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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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|(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, 2004



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------



For the transition period from
 to



Commission File Number: 0-11532



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VENTURE CATALYST INCORPORATED

(Exact name of small business issuer as specified in its charter)



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



591 Camino De La
Reina, Suite 418, San Diego, California 92108

(Address of principal executive offices)



(858) 385-1000

(Issuers telephone number)



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Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



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 30, 2004, 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

VENTURE CATALYST INCORPORATED

FORM 10-QSB

FOR THE PERIOD ENDED MARCH 31, 2004



TABLE OF CONTENTS



|                                                                                                         |  |           
|-------------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                         |  | PageNumber
|PART I -
FINANCIAL INFORMATION                                                                           |  |           
|                                                                                                         | 
|Item 1.
Financial Statements                                                                             |  |           
|Consolidated Balance Sheets - March 31, 2004 (unaudited) and June 30, 2003                               |  | 1         
|Consolidated Statements of Operations (unaudited) - Three months ended March 31, 2004 and March 31, 2003 |  | 2         
|Consolidated Statements of Operations (unaudited) - Nine months ended March 31, 2004 and March 31, 2003  |  | 3         
|Consolidated Statements of Cash Flows (unaudited) - Nine months ended March 31, 2004 and March 31, 2003  |  | 4         
|Notes to Consolidated Financial Statements                                                               |  | 5         
|Item 2.
Managements Discussion and Analysis or Plan of Operation                                        |  | 13        
|Item 3.
Controls and Procedures                                                                          |  | 23        
|                                                                                                         | 
|PART II -
OTHER INFORMATION                                                                              |  |           
|                                                                                                         | 
|Item 6.
Exhibits and Reports on Form 8-K                                                                 |  | 24        
|Signatures                                                                                               |  | 25        



FORWARD-LOOKING
STATEMENTS



This Quarterly Report on Form 10-QSB contains
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, reflecting managements current expectations. Examples of such
forward-looking statements include our expectations with respect to our strategy. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurances that our financial goals will be realized. Such
forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any 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 us. For this
purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, believes, anticipates, plans,
expects and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption Factors That May Affect Future Results in Part I, Item 2 - Managements Discussion
and Analysis or Plan of Operation, herein, among others, would cause actual results to differ materially from those indicated by forward-looking statements made herein and represent managements current expectations and are inherently
uncertain. Investors are warned that actual results may differ from managements expectations. We assume no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking
information.



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##### Table of Contents

PART I - FINANCIAL INFORMATION



Item 1. Financial Statements.



VENTURE CATALYST INCORPORATED

CONSOLIDATED BALANCE SHEETS



|                                                                                         |  |                           |             |   |               |   |             |  
|---------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                         |  | March 31, 2004(unaudited) |             |   | June 30, 2003 |  
|ASSETS                                                                                   |  |                           |             |   |               |   |             |  
|Current Assets:                                                                          |  |                           |             |   |               |   |             |  
|Cash and cash equivalents                                                                |  | $                         | 7,151,571   |   |               | $ | 6,835,190   |  
|Consulting fee receivables-Barona Tribe                                                  |  |                           | 1,125,300   |   |               |   | 650,300     |  
|Prepaid expenses and other current assets                                                |  |                           | 282,152     |   |               |   | 195,867     |  
|Accounts receivable, net                                                                 |  |                           | 55,996      |   |               |   | 32,954      |  
|                                                                                         |  |                           |             |   |               |   |             |  
|Total current assets                                                                     |  |                           | 8,615,019   |   |               |   | 7,714,311   |  
|                                                                                         |  |                           |             |   |               |   |             |  
|Non-Current Assets:                                                                      |  |                           |             |   |               |   |             |  
|Property, plant and equipment, net                                                       |  |                           | 126,582     |   |               |   | 150,197     |  
|Deposits and other assets                                                                |  |                           | 8,321       |   |               |   | 8,321       |  
|Capitalized software, net                                                                |  |                           |            |   |               |   | 95,469      |  
|                                                                                         |  |                           |             |   |               |   |             |  
|Total non-current assets                                                                 |  |                           | 134,903     |   |               |   | 253,987     |  
|                                                                                         |  |                           |             |   |               |   |             |  
|                                                                                         |  |                           |             |   |               |   |             |  
|Total assets                                                                             |  | $                         | 8,749,922   |   |               | $ | 7,968,298   |  
|                                                                                         |  |                           |             |   |               |   |             |  
|LIABILITIES AND SHAREHOLDERS DEFICIT                                                    |  |                           |             |   |               |   |             |  
|                                                                                         |  |                          
|Current Liabilities:                                                                     |  |                           |             |   |               |   |             |  
|Advances of future consulting fees-Barona Tribe                                          |  | $                         | 3,714,231   |   |               | $ | 3,714,231   |  
|Accounts payable and accrued expenses                                                    |  |                           | 531,737     |   |               |   | 557,850     |  
|Billings in excess of costs, software contracts                                          |  |                           | 220,029     |   |               |   | 71,140      |  
|Estimated loss, uncompleted software contracts                                           |  |                           | 148,000     |   |               |   |            |  
|Deferred revenue, software support contracts                                             |  |                           | 50,000      |   |               |   |            |  
|                                                                                         |  |                           |             |   |               |   |             |  
|Total current liabilities                                                                |  |                           | 4,663,997   |   |               |   | 4,343,221   |  
|Long-term debt                                                                           |  |                           | 11,691,877  |   |               |   | 10,881,330  |  
|                                                                                         |  |                           |             |   |               |   |             |  
|Total liabilities                                                                        |  |                           | 16,355,874  |   |               |   | 15,224,551  |  
|                                                                                         |  |                           |             |   |               |   |             |  
|Commitments and Contingencies                                                            |  |                           |            |   |               |   |            |  
|Shareholders Deficit:                                                                   |  |                           |             |   |               |   |             |  
|Common stock, $.001 par value, 100,000,000 shares authorized and 7,206,598 shares issued |  |                           | 7,207       |   |               |   | 7,207       |  
|Additional paid-in-capital                                                               |  |                           | 11,947,236  |   |               |   | 11,946,978  |  
|Deferred compensation                                                                    |  |                           | (220        | ) |               |   | (1,680      | )
|Retained deficit                                                                         |  |                           | (19,560,175 | ) |               |   | (19,208,758 | )
|                                                                                         |  |                           |             |   |               |   |             |  
|Total shareholders deficit                                                              |  |                           | (7,605,952  | ) |               |   | (7,256,253  | )
|                                                                                         |  |                           |             |   |               |   |             |  
|                                                                                         |  |                           |             |   |               |   |             |  
|Total liabilities and shareholders deficit                                              |  | $                         | 8,749,922   |   |               | $ | 7,968,298   |  
|                                                                                         |  |                           |             |   |               |   |             |  



The accompanying notes
are an integral part of these statements.



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##### Table of Contents

VENTURE CATALYST INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                               |  |                                      |           |   |      |   |           |  
|-------------------------------------------------------------- |  | ------------------------------------ | --------- | - | ---- | - | --------- | -
|                                                               |  | For the three months ended March 31, |          
|                                                               |  | 2004                                 |           |   | 2003 |  
|Revenues:                                                      |  |                                      |           |   |      |   |           |  
|Consulting services                                            |  | $                                    | 1,775,600 |   |      | $ | 950,000   |  
|Software products and related services                         |  |                                      | 251,824   |   |      |   |          |  
|                                                               |  |                                      |           |   |      |   |           |  
|Total revenues                                                 |  |                                      | 2,027,424 |   |      |   | 950,000   |  
|                                                               |  |                                      |           |   |      |   |           |  
|Cost of revenues:                                              |  |                                      |           |   |      |   |           |  
|Consulting services                                            |  |                                      | 704,088   |   |      |   | 637,580   |  
|Anticipated contract loss                                      |  |                                      |          |   |      |   | (562,136  | )
|Software products and related services                         |  |                                      | 643,743   |   |      |   | 94,320    |  
|                                                               |  |                                      |           |   |      |   |           |  
|Total cost of revenues                                         |  |                                      | 1,347,831 |   |      |   | 169,764   |  
|                                                               |  |                                      |           |   |      |   |           |  
|Gross profit                                                   |  |                                      | 679,593   |   |      |   | 780,236   |  
|                                                               |  |                                      |           |   |      |   |           |  
|Operating expenses:                                            |  |                                      |           |   |      |   |           |  
|General and administrative                                     |  |                                      | 539,643   |   |      |   | 859,398   |  
|Sales and marketing                                            |  |                                      | 128,426   |   |      |   | 84,483    |  
|Research and development                                       |  |                                      | 13,477    |   |      |   | 93,980    |  
|                                                               |  |                                      |           |   |      |   |           |  
|Total operating expenses                                       |  |                                      | 681,546   |   |      |   | 1,037,861 |  
|                                                               |  |                                      |           |   |      |   |           |  
|Operating loss                                                 |  |                                      | (1,953    | ) |      |   | (257,625  | )
|                                                               |  |                                      |           |   |      |   |           |  
|Other income (expense):                                        |  |                                      |           |   |      |   |           |  
|Interest income                                                |  |                                      | 13,947    |   |      |   | 17,012    |  
|Interest expense                                               |  |                                      | (277,586  | ) |      |   | (252,351  | )
|Other                                                          |  |                                      | (523      | ) |      |   | 8,000     |  
|                                                               |  |                                      |           |   |      |   |           |  
|Other expense, net                                             |  |                                      | (264,162  | ) |      |   | (227,339  | )
|                                                               |  |                                      |           |   |      |   |           |  
|Net loss                                                       |  |                                      | (266,115  | ) |      |   | (484,964  | )
|                                                               |  |                                      |           |   |      |   |           |  
|Basic and diluted loss per share:                              |  |                                      |           |   |      |   |           |  
|Net loss per share - basic and diluted                         |  | $                                    | (.04      | ) |      | $ | (.07      | )
|                                                               |  |                                      |           |   |      |   |           |  
|Weighted average common shares outstanding - basic and diluted |  |                                      | 7,206,598 |   |      |   | 7,206,598 |  
|                                                               |  |                                      |           |   |      |   |           |  



The accompanying notes
are an integral part of these statements.



