NEVADA GOLD & CASINOS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal period ended December 31, 2003

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the transition period from ________________ to ________________

Commission file number 0-8927

NEVADA GOLD & CASINOS, INC.
(Name of issuer in its charter)

Nevada 88-0142032
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)

3040 Post Oak Blvd.
Suite 675 Houston, Texas 77056
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (713) 621-2245

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for any shorter period that the
registrant was required to file the reports), and (2) has been subject to those
filing requirements for the past 90 days. [X] Yes [ ] No

Indicated by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act.) [ ] Yes [X] No

The number of common shares outstanding was 11,994,652 as of February
17, 2004.

TABLE OF CONTENTS

PAGE
----

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 AND
MARCH 31, 2003...........................................................3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED DECEMBER 31, 2003 AND 2002..................................4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED DECEMBER 31, 2003 AND 2002..................................5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED DECEMBER 31, 2003 AND 2002..................................6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................25
ITEM 4. CONTROLS AND PROCEDURES...................................................26

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS ........................................................26
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...........................................27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................27
ITEM 5. OTHER INFORMATION.........................................................27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................27

2

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NEVADA GOLD & CASINOS, INC.
CONSOLIDATED BALANCE SHEETS

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

3

NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

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

4

NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

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

5

NEVADA GOLD & CASINOS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

The accompanying notes are an integral part of these financial statements

6

NEVADA GOLD & CASINOS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BUSINESS

We are primarily a developer of gaming properties.

Isle of Capri Black Hawk, L.L.C.

We are a 43% non-operating owner of Isle of Capri Black Hawk, L.L.C.
("IC-BH") with Isle of Capri Casinos, Inc. ("Isle"). In April 2003, IC-BH
completed the acquisition of the Colorado Central Station Casino and Colorado
Grande Casino for $84 million. Also, to replace its existing credit facility,
IC-BH entered into a new $210.7 million senior secured credit facility to
provide financing for the acquisition of the casinos and for expansion. IC-BH
now owns and operates three casinos in Colorado (referred to collectively as the
"Casinos"). Isle manages the Casinos under an agreement for a fee based upon a
percentage of the casino's revenues and operating profit. IC-BH's gaming
properties are:

o the Isle of Capri - Black Hawk Casino and hotel located in Black
Hawk, Colorado;

o the Colorado Central Station Casino located in Black Hawk,
Colorado; and

o the Colorado Grande Casino located in Cripple Creek, Colorado.

The Isle of Capri - Black Hawk Casino has a 101,000-square-foot floor
plate, and is strategically located at the entrance to Black Hawk. The Casino
features 1,123 slot machines, 14 table games, three restaurants, an event
center, and a 1,100-space covered parking garage. A 237-room hotel is on top of
the casino.

Colorado Central Station Casino is located across from the Isle of
Capri - Black Hawk Casino. Colorado Central Station casino has a total facility
area of 46,250 square feet, features 754 gaming machines, 15 table games, a full
service restaurant, a buffet, two casino bars, and 700 parking spaces.

Colorado Grande Casino is located at a primary intersection, near the
center of the Cripple Creek market. Colorado Grande Casino's gaming area totals
3,125 square feet and offers 219 gaming machines. Colorado Grande Casino does
not offer table play.

In January 2004, a $95 million construction project commenced to expand
and connect the Isle of Capri - Black Hawk and the Colorado Central Station
casino and hotel properties scheduled for completion in December 2005.

Dry Creek Casino, L.L.C.

Dry Creek Casino, L.L.C. of which we own 69%, was formed to assist the
Dry Creek Rancheria Band of Pomo Indians ("tribe") with the development and
financing of its River Rock Casino located approximately 75 miles north of the
San Francisco Bay area, in Sonoma County, California. The casino features 1,600
slot machines, 16 table games, and two restaurants. As of December 31, 2003, we
had a note receivable of $10 million from Dry Creek Casino, L.L.C, which loaned
such funds to the River Rock Casino, and we guaranteed equipment financing and
operating leases of approximately $1 million. Under the development and loan
agreement, Dry Creek Casino, L.L.C. began earning 20% of River Rock Casino's
earnings before taxes (if any), depreciation, and amortization ("credit
enhancement fees") for five years, starting June 1, 2003 and ending on May 31,
2008.

In November 2003, the River Rock Entertainment Authority borrowed $200
million to repay a majority of the tribe's indebtedness, to fund the completion
of three parking structures and related infrastructure improvements, and to fund
the settlement of litigation involving the tribe. In connection therewith, the
River Rock Casino reduced the indebtedness owed to the Dry Creek Casino, L.L.C.,
the Dry Creek Casino, L.L.C. reduced the indebtedness owed to us to $10 million,
and our guarantees with respect to River Rock Casino's indebtedness were reduced
to $1 million as of December 31, 2003. The $10 million loan from the Dry Creek
Casino, L.L.C. to the River Rock Casino has been amended with interest payable
monthly at a rate of 9% per annum and will mature upon the earlier of (i) the
completion of the River Rock Casino parking structures, if such loan proceeds
are not needed to fund parking structures (anticipated to occur in late 2004),
or (ii) if the amount of such loan is needed to complete such construction, the
balance of the loan will be repaid from River Rock Casino's excess cash flow
(anticipated to begin in 2005). An identical loan agreement was entered into
between us and the Dry Creek Casino, L.L.C.

7

Route 66 Casinos, L.L.C.

Route 66 Casinos, L.L.C. ("Route 66"), of which we are a 51% owner, was
formed to assist the Laguna Development Corporation (the "LDC"), a federally
chartered corporation which is wholly-owned by the Pueblo of Laguna tribe with
the design and development of a casino located in New Mexico ("Route 66
Casino"). In exchange for its service, Route 66 has the exclusive right to lease
gaming equipment to the LDC for a period of five years for the Route 66 Casino.
On September 4, 2003, the Route 66 Casino opened. The gaming equipment
agreements include a five-year contract for 1,250 gaming devices to be placed in
the Route 66 Casino, a one-year contract for 100 gaming devices in LDC's Rio
Puerco temporary casino, and a contract that runs through February 2004 for 45
gaming devices in LDC's existing Dancing Eagle Casino. We are currently in
arbitration and litigation with the other member of Route 66 as discussed in
Part II, Item 1. To date, we have received no cash distributions for the
venture. Amounts have been recorded based on financial information made
available to us. Upon settlement of our arbitration and litigation with the
other member, the amounts accrued as both income and expense may differ
substantially thus requiring an adjustment to the estimated amounts currently
recorded. These adjustments may be material to the financial statements.

Other Assets

We and/or our subsidiaries own interests in undeveloped real estate,
restaurant franchises, and gold mining claims.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements included herein have been prepared by us,
without audit (expect for the balance sheet as of March 31, 2003) pursuant to
the rules and regulations of the Securities and Exchange Commission, and reflect
all adjustments which are, in the opinion of management, necessary to present a
fair statement of the results for the interim periods on a basis consistent with
the annual audited consolidated financial statements. All such adjustments are
of a normal recurring nature. The results of operations for the interim periods
are not necessarily indicative of the results to be expected for an entire year.
Certain information, accounting policies and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations,
although we believe that all disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with our audited consolidated financial statements included in our
Annual Report on Form 10-KSB for the year ended March 31, 2003.

