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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 September 30, 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)



Not Applicable

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



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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 October 31, 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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VENTURE CATALYST INCORPORATED

FORM 10-QSB

FOR THE PERIOD ENDED SEPTEMBER 30, 2004



TABLE OF CONTENTS



|                                                                                                    |  |           
|--------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                    |  | PageNumber
|PART I - FINANCIAL INFORMATION                                                                     
|                                                                                                    | 
|Item 1.
Financial Statements                                                                        |  |           
|Balance Sheets - September 30, 2004 (unaudited) and June 30, 2004                                   |  | 1         
|Statements of Operations (unaudited) - Three months ended September 30, 2004 and September 30, 2003 |  | 2         
|Statements of Cash Flows (unaudited) - Three months ended September 30, 2004 and September 30, 2003 |  | 3         
|Notes to Financial Statements                                                                       |  | 4         
|Item 2.
Managements Discussion and Analysis or Plan of Operation                                   |  | 12        
|Item 3.
Controls and Procedures                                                                     |  | 20        
|                                                                                                   
|PART II- OTHER INFORMATION                                                                         
|                                                                                                    | 
|Item 6.
Exhibits                                                                                    |  | 21        
|Signatures                                                                                          |  | 22        



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

BALANCE SHEETS



|                                                                                         |  |                               |             |   |               |   |             |  
|---------------------------------------------------------------------------------------- |  | ----------------------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                         |  | September 30, 2004(unaudited) |             |   | June 30, 2004 |  
|ASSETS                                                                                   |  |                               |             |   |               |   |             |  
|                                                                                         |  |                              
|Current Assets:                                                                          |  |                               |             |   |               |   |             |  
|Cash and cash equivalents                                                                |  | $                             | 3,498,936   |   |               | $ | 8,025,144   |  
|Consulting fee receivables-Barona Tribe                                                  |  |                               | 575,000     |   |               |   | 575,000     |  
|Deferred tax asset, current                                                              |  |                               | 279,000     |   |               |   | 14,338      |  
|Prepaid expenses and other current assets                                                |  |                               | 262,071     |   |               |   | 220,853     |  
|Accounts receivable, net                                                                 |  |                               | 217,742     |   |               |   | 26,752      |  
|Costs in excess of billings, uncompleted software contracts                              |  |                               | 4,106       |   |               |   |            |  
|                                                                                         |  |                               |             |   |               |   |             |  
|Total current assets                                                                     |  |                               | 4,836,855   |   |               |   | 8,862,087   |  
|                                                                                         |  |                               |             |   |               |   |             |  
|Non-Current Assets:                                                                      |  |                               |             |   |               |   |             |  
|Deferred tax asset, non-current                                                          |  |                               | 349,000     |   |               |   | 525,662     |  
|Property, plant and equipment, net                                                       |  |                               | 211,823     |   |               |   | 154,032     |  
|Restricted cash                                                                          |  |                               | 43,360      |   |               |   |            |  
|Deposits and other assets                                                                |  |                               | 8,321       |   |               |   | 8,321       |  
|                                                                                         |  |                               |             |   |               |   |             |  
|Total non-current assets                                                                 |  |                               | 612,504     |   |               |   | 688,015     |  
|                                                                                         |  |                               |             |   |               |   |             |  
|Total assets                                                                             |  | $                             | 5,449,359   |   |               | $ | 9,550,102   |  
|                                                                                         |  |                               |             |   |               |   |             |  
|                                                                                         |  |                              
|LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                           |  |                               |             |   |               |   |             |  
|                                                                                         |  |                              
|Current Liabilities:                                                                     |  |                               |             |   |               |   |             |  
|Billings in excess of costs, uncompleted software contracts                              |  | $                             | 699,427     |   |               | $ | 459,970     |  
|Accrued wages                                                                            |  |                               | 452,951     |   |               |   | 516,899     |  
|Accounts payable and accrued expenses                                                    |  |                               | 391,639     |   |               |   | 298,866     |  
|Estimated loss, uncompleted software contracts                                           |  |                               | 148,000     |   |               |   | 148,000     |  
|Deferred revenue, software support contracts                                             |  |                               | 25,000      |   |               |   | 37,500      |  
|Current portion of long-term debt                                                        |  |                               |            |   |               |   | 4,300,000   |  
|                                                                                         |  |                               |             |   |               |   |             |  
|Total current liabilities                                                                |  |                               | 1,717,017   |   |               |   | 5,761,235   |  
|Long-term debt                                                                           |  |                               |            |   |               |   | 7,669,463   |  
|                                                                                         |  |                               |             |   |               |   |             |  
|Total liabilities                                                                        |  |                               | 1,717,017   |   |               |   | 13,430,698  |  
|                                                                                         |  |                               |             |   |               |   |             |  
|Commitments and Contingencies                                                            |  |                               |            |   |               |   |            |  
|Shareholders Equity (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                                                               |  |                               | 19,616,699  |   |               |   | 11,947,236  |  
|Retained deficit                                                                         |  |                               | (15,891,564 | ) |               |   | (15,835,039 | )
|                                                                                         |  |                               |             |   |               |   |             |  
|Total shareholders equity (deficit)                                                     |  |                               | 3,732,342   |   |               |   | (3,880,596  | )
|                                                                                         |  |                               |             |   |               |   |             |  
|Total liabilities and shareholders equity (deficit)                                     |  | $                             | 5,449,359   |   |               | $ | 9,550,102   |  
|                                                                                         |  |                               |             |   |               |   |             |  



The accompanying notes
are an integral part of these statements.