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VENTURE CATALYST INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                                               |  |                                     |           |   |      |   |            |  
|-------------------------------------------------------------- |  | ----------------------------------- | --------- | - | ---- | - | ---------- | -
|                                                               |  | For the nine months ended March 31, |          
|                                                               |  | 2004                                |           |   | 2003 |  
|Revenues:                                                      |  |                                     |           |   |      |   |            |  
|Consulting services                                            |  | $                                   | 5,677,400 |   |      | $ | 3,502,000  |  
|Software products and related services                         |  |                                     | 254,522   |   |      |   |           |  
|                                                               |  |                                     |           |   |      |   |            |  
|Total revenues                                                 |  |                                     | 5,931,922 |   |      |   | 3,502,000  |  
|Cost of revenues:                                              |  |                                     |           |   |      |   |            |  
|Consulting services                                            |  |                                     | 2,035,037 |   |      |   | 2,292,497  |  
|Anticipated contract loss                                      |  |                                     |          |   |      |   | 529,873    |  
|Software products and related services                         |  |                                     | 1,173,478 |   |      |   | 379,714    |  
|                                                               |  |                                     |           |   |      |   |            |  
|Total cost of revenues                                         |  |                                     | 3,208,515 |   |      |   | 3,202,084  |  
|                                                               |  |                                     |           |   |      |   |            |  
|Gross profit                                                   |  |                                     | 2,723,407 |   |      |   | 299,916    |  
|                                                               |  |                                     |           |   |      |   |            |  
|Operating expenses:                                            |  |                                     |           |   |      |   |            |  
|General and administrative                                     |  |                                     | 1,808,551 |   |      |   | 2,382,116  |  
|Sales and marketing                                            |  |                                     | 457,988   |   |      |   | 288,946    |  
|Research and development                                       |  |                                     | 39,207    |   |      |   | 409,159    |  
|                                                               |  |                                     |           |   |      |   |            |  
|Total operating expenses                                       |  |                                     | 2,305,746 |   |      |   | 3,080,221  |  
|                                                               |  |                                     |           |   |      |   |            |  
|Operating profit (loss)                                        |  |                                     | 417,661   |   |      |   | (2,780,305 | )
|                                                               |  |                                     |           |   |      |   |            |  
|Other income (expense):                                        |  |                                     |           |   |      |   |            |  
|Interest income                                                |  |                                     | 41,991    |   |      |   | 77,541     |  
|Interest expense                                               |  |                                     | (810,547  | ) |      |   | (736,861   | )
|Other                                                          |  |                                     | (523      | ) |      |   | 23,300     |  
|                                                               |  |                                     |           |   |      |   |            |  
|Other expense, net                                             |  |                                     | (769,079  | ) |      |   | (636,020   | )
|                                                               |  |                                     |           |   |      |   |            |  
|Net loss                                                       |  |                                     | (351,418  | ) |      |   | (3,416,325 | )
|                                                               |  |                                     |           |   |      |   |            |  
|Basic and diluted loss per share:                              |  |                                     |           |   |      |   |            |  
|Net loss per share - basic and diluted                         |  | $                                   | (.05      | ) |      | $ | (.47       | )
|                                                               |  |                                     |           |   |      |   |            |  
|Weighted average common shares outstanding - basic and diluted |  |                                     | 7,206,598 |   |      |   | 7,206,598  |  
|                                                               |  |                                     |           |   |      |   |            |  



The accompanying notes
are an integral part of these statements.



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VENTURE CATALYST INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                                          |  |                                    |           |   |      |   |            |  
|----------------------------------------------------------------------------------------- |  | ---------------------------------- | --------- | - | ---- | - | ---------- | -
|                                                                                          |  | For the Nine Months EndedMarch 31, |          
|                                                                                          |  | 2004                               |           |   | 2003 |  
|Increase (decrease) in cash:                                                              |  |                                    |           |   |      |   |            |  
|Cash flows provided by (used in) operating activities:                                    |  |                                    |           |   |      |   |            |  
|Net loss                                                                                  |  | $                                  | (351,418  | ) |      | $ | (3,416,325 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                    |           |   |      |   |            |  
|Depreciation and amortization                                                             |  |                                    | 159,792   |   |      |   | 174,421    |  
|Amortization of stock-based compensation                                                  |  |                                    | 1,718     |   |      |   | 741        |  
|Gain (loss) on disposal of assets, net                                                    |  |                                    | 523       |   |      |   | (7,300     | )
|Anticipated contract loss                                                                 |  |                                    |          |   |      |   | 529,873    |  
|Cost of revenues related to the 1996 Consulting Agreement                                 |  |                                    |          |   |      |   | 697,342    |  
|Interest expense, long-term debt                                                          |  |                                    | 810,547   |   |      |   | 736,861    |  
|Changes in operating assets and liabilities                                               |  |                                    | (263,552  | ) |      |   | (1,003,912 | )
|                                                                                          |  |                                    |           |   |      |   |            |  
|Net cash provided by (used in) operating activities                                       |  |                                    | 357,610   |   |      |   | (2,288,299 | )
|                                                                                          |  |                                    |           |   |      |   |            |  
|Cash flows (used in) provided by investing activities:                                    |  |                                    |           |   |      |   |            |  
|Release of restricted cash                                                                |  |                                    |          |   |      |   | 133,000    |  
|Purchase of furniture and equipment                                                       |  |                                    | (41,229   | ) |      |   | (53,117    | )
|                                                                                          |  |                                    |           |   |      |   |            |  
|Net cash (used in) provided by investing activities                                       |  |                                    | (41,229   | ) |      |   | 79,883     |  
|                                                                                          |  |                                    |           |   |      |   |            |  
|Net increase (decrease) in cash                                                           |  |                                    | 316,381   |   |      |   | (2,208,416 | )
|Cash at beginning of period                                                               |  |                                    | 6,835,190 |   |      |   | 8,908,095  |  
|                                                                                          |  |                                    |           |   |      |   |            |  
|Cash at end of period                                                                     |  | $                                  | 7,151,571 |   |      | $ | 6,699,679  |  
|                                                                                          |  |                                    |           |   |      |   |            |  
|Supplemental disclosures of cash flow information:                                        |  |                                    |           |   |      |   |            |  
|Interest expense paid                                                                     |  | $                                  |          |   |      | $ |           |  
|                                                                                          |  |                                    |           |   |      |   |            |  
|Income taxes paid                                                                         |  | $                                  | 913       |   |      | $ | 5,996      |  
|                                                                                          |  |                                    |           |   |      |   |            |  



The accompanying notes
are an integral part of these statements.





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VENTURE CATALYST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004



Note 1. Basis of Presentation and Description of Business



Basis of Presentation



The accompanying unaudited financial statements for Venture Catalyst Incorporated have been prepared by us 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. As used in this Report, the terms we, us, our and VCAT refer
to Venture Catalyst Incorporated. 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.



In the opinion of management, these financial
statements reflect all normal, recurring adjustments and disclosures which are necessary for a fair presentation. The interim unaudited consolidated financial statements should be read in conjunction with our Annual Report on Form 10-KSB for the
fiscal year ended June 30, 2003 (fiscal 2003). Certain items in the financial statements for fiscal 2003 have been reclassified to conform to the current years presentation. Current and future financial statements may not be
directly comparable to our 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.



Description of Business



VCAT is a provider of consulting services and technology in the gaming and hospitality industry. We operate two business
divisions: consulting services and software. Our consulting services division offers comprehensive gaming and hospitality consulting services, financial advisory services, public and governmental relations, strategic planning, technology solutions
and professional and technical expertise. We currently have one client in our consulting services division, the Barona Group of Capitan Grande Band of Mission Indians (the Barona Tribe), a federally recognized, sovereign Native American
tribe. We currently provide services to the Barona Tribe in connection with their operation of the Barona Valley Ranch Resort & Casino (the Barona Valley Ranch), a destination resort that was completed in December 2002. The Barona
Valley Ranch consists of the Barona Casino, a 397-room hotel, an 18-hole championship golf course, convention space and an events center. The Barona Valley Ranch is located in Lakeside, California, near San Diego. We have provided services to the
Barona Tribe since 1991. From April 1996 through March 31, 2004, we provided consulting services to the Barona Tribe pursuant to an Amended and Restated Consulting Agreement dated April 29, 1996, as modified on February 17, 1998 (the 1996
Consulting Agreement or the Consulting Agreement). The Consulting Agreement expired on March 31, 2004. Commencing on April 1, 2004, we have been voluntarily providing consulting services to the Barona Tribe at the same level as we
provided under the Consulting Agreement without a contract with the good faith belief that we will reach a mutually acceptable agreement with the Barona Tribe. We are currently in discussions with the Barona Tribe with respect to a new agreement
whose effective date would be April 1, 2004. Although we are optimistic that the Barona Tribe and VCAT will reach a mutually acceptable consulting agreement, there can be no assurances that such an agreement will be executed or that we will be paid
for services rendered during the time that no consulting agreement is in place.



Our software division is dedicated to the ongoing product and business development of Mariposa, an enterprise level customer relationship management (CRM) and marketing software product for license to
businesses in the gaming and hospitality industry. Mariposa consists of a suite of applications designed to operate in conjunction with existing player tracking and other data systems. The various Mariposa modules provide data warehousing, data
mining and modeling, On-line Analytical Processing, campaign management, customer contact management and data visualization. The applications can be licensed individually or as a fully-integrated system.



Note 2. Summary of Significant Accounting Policies



Revenue Recognition



Consulting Services.Revenue from the Barona Tribe was recorded as earned under the terms of the 1996 Consulting
Agreement. Under the Consulting Agreement, subject to the limitations discussed below, the Barona Tribe had the right to draw a minimum income stream from the net operating income of the Barona Valley Ranch (the Tribal Draw), which
consisted of a base amount plus certain additional amounts calculated as a percentage of various components of the revenues of the Barona Valley Ranch.



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VENTURE CATALYST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004



The amount earned by and payable to us in a given month, which we refer to as
the consulting fee, was determined through a series of calculations. First, a gross consulting fee for the month was calculated in accordance with the formula set forth in the Consulting Agreement, consisting of a monthly base fee of
$475,000, plus additional fees if the net operating income of the Barona Valley Ranch, including certain adjustments in accordance with the terms of the agreement, exceeded a fixed base amount.



Next, our consulting fee was determined. The consulting fee was the gross
consulting fee adjusted upward or downward, if applicable, as a result of accommodating the Tribal Draw, as described below. Under the Consulting Agreement, our consulting fee for a given month was limited to the lesser of (a) the gross consulting
fee calculated in accordance with the formula described above or (b) the net operating income of the Barona Valley Ranch after the Tribal Draw was made. To the extent the net operating income of the Barona Valley Ranch is insufficient to cover both
our gross consulting fee and the Tribal Draw for a given month, the net operating income was allocated first to the Tribal Draw and our gross consulting fee was reduced accordingly. The amount by which our gross consulting fee was reduced became a
deferred fee which we could, under certain circumstances, be entitled to recover in subsequent months to the extent the net operating income for the Barona Valley Ranch exceeded the sum of the Tribal Draw and our gross consulting fee.
Deferred fees would have to be made up within a contract year, which was a 12 month period from April to March. If the deferred fees were not made up within the contract year, they were lost permanently.