CASH AND CASH EQUIVALENTS - Interest-bearing deposits and other
investments, with original maturities of three months or less from the date of
purchase, are considered cash and cash equivalents.

REAL ESTATE HELD FOR DEVELOPMENT - Real estate held for development
consists of undeveloped land located in and around Black Hawk, Colorado and
Nevada County, California. We have capitalized related interest and certain
direct costs of pre-development. Property held for development is carried at the
lower of cost or net realizable value.

8

FURNITURE, FIXTURES, AND EQUIPMENT - We depreciate furniture, fixtures,
and equipment over their estimated useful lives, ranging from two to seven
years, using the straight-line method. Expenditures for furniture, fixtures, and
equipment are capitalized at cost. When items are retired or otherwise disposed
of, a gain or (loss) is recorded for the difference between net book value and
proceeds realized on the property. Ordinary maintenance and repairs are charged
to expense, and replacements and improvements are capitalized.

DEVELOPMENT COST - We have capitalized certain direct cost of
predevelopment activities together with capitalized interest related to our
projects. Upon completion, the capitalized development costs will be amortized
over the life of the project, using the straight-line method.

DEFERRED LOAN ISSUE COST - We have capitalized the finance fee related
to our corporate debt. We amortize such cost over the term of the debt, using
the effective interest method.

REVENUE RECOGNITION - We record revenues from interest income on notes
receivable on the accrual basis. The dates on which interest income is actually
collected is dependent upon the terms of the particular debt agreement, and may
not correspond to the date such interest income is recorded.

INCOME TAXES - The asset and liability approach is used for financial
accounting and reporting for income taxes. Under this approach, deferred tax
assets and liabilities are recognized based on anticipated future tax
consequences, using currently enacted tax laws, attributable to differences
between financial statement carrying amounts of assets and liabilities and their
respective tax basis.

EARNINGS PER SHARE DATA - Basic earnings per common share amounts are
calculated using the average number of common shares outstanding during each
period. Diluted earnings per share assumes the exercise of all stock options
having exercise prices less than the average market price of the common stock
using the "treasury stock method" and for convertible debt securities using the
"if converted method".

STOCK-BASED COMPENSATION - We have adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 - "Accounting for Stock Based
Compensation." Under SFAS No. 123, we are permitted to either record expenses
for stock options and other employee compensation plans based on their fair
value at the date of grant or to continue to apply our current accounting policy
under Accounting Principles Board, ("APB") Opinion No. 25 "Accounting for Stock
Issued to Employees," and recognize compensation expense, if any, based on the
intrinsic value of the equity instrument at the measurement date. We elected to
continue following APB No. 25.

BASIS OF PRESENTATION - These financial statements are consolidated for
all majority owned subsidiaries as of December 31, 2003. Affiliated companies in
which we do not have a controlling interest or for which control is expected to
be temporary are accounted for using the equity method. All significant
intercompany transactions and balances have been eliminated in the financial
statements.

USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. We are currently in arbitration and litigation with the
other member of Route 66 as discussed in Part II, Item 1. As a result,
information presented in our consolidated financial statements related to Route
66 has been estimated by us.

CONCENTRATION OF RISK - We are dependent to a large extent upon IC-BH
for our earnings and cash flows from operations. Accordingly, we will be subject
to greater risks than a geographically diversified gaming operation, including,
but not limited to, risks related to local economic and competitive conditions,
complications caused by weather or road closure, road construction on primary
access routes, changes in local and state governmental laws and regulations
(including changes in laws and regulations affecting gaming operations and
taxes) and natural and other disasters.

9

Any decline in the number of visitors to the Black Hawk Market, a
downturn in the overall economy of the area served by the Black Hawk Market, a
decrease in gaming activities in the Black Hawk Market or an increase in
competition could have a material adverse effect on us.

We maintain cash accounts in major U.S. financial institutions. The
terms of these deposits are on demand to minimize risk. The balances of these
accounts occasionally exceed the federally insured limits, although no losses
have been incurred in connection with such cash balances.

SUBSTANTIAL LEVERAGE - In April 2003, IC-BH entered into a $210.7
million senior secured credit facility, which replaced its prior credit
facility. The degree to which IC-BH is leveraged could have important
consequences including, but not limited to, the following: (a) its increased
vulnerability to adverse general economic and industry conditions; (b) the
dedication of a substantial portion of its operating cash flow to the payment of
principal and interest of indebtedness, thereby reducing the funds available for
operations and further development of IC-BH; and (c) its impaired ability to
obtain additional financing for future working capital, capital expenditures,
acquisitions or other general corporate purposes. To date, cash flow from the
Isle of Capri - Black Hawk Casino's operations has been sufficient to pay its
debt obligations.

At December 31, 2003, we were leveraged with $11.2 million in corporate
debt and lease guarantees of approximately $1 million for the River Rock Casino.
We also have guaranteed debt of $552,000 for an affiliated company that may
mature during the next fiscal year. To date, cash distributions from IC-BH and
loan repayments from affiliates have been sufficient to satisfy our current debt
obligations. Also, the Dry Creek Casino, L.L.C. began earning credit enhancement
fees from River Rock Casino for five years, starting in June 2003. However, if
the River Rock Casino is closed as a result of such risks as litigation,
governmental inquiries or other reasons beyond our control, or if we are
required to perform on our outstanding guarantees, we may have insufficient cash
flow to satisfy our obligations without raising additional financing. There is
no assurance that we will be able to obtain additional financing if required,
the failure of which could have a material effect on our operations.

RECENT ACCOUNTING PRONOUNCEMENTS - In May 2003, the Financial
Accounting Standards Board (the "FASB") issued SFAS No. 150, "Accounting for
Certain Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. We do not believe that the adoption of
SFAS No. 150 will have a significant impact on our financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement is effective for contracts entered into or modified after June 30,
2003. We did not participate in any applicable activities as of and for the
quarter ended December 31, 2003.

In January 2003, the FASB issued Financial Interpretation ("FIN")
No. 46, "Consolidation of Variable Interest Entities." In general, a variable
interest entity is a corporation, partnership, trust, or any other legal entity
used for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN No. 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The consolidation requirements apply to older
entities in the first fiscal year or interim period beginning after June 15,
2003. Certain of the disclosure requirements apply to all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. We did not participate in any applicable activities as of and
for the quarter ended December 31, 2003.

10

NOTE 3. ISLE OF CAPRI - BLACK HAWK, L.L.C.

We are a 43% non-operating owner of IC-BH which now owns and operates
three casinos in Colorado. Financing for the Isle of Capri - Black Hawk Casino
was initially provided by the IC-BH debt offering of $75 million in 13% First
Mortgage Notes. In December 2001, IC-BH refinanced the $75 million with a new
$90 million credit facility that included two $40 million term loans that were
due in five years and a $10 million line of credit. The average interest on the
credit facility was 6% to 7%. In the fourth quarter of fiscal 2002, IC-BH
entered into interest rate swap agreement that effectively converted $40 million
of its floating rate debt to a fixed-rate basis for the following three years.

