##### Table of Contents



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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-QSB

(Mark One)

|      |  |                                                                                  
|----- |  | ---------------------------------------------------------------------------------
|[X]   |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|     
|     
|     
|     
|      |  | For the quarterly period ended March 31, 2001                                    
|     
|[   ] |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT                  
|     
|     
|     
|     
|      |  | For the transition period from ___________ to ___________                        

Commission File Number: 0-11532

VENTURE CATALYST INCORPORATED



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Utah                                                           |  | 33-0618806                          
|                                                              
|                                                              
|                                                              
|                                                              
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

16868 Via Del Campo Court, Suite 200, San Diego, California 92127
(Address of principal executive offices)

Issuers telephone number: (858) 385-1000

Not Applicable

---



APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: as of April 27, 2001,
7,206,598 shares of common stock, $.001 par value per share, were outstanding.

Transitional Small Business Disclosure Format (check one):  Yes  [   ]   No  [X]



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TABLE OF CONTENTS



|                              |                                                                   |                                                    |  |  |  |  |  | 
|----------------------------- | ----------------------------------------------------------------- | -------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS (Unaudited):                        
|                              |                                                                   | Consolidated Balance Sheets                       
|                              |                                                                   | Consolidated Statements of Operations             
|                              |                                                                   | Consolidated Statements of Cash Flows             
|                              |                                                                   | Notes to Interim Consolidated Financial Statements
|                              | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|PART II. OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                         
|SIGNATURES                   
|EXHIBIT 10.1                 



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##### Table of Contents



VENTURE CATALYST INCORPORATED
FORM 10-QSB
FOR THE PERIOD ENDED MARCH 31, 2001

TABLE OF CONTENTS

|                              |                                                                   |                                                                                            |    |        |   | 
|----------------------------- | ----------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -- | ------ | - | 
|                              |                                                                   |                                                                                            |    | Page  
|                              |                                                                   |                                                                                            |    | Number
|                              |                                                                   |                                                                                            |    |       
|PART I. FINANCIAL INFORMATION
|                             
|                             
|                             
|                             
|                              | ITEM 1. FINANCIAL STATEMENTS (Unaudited):                        
|                             
|                             
|                             
|                             
|                              |                                                                   | Consolidated Balance Sheets -
        March 31, 2001 and June 30, 2000                     |    |        | 3 | 
|                             
|                             
|                             
|                             
|                              |                                                                   | Consolidated Statements of Operations -
        Three months ended March 31, 2001 and 2000 |    |        | 4 | 
|                             
|                             
|                             
|                             
|                              |                                                                   | Nine months ended March 31, 2001 and 2000                                                  |    |        | 5 | 
|                             
|                             
|                             
|                             
|                              |                                                                   | Consolidated Statements of Cash Flows -
        Nine months ended March 31, 2001 and 2000  |    |        | 6 | 
|                             
|                             
|                             
|                             
|                              |                                                                   | Notes to Interim Consolidated Financial Statements                                         |    |        | 7 | 
|                             
|                             
|                             
|                             
|                              | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION |                                                                                            |    | 14     |  
|                             
|                             
|                             
|                             
|PART II. OTHER INFORMATION   
|                             
|                             
|                             
|                             
|                              | ITEM 6. EXHIBITS AND REPORTS IN FORM 8K                           |                                                                                            |    | 26     |  
|                             
|                             
|                             
|                             
|SIGNATURES                    |                                                                   |                                                                                            | 27 |       



2





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##### Table of Contents









PART I  FINANCIAL INFORMATION







ITEM 1. FINANCIAL STATEMENTS.







VENTURE CATALYST INCORPORATED
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and June 30, 2000

|                                     |                                                                                          |                                            |           |             |            |          |           |            |            | 
|------------------------------------ | ---------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ----------- | ---------- | -------- | --------- | ---------- | ---------- | 
|                                     |                                                                                          |                                            |           | March 31,   |            | June 30,
|                                     |                                                                                          |                                            |           | 2001        |            | 2000    
|                                     |                                                                                          |                                            |           |             |            |         
|                                     |                                                                                          |                                            |           | (unaudited)
|ASSETS                              
|                                    
|                                    
|                                    
|                                    
|CURRENT ASSETS:                     
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                |                                            | $         | 5,771,948   |            |          | $         | 4,766,743  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Due from Barona Tribe  expansion project                                                |                                            |           | 7,685,296   |            |          |           | 9,685,296  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Receivables, net                                                                         |                                            |           | 1,304,278   |            |          |           | 753,012    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Prepaid expenses and other assets                                                        |                                            |           | 319,335     |            |          |           | 504,712    |           
|                                     |                                                                                          |                                            |           |             |            |          |           |           
|                                     |                                                                                          | Total current assets                       |           |             | 15,080,857 |          |           |            | 15,709,763 | 
|                                    
|                                    
|                                    
|                                    
|NONCURRENT ASSETS:                  
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred contract costs, net                                                             |                                            |           | 2,011,519   |            |          |           | 2,514,403  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax asset                                                                       |                                            |           | 985,127     |            |          |           | 947,558    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Property, plant and equipment, net                                                       |                                            |           | 640,458     |            |          |           | 1,092,669  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Available-for-sale securities, net                                                       |                                            |           | 554,333     |            |          |           | 3,176,189  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Deposits and other assets                                                                |                                            |           | 354,456     |            |          |           | 322,890    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Restricted cash                                                                          |                                            |           | 133,000     |            |          |           | 1,655,460  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Non-current receivables (net of allowance of $208,613)                                   |                                            |           | 138,706     |            |          |           | 167,983    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Convertible notes, net                                                                   |                                            |           | 54,121      |            |          |           | 590,842    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Held-to-maturity investments                                                             |                                            |           |            |            |          |           | 395,812    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Goodwill and other intangibles, net                                                      |                                            |           |            |            |          |           | 5,279,401  |           
|                                     |                                                                                          |                                            |           |             |            |          |           |           
|                                     |                                                                                          | Total non-current assets                   |           |             | 4,871,720  |          |           |            | 16,143,207 | 
|                                     |                                                                                          |                                            |           |             |            |          |           |           
|                                     |                                                                                          | Total assets                               |           | $           | 19,952,577 |          |           | $          | 31,852,970 | 
|                                     |                                                                                          |                                            |           |             |            |          |           |           
|LIABILITIES AND SHAREHOLDERS EQUITY
|                                    
|                                    
|                                    
|                                    
|CURRENT LIABILITIES                 
|                                    
|                                    
|                                    
|                                    
|                                     | Advances of future consulting fees  Barona Tribe                                        |                                            | $         | 3,654,371   |            |          | $         | 2,879,271  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable and accrued expenses                                                    |                                            |           | 2,174,196   |            |          |           | 1,165,007  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Current portion of long-term debt                                                        |                                            |           | 1,833,333   |            |          |           | 977,150    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenues                                                                        |                                            |           |            |            |          |           | 301,708    |           
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred tax liability                                                                   |                                            |           | 221,084     |            |          |           | 221,084    |           
|                                     |                                                                                          |                                            |           |             |            |          |           |           
|                                     |                                                                                          | Total current liabilities                  |           |             | 7,882,984  |          |           |            | 5,544,220  | 
|                                    
|                                    
|                                    
|                                    
|LONG-TERM DEBT, less current portion |                                                                                          |                                            | 6,500,000 |             |            |          | 8,333,333 |           
|                                     |                                                                                          |                                            |           |             |            |          |           |           
|                                     |                                                                                          | Total liabilities                          |           |             | 14,382,984 |          |           |            | 13,877,553 | 
|                                    
|                                    
|                                    
|                                    
|SHAREHOLDERS EQUITY:               
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, $.001 par value, 100,000,000 shares
authorized and 7,414,156 shares issued |                                            |           | 7,415       |            |          |           | 7,248      |           
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid in capital                                                               |                                            |           | 12,374,961  |            |          |           | 13,387,560 |           
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated unrealized holding (losses), net of deferred taxes                           |                                            |           | (15,651     | )          |          |           | (191,383   | )         
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred compensation                                                                    |                                            |           | (46,961     | )          |          |           | (1,674,387 | )         
|                                    
|                                    
|                                    
|                                    
|                                     | Retained (deficit) earnings                                                              |                                            |           | (6,412,889  | )          |          |           | 6,446,379  |           
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock held in treasury, at cost (207,558 shares)                                  |                                            |           | (337,282    | )          |          |           |           |           
|                                     |                                                                                          |                                            |           |             |            |          |           |           
|                                     |                                                                                          | Total shareholders equity                 |           |             | 5,569,593  |          |           |            | 17,975,417 | 
|                                     |                                                                                          |                                            |           |             |            |          |           |           
|                                     |                                                                                          | Total liabilities and shareholders equity |           | $           | 19,952,577 |          |           | $          | 31,852,970 | 
|                                     |                                                                                          |                                            |           |             |            |          |           |           



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##### Table of Contents









VENTURE CATALYST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
(Unaudited)

