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 June 30, 2004

[ ] 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 Identification No.)
Incorporation or organization)

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.) [X] Yes [ ] No

The number of common shares outstanding was 13,078,503 as of July 23,
2004.

TABLE OF CONTENTS

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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.

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

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

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

The accompanying notes are an integral part of these financial statements

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

NOTE 1. BUSINESS

Nevada Gold & Casinos, Inc., a Nevada corporation, was formed in 1977,
and since 1994 has been primarily a developer of gaming facilities and related
lodging and entertainment facilities ("gaming projects"). We also have real
estate interests in Colorado, California, and Nevada. We report our operations
in two segments - gaming projects and other assets. For a summary of financial
information concerning these two segments, please refer to the information
provided in Note 8 to the Consolidated Financial Statements.

DESCRIPTION OF BUSINESS- GAMING PROJECTS

Colorado Gaming Projects

We are a 43% non-operating owner of Isle of Capri Black Hawk, L.L.C.
("IC-BH"). Isle of Capri Casinos, Inc. ("Isle") is the 57% operating owner.
IC-BH owns and operates three casinos in Colorado (referred to collectively as
the "Colorado Casinos"). Isle operates the Colorado Casinos under an agreement
with IC-BH for a management fee based upon a percentage of the revenues and
operating profit of the Colorado Casinos. IC-BH's gaming properties are:

The Isle of Capri - Black Hawk. The Isle of Capri - Black Hawk, which
commenced operation in December 1998, is located on an approximately 10-acre
site and is one of the first gaming facilities reached by customers arriving
from Denver via Highway 119, the main thoroughfare connecting Denver to Black
Hawk. The property currently consists of a casino with approximately 1,120 slot
machines and 14 table games, a 237-room hotel and 1,100 parking spaces in an
attached parking garage. The Isle of Capri also offers customers a wide variety
of non-gaming amenities, including a Farraddays' restaurant, a Calypso's buffet,
a Tradewinds Marketplace and a 4,000 square foot event center that can be used
for meetings and entertainment.

The Colorado Central Station - Black Hawk. The Colorado Central Station
- -Black Hawk, which IC-BH acquired in April 2003, is located across the
intersection of Main Street and Mill Street from the Isle of Capri. The property
currently consists of a casino with approximately 750 slot machines, 10 table
games and a poker room. The property also offers guests three dining options,
including the Whistle Stop buffet, Fire Box restaurant, and the Chew Chew deli.
Prior to the expansion project, which began in January, 2004, the property had
546 parking spaces across two parking areas. During the expansion project, valet
parking is available to customers of the Colorado Central Station. The expansion
project will include a new 1,200 space parking garage.

The Colorado Grande - Cripple Creek. The Colorado Grande - Cripple
Creek, which IC-BH acquired in April 2003, is located at a primary intersection,
near the center of the Cripple Creek market. The property currently consists of
a casino with approximately 220 slot machines, no table games, a 4-room hotel
and 44 parking spaces. The property offers guests dining at Maggie's restaurant.

In January 2004, IC-BH commenced a $95 million construction project at
its Black Hawk Casinos. The expansion project includes 15,000 square feet of
additional gaming space, a covered skywalk to connect the two casino properties,
a 1,200-space parking garage, 160 additional hotel rooms and a 200-seat
restaurant. As currently planned, IC-BH expects to open the first phase, which
includes two floors of parking and the casino expansion, in spring 2005. The
hotel, restaurant and remaining parking are scheduled to be completed within
twelve months thereafter. IC-BH is also funding approximately $20 million (which
is part of the $95 million overall total) of public improvements which include
extending Main Street to connect to Colorado Route 119. This will provide
customers direct access to our Black Hawk casinos and parking garages at the
first two traffic lights into Black Hawk. We currently expect that the extension
of Main Street will be completed by late summer 2005.

River Rock Gaming Project

Dry Creek Casino, L.L.C., of which we own 69%, was formed in 2001 to
assist the Dry Creek Rancheria Band of Pomo Indians ("tribe") with the
development and financing of its River Rock Casino located approximately

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75 miles north of the San Francisco Bay area, in Sonoma County, California. The
River Rock Entertainment Authority was formed as an unincorporated
instrumentality of the tribe to own and operate the River Rock Casino. The
casino features 1,600 slot machines, 16 table games, and two restaurants. As of
June 30, 2004, 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
operating leases of approximately $570,000. Under the development and loan
agreement, Dry Creek Casino, L.L.C. earns a credit enhancement fee equal to 20%
of River Rock Casino's earnings before taxes (if any), depreciation and
amortization. The credit enhancement fee is payable for a period of five years,
starting June 1, 2003 and ending on May 31, 2008.

Route 66 Gaming Project

On May 23, 2002, we entered into a joint venture (the "Route 66
Casinos, L.L.C." or "Route 66") with American Heritage, Inc., d/b/a The Gillmann
Group ("The Gillmann Group") that is 51% owned by us and 49% by The Gillmann
Group. The Gillmann Group had several contracts with the Laguna Development
Corporation ("LDC"), a federally chartered corporation wholly-owned by the
Pueblo of Laguna, the second largest pueblo in New Mexico. The Gillmann Group
agreed to assign these contracts to Route 66 Casinos, L.L.C.