In April 2003, in connection with IC-BH's acquisition of the Colorado
Central Station Casino and Colorado Grande Casino from IGT for $84 million,
IC-BH's $90 million senior secured credit facility was increased to $210.7
million to provide financing for the acquisition of the new casinos and for
expansion. The weighted average effective interest rate of total debt
outstanding under the IC-BH's senior secured credit facility at October 26, 2003
was 5.9%.

In January 2004, a $95 million construction project commenced to expand
and connect the Isle of Capri - Black Hawk and the Colorado Central Station
casino and hotel properties scheduled for completion in December 2005.

Our 43% ownership of the IC-BH is accounted for using the equity method
of accounting. Our investment in IC-BH is stated at cost, adjusted for our
equity in the undistributed earnings or losses of the project. IC-BH's
undistributed earnings allocable to us through January 25, 2004 (IC-BH's quarter
end) totaled $2,457,760 which has been included in our statement of operations
for the nine months ended December 31, 2003. During our quarter ended December
31, 2003, we received cash distributions of $996,000 from IC-BH and our basis in
the project through January 25, 2004 is $14,411,761 which includes an other
comprehensive loss of $17,847, net of taxes of $9,194, related to the interest
rate swap transaction.

11

The following is a summary of condensed financial information pertaining to
IC-BH as of January 25, 2004 and for the nine months then ended:

ISLE OF CAPRI BLACK HAWK, L.L.C.
BALANCE SHEET
(UNAUDITED)

12

ISLE OF CAPRI BLACK HAWK, L.L.C.
INCOME STATEMENT
(UNAUDITED)

The difference in $14.4 million of carrying value of our investment in
IC-BH and $20 million of our equity interest in IC-BH is primarily related to
the fact that we originally contributed appreciated property which was recorded
by IC-BH at fair market value while we continued to carry the property at its
original cost basis.

During IC-BH's quarter ended January 25, 2004, IC-BH recorded an other
comprehensive loss of $62,886 related to the interest rate swap transaction. Our
share of the other comprehensive loss was $17,847, net of income taxes of
$9,914.

13

NOTE 4. NOTES RECEIVABLE

NOTES RECEIVABLE - DRY CREEK RANCHERIA - At December 31, 2003, Dry
Creek Casino, L.L.C. had a note receivable of $10 million from the Dry Creek
Rancheria Band of Pomo Indians for its River Rock Casino. In November 2003, the
River Rock Entertainment Authority borrowed $200 million to repay a majority of
the tribe's indebtedness, to fund the completion of three parking structures and
related infrastructure improvements, and to fund the settlement of litigation
involving the tribe. In connection therewith, the River Rock Casino reduced the
$32.6 of indebtedness owed to the Dry Creek Casino, L.L.C. to $10 million, and
the Dry Creek Casino, L.L.C. reduced the $31.1 of indebtedness owed to us to $10
million. The $10 million loan from the Dry Creek Casino, L.L.C. to the River
Rock Casino has been amended with interest payable monthly at a rate of 9% per
annum and will mature upon the earlier of (i) the completion of the River Rock
Casino parking structures, if such loan proceeds are not needed to fund the
parking structures (anticipated to occur in late 2004), or (ii) if the amount of
such loan is needed to complete such construction, the balance of the loan will
be repaid from River Rock Casino's excess cash flow (anticipated to begin in
2005).

NOTES RECEIVABLE - AFFILIATES - At December 31, 2003, Clay County
Holdings, Inc ("CCH") owed us $2.6 million which amount bears interest at 12%
per annum, and is payable in a minimum amount of $150,000 plus accrued interest
per quarter until paid in full. At December 31, 2003, Service Interactive, Inc.
("SI") owed us $2.6 million which amount bears interest at 12% per annum, and is
payable by in a minimum amount of $150,000 plus accrued interest per quarter
until paid in full. Both notes are collateralized by a lien on our shares owned
by CCH having $16.4 million of market equity value as of December 31, 2003. The
outstanding balances of notes receivable from CCH and SI were reduced by
$150,000 and $150,000, respectively, during the quarter ended December 31, 2003.

NOTE 5. LONG-TERM DEBT

$13 MILLION CREDIT FACILITY - At December 31, 2003, we had a $13
million long-term credit facility bearing interest at 11% per annum, payable
monthly, with principal maturing on December 24, 2005. The credit facility is
secured by our interest in the IC-BH Casino. Up to 54% of the credit facility is
convertible into shares of our restricted common stock at the rate of $3.00 per
share or 85% of the closing market price at the date of conversion, whichever is
less. This conversion is limited during a twelve month period to an amount not
to exceed 4.99% of our then total issued and outstanding stock. In November,
2003, approximately $1.8 million of principal and accrued interest was converted
into 594,167 shares of our common stock at the price of $3.00 per share reducing
our borrowings to $11.2 million.

$23 MILLION CREDIT FACILITY - This credit facility was used to satisfy
the $23 million commitment Dry Creek Casino, L.L.C. made to the River Rock
Casino. In November 2003, we fully repaid the $23 million under this credit
facility by using the loan repayment we received from the Dry Creek Casino,
L.L.C.

NOTE 6. FEDERAL AND STATES INCOME TAXES

Temporary differences reflected in the deferred income tax accounts
primarily relate to timing differences in the recognition of the allocated
equity in earnings from IC-BH for tax and financial reporting purposes and tax
benefits generated by available net operating loss carryforwards ("NOL's"). As
of December 31, 2003, we have completely utilized our NOL's.

For the three months ended December 31, 2003, we recorded current
federal and state tax provision in the amount of $1,448,643 and a deferred
federal income tax benefit of $410,367. Our recorded deferred tax expense
excludes tax benefit of $9,914 related to an interest rate swap transaction,
which was recorded net of tax as an accumulated other comprehensive loss.

14

NOTE 7. EQUITY

During the nine months ended December 31, 2003, we granted options to
purchase 260,000 shares of our common stock for directors, employees, and third
party consultants as compensation for services provided. We have recorded
$77,500 for consultant expenses related to options granted to a consultant based
on the estimated fair value of the options on the date of grant. Had
compensation costs for all options issued been determined based on the fair
value at the grant date consistent with the provisions of SFAS No. 123, net
income and net income per share would have decreased to the pro forma amounts
indicated below:

The following is presented as a reconciliation of the numerators and
denominators of basic and diluted earnings per share ("EPS") computations, in
accordance with SFAS No. 128.

NINE MONTHS ENDED DECEMBER 31, 2003
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ----------

BASIC EPS
Income available to common stockholders $5,892,464 11,361,669 $ 0.52
EFFECT OF DILUTIVE SECURITIES
Common stock options and warrants -- 1,347,185 (0.06)
Convertible debt 75,307 459,261 (0.01)
---------- ---------- ----------
FULLY DILUTED EPS
Income available to common stockholders $5,967,771 13,168,115 $ 0.45
========== ========== ==========

As discussed in Note 5, our convertible debt security is subject to an
option to convert a portion of principal and accrued interest into our common
stock. In accordance with SFAS No. 128, the effects of applying the if-converted
method for the quarters ended December 31, 2003 and 2002 results in this
convertible debt security being dilutive.