|                                            |                                                                |   |            |            |      |   |          |           |  
|------------------------------------------- | -------------------------------------------------------------- | - | ---------- | ---------- | ---- | - | -------- | --------- | -
|                                            |                                                                |   | 2001       |            | 2000
|                                            |                                                                |   |            |            |     
|REVENUES:                                  
|                                           
|                                           
|                                           
|                                           
|                                            | Client services                                                |   | $          | 77,477     |      |   | $        | 3,493,665 |  
|                                           
|                                           
|                                           
|                                           
|OPERATING EXPENSES:                        
|                                           
|                                           
|                                           
|                                           
|                                            | Cost of revenues                                               |   |            | 1,742,144  |      |   |          | 1,134,799 |  
|                                           
|                                           
|                                           
|                                           
|                                            | General and administrative expenses                            |   |            | 1,377,159  |      |   |          | 1,941,686 |  
|                                           
|                                           
|                                           
|                                           
|                                            | Restructuring expenses and related asset impairment            |   |            |           |      |   |          |          |  
|                                           
|                                           
|                                           
|                                           
|                                            | Amortization of intangible assets and stock based
compensation |   |            | 193,279    |      |   |          | 549,023   |  
|                                            |                                                                |   |            |            |      |   |          |          
|                                            | Operating expenses                                             |   |            | 3,312,582  |      |   |          | 3,625,508 |  
|                                            |                                                                |   |            |            |      |   |          |          
|                                            | Operating loss                                                 |   |            | (3,235,105 | )    |   |          | (131,843  | )
|                                           
|                                           
|                                           
|                                           
|OTHER INCOME (EXPENSE):                    
|                                           
|                                           
|                                           
|                                           
|                                            | Interest income                                                |   |            | 126,836    |      |   |          | 118,528   |  
|                                           
|                                           
|                                           
|                                           
|                                            | Interest expense                                               |   |            | (208,876   | )    |   |          | (237,840  | )
|                                           
|                                           
|                                           
|                                           
|                                            | Other (losses)                                                 |   |            | (641,176   | )    |   |          |          |  
|                                            |                                                                |   |            |            |      |   |          |          
|                                            | Other (expense)                                                |   |            | (723,216   | )    |   |          | (119,312  | )
|                                            |                                                                |   |            |            |      |   |          |          
|(Loss) before income taxes                  |                                                                |   | (3,958,321 | )          |      |   | (251,155 | )        
|                                            |                                                                |   |            |            |      |   |          |          
|Income tax (benefit) provision              |                                                                |   | (1,676,472 | )          |      |   | 362,364  |          
|                                            |                                                                |   |            |            |      |   |          |          
|(Loss) from continuing operations           |                                                                |   | (2,281,849 | )          |      |   | (613,519 | )        
|                                           
|                                           
|                                           
|                                           
|Discontinued operations, net of taxes       |                                                                |   |           |            |      |   | 19,442   |          
|                                            |                                                                |   |            |            |      |   |          |          
|NET (LOSS)                                  |                                                                | $ | (2,281,849 | )          |      | $ | (594,077 | )        
|                                            |                                                                |   |            |            |      |   |          |          
|OTHER COMPREHENSIVE (LOSS) INCOME:         
|                                           
|                                           
|                                           
|                                           
|                                            | Unrealized (loss) gain on securities, net of tax               |   |            | (54,797    | )    |   |          | 869,542   |  
|                                            |                                                                |   |            |            |      |   |          |          
|COMPREHENSIVE (LOSS) INCOME                 |                                                                | $ | (2,336,646 | )          |      | $ | 275,465  |          
|                                            |                                                                |   |            |            |      |   |          |          
|Basic loss per share:                      
|                                           
|                                           
|                                           
|                                           
|                                            | (Loss) from continuing operations                              |   | $          | (.31       | )    |   | $        | (.11      | )
|                                           
|                                           
|                                           
|                                           
|                                            | (Loss) on discontinued operations, net of taxes                |   | $          |           |      |   | $        |          |  
|                                            |                                                                |   |            |            |      |   |          |          
|                                            | Net (loss) per share  basic                                   |   | $          | (.31       | )    |   | $        | (.11      | )
|                                            |                                                                |   |            |            |      |   |          |          
|Diluted loss per share:                    
|                                           
|                                           
|                                           
|                                           
|                                            | (Loss) from continuing operations                              |   | $          | (.31       | )    |   | $        | (.11      | )
|                                           
|                                           
|                                           
|                                           
|                                            | (Loss) on discontinued operations, net of taxes                |   | $          |           |      |   | $        |          |  
|                                            |                                                                |   |            |            |      |   |          |          
|                                            | Net (loss) per share  diluted                                 |   | $          | (.31       | )    |   | $        | (.11      | )
|                                            |                                                                |   |            |            |      |   |          |          
|Weighted average common shares outstanding:
|                                           
|                                           
|                                           
|                                           
|                                            | Basic                                                          |   |            | 7,296,540  |      |   |          | 5,464,690 |  
|                                            |                                                                |   |            |            |      |   |          |          
|                                            | Diluted                                                        |   |            | 7,296,540  |      |   |          | 5,464,690 |  
|                                            |                                                                |   |            |            |      |   |          |          



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##### Table of Contents



VENTURE CATALYST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine months Ended March 31,
(Unaudited)

|                                            |                                                                |   |             |             |      |   |            |            |  
|------------------------------------------- | -------------------------------------------------------------- | - | ----------- | ----------- | ---- | - | ---------- | ---------- | -
|                                            |                                                                |   | 2001        |             | 2000
|                                            |                                                                |   |             |             |     
|REVENUES:                                  
|                                           
|                                           
|                                           
|                                           
|                                            | Client services                                                |   | $           | 8,640,260   |      |   | $          | 9,252,126  |  
|                                           
|                                           
|                                           
|                                           
|OPERATING EXPENSES:                        
|                                           
|                                           
|                                           
|                                           
|                                            | Cost of revenues                                               |   |             | 5,866,837   |      |   |            | 3,921,141  |  
|                                           
|                                           
|                                           
|                                           
|                                            | General and administrative expenses                            |   |             | 5,888,557   |      |   |            | 5,373,979  |  
|                                           
|                                           
|                                           
|                                           
|                                            | Restructuring expenses and related asset impairment            |   |             | 6,998,931   |      |   |            |           |  
|                                           
|                                           
|                                           
|                                           
|                                            | Amortization of intangible assets and stock based
compensation |   |             | 935,893     |      |   |            | 1,105,565  |  
|                                            |                                                                |   |             |             |      |   |            |           
|                                            | Operating expenses                                             |   |             | 19,690,218  |      |   |            | 10,400,685 |  
|                                            |                                                                |   |             |             |      |   |            |           
|                                            | Operating loss                                                 |   |             | (11,049,958 | )    |   |            | (1,148,559 | )
|                                           
|                                           
|                                           
|                                           
|OTHER INCOME (EXPENSE):                    
|                                           
|                                           
|                                           
|                                           
|                                            | Interest income                                                |   |             | 412,212     |      |   |            | 386,794    |  
|                                           
|                                           
|                                           
|                                           
|                                            | Interest expense                                               |   |             | (595,974    | )    |   |            | (671,173   | )
|                                           
|                                           
|                                           
|                                           
|                                            | Other (losses)                                                 |   |             | (2,943,182  | )    |   |            |           |  
|                                            |                                                                |   |             |             |      |   |            |           
|                                            | Other (expense)                                                |   |             | (3,126,944  | )    |   |            | (284,379   | )
|                                            |                                                                |   |             |             |      |   |            |           
|(Loss) before income taxes                  |                                                                |   | (14,176,902 | )           |      |   | (1,432,938 | )         
|                                            |                                                                |   |             |             |      |   |            |           
|Income tax (benefit)                        |                                                                |   | (1,317,634  | )           |      |   | (64,250    | )         
|                                            |                                                                |   |             |             |      |   |            |           
|(Loss) from continuing operations           |                                                                |   | (12,859,268 | )           |      |   | (1,368,688 | )         
|                                           
|                                           
|                                           
|                                           
|Discontinued operations, net of taxes       |                                                                |   |            |             |      |   | (123,038   | )         
|                                            |                                                                |   |             |             |      |   |            |           
|NET (LOSS)                                  |                                                                | $ | (12,859,268 | )           |      | $ | (1,491,726 | )         
|                                            |                                                                |   |             |             |      |   |            |           
|OTHER COMPREHENSIVE (LOSS) INCOME:         
|                                           
|                                           
|                                           
|                                           
|                                            | Unrealized (loss) gain on securities, net of tax               |   |             | (15,651     | )    |   |            | 1,115,577  |  
|                                            |                                                                |   |             |             |      |   |            |           
|COMPREHENSIVE (LOSS)                        |                                                                | $ | (12,874,919 | )           |      | $ | (376,149   | )         
|                                            |                                                                |   |             |             |      |   |            |           
|Basic loss per share:                      
|                                           
|                                           
|                                           
|                                           
|                                            | (Loss) from continuing operations                              |   | $           | (1.75       | )    |   | $          | (.27       | )
|                                           
|                                           
|                                           
|                                           
|                                            | (Loss) on discontinued operations, net of taxes                |   | $           |            |      |   | $          | (.03       | )
|                                            |                                                                |   |             |             |      |   |            |           
|                                            | Net (loss) per share  basic                                   |   | $           | (1.75       | )    |   | $          | (.30       | )
|                                            |                                                                |   |             |             |      |   |            |           
|Diluted loss per share:                    
|                                           
|                                           
|                                           
|                                           
|                                            | (Loss) from continuing operations                              |   | $           | (1.75       | )    |   | $          | (.27       | )
|                                           
|                                           
|                                           
|                                           
|                                            | (Loss) on discontinued operations, net of taxes                |   | $           |            |      |   | $          | (.03       | )
|                                            |                                                                |   |             |             |      |   |            |           
|                                            | Net (loss) per share  diluted                                 |   | $           | (1.75       | )    |   | $          | (.30       | )
|                                            |                                                                |   |             |             |      |   |            |           
|Weighted average common shares outstanding:
|                                           
|                                           
|                                           
|                                           
|                                            | Basic                                                          |   |             | 7,366,057   |      |   |            | 4,995,549  |  
|                                            |                                                                |   |             |             |      |   |            |           
|                                            | Diluted                                                        |   |             | 7,366,057   |      |   |            | 4,995,549  |  
|                                            |                                                                |   |             |             |      |   |            |           



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##### Table of Contents









VENTURE CATALYST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine months Ended March 31,
(Unaudited)