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VENTURE CATALYST INCORPORATED

STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                            |  |                                          |           |   |      |   |           |  
|------------------------------------------- |  | ---------------------------------------- | --------- | - | ---- | - | --------- | -
|                                            |  | For the three months ended September 30, |          
|                                            |  | 2004                                     |           |   | 2003 |  
|Revenues:                                   |  |                                          |           |   |      |   |           |  
|Consulting services                         |  | $                                        | 1,725,000 |   |      | $ | 1,950,900 |  
|Software products and related services      |  |                                          | 19,123    |   |      |   | 1,816     |  
|                                            |  |                                          |           |   |      |   |           |  
|Total revenues                              |  |                                          | 1,744,123 |   |      |   | 1,952,716 |  
|                                            |  |                                          |           |   |      |   |           |  
|Cost of revenues:                           |  |                                          |           |   |      |   |           |  
|Consulting services                         |  |                                          | 613,547   |   |      |   | 603,153   |  
|Software products and related services      |  |                                          | 415,018   |   |      |   | 236,737   |  
|                                            |  |                                          |           |   |      |   |           |  
|Total cost of revenues                      |  |                                          | 1,028,565 |   |      |   | 839,890   |  
|                                            |  |                                          |           |   |      |   |           |  
|Gross profit                                |  |                                          | 715,558   |   |      |   | 1,112,826 |  
|                                            |  |                                          |           |   |      |   |           |  
|Operating expenses:                         |  |                                          |           |   |      |   |           |  
|General and administrative                  |  |                                          | 644,963   |   |      |   | 629,767   |  
|Sales and marketing                         |  |                                          | 215,939   |   |      |   | 238,606   |  
|Research and development                    |  |                                          | 12,836    |   |      |   | 13,714    |  
|                                            |  |                                          |           |   |      |   |           |  
|Total operating expenses                    |  |                                          | 873,738   |   |      |   | 882,087   |  
|                                            |  |                                          |           |   |      |   |           |  
|Operating (loss) profit                     |  |                                          | (158,180  | ) |      |   | 230,739   |  
|                                            |  |                                          |           |   |      |   |           |  
|Other income (expense):                     |  |                                          |           |   |      |   |           |  
|Interest income                             |  |                                          | 13,388    |   |      |   | 13,839    |  
|Interest expense                            |  |                                          |          |   |      |   | (255,376  | )
|Other gains                                 |  |                                          | 267       |   |      |   |          |  
|                                            |  |                                          |           |   |      |   |           |  
|Other income (expense), net                 |  |                                          | 13,655    |   |      |   | (241,537  | )
|                                            |  |                                          |           |   |      |   |           |  
|Net loss before income tax benefit          |  |                                          | (144,525  | ) |      |   | (10,798   | )
|Income tax benefit                          |  |                                          | 88,000    |   |      |   |          |  
|                                            |  |                                          |           |   |      |   |           |  
|Net loss                                    |  | $                                        | (56,525   | ) |      | $ | (10,798   | )
|                                            |  |                                          |           |   |      |   |           |  
|Basic and diluted loss per share:           |  |                                          |           |   |      |   |           |  
|Net loss per share - basic and diluted      |  | $                                        | (.01      | ) |      | $ | (.00      | )
|                                            |  |                                          |           |   |      |   |           |  
|Weighted average common shares outstanding: |  |                                          |           |   |      |   |           |  
|Basic                                       |  |                                          | 7,206,598 |   |      |   | 7,206,598 |  
|                                            |  |                                          |           |   |      |   |           |  
|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 Three Months Ended September 30, |           
|                                                                                               |  | 2004                                     |            |   | 2003 |  
|Increase (decrease) in cash:                                                                   |  |                                          |            |   |      |   |           |  
|Cash flows (used in) provided by operating activities:                                         |  |                                          |            |   |      |   |           |  
|Net loss                                                                                       |  | $                                        | (56,525    | ) |      | $ | (10,798   | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities:      |  |                                          |            |   |      |   |           |  
|Depreciation and amortization                                                                  |  |                                          | 25,217     |   |      |   | 53,458    |  
|Gain on disposal of asset                                                                      |  |                                          | (17        | ) |      |   |          |  
|Amortization of stock-based compensation                                                       |  |                                          |           |   |      |   | 504       |  
|Interest expense, long-term debt                                                               |  |                                          |           |   |      |   | 255,376   |  
|Changes in operating assets and liabilities                                                    |  |                                          | (68,531    | ) |      |   | (207,712  | )
|                                                                                               |  |                                          |            |   |      |   |           |  
|Net cash (used in) provided by operating activities                                            |  |                                          | (99,856    | ) |      |   | 90,828    |  
|                                                                                               |  |                                          |            |   |      |   |           |  
|Cash flows used in investing activities:                                                       |  |                                          |            |   |      |   |           |  
|Issuance of restricted cash                                                                    |  |                                          | (43,360    | ) |      |   |          |  
|Purchase of furniture and equipment                                                            |  |                                          | (82,992    | ) |      |   | (6,495    | )
|                                                                                               |  |                                          |            |   |      |   |           |  
|Net cash used in investing activities                                                          |  |                                          | (126,352   | ) |      |   | (6,495    | )
|                                                                                               |  |                                          |            |   |      |   |           |  
|Cash flows used in financing activities:                                                       |  |                                          |            |   |      |   |           |  
|Payment on long-term notes                                                                     |  |                                          | (4,300,000 | ) |      |   |          |  
|                                                                                               |  |                                          |            |   |      |   |           |  
|Net cash used in financing activities                                                          |  |                                          | (4,300,000 | ) |      |   |          |  
|                                                                                               |  |                                          |            |   |      |   |           |  
|Net (decrease) increase in cash                                                                |  |                                          | (4,526,208 | ) |      |   | 84,333    |  
|Cash at beginning of period                                                                    |  |                                          | 8,025,144  |   |      |   | 6,835,190 |  
|                                                                                               |  |                                          |            |   |      |   |           |  
|Cash at end of period                                                                          |  | $                                        | 3,498,936  |   |      | $ | 6,919,523 |  
|                                                                                               |  |                                          |            |   |      |   |           |  
|Supplemental disclosures of cash flow information:                                             |  |                                          |            |   |      |   |           |  
|Interest paid                                                                                  |  | $                                        |           |   |      | $ |          |  
|                                                                                               |  |                                          |            |   |      |   |           |  
|Income taxes paid                                                                              |  | $                                        |           |   |      | $ | 900       |  
|                                                                                               |  |                                          |            |   |      |   |           |  
|Non cash financing and investing activities: (See Note 12 Stock Repurchase / Long-Term Debt) |  |                                          |            |   |      |   |           |  