The contracts included a Development and Construction Agreement, as
well as three gaming lease equipment agreements. Under the Development and
Construction Agreement, The Gillmann Group was to consult on the development and
operation of a temporary casino and a permanent casino in Rio Puerco, New Mexico
and provide or arrange for financing of the temporary and permanent casinos. At
the time, LDC owned and operated the Dancing Eagle Casino, located 42 miles west
of Albuquerque adjacent to I-40. As compensation for the consulting services,
LDC entered into three gaming lease equipment agreements with The Gillmann
Group. The lease equipment agreements include one for 1,250 gaming devices
placed in the Route 66 Casino, a second for 100 gaming devices for the temporary
Rio Puerco casino and a third for 45 gaming devices in the existing Dancing
Eagle Casino. The 1,250 gaming device contract is a five-year contract
commencing with the opening of the Route 66 Casino. The 100 gaming device
contract was for one year and, at the opening of the Route 66 Casino, the gaming
devices were moved to it. The 45 gaming device contract at Dancing Eagle
terminated in February, 2004. Route 66 Casinos, L.L.C. expects to receive on
average approximately 16% of gross revenue from the gaming devices subject to
the leases over the five-year period commencing in September, 2003.

The Route 66-themed casino opened on September 4, 2003. The
165,000-square-foot casino, located 11 miles west of Albuquerque adjacent to
I-40, includes 1,250 slot machines, 20 table games, a bingo hall with 750 seats,
a 2,800-seat theater/entertainment/special events venue, a cabaret lounge, and
multiple food, beverage and retail outlets, plus ample paved parking for trucks
and automobiles. Pueblo of Laguna's land is adjacent to I-40, the original Route
66-once termed "The Main Street of America" and made famous by the TV series
Route 66.

We are currently involved in a dispute with The Gillmann Group as
discussed in Part II, Item 1. To date, we have received no cash distributions
from the venture. Our portion of the earnings of the venture have been estimated
and recorded based on financial information made available to us. We are
vigorously defending our rights under the agreements.

Muscogee (Creek) Nation Gaming Project

On December 23, 2003, we (through our wholly owned subsidiary, Nevada
Gold Tulsa, Inc.) entered into Development and Management Agreements with the
Muscogee (Creek) Nation (the "Nation"), a federally recognized Indian tribe,
pursuant to which we will assist the Nation in developing and operating a
multi-phase gaming and entertainment project to be located in southern Tulsa,
Oklahoma. The project will be developed on and around the site of the existing
Creek Shannon Cozzonie Nation Casino. The first phase will include the
construction of a state-of-the-art gaming center featuring 2,000 or more gaming
machines, a 150 to 250 room hotel, nearly 20,000 square feet of meeting space
and a 750 to 1500 space, multi-level parking facility. Retail stores,
restaurants and other entertainment venues are planned for subsequent phases.
The total investment is expected to be approximately $110 million. We will
assist the Nation in arranging financing and in designing, constructing,
equipping and opening the gaming entertainment complex. The first phase of
development is expected to be completed in late summer 2006, but there can be no
assurance that it will be completed in that timeframe.

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The Management Agreement is subject to the approval of the National
Indian Gaming Commission ("NIGC") prior to its becoming effective. The
Development Agreement provides for a fee to us of $2.2 million upon completion
of the gaming entertainment complex; provided that, if the Management Agreement
is approved by the NIGC, we will not receive any fees under the Development
Agreement, but will instead receive fees solely from the Management Agreement as
described below. The term of the Management Agreement is for 60 months, and
provides for the payment of a monthly management fee, starting after the opening
of the gaming entertainment complex, equal to 12% of monthly net income less
principal payments on debt based on a 10 year amortization period.

OTHER BUSINESS ACTIVITIES

Gold Mountain Development. Through our wholly-owned subsidiary, Gold
Mountain Development, L.L.C., we own approximately 240 acres of real property in
the vicinity of Black Hawk, Colorado. The property is located in an EPA National
Priorities list area. The Central City Business Improvement District is paying
for the construction of a new 8.4 mile four-lane highway from I-70 to Central
City. The new highway will be adjacent to a portion of our 240 acres and is
scheduled for completion in November 2004. We are currently having discussions
with third parties to joint venture with us on the development of the property.

Sunrise Land and Mineral. We have a 50% interest in Sunrise Land and
Mineral Corporation, ("Sunrise"). Sunrise owns approximately 300 acres of land
in Nevada County, California, including all surface, mineral, water, air, and
timber rights and two mining leases consisting of approximately 8,600 acres in
White Pine County, Nevada. The 300 acres serves as collateral for our note
receivable of $101,000 from Sunrise.

Restaurant Connections International, Inc. We are a founding
shareholder of Restaurant Connections International, Inc. ("RCI"), and currently
own an approximate 30% interest in RCI. RCI owns the sole Pizza Hut franchise in
Sao Paulo, Brazil, giving RCI ownership and operation of 16 Pizza Hut
restaurants in Sao Paulo. RCI is pursuing a sale of its assets or other form of
monetization, and RCI has retained an investment banker to assist RCI in the
efforts. Other global fast food restaurants have entered the Brazilian
marketplace and are general competitors of RCI. McDonald's and Dunkin Donuts
have each established a presence in Sao Paulo and in other areas of Brazil.
These restaurant companies have significantly greater financial and other
resources that could affect RCI's operations.

Goldfield Resources, Inc. Our wholly-owned subsidiary, Goldfield
Resources, Inc. ("Goldfield"), holds mining claims totaling approximately 9,000
acres in the State of Nevada,. Goldfield is not directly involved in mining
operations. Goldfield has secured a mining lease for its properties with
Metallic Goldfield, Inc. ("Metallic"), and retains a royalty interest under the
lease. This lease permits Goldfield to benefit financially from successful
mining operations without incurring the significant labor and machinery costs of
operating mining projects. Gold mining operations must be conducted in
accordance with state and federal rules and regulations. Under the lease
agreement with Metallic, Metallic is primarily responsible for all regulatory
compliance. However, Metallic's failure to comply with any of the applicable
rules or regulations could create potential liability for Goldfield.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements included herein have been prepared by us,
without audit 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
period 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-K for the year
ended March 31, 2004.