|                                                       |                                                                                             |                                                     |           |             |            |      |           |            |            |  
|------------------------------------------------------ | ------------------------------------------------------------------------------------------- | --------------------------------------------------- | --------- | ----------- | ---------- | ---- | --------- | ---------- | ---------- | -
|                                                       |                                                                                             |                                                     |           | 2001        |            | 2000
|                                                       |                                                                                             |                                                     |           |             |            |     
|Increase (decrease) in cash:                          
|                                                      
|                                                      
|                                                      
|                                                      
|Net cash provided by (used in) operating activities:  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net (loss)                                                                                  |                                                     | $         | (12,859,268 | )          |      | $         | (1,491,726 | )         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Depreciation and amortization                                                               |                                                     |           | 1,380,912   |            |      |           | 1,084,880  |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Provision for bad debts                                                                     |                                                     |           | 249,234     |            |      |           | 128,834    |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Deferred taxes                                                                              |                                                     |           | (169,060    | )          |      |           | (278,232   | )         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Equity and convertible notes received for services                                          |                                                     |           | (293,823    | )          |      |           | (143,398   | )         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Write-off of assets classified as other assets                                              |                                                     |           | 10,101      |            |      |           | 80,000     |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Loss on disposal of assets, net                                                             |                                                     |           | 517,596     |            |      |           |           |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Loss on impairment of intangible assets                                                     |                                                     |           | 5,366,919   |            |      |           |           |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Amortization of stock based compensation                                                    |                                                     |           | (103,374    | )          |      |           | 376,494    |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Due from Barona Tribe  expansion project                                                   |                                                     |           | 2,000,000   |            |      |           | (3,110,000 | )         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Loss on impairment of investments                                                           |                                                     |           | 3,585,910   |            |      |           |           |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Changes in operating assets and liabilities                                                 |                                                     |           | 1,226,670   |            |      |           | (2,085,594 | )         
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|                                                       |                                                                                             | Net cash provided by (used in) operating activities |           |             | 911,817    |      |           |            | (5,438,742 | )
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|Cash flows provided by (used in) investing activities:
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Release of restricted cash                                                                  |                                                     |           | 1,522,460   |            |      |           |           |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Investment in convertible notes, net of payments                                            |                                                     |           | (137,024    | )          |      |           |           |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Purchase of furniture and equipment                                                         |                                                     |           | (402,705    | )          |      |           | (211,422   | )         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Payment on restricted investment                                                            |                                                     |           | 395,812     |            |      |           | 100,000    |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Payment of loans, net of issuances                                                          |                                                     |           | 29,277      |            |      |           | 17,670     |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Cash paid for acquisitions                                                                  |                                                     |           |            |            |      |           | (341,005   | )         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Purchase of available-for-sale securities                                                   |                                                     |           |            |            |      |           | (1,036,000 | )         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Purchase of other intangible assets                                                         |                                                     |           |            |            |      |           | (100,000   | )         
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|                                                       |                                                                                             | Net cash (used in) provided by investing activities |           |             | 1,407,820  |      |           |            | (1,570,757 | )
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|Cash flows (used in) provided by financing activities:
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Proceeds from exercise of stock options                                                     |                                                     |           |            |            |      |           | 3,588,825  |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Repurchase of common stock                                                                  |                                                     |           | (337,282    | )          |      |           |           |           
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Payment of notes payable                                                                    |                                                     |           | (977,150    | )          |      |           | 400,000    |           
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|                                                       |                                                                                             | Net cash (used in) provided by financing activities |           |             | (1,314,432 | )    |           |            | 3,188,825  |  
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|                                                       |                                                                                             | Net increase (decrease) in cash                     |           |             | 1,005,205  |      |           |            | (3,820,674 | )
|                                                      
|                                                      
|                                                      
|                                                      
|Cash at beginning of period                            |                                                                                             |                                                     | 4,766,743 |             |            |      | 9,285,928 |           
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|Cash at end of period                                  |                                                                                             | $                                                   | 5,771,948 |             |            | $    | 5,465,254 |           
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|Supplemental disclosures of cash flow information:    
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Interest expense paid                                                                       |                                                     | $         | 373,220     |            |      | $         | 712,686    |           
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           
|                                                       | Income taxes paid                                                                           |                                                     | $         |            |            |      | $         | 1,032,500  |           
|                                                       |                                                                                             |                                                     |           |             |            |      |           |           



6





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##### Table of Contents









VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

1. The Company.

Venture Catalyst Incorporated (VCAT) is a leading service provider, offering
gaming consulting, infrastructure, and technology integration to the California
Native American gaming market.

During fiscal 2001, VCAT realigned its operations to focus solely on the gaming
industry. In connection with this decision VCAT eliminated numerous positions,
comprising approximately three-quarters of its employees, and closed its
facilities in Los Angeles, Orange County and Phoenix. Additionally, VCAT is in
the process of relocating its corporate headquarters, located in San Diego, to
a smaller facility.

2. Discontinued Operations.

In March 1998, VCAT established a wholly-owned subsidiary, Worldwide Media
Holdings, N.V., a Curacao, Netherland Antilles corporation (WMH). WMH
was formed to provide comprehensive marketing, advertising, technical and
distribution services for Internet related gaming businesses. In February
2000, the Board of Directors of VCAT adopted a plan to discontinue the
Internet gaming consulting business. Operations ceased as of March 31,
2000, and WMH was liquidated in December 2000.

3. Basis of Presentation of Interim Consolidated Financial Information.

The accompanying interim unaudited consolidated financial statements have been
prepared by VCAT and its subsidiaries, DayPlan.com, Inc. (DayPlan) and WMH,
in conformity with generally accepted accounting principles for interim
financial information and with the rules and regulations of the U.S. Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. The interim unaudited consolidated financial statements reflect
all normal, recurring adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. The interim unaudited
consolidated financial statements should be read in conjunction with VCATs
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2000. Certain
items in the prior year financial statements have been reclassified to conform
to the current year presentation. Current and future financial statements may
not be directly comparable to VCATs historical financial statements. The
results of operations for the interim period are not necessarily indicative of
the results to be expected for the full year.

4. Barona Consulting Agreement.

VCAT has provided services to the Barona Band of Mission Indians and its
affiliates (the Barona Tribe) since 1991. Consulting services are
provided in accordance with the terms and conditions of an Amended and
Restated Consulting Agreement (the Amended and Restated Consulting
Agreement). During February 1998, Modification #1 to the Amended and
Restated Consulting Agreement (the Modification) extended the term by an
additional 60 months. Unless otherwise stated, the Amended and Restated
Consulting Agreement, as amended by the Modification, shall be referred to
as the Barona Consulting Agreement. The Barona Consulting Agreement
expires in March 2004.



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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

In March 1996, the Barona Tribe submitted the Initial Consulting Agreement
(a predecessor agreement to the Amended and Restated Consulting Agreement)
to the National Indian Gaming Commission (the NIGC). In May 1996, the
NIGC determined that the Initial Consulting Agreement was not a management
agreement and, therefore, not subject to NIGC approval, and forwarded such
agreement to the Bureau of Indian Affairs (the BIA). In July 1997, the
BIA reviewed the Initial Consulting Agreement and determined that no
further action by it with respect to such agreement was required. The
NIGC conducted an investigation of the past relationship between the
Barona Tribe and VCAT that resulted in a January 1997 settlement
agreement.

In January 1997, VCAT submitted the Amended and Restated Consulting
Agreement to the NIGC. In April 1997, VCAT received a letter from the
NIGC declining to conclude the Amended and Restated Consulting Agreement
was not a management agreement. The letter stated that additional review
would be necessary to make such a determination. In March 1999, the NIGC
started a preliminary review of the relationship between the Barona Tribe
and VCAT, which has included a review of the Barona Consulting Agreement.
In September 1999, VCAT submitted the Modification to the NIGC. This
review is currently pending.

VCAT believes that the Barona Consulting Agreement is not a management
agreement, based on (a) the May 1996 and July 1997 determinations of the NIGC
and BIA, respectively, with respect to the Initial Consulting Agreement, (b)
the NIGCs findings in the January 1997 settlement agreement and (c) the nature
of the relationship between the Barona Tribe and VCAT. However, there is no
assurance that the NIGC will determine that the Barona Consulting Agreement is
not a management agreement, and failure to do so could have a material adverse
effect on VCATs business and financial condition. If the NIGC concludes that
the Barona Consulting Agreement is not a management agreement, the NIGC will
forward such Agreement to the BIA for its review. If the BIA determines that
its approval is required, there can be no assurance that the BIA will approve
the Barona Consulting Agreement, and failure to approve such agreement may have
a material adverse effect on VCATs business and financial condition.

5. Tribal-State Compacts.

In September 1999, the Governor of the State of California entered into new
Tribal-State Compacts with over 50 Indian tribes, including the Barona Tribe
(the Barona Compact). In May 2000, the Barona Compact was approved by the
U.S. Secretary of the Interior and the approval was published in the Federal
Register. The Barona Compact replaces the prior Tribal-State Compact with the
Barona Tribe. VCAT believes the Barona Compact ended a significant amount of
uncertainty and concern about the future of gaming activities at the Barona
Casino.

6. Due from Barona Tribe  Expansion Project.

The Barona Tribe is in the development stage of an approximately $225,000,000
expansion project. VCAT is assisting the Barona Tribe in obtaining outside
financing for the project. VCAT plans to share in funding the expansion costs
incurred with the Barona Tribe prior to the time that the Barona Tribe obtains
all such outside financing. VCAT advanced an aggregate of $9,685,000, of a
commitment of up to $10,000,000, as an unsecured, non-interest-bearing advance
to the Barona Tribe, of which $7,685,000 remained outstanding as of March 31,
2001. These advances are accounted for as a receivable from the Barona Tribe
to VCAT. In January 2000, the Barona Tribe obtained approximately $19,000,000
in outside financing from the issuance of tax-exempt bonds, primarily for the
golf course development. In May 2000, the Barona Tribe obtained $30,000,000 in
outside financing from an equipment vendor for gaming machines, systems,
furniture and technologies. In October 2000, the Barona



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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

Tribe received a 120-day bridge loan from two banks in the amount of
$30,000,000 to finance the expansion and the related obligations, prior to them
obtaining the remaining outside financing of approximately $175,000,000 (the
Permanent Financing). In February 2001, the bridge loan was extended to June
30, 2001, and increased by $30,000,000 to a total of $60,000,000. The bridge
loan will be repaid out of the Permanent Financing. The Barona Tribe used
$2,000,000 of the bridge loan to repay VCAT for advances made in connection
with the expansion project. Payment of the remaining receivable of $7,685,000
is expected to occur when the Barona Tribe obtains the Permanent Financing,
which is expected to be during calendar 2001, unless VCAT is in a cash position
that would allow the Barona Tribe to retain the remaining advanced funds for
use in its operations during the expansion. If the advances are not repaid
when the Barona Tribe obtains the Permanent Financing, they would be payable
upon terms agreed to between VCAT and the Barona Tribe at that time.

7. Acquisitions.

In August 1998, VCAT acquired all of the outstanding capital stock of
Cyberworks, Inc. (Cyberworks) in exchange for shares of common stock and
$500,000 in cash. In January 2000, VCAT acquired all outstanding shares of
capital stock of webinc, Inc. (webinc) in exchange for 6,884 shares of common
stock and $20,000 in cash. In March 2000, VCAT acquired all of the outstanding
shares of capital stock of CTInteractive, Inc. (CTI) in exchange for 230,474
shares of common stock and $300,000 in cash. In August 2000, VCAT sold the
Cyberworks Internet domain names for $1,000,000 and agreed to cease using the
business name. In September 2000, the operations of Cyberworks, webinc and CTI
were merged into VCAT.

In July 2000, VCAT acquired all of the outstanding shares of capital stock
of DayPlan, a software company offering a complete web-based scheduling
platform, in exchange for 175,000 shares of common stock. DayPlan is a
wholly-owned subsidiary of VCAT. In April 2001, VCAT decided to
discontinue the operations of DayPlan and is currently trying to sell this
operation.