NOTE 8. SEGMENT REPORTING

We primarily operate in the gaming segment. The gaming segment consists
of IC-BH, Dry Creek Casino, L.L.C. and Route 66 Casinos, L.L.C.

Summarized financial information concerning our reportable segments is
shown in the following table. The "Other" column includes amounts not allocated
to the gaming segment such as corporate-related items, and results of
insignificant operations such as real estate and mining.

Reconciliations of reportable segment assets to our consolidated totals are as
follows:

Reconciliations of reportable segment revenues to our consolidated totals are as
follows:

Reconciliations of reportable segment profit or loss to our consolidated totals
are as follows:

17

NOTE 9. COMMITMENTS AND CONTINGENCIES

As of December 31, 2003, we have a total of $1 million in guarantees on
equipment financing and operating leases for the River Rock Casino. In the event
of the River Rock Casino's nonperformance under the terms of the equipment
financing and operating lease, our maximum potential future payments under these
guarantees will be equal to the carrying amount of the liabilities. Assuming
normal operations, we expect that our guarantees for the River Rock Casino will
expire or be released within two years.

During the quarter ended December 31, 2003, our guarantees on debt of
SI for the performance of the payment obligations was $552,000. In the event of
SI's nonperformance under the terms of the obligation, our maximum potential
future payments under these guarantees will be equal to the carrying amount of
the liabilities.

We indemnified our officers and directors for certain events or
occurrences while the director or officer is or was serving at our request in
such capacity. The maximum potential amount of future payments we could be
required to make under these indemnification obligations is unlimited; however,
we have a directors and officers liability insurance policy that limits our
exposure and enables us to recover a portion of any future amounts paid,
provided that such insurance policy provides coverage.

NOTE 10. SUBSEQUENT EVENTS

The holder of our $13 million convertible loan agreement (the "Credit
Facility") commenced an arbitration proceeding against us in Harris County,
Texas. The terms of the Credit Facility provide the holder with the right to
convert up to $5,237,499 of this facility into 1,745,833 shares. In June 2002,
the holder agreed that it would restrict its conversions of the Credit Facility
to a number of shares not to exceed 4.99% of the outstanding shares of our
common stock during any one-year period. In the arbitration, the holder is
attempting to withdraw this prior agreement with respect to the 4.99%
restriction. We are currently in settlement negotiations with the holder, and
believe that we will be able to resolve this matter. However, if we are unable
to settle the matter, and if the holder is successful in arbitration, it may be
entitled to convert $5,237,499 of the Credit Facility into 1,745,833 shares of
our common stock. If we are unable to settle the matter, we intend to vigorously
defend our position in arbitration.

In December 1999, we issued a warrant to purchase 1,166,666 at an
exercise price of $3 per share to a third-party in connection with certain
services being rendered to the company. In June 2002, this third party agreed to
restrict his exercise of the warrant to a number of shares not to exceed 4.99%
of the outstanding shares of our common stock during any one-year period.
Although to date no legal or arbitration proceeding has been commenced, the
third party has notified us that he does not believe his agreement with respect
to the 4.99% restriction is enforceable. We believe that the 4.99% limitation is
enforceable and intend to vigorously defend any claim to the contrary.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of our results of operations and financial
position should be read in conjunction with the financial statements and notes
pertaining to them that appear elsewhere in this Form 10-Q. Management is of the
opinion that inflation and changing prices, including foreign exchange
fluctuations, will have little, if any, effect on our financial position or
results of our operations.

The information in this discussion contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements are based upon current expectations that involve risks
and uncertainties. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. For example,
words such as, "may," "will," "should," "estimates," "predicts," "potential,"
"continue," "strategy," "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements. Our actual results and the timing of certain events may differ
significantly from the results discussed in the forward-looking statement.
Factors that might cause or

18

contribute to such a discrepancy include, but are not limited to the risks
discussed in our other SEC filings, including those in our annual report on Form
10-KSB for the year ended March 31, 2003. These forward-looking statements speak
only as of the date hereof. We expressly disclaim any obligation or undertaking
to release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in our expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
are based.

Critical Accounting Policies

In December 2001, the SEC requested that companies discuss their most
"critical accounting policies" in the Management's Discussion and Analysis
section of their reports. The SEC indicated that a "critical accounting policy"
is one that is important to the portrayal of a company's financial condition and
operating results and requires management's 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 have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations are
discussed throughout this section where such policies affect our reported and
expected financial results. Our preparation of this report requires us to make
estimates and assumptions that affect the reported amount of assets and
liabilities, and that affect the disclosure of contingent assets and
liabilities. There is no assurance that actual results will not differ from
those estimates and assumptions.

Equity Method of Accounting

Our investments in IC-BH, RCI and Sunrise Land and Minerals Corporation
("Sunrise") are accounted for using the equity method of accounting because the
investment gives us the ability to exercise significant influence, but not
control, over the investees. Significant influence is generally deemed to exist
where we have an ownership interest in the investee of between 20% and 50%,
although other factors such as representation on the investee's Board of
Directors or similar oversight body are considered in determining whether the
equity method of accounting is appropriate. We record our equity in the income
or losses of our investees three months in arrears for Restaurant Connections
International, Inc ("RCI") and one month in advance for IC-BH, based on their
respective fiscal year ends. Deferred tax assets or liabilities are recorded for
allocated earnings or losses of our equity investments that are not currently
reportable or deductible for federal income tax purposes.

Revenue Recognition

A substantial portion of our revenues for the quarter consisted of
interest income. We record revenues from interest income on notes receivable on
the accrual basis. The dates on which interest income is actually collected is
dependent upon the terms of the particular debt agreement, and may not
correspond to the date such interest income is recorded.

Income Taxes

Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." An asset and liability approach is used for financial accounting and
reporting for income taxes. Under this approach, deferred tax assets and
liabilities are recognized based on anticipated future tax consequences, using
currently enacted tax laws, attributable to differences between financial
statement carrying amounts of assets and liabilities and their respective tax
basis.

General

We are primarily a developer of gaming properties. We reported net
income of $2.1 million for the quarter ended December 31, 2003 compared to net
income of $1.2 million for the quarter ended December 31, 2002.

Our 43% ownership of the IC-BH is accounted for using the equity method
of accounting. Our investment in the joint venture is stated at cost, adjusted
for our equity in the undistributed earnings or losses of the project.

19

During the quarter ended December 31, 2003, our allocable income from IC-BH
through January 25, 2004, IC-BH's quarter end, totaled $2.5 million, compared to
$2.4 million for the same period in fiscal 2003. During the current quarter, we
received a cash distribution of $996,000 from IC-BH and our basis in the project
through January 25, 2004 is $14.4 million, including an other comprehensive loss
of $17,847, net of taxes of $9,914, related to an interest rate swap
transaction.

Our ownership of RCI is accounted for using the equity method of
accounting. Our investment in RCI is stated at cost, adjusted for our equity in
the undistributed earnings or losses of RCI. Our portion of RCI's undistributed
loss through September 30, 2003 totaled $55,000. In accordance with the equity
method of accounting, our investment account balance was reduced to zero and the
remaining allocated loss of $928,000 is not reflected in our financial
statements.