The accompanying notes
are an integral part of these financial statements.



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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 financial statements should be read in conjunction with our Annual Report on Form 10-KSB for the fiscal year ended June 30, 2004 (fiscal 2004). Certain items in the financial statements for fiscal 2004
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



We are 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 have provided services to the Barona Tribe since 1991. From April 1996 to March 31, 2004, consulting services were provided to the Barona Tribe
pursuant to an Amended and Restated Consulting Agreement dated April 29, 1996, as amended by Modification No. 1 (Modification No. 1) on February 17, 1998 (as amended, the 1996 Consulting Agreement). The 1996 Consulting
Agreement expired on March 31, 2004. On May 25, 2004 we entered into an amendment and extension (Modification No. 2) to the 1996 Consulting Agreement which was effective April 1, 2004. The 1996 Consulting Agreement, as amended by
Modification No. 2, shall hereinafter be referred to as the 2004 Consulting Agreement. The 2004 Consulting Agreement expires March 31, 2009. We currently provide services to the Barona Tribe in connection with their operation of the
Barona Valley Ranch Resort & Casino (the Barona Valley Ranch). The Barona Valley Ranch is located in Lakeside, California, near San Diego.



Our software division is dedicated to the ongoing product and business development of Mariposa, a fully-integrated customer relationship management
(CRM), marketing and business intelligence software system 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 (OLAP), 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.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.
| | - | -------------------------------------



Consulting revenues are recorded monthly, as earned, pursuant to the above referenced guidelines.



For a detailed discussion relating to the terms of the 1996 Consulting
Agreement and 2004 Consulting Agreement, including the determination of consulting fees, see Note 3. Agreements with the Barona Tribe.



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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 software contracts 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 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 September 30, 2004, we have successfully completed two full installations of Mariposa. Mariposa is a complex fully-integrated 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 software contracts, and customer acceptance rights, we are using the completed contract method of accounting and will recognize revenue and cost of revenues for
each software contract 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.



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.



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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 endedSeptember 30, |         
|                                                                                                                                                   |  | 2004                            |          |   | 2003 |  
|Net loss:                                                                                                                                          |  |                                 |          |   |      |   |         |  
|As reported                                                                                                                                        |  | $                               | (56,525  | ) |      | $ | (10,978 | )
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all option grants, net of related tax
effects |  |                                 | (57,195  | ) |      |   | (80,837 | )
|                                                                                                                                                   |  |                                 |          |   |      |   |         |  
|Pro forma                                                                                                                                          |  | $                               | (113,720 | ) |      | $ | (91,815 | )
|                                                                                                                                                   |  |                                 |          |   |      |   |         |  
|Net loss per share:                                                                                                                                |  |                                 |          |   |      |   |         |  
|As reported                                                                                                                                        |  | $                               | (.01     | ) |      | $ | (.01    | )
|Pro forma                                                                                                                                          |  | $                               | (.02     | ) |      | $ | (.01    | )



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. No stock options were issued in the three month period ended September 30, 2004 or 2003.



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 as research and development 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
useful life of the product. We periodically review capitalized software costs for impairment where the 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 amortized the capitalized software development costs on a straight-line basis over the estimated useful life of two years. All capitalized software development costs have been fully amortized as of March 31, 2004.
Amortization of the capitalized software development costs, which is included in cost of revenues, was $0 and $32,000 during the three month period ended September 30, 2004 and 2003, respectively.



Cost of Revenues  Software Products and Related Services



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.



6



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We are incurring significant costs to correct minor technical problems (bug fixes) and to
perform enhancements and improvements to the existing Mariposa software applications on an ongoing basis. These costs are being recorded as maintenance and support and are included in the cost of revenues for software products and related services.
We expect to continue to incur significant costs for maintenance and support for our Mariposa software applications during fiscal 2005.



Note 3. Agreements with the Barona Tribe



We have provided services to the Barona Tribe since 1991. From April 1996 to March 2004, we provided services to the Barona Tribe pursuant to the 1996
Consulting Agreement and services are currently provided to the Barona Tribe pursuant to the 2004 Consulting Agreement, which expires March 31, 2009, unless renewed or extended.



Under the 1996 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 1996 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 1996 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 1996 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.



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 September 30, 2004, we are not aware of a default by the Barona Tribe of any of the terms of the loan agreement.



On May 25, 2004, we entered into an amendment and extension to the 1996 Consulting Agreement (Modification No. 2), which became effective as
of April 1, 2004. We refer to the 1996 Consulting Agreement, as amended by Modification No. 2, as the 2004 Consulting Agreement. The 2004 Consulting Agreement was effective April 1, 2004. Under the 2004 Consulting Agreement, we are paid
a fixed monthly fee of $575,000 for consulting services rendered to the Barona Tribe, with an annual cost of living



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adjustment not to exceed 5%. Fees under the agreement will continue to be subordinated to the terms of the current
Subordination Agreement. The term of the 2004 Consulting Agreement is five years, with the Barona Tribe having the right to negotiate an additional five year extension. In connection with the 2004 Consulting Agreement, the Barona Tribe and VCAT
unconditionally released each other from all claims or liabilities resulting from the 1996 Consulting Agreement, including the approximate $3.7 million liability previously listed on our financial statements as advances of future consulting
fees. The 2004 Consulting Agreement also reaffirmed certain license and profit-sharing rights to our Mariposa software that we had previously granted to the Barona Tribe, which are described in more detail below.