During fiscal 2001, VCAT realigned its operations to focus all business
activities solely on the gaming industry. This decision resulted in the
elimination of approximately three-quarters of its employees, most of whom
were in the Internet and Technology divisions, and a transition of all
non-gaming clients to other service providers. During the period ending
December 31, 2000, in connection with the restructuring, VCAT fully
reduced the carrying value of the remaining goodwill associated with the
above acquisitions.

8. Cash and Cash Equivalents

For purposes of the balance sheet and the statement of cash flows, cash
equivalents include time deposits and all highly liquid debt instruments with
original maturities of three months or less. VCAT maintains its cash in bank
deposit and checking accounts that, at times, may exceed Federally insured
limits. To date VCAT has not experienced any losses in such accounts. VCAT
cash equivalents consist primarily of commercial paper, certificates of
deposits, bankers acceptances and U.S. treasury securities with maturities
ranging from one to three months.



9





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##### Table of Contents



VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

9. Business Concentration.

Historically, a significant portion of VCATs revenue, and currently,
substantially all of its revenue, is earned from its primary client, the Barona
Tribe. For the three months ended March 31, 2001 and 2000, the revenues from
the Barona Tribe were $0, or 0% of the total revenues, and $2,453,000, or 70%
of the total revenues, respectively. For the nine months ended March 31, 2001
and 2000, the revenues from the Barona Tribe were $6,869,000, or 80% of the
total revenues, and $6,674,000, or 72% of the total revenues, respectively.

10. Held-to-Maturity Investments and Restricted Cash.

From June 1996 to May 1997, VCAT provided consulting services to the Klamath
and Modoc Tribes and the Yahooskin Band of Snake Indians (collectively, the
Klamath Tribes). The Klamath Tribes constructed the Kla-Mo-Ya Casino near
Chiloquin, in south central Oregon, a gaming facility funded by revenue bonds
issued by the Klamath Tribes. In connection with such bond financing, at the
beginning of this fiscal year, VCAT had a net investment of $396,000 in revenue
bonds with a principal face amount of $400,000. As a condition of the bond
financing, VCAT agreed to hold the bonds for a five-year period. In addition,
pre-opening costs and expenses of approximately $1,500,000 were financed by
loans made pursuant to a third-party bank credit agreement with the Klamath
Tribes. VCAT pledged a certificate of deposit for $1,518,000 as collateral for
such loans. In October 2000, the Klamath Tribes refinanced their outstanding
debt, which defeased the bonds and released the certificate of deposit. In
December 2000, the Klamath Tribes redeemed bonds held by the Company with a
face amount of $105,000. In March 2001, the Company sold the remaining bonds
for $302,000.

Additionally, VCAT issued an irrevocable letter of credit for $133,000 to
satisfy the terms of our corporate office lease agreement. Such letter of
credit automatically renews on an annual basis through October 31, 2002 unless
canceled by the lessor.

11. Available-for-Sale Securities.

At March 31, 2001, available-for-sale securities consist of equity securities
carried at fair value and based on quoted market prices. Additionally, VCAT
holds equity securities of companies for which no established trading market
existed at March 31, 2001. These securities are stated at cost less any deemed
impairment. On an ongoing basis, VCAT reviews the valuation and recoverability
of the investments and expenses any portion of the securities determined
necessary for fair statement.

Available-for-sale securities with quoted market prices on March 31, 2001
consist of investments in:



| |  |  | CraftClick.com, Inc.         
| | - |  | -----------------------------
|
| |  |  | clickNsettle.com, Inc.       
|
| |  |  | Ultrexx Corporation          
|
| |  |  | Predict It, Inc.             
|
| |  |  | WorldNet Resource Group, Inc.
|
| |  |  | TheBigHub.com, Inc.          

Collectively, these securities had a carrying value of $4,000 at March 31,
2001. During the three months ended March 31, 2001, VCAT recorded a $130,000
loss to fully reduce the carrying value of our investment



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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

in Ultrexx and a $17,500 loss recorded to fully reduce the carrying value of
our investment in WorldNet
Resource Group, Inc., as both companies have been unable to secure necessary
additional financing.

During the three months ended December 31, 2000, VCAT recorded a $64,000 loss
to fully reduce the carrying value of our investment in TheBigHub.com, Inc.
(BHUB). During the three months ended September 30, 2000, there was a
$1,119,000 loss recorded to fully reduce the carrying value of our investment
in CraftClick.com, Inc. and a $1,400,000 loss recorded to fully reduce the
carrying value of our investment in Predict It, Inc. All of the above
companies have been unable to secure necessary additional financing.
Available-for-sale securities with no established market prices at March 31,
2001 consist of investments in:



| |  |  | Senscom, Inc.           
| | - |  | ------------------------
|
| |  |  | Idealab                 
|
| |  |  | companyfinance.com, Inc.
|
| |  |  | Bullet Point News Inc.  
|
| |  |  | Watchnet, Inc.          
|
| |  |  | eFresh Incorporated     
|
| |  |  | Seatadvisor, Inc.       
|
| |  |  | Invigo, Inc.            
|
| |  |  | Brand Equity, Inc.      

These investments had a net carrying value of $550,000 at March 31, 2001.
During the three months ended December 31, 2000, there was a $340,000 loss
recorded to fully reduce the carrying value of our investment in eFresh
Incorporated ($200,000), Senscom, Inc. ($100,000), and Bullet Point News, Inc.
($40,000), as they have been unable to secure necessary additional financing.
During the three months ended September 30, 2000, there was a $76,000 loss
recorded to fully reduce the carrying value of our investment in Invigo, Inc.,
as they were unable to secure necessary additional financing.

During fiscal 2000 the carrying value of our investment in KINeSYS
Pharmaceutical, Inc. (KINeSYS) was fully reduced. In January 2001, VCAT
agreed to exchange shares of KINeSYS and to convert an outstanding KINeSYS
receivable, which was previously reserved for, for shares of Brand Equity,
Inc., a company formed by the two principals of KINeSYS. They have acquired
the assets and most of the liabilities of KINeSYS, and are operating
essentially the same business.

An unrealized holding loss of $27,000, net of deferred income taxes of $12,000,
has been reflected in the equity section of the consolidated balance sheet
based on the change in market value or carrying value of the available-for-sale
securities from dates of acquisition to March 31, 2001. Additionally, VCAT
holds securities, in the form of options, in the following companies:



| |  |  | CraftClick.com, Inc.         
| | - |  | -----------------------------
|
| |  |  | Entertainment Boulevard, Inc.
|
| |  |  | companyfinance.com, Inc.     

These securities were given to us as inducements to enter service agreements or
for membership on an advisory board. Such securities have no established cost
basis and were determined to have minimal value, due to the significant price
premium over market price at the time of grant, and the limited operating
history for these companies. VCAT will continue to monitor the operations of
the companies and the valuation of these securities, and will establish a fair
value and record an unrealized gain (loss), if deemed appropriate.



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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

12. Convertible Notes.

As of March 31, 2001, VCAT had a net investment of $54,000 in Watchnet, Inc.,
FastestLink, Inc., Asquare Communications, Inc., Rapidcare.com, Inc., and
simplegov.com, Inc. in the form of convertible notes. The notes were received
for cash investments VCAT made in the companies or as payment for services.
The notes are convertible into equity at any time or payable at maturity (as
may be accelerated), pursuant to the terms and conditions of the notes. The
notes accrue interest at rates ranging from 8% to 10%, and have maturity dates
ranging from April 2001 to March 2002. During the three months ended March 31,
2001, there was a $104,000 loss recorded to fully reduce the carrying value of
the note due from Asquare Communications, as they have been unable to secure
necessary additional funding. During the three months ended December 31, 2000,
there was a $52,000 loss recorded to fully reduce the carrying value of a note
due from Fastestlink, Inc., as the company has been dissolved and has
transferred its assets to VCAT. Additionally, VCAT recorded a loss of $107,000
for notes due from simplegov.com, as they have been unable to secure necessary
additional funding. During the three months ended September 30, 2000, there
was a $307,000 bad-debt reserve recorded and a $150,000 loss recorded for the
notes due from Rapidcare.com, Inc., as they were unable to raise necessary
additional funds. Additionally, there was a $80,000 loss recorded for a note
due from CTCK. However, during the three months ended December 31, 2000, CTCK
secured sufficient additional funding to repay its note that matured during the
period.

Each of the companies are at the early development stage and there can be no
assurance that they will be able to obtain the financing or develop the
operations necessary to be successful or repay the notes. If more or all of
the companies cannot obtain the necessary financing to continue to develop
their businesses, there could be additional adverse effects on VCATs financial
performance, as VCAT will continue to record losses in connection with the
impairment of value of these assets.

13. Segment Reporting.

During fiscal 2000, in connection with our plan to leverage our service
capabilities and expand our client base, VCAT changed the way it managed its
business and consolidated its operations into service groups that were combined
into one reportable segment. All service groups were consolidated into the
client services business segment, and are now being reported under Client
Services. In September 2000, the Company merged three of its wholly-owned
subsidiaries, Cyberworks, CTI and webinc, into VCAT. During fiscal 2001, VCAT
realigned its operations to focus solely on the gaming industry. Accordingly,
VCAT does not consider segment reporting to be relevant and has discontinued
such reporting.

14. Net Loss Per Share.

Below is the reconciliation of the components of the calculation of basic and
diluted net loss per share for the time periods indicated:

|                                              |  |                      |             |                     |  |      |           |      |  |  |              |   |  |  |             |  
|--------------------------------------------- |  | -------------------- | ----------- | ------------------- |  | ---- | --------- | ---- |  |  | ------------ | - |  |  | ----------- | -
|                                              |  | For the Three Months |             | For the Nine months
|                                              |  | ended March 31,      |             | ended March 31,    
|                                              |  |                      |             |                    
|                                              |  | 2001                 |             | 2000                |  | 2001 |           | 2000
|                                              |  |                      |             |                     |  |      |           |     
|Net (loss) available to common shareholders   |  |                      | ($2,281,849 | )                   |  |      | ($594,077 | )    |  |  | ($12,859,268 | ) |  |  | ($1,491,726 | )
|                                              |  |                      |             |                     |  |      |           |      |  |  |              |   |  |  |             |  
|Weighted average shares outstanding  basic   |  |                      | 7,296,540   |                     |  |      | 5,464,690 |      |  |  | 7,366,057    |   |  |  | 4,995,549   |  
|                                             
|                                             
|                                             
|                                             
|Effect of stock options                       |  |                      |            |                     |  |      |          |      |  |  |             |   |  |  |            |  
|                                              |  |                      |             |                     |  |      |           |      |  |  |              |   |  |  |             |  
|Weighted average shares outstanding 
diluted |  |                      | 7,296,540   |                     |  |      | 5,464,690 |      |  |  | 7,366,057    |   |  |  | 4,995,549   |  
|                                              |  |                      |             |                     |  |      |           |      |  |  |              |   |  |  |             |  



12





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VENTURE CATALYST INCORPORATED
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001

At March 31, 2001, options to purchase 7,620,471 shares of VCATs common stock,
at prices ranging from $1.00 to $12.50 per share, were not included in the
computation of diluted EPS because they were anti-dilutive for that purpose.
The options, which expire on various future dates through February 2011, were
still outstanding at March 31, 2001.

