | ** ** |
|------------------------|------------|--------------------------------------|------------|
| ** **             | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| ** **             | ** ** | ** **                           | ** ** | ** ** | ** ** |
| Audit Fees (1)         |       | $                                    | 121,600    |   | $ | 131,460 |   |
| Audit-Related Fees (2) |       | $                                    | 19,800     |   | $ | 0 |   |
| Tax Fees (3)           |       | $                                    | 0          |   | $ | 0 |   |
| All Other Fees (4)     |       | $                                    | 0          |   | $ | 0 |   |

 

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| (1) |   | Aggregate  fees billed for professional services rendered to Southwest Casino and Hotel  Corp. before July 22, 2004 and Southwest Casino Corporation after July 22,  2004 for audit of our consolidated financial statements by year, review of  the consolidated financial statements included in our quarterly reports on  Form 10-QSB, and other services normally provided in connection with our  statutory and regulatory filings or engagements. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Aggregate fees billed  to Southwest Casino and Hotel Corp. before July 22, 2004 and Southwest Casino  Corporation after July 22, 2004. These other audit-related services consisted  of accounting research and related issues. The Board has considered whether  the provision of these services is compatible with maintaining EideBailly  LLP’s independence and has determined that it is.                                                     |
| (3) |   | We did not pay any fees  for professional services provided by our principal accountants to Southwest  Casino and Hotel Corp. before July 22, 2004 and Southwest Casino Corporation  after July 22, 2004, other than the fees described above in this Item 14,  during the last two fiscal years.                                                                                                                                                       |
| (4) |   | We did not pay any fees  for professional services provided by our principal accountants to Southwest  Casino and Hotel Corp. before July 22, 2004 and Southwest Casino Corporation  after July 22, 2004, other than the fees described above in this Item 14,  during the last two fiscal years.                                                                                                                                                       |

 

 

**AuditCommittee Pre-Approval Policy**

 

Currently,all of the members of our Board of Directors are employees and do not qualifyas independent directors. Our Board of Directors is in the process ofrecruiting independent directors to serve on the Board, including a directorwho would qualify as an “audit committee financial expert.”  After we have two or more independentdirectors on our board, we intend to create an Audit Committee.  Once the Board of Directors has appointedmembers to the Audit Committee, the Audit Committee will establish pre-approvalpolicies and procedures, and other policies and procedures required by law ordeemed advisable by the members of the Audit Committee.  In the meantime, our Board of Directorsapproves all services performed by our independent auditor before engagingtheir services.

 

 

48

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**SIGNATURES**

 

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

 
|           | SOUTHWEST CASINO CORPORATION |
|----------------|------------------------------|
|           |                         |   |
| March 31, 2005 | 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 Registrant on March 31, 2005 in thecapacities indicated.

 
| **Name**               | ** ** | **Title**                                                                         |
|------------------------|------------|-----------------------------------------------------------------------------------|
|                   |       |                                                                              |
| /s/ James B. Druck     |       |                                                                              | Chief Executive Officer (principal executive officer) |
|                   |       | and Director                                                                      |
|                   |       |                                                                              |
| /s/ Thomas E. Fox      |       |                                                                              | President, Chief Operating Officer, and Chief |
|                   |       | Financial Officer (principal financial officer  and principal accounting officer) |
|                   |       |                                                                              |
| /s/ Jeffrey S. Halpern |       |                                                                              | Chairman of the Board of Directors and Director |

 

 

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**SOUTHWEST CASINO CORPORATION**

** **

**EXHIBIT INDEX TO ANNUAL REPORTON FORM 10-KSB**

** **

**FOR THE FISCAL YEAR ENDEDDECEMBER 31, 2004**

 
| **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              |       | Amendment to Articles of Incorporation of Lone Moose  Adventures, Inc.                                                                                                                                                        |       | Incorporated by reference to Exhibit 3.1 in the Annual  Report on Form 10-KSB filed June 29, 2004.                                                                                         |
|             |       |                                                                                                                                                                                                                          |       |                                                                                                                                                                                       |
| 3.2              |       | Articles of Incorporation of Lone Moose Adventures,  Inc., as amended                                                                                                                                                         |       | Incorporated by reference to Exhibit 3.1 contained  in Lone Moose’s Registration Statement on Form SB-2 (File No.333-88810) and  Exhibit 3 contained in Lone Moose’s Form 10-KSB |
|             |       |                                                                                                                                                                                                                          |       |                                                                                                                                                                                       |
| 3.3              |       | Bylaws of Lone Moose Adventures, Inc.                                                                                                                                                                                         |       | 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              |       | Form of Lock-Up/Leak-Out Agreement between Lone  Moose and certain Lone Moose shareholders and affiliates of Southwest Casino                                                                                                 |       | Incorporated by reference to Exhibit 4.3 to the  Current Report on Form 8-K filed August 6, 2004.                                                                                          |
|             |       |                                                                                                                                                                                                                          |       |                                                                                                                                                                                       |
| 4.4*             |       | Warrant, dated July 22, 2004, between Southwest  Casino Corporation and MBC                                                                                                                                              |       | To be filed by amendment                                                                                                                                                                   |