BASIS OF PRESENTATION - These financial statements are consolidated for
all majority owned subsidiaries for all years presented. The portions not owned
by the Company are recorded as minority interests. Affiliated

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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.

EQUITY METHOD OF ACCOUNTING - Our investments in IC-BH, RCI, Route 66
Casinos, L.L.C. and 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 the degree of ultimate
control, representation on the investee's Board of Directors or similar
oversight body are considered in determining whether the equity method of
accounting is appropriate. Although we have an ownership interest of 51% in
Route 66 Casinos, L.L.C., we account for the investment in Route 66 Casinos,
L.L.C. using the equity method because the agreement provides that we and the
joint venture partner have equal voting rights in the joint venture and the
operating activities of the joint venture are currently controlled by the
minority venturer (See Part II, Item 1). We record our equity in the income or
losses of our investees using the same accounting periods as presented herein,
except we report our equity in income or losses three months in arrears for RCI
and one month in advance for IC-BH, based on their respective fiscal year ends.
Sunrise holds approximately 300 acres of land in California and has had no
operating activities, thus no equity in earnings or losses recorded during the
three months periods ended June 30, 2004. 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.

IMPAIRMENT OF EQUITY INVESTEES - We review our investments in equity
investees for impairment, whenever events or changes in circumstances indicate
that the carrying amount of the investments may not be recoverable. Generally
our equity investees are evaluated periodically by determining an estimate of
fair value derived from an analysis of undiscounted net cash flow, replacement
cost or market comparison, before interest, and if required we will recognize an
impairment loss equal to the difference between its carrying amount and its
estimated fair value. If impairment is recognized, the reduced carrying amount
of the asset will be accounted for as its new cost. Should an impairment occur,
the carrying value of our investment in an equity investee would not be recorded
below zero unless there are guaranteed obligations of the investee or is
otherwise committed to provide further financial support. The process of
evaluating for impairment requires estimates as to future events and conditions,
which are subject to varying market and economic factors, such as reoccurring
losses, permanent devaluation of the underlying long-term assets and intangibles
held by the equity investee and softening industry trends that appear to be
irreversible. Therefore, it is reasonably possible that a change in estimate
resulting from judgments as to future events could occur which would affect the
recorded amounts. As of June 30, 2004 management believes that no impairment
exists based upon periodic reviews. No impairment losses have been recorded for
the years ended March 31, 2004, 2003 and 2002.

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.

MINING PROPERTIES AND CLAIMS - Historically, we have capitalized costs
of acquiring and developing mineral claims until the properties are placed into
production. At that time, costs will be amortized on a units-of-production
basis. These costs include the costs to acquire and improve the claims,
including land-related improvements, such as roads. We carry these costs on our
books at the lower of our basis in the claims, or the net realizable value of
the mineral reserves contained in the claims. Mining properties are recorded at
their acquisition price. At June 30, 2004, management believes the net
realizable value of the mineral reserves is in excess of our cost in the claims.

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 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.

CAPITALIZED DEVELOPMENT COSTS - Development costs are recorded on the
cost basis. The costs are amortized over their estimated useful life upon the
execution of a development contract. When accumulated costs on a specific
project exceed the net realizable value of such project or the project is
abandoned, the costs are charged to expense.

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 betterments are capitalized.

DEFERRED LOAN COSTS - Deferred loan costs are comprised of direct costs
of securing financing by the Company. These costs are amortized to expense on a
straight-line basis over the underlying life of the debt instrument.

REVENUE RECOGNITION - We record credit enhancement fee income from
River Rock Casino on the accrual basis as earned. The dates on which credit
enhancement fee income is actually collected is on the 15th day of each
following month. It is also dependent upon the cash flow from River Rock
Casino's operation. As of June 30, 2004, there was no delinquency in credit
enhancement fee income. We record revenues from interest income on notes
receivable on the accrual basis

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as earned. The dates on which interest income is actually collected is dependent
upon the terms of the particular note receivable agreement, and may not
correspond to the date such interest income is recorded. We record royalty
income on the accrual basis as earned. The dates on which royalty income is
actually collected is dependent upon the terms of the contract, and may not
correspond to the date such royalty income is recorded. The amounts of royalty
income that we may earn is dependent upon a Consumer Price Index which may
increase or decrease our royalty income each fiscal year. As of June 30, 2004,
there was no delinquency in royalty income.

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.

EARNINGS PER SHARE - The Company accounts for its earnings per share in
accordance with SFAS No. 128 - "Earnings Per Share" which requires the
presentation of basic and diluted earnings per share on the consolidated
statement of operations. 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" (See Note 7).

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. In December of
2002, the FASB issued SFAS No. 148, "Accounting for Stock- Based Compensation -
Transition and Disclosure - An Amendment to FASB Statement No. 123" to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. The Company elected
to not change to the fair value based method of accounting for stock based
compensation. Additionally, the statement amended disclosure requirements of
SFAS No. 123 to require more prominent disclosure in both annual and interim
financial statements. We elected to continue following APB No. 25 and when
required, provide the pro forma provisions of SFAS No. 123.

USE OF ESTIMATES - The preparation of financial statements in
conformity with U.S. generally accepted accounting principles 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. Material estimates include depreciation
expense, amortization of deferred loan costs and development costs and operating
activities of the Route 66 Casino. Actual results could differ from those
estimates.