Since our monthly consulting fee could not be less than zero, if in a given
month the net operating income of the Barona Valley Ranch was less than the amount of the Tribal Draw, the gross consulting fee would be adjusted downward, our consulting fee for that month would be zero and a shortfall with respect to the Tribal
Draw would be created. Once a Tribal Draw shortfall had been created, the net operating income of the Barona Valley Ranch for a given month was allocated as follows: first to pay the Tribal Draw for the current month; next to eliminate the Tribal
Draw shortfall from prior months; and, finally, to our consulting fees. If the net operating income from the Barona Valley Ranch was less than the sum of the Tribal Draw for the current month and a Tribal draw shortfall existed from prior months,
the balance of the Tribal Draw shortfall was increased to the extent the net operating income was less than the Tribal Draw for the month and the Tribal Draw shortfall was carried forward indefinitely until it was eliminated in subsequent months
where the net operating income was sufficient to cover the current Tribal Draw plus any accumulated Tribal Draw shortfall. Accordingly, in any month where a Tribal Draw shortfall existed, our consulting fees were zero.



We did not earn any consulting fees pursuant to the formula under the
Consulting Agreement from October 2002 through March 31, 2004, the end of its current term. However, during the three and nine months ended March 31, 2004 we earned $1,776,000 and $5,677,000, respectively, in consulting fees in connection with the
performance of consulting services for the Barona Tribe, which were fees voluntarily paid to us by the Barona Tribe as a sign of their good faith in the ongoing negotiations relating to the restructuring and extension of our Consulting Agreement.
Revenue with respect to these good faith payments is recognized when the services with respect to which the payments were made were rendered, provided that we have received indications from the Barona Tribe that they intend to make a good faith
payment for that period.



Software Products and Related
Services. We derive a portion of our revenues from licensing Mariposa and the sale of related services, including integration, installation, training (collectively, professional services) and maintenance and support services
(support services). We recognize revenue from software licensing and related professional services in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9. If the arrangement
between us and the purchaser does not require significant production, modification or customization of software, we will generally recognize revenue when all of the following criteria are met, as set forth in paragraph 8 of SOP 97-2:



| |  | persuasive evidence of an arrangement exists;
| | - | ---------------------------------------------



| |  | delivery has occurred;
| | - | ----------------------



| |  | the fee is fixed or determinable; and
| | - | -------------------------------------



| |  | collectibility is probable.
| | - | ---------------------------



Our standard license arrangements are multiple element arrangements that include both software products and professional services. The professional
services are essential to the functionality of the software products, which require significant modification to meet the customers purpose; therefore, in accordance with paragraph 69 of SOP 97-2, ARB No. 45 and SOP 81-1, contract accounting is
applied to both the software and service elements of the arrangement. The final determination for revenue recognition



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VENTURE CATALYST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004



and related accounting issues is made based on the specific details for each license
arrangement, which could result in the application of alternative revenue recognition policies for individual arrangements.



We have been in the software business since November 2002 and, as of March 31, 2004, we have successfully completed two full installations of Mariposa.
Mariposa is a complex enterprise level software system that, in order to meet the customers functionality, must work in conjunction with the customers player tracking system and a number of other customer data systems. Initially, as a
result of the difficulty in making dependable estimates, the inherent risks associated with new technologies and our ability to fulfill our obligations under the license arrangements, we are using the completed contract method of accounting and will
recognize revenue and cost of revenues for each license arrangement at the time of completion of all elements of a multiple element arrangement. Provisions for contract adjustments and losses are recorded in the period such items are identified.



Billings and costs related to our software contracts are
accumulated on the balance sheet. When accumulated costs exceed related billings to date, they are recorded as an asset called costs in excess of billings, software contracts. If billings to date exceed related costs incurred, a
liability is recorded called billings in excess of costs, software contracts. Contracts are segregated for purposes of recording related assets and liabilities.



Services not included in our software contracts are billed on a time and materials or fixed fee basis and revenues related
to the additional services are recorded as services are provided.



Support services are provided pursuant to a separate contractual arrangement. Fees for support services are recognized ratably over the term of the support period. Deferred revenues are recorded when billings for support services exceed
revenues recognized to date.



We recognize revenues related to
certain out-of-pocket expenses in accordance with EITF No. 01-14 Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred (EITF 01-14). EITF 01-14 requires that certain
out-of-pocket expenses rebilled to customers be recorded as revenue versus an offset to the related expense. The out-of-pocket expenses rebilled to customers are included in revenues and are not significant.



The cost of revenues in our software division consist primarily of
costs for services provided by a third-party software development firm engaged by us in connection with installation for software contracts and maintenance and support services for our software products, compensation and other personnel-related
expenses, losses on uncompleted software contracts, amortization of capitalized software costs and other direct costs related to our software products and related services.



Stock Based Compensation



Employee stock options are accounted for using the intrinsic value method under APB No. 25 and related interpretations. Effective March 31, 2003, we
adopted Statement of Financial Accounting Standards (SFAS) 148 Accounting for Stock Based Compensation Transition and Disclosure an amendment of SFAS 123 Accounting for Stock Based Compensation. SFAS 148 requires
pro forma disclosure of net income or loss per share as if the fair value method of accounting for stock-based compensation has been applied for both employee and non-employee stock option grants. It also requires disclosure of option status on a
more frequent basis. The exercise price of each option equals the market price of our common stock on the date of grant; accordingly, under APB No. 25, no compensation costs for employee grants were recognized for the options. Had compensation cost
for the options been determined based on the fair value of the options at the grant dates, our net loss and loss per share would have increased to the pro forma net loss and loss per share amounts indicated below:



|                                                                                                                                                   |  |                             |          |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                                                                                   |  | Three months endedMarch 31, |         
|                                                                                                                                                   |  | 2004                        |          |   | 2003 |  
|Net loss:                                                                                                                                          |  |                             |          |   |      |   |          |  
|As reported                                                                                                                                        |  | $                           | (266,115 | ) |      | $ | (484,964 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all option grants, net of related tax
effects |  | $                           | (46,500  | ) |      |   | (62,462  | )
|                                                                                                                                                   |  |                             |          |   |      |   |          |  
|Pro forma                                                                                                                                          |  | $                           | (312,615 | ) |      | $ | (547,426 | )
|                                                                                                                                                   |  |                             |          |   |      |   |          |  
|Net loss per share:                                                                                                                                |  |                             |          |   |      |   |          |  
|As reported                                                                                                                                        |  | $                           | (.04     | ) |      | $ | (.07     | )
|Pro forma                                                                                                                                          |  | $                           | (.04     | ) |      | $ | (.08     | )



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VENTURE CATALYST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004



|                                                                                                                                                   |  |                             |          |   |      |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | ---------- | -
|                                                                                                                                                   |  | Nine months ended March 31, |         
|                                                                                                                                                   |  | 2004                        |          |   | 2003 |  
|Net loss:                                                                                                                                          |  |                             |          |   |      |   |            |  
|As reported                                                                                                                                        |  | $                           | (351,418 | ) |      | $ | (3,416,325 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all option grants, net of related tax
effects |  |                             | (200,188 | ) |      |   | (357,319   | )
|                                                                                                                                                   |  |                             |          |   |      |   |            |  
|Pro forma                                                                                                                                          |  | $                           | (551,606 | ) |      | $ | (3,773,644 | )
|                                                                                                                                                   |  |                             |          |   |      |   |            |  
|Net loss per share:                                                                                                                                |  |                             |          |   |      |   |            |  
|As reported                                                                                                                                        |  | $                           | (.05     | ) |      | $ | (.47       | )
|Pro forma                                                                                                                                          |  | $                           | (.08     | ) |      | $ | (.52       | )



For the above
calculation, the fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with no expected dividends. The following table shows the weighted average assumptions for stock options:



|                         |  |                             |   |  |      |  
|------------------------ |  | --------------------------- | - |  | ---- | -
|                         |  | Three months endedMarch 31, |  
|                         |  | 2004                        |   |  | 2003 |  
|Risk-free interest rate  |  | 3.3                         | % |  | 2.8  | %
|Expected life (in years) |  | 5                           |   |  | 7    |  
|Expected volatility      |  | 2.6                         |   |  | 2.3  |  

|                         |  |                             |   |  |      |  
|------------------------ |  | --------------------------- | - |  | ---- | -
|                         |  | Nine months ended March 31, |  
|                         |  | 2004                        |   |  | 2003 |  
|Risk-free interest rate  |  | 3.0                         | % |  | 2.9  | %
|Expected life (in years) |  | 5                           |   |  | 7    |  
|Expected volatility      |  | 2.6                         |   |  | 2.3  |  



The Black-Scholes
option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in
our opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options. The pro forma calculations are not indicative of current or future operating results. The stock option exercise
date determines when the benefits may be recorded.



Capitalized Software



We account for software development costs in accordance
with SFAS 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (SFAS 86). Under SFAS 86, software costs incurred in connection with creating computer software products, which are to be
marketed, are expensed until completion of a working model. Thereafter, all software development costs are capitalized until the product is completed and ready for sale. The capitalized software costs are subsequently reported at the lower of
unamortized cost or estimated net realizable value. Capitalized software costs are amortized based on current and future revenues for each product with an annual minimum equal to the straight-line amortization over the remaining estimated



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VENTURE CATALYST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004



useful life of the product. We periodically review capitalized software costs for impairment
where the estimated fair value is less than the carrying value.



During fiscal 2002, we capitalized $247,000 of our software development costs related to Mariposa. Mariposa was completed on June 30, 2002 and no further capitalization is expected. We are amortizing the capitalized software development
costs on a straight-line basis over the estimated useful life of two years. Amortization of the capitalized software development costs, which is included in cost of revenues, was $32,000 during the three months ended March 31, 2004 and 2003 and
$96,000 during the nine months ended March 31, 2004 and 2003. All capitalized software development costs have been fully amortized as of March 31, 2004.



Note 3. Agreements with the Barona Tribe



We have provided services to the Barona Tribe since 1991. Through March 31, 2004, we performed services to the Barona Tribe pursuant to the Consulting
Agreement. See Note 1  Basis of Presentation and Description of Business - Description of Business.