During the quarter ended September 30, 2003, Sunrise entered into a
business combination with a third party in which Sunrise received certain mining
interests. We hold 50% of Sunrise's equity interest. Our investment in Sunrise
is accounted for using the equity method of accounting and is stated at cost of
$372,000, adjusted for our equity in its undistributed earnings or losses.

We own majority interests in Dry Creek Casino, L.L.C. and Route 66
Casinos, L.L.C., of 69% and 51%, respectively. For financial reporting purposes,
the assets, liabilities, and earnings of the partnership entities are included
in our consolidated financial statements. The interests of the other members of
both entities have been recorded as minority interests totaling $ 1.6 million at
December 31, 2003.

We have made loans to the Dry Creek Casino, L.L.C., which has in turn
made loans to the River Rock Casino. We will be repaid these loans as the Dry
Creek Casino, L.L.C. is repaid. Excluding the repayments on these loans, as a
member of the Dry Creek Casino, L.L.C., we will also receive credit enhancement
fees from the River Rock Casino and is equal to 20% of River Rock Casino's
earnings before taxes (if any), depreciation and amortization for a period of
five years starting June 1, 2003 and ending May 31, 2008.

Property held for development consists of undeveloped acreage and
improvements located in and around Black Hawk, Colorado, and Nevada County,
California. We have capitalized certain direct costs of pre-development
activities together with capitalized interest. Property held for development is
carried at the lower of cost or net realizable value.

River Rock Casino Debt Refinancing

In November 2003, the River Rock Entertainment Authority borrowed $200
million to repay a majority of the tribe's indebtedness, to fund the completion
of three parking structures and related infrastructure improvements, and to fund
the settlement of litigation involving the tribe. In connection therewith, the
River Rock Casino reduced the indebtedness owed to the Dry Creek Casino, L.L.C.,
the Dry Creek Casino, L.L.C. reduced the indebtedness owed to us to $10 million,
and our guarantees with respect to River Rock Casino's indebtedness were reduced
to $1 million as of December 31, 2003. The $10 million loan from the Dry Creek
Casino, L.L.C. to the River Rock Casino has been amended with interest payable
monthly at a rate of 9% per annum and will mature upon the earlier of (i) the
completion of the River Rock Casino parking structures, if such loan proceeds
are not needed to fund parking structures (anticipated to occur in late 2004),
or (ii) if the amount of such loan is needed to complete such construction, the
balance of the loan will be repaid from River Rock Casino's excess cash flow
(anticipated to begin in 2005). An identical loan agreement was entered into
between us and the Dry Creek Casino, L.L.C.

20

Results of Operations

Comparison of the quarter ended December 31, 2003 and 2002

REVENUES. Revenues increased 358%, or $3.7 million, to $4.8 million for
the quarter ended December 31, 2003. Our revenue primarily consists of the
following income streams:

Gaming Assets Participations

DRY CREEK CASINO, L.L.C. Starting in June 2003, the Dry Creek
Casino, L.L.C. began earning a credit enhancement fee from River Rock
Casino equal to 20% of River Rock Casino's earnings before taxes (if
any), depreciation and amortization. During the quarter ended December
31, 2003, the credit enhancement fee income was $868,000.

ROUTE 66 CASINOS, L.L.C. We recognized gaming lease income of
$2.1 million for the three months ended December 31, 2003, compared to
$146,000 for the three months ended December 31, 2002. The increase is
primarily related to estimated rental revenues from the gaming
equipment lease with the Route 66 Casino's permanent facility which
opened on September 4, 2003. We are in litigation and arbitration with
our co-member on this project. To date, we have received no cash
distributions for the venture. Amounts have been recorded based on
financial information made available to us. Upon settlement of our
arbitration and litigation with the other member, the amounts accrued
as both income and expense may differ substantially thus requiring an
adjustment to the estimated amounts currently recorded. These
adjustments may be material to the financial statements.

Other Revenues

INTEREST INCOME. Our interest income consists primarily of
interest due on loans we have made in connection with the River Rock
Casino project. Interest income increased 105%, or $920,000 to $1.8
million for the quarter ended December 31, 2003. The increase is
attributable to the recognition of $1 million of unamortized finance
fee related to River Rock Casino's $22.6 million principal repayment.
Since a majority of our loans have been repaid, our interest income in
the future will significantly decrease in connection with this project.

ROYALTY INCOME. Royalty income increased 25% to $17,000 for
the quarter ended December 31, 2003. This income is derived solely from
our mining agreement with Romarco Nevada, Inc. Based on our agreement
with Romarco, we anticipate receiving $58,000 during fiscal 2004.
However, our agreement with Romarco is terminable at any time;
therefore, there is no assurance we will receive these revenues in the
future.

EQUITY IN EARNINGS OF ISLE OF CAPRI BLACK HAWK. Equity in earnings of
IC-BH increased 3% to $2.5 million for the quarter ended December 31, 2003
compared to $ 2.4 million for the quarter ended December 31, 2002. The increase
is primarily attributable to an increase in pre-tax income from IC-BH.

TOTAL EXPENSES. Total expenses increased 139%, or $2.1 million to $3.6
million for the quarter ended December 31, 2003, compared to $1.5 million for
the quarter ended December 31, 2002. The increase primarily resulted from an
increase in general and administrative expenses, salaries, legal and
professional fees, amortization of deferred loan issue cost, and estimated Route
66 operating expense. These items are discussed below:

GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses increased 30%, or $43,000, to $189,000 for the
quarter ended December 31, 2003, compared to $146,000 in the quarter
ended December 31, 2002. The increase is primarily related to general
corporate administrative cost.

INTEREST EXPENSE. Interest expense decreased 7%, or $48,000,
to $605,000 for the quarter ended December 31, 2003, compared to
$653,000 for the quarter ended December 31, 2002 related to the
repayment of our $23 million credit facility. Our overall debt was
significantly reduced during the quarter ended December 31, 2003, and
accordingly, we believe our interest expense will significantly
decrease in the future.

SALARIES. Salaries increased 33%, or $82,000, to $333,000 for
the quarter ended December 31, 2003, compared to $251,000 in the
quarter ended December 31, 2002 related to increases in salaries and
number of personnel.

21

LEGAL AND PROFESSIONAL FEES. Legal and professional fees
decreased 27%, or $87,000, to $240,000 for the quarter ended December
31, 2003, compared to $327,000 in the quarter ended December 31, 2002.

AMORTIZATION OF DEFERRED LOAN ISSUE COST. Amortization of
deferred loan issue cost increased $765,000, to $815,000 for the
quarter ended December 31, 2003, compared to $50,000 in the quarter
ended December 31, 2002. The increase is primarily attributable to the
recognition of $770,000 of deferred loan issue cost related to the
repayment of our $23 million credit facility in November 2003.

AMORTIZATION OF DEVELOPMENT COST. During the quarter ended
December 31, 2003, we amortized $106,000 in development cost related to
River Rock Casino and Route 66 Casino projects.