15. Stock Options.

The following table summarizes stock option activity under the 1994 Plan, the
1995 Plan and the 1996 Plan (collectively the Plans) for the nine months
ended March 31, 2001:

|                               |           |  |             |            |           |              |              
|------------------------------ | --------- |  | ----------- | ---------- | --------- | ------------ | -------------
|                               |           |  |             | Options    |           |              | Options Price
|                               |           |  | Outstanding |            | Per Share
|                               |           |  |             |            |          
|Outstanding, beginning of year |           |  | 8,220,659   |            |           | $1.00$12.50 |              
|                              
|                              
|                              
|                              
|                               | Granted   |  |             | 2,572,000  |           |              | $1.31$2.41  
|                              
|                              
|                              
|                              
|                               | Exercised |  |             |           |           |              |             
|                              
|                              
|                              
|                              
|                               | Cancelled |  |             | (3,172,188 | )         |              | $1.09$12.50 
|                               |           |  |             |           
|Outstanding, ending balance    |           |  | 7,620,471   |            |           | $1.00$12.50
|                               |           |  |             |           

16. Restructuring Expenses and Related Asset Impairment.

During fiscal 2001, VCAT restructured its business and realigned its operations
to focus solely on the gaming industry. As a result, VCAT eliminated
approximately three-quarters of its workforce. VCAT recorded expenses and
related asset impairment charges of $6,999,000 during fiscal 2001, in
connection with its restructuring plan, consisting of:



| |  |  | Approximately $635,000 for rent, sub-lease, leasehold improvement
obligations, and related facility expenses for offices that were
closed due to the reduction in workforce. Approximately $150,000 is
for related facility expenses, and $102,000 is for leasehold
improvements and related obligations. The remaining $383,000 relates
to the estimated future lease expense for which the company will
receive no benefit.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Approximately $628,000 for severance obligations in connection with
the reduction in the companys workforce.                                                                                                                                                                                                                                                                                                                
|
| |  |  | Approximately $5,367,000 for the impairment of goodwill and
intangibles relating to acquired businesses that focused on non-gaming
clients and industries. This consists of goodwill associated with
Cyberworks, CTI, DayPlan and webinc.                                                                                                                                                                                    
|
| |  |  | Approximately $369,000 for various other expenses and asset write-offs
related to the restructuring plan.                                                                                                                                                                                                                                                                                                                    



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|        |  |                                                          
|------- |  | ---------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

VCAT is a leading service provider of gaming consulting, infrastructure and
technology integration in the California Native American gaming market. We act
as a critical resource partner and have our central mission in growing client
top line and bottom line revenues at an increasing rate.

In connection with our plan to leverage our service capabilities and expand our
client base, we changed the way we manage our business and consolidated our
operations into service groups that were combined into one business segment.
All services are consolidated into the client services business segment, and
are reported under Client Services. Additionally, during the third quarter of
fiscal 2000 we decided to discontinue our Internet gaming consulting business
and liquidate our wholly-owned subsidiary WMH. The operations of that business
are reported as Discontinued Operations.

Revenues from our largest client, the Barona Tribe constitute a significant
portion of our total revenues and the revenues we earn from the Barona Tribe
may fluctuate significantly from quarter to quarter. Revenues from the Barona
Tribe are likely to be all of our revenues in the immediate future. In
addition, our revenues and earnings have fluctuated from quarter to quarter
based on the number, size and scope of projects in which we are engaged, the
contractual terms and degree of completion of such projects, any delays
incurred in connection with a project, employee utilization rates, the adequacy
of provisions for losses, the use of estimates of resources required to
complete ongoing projects, the performance of the companies that we have
ownership positions in, general economic conditions and other factors.

During the three months ended December 31, 2000, VCAT experienced a significant
reduction in demand for our Internet and technology services. The weakening
condition or failure of many of the Internet-based dot-com companies caused
many of our clients to rethink or delay their Internet or technology strategy.
As a result, the number of projects decreased and the average amount of time
required by VCAT to secure any given project increased. Also, as a result in
part of the reduction in demand for these services, our revenues for the three
months ended December 31, 2000 were substantially lower than the three prior
quarters. In response to the reductions in demand and revenue for technology
and Internet services VCAT adopted a restructuring plan designed to reduce our
costs, in an effort to bring our expenses in line with lower revenues.

During the period ended March 31, 2001, we received no revenue from the Barona
Tribe and expect our revenues from the Barona Tribe through December 31, 2001,
to be below historical levels. As a result of potential decreases in revenues
from the Barona Tribe, we expanded our cost reduction plan during the third
quarter of fiscal 2001. The plan has included significant personnel
reductions, consolidation of positions throughout the Company at all levels and
significant reductions in overhead and capital expenditures, as well as the
transition of all non-gaming clients. We will continue to monitor and
restructure our operations in light of the rapidly changing market conditions
and our revenue expectations from the Barona Tribe. As a result of the
restructuring and employee terminations, it may prove increasingly difficult
for us to attract and retain our most qualified employees. The failure to
attract and retain qualified creative, technical and consulting personnel could
materially and adversely affect our financial condition and results of
operations. As part of the restructuring, we consolidated our office locations
into our San Diego headquarters, which we are in the process of moving to a
smaller facility.

Client Services

We provide to gaming clients various services, including infrastructure,
technology integration, casino floor layout, public and governmental relations,
marketing, strategic planning, and professional and technical expertise. Our
objective is to make our clients money by working with them during every stage
of their development and financial growth. In connection with the
implementation of our strategy, we have in the past, and in the future may,
make investments or take all or a portion of our fees in investments in our



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clients. However, we do not expect this to be a significant part of our
strategy going forward. We continually review our services to provide the
greatest value to our clients to help them achieve success.

We have provided these services to the Barona Tribe since 1991. We currently
provide consulting services to the Barona Tribe in connection with their
operation of the Barona Casino and their development of the Barona Valley
Ranch, which includes a championship golf course and a proposed resort hotel.
Our services are provided under the terms of the Consulting Agreement that
expires in March 2004. The consulting fees paid to us are based upon a net
profit formula that includes the Barona Casinos income and expenses.
Accordingly, although gross revenues of the Barona Casino may increase, our
consulting revenue may not correspondingly increase because expenses at the
Barona Casino also may increase.

From February 1992 through March 1996 we provided casino management services at
the Barona Casino pursuant to a management agreement with the Barona Tribe.
During that same period, all of the approximately $13,000,000 to purchase or
construct the fixed assets at the Barona Casino, such as buildings, equipment
and capital improvements, was contributed by us. Due in part to our investment
in the Barona Casino, the value of the Barona Casino has increased, which is
expected to enhance the fees that we may earn over the life of our relationship
with the Barona Tribe. We treat these investments as long-term assets, which
are recorded as deferred contract costs and are being amortized over the
remaining life of the Consulting Agreement. However, if the recoverability of
these assets is determined not to be probable, we will expense the unamortized
portion.

By 1996 the Barona Casino became financially self-sufficient and our
relationship with the Barona Tribe evolved from manager of the Barona Casino to
consultant to the Barona Tribe, which is managing the Barona Casino. Since our
transition from manager to consultant, there have been only two categories of
investments by us. The first category relates to commitments made to the
Barona Tribe, while we were acting as manager, pursuant to a management
agreement, of approximately $550,000, all of which has been paid. The second
category relates to a NIGC settlement with VCAT and the Barona Tribe.
Commencing in November 1996, we agreed to contribute an additional $2,000,000
to the Barona Tribe, and as of December 31, 2000, we had fully paid the
$2,000,000 contribution.

At this time, we have no plans to contribute additional funds or assets to the
Barona Casino or the Barona Tribe that will be classified as deferred contract
costs. However, we will continue to assist the Barona Tribe, from time to
time, in obtaining third party outside financing. See the discussion below
under the caption Liquidity and Capital Resources relating to our advance of
funds to the Barona Tribe in connection with the current expansion project.

In September 1999, the Governor of the State of California entered into new
Tribal-State Compacts with over 50 Federally recognized Indian tribes,
including the Barona Tribe. These compacts permit Federally recognized Indian
tribes to engage in broader forms of Class III gaming, including slot machines
and electronic video games, house-banked card games, percentage games and any
games the California Constitution authorizes the California lottery to offer.
In May 2000, the Barona Compact was approved by the U.S. Secretary of the
Interior and the approval was published in the Federal Register. The Barona
Compact replaces the prior Tribal-State Compact with the Barona Tribe. We
believe the Barona Compact ended a significant amount of uncertainty and
concern about the future of gaming activities at the Barona Casino.

In October 2000, we announced a planned joint venture with the Barona Tribe
that will focus on gaming technology introduction, implementation and related
services to other California tribal gaming clients. The terms of the venture
are still being documented.

In August 1998, we acquired Cyberworks, a web-site development and Internet
marketing company, to expand our Internet services. The operations of
Cyberworks were consolidated into VCAT. VCAT sold the Cyberworks Internet
domain names in August 2000 for $1,000,000 and agreed to cease using the
business name. This service was discontinued as part of our recent
restructuring.



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In July 1999, we expanded our services to include broader consulting services
to emerging and Internet businesses. We provided our spectrum of services to
public and private companies. In connection with this expansion we acquired
certain assets of Typhoon Capital Consulting, LLC, an investor relations and
business consulting firm. In September 2000, we stopped offering investor
relations services to third parties.

In January 2000, as part of our diversification strategy, we acquired all of
the outstanding shares of capital stock of webinc, a recently-organized
corporation whose business plan focused on consulting, incubation and venture
capital-related services to start-up and early stage companies focusing on
Internet infrastructure and technology. The operations of webinc were
consolidated into VCAT and these services have been discontinued.

In March 2000, we acquired CTI, a full-service technology management firm. The
operations of CTI were consolidated into VCAT. This service was discontinued
for non-gaming clients as part of our recent restructuring.

During fiscal 2001, VCAT restructured its operations to focus solely on the
gaming industry. In connection with this decision VCAT eliminated numerous
positions, comprising approximately three-quarters of its employees.