Under the Consulting Agreement, the amount, if any, that we were paid by the Barona Tribe for services rendered was determined using a complex series of
calculations that take into account (a) the monthly gross revenues of the Barona Valley Ranch; (b) the monthly cash and non-cash expenses (and capitalized interest of the Barona Tribe related to its operations during the development project); (c)
the funds that the Barona Tribe draws from the gross revenues of the Barona Valley Ranch for the month; and (d) certain adjustments related to deferred consulting fees or distributions to the Barona Tribe from prior months. For a detailed
explanation of the consulting fee calculation, see Note 2, Summary of Significant Accounting Policies - Revenue Recognition.



During the three and nine months ended March 31, 2004 we earned $1,776,000 and $5,677,000, respectively, in consulting fees in connection with the
performance of consulting services for the Barona Tribe, which were fees voluntarily paid to us by the Barona Tribe as a sign of their good faith in the ongoing negotiations relating to the restructuring or extension of the Consulting Agreement.
Although we have been receiving good faith payments from the Barona Tribe, we did not earn any consulting fees pursuant to the Consulting Agreement from October 2002 through March 31, 2004.



In January 2003, as a sign of our good faith intentions in our ongoing
discussions to restructure our business relationship with the Barona Tribe and in return for use of the Barona Tribes gaming operations as a testing and marketing platform for Mariposa, we:



| |  | granted to the Barona Tribe a perpetual, royalty-free, non-exclusive and non-transferable license to use Mariposa at the Barona Valley Ranch including all upgrades, maintenance and
support;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | entered into a profit sharing arrangement with the Barona Tribe, whereby, so long as we have a consulting agreement in place with the Barona Tribe, we will share a percentage of any
net profits generated by Mariposa on a quarterly basis, starting January 1, 2003, based on the following sliding scale:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 25% percent of the first $250,000 of the net profits per quarter;
| | - | -----------------------------------------------------------------



| |  | 30% percent of the second $250,000 of the net profits per quarter;
| | - | ------------------------------------------------------------------



| |  | 35% percent of the net profits in excess of $500,000 per quarter; and
| | - | ---------------------------------------------------------------------



| |  | agreed never to provide Mariposa or future related software products developed by us to any Native American tribe in San Diego County or within sixty-five miles of the Barona Valley
Ranch.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The operation of any type of gaming
casino on Native American land is subject to extensive Federal, state and tribal regulation. The regulatory environment regarding Native American gaming is evolving rapidly. Changes in Federal, state, or tribal law or regulations may limit or
otherwise affect Native American gaming and could therefore have a material adverse effect on our operations. In March 1999, the NIGC commenced a preliminary review of our relationship with the Barona Tribe, including a review of the 1996 Consulting
Agreement. The review is currently pending. In August 2003, we submitted an application for a suitability determination to the California Gambling Control Commission. That review also is pending.



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VENTURE CATALYST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004



Note 4. Business Concentration and Dependence on Key Personnel



Historically, a significant portion of our revenue has been earned from the
Barona Tribe. Although, we currently do not have an agreement to provide consulting services with the Barona Tribe and can give no assurances that we will enter into a new agreement, we continue to expect that the majority of our revenues for the
foreseeable future will be generated from providing services to the Barona Tribe. We also expect to continue to generate revenues from our software products and related services. During the three months ended March 31, 2004 and 2003, revenues from
the Barona Tribe were $1,776,000 and $950,000, representing 88% and 100% of our total revenues, respectively. During the nine months ended March 31, 2004 and 2003, revenues from the Barona Tribe were $5,677,000 and $3,502,000, representing 96% and
100% of our total revenues, respectively.



Our success largely
depends upon the continued contributions of L. Donald Speer, II, our Chairman of the Board and Chief Executive Officer. We have not entered into an employment agreement with Mr. Speer. The loss of Mr. Speers services, for any reason, would
have a material adverse effect on our success and prospects.



Note 5.
Advances of Future Consulting Fees



At March 31, 2004, we
have an obligation called advances of future consulting fees due to the Barona Tribe of $3,714,000. These advances are unsecured and non-interest bearing and result primarily from transactions which took place at the beginning of the
management relationship with the Barona Tribe starting in 1992. At that time, the Barona Tribe was not in a financial position to make required investments in the Barona Casino. We were making investments into the Barona Casino for additional
working capital and the investments were accounted for as revenue to the Barona Casino and expensed by us due to the uncertainty of recovery. As the Barona Casino became profitable between 1992 and 1994, a portion of the initial profits of the
Barona Casino were distributed to us after all draws, distributions and payments were made to the Barona Tribe and were recorded on our books as an obligation called advances of future consulting fees. The Barona Casino established a corresponding
receivable. Forgiveness of this liability is one of the issues under consideration by us and the Barona Tribe in connection with the discussions to extend our business relationship with the Barona Tribe. We are not certain how this issue will
ultimately be resolved.



Note 6. 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.



We maintain our cash in bank deposit and checking accounts that, at times, may exceed federally insured limits. To date, we have not experienced any
losses in such accounts. Our cash equivalents consist of commercial paper and certificate of deposit instruments with maturities ranging from three weeks to three months. Interest rates earned during the nine months ended March 31, 2004 on such
investments ranged from .89% to 1.17%, as compared to a range from 1.07% to 1.52% earned during the nine months ended March 31, 2003.



Note 7. Stock Options



The following table summarizes stock option activity under our 1995 Stock Option Plan and 1996 Non-employee Directors Stock Option Plan (collectively the
Plans) for the nine months ended March 31, 2004:



|                            |  |                     |   |  |                        |             
|--------------------------- |  | ------------------- | - |  | ---------------------- | ------------
|                            |  | Options Outstanding |   |  | Options PricePer Share
|Outstanding, July 1, 2003   |  | 5,693,250           |   |  | $                      | 0.13 -$12.50
|Granted                     |  | 10,000              |   |  |                        | .20         
|Exercised                   |  |                    |   |  |                        |            
|Cancelled                   |  | (10,000             | ) |  | $                      | 4.00        
|                            |  |                     |   |  |                        |             
|Outstanding, March 31, 2004 |  | 5,693,250           |   |  | $                      | 0.13 -$12.50



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VENTURE CATALYST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004



Note 8. Net Loss Per Share



At March 31, 2004, options to purchase 5,693,250 shares of our common stock,
at prices ranging from $.13 to $12.50 per share, were not included in the computation of diluted EPS because they were anti-dilutive for that purpose. The options expire on various future dates through December 2013. At March 31, 2003, options to
purchase 4,963,250 shares of our common stock, at prices ranging from $.13 to $12.50 per share, were not included in the computation of diluted EPS because they were anti-dilutive for that purpose.



Note 9. Segment Reporting



During the second quarter of fiscal 2003, we changed the way we manage our
business and now operate with two business divisions, consulting services and software, which comprise our segments. We do not allocate operating expenses, including general and administrative, sales and marketing and research and development, to
our two business divisions. We have prepared operating segment information in accordance with SFAS No. 131 Disclosures About Segments of an Enterprise and Related Information to report components that are evaluated regularly by our
decision making group in deciding how to allocate assets and resources and in assessing performance.



We do not evaluate performance based on return on assets at the segment level and do not identify or allocate our assets by operating segments. As such,
segment asset information is not disclosed. Information on segments and a reconciliation to the operating profit (loss) before other expense for the three and nine months ended March 31, 2004 and 2003 is as follows:



|                                   |  |                    |           |          |   |          |                              |  |   |            |   |  |   |           |  
|---------------------------------- |  | ------------------ | --------- | -------- | - | -------- | ---------------------------- |  | - | ---------- | - |  | - | --------- | -
|                                   |  | ConsultingServices |           | Software |   |          | UnallocatedOperatingExpenses |  |   | Total      |  
|Three months ended March 31, 2004: |  |                    |           |          |   |          |                              |  |   |            |   |  |   |           |  
|Revenues                           |  | $                  | 1,775,600 |          | $ | 251,824  |                              |  |   |           |   |  | $ | 2,027,424 |  
|Operating profit (loss)            |  | $                  | 1,071,512 |          | $ | (391,919 | )                            |  | $ | (681,546   | ) |  | $ | (1,953    | )
|Three months ended March 31, 2003: |  |                    |           |          |   |          |                              |  |   |            |   |  |   |           |  
|Revenues                           |  | $                  | 950,000   |          | $ |         |                              |  |   |           |   |  | $ | 950,000   |  
|Operating profit (loss)            |  | $                  | 874,556   |          | $ | (94,320  | )                            |  | $ | (1,037,861 | ) |  | $ | (257,625  | )



|                                  |  |                    |           |          |   |          |                              |  |   |            |   |  |   |            |  
|--------------------------------- |  | ------------------ | --------- | -------- | - | -------- | ---------------------------- |  | - | ---------- | - |  | - | ---------- | -
|                                  |  | ConsultingServices |           | Software |   |          | UnallocatedOperatingExpenses |  |   | Total      |  
|Nine months ended March 31, 2004: |  |                    |           |          |   |          |                              |  |   |            |   |  |   |            |  
|Revenues                          |  | $                  | 5,677,400 |          | $ | 254,522  |                              |  |   |           |   |  | $ | 5,931,922  |  
|Operating profit (loss)           |  | $                  | 3,642,363 |          | $ | (918,956 | )                            |  | $ | (2,305,746 | ) |  | $ | 417,661    |  
|Nine months ended March 31, 2003: |  |                    |           |          |   |          |                              |  |   |            |   |  |   |            |  
|Revenues                          |  | $                  | 3,502,000 |          | $ |         |                              |  |   |           |   |  | $ | 3,502,000  |  
|Operating profit (loss)           |  | $                  | 679,630   |          | $ | (379,714 | )                            |  | $ | (3,080,221 | ) |  | $ | (2,780,305 | )



Note 10. Stock Repurchase/
Long-Term Debt



In September 1996, we entered into a Stock
Purchase and Settlement and Release Agreement with two of our 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 at the 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 commencing September 30,
1997, followed by three equal annual installments of principal repayment, with interest on the remaining balance, commencing September 30, 2000; (c) a contingent obligation (the Initial Contingent Obligations) to issue an aggregate
principal amount of $9,856,000 in unsecured promissory notes to such shareholders including $2,000,000 in principal amount of notes each year for four years and $1,856,000 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, 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 we have closed a firm commitment underwritten public



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VENTURE CATALYST INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004



offering of securities of not less than $35,000,000 prior to the contingencies being met).
The contingent obligations will be recorded as the additional cost of the repurchase of our common stock, as each contingency or condition is met.



The Initial Contingent Obligations are contingent upon our 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 was 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 were treated as additional consideration for the common stock repurchased under the Stock Purchase Agreement. The retained earnings
balance test was not met on June 30, 2001, 2002 or 2003; accordingly, we did not record the issuance of any additional notes during those fiscal years.