During the three months ended September 30, 2004 we earned $1,725,000 in
consulting fees in connection with the performance of consulting services for the Barona Tribe, pursuant to the 2004 Consulting Agreement. We did not earn any consulting fees pursuant to the formula under the 1996 Consulting Agreement during the
three months ended September 30, 2003. However, during the three months ended September 30, 2003, we earned $1,951,000 in good faith consulting fees in connection with the performance of consulting services for the Barona Tribe. The fees
were voluntarily paid to us by the Barona Tribe as a sign of their good faith in the negotiations relating to the restructuring and extension of the 1996 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



Note 4. Business Concentration



Historically, a significant portion of our revenue has been earned from the
Barona Tribe. Although we expect to generate revenues from software contracts, we expect the majority of our revenues to be generated from the Barona Tribe for the foreseeable future. During the three months ended September 30, 2004 and 2003,
revenues from the Barona Tribe were $1,725,000 and $1,951,000, respectively, representing substantially all of our total revenues.



Note 5. 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 and equity
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. Cash equivalents during the three months ended September 30, 2004,
consisted of auction rate preferred securities, commercial paper and certificate of deposit (CD) instruments. The commercial paper and CD instruments had maturities ranging from 15-days to 90-days and the auction rate preferred
securities are reset every seven days in an auction process. Interest rates earned on such investments ranged from .81% to 1.9%.



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Cash equivalents during the three months ended September 30, 2003, consisted of commercial paper and CD
instruments with maturities ranging from three weeks to three months. Interest rates earned during the three months ended September 30, 2003 on such investments ranged from .89% to 1.09%.



Note 6. Restricted Cash



We issued an irrevocable letter of credit for $43,000 to satisfy terms of the lease agreement for our new office located in Las Vegas, Nevada. Such letter
of credit will automatically renew on an annual basis until September 30, 2009, unless cancelled by the lessor. Pursuant to the lease terms, if we generate positive cash flow from operations for three consecutive quarters and have a positive
stockholders equity balance, the letter of credit will be cancelled.



Note
7. Uncompleted Software Contracts



Billings and costs
related to our uncompleted 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, uncompleted software contracts.
When billings to date exceed related costs incurred, a liability is recorded called billings in excess of costs, uncompleted software contracts. Contracts are segregated for purposes of recording related assets and liabilities.



The following table is a summary of billings and costs for our
uncompleted contracts for the three month period ended September 30, 2004:



|                                                            |  |   |          
|----------------------------------------------------------- |  | - | ---------
|Number of uncompleted contracts                             |  |   | 5        
|Gross contracts amount                                      |  | $ | 2,128,473
|                                                            | 
|Uncompleted contracts with costs in excess of billings:     |  |   |          
|Costs incurred                                              |  | $ | 116,606  
|Billings                                                    |  |   | 112,500  
|                                                            |  |   |          
|Costs in excess of billings, uncompleted software contracts |  | $ | 4,106    
|                                                            |  |   |          
|                                                            | 
|Uncompleted contracts with billings in excess of costs:     |  |   |          
|Billings                                                    |  | $ | 781,023  
|Costs incurred                                              |  |   | 81,596   
|                                                            |  |   |          
|Billings in excess of costs, uncompleted software contracts |  | $ | 699,427  
|                                                            |  |   |          



Note 8. 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 three months ended September 30, 2004:



|                                |  |                     |   |  |                        |              
|------------------------------- |  | ------------------- | - |  | ---------------------- | -------------
|                                |  | Options Outstanding |   |  | Options PricePer Share
|Outstanding, July 1, 2004       |  | 5,658,250           |   |  | $                      | 0.13 - $12.50
|Granted                         |  |                    |   |  |                        |             
|Exercised                       |  |                    |   |  |                        |             
|Cancelled                       |  | (60,000             | ) |  | $                      | 0.13 - $2.41 
|                                |  |                     |   |  |                        |              
|Outstanding, September 30, 2004 |  | 5,598,250           |   |  | $                      | 0.13 - $12.50
|                                |  |                     |   |  |                        |              



Note 9. Net Loss Per Share



Basic net loss per share is based on the weighted effect
of all common shares issued and outstanding and is calculated by dividing net loss available to common shareholders by the weighted average shares outstanding during the period. Diluted loss reflects the potential dilution from common stock options.



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Below is the calculation of basic and diluted loss per share for the three months ended:



|                                              |  |               |           |   |      |   |           |  
|--------------------------------------------- |  | ------------- | --------- | - | ---- | - | --------- | -
|                                              |  | September 30, |          
|                                              |  | 2004          |           |   | 2003 |  
|Net loss available to common shareholders     |  | $             | (56,525   | ) |      | $ | (10,978   | )
|                                              |  |               |           |   |      |   |           |  
|Weighted average shares outstanding - basic   |  |               | 7,206,598 |   |      |   | 7,206,598 |  
|Effect of dilutive options                    |  |               |          |   |      |   |          |  
|                                              |  |               |           |   |      |   |           |  
|Weighted average shares outstanding - diluted |  |               | 7,206,598 |   |      |   | 7,206,598 |  
|                                              |  |               |           |   |      |   |           |  
|Net loss per common share  basic and diluted |  | $             | (.01      | ) |      | $ | (.00      | )
|                                              |  |               |           |   |      |   |           |  



Options to purchase
5,598,250 shares of our common stock with exercise prices ranging from $0.13 to $12.50 per share were outstanding at September 30, 2004, which expire on various future dates through 2013. During the quarter ending September 30, 2004, options to
purchase 5,598,250 were not included in the calculation of EPS because the effect would have been anti-dilutive. During the quarter ending September 30, 2003 options to purchase 5,658,250 shares of common stock, representing all outstanding options,
were not included in the computation of diluted EPS because they were anti-dilutive.