IMPAIRMENT OF LONG-LIVED ASSETS - We review our investments in land
development projects for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable in
accordance with Statement of Financial Accounting Standards No. 144 ("SFAS No.
144"), "Accounting for the Impairment and Disposal of Long-Lived Assets". If the
carrying amount of the asset, including any intangible assets associated with
that asset, exceeds its estimated undiscounted net cash flow, before interest,
the Company will recognize an impairment loss equal to the difference between
its carrying amount and its estimated fair value. If impairment is recognized,
the reduced carrying amount of the asset will be accounted for as its new cost.
For a depreciable asset, the new cost will be depreciated over the asset's
remaining useful life. Generally, fair values are estimated using discounted
cash flow, replacement cost or market comparison analyses. As of June 30, 2004,
we believe that no impairment exists based upon periodic reviews. No impairment
losses have been recorded for the years ended March 31, 2004, 2003 and 2002.

LEASE GUARANTEES - In November 2002, FASB issued interpretation No.
("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 establishes
disclosure and liability-recognition requirements for direct and indirect debt
guarantees with specified characteristics. The initial measurement and
recognition requirements of FIN 45 are effective prospectively for guarantees
issued or modified after December 31, 2002. However, the disclosure requirements
are effective for interim and annual financial-statements periods after December
15, 2002.

CONCENTRATION OF RISK - 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 February 2004, IC-BH replaced the $210.7
million Senior Credit Facility with a $205 million credit facility, comprised of
a $40 million revolving credit facility maturing on December 31, 2006 and

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a $165 million term loan maturing on December 31, 2007, 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 IC-BH casino operations has been more than
sufficient to pay its debt obligations.

At June 30, 2004, we were leveraged with $17.7 million in corporate
debt and lease guarantees of approximately $570,000 for the River Rock Casino
project. We also have guaranteed debt of $110,000 of an affiliated company that
may mature during the next fiscal year. To date, cash distributions from IC-BH
and notes receivable collections and credit enhancement fees from the River Rock
Casino have been sufficient to satisfy our current obligations. However, if we
are required to perform on our outstanding guarantees, or if the debt covenant
ratios of the River Rock Casino debt financing preclude the payment to us of our
credit enhancement fees or outstanding note receivable to River Rock Casino, we
may need to draw down on our $40 million revolving credit facility.

COMPREHENSIVE INCOME - Comprehensive income is a broad concept of an
enterprise's financial performance that includes all changes in equity during a
period that arises from transactions and economic events from nonowner sources.
Comprehensive income is net income plus "other comprehensive income," which
consists of revenues, expenses, gains and losses that do not affect net income
under accounting principles generally accepted in the United States. Other
comprehensive income for us consists of adjustments to interest rate swaps, net
of tax.

Comprehensive income consisted of the following:

The accumulated other comprehensive loss reflected on the balance sheet
at June 30, 2004 and March 31, 2004 consisted solely of the adjustments to
interest rate swaps, net of tax.

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

We are a 43% owner of IC-BH with Isle. Financing for the Isle of Capri
- - Black Hawk Casino was provided by the IC-BH debt offering of $75 million in
13% First Mortgage Notes. On November 16, 2001, the IC-BH refinanced the $75
million First Mortgage Notes by entering into a $90.0 million secured credit
facility (the "IC-BH Secured Credit Facility"), all of which was non-recourse to
us. The IC-BH Secured Credit Facility provided for a $10.0 million revolving
credit facility, a $40.0 million Tranche A term loan maturing on November 16,
2005 and a $40.0 million Tranche B term loan maturing on November 16, 2006. On
April 22, 2003, the IC-BH replaced the Isle-Black Hawk Secured Credit Facility
with a $210.7 million Senior Secured Credit Facility (the "IC-BH Senior Secured
Credit Facility").

The IC-BH Senior Secured Credit Facility provided for a $40.0 million
revolving credit facility maturing on November 16, 2005, a $27.9 million Tranche
A term loan maturing on November 16, 2005, and a $142.8 million Tranche B term
loan maturing on November 16, 2006, all of which is non-recourse debt to us. The
proceeds from the $105.0 million increase of the Tranche B term loan were used
to provide financing for the acquisitions of the

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Colorado Central Station Casino in Blackhawk, Colorado and the Colorado Grande
Casino in Cripple Creek, Colorado.

On February 6, 2004, IC-BH amended the Senior Secured Credit Facility
to provide for a $40.0 million revolving credit facility maturing on December
31, 2006 or such date as the Tranche C term loans are repaid in full, whichever
comes first. Tranche A and Tranche B term loans were converted into a $165.0
million Tranche C term loan maturing on December 31, 2007. The IC-BH is required
to make quarterly principal payments of $400,000 on the term loan portions of
the IC-BH Senior Secured Credit Facility commencing in June 2004 with a balloon
payment of $159.2 million due upon maturity.

At IC-BH's option, the $40 million revolving credit facility loan may
bear interest at (1) the highest of 0.05% in excess of the federal funds
effective rate or the rate that the bank group announces from time to time as
its prime lending rate plus an applicable margin of up to 2.50% or (2) a rate
tied to a LIBOR rate plus an applicable margin of up to 3.50%. The Tranche C
term loan may bear interest at (1) the highest of 0.05% in excess of the federal
funds effective rate or the rate that the bank group announces from time to time
as its prime lending rate plus an applicable margin of up to 2.00% or (2) a rate
tied to a LIBOR rate plus an applicable margin of up to 3.25%.

The IC-BH Senior Secured Credit Facility provides for certain
covenants, including those of a financial nature. IC-BH was in compliance with
these covenants as of June 30, 2004. In July 2004, IC-BH and the bank group
amended certain financial covenants in its Senior Secured Credit Facility in
order to allow IC-BH to remain in compliance. The Senior Secured Credit Facility
is secured by liens on IC-BH's assets.