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, we have a consulting agreement or similar contractual arrangement with the Barona
Tribe; and (c) consulting fees paid to us 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. To date, only (a) and (b) above have been satisfied; accordingly, we have not recorded the issuance of any note pursuant to the Second Contingent Obligation.



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. Pursuant to the terms of the exchange, a total of 579,000 shares of our restricted stock and warrants to acquire an additional 145,000 shares of our
common stock at $5.89 per share were issued to retire the debt. The warrants expired in April 2003, unexercised.



All payments pursuant to the Stock Purchase Agreement and the notes are due in September of each year and are subject to our ability to meet certain
financial tests and compliance with certain state law provisions and our Articles of Incorporation concerning repurchase transactions. Because of our current financial position, we were not required to make payments under the notes in 2003, 2002 or
2001. This does not constitute a default under the notes. However, pursuant to the terms of the stock purchase agreement and the applicable notes, interest accrued during each of 2003, 2002 and 2001 in the amounts of $1,009,000, $918,000 and
$843,000, respectively; such amounts were added to the principal amount of the debt which continues to accrue interest pending certain other events, including the permissibility of us to make payments in the future.



The remaining principal amount of the debt and accrued interest related to
this stock repurchase (including the accrued interest that was added to principal as a result of VCAT not making the scheduled payments in September 2003, 2002 and 2001) was $11,692,000 as of March 31, 2004. Based upon our current financial position
and our current sources of revenue, we do not expect that such payments will be required for the foreseeable future; therefore all amounts have been classified as non-current liabilities. However, if we generate significant revenue from
a new business relationship with the Barona Tribe or from Mariposa or other sources, a portion of the long-term debt due to the note holders could be paid in the future. In such case, we would classify the respective amount as a current liability at
that time.





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##### Table of Contents

Item 2. Managements Discussion and Analysis or Plan of Operation



Overview



We are a
provider of consulting services and technology in the gaming and hospitality industry. Since the second quarter of fiscal 2003, we have operated two business divisions: consulting services and software. Our consulting services division offers
comprehensive gaming and hospitality consulting services, financial advisory services, public and governmental relations, strategic planning, technology solutions and professional and technical expertise. Our software division is dedicated to the
ongoing product and business development of Mariposa. As used in this Report, the terms we, us, our and VCAT refer to Venture Catalyst Incorporated. This Report should be read in conjunction with
Managements Discussion and Analysis or Plan of Operation set forth in our Annual Report on Form 10-KSB for the year ended June 30, 2003 (fiscal 2003).



Our Consulting Services Division



We currently have one client in our consulting services division, the Barona Group of Capitan Grande Band of Mission Indians
(the Barona Tribe). Our consulting fees resulting from our consulting services to the Barona Tribe are VCATs principal source of revenues and liquidity.



We have provided services to the Barona Tribe since 1991. From April 1996 through March 31, 2004, we provided consulting
services to the Barona Tribe pursuant to an Amended and Restated Consulting Agreement dated April 29, 1996, as modified on February 17, 1998 (the 1996 Consulting Agreement or the Consulting Agreement). The Consulting
Agreement expired on March 31, 2004. Commencing on April 1, 2004, we have been voluntarily providing consulting services to the Barona Tribe at the same level as we provided under the Consulting Agreement without a contract with the good faith
belief that we will reach a mutually acceptable agreement with the Barona Tribe. We are currently in discussions with the Barona Tribe with respect to a new agreement whose effective date would be April 1, 2004. Although we are optimistic that the
Barona Tribe and VCAT will reach a mutually acceptable consulting agreement, there can be no assurance that such an agreement will be executed or that we will be paid for services rendered during the time that no consulting agreement is in place.



Under the Consulting Agreement, the amount, if any, that we
were paid by the Barona Tribe for services rendered was determined using a complex series of calculations that took into account (a) the monthly gross revenues of the Barona Valley Ranch; (b) the monthly cash and non-cash expenses (and capitalized
interest of the Barona Tribe related to its operations during the development project); (c) the funds that the Barona Tribe draws from the gross revenues of the Barona Valley Ranch for the month; and (d) certain adjustments related to deferred
consulting fees or distributions to the Barona Tribe from prior months.



Under the Consulting Agreement, the Barona Tribe had the right to draw a minimum income stream from the net operating income of the Barona Valley Ranch (the Tribal Draw), which consisted of a base amount plus certain additional
amounts calculated as a percentage of various components of the revenues of the Barona Valley Ranch. The amount earned by and payable to us in a given month, which we refer to as the consulting fee, was determined through a series of
calculations. First, a gross consulting fee for the month was calculated in accordance with the formula set forth in the Consulting Agreement, consisting of a monthly base fee of $475,000, plus additional fees if the net operating income of the
Barona Valley Ranch, including certain adjustments in accordance with the terms of the agreement, exceeds a fixed base amount. Next, our consulting fee was determined. The consulting fee was the gross consulting fee adjusted upward or downward, if
applicable, as a result of accommodating the Tribal Draw, as described below. Under the Consulting Agreement, our consulting fee for a given month was limited to the lesser of the gross consulting fee calculated in accordance with the formula
described above or the net operating income of the Barona Valley Ranch after the Tribal Draw was made. To the extent the net operating income of the Barona Valley Ranch was insufficient to cover both our gross consulting fee and the Tribal Draw for
a given month, the net operating income was allocated first to the Tribal Draw and our gross consulting fee was reduced accordingly. The amount by which our gross consulting fee was reduced becomes a deferred fee which we could, under
certain circumstances, be entitled to recover in subsequent months to the extent the net operating income for the Barona Valley Ranch exceeded the sum of the Tribal Draw and our gross consulting fee. Deferred fees would have to be made up within a
contract year, which is a 12 month period from April to March. If the deferred fees were not made up within the contract year, they were lost permanently.



Since our monthly consulting fee could not be less than zero, if in a given month the net operating income of the Barona
Valley Ranch was less than the amount of the Tribal Draw, the gross consulting fee would be adjusted downward, our consulting fee for that month would be zero and a shortfall with respect to the Tribal Draw would be created. Once a Tribal Draw
shortfall had been created, the net operating income of the Barona Valley Ranch for a given month was allocated as follows: first to pay the Tribal Draw for the current month; next to eliminate the Tribal Draw shortfall from prior months; and,
finally, to our consulting fees. If the net operating income from the Barona Valley Ranch was less than the sum of the Tribal Draw for the current month and a Tribal draw shortfall



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existed from prior months, the balance of the Tribal Draw shortfall was increased to the extent the net operating income
was less than the Tribal Draw for the month and the Tribal Draw shortfall was carried forward indefinitely until it was eliminated in subsequent months where the net operating income was sufficient to cover the current Tribal Draw plus any
accumulated Tribal Draw shortfall. Accordingly, in any month where a Tribal Draw shortfall exists, our consulting fee was zero.



We did not earn any consulting fees pursuant to the formula under the Consulting Agreement from October 2002 through March 31, 2004, the end of its
current term. However, during the nine months ended March 31, 2004 we earned $5,677,000 in consulting fees (which included nine good faith payments, eight of $650,000 and one of $475,000) in connection with the performance of consulting services for
the Barona Tribe. These fees were voluntarily paid to us by the Barona Tribe as a sign of their good faith in the ongoing negotiations relating to the restructuring and extension of our Consulting Agreement.



In January 2003, as a sign of our good faith intentions in our ongoing
discussions to restructure our business relationship with the Barona Tribe and in return for use of the Barona Tribes gaming operations as a testing and marketing platform for Mariposa, we:



| |  | granted to the Barona Tribe a perpetual, royalty-free, non-exclusive and non-transferable license to use Mariposa at the Barona Valley Ranch including all upgrades, maintenance and
support;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |  | entered into a profit sharing arrangement with the Barona Tribe, whereby, so long as we have a consulting agreement in place with the Barona Tribe, we will share a percentage of any
net profits generated by Mariposa on a quarterly basis, starting January 1, 2003, based on the following sliding scale:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 25% percent of the first $250,000 of the net profits per quarter;
| | - | -----------------------------------------------------------------



| |  | 30% percent of the second $250,000 of the net profits per quarter;
| | - | ------------------------------------------------------------------



| |  | 35% percent of the net profits in excess of $500,000 per quarter; and
| | - | ---------------------------------------------------------------------



| |  | agreed never to provide Mariposa or future related software products developed by us to any Native American tribe in San Diego County or within sixty-five miles of the Barona Valley
Ranch.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Software Division



During fiscal 2002, we completed development of fully-integrated customer
relationship management (CRM) and marketing software product for the gaming and hospitality industry which is marketed under the name Mariposa. Mariposa consists of a suite of functionally distinct modules, each designed to
address a specific set of requirements within the gaming and hospitality industry. The modules may be licensed and deployed as an integrated solution or individually, depending upon the customers needs and financial resources. We have made,
and will continue to make, material organizational changes, including adding staff, to cultivate qualified sales leads and to install, support and continue development of Mariposa and/or related software products. This will involve material
additions to our expenses and additional capital. At this time, we are uncertain whether we will be able to generate enough revenue to absorb the additional expenses.



As of April 30, 2004, we have three uncompleted software contracts that we have entered into that, if completed, will result
in additional aggregate revenues of $1,055,000 in our software division, exclusive of any potential support fees which could be generated subsequent to their completion. During the three months ended March 31, 2004, we recorded a loss of $148,000
related to one of the three uncompleted contracts. Although we expect to incur significance costs to complete the other two contracts, the amount of costs cannot be estimated at this time as a result of the varying third-party software systems used
at gaming properties which integrate with our system. However, we believe that the costs will be less than the revenues to be recognized under the two contracts.



Critical Accounting Policies



Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for each period. Critical accounting policies are defined as policies that management believes are (a) the most
important



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to the portrayal of our financial condition and results of operations; and (b) that require our most difficult,
subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.



We believe that revenue recognition and our treatment of the anticipated contract loss and accrued consulting costs are the most critical accounting
policies that impact our consolidated financial statements.



Revenue Recognition-Consulting Services.In accordance with the governing revenue recognition guidelines, revenue for consulting services is recognized when the services are rendered, provided all of the following criteria are met:



| |  | persuasive evidence of an arrangement exists;
| | - | ---------------------------------------------



| |  | services have been rendered;
| | - | ----------------------------



| |  | the fee is fixed or determinable; and
| | - | -------------------------------------



| |  | collectibility is reasonably assured.
| | - | -------------------------------------



Revenue relating to the above-referenced good faith payments is recognized when the services with respect to which the payments were made were rendered,
provided that we have received indications from the Barona Tribe that they intend to make a good faith payment for that period.