 

 

50

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| 4.5    |   | 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.   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                              |   |                                                                                                |
| 4.6*   |   | Warrant, dated July 22, 2004, between Southwest  Casino Corporation and various holders                                                                                                      |   | To be filed by amendment                                                                            |
|   |   |                                                                                                                                                                                              |   |                                                                                                |
| 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.  |
|   |   |                                                                                                                                                                                              |   |                                                                                                |
| 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   |   | Amendment No. 8 to Third Amended and Restated Gaming  Management Agreement dated September 4, 2003 between The Cheyenne and  Arapaho Tribes of Oklahoma and Southwest Casio and Hotel Corp.  |   | Incorporated by reference to Exhibit 10.9 to the  Current Report on Form 8-K Filed August 6, 2004   |
|   |   |                                                                                                                                                                                              |   |                                                                                                |
| 10.10  |   | 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. |

 

 

51

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| 10.11  |   | BLN Office Park Lease, dated February 24, 1995,  between Southwest Casino and Hotel Corp. and BLN Office Park Associates, as  amended                                                                                                                                                  |   | Incorporated by reference to Exhibit 10.11 to the  Current Report on Form 8-K filed August 6, 2004.                                       |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.12  |   | 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.                                       |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.13  |   | 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.                                       |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.14  |   | 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.                                       |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.15  |   | 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.                                       |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.16  |   | Master Lease Agreement, dated December 30,  2003, by and between and Southwest Casino and Hotel Corp. and PDS Gaming  Corporation - Colorado                                                                                                                                           |   | Incorporated by reference to Exhibit 10.15 to the  Current Report on Form 8-K filed August 6, 2004.                                       |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.17  |   | Form of Indemnification Agreements by and between  Southwest Casino and Hotel Corp. and each of James B. Druck, Jeffery S.  Halpern, Thomas E. Fox and Brian L. Foster                                                                                                                      |   | Incorporated by reference to Exhibit 10.17 to the  Current Report on Form 8-K/A filed October 5, 2004.                                    |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.18  |   | 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.                                       |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.19  |   | 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.                                       |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.20  |   | Promissory Note, dated December 4, 2003, by  Southwest Casino and Hotel Corp. to Associated Bank Minnesota, N.A.                                                                                                                                                                       |   | Incorporated by reference to Exhibit 10.20 to the  Current Report on Form 8-K filed August 6, 2004.                                       |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.21  |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                      |
| 10.22  |   | Member Control Agreement, dated June 14, 2004,  by and between SW                                                                                                                                                                                                                      |   | Incorporated by reference to                                                                                                              |

 

52

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|   |   | Missouri, LLC and Southwest Casino and Hotel Corp.                                                                                        |   | Exhibit 10.22 to the Current Report on Form 8-K  filed August 6, 2004.                                 |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                      |   |                                                                                                   |
| 10.23  |   | 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.    |
|   |   |                                                                                                                                      |   |                                                                                                   |
| 10.24  |   | 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.    |
|   |   |                                                                                                                                      |   |                                                                                                   |
| 10.25  |   | 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.    |
|   |   |                                                                                                                                      |   |                                                                                                   |
| 14.1   |   | Code of Conduct                                                                                                                           |   | Incorporated by reference to Exhibit 14 to the  Annual Report on Form 10-KSB filed June 29, 2004.      |
|   |   |                                                                                                                                      |   |                                                                                                   |
| 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                                                                                      |   | Incorporated by reference to Exhibit 21.1 to the  Current Report on Form 8-K filed August 6, 2004.     |
|   |   |                                                                                                                                      |   |                                                                                                   |
| 23.1   |   | Consent of Eide Bailly LLP, independent public  accountants                                                                               |   | Incorporated by reference to Exhibit 23.1 to the  Current Report on Form 8-K filed August 6, 2004.     |
|   |   |                                                                                                                                      |   |                                                                                                   |
| 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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*To be filed by amendment.

 

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