In January 2004, IC-BH commenced a $95 million construction project at
its Black Hawk Casinos. The expansion project includes 15,000 square feet of
additional gaming space, a covered skywalk to connect the two casino properties,
a 1,200-space parking garage, 160 additional hotel rooms and a 200-seat
restaurant. As currently planned, IC-BH expects to open the first phase, which
includes two floors of parking and the casino expansion, in spring 2005. The
hotel, restaurant and remaining parking are scheduled to be completed within
twelve months thereafter. IC-BH is also funding approximately $20 million (which
is part of the $95 million overall total) of public improvements which include
extending Main Street to connect to Colorado Route 119. This will provide
customers direct access to our Black Hawk casinos and parking garages at the
first two traffic lights into Black Hawk. We currently expect that the extension
of Main Street will be completed by late summer 2005.

Our 43% ownership of the IC-BH is being 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 July 25, 2004 (IC-BH's quarter
end) totaled $2,388,380 which has been included in our statement of operations
for the three months ended June 30, 2004. During the three months ended June 30,
2004 and 2003, we received cash distributions of $1,185,000 and $404,000,
respectively, from IC-BH and our basis in the project through July 25, 2004 is
$17,124,315.

12

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

ISLE OF CAPRI BLACK HAWK, L.L.C.
BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)

13

ISLE OF CAPRI BLACK HAWK, L.L.C.
INCOME STATEMENTS (UNAUDITED)
(IN THOUSANDS)

The difference in carrying value of our investment in IC-BH and 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 July 25, 2004, IC-BH recorded an other
comprehensive gain of $494,443 related to the interest rate swap transaction.
Our share of the other comprehensive gain was $140,324, net of income taxes of
$72,287.

14

NOTE 4. NOTES RECEIVABLE

NOTES RECEIVABLE - DRY CREEK RANCHERIA - At June 30, 2004, 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
million 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 million 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 to provide for interest payable monthly at a
rate of 9% per annum and a maturity date 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 calendar
year 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 calendar year 2005).

NOTES RECEIVABLE - AFFILIATES - At June 30, 2004, Clay County Holdings,
Inc ("CCH") owed us $2.3 million which amount bears an interest rate of 12% per
annum, and is payable by CCH in a minimum amount of $150,000 plus accrued
interest per quarter until paid in full. At June 30, 2004, Service Interactive
("SI") owed us $2.3 million which amount bears an interest rate of 12% per
annum, and is payable by SI in a minimum amount of $150,000 plus accrued
interest per quarter until paid in full. Both loans are secured by a lien on our
common stock owned by CCH with $15 million market equity value as of June 30,
2004. The outstanding balances of notes receivable from CCH and SI were each
reduced by $150,000 during the three months ended June 30, 2004. At June 30,
2004, Sunrise owed us $101,000 which amount bears an interest rate of 12% per
annum. CCH is our largest shareholder, beneficially owns 18% of our total
outstanding common stock. The president of CCH is the son-in-law of our CEO. We
currently have the option to acquire common stock of SI. We also have 50%
ownership interest in Sunrise.

NOTES RECEIVABLE - OTHER - At June 30, 2004, we had notes receivable of
$2.2 million related to development of gaming projects. The notes bears an
average interest rate of 10% per annum with maturity dates dependent upon the
completion of project financing. During the three months ended June 30, 2004, we
made loans of $2.2 million to tribes and other third parties for the purpose of
exploring potential gaming development opportunities. The repayment of such
loans and accrued interests will be largely dependent upon the ability to obtain
financing at each gaming project and/or the performance of each gaming project.
If any gaming projects are unsuccessful, any loans associated with those gaming
projects will be uncollectible. Interest income on notes receivable related to
gaming development projects is deferred because realizability of the interest
is contingent upon the completion of project financing. Interest deferred during
the development period is recognized over the remaining life of the notes.

NOTE 5. LONG-TERM DEBT

$13 MILLION CREDIT FACILITY - In June 2004, we settled our dispute with
the holder of this credit facility by amending existing financing documents and
entering into a $40 million revolving credit facility. We also reduced the
amount of debt outstanding under the $13 million credit facility to $3.3 million
(by drawing down $7.9 million on the $40 million revolving credit facility),
which matures December 31, 2005 and amended the interest rate to 7.5% per annum.
The remaining $3.3 million principal is convertible into 1,105,833 shares of our
common stock. The reduction of the convertible debt to $3.3 million had the
effect of reducing the shares into which the debt is convertible from 1,739,166
shares to 1,105,833 shares.

$40 MILLION CREDIT FACILITY - In June 2004, we entered into a $40
million revolving credit facility. The $40 million revolving credit facility
allows us to draw down, on a revolving basis, up to $40 million, (less any other
indebtedness owed by us under the $13 million credit facility) at any time prior
to June 30, 2008. Amounts drawn under the revolving credit facility bear
interest at the rate of 8.5% per annum. The current availability under this
revolving credit facility is approximately $28.8 million. The convertible note
and $40 million credit facility is secured by our interest in IC-BH.

$6.5 MILLION TERM LOAN - In June, 2004, we settled a claim with a
financial advisor who facilitated the procurement of the $13 million credit
facility by allowing his exercise of a warrant, issuing him 801,917 shares of
our common stock, and repurchasing 501,917 of these shares through the issuance
of a $6.5 million note, bearing interest at the rate of 7.5% per annum, with
$3.25 million of principal maturing on each of April 1, 2005 and 2006.
Subsequently, the 501,917 shares of common stock repurchased were retired.