ROUTE 66 OPERATING EXPENSE. Route 66's estimated operating
expense increased $1.2 million, to $1.3 million for the quarter ended
December 31, 2003, compared to $95,000 in the quarter ended December
31, 2002 related to an increase in gaming machines placed in Route 66
Casino which opened on September 4, 2003. We are in litigation and
arbitration with our co-member on this project, and accordingly, we
have estimated these amounts.

NET INCOME. Net income before federal and state income tax provision
increased 68% or $1.3 million to $3.1 million for the quarter ended December 31,
2003 as compared to $1.8 million. This increase is primarily the result of
increases in equity in earnings of IC-BH and gaming asset participations. Net
income increased 69% or $838,000 to $2.1 million for the quarter ended December
31, 2003 as compared to net income of $1.2 million in the quarter ended December
31, 2002. This increase is primarily the result of increases equity in earnings
of IC-BH, and gaming asset participations. The effective tax rate for both
quarters ended December 31, 2003 and December 31, 2002 was 34%.

Comparison of the nine months ended December 31, 2003 and 2002

REVENUES. Revenues increased 255%, or $7.3 million, to $10.2 million
for the nine months ended December 31, 2003. Our revenue primarily consists of
the following income streams:

Gaming Assets Participations

DRY CREEK CASINO, L.L.C. Starting in June 2003, the Dry Creek
Casino, L.L.C. began earning a credit enhancement fee from River Rock
Casino equal to 20% of River Rock Casino's earnings before taxes (if
any), depreciation and amortization. During the nine months ended
December 31, 2003, the credit enhancement fee income was $2.6 million.

ROUTE 66 CASINOS, L.L.C. We recognized gaming lease income of
$3.2 million for the nine months ended December 31, 2003, compared to
$348,000 for the nine months ended December 31, 2002. The increase is
primarily related to estimated rental revenues from gaming equipment
lease with the Route 66 Casino's permanent facility which opened on
September 4, 2003. We are in litigation and arbitration with our
co-member on this project. To date, we have received no cash
distributions for the venture. Amounts have been recorded based on
financial information made available to us. Upon settlement of our
arbitration and litigation with the other member, the amounts accrued
as both income and expense may differ substantially thus requiring an
adjustment to the estimated amounts currently recorded. These
adjustments may be material to the financial statements.

Other Revenues

INTEREST INCOME. Our interest income consists primarily of
interest due on loans we have made in connection with the River Rock
Casino project. Interest income increased 133%, or $2.5, to $4.3
million

22

for the nine months ended December 31, 2003. The majority of the
increase is attributable to the increase in the loans made in
connection with the River Rock Casino project over the comparable nine
months of the prior year and the recognition of $1 million of
unamortized finance fee related to River Rock Casino's $22.6 million
principal repayment. Since a majority of our loans have been repaid,
our interest income in the future will significantly decrease in
connection with this project.

ROYALTY INCOME. Royalty income increased 25% to $46,000 for
the nine months ended December 31, 2003. This income is derived solely
from our mining agreement with Romarco Nevada, Inc. Based on our
agreement with Romarco, we anticipate receiving $58,000 during fiscal
2004. However, our agreement with Romarco is terminable at any time,
and as such there is no assurance we will receive these revenues in the
future.

EQUITY IN EARNINGS OF ISLE OF CAPRI BLACK HAWK. Equity in earnings of
IC-BH increased 9% to $7.9 million for the nine months ended December 31, 2003
compared to $7.3 million for the nine months ended December 31, 2002. The
increase is primarily attributable to an increase in pre-tax income from IC-BH.

TOTAL EXPENSES. Total expenses increased 123%, or $4.6 million to $8.3
million for the nine months ended December 31, 2003, compared to $3.7 million
for the nine months ended December 31, 2002. The increase is related primarily
to an increase in general and administrative expenses, interest expense, other
expense, salaries, legal and professional fees, amortization of development
cost, and estimated Route 66 expense. These items are discussed below:

GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses increased 30%, or $118,000, to $503,000 for the
nine months ended December 31, 2003, compared to $385,000 for the nine
months ended December 31, 2002. The increase is primarily attributable
to general corporate administrative cost.

INTEREST EXPENSE. Interest expense increased 80%, or $1.2
million, to $2.6 million for the nine months ended December 31, 2003,
compared to $1.4 million in the nine months ended December, 2002
related to additional borrowings from our credit facility during the
fiscal year ended March 31, 2003. In November 2003, we repaid our $23
million credit facility, and accordingly, our interest expense will
significantly decrease in the future.

SALARIES. Salaries increased 29%, or $203,000, to $893,000 for
the nine months ended December 31, 2003, compared to $690,000 in the
nine months ended December 31, 2002 related to increase in salaries and
number of personnel.

LEGAL AND PROFESSIONAL FEES. Legal and professional fees
increased 104%, or $552,000, to $1.1 million for the nine months ended
December 31, 2003, compared to $530,000 in the nine months ended
December, 2002 primarily related to increased fees related to disputes,
further discussed at Part 2, Item I.

AMORTIZATION OF DEFERRED LOAN ISSUE COST. Amortization of
deferred loan issue cost increased $840,000, to $964,000 for the nine
months ended December 31, 2003, compared to $124,000 in the nine months
ended December 31, 2002. The increase is primarily attributable to the
recognition of $770,000 of deferred loan issue cost related to the
repayment of our $23 million credit facility in November 2003.

AMORTIZATION OF DEVELOPMENT COST. During the nine months ended
December 31, 2003, we amortized $164,000 in development cost related to
River Rock Casino and Route 66 Casino projects.

ROUTE 66 OPERATING EXPENSE. Route 66's estimated operating
expense increased $1.7 million to $1.9 million for the nine months
ended December 31, 2003, compared to $228,000 in the nine months ended
December 31, 2002 related to an increase in gaming machines placed in
Route 66 Casino which

23

opened on September 4, 2003. We are in litigation and arbitration with
our co-member on this project, and as such, we have estimated these
amounts.

NET INCOME. Net income before federal and state income tax provision
increased 40% or $2.5 million to $8.9 million for the nine months ended December
31, 2003 as compared to $6.4 million. This increase is primarily the result of
increases in equity in earnings of IC-BH, gaming asset participations. Net
income increased 30% or $1.4 million to $5.9 million for the nine months ended
December 31, 2003 as compared to net income of $4.5 million in the nine months
ended December 31, 2002. This increase is primarily the result of increases
equity in earnings of IC-BH, gaming asset participations, and federal income
tax. The effective tax rate for the nine months ended December 31, 2003 was 34%
compared to 29% for the nine months ended December 31, 2002. Such increase in
the effective tax rate related to tax benefits of $421,735 from IC-BH for fiscal
year ended April 25, 1999 which was recognized in the months ended December 31,
2002.