Anticipated Contract Loss.If, at any time through the end of the term of the Consulting Agreement, estimated future costs exceed estimated future
revenues under the Consulting Agreement we will record a loss related to the Consulting Agreement for the amount the estimated expenses exceed the estimated revenues. The loss will be recorded as an anticipated contract loss and corresponding
liabilities will be established for the current and non-current amounts, which are recorded as accrued consulting costs. Once recorded, the accrued consulting costs will fluctuate throughout the term of the Consulting Agreement as a result of the
timing of revenues earned and costs incurred. The accrued consulting costs will increase in any period when anticipated revenues are earned that are in excess of actual costs incurred, by the amount that the anticipated revenues earned exceed the
costs incurred, and a corresponding increase in cost of revenues will be recorded in order to reflect no income earned from the Consulting Agreement. Alternatively, when actual costs incurred exceed revenues earned in any period, the accrued
consulting costs and cost of revenues will be reduced by the amount the costs incurred exceed the revenues such that the Consulting Agreement will have no impact on our income or loss. The anticipated contract loss and related liabilities were
reduced to zero in the fourth quarter of fiscal 2003. As a result of the good faith payments received, no further losses related to the Consulting Agreement were recorded during the nine months ended March 31, 2004.



Revenue Recognition-Software Products and Related Services.We expect
to derive a portion of our revenues from licensing Mariposa software applications and the sale of related professional services, including integration, installation, training, (collectively, professional services), and maintenance and
support services (support services). Inherent in the software revenue recognition process are significant estimates and judgments which influence the timing and amount of revenues recognized.



In accordance with the governing revenue recognition guidelines, if the
arrangement between vendor and purchaser does not require significant production, modification, or customization of software, revenue should be recognized when all of the following criteria are met:



| |  | persuasive evidence of an arrangement exists;
| | - | ---------------------------------------------



| |  | delivery has occurred;
| | - | ----------------------



| |  | the vendors fee is fixed or determinable; and
| | - | ----------------------------------------------



| |  | collectibility is probable.
| | - | ---------------------------



Our standard license arrangements are multiple element arrangements that include both software products and professional services. The professional
services are essential to the functionality of the software products, which require significant modification to meet the customers purpose; therefore, in accordance with paragraph 69 of SOP 97-2, ARB No. 45 and SOP 81-1, contract accounting is
applied to both the software and professional service elements of the arrangement. The final determination for revenue recognition policies, and related accounting issues, will be made based on the specific details of each arrangement, which could
result in the application of alternative revenue recognition policies in the future.



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We have only been in the software business since November 2002, and as of March 31, 2004 we have
successfully completed only two full installations of Mariposa. Mariposa is a complex enterprise level software system that, in order to meet the customers functionality, must work in conjunction with the customers player tracking system
and a number of other customer data systems. Initially, as a result of the difficulty in making dependable estimates, the inherent risks associated with new technologies and our ability to fulfill our obligations under the license arrangements, we
are using the completed contract method and will recognize revenue and cost of revenues for each license arrangement at the time of completion of all elements of a multiple element arrangement. Provisions for contract adjustments and losses are
recorded in the period such items are identified.



Billings and
costs related to our software contracts are accumulated on the balance sheet. When accumulated costs exceed related billings to date, they are recorded as an asset called costs in excess of billings, software contracts. If billings to
date exceed related costs incurred, a liability is recorded called billings in excess of costs, software contracts. Contracts are segregated for purposes of recording related assets and liabilities.



Services not included in our software contracts are billed on a time and
materials or fixed fee basis and revenues related to the additional services are recorded as services are provided.



Support services are provided pursuant to a separate contractual arrangement. Fees for support services are recognized ratably over the term of the
support period. Deferred revenues are recorded when billings for support services exceed revenues recognized to date.



Results of Operations



Three Months Ended March 31, 2004 Compared with the Three Months Ended March 31, 2003.



Revenues



Revenues for the three months ended March 31, 2004 were $2,027,000, compared to $950,000 during the same period last year.



During the three months ended March 31, 2004, we earned
$1,776,000 in consulting fees, resulting from three good faith payments from the Barona Tribe for services provided during the period. During the three months ended March 31, 2003, we earned $950,000 in consulting fees, resulting from two good faith
payments from the Barona Tribe for services provided during the period.



During the three months ended March 31, 2004, we earned $252,000 in revenues on completed contracts from our software products and related services compared to zero earned in the prior year period.



Cost of Revenues



Cost of revenues for the three months ended March 31, 2004 were $1,348,000, compared to $170,000 during the three months
ended March 31, 2003.



Cost of revenues in our consulting
services division consists primarily of compensation and other personnel-related expenses, costs of services provided by third-party consultants and service providers, client relations expenses and other direct costs, related primarily to providing
consulting services to the Barona Tribe. The cost of revenues during the three months ended March 31, 2004 in the consulting services division were $704,000, compared to $76,000 recorded during the same period in last year. During the prior year
period, the actual cost of revenues incurred in the consulting services division were $638,000; however, the cost of revenues were decreased by $562,000 because the costs approximated previously accrued estimates and were recorded as part of the
anticipated contract loss related to the Consulting Agreement. For a more detailed discussion of the anticipated contract loss, see Critical Accounting Policies, above. The increase in the actual expenses incurred in the
consulting services to $704,000 from $638,000 division was primarily the result of an increase in (a) client relations expenses of $23,000 (b) compensation and other personnel-related expenses of $22,000 and (c) travel and lodging and other direct
expenses of $21,000 incurred in connection with providing services to the Barona Tribe.



The cost of revenues in our software division consist primarily of costs for services provided by a third-party software development firm engaged by us in connection with installation and maintenance and support
services for our software products, compensation and other personnel-related expenses, losses on uncompleted software contracts, amortization of capitalized software costs and other direct costs related to our software products and related services.
The cost of revenues in the software division during the three months ended March 31, 2004 increased 583% to $644,000 from $94,000 during the three months ended March 31, 2003.



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Expenses during the current year period increased as a result of (a) installation expenses of $250,000 recorded in
connection with software contracts; (b) estimated losses of $159,000 for uncompleted software contracts; and (c) an increase of $149,000 for maintenance and support services, primarily related to the ongoing enhancements and bug fixes of
the initial applications of Mariposa.



General Operating and Administrative
Expenses



General and administrative expenses include costs
associated with our finance, human resources, legal and other administrative functions. These costs consist primarily of compensation and other personnel-related expenses, professional fees, facilities, depreciation, insurance costs and other
general overhead and administrative costs. General operating and administrative expenses decreased 37% to $540,000 for the three months ended March 31, 2004, from $859,000 during the same period last year. The decrease was primarily attributable to
a decrease in (a) legal fees and professional services of $178,000; (b) insurance expense of $84,000; and (c) compensation and other personnel-related expenses of $81,000, including director fees. In the prior year period these expenses were
significantly higher, primarily as a result of the proposed merger transaction and related litigation at that time.



Sales and Marketing



Sales and marketing expenses consist primarily of compensation and other personnel-related expenses, costs of marketing programs, including trade shows
and advertising, and travel and lodging expenses in connection with sales efforts. Sales and marketing expenses during the three months ended March 31, 2004, increased 52% to $128,000 from $84,000 during the same period last year. The increase was
primarily a result of an increase in compensation and other personnel-related expenses related to Mariposa business development efforts.



Research and Development



Research and development expenses consist primarily of costs of services provided by a third-party software development firm engaged by us in connection
with the development of our software products, compensation and other personnel-related expenses for internal engineering personnel and equipment and software used in the development of our software products. To date, other than $247,000 in
capitalized costs during fiscal 2002, all costs related to the development of Mariposa have been expensed as incurred.



During the three months ended March 31, 2004, research and development expenses decreased 86% to $13,000, from $94,000 during the same period last year.
The decrease was a result of the reduction in the research and development services required by our third-party software development firm as a result of the completion of the initial version of Mariposa. Expenses related to ongoing product
enhancements and bug fixes of Mariposa since the completion of the initial applications are being recorded as maintenance and support and are included in cost of revenues.



Other Income and Expense



For the three months ended March 31, 2004, interest income decreased to $14,000 compared to $17,000 for the same period last
year, as a result of lower interest rates on investments. Interest expense increased to $278,000 from $252,000, as a result of the increase in the principal amount of notes payable related to the 1996 repurchase of shares of our common stock which
is discussed in greater detail under the caption Liquidity and Capital Resources, below.



There was $500 of other losses recorded during the three months ended March 31, 2004 resulting from asset impairments. During the prior year period, we
recorded other income of $8,000, resulting from gains related to asset sales.



Income Tax Benefit



During the three months
ended March 31, 2004 and 2003, the income tax benefit was zero, as a result of our net operating loss carry-forward.



Nine Months Ended March 31, 2004 Compared with the Nine Months Ended March 31, 2003.



Revenues



Revenues for the nine months ended March 31, 2004 were $5,932,000, compared to $3,502,000 during the same period last year.



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During the nine months ended March 31, 2004, we earned $5,677,000 in consulting fees resulting from nine
good faith payments from the Barona Tribe for services provided during the period. During the nine months ended March 31, 2003, we earned (a) $2,047,000 for services provided pursuant to the formula in the Consulting Agreement; (b) $1,425,000 in
good faith payments from the Barona Tribe; and (c) $30,000 from other clients as a result of a one-time payment for financial advisory services.



During the nine months ended March 31, 2004, we earned $255,000 in revenues on completed software contracts from our software products and related
services compared to zero earned in the prior year period.



Cost of
Revenues



Cost of revenues increased slightly to $3,209,000
for the nine months ended March 31, 2004 from $3,202,000 during the nine months ended March 31, 2003.



Cost of revenues in our consulting services division consists primarily of compensation and other personnel-related expenses, costs of services provided
by third-party consultants and service providers, client relations expenses and other direct costs related primarily to providing consulting services to the Barona Tribe. The cost of revenues during the nine months ended March 31, 2004 in the
consulting services division were $2,035,000, compared to $2,822,000 recorded during the same period last year. During the prior year period, the actual cost of revenues in the consulting services division of $1,797,000 were increased by an
aggregate amount of $1,025,000, attributable to the anticipated contract loss related to the Consulting Agreement, of which $530,000 was recorded as an increase to the anticipated contract loss. For a more detailed discussion of the
anticipated contract loss, see Critical Accounting Policies, above. The increase in the actual expenses from $1,797,000 to $2,035,000 incurred in the consulting services division was primarily the result of an increase in
other direct expenses related to providing services to the Barona Tribe, including, among others, (a) client relations expenses of $78,000; (b) charitable and political contributions of $46,000; (c) professional services of $44,000; (d) business
meals and entertainment of $42,000 and; (e) travel and lodging of $33,000.