Note 10. 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 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.



The segment results reflect an allocation of operating
expenses consistent with the basis and manner in which we internally disaggregate financial information for the purpose of assisting in making internal operating decisions. 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) and operating profit (loss) before other expense
for the three months ended September 30, 2004 and 2003 is as follows:



|                                       |  |                    |           |          |   |          |       |  |   |           |  
|-------------------------------------- |  | ------------------ | --------- | -------- | - | -------- | ----- |  | - | --------- | -
|                                       |  | ConsultingServices |           | Software |   |          | Total | 
|Three months ended September 30, 2004: |  |                    |           |          |   |          |       |  |   |           |  
|Revenues                               |  | $                  | 1,725,000 |          | $ | 19,123   |       |  | $ | 1,744,123 |  
|Cost of revenues                       |  |                    | 613,547   |          |   | 415,018  |       |  |   | 1,028,565 |  
|Allocated operating expenses           |  |                    | 537,564   |          |   | 336,174  |       |  |   | 873,738   |  
|                                       |  |                    |           |          |   |          |       |  |   |           |  
|Operating profit (loss)                |  | $                  | 573,889   |          | $ | (732,069 | )     |  |   | (158,180  | )
|                                       |  |                    |           |          |   |          |       |  |   |           |  
|Three months ended September 30, 2003: |  |                    |           |          |   |          |       |  |   |           |  
|Revenues                               |  | $                  | 1,950,900 |          | $ | 1,816    |       |  | $ | 1,952,716 |  
|Cost of revenues                       |  |                    | 603,153   |          |   | 236,737  |       |  |   | 839,890   |  
|Allocated operating expenses           |  |                    | 527,675   |          |   | 354,413  |       |  |   | 882,088   |  
|                                       |  |                    |           |          |   |          |       |  |   |           |  
|Operating profit (loss)                |  | $                  | 820,072   |          | $ | (589,334 | )     |  |   | 230,738   |  
|                                       |  |                    |           |          |   |          |       |  |   |           |  



Note 11. Income Taxes



During the three months ended September 30, 2004, we
recorded an income tax benefit of $88,000 as a result of applying an estimated annual effective tax rate of 61% to the net loss for the period. The estimated annual effective tax rate is higher than the statutory rate primarily as a result of (a)
estimated permanent differences and (b) an increase in the valuation allowance associated with alternative minimum tax (AMT) credits for the fiscal year ended June 30, 2005. The AMT credits were primarily generated from approximately
$1,700,000 in taxable income as a result of the debt restructuring. The remaining amount of the debt restructuring of $5,969,000 will be reduced by certain tax attributes and will be excluded from taxable income pursuant to the Internal Revenue Code
and related regulations.



Note 12. Stock Repurchase/ Long-Term Debt



In September 1996, we entered into a Stock Purchase and
Settlement and Release Agreement (the Stock Purchase Agreement) with two of our shareholders (the Note Holders). 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 June 30, 2004, the outstanding principal amount of debt and accrued interest was $11,969,000. In addition, the principal amount of the notes could have increased by an additional $4,856,000 if
certain contingencies were met. All payments pursuant to the Stock Purchase Agreement and the notes were 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



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make payments under the notes in September 2003, 2002 and 2001 and, based upon our shareholders deficit balance at
June 30, 2004, and our current sources of revenues, we did not expect that we would be obligated to make a payment of principal or interest for the foreseeable future. Although our failure to make payments under the notes in such circumstances did
not constitute an event of default, the unpaid interest on the notes was added to the outstanding principal, which continued to accrue interest.



On July 19, 2004, we entered into an agreement with the Note Holders to restructure our principal indebtedness (the Restructuring Agreement).
Pursuant to the terms of the Restructuring Agreement, our aggregate outstanding debt was reduced from $11,969,000 to $4,300,000. Under the Restructuring Agreement, the Note Holders exchanged all the outstanding notes for new promissory notes in the
aggregate principal amount of $4,200,000 and $100,000 in additional obligations. The principal due under the new notes was paid in two installments, one in July 2004 and one in September 2004. As of September 30, 2004, no further payments are due
under the notes. The new notes did not bear interest.



The
original notes were recorded as additional consideration when issued pursuant to the Stock Purchase Agreement and were recorded as a reduction to shareholders equity at the time of issuance. In July 2004, we reduced the carrying amount of the
debt by $7,669,000, the amount of the aggregate debt reduction under the terms of the Restructuring Agreement, which was recorded as an increase to our shareholders equity through an increase to our additional-paid-in capital account.



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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 and our software division is dedicated to the ongoing product and business development of Mariposa, a fully-integrated CRM, marketing and business intelligence software system for the gaming
and hospitality industry. 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, 2004 (fiscal 2004).



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). The 1996 Consulting Agreement
expired on March 31, 2004.



Under the 1996 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.