We have made, and will continue to make, significant investments in personnel
and resources to allow our business to grow within the Native American gaming
industry and to better position us to leverage our financial resources and
expertise. We plan to grow our business internally and possibly through
acquisitions. Additionally, we are seeking to build our portfolio of gaming
clients, which may involve acquiring ownership positions in exchange for both
cash and services, to the extent management deems appropriate to carry out our
strategic plans. We are continually evaluating and negotiating potential
acquisitions or investments in the gaming industry, none of which may come to
fruition or may not be material to our business as a whole. There can be no
assurance as to the completion or success of any acquisition or investment.

Vegas At Home

In July 1999, as an adjunct to our Internet gaming consulting business, we
launched the Vegas At Home portal web-site (www.vegasathome.com) to provide
both the gaming industry and its patrons with an online central location
containing a variety of gaming related products, merchandise, information and
links to most significant traditional casinos. We have shut down the site.
Vegas At Home did not generate any revenues.

DayPlan.Com

In July 2000, we acquired DayPlan, a software company offering a complete
web-based scheduling platform. In April 2001, we decided to discontinue
offering the services provided by DayPlan, and the operation is currently for
sale. DayPlan did not generate any revenues.

Discontinued Operations

In March 1998, we established WMH, a Netherland Antilles corporation, to
leverage our gaming business expertise. WMH offered comprehensive marketing,
advertising, technical and distribution services for Internet related gaming
businesses. In February 2000, our Board of Directors adopted a plan to
discontinue the Internet gaming consulting business and we liquidated WMH in
December 2000. Internet gaming consulting did not produce a material portion
of our revenues and was not profitable.



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Results of Operations

Three Months Ended March 31, 2001 Compared with the Three Months Ended March
31, 2000.

Revenues. Consolidated revenues from continuing operations decreased 98% to
$77,000 for the three months ended March 31, 2001 from $3,494000 for the three
months ended March 31, 2000.

We received no fees this quarter for services provided to the Barona Tribe,
which is a decrease of 100%, as compared to $2,453,000 earned during the same
period last year. Revenues were lower as a result of significant capital,
construction, marketing and pre-opening expenses incurred at its primary
clients facility, the Barona Casino. These expenses related to the recent
completion of Barona Casinos interim expansion, marked by the grand opening of
the StarDome and the introduction of all 2,000 Las Vegas style slot machines.

Revenues for services provided to clients other than the Barona Tribe decreased
93% to $77,000 from $1,041,000 earned during the same period last year. The
decrease was primarily due to a decrease in services performed to other clients
due to our recent decision to only provide services to Native American gaming
clients. The revenues earned during this period consist of final amounts
earned on projects we had committed to prior to this decision, and our revenues
from non-gaming clients are expected to be zero for the foreseeable future.

Cost of Revenues.Cost of revenues for continuing operations increased 54% to
$1,742,000 for the three months ended March 31, 2001 from $1,135,000 during the
same period last year. The increase was primarily attributable to increases
in: (a) client relations expenses, primarily attributable to the Barona Casino
gaming floor expansion and Barona Valley Ranch expansion; (b) costs of
providing consulting services related to advertising, marketing and promotion
of the Barona Casino; (c) fees to outside consultants incurred in connection
with our performance of services to the Barona Tribe; and (d) travel and
lodging expenses incurred in connection with our business development efforts
throughout California. These increases were partially offset by a decrease in
compensation and benefits.

General Operating and Administrative Expenses.General operating and
administrative expenses for continuing operations decreased 29% to $1,377,000
for the three months ended March 31, 2001 from $1,942,000 during the same
period last year. The decrease was primarily attributable to decreases in: (a)
compensation and benefits, resulting from the decrease in the number of
employees; (b) professional services, including outside consultants and legal
fees for general corporate matters; (c) bad debt expenses; and (d) political
contributions. These decreases were partially offset by an increase in
facility expenses.

Amortization of Intangible Assets and Stock Based Compensation.Amortization
of intangible assets and stock based compensation for continuing operations
decreased 65% to $193,000 for the three months ended March 31, 2001 from
$549,000 for the three months ended March 31, 2000. This decrease was a result
of the write-off of the remaining goodwill related to acquisitions of
Cyberworks, webinc, and CTI, which was previously being amortized to expense,
and a decrease in amortization of stock based compensation.

Other Income and Expense.For the three months ended March 31, 2001, interest
income was $127,000 compared to $119,000 for the three months ended March 31,
2000. The increase was due to larger balances in our investments and cash
equivalents during the period.

Interest expense decreased to $209,000 for the three months ended March 31,
2001 from $238,000 for the three months ended March 31, 2000, as a result of
the early retirement of certain notes payable to two shareholders, including a
former director of the Company, which arose out of the 1996 repurchase of
shares of our common stock held by them.



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Other income and expense during the quarter resulted in a net loss of $641,000,
primarily attributable to: (a) a $294,000 loss recorded to fully reduce the
carrying value of our tenant improvements at our corporate headquarters, which
we are in the process of relocating to a smaller facility; (b) a $130,000 loss
recorded to fully reduce the carrying value of our investment in Ultrexx, Inc.;
(c) a $104,000 loss recorded to fully reduce the carrying value of our
investment in Asquare Communications, Inc.; and (d) a $77,000 estimated loss on
asset disposals in connection with our restructuring and facility relocation.

Income Tax Provision.For the three months ended March 31, 2001, we recorded an
income tax benefit for continuing operations of $1,676,000, compared to a
$362,000 income tax expense recorded for the three months ended March 31, 2000.
The tax benefit is a result of net losses for tax purposes during the period.

Discontinued Operations.Operating results of the Internet gaming consulting
business through March 31, 2001 have been included in net results from
discontinued operations for the periods reported.

Nine months Ended March 31, 2001 Compared with the Nine months Ended March 31,
2000.

Revenues. Consolidated revenues from continuing operations decreased 7% to
$8,640,000 for the nine months ended March 31, 2001 from $9,252,000 for the
nine months ended March 31, 2000.

Revenues for services provided to the Barona Tribe increased 3% to $6,869,000
from $6,674,000 earned during the same period last year. The slight increase
is a result of significantly higher revenues at the Barona Casino, primarily
due to the increase in the number and type of gaming machines, offset by
increased expenses at the Barona Casino, attributable to the increased
operations and the ongoing expansion project.

Revenues for services provided to clients other than the Barona Tribe decreased
31% to $1,771,000 from $2,578,000 earned during the same period last year.
The decrease was primarily due to (a) a decrease in services performed to other
clients due to our recent decision to only provide services to Native American
gaming clients and (b) the reduction in demand for our Internet and Technology
services during the second quarter. The decrease was partially offset by an
increase in the scope of services offered and an increase in services performed
to additional and existing clients during the first quarter.

Cost of Revenues.Cost of revenues for continuing operations increased 50% to
$5,867,000 for the nine months ended March 31, 2001 from $3,921,000 during the
same period last year. The increase was primarily attributable to increases
in: (a) compensation and benefits, resulting from an increase in the average
number of employees during the nine month period in connection with the
expanded services we offered, increased payroll costs for existing employees,
and one-time expense accruals recorded for unused vacation; (b) client
relations expenses, primarily attributable to the Barona Casino gaming floor
expansion, the golf course development and external financing costs related to
the expansion that were paid by VCAT; (c) political contributions; (d)
expenses related to our gaming business development efforts and (e) cost of
sales, including equipment purchases and expenses billed to clients. These
increases were partially offset by a decrease in (a) legal fees and (b) payroll
taxes that, due to the option activity, were higher in the prior year.

General Operating and Administrative Expenses.General operating and
administrative expenses for continuing operations increased 10% to $5,889,000
for the nine months ended March 31, 2001 from $5,374,000 during the same period
last year. The increase was primarily attributable to increases in: (a)
facility expenses, attributable to the offices in Los Angeles and Orange
County; (b) bad-debt expense, which included reserves established for the
numerous investments in convertible notes of start-up Internet and technology
companies; (c) advertising and marketing expenses; and (d) compensation and
benefits, resulting from the increase in the average number of employees for
the nine month period, increased payroll costs for existing employees, and
one-time expense accruals recorded for unused vacation. These increases were
partially offset by a decrease in corporate legal expenses.



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Restructuring Expenses and Related Asset Impairment.The company incurred
$6,999,000 in restructuring expenses and related asset impairment charges
during the nine months ended March 31, 2001, in connection with the
restructuring of our business operations to focus solely on the gaming industry
and our decision to stop offering some of our services. These expenses consist
primarily of: (a) the impairment of goodwill and other intangibles relating to
acquisitions that focused on non-gaming clients and industries; (b) rent,
facility and sublease expenses, for offices that were closed due to the
restructuring; (c) severance costs in connection with the reductions in
workforce; and (d) other expenses and asset write-downs related to the
restructuring.

Amortization of Intangible Assets and Stock Based Compensation.Amortization
of intangible assets and stock based compensation for continuing operations
decreased 15% to $936,000 for the nine months ended March 31, 2001 from
$1,106,000 for the nine months ended March 31, 2000. This decrease was a
result of a decrease in amortization of stock based compensation, which was
partially offset by an increase in amortization of goodwill related to the
acquisitions of CTI and DayPlan. As of December 31, 2000, all of the goodwill
was fully written-off as part of the restructuring.

Other Income and Expense.For the nine months ended March 31, 2001, interest
income was $412,000 compared to $387,000 for the nine months ended March 31,
2000. This increase was due to higher average interest rates and larger
balances in our investments and cash equivalents during the period.

Interest expense decreased to $596,000 for the nine months ended March 31, 2001
from $671,000 for the nine months ended March 31, 2000, as a result of the
early retirement of certain notes payable to two shareholders, including a
former director of the Company, which arose out of the 1996 repurchase of
shares of our common stock held by them.

Other income and expense during the period resulted in a net loss of
$2,943,000, which included: (a) a $3,585,000 net loss recorded to fully reduce
the carrying value of our investments in the securities of numerous Internet
and technology companies, most of which were start-up companies; (b) a gain of
$1,000,000 for the sale of the certain intellectual properties, which included
the Cyberworks domain names; (c) a net loss on fixed asset disposals of
$370,000.

Income Tax Provision.For the nine months ended March 31, 2001, we recorded an
income tax benefit for continuing operations of $1,318,000, as compared to the
$64,000 income tax benefit recorded for the nine months ended March 31, 2000.
The tax benefit is a result of net losses for tax purposes during the period.

Discontinued Operations. Operating results of the Internet gaming consulting
business through March 31, 2000 have been included in net results from
discontinued operations for the periods reported.