The cost of revenues in our software division consist primarily of costs for services provided by a third-party software development firm engaged by us in connection with installation and maintenance and support
services for our software products, compensation and other personnel-related expenses, losses on uncompleted software contracts, amortization of capitalized software costs and other direct costs related to our software products and related services.
The cost of revenues in the software division during the nine months ended March 31, 2004 increased 209% to $1,173,000 from $380,000 during the nine months ended March 31, 2003. Expenses during the current year period increased primarily as a result
of increases in (a) installation expenses of $250,000 recorded in connection with software contracts, (b) estimated losses of $200,000 for software contracts; and (c) an increase in maintenance and support services of $433,000, primarily related to
the ongoing enhancements and bug fixes of the initial applications of Mariposa. The increase was partially offset by a decrease in (a) professional services of $68,000 and (b) compensation and other personnel related expenses of $22,000.



General Operating and Administrative Expenses



General and administrative expenses include costs associated with our
finance, human resources, legal and other administrative functions. These costs consist primarily of compensation and other personnel-related expenses, professional fees, facilities, depreciation, insurance costs and other general overhead and
administrative costs. General operating and administrative expenses decreased 24% to $1,809,000 for the nine months ended March 31, 2004, from $2,382,000 during the same period last year. The decrease was primarily attributable to a decrease in (a)
legal fees and other professional services of $604,000; (b) insurance expense of $195,000; and (c) outside director costs of $78,000. In the prior year period these expenses were significantly higher as a result of the proposed merger transaction
and related litigation at that time. The decrease was partially offset by an increase in (a) compensation and other personnel-related expenses of $226,000, (b) rent expense of $35,000 and (c) travel and lodging expense of $27,000.



Sales and Marketing



Sales and marketing expenses consist primarily of compensation and other personnel-related expenses, costs of marketing
programs, including trade shows and advertising, and travel and lodging expenses in connection with sales efforts. Sales and marketing expenses increased 59% to $458,000 during the nine months ended March 31, 2004, from $289,000 during the same
period last year. The increase was primarily a result of an increase in (a) compensation and other personnel-related expenses of $137,000, (b) costs incurred of $82,000 in connection with attendance at trade shows and (c) other direct costs
associated with our ongoing Mariposa business development of $43,000. The increase was partially offset by a decrease in advertising and marketing costs of $93,000.



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Research and Development



Research and development expenses consist primarily of costs of services provided by a third-party software development firm engaged by us in
connection with the development of our software products, compensation and other personnel-related expenses for internal engineering personnel, and equipment and software used in the development of our software products. To date, other than $247,000
in capitalized costs during fiscal 2002, all costs related to the development of Mariposa have been expensed as incurred.



During the nine months ended March 31, 2004, research and development expenses decreased 90% to $39,000, from $409,000 during the same period last year.
The decrease was a result of the reduction in the research and development services required by our third-party software development firm as a result of the completion of the initial version of Mariposa. Expenses related to ongoing product
enhancement and bug fixes of Mariposa since the completion of the initial applications are primarily being recorded as maintenance and support and are included in cost of revenues.



Other Income and Expense



For the nine months ended March 31, 2004, interest income decreased to $42,000 compared to $78,000 for the same period last
year, as a result of lower interest rates on investments. Interest expense increased to $811,000 from $737,000, as a result of the increase in the principal amount of notes payable related to the 1996 repurchase of shares of our common stock which
is discussed in greater detail under the caption Liquidity and Capital Resources, below.



There was $500 of other losses recorded during the nine months ended March 31, 2004 resulting from asset impairments. During the prior year period, we
recorded other income of $23,000, resulting from gains related to asset sales.



Income Tax Benefit



During the nine months
ended March 31, 2004 and 2003, the income tax benefit was zero, as a result of our net operating loss carry-forward.



Liquidity and Capital Resources



Our principal sources of liquidity at March 31, 2004 to fund ongoing operations are cash provided from operations and unrestricted cash and cash
equivalents of $7,152,000. During the nine months ended March 31, 2004, our cash position increased by $317,000 from the June 30, 2003 balance of $6,835,000. This increase was a result of net cash provided by operating activities of $358,000
partially offset by cash used in investing activities of $41,000.



The cash provided by operating activities of $358,000 resulted primarily from revenue received from the Barona Tribe and payments from clients for license and service fees pursuant to software contracts less cash expenditures during the
period. Cash used in investing activities of $41,000 resulted from the purchase of fixed assets.



In September 1996, we entered into a Stock Purchase and Settlement and Release Agreement with two of our shareholders (the Stock Purchase
Agreement). In connection with the Stock Purchase Agreement, we incurred debt in the form of unsecured promissory notes bearing interest at a rate of 10% per annum. As of March 31, 2004, the outstanding principal amount of debt and accrued
interest was $11,692,000. In addition, the principal amount of the notes could increase by an additional $4,856,000 if certain contingencies are met. All payments pursuant to the Stock Purchase Agreement and the notes are subject to our ability to
meet certain financial tests, including tests provided under applicable law. Because of our financial condition, we were not required to make payments under the notes in September 2003, 2002 and 2001 and, based upon our current stockholders
deficit balance and our current sources of revenues, we do not expect that we will be obligated to make a payment of principal or interest for the foreseeable future; accordingly, all amounts have been classified as non-current
liabilities. Although our failure to make payments under the notes in such circumstances does not constitute an event of default, the unpaid interest on the notes is added to the outstanding principal which continues to accrue interest.
However, if we generate significant revenue from a new business relationship with the Barona Tribe or from Mariposa or other sources, a portion of the long-term debt due to the note holders could be paid in the future. In such case, we would
classify the respective amount as a current liability at that time.



At March 31, 2004, we have an obligation called advances of future consulting fees due to the Barona Tribe of $3,714,000. These advances are unsecured and non-interest bearing and result primarily from transactions which took
place at the beginning of the management relationship with the Barona Tribe starting in 1992. At that time, the Barona Tribe was not in a financial position to make required investments in the Barona Casino. We were making investments into the
Barona Casino for additional working capital and the investments were accounted for as revenue to the Barona Casino and expensed by us due to the uncertainty of recovery. As the Barona Casino became profitable between 1992 and 1994, a portion of the
initial profits of the Barona Casino were distributed to us



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after all draws, distributions and payments were made to the Barona Tribe and were recorded on our books as an obligation
called advances of future consulting fees. The Barona Casino established a corresponding receivable. Forgiveness of this liability is one of the issues under consideration by us and the Barona Tribe in connection with the discussions to extend our
business relationship with the Barona Tribe. We are not certain how this issue will ultimately be resolved.



In connection with a $200,000,000 loan obtained by the Barona Tribe in July 2001, we entered into a Reaffirmation, Consent and Amendment of Intercreditor
and Subordination Agreement (Subordination Agreement). The Subordination 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 permanent
financing loan agreement. No payments may be made if there is a default under the terms of the permanent financing loan agreement that has not been cured or waived. As of March 31, 2004, we are not aware of any default by the Barona Tribe of any of
the terms of the loan agreement. Our consulting fees will be subject to the Subordination Agreement whether we enter into a new business relationship with the Barona Tribe or whether we continue to elect to perform consulting services without a
contract.



Our consulting agreement with the Barona Tribe
expired on March 31, 2004. The consulting fees resulting from our consulting services to the Barona Tribe are VCATs principal source of revenues and liquidity. As noted above, we are currently providing consulting services to the Barona Tribe
without a contract with the good faith belief that we will reach a mutually acceptable agreement with the Barona Tribe. We are currently in discussions with the Barona Tribe with respect to a new agreement whose effective date would be April 1,
2004. Although we are optimistic that the Barona Tribe and VCAT will reach a mutually acceptable consulting agreement, there can be no assurance that such an agreement will be executed or that we will be paid for services rendered during the time
that no consulting agreement is in place. To the extent that we continue to perform services without adequate payment to cover our expenses, we will likely be forced to utilize our cash and cash equivalents to fund on-going operations. Over time,
our liquidity may be adversely affected.



Consistent with our
ongoing efforts, we intend to continue to discuss with the Barona Tribe a new consulting agreement. Unless or until we enter into a new consulting agreement with the Barona Tribe and our consulting fees and other current sources of revenue become
more certain and predictable, there can be no assurance that our business will generate sufficient cash flow from operations to sustain our long-term working capital, capital expenditure and debt service needs.



Factors That May Affect Future Results



Risks Related to our Financial Condition



We have incurred losses recently and our future sources of revenues are
uncertain.



We incurred net losses of $351,000 during the
nine months ended March 31, 2004 and $1,430,000 during fiscal 2003. At March 31, 2004, our total liabilities exceeded our assets by $7,606,000. At this time, there can be no assurance as to whether we will be successful in negotiating a new
consulting agreement with the Barona Tribe which will provide predictable monthly revenues. Accordingly, our principal source of historical revenues remains uncertain. Additionally, we are uncertain as to the amount and timing of revenues from other
sources, including Mariposa as we evaluate the extent of the acceptance of Mariposa in the marketplace and we evaluate the demand in the marketplace for other gaming related consulting services which we are currently offering.



We have limited resources to sustain and grow our business.



Our cash and cash equivalents were $7,152,000 as of March
31, 2004. The uncertainty and unpredictability of our future revenue may reduce our ability to pursue or exploit additional business opportunities. If we are unable to pursue or exploit future business opportunities, it could have an adverse effect
on the growth of our business.



Risks Related to our
Consulting Agreement and Business Concentration with the Barona Tribe



Our revenues are currently dependent upon one client, the Barona Tribe.



We have historically derived substantially all of our revenue from providing consulting services to the Barona Tribe. The Consulting Agreement expired in
March 2004. Although we are currently continuing to voluntarily provide consulting services to the Barona Tribe with the good faith belief that we will reach a mutually acceptable agreement with the Barona Tribe, the Barona Tribe has not yet
indicated that they will continue to make good faith payments to us for such services or that they will enter into a new agreement with us. Accordingly, we cannot give any assurances that we will be paid for the services that we voluntarily perform
or that we will be successful in reaching an agreement with the Barona Tribe to perform on-going consulting services. Loss of the



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Barona Tribe as a client, or a material reduction in the fees we earn from the Barona Tribe, would have a material
adverse effect on our business and may result in our inability to continue to operate the business.