On May 25, 2004, we entered into an amendment and extension (Modification No. 2) to the 1996 Consulting Agreement. Modification No. 2 was
effective April 1, 2004. Under Modification No. 2, we are paid a fixed monthly fee of $575,000 for consulting services rendered to the Barona Tribe, with an annual cost of living adjustment not to exceed 5%. Fees under the agreement will continue to
be subordinated to the terms of the Subordination Agreement relating to the Barona Tribes loan agreement with Wells Fargo Bank, N.A., which was used to develop the Barona Valley Ranch. The term of Modification No. 2 is five years, with the
Barona Tribe having the right to negotiate an additional five year extension.



In connection with Modification No. 2, the Barona Tribe and VCAT unconditionally released each other from all claims or liabilities resulting from the 1996 Consulting Agreement, including the approximate $3.7 million
liability previously listed on VCATs financial statements as advances of future consulting fees. Modification No. 2 also reaffirmed certain license and profit-sharing rights to our Mariposa software that we had previously granted
to the Barona Tribe, which are described in more detail below. As noted above, unless otherwise referenced herein, the 1996 Consulting Agreement, as amended by Modification No. 2, shall hereinafter be referred to as the 2004 Consulting
Agreement.



During the three months ended September 30,
2004 we earned $1,725,000 in consulting fees pursuant to the 2004 Consulting Agreement in connection with the performance of consulting services for the Barona Tribe. During the three months ended September 30, 2003, we earned $1,951,000 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 negotiations relating to the restructuring and extending
of the 1996 Consulting Agreement.



Our Software Division



During fiscal 2002, we completed development of a
fully-integrated CRM, marketing and business intelligence software system 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 may 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 may involve material increases
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.



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In January 2003, as a sign of our good faith intentions in our discussions to restructure and
extend 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 delivered a letter dated January 15, 2003 to the Barona Tribe, under which
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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of September 30, 2004, we have five
uncompleted software contracts that we have entered into that, if completed, will result in aggregate revenues of $2,128,000 in our software division, exclusive of any potential support fees which could be generated subsequent to their completion.
During fiscal 2004 we recorded an estimated loss of $148,000 for one of the five uncompleted contracts. Although we expect to incur significant costs to complete the other four contracts, the amount of costs cannot be reasonably 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 four contracts.



Historically, the majority of our software development, support, and
installation and integration efforts (software services) have been performed by a third-party service firm. We are currently in the process of transitioning all software services from a third-party service firm to internal engineering
resources. In connection with the transition, in August 2004, we reached an agreement with our third-party service firm which enabled us to hire four of their engineers for a fee of $117,000. In connection with this agreement, we mutually agreed to
allow our agreement for software services to expire on December 31, 2004. Other than the one-time fee referenced above we do not expect this transition to have a material impact on our expenses.



On July 19, 2004, we entered into an agreement to restructure our principal
indebtedness (the Restructuring Agreement) with the note holders. Pursuant to the terms of the Restructuring Agreement, our aggregate outstanding debt was reduced from $11,969,000 to $4,300,000. The principal due under the new notes was
paid in two installments, one in July 2004 and one in September 2004. As of September 30, 2004, no further payments are due under the notes and our long-term debt balance was zero.



Critical Accounting Policies



Our discussion and analysis of our financial condition and results of operations is based upon our 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 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 accounting for
deferred income taxes are the most critical accounting policies that impact our 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;
| | - | ----------------------------



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



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



Revenues pursuant to the 2004 Consulting Agreement are recorded monthly, as earned, pursuant to the above referenced guidelines. Revenue relating to the
good faith payments received from the Barona Tribe during the three months ended September 30, 2003 were recognized when the services with respect to which the payments were made were rendered, provided that we had received indications from the
Barona Tribe that they intended to make a good faith payment for that period.



Revenue Recognition-Software Products and Related Services.



We expect to derive a portion of our revenues from licensing Mariposa 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 software contracts 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 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.



We have been in the software business since
November 2002, and as of September 30, 2004 we have successfully completed two full installations of Mariposa. Mariposa is a complex 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 software contracts, and customer acceptance rights, we are using the completed contract method and will recognize revenue and cost of revenues for each software contract 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.



Deferred Income Taxes.



We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In evaluating our
ability to recover our deferred tax assets, we consider all available positive and negative evidence which is, in part, based upon our estimate of current and future taxable income. In determining future taxable income, we are responsible for
assumptions that require significant judgment.



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During the three months ended September 30, 2004, we increased our deferred tax assets by $88,000, as a
result of applying our estimated annual effective tax rate to the current period loss. In connection with the debt restructuring discussed in greater detail under the caption Liquidity and Capital Resources, below, approximately
$1,700,000 will be included in taxable income as a result of the restructuring. The remaining amount will reduce certain tax attributes and be excluded from taxable income pursuant to the Internal Revenue Code and related regulations.



Results of Operations



Three Months Ended September 30, 2004 Compared with the Three Months Ended September 30, 2003.



Revenues



Revenues for the three months ended September 30, 2004 were $1,744,000,
compared to $1,953,000 during the same period last year.



During the three months ended September 30, 2004, we earned $1,725,000 in consulting fees for services provided to the Barona Tribe during the period pursuant to the 2004 Consulting Agreement. During the three months ended September 30,
2003, we earned $1,951,000 in consulting fees, resulting from three good faith payments from the Barona Tribe, for services provided during the period. The decrease is attributable to the fact that the fixed monthly consulting fees in the current
period are less than the monthly good faith payments earned in the prior year period.



During the three months ended September 30, 2004, we earned $19,000 in revenues from our software products and related services compared to $2,000 earned
in the prior year period. The increase was primarily the result of the addition of support fees earned in the current year period. We did not earn any support fees in the prior year period.



Cost of Revenues



Cost of revenues for the three months ended September 30, 2004 were
$1,029,000, compared to $840,000 during the three months ended September 30, 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 September 30, 2004 in the consulting services division were $614,000, an increase
of 2% compared to $603,000 recorded during the same period in last year. The increase was primarily the result of an increase in professional services of $26,000 and compensation and other personnel-related expenses of $7,000 partially offset by a
reduction in other direct expenses of $23,000.