Liquidity and Capital Resources

Our principal source of liquidity at March 31, 2001 consisted of unrestricted
cash and cash equivalents of $5,772,000. We believe that after the
restructuring our unrestricted cash, along with operations and accounts
receivable, will be sufficient to meet our anticipated operating and capital
requirements for at least the next twelve months.

Our cash position increased by $1,005,000 from the June 30, 2000 balance of
$4,767,000. This increase was a result of cash flows provided by operating
activities of $912,000 and cash flows provided by investing activities of
$1,408,000, offset by cash flows used in financing activities of $1,314,000
during the period.

Cash flows provided by operating activities included: (a) losses on impairment
of intangible assets of $5,367,000; (b) losses for impairment of investments of
$3,586,000; (c) a net change in operating assets and liabilities of $1,227,000,
primarily attributable to the establishment of a receivable of $1,239,000 for
prior year income tax payments that will be refunded to us, timing differences
for revenues earned and recognized



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and payments of $1,222,000, restructuring obligations, net of payments, of
$662,000, and an increase in accrued expenses of $348,000; (d) a $2,000,000
repayment of amounts due from the Barona Tribe for the expansion project; (e)
depreciation on property and equipment and amortization of intangible assets
and goodwill of $1,381,000; (f) a $518,000 loss on asset disposals; and (g)
establishment of bad debt reserves of $249,000, primarily for notes received
for services.

Cash flows used in operating activities included (a) $294,000 in securities
received for services in lieu of cash and (b) a $103,000, net favorable
adjustment to deferred compensation.

Cash flows provided by investing activities included (a) the release of
restricted cash of $1,522,000 and (b) payment of $396,000 for the sale and
redemption of the Klamath bonds.

Cash flows used in investing activities included (a) fixed asset purchases of
$403,000 and (b) investments in convertible notes of $137,000.

Cash flows used in financing activities were $977,000, for payment on long-term
debt related to the stock purchase agreement (discussed below) and $337,000 for
the repurchase of common stock.

During the three month period ended March 31, 2001, we received no revenue from
the Barona Tribe and expect our revenues from the Barona Tribe through December
31, 2001, to be below historical levels. As a result of these potential
decreases, we have implemented a cost reduction plan to bring expenses in line
with the anticipated lower revenues. The plan is designed to achieve a
reduction in operating costs to improve our cash flow. The plan includes
significant personnel reductions, consolidation of positions throughout the
Company at all levels and significant reductions in overhead and capital
expenditures.

We believe that, as a result of this plan, when fully implemented, our existing
cash balance, combined with operations and collection of receivables, will be
sufficient to meet our anticipated cash requirements for at least the next
twelve months. However, if operations significantly under perform historical
levels or the Company does not receive timely payment of its receivables, we
may need to seek additional capital sources or further reduce expenditures.
Although there can be no assurance either alternative would be available at the
time or on terms acceptable to the company, if available it could have a
material adverse affect on the Companys financial results or future
operations, or may result in dilution to our shareholders.

During fiscal year 2001 the company established a receivable of $1,239,000 for
prior year income tax payments that will be refunded to us in connection with
the expected current year net operating losses for tax purposes. These tax
losses can be carried back two years and we anticipate that these losses will
fully absorb the prior two years tax payments. These tax losses are expected
to have a favorable impact on the future cash flows of VCAT, as collection of
the receivable is anticipated to take place at the end of calendar year 2001.
Furthermore, additional tax losses were generated in connection with stock
activity during calendar year 2000. These tax losses can be carried back two
years and carried forward for up to 20 years, to offset past and future income
tax liabilities. Therefore, if the company returns to profitability, future tax
liabilities will be reduced as remaining tax losses are carried forward.

With respect to the current project to expand the Barona Casino, VCAT and the
Barona Tribe will share in funding the expansion costs incurred prior to
obtaining all outside financing. We agreed to advance up to $10,000,000 as an
unsecured, non-interest-bearing advance to the Barona Tribe of which $7,685,000
was outstanding as of March 31, 2001. These advances are accounted for as a
receivable from the Barona Tribe to VCAT. In January 2000, the Barona Tribe
obtained $18,900,000 in outside financing from the issuance of tax-exempt
bonds, primarily for the golf course development (discussed below). In May
2000, the Barona Tribe obtained approximately $30,000,000 in outside financing
from an equipment vendor for gaming machines, systems, furniture and
technologies. In October 2000, the Barona Tribe received a 120-day bridge loan
from two banks in an aggregated principal amount of up to $30,000,000 (the
Bridge Loan) to finance the expansion and the related obligations, prior to
them obtaining the permanent financing of approximately $175,000,000 (the
Permanent Financing). In February 2001 the bridge loan was



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extended to June 30, 2001, and increased by $30,000,000 to a total of
$60,000,000. The Barona Tribe used $2,000,000 of the Bridge Loan to repay VCAT
for advances made in connection with the expansion project. Payment of the
remaining receivable of $7,685,000 is expected to occur when the Barona Tribe
obtains the Permanent Financing, which is expected to be during calendar year
2001, unless we are in a cash position that would allow the Barona Tribe to
retain the remaining advanced funds for use in the Barona Casino operations
during the expansion. If the advances are not repaid when the Barona Tribe
obtains the Permanent Financing they would be payable upon terms agreed to
between VCAT and the Barona Tribe at that time.

In January 2000, the Barona Tribe completed a placement of tax-exempt limited
general obligation bonds in the principal amount of $18,900,000 (the
Tax-Exempt Bond Financing). The principal use of the bond proceeds is to
build a public golf course and related facilities. This project is a part of
the $225,000,000 Barona Casino expansion project. In connection with the
Tax-Exempt Bond Financing, we entered into a Consulting Fee Subordination
Agreement pursuant to which no consulting fee earned under the Consulting
Agreement shall be paid to us so long as we have received notice from the
trustee for the benefit of the bondholders of an event of default for which
there is a payment default under the indenture and such default shall be
continuing or we shall have been notified that any levied Government Service
Tax remains unpaid in whole or in part.

In October 2000, the Barona Tribe closed the Bridge Loan, which was extended in
February 2001, pending completion of the Permanent Financing. In connection
with the Bridge Loan, we entered into an Intercreditor and Subordination
Agreement. This agreement permits consulting fees or other amounts owed to us
to be paid up to the amounts permitted under the debt coverage ratios set forth
in the Bridge Loan. It also permits up to $5,000,000 of our advances to be
repaid prior to the maturity of the Bridge Loan. No payments may be made if
there is a default under the terms of the Bridge Loan that has not been cured
or waived.

In 1992, there was a one-time advance of future fees under the Consulting
Agreement with the Barona Tribe of approximately $2,500,000. At the beginning
of the management relationship in 1992 with the Barona Tribe, the Barona Tribe
was not in a financial position to make required investments in the Barona
Casino. We contributed approximately $2,500,000 to the Tribe that was
accounted for as revenue to the Barona Tribe and expensed by us due to the
uncertainty of recovery. The amount was not accounted for as a deferred
contract cost (similar to those investments discussed above). As the Barona
Casino became profitable between 1992 and 1994, $2,500,000 of the initial
profits of the Barona Casino were distributed to VCAT and were recorded on our
books as an obligation called advances of future consulting fees. The Barona
Tribe established a corresponding receivable. Sometime prior to when the
consulting relationship ends VCAT and the Barona Tribe will discuss how to
handle this balance. Depending on the outcome, if the obligation is forgiven
by the Barona Tribe, we may have an additional source of liquidity in the sense
that a debt may not need to be repaid; however, if the balance reverts back to
the Barona Tribe we may have a debt to repay. There is no indication how this
issue will ultimately be resolved. All other transactions between the two
parties are being treated independently. The remaining difference of the March
31, 2001 balance in advances of future consulting fees of $1,154,000 is due
primarily to timing differences between consulting revenues earned and
recognized and the actual payments to VCAT.

In September 1996, we entered into a Stock Purchase and Settlement and Release
Agreement with two shareholders, including a former director (the Stock
Purchase Agreement). The terms of the Stock Purchase Agreement included (a)
an aggregate cash payment of $200,000 to such shareholders upon closing, (b)
the issuance of two unsecured promissory notes in the aggregate principal
amount of $3,500,000, with interest at the rate of 10% per annum, payments of
interest only for the first three years, followed by three equal annual
installments of principal repayment, with interest on the remaining balance
commencing September 30, 1997, (c) a contingent obligation (the Initial
Contingent Obligations) to issue an aggregate principal amount of $9,856,488
in unsecured promissory notes to such shareholders including $2,000,000 in
principal amount of notes each year for four years and $1,856,488 in principal
amount of notes to be issued in a fifth year, each note with interest at 10%,
payment of interest only for three years,



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followed by three equal annual installments of principal plus interest on the
remaining principal balance, and (d) another contingent obligation (the Second
Contingent Obligation) to issue an additional aggregate principal amount of
$3,000,000 in unsecured promissory notes (or cash, if the Company has closed a
firm commitment underwritten public offering of securities of not less than $35
million prior to the contingencies being met).

The Initial Contingent Obligations are contingent upon VCATs retained earnings
balance, with certain adjustments, being at least $4,000,000 for the fiscal
year ending immediately prior to the date the notes are to be issued. The test
is to be made each year for eight successive years that commenced with the
fiscal year ended June 30, 1997. The Initial Contingent Obligation has been
met for the first four test periods; accordingly, $2,000,000 in obligations
were recorded at each of June 30, 1997, 1998, 1999 and 2000, and have been
treated as additional consideration for the common stock repurchased under the
Stock Purchase Agreement. VCAT does not foresee this contingency being met on
June 30, 2001, therefore we do not anticipate issuing additional notes during
fiscal 2001. The Second Contingent Obligation is subject to the following
conditions: (a) the Barona Tribe enters into a Class III Gaming Compact with
the State of California which permits the operation of video gaming machines at
the Barona Casino in San Diego County; (b) at the time that the Barona Tribe
enters into a compact, VCAT has a consulting agreement or similar contractual
arrangement with the Barona Tribe; and (c) consulting fees paid to VCAT by the
Barona Tribe relating to the Barona Casino for any consecutive 12-month period
within five years after the Barona Tribe has entered into the Compact, equal or
exceed one and one-half times the consulting fees for the fiscal year ended
June 30, 1996. Two of the foregoing criteria were satisfied during fiscal
2000. The contingent obligations will be recorded as the additional cost of
the repurchase of our common stock, as each contingency or condition is met.
All payments pursuant to the Stock Purchase Agreement are further subject to
compliance with certain state law provisions and our Articles of Incorporation
concerning repurchase transactions.