Liquidity and Capital Resources

OPERATING ACTIVITIES. Net cash provided by operating activities during
the nine months ended December 31, 2003, amounted to $741,000 a decrease of $1.5
million, over the $2.3 million of net cash provided by operating activities
during the nine months ended December 31, 2002. The decrease was primarily
related to a decrease in cash distributions from IC-BH and an increase in the
amount of our tax payments. These amounts were partially offset by the credit
enhancement fees we received from the River Rock Casino. More specifically, as
compared to the prior period, during the nine months ended December 31, 2003,
our cash distributions from IC-BH decreased by 2 million as s result of IC-BH
utilizing excess cash flow to pay down debt. We expect that this strategy will
continue for the foreseeable future. We made a $1.5 million of federal income
tax payment during the nine months ended December 31, 2003, as opposed to making
no payments during the comparable prior period. To offset these amounts, we
received $2.2 million of credit enhancement fee income earned through October
2003 from River Rock Casino.

INVESTING ACTIVITIES. Net cash provided in investing activities during
the nine months ended December 31, 2003, amounted to $22 million, an increase of
$35.4 million, over the $13.9 million of net cash used in investing activities
in the nine months ended December 31, 2002. The increase is primarily related to
the repayment of $22.7 million of our outstanding loans in connection with the
River Rock Casino.

FINANCING ACTIVITIES. Net cash used by financing activities during the
nine months ended December 31, 2003, amounted to $23.9 million, a decrease of
$36.3 million, over $12.5 million of net cash provided by financing activities
in the nine months ended December 31, 2002. The decrease was primarily related
to the $23.6 million of reduction on our corporate debt during the nine months
ended December 31, 2003.

As December 31, 2003, we had cash available of $2.4 million. We had
drawn down on our entire $13 million log-term credit facility that bear interest
at 11% per annum, payable monthly, with principal maturing during December 2005.
This credit facility is secured by our interest in IC-BH Casino. We have also
repaid our $23 million credit facility, which is no longer available to us. The
repayment of our $23 million credit facility substantially repaid all of our
current portion of long term debt, as well as a substantial portion of long term
note payable.

During the next twelve months, we expect to receive cash distributions
from IC-BH of approximately $4 million based on our current estimates, and loan
repayments of $1.2 million from affiliate companies. In addition, the Dry Creek
Casino, L.L.C. will be receiving its credit enhancement fee from River Rock
Casino, provided the casino is in compliance with its debt covenants with
respect to its $200 million debt financing. We no longer have any funds
available to us from our existing credit facility or other external financing
sources, and accordingly, we will be depending on the monies received from
IC-BH, the credit enhancement fee to be paid to the Dry Creek Casino, L.L.C.,
and loan repayments from affiliate companies to fund our operations for the next
twelve months.

At December 31, 2003, we are leveraged with $11.2 million in corporate
debt and lease guarantees of approximately $1 million for the River Rock Casino
project. We also have guaranteed debt of $502,000 of an

24

affiliated company that may mature during the next fiscal year. To date, cash
distributions from IC-BH and loan repayments and credit enhancement fees from
the River Rock Casino have been sufficient to satisfy our current obligations.
However, if the River Rock Casino is closed resulting from litigation,
governmental inquiries or other reasons beyond our control, if we are required
to perform on our outstanding guarantees, or if the debt covenants ratios of the
River Rock Casino debt financing preclude the payment to us of our credit
enhancement fee or outstanding loans to River Rock Casino, we may have
insufficient cash flow to satisfy our obligations without raising additional
financing. There is no assurance that we will be able to obtain additional
financing if required to fund working capital needs or debt repayment
obligations, the failure of which could have a material effect on our
operations.

Recent Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 150, "Accounting for Certain Instruments with Characteristics of
Both Liabilities and Equity." SFAS No. 150 clarifies the accounting for certain
financial instruments with characteristics of both liabilities and equity and
requires that those instruments be classified as liabilities in statements of
financial position. Previously, many of those financial instruments were
classified as equity. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. We do not
believe that the adoption of SFAS No. 150 will have a significant impact on our
financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
No. 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement is effective for contracts entered into or modified after June 30,
2003. We did not participate in any applicable activities as of and for the
quarter ended December 31, 2003.

In January 2003, the FASB issued Financial Interpretation ("FIN") No.
46, "Consolidation of Variable Interest Entities." In general, a variable
interest entity is a corporation, partnership, trust, or any other legal entity
used for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN No. 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The consolidation
requirements of FIN No. 46 apply immediately to variable interest entities
created after January 31, 2003. The consolidation requirements apply to older
entities in the first fiscal year or interim period beginning after June 15,
2003. Certain of the disclosure requirements apply to all financial statements
issued after January 31, 2003, regardless of when the variable interest entity
was established. We did not participate in any applicable activities as of and
for the quarter ended December 31, 2003.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from credit
risk concentrations. We do not believe we are subject to material interest rate
risk or foreign currency risk.

We have utilized the majority of our credit facilities to make loans to
Dry Creek Casino, L.L.C., which has made loans to the River Rock Casino. If the
River Rock Casino is unable to make its debt payments to the Dry Creek Casino,
L.L.C. for any reason, the Dry Creek Casino L.L.C. will be unable to make its
required debt repayment to us, which will affect our ability to repay our credit
facility. As discussed in Item 2 above, if the River Rock Casino is closed for
any reason, we may have difficulty meeting our short-term and long-term
obligations. We currently believe that this is our primary credit risk.

As our credit facilities are fixed interest rate instruments, an
interest rate change would not have any impact on our operations. Our interest
in RCI is dependent on RCI's valuation, which is subject to the value of the
Real, the

25

Brazilian currency, which has been subject to rapid fluctuations. However, we do
not believe the results of RCI's operations have a material effect on our
financial operations.

ITEM 4. CONTROLS AND PROCEDURES

In accordance with the Exchange Act, we carried out an evaluation,
under the supervision and with the participation of management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2003 to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
There has been no change in our internal controls over financial reporting that
occurred during the three months ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In May 2002, we were sued in case 2002-22278, Corporate Strategies,
Inc., vs. Nevada Gold & Casinos, Inc., in the 189th Judicial District Court of
Harris County, Texas. Corporate Strategies, Inc. seeks damages and other relief
for alleged breach of a consulting agreement entered into during December 1997.
Discovery is ongoing. We are vigorously defending the suit and have asserted
counterclaims, as well as cross-claims against the individual actors within
Corporate Strategies (Harold Finstad, Arthur Porcari, Stephen Porcari, and
Martin R. Nathan). Our counter and cross-claims seek rescission and damages. The
claims against and between us and Nathan have been referred to binding
arbitration in accordance with the parties' agreement. We are actively pursuing
our claims in arbitration. Nathan has filed a separate counter-claim against the
Company in the arbitration proceedings, seeking damages for an alleged contract
between him and the Company.

In September 2002, we asserted a claim for damages, specific
performance and other relief against American Heritage, Inc. (d/b/a The Gillmann
Group), a member with us in Route 66 Casinos, L.L.C. Route 66 Casinos, L.L.C.
was formed to develop gaming facilities on lands of the Pueblo of Laguna, 11
miles west of Albuquerque, New Mexico. In October 2002, we instituted suit in
Harris County, Texas District Court, case 2002-51378, Nevada Gold & Casinos,
Inc. v. American Heritage, Inc. d/b/a The Gillmann Group, and Frederick
Gillmann. Subsequently, The Gillmann Group and its principal sought a
declaratory judgment and damages in the District Court of Clark County, Nevada,
case A457315, American Heritage, Inc., and Fred Gillmann v. Nevada Gold &
Casinos, Inc. and Route 66 Casinos, L.L.C. in the District Court, Clark County,
Nevada. That litigation has been stayed, and the Texas lawsuit is currently
scheduled for trial in the first quarter of 2004.