15

NOTE 6. FEDERAL AND STATES INCOME TAXES

We have recorded a net deferred tax asset in connection with tax credit
and net loss carry forwards, compensation expense in connection with issuance of
stock options, and for allocated earning of our equity investments not currently
taxable for federal income tax purposes.

NOTE 7. EQUITY

In June 2004, we resolved a dispute with a financial advisor who
facilitated the procurement of the $13 million credit facility by allowing his
exercise of a warrant, issuing him 801,917 shares of our common stock, and
repurchasing 501,917 of these shares at $13.04 per share (quoted market price)
and issued a $6.5 million note, bearing interest at the rate of 7.5% per annum,
with $3.25 million of principal maturing on each of April 1, 2005 and 2006.
Subsequently, the 501,917 shares of common stock were retired. The repurchase
of the shares of common stock was at the fair market value on the measurement
date, which was June 10, 2004, and thus no expense was recorded.

During the three months ended June 30, 2004, holders of 449,151 options
and warrants, with average exercise price of $4.47 per share, elected to
exercise and receive alike amount of our restricted and unrestricted common
stock in exchange for cash proceeds of $2,006,222.

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.

As discussed in Note 5, our convertible debt security is subject to an
option to convert principal and accrued interest into our common stock. In
accordance with SFAS No. 128, the effects of applying the if-converted method
for the quarter ended June 30, 2004 and 2003 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.

16

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.

17

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

NOTE 9. COMMITMENTS AND CONTINGENCIES

As of June 30, 2004, we have a total of $570,000 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 June 30, 2004 our guarantees on debt of SI for
the performance of the payment obligations was $101,000. 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 indemnify 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.

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 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-K for the year ended March 31, 2004. 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.

18

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.

Equity Method of Accounting

Our investments in IC-BH, RCI, Route 66 Casinos, L.L.C. and 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 the degree of ultimate control, representation on the investee's
Board of Directors or similar oversight body are considered in determining
whether the equity method of accounting is appropriate. Although we have an
ownership interest of 51% in Route 66 Casinos, L.L.C., we account for the
investment in Route 66 Casinos, L.L.C. using the equity method because the
agreement provides that we and the joint venture partner have equal voting
rights in the joint venture and the operating activities of the joint venture
are currently controlled by the minority venturer (See Part II, Item 1). We
record our equity in the income or losses of our investees using the same
accounting periods as presented herein, except we report our equity in income or
losses three months in arrears for RCI and one month in advance for IC-BH, based
on their respective fiscal year ends. Sunrise holds approximately 300 acres of
land in California and has had no operating activities, thus no equity in
earnings or losses recorded during the three months periods ended June 30, 2004.
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

We record credit enhancement fee income from River Rock Casino on the
accrual basis as earned. The dates on which credit enhancement fee income is
actually collected is on the 15th day of each following month. It is also
dependent upon the cash flow from River Rock Casino's operation. As of June 30,
2004, there was no delinquency in credit enhancement fee income. We record
revenues from interest income on notes receivable on the accrual basis as
earned. The dates on which interest income is actually collected is dependent
upon the terms of the particular note receivable agreement, and may not
correspond to the date such interest income is recorded. We record royalty
income on the accrual basis as earned. The dates on which royalty income is
actually collected is dependent upon the terms of the contract, and may not
correspond to the date such royalty income is recorded. The amounts of royalty
income that we may earn is dependent upon a Consumer Price Index which may
increase or decrease our royalty income each fiscal year. As of June 30, 2004,
there was no delinquency in royalty income.

Income Taxes

Income taxes are accounted for in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires the use of 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.

Use of Estimates

The preparation of financial statements in conformity with U.S.
generally accepted accounting principles 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. Material estimates include depreciation expense, amortization of

19

deferred loan costs and development costs and operating activities of the Route
66 Casino. Actual results could differ from those estimates.

Capitalized Development Costs

Development costs are recorded on the cost basis. The costs are
amortized over their estimated useful life upon the execution of a development
contract. When accumulated costs on a specific project exceed the net realizable
value of such project or the project is abandoned, the costs are charged to
expense.

General

We are primarily a developer of gaming facilities and related lodging
and entertainment facilities. We reported net income of $1,723,994 for the three
months ended June 30, 2004 compared to net income of $1,673,873 for the three
months ended June 30, 2003.

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. During
the three months ended June 30, 2004, our allocable income from IC-BH through
July 25, 2004, IC-BH's quarter end, totaled $2.4 million, compared to $2.8
million for the three months ended June 30, 2003. During the three months ended
June 30, 2004, we received a cash distribution of $1.2 million from IC-BH and
our basis in the project through July 25, 2004 was $17.1 million.

We own a 69% majority interest in Dry Creek Casino, L.L.C. For
financial reporting purposes, the assets, liabilities, and earnings of Dry Creek
Casino, L.L.C. are included in our consolidated financial statements. The
interests of the other members have been recorded as minority interests totaling
$279,188 at June 30, 2004.

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 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.

Our ownership of Route 66 Casinos, L.L.C. is accounted for using the
equity method of accounting. Our investment in Route 66 Casinos, L.L.C. is
stated at cost and, adjusted for our equity in the undistributed earnings or
losses of Route 66 Casinos, L.L.C. During the three months ended June 30, 2004
and June 30, 2003, our portion of Route 66's undistributed earnings totaled
$432,000 and $26,000, respectively.

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. During the three months ended June
30, 2004, our portion of RCI's undistributed loss through March 31, 2004 totaled
$36,000. In accordance with the equity method of accounting, our investment
account balance was reduced to zero and the remaining allocated loss of $1
million has not been reflected in our financial statements.