In April 2000, VCAT and the two note holders announced that $3,069,000 of
current and future corporate indebtedness would be exchanged for equity prior
to its maturity. Under terms agreed to, a total of 579,105 shares of our
restricted stock and warrants to acquire an additional 144,775 shares of our
common stock at $5.89 per share were issued to retire the debt. The
transaction resulted in a non-cash extraordinary loss of $324,000, attributable
to the deemed value of the warrants.

Our remaining debt related to this stock repurchase was $8,333,000 as of March
31, 2001. In addition, if all contingent obligations are met, a maximum of
$4,856,000 of aggregate additional consideration may still have to be repaid
under the Stock Purchase Agreement. We anticipate that future revenues generated
from operations, collection of accounts receivable, and unrestricted cash will be sufficient to service and repay
the aggregate amount of this debt. However, if operations continue to underperform historical levels or the Company does not receive timely payment of its receivables, we may need to seek additional capital sources to repay some or all of this debt.
Although there can be no assurance that this alternative would be available at the time or on terms acceptable to the Company, if available it could have a material adverse affect on the Company's financial condition, or may result in dilution
to our shareholders.

In February 2001, we acquired approximately 208,000 shares of common stock from
a former employee in exchange for certain assets and approximately $407,000 in
cash. The repurchase was negotiated in connection with the employees
separation agreement and termination of his employment contract.

In February 2001, our Board of Directors authorized a plan to repurchase up to
$1,000,000 of our common stock over the next twelve months. Purchases will be
made in privately negotiated or open market transactions, as market and
business conditions warrant, although we are not required to purchase any
dollar amount or number of shares. The plan may be suspended or discontinued
at any time. As of March 31, 2001, no shares had been purchased in connection
with this plan.

Restricted cash consists of a $133,000 irrevocable letter of credit issued to
satisfy the terms of the corporate lease agreement that automatically renews on
an annual basis until October 31, 2002, unless cancelled by the lessor.



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VCAT has invested in securities and convertible notes of several companies and
may continue to invest in the securities of other companies, in connection with
our strategy. The aggregate amount invested will depend on our available cash
and our ability to identify potential investment candidates. As of March 31,
2001, we have acquired an aggregated gross total of $1,916,000 in securities
and convertible notes from other companies in exchange for cash.

As of April 30, 2001, our unrestricted cash and cash equivalents balance was
approximately $5,274,000.

Forward-Looking Statements and Certain Factors That May Affect Future Results

This Form 10-QSB, including Managements Discussion and Analysis of Financial
Condition and Results of Operations, and the Notes to the Consolidated
Financial Statements, contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
reflecting our current expectations. Although we believe that our
expectations are based on reasonable assumptions, there can be no
assurance that our financial goals or expectations will be realized. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of VCAT, or industry results, to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. Numerous factors may affect our actual
results and may cause results to differ materially from those expressed in
forward-looking statements made by or on behalf of VCAT. We assume no
obligation to update or revise any such forward-looking statements or the
factors listed below to reflect events or circumstances that may arise
after this Report is filed, and that may have an effect on our overall
performance.



| |  | Dependency on Revenues from the Barona Tribe
|- |  | --------------------------------------------

We derive the majority of our revenue from services provided to the Barona
Tribe, which percentage should increase as a result of the restructuring.
While we are continuing to take steps to diversify our business activities
and resulting revenues, including our current plan to seek additional gaming
related business through the proposed Barona/VCAT Joint Venture, those
activities are not yet producing revenues. Accordingly, any material
reduction in fees payable to us by the Barona Tribe could have a material
adverse affect on our business and financial condition. In connection with
the Barona Tribes $225,000,000 expansion project, the Barona Casino has
incurred, and expects to continue to incur, significantly higher expenses.
As a result of the increase in expenses at the Barona Casino, there were no
fees paid to us during the three months ended March 31, 2001, and we expect
fees from the Consulting Agreement to be below historical levels for the
balance of calendar year 2001. The consulting revenues paid to us during the
expansion project may continue to be negatively affected, which could have a
material adverse effect on our business and financial condition.



| |  | Volatility of Our Stock Price; Possible De-Listing
|- |  | --------------------------------------------------

The trading price of our common stock has been, and will likely continue to
be, subject to wide fluctuations because of regulatory developments,
performance of our clients in which we own equity securities, quarterly
variations in our operating results, announcements of new services or
business activities by the Company or its competitors, general market
fluctuations, and other events and factors. These factors, coupled with the
small public float, have in the past, and could in the future, result in wide
fluctuations in the market-trading price. We have received a letter from the
NASDAQ Market that our common stock has failed to maintain the required
minimum bid price of $1.00 and a minimum market value of public float of $5
million dollars over a period of 30 consecutive trading days. NASDAQ has
provided us with 90 calendar days, or until August 6, 2001, to comply with
these requirements or be de-listed from trading. If the value of our public
float and trading price remains below minimum listing requirements for the
NASDAQ National Market, we may be subject to de-listing which could result in
trading in our common stock to further decrease or cease, less liquidity for
our shareholders and a further decrease in our stock price.



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| |  | The Barona Consulting Agreement
|- |  | -------------------------------

Appropriate regulatory authorities have not yet approved the Consulting
Agreement. If the Consulting Agreement is not approved or is significantly
modified regarding consulting revenue, such action would have a material
adverse effect on our business and financial condition.



| |  | Limited Recourse Against Tribes and Tribal Assets
|- |  | -------------------------------------------------

We have made, and may make, advances or loans (including guarantees of
indebtedness) to tribes for the construction, development, equipment and
operation of casinos for which we may act as a consultant or manager. These
amounts are not conventional in loans subject to customary mortgages or
security. If these casinos do not generate sufficient cash flow to repay
such indebtedness, our loans may not be repaid. Our principal recourse for
collection of indebtedness from a tribe or money damages for breach or
wrongful termination of a contract is from revenues, if any, from casino
operations. We have agreed to, and in the future may agree to, subordinate
the repayment of a tribes indebtedness and payment of other fees due to us
from a tribe to other obligations of the tribe, such as indebtedness to a
commercial lender. Accordingly, in the event of a default by a tribe, a
tribes indebtedness to us may not be repaid, if at all, until any senior
creditors have been repaid in full.

As of March 31, 2001 we had unpaid advances of $7,685,000 to the Barona Tribe
in connection with the ongoing expansion project. We have committed to
advance up to $10,000,000 to the Barona Tribe, if needed, until all outside
financing is obtained. These advances are scheduled to be repaid when all of
the $225,000,000 financing is completed. In addition, as noted above, the
consulting fees earned by VCAT are subject to Subordination Agreements
relating to the Tax-Exempt Bond Financing and the Bridge Loan. If a default
occurs, it would have a material adverse effect on the business and financial
condition of the VCAT.



| |  | Volatility of Available-For-Sale Securities
|- |  | -------------------------------------------

Our assets are partially comprised of securities of other publicly and
non-publicly traded companies, and include positions in equity securities
that have experienced significant volatility in their stock prices. It is
possible that the number of, and our investment in, these assets will
increase in the future. The market price and valuations of the securities
that we hold in other companies may fluctuate due to reported results of
those companies, market conditions and other conditions over which we have no
control. We do not currently attempt to reduce or eliminate our market
exposure on these securities. An adverse change in the price of securities
we hold would result in a material decrease in the fair value of our
available-for-sale securities, which could have a material adverse impact on
our business and financial condition. Certain of these companies have
encountered financial difficulties that have, and in the future could, result
in a write-down of the carrying value of such assets. Any write-down could
have a material adverse affect on our operating results and financial
condition.



| |  | Some of our Services Activities Have a Limited Operating History
|- |  | ----------------------------------------------------------------

Certain of our services have been offered for less than a year. Because of
our short operating history in these activities, we are unable to provide you
with significant data upon which you can evaluate our prospects. We cannot
be certain that our expanded business strategy or the business strategies of
our existing or prospective clients will be successful. Because we have
provided, and may in the future provide, services to and have interests in
early stage companies and emerging businesses and have only recently expanded
our business strategy in the gaming industry, we are exposed to not only the
business risks of our clients but also to the risks of our own business
activities.



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| |  | Year 2000 Readiness Disclosure
|- |  | ------------------------------

We have not experienced any material problems with network infrastructure,
software, hardware and computer systems relating to the inability to
recognize appropriate dates related to the year 2000. We are also not aware
of any material Year 2000 problems with customers, suppliers or vendors,
including our most significant customers business, the Barona Tribe.
Accordingly, as of March 31, 2001 we have not incurred any material costs
relating to the Year 2000 issue, and we do not anticipate incurring future
material expenses or experiencing any material operational disruptions as a
result of any Year 2000 issues.



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PART II  OTHER INFORMATION







ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits. The Exhibits listed below are hereby filed with the U.S.
Securities and Exchange Commission (the Commission) as part of this Quarterly
Report on Form 10-QSB.

|        |  |                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|No.     |  | Description                                                                                                                               
|        |  |                                                                                                                                           
|10.1    |  | Extension to Promissory Note dated March 31,
2001 between Venture Catalyst Incorporated and
L. Donald Speer, II and Kelly Elizabeth Speer.

(b) Reports on Form 8-K. During the Companys first quarter ended March
31, 2001, the Company filed no Current Reports on Form 8-K with the Commission.



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SIGNATURES

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

|                   |                                                           |                                                                                                                          
|------------------ | --------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------
|                   | VENTURE CATALYST INCORPORATED,
        a Utah Corporation
|                  
|Date: May 14, 2001 | By:                                                       | /S/ L. DONALD SPEER, II                                                                                                  
|                   |                                                           |                                                                                                                          
|                   |                                                           | L. Donald Speer, II
Chairman of the Board and Chief Executive Officer
(Authorized Signatory, Principal Executive Officer)

|                   |     |                                                                                                                                 
|------------------ | --- | --------------------------------------------------------------------------------------------------------------------------------
|Date: May 14, 2001 | By: | /S/ KEVIN MCINTOSH                                                                                                              
|                   |     |                                                                                                                                 
|                   |     | Kevin McIntosh
Senior Vice President, Chief Financial Officer,
and Treasurer
(Authorized Signatory, Principal Financial
Officer)



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Exhibit Index

|        |  |                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|No.     |  | Description                                                                                                                               
|        |  |                                                                                                                                           
|10.1    |  | Extension to Promissory Note dated March 31,
2001 between Venture Catalyst Incorporated and
L. Donald Speer, II and Kelly Elizabeth Speer.



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