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 three months ended September 30, 2004 increased 75% to $415,000 from $237,000 during the three months ended September 30, 2003. Expenses during the current year period increased primarily as a result of (a) a one-time fee of $117,000 paid
to our third-party services firm in connection with the employment of four of their employees (b) an increase in compensation and other personnel-related expenses of $75,000, and (c) $18,000 in other direct costs. The increase was partially offset
by a reduction in the amortization of capitalized software costs of $32,000 which were fully-amortized as of March 31, 2004.



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 increased 2% to $645,000 for the three months ended September 30, 2004, from $630,000 during the same period last year. The increase was primarily attributable to an increase in (a) professional services of $67,000, including
an increase in fees for our outside auditor of $36,000 incurred in connection with the fiscal 2004 audit, and (b) facility costs of $23,000, including travel and lodging, telecommunications, computer supplies and software expenses incurred primarily
in connection with the opening of our new office in Las Vegas, Nevada. The increase was partially offset by a decrease in (a) compensation and other personnel-related expenses of $23,000 and (b) insurance expense of $53,000.



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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 September 30, 2004,
decreased 9% to $216,000 from $239,000 during the same period last year. The decrease was primarily a result of a decrease in (a) tradeshow costs and related expenses of $71,000 and (b) travel and lodging expenses of $11,000 related to sales
efforts. The decreases were partially offset by an increase in (a) compensation and other personnel-related expenses of $31,000 related to business development efforts and (b) professional service expenses of $26,000, primarily related to website
development and advertising.



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 September 30, 2004, research and development
expenses decreased 6% to $13,000, from $14,000 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 September 30, 2004, interest
income decreased slightly to $13,000 compared to $14,000 for the same period last year. Interest expense decreased to $0 during the three months ended September 30, 2004, from $255,000 in the prior year period, as a result of the debt restructuring
agreement in July 2004 discussed in greater detail under the caption Liquidity and Capital Resources, below.



Income Tax Benefit



We recorded an income tax benefit of $88,000 during the three months ended September 30, 2004, as a result of applying our estimated annual effective tax
rate to the loss recorded in the period. We did not record an income tax benefit in the prior year period as a valuation allowance was recorded to fully offset the income tax benefit resulting from the loss incurred in the period.



Liquidity and Capital Resources



Our principal sources of liquidity at September 30, 2004 to fund ongoing
operations are cash provided from operations and unrestricted cash and cash equivalents of $3,499,000. During the three months ended September 30, 2004, our cash position decreased by $4,526,000 from the June 30, 2004 balance of $8,025,000. This
decrease was a result of cash used in financing activities of $4,300,000, cash used in investing activities of $126,000, and cash used in operating activities of $100,000.



Cash used in financing activities of $4,300,000 resulted from the payments related to the restructured notes discussed in
greater detail below. Cash used in investing activities of $126,000 resulted from the purchase of fixed assets of $83,000, primarily in connection with the opening of our new office in Las Vegas, Nevada in September 2004, and the issuance of a
letter of credit of $43,000, pursuant to the new office lease terms. The cash used in operating activities of $100,000 resulted primarily from cash expenditures in excess of revenue received from the Barona Tribe and payments from clients for
license and service fees pursuant to software contracts during the period.



We expect to continue to receive monthly consulting fee payments of $575,000, subject to an annual cost-of-living adjustment, from the Barona Tribe through the end of the term of the 2004 Consulting Agreement in March
2009. Over the next twelve months, we expect to receive up to $1,389,000 in additional payments pursuant to uncompleted software contracts which we have entered into. We expect to incur costs related to providing services to the Barona Tribe during
fiscal 2005 at levels approximate to the levels being incurred currently. Although we expect to incur significance costs to complete the software contracts, we expect the aggregate costs to be less than revenues to be earned; however, the amount of
costs cannot be estimated at this time.



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In September 1996, we entered into a Stock Purchase and Settlement and Release Agreement (the Stock
Purchase Agreement) with two of our shareholders (the Note Holders). 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
June 30, 2004, the outstanding principal amount of debt and accrued interest was $11,969,000. In addition, the principal amount of the notes could have increased by an additional $4,856,000 if certain contingencies were met. All payments pursuant to
the Stock Purchase Agreement and the notes were 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 shareholders deficit balance at June 30, 2004 and current sources of revenues, we did not expect that we would be obligated to make a payment of principal or interest for the foreseeable
future. Although our failure to make payments under the notes in such circumstances did not constitute an event of default, the unpaid interest on the notes was added to the outstanding principal, which continued to accrue interest.



On July 19, 2004, we entered into a Restructuring Agreement with the Note
Holders to restructure our principal indebtedness. Pursuant to the terms of the Restructuring Agreement, our aggregate outstanding debt was reduced from $11,969,000 to $4,300,000. Under the Restructuring Agreement, the Note Holders exchanged all the
outstanding notes for new promissory notes in the aggregate principal amount of $4,200,000 and $100,000 in additional obligations. The principal due under the new notes was paid in two installments, one in July 2004 and one in September 2004. As of
September 30, 2004, no further payments are due under the notes. The new notes did not bear interest.



In connection with a $200,000,000 loan obtained by the Barona Tribe in July 2001, we entered into a 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 September 30, 2004, we are not aware of a default by the Barona Tribe of any of the terms of the loan agreement. Our consulting fees under the 2004 Consulting Agreement are
still subject to the Subordination Agreement.