In September 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.

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.

20

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 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
$762,000 at March 31, 2004. The $10 million note receivable to the Dry Creek
Casino, L.L.C. from the River Rock Casino has been amended to provide for
interest payable monthly at a rate of 9% per annum and a maturity date 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 calendar year 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 calendar year 2005). An
identical loan agreement was entered into between us and Dry Creek Casino,
L.L.C.

Results of Operations

Comparison of the quarter ended June 30, 2004 and 2003

REVENUES. Revenues increased 12%, or $196,000 to $1.8 million for the
quarter ended June 30, 2003, compared to $1.6 million for the quarter ended June
30, 2003. Our revenue primarily consists of the following income streams:

CREDIT ENHANCEMENT FEE INCOME

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 June 30 2004, the credit enhancement fee
income was $1.4 million, compared to $300,000 for the quarter ended June 30,
2004. Under the development and loan agreement, we earn a credit enhancement fee
equal to 20% of River Rock Casino's earnings before taxes (if any), depreciation
and amortization, starting June 1, 2003 and ending on May 31, 2008. The increase
is primarily attributable to the recording of three months of credit enhancement
fee income during the quarter ended June 30, 2004, compared to the recording of
one month of credit enhancement fee income recorded during the quarter ended
June 30, 2003.

OTHER REVENUES

INTEREST INCOME. Our interest income consists primarily of interest
earned on loans we have made in connection with the River Rock Casino project,
other gaming projects, and to our affiliates. Interest income decreased 64%, or
$842,000 to $466,000 for the quarter ended June 30, 2004, compared to $1.3
million for the quarter ended June 30, 2003. The decrease is attributable to
River Rock Casino's $22.6 million note receivable principal repayment in
November 2003 which significantly decreased the average outstanding balance of
notes receivable during the quarter ended June 30, 2004 compared to the quarter
ended June 30, 2003.

ROYALTY INCOME. Royalty income increased 25% to $17,000 for the quarter
ended June 30, 2004, compared to $14,000 for the quarter ended June 30, 2003.
The increase is attributable to increases in the base monthly Royalty Income and
the Consumer Price Index which is used to calculate the royalty income. This
income is derived solely from our mining agreement with Metallic. Based on our
agreement with Metallic, we anticipate receiving $68,000 during fiscal 2005.
However, our agreement with Metallic 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 L.L.C. Equity in
earnings of IC-BH decreased 16% to $2.4 million for the quarter ended June 30,
2004 compared to $2.8 million for the quarter ended June 30, 2003. The decrease
is primarily attributable to a decrease in gaming revenue caused by construction
disruption related to the

21

$95 million expansion project in its Black Hawk properties during the quarter
ended June 30, 2004. We believe such construction disruption from the expansion
project will likely continue until the expansion is completed.

EQUITY IN EARNINGS OF ROUTE 66 CASINOS, L.L.C. Equity in earnings of
Route 66 increased 1,562% to $432,000 for the quarter ended June 30, 2004
compared to $26,000 for the quarter ended June 30, 2003. The increase is
primarily attributable to higher estimated rental revenues from the gaming
equipment lease with Route 66 Casino's permanent facility which opened on
September 4, 2003.

TOTAL EXPENSES. Total expenses decreased 7%, or $139,000 to $1.8
million for the quarter ended June 30, 2004, compared to $1.9 million for the
quarter ended June 30, 2003. The decrease primarily relates to an increase in
general and administrative expenses, salaries, amortization of deferred loan
issue cost, and write-off of capitalized development costs which were offset by
a decrease in interest expenses related to reduction of our corporate debt.
These items are discussed below:

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 63%, or $100,000, to $260,000 for the quarter ended June 30
2004, compared to $160,000 in the quarter ended June 30, 2003. The increase is
primarily related to the expansion in our business which caused an increase in
corporate office expense, office rent, travel expense and a one-time filing fee
of $26,000 to American Stock Exchange.

INTEREST EXPENSE. Interest expense decreased 57%, or $577,000, to
$440,000 for the quarter ended June 30, 2004, compared to $1 million for the
quarter ended June 30, 2003. The decrease is primarily related to the repayment
of our $23 million credit facility in November 2003 which significantly lowered
our overall weighted average outstanding corporate debt during the quarter ended
June 30, 2004.

SALARIES. Salaries increased 47%, or $128,000, to $401,000 for the
quarter ended June 30, 2004, compared to $274,000 in the quarter ended June 30,
2003 related to increases in salaries and number of personnel.

LEGAL AND PROFESSIONAL FEES. Legal and professional fees decreased 3%,
or $8,000, to $306,000 for the quarter ended June 30, 2004, compared to $314,000
in the quarter ended June 30, 2003.

AMORTIZATION OF DEFERRED LOAN ISSUE COST. Amortization of deferred loan
issue cost increased 23%, or $33,000, to $176,000 for the quarter ended June 30,
2004, compared to $143,000 in the quarter ended June 30, 2003. The increase is
primarily attributable to the early repayment of $7.9 million on the $13 million
credit facility in June 2004 which caused the acceleration in recognition of
$118,000. As of June 30, 2004, we reduced the borrowing under the $13 million to
$3.3 million.

WRITE-OFF OF CAPITALIZED DEVELOPMENT COSTS. During the quarter ended
June 30, 2004, we recorded $181,000 of write off of capitalized development cost
related to our decision to no longer pursue development of one of our gaming
projects.