The holder of our $13 million convertible loan agreement (the "Credit
Facility") commenced an arbitration proceeding against us in Harris County,
Texas. The terms of the Credit Facility provide the holder with the right to
convert up to $5,237,499 of this facility into 1,745,833 shares. In June 2002,
the holder agreed that it would restrict its conversions of the Credit Facility
to a number of shares not to exceed 4.99% of the outstanding shares of our
common stock during any one-year period. In the arbitration, the holder is
attempting to withdraw this prior agreement with respect to the 4.99%
restriction. We are currently in settlement negotiations with the holder, and
believe that we will be able to resolve this matter. However, if we are unable
to settle the matter, and if the holder is successful in arbitration, it may be
entitled to convert $5,237,499 of the Credit Facility into 1,745,833 shares of
our common stock. If we are unable to settle the matter, we intend to vigorously
defend our position in arbitration.

In December 1999, we issued a warrant to purchase 1,166,666 at an
exercise price of $3 per share to a third-party in connection with certain
services being rendered to the company. In June 2002, this third party agreed to
restrict his exercise of the warrant to a number of shares not to exceed 4.99%
of the outstanding shares of our common stock during any one-year period.
Although to date no legal or arbitration proceeding has been commenced, the
third party has notified us that he does not believe his agreement with respect
to the 4.99% restriction is enforceable. We believe that the 4.99% limitation is
enforceable and intend to vigorously defend any

26

claim to the contrary.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During the three months ended December 31, 2003, we issued 594,167
shares of common stock upon the conversion of a portion of our $13 million
credit facility at a conversion price of $3.00 per share. The holder of the
credit facility is an accredited investor, and the transaction was completed
pursuant to Regulation D of the Securities Act of 1933. No commission was paid
in connection with the transaction.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are to be filed as part of this report:

EXHIBIT NO. IDENTIFICATION OF EXHIBIT

Exhibit 3.1 Amended and Restated Articles of Incorporation of
Nevada Gold & Casinos, Inc. (filed previously as
Appendix A to the company's definitive proxy
statement filed on Schedule 14A on July 30, 2001)
Exhibit 3.2 Amended and Restated Bylaws of Nevada Gold &
Casinos, Inc. (filed previously as Exhibit 3.2 to
the company's Form 10-QSB, Filed August 14, 2002)
Exhibit 4.1 Common Stock Certificate of Nevada Gold & Casinos,
Inc. (filed previously as Exhibit 4.1 to the
company's Form S-8/A, file no. 333-79867)
Exhibit 10.1 Amended and Restated Operating Agreement of Isle of
Capri Blackhawk L.L.C. (filed previously as Exhibit
10.3 to the company's Form 10-QSB, filed November
14, 1997)
Exhibit 10.2 Members Agreement dated July 29, 1997 by and between
Casino America of Colorado, Inc., Casino America,
Inc., Blackhawk Gold, Ltd., and Nevada Gold &
Casinos, Inc. (filed previously as Exhibit 10.4 to
the company's Form 10-QSB, filed November 14, 1997)
Exhibit 10.3 License Agreement dated July 29, 1997 by and between
Casino America, Inc. and Isle of Capri Black Hawk
L.L.C. (filed previously as Exhibit 10.5 to the
company's Form 10-QSB, filed November 14, 1997)
Exhibit 10.4 Nevada Gold & Casinos, Inc. 1999 Stock Option Plan
(filed previously as Exhibit 10.1 to the company's
Form S-8/A, file no. 333-79867)
Exhibit 10.5 Form of Indemnification Agreement between Nevada
Gold & Casinos, Inc. and each officer and director
(filed previously as Exhibit 10.5 to the company's
Form 10-QSB, filed February 14, 2002)
Exhibit 31.1(*) Chief Executive Officer Certification Pursuant to
Section 13a-14 of the Securities Exchange Act.

27

Exhibit 31.2(*) Chief Financial Officer Certification Pursuant to
Section 13a-14 of the Securities Exchange Act.

Exhibit 32.1(*) Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

Exhibit 32.2(*) Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

(*) filed herewith

(b) Reports on Form 8-K - During the quarter ended December 31, 2003, we filed
a Form 8-K on November 18, 2003, in which we announced our financial
results for the quarter ended September 30, 2003, pursuant to Item 12 of
the form, we filed a Form 8-K on December 23, 2003, pursuant to Item 5 of
the form.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Nevada Gold & Casinos, Inc.
- ---------------------------

By: /s/ Christopher Domijan
- ---------------------------------------------
Christopher Domijan, Chief Financial Officer

Date: February 17, 2004

29

EXHIBIT INDEX

EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
Exhibit 3.1 Amended and Restated Articles of Incorporation of Nevada
Gold & Casinos, Inc. (filed previously as Appendix A to the
company's definitive proxy statement filed on Schedule 14A
on July 30, 2001)
Exhibit 3.2 Amended and Restated Bylaws of Nevada Gold & Casinos, Inc.
(filed previously as Exhibit 3.2 to the company's From
10-QSB, Filed August 14, 2002)
Exhibit 4.1 Common Stock Certificate of Nevada Gold & Casinos, Inc.
(filed previously as Exhibit 4.1 to the company's Form
S-8/A, file no. 333-79867)
Exhibit 10.1 Amended and Restated Operating Agreement of Isle of Capri
Blackhawk L.L.C. (filed previously as Exhibit 10.3 to the
company's Form 10-QSB, filed November 14, 1997)
Exhibit 10.2 Members Agreement dated July 29, 1997 by and between Casino
America of Colorado, Inc., Casino America, Inc., Blackhawk
Gold, Ltd., and Nevada Gold & Casinos, Inc. (filed
previously as Exhibit 10.4 to the company's Form 10-QSB,
filed November 14, 1997)
Exhibit 10.3 License Agreement dated July 29, 1997 by and between Casino
America, Inc. and Isle of Capri Black Hawk L.L.C. (filed
previously as Exhibit 10.5 to the company's Form 10-QSB,
filed November 14, 1997)
Exhibit 10.4 Nevada Gold & Casinos, Inc. 1999 Stock Option Plan (filed
previously as Exhibit 10.1 to the company's Form S-8/A, file
no. 333-79867)
Exhibit 10.5 Form of Indemnification Agreement between Nevada Gold &
Casinos, Inc. and each officer and director (filed
previously as Exhibit 10.5 to the company's Form 10-QSB,
filed February 14, 2002)
Exhibit 31.1(*) Chief Executive Officer Certification Pursuant to Section
13a-14 of the Securities Exchange Act.
Exhibit 31.2(*) Chief Financial Officer Certification Pursuant to Section
13a-14 of the Securities Exchange Act.
Exhibit 32.1(*) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2(*) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(*) filed herewith

30