As of September
30, 2004 our cash and cash equivalents were approximately $3,499,000. We believe our cash and cash equivalents, together with cash provided from operations, will be sufficient to meet our working capital and capital expenditure requirements for at
least the next twelve months; however, there can be no assurance that we will not be required to seek other financing sooner or that such financing, if required, will be available on terms satisfactory to us.



Factors That May Affect Future Results



Risks Related to our Financial Condition



We have limited resources to grow our business.



Our cash and cash equivalents were $3,499,000 as of September 30, 2004. Our
reduced cash and cash equivalent reserves may limit our ability to pursue other business opportunities unless we obtain additional funds from operations or from other sources. 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. Loss
of the 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. If, as a result of negative economic or other adverse conditions, the Barona Tribe is precluded from making payments to us, we will still
be obligated to provide services to the Barona Tribe under the agreement and, in connection with providing such services, it is possible that we will deplete our cash and cash equivalents. 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.



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



Appropriate regulatory authorities have not yet approved
the 2004 Consulting Agreement. If the 2004 Consulting 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). In July 2004, we received a letter from the Department of Justice of the State of California, Division of Gambling
Control, stating that it had completed the background investigation and forwarded to the California Gambling Control Commission a finding of suitability recommendation. Our application is currently pending. If the CGCC determines that we would not
qualify for a gambling license under state law, the Barona Tribe would be required to terminate the 2004 Consulting Agreement. There can be no assurance that the CGCC will approve our application for a suitability determination, and failure to
receive such approval will have a material adverse effect on our business and financial condition.



There has been an increase in competition for our only client in the San Diego market.



The recent expansion of gaming activities in California has resulted in
experienced gaming companies negotiating or entering into contracts with Native American tribes in California. There has been an increase in the number of Native American casinos open and operating in the San Diego marketplace. The number of casinos
has grown from four to ten since 2000 and there are additional casinos that will be opening, or that are attempting to open, in this area, all of which may be competing for the same customers. This increased competition could reduce the profit
levels achieved at the Barona Valley Ranch. In addition, changes in California law (including by ballot initiatives) which would have the effect of expanding gaming operations by persons other than Native American tribes could result in even more
competition. Under the terms of the 2004 Consulting Agreement, if unforeseen circumstances or factors beyond the control of the Barona Tribe or us result in a significant reduction in the financial viability or profitability of the Barona Valley
Ranch, we may be required to renegotiate our arrangement with the Barona Tribe or, if such adverse circumstances persist over time, the Barona Tribe would have the right to terminate our engagement on terms to be mutually agreed upon in good faith
by us and the Barona Tribe.



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, Mariposa 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 our software products and services. 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
| | - | --------------------------------------------------------------------------------------------------------------------------



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



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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.



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.



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.



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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



Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure
controls and procedures (as defined in Rules 13(a)-15(e) under the Securities Act of 1934, as amended) are effective to ensure that all information required to be disclosed by us in the reports filed or submitted by us under the Securities and
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such
reports is accumulated and communicated to the our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate and allow timely decisions regarding required disclosure.



Changes in Internal Controls.In connection with the above-referenced
evaluation, no change in the 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



(a)
Exhibits.



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



|            |  |                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                      
|10.1        |  | Office Lease Agreement dated as of July 28, 2004, by and between Venture Catalyst Incorporated and McCarran Center, LC.                                                                                                                                                                                                                                          
|            | 
|10.2        |  | Debt Restructuring Agreement by and among Venture Catalyst Incorporated, Jonathan Ungar and Alan Henry Woods, dated as of July 19, 2004, previously filed with the Commission as Exhibit 99.1
to VCATs Current Report on Form 8-K dated July 19, 2004, filed with the Commission on July 19, 2004 (File No. 0-11532), which is incorporated herein by reference.
|            | 
|10.3        |  | Promissory Note by and between Venture Catalyst Incorporated and Jonathan Ungar, dated as of July 19, 2004, previously filed as Exhibit 99.3 to VCATs Current Report on Form 8-K dated
July 19, 2004 filed with the Commission on July 19, 2004 (File No. 0-11532), which is incorporated herein by reference.                                                  
|            | 
|10.4        |  | Promissory Note by and between Venture Catalyst Incorporated and Alan Henry Woods, dated as of July 19, 2004, previously filed as Exhibit 99.2 to VCATs Current Report on Form 8-K dated
July 19, 2004 filed with the Commission on July 19, 2004 (File No. 0-11532), which is incorporated herein by reference.                                                
|            | 
|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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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: November 15, 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: November 15, 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



|            |  |                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                      
|10.1        |  | Office Lease Agreement dated as of July 28, 2004, by and between Venture Catalyst Incorporated and McCarran Center, LC.                                                                                                                                                                                                                                          
|            | 
|10.2        |  | Debt Restructuring Agreement by and among Venture Catalyst Incorporated, Jonathan Ungar and Alan Henry Woods, dated as of July 19, 2004, previously filed with the Commission as Exhibit 99.1
to VCATs Current Report on Form 8-K dated July 19, 2004, filed with the Commission on July 19, 2004 (File No. 0-11532), which is incorporated herein by reference.
|            | 
|10.3        |  | Promissory Note by and between Venture Catalyst Incorporated and Jonathan Ungar, dated as of July 19, 2004, previously filed as Exhibit 99.3 to VCATs Current Report on Form 8-K dated
July 19, 2004 filed with the Commission on July 19, 2004 (File No. 0-11532), which is incorporated herein by reference.                                                  
|            | 
|10.4        |  | Promissory Note by and between Venture Catalyst Incorporated and Alan Henry Woods, dated as of July 19, 2004, previously filed as Exhibit 99.2 to VCATs Current Report on Form 8-K dated
July 19, 2004 filed with the Commission on July 19, 2004 (File No. 0-11532), which is incorporated herein by reference.                                                
|            | 
|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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