We have entered into subordination agreements that, under certain circumstances, may preclude the Barona Tribe from making payments to us for
consulting services.



Our right to receive fees from the
Barona Tribe is subordinated to certain senior debt of the Barona Tribe. In connection with two of the Barona Tribes financings, we entered into agreements pursuant to which the Barona Tribe under the applicable financing documents shall pay
no fees to us if there is a default. In addition, one of those agreements also limits the Barona Tribes ability to make payments to us if the debt coverage ratios set forth in the loan agreement are not met. Moderate or severe economic
downturns or adverse conditions, nationally and especially in Southern California, may negatively affect the Barona Valley Ranchs operations which may result in the Barona Tribe being precluded from making payments to us whether we enter into
a new business relationship with the Barona Tribe or whether we continue to elect to perform consulting services without a contract. If that should occur, and we are not able to generate alternative sources of revenues to finance our operations, we
will not be able to continue to operate our business.



Approval of the Consulting Agreement by appropriate regulatory authorities is still pending.



Appropriate regulatory authorities have not yet approved the Consulting Agreement. If the Consulting Agreement, or, if applicable, any new agreement is
not approved or is significantly modified by regulatory authorities to our detriment, such action could have a material adverse effect on our business and financial condition. In addition, the regulatory review could result in our being required to
pay fines or incur additional expenses, all of which could have a material adverse effect on our business and financial condition.



Our application for a determination of suitability by appropriate regulatory authorities is still pending.



In August 2003, we submitted an application for a suitability determination
to the California Gambling Control Commission (the CGCC). If the CGCC determines that we would not qualify for a gambling license under state law, the Barona Tribe would be required to terminate our business relationship. There can be no
assurance that the CGCC will approve our application for a suitability determination, and failure to receive such approval may have a material adverse effect on our business and financial condition.



Risks Related to Mariposa and our Software Business



We may not be able to compete in the CRM software market.



We compete in the highly competitive CRM software market.
A principal source of competition is the internal information technology departments at potential customers, which may develop systems that provide for some or all of the functionality of our applications. Our products compete with products or
solutions offered by numerous competitors. Compared to us, many of these competitors have a longer operating history, greater name recognition, larger customer bases and significantly greater financial resources. This may place us at a disadvantage
in responding to our competitors pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiatives. Competitive pressures and our perceived viability in this market may make it difficult for us to
acquire and retain customers.



If we fail to keep pace with
technological innovation, improve our existing products, or develop new products, our application suite could become obsolete.



The market for CRM software products is marked by rapid technological change, frequent new product introductions, uncertain product life cycles, changes
in client demands and evolving industry standards. If we are unable to market Mariposa on a timely and cost-effective basis, we may not generate significant revenues from the sale or license of the software. In marketing Mariposa, we may:



| |  | fail to respond to technological changes in a timely or cost-effective manner;
| | - | ------------------------------------------------------------------------------



| |  | encounter software products, capabilities or technologies developed by others that render Mariposa obsolete or noncompetitive or that shorten the life cycle of Mariposa;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | experience difficulties that could delay or prevent the successful development, introduction and marketing of Mariposa; or
| | - | --------------------------------------------------------------------------------------------------------------------------



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| |  | fail to achieve market acceptance of Mariposa.
| | - | ----------------------------------------------



If our product does not operate with the wide variety of hardware, software and operating systems used by our current and potential customers, our
revenues would be harmed.



We currently market Mariposa to
a customer base that uses a wide variety of constantly changing hardware, software applications, operating and other systems. Mariposa will gain broad market acceptance only if it can support a wide variety of hardware, software applications,
systems and standards, including those developed in the future.



Mariposa could contain undetected errors or failures.



If we license Mariposa, it may contain undetected errors or failures. This may result in the loss of, or delay in, the market acceptance of Mariposa and could cause us to incur significant costs to correct errors or failures or to pay
damages suffered by customers as a result of such errors or failures.



Errors in Mariposa also may be caused by defects in third-party software incorporated into our software. If so, we may not be able to fix the defects without the cooperation of the software providers. Since these defects may not be as
significant to the software provider as they are to us, we may not receive the rapid cooperation that it requires. We may not have the contractual right to access the source code of third-party software and, even if we have the right to access the
source code, we may not be able to fix the defect. Our customers could seek significant compensation from us for their losses resulting from defects in our products. Even if unsuccessful, a product liability claim brought against us could be time
consuming and costly.



We rely on a third-party services
firm for development, installation, integration and support in connection with our software business.



We rely on a third-party software development firm to handle the majority of our software development efforts. In addition, we use a third-party service
firm to support our products and to assist our customers with the installation and integration of our products. If we are unable to maintain and develop relationships with third-party firms to provide these services, we would be required to hire and
train additional personnel, which would result in higher expenses and delays in our ability to generate revenue.



If we are unable to protect our intellectual property or become subject to intellectual property infringement claims, we may lose a valuable asset or
incur costly and time-consuming litigation.



Our success
depends in part on the development and protection of the proprietary aspects of our technology as well as our ability to operate without infringing the proprietary rights of others. To protect our proprietary technology, we rely primarily upon the
protections afforded under the trade secret, copyright, trademark, and patent laws, as well as upon confidentiality procedures and contractual restrictions. Despite our efforts to protect our proprietary rights and technology, unauthorized parties
may attempt to copy aspects of our products, obtain the source code to our software, or use other information that we regard as proprietary. Such parties may also attempt to develop software competitive to ours. Our means of protecting our
proprietary rights may not be adequate, and our competitors may independently develop similar technology or duplicate our products or software. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Any such litigation could result in substantial costs and diversion of resources that could have a
material adverse effect on our business, operating results, and financial condition.



We have filed four U.S. patent applications, three of which remain pending in the Patent Office. We have also filed two corresponding international patent applications. In addition, we may file additional patent
applications in the future. It is possible that these patent applications will not issue as patents and that, even if issued, the validity or enforceability of such patents may be successfully challenged. It is also possible that we may not develop
additional proprietary products or technologies that are patentable; that any patents issued to us may fail to provide us with competitive advantage and that the patents of others may materially harm our ability to do business. In the future, a
third party may bring suit claiming that our products or software infringe its patents, trade secrets or copyrights. Any claims, with or without merit, could be costly and time-consuming to defend, divert our managements attention, or cause
product delays. If our products or software were found to infringe a third partys proprietary rights, we could be required to enter into royalty or licensing agreements to be able to license or sell our products or software. Royalty and
licensing agreements, if required, may not be available on terms that are acceptable to us (or at all), which could materially harm our business.



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Other Risks



Our business is subject to strict regulation by gaming authorities.



We operate in a highly regulated industry and our ability to operate in certain jurisdictions could be subject to extensive
federal, state, local and foreign regulation by various gaming authorities. Although the laws and regulations of the various jurisdictions in which we may operate vary in their technical requirements, and are subject to amendment from time to time,
virtually all these jurisdictions could require licenses, permits, documentation of the qualification, including evidence of integrity and financial stability, and other forms of approval for us, as well as for our officers, directors, major
shareholders and key personnel. We will attempt to obtain all government licenses, registrations, findings of suitability, permits and approvals necessary; however, there can be no assurance those licenses, registrations, findings of suitability,
permits, or approvals will be granted. Additionally, there can be no assurance that any regulatory agency will not enact new rules or change regulations that would negatively impact our ability to operate within such jurisdictions.



We are dependent upon our Chairman and Chief Executive Officer.



Our success largely depends upon the continued
contributions of L. Donald Speer, II, our Chairman of the Board and Chief Executive Officer. The loss of Mr. Speers services, for any reason, would have a material adverse effect on our success and prospects. We have not entered into an
employment agreement with Mr. Speer. If Mr. Speer were to leave VCAT or become unavailable, there can be no assurance that we will be able to find a suitable replacement, particularly in connection with our ability to perform consulting services to
the Barona Tribe.



We depend upon our key personnel.



Our future performance also depends in significant part
upon the continued service of our key technical and senior management personnel. We have a small number of employees and our dependence on maintaining our relationships with key employees is particularly significant.



Our common stock is subject to wide fluctuations.



The trading price of our common stock has been, and will likely continue to
be, subject to wide fluctuations because of regulatory developments, quarterly variations in our operating results, the market where our common stock trades, announcements of new services or business activities by us or our 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. Our common stock currently trades on the
Over-The-Counter (OTC) Bulletin Board. This generally is considered to be a less efficient trading market and our stock price as well as liquidity in our common stock may be adversely affected. Low-priced stocks are subject to additional
risks, including additional state regulatory requirements and the potential loss of effective trading markets.



Item 3. Controls and Procedures



Based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended), our Chief Executive Officer and Chief Financial Officer have
concluded that such controls and procedures were effective as of the end of the period covered by this report. In connection with such evaluation, no change in our internal control over financial reporting occurred during the period covered by this
report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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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                                                                                                                                                                         
|            | 
|31.1        |  | Certification of Chief Executive Officer of Venture Catalyst Incorporated, pursuant to Rule 13a-14 of the Securities Exchange Act.                                                  
|            | 
|31.2        |  | Certification of Chief Financial Officer of Venture Catalyst Incorporated, pursuant to Rule 13a-14 of the Securities Exchange Act.                                                  
|            | 
|32.1        |  | Certification of Chief Executive Officer of Venture Catalyst Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|            | 
|32.2        |  | Certification of Chief Financial Officer of Venture Catalyst Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.



(b) Reports on Form
8-K.



During the three months ended March 31, 2004, we
filed one Current Report on Form 8-K dated, and filed with the Commission, on February 12, 2004, reporting our operating results for the three and six months ended December 31, 2003.



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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, 2004 |  | 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, 2004 |  | By: |  | /s/    KEVIN MCINTOSH                                                                                                                      
|                   |  |     |  | Kevin McIntosh                                                                                                                             
|                   |  |     |  | Senior Vice President, Chief Financial Officer, Secretary and Treasurer  (Authorized Signatory, Principal Financial and
Accounting Officer)



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Exhibit Index



|           |  |                                                                                                                                                                                     
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                         
|           | 
|31.1       |  | Certification of Chief Executive Officer of Venture Catalyst Incorporated, pursuant to Rule 13a-14 of the Securities Exchange Act.                                                  
|           | 
|31.2       |  | Certification of Chief Financial Officer of Venture Catalyst Incorporated, pursuant to Rule 13a-14 of the Securities Exchange Act.                                                  
|           | 
|32.1       |  | Certification of Chief Executive Officer of Venture Catalyst Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|           | 
|32.2       |  | Certification of Chief Financial Officer of Venture Catalyst Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.





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