NET INCOME. Net income before federal and state income tax provision
increased 6% or $146,000 to $2.7 million for the quarter ended June 30, 2004 as
compared to $2.5 million for the quarter ended June 30, 2003. Net income
increased 3% or $50,000 to $1.72 million for the quarter ended June 30, 2004 as
compared to net income of $1.67 million in the quarter ended June 30, 2003. The
effective tax rate for the quarters ended June 30, 2004 and June 30, 2003 were
35% and 33%, respectively.

Liquidity and Capital Resources

OPERATING ACTIVITIES. Net cash provided by operating activities during
the three months ended June 30, 2004 amounted to $1.4 million, compared to
$414,000 of net cash used in operating activities during the three

22

months ended June 30, 2003. The increase was primarily related to an increase in
cash distributions from IC-BH and an increase in the amount of credit
enhancement fee income received from River Rock Casino Project.

INVESTING ACTIVITIES. Net cash used in investing activities during the
three months ended June 30, 2004, amounted to $2.5 million, an increase of $1.6
million, over the $888,000 of net cash used in investing activities in the three
months ended June 30, 2003. The increase is primarily related to $1.9 million of
advances made during the three months ended June 30, 2004, compared to $4.1
million of advance during the three months ended June 30, 2003, and $806,000 of
development costs expended in connection with gaming project developments.

FINANCING ACTIVITIES. Net cash used by financing activities during the
three months ended June 30, 2004 amounted to $1.6 million, an increase of $1.6
million, compared to the $41,000 of net cash provided by financing activities in
the three months ended June 30, 2003. The increase was primarily related to the
$2 million of proceeds received from exercising warrants and options offset by
the payment of $237,000 of deferred loan issue cost related to the drawdown of
$7.9 million under the $40 million credit facility.

At June 30, 2004, we had cash available of $4.1 million. In June 2004,
we amended the existing financing documents relating to the $13 million credit
facility and entered into a $40 million revolving credit facility. We reduced
the amount of debt outstanding under the $13 million credit facility to
approximately $3.3 million (by drawing down approximately $7.9 million on the
$40 million revolving credit facility), which matures December 31, 2005, and
amended the interest rate to 7.5% per annum. The remaining $3.3 million
principal amount is convertible into 1,105,833 shares of our common stock. The
reduction of the convertible debt to $3.3 million had the effect of reducing the
shares into which the debt is convertible from 1,739,166 shares to 1,105,833
shares. The $40 million revolving credit facility allows us to draw down, on a
revolving basis, up to $40 million (less any other indebtedness owed by us to
the lender) at any time prior to June 30, 2008. Amounts drawn under the
revolving credit facility bear interest at the rate of 8.5% per annum. The
current availability under this revolving credit facility is approximately $28.8
million. The convertible note and $40 million credit facility are secured by our
interest in IC-BH. Concurrently with the resolution of this matter, we resolved
a dispute with a financial advisor who facilitated the procurement of the $13
million credit facility by allowing his exercise of a warrant, issuing him
801,917 shares of our common stock, and repurchasing 501,917 of these shares at
$13.04 per share through the issuance of a $6.5 million note, bearing interest
at the rate of 7.5% per annum, with $3.25 million of principal maturing on each
of April 1, 2005 and 2006. Subsequently, the 501,917 shares of common stock
repurchased were retired. The repurchase of the shares of common stock was at
fair market value on the date of transaction, and thus no expense was recorded.

During the next twelve months, we expect to receive cash distributions
from IC-BH of approximately $3 million to $4 million based on our current
estimates, and note receivable collections of $1.2 million from affiliate
companies. In addition, we anticipate that 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. In addition, we will have available funds under the $40 million
revolving credit facility - currently we have $28.8 million available under this
facility. We believe we have adequate capital to fund our operations for the
next twelve months.

At June 30, 2004, we were leveraged with $17.7 million in corporate
debt and lease guarantees of approximately $570,000 for the River Rock Casino
project. We also have guaranteed debt of $150,000 of an affiliated company that
may mature during the next fiscal year. To date, cash distributions from IC-BH,
and notes receivable collections and credit enhancement fees from the River Rock
Casino have been sufficient to satisfy our current obligations. However, if we
are required to perform on our outstanding guarantees, or if the debt covenant
ratios of the River Rock Casino debt financing preclude the payment to us of our
credit enhancement fees or outstanding note receivable to River Rock Casino, we
may need to draw down on our $40 million revolving credit facility.

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.

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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 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

Management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Our principal
executive officer and principal financial officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) and
15d-15(e)) as of June 30, 2004, have concluded that our disclosure controls and
procedures are effective in providing reasonable assurance that information
required to be disclosed by the Company in the reports that it files or submits
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. Management of the Company, with the participation of the principal
executive officer and principal financial officer, has concluded there were no
significant changes in the Company's internal controls over financial reporting
that occurred during three months ended June 30, 2004 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We and our subsidiaries are, from time to time, defendants in various
lawsuits relating to routine matters incidental to our business. As with all
litigation, no assurance can be provided as to the outcome of the following
matters and litigation inherently involves significant costs. Following is a
summary of key litigation impacting us and our subsidiaries.

Route 66 Casino. In September 2002, we filed a claim for arbitration,
seeking damages, specific performance and other relief against American
Heritage, Inc. (d/b/a The Gillmann Group), the other member in Route 66 Casinos,
L.L.C. Route 66 Casinos, L.L.C. was jointly formed by us and The Gillmann Group
to assist the Pueblo of Laguna in the development and financing of gaming
facilities on land located 11 miles west of Albuquerque, New Mexico. We and The
Gillmann Group entered into several contracts arising from The Gillmann Group's
agreement to assist in the development and equipping of the Route 66 Casino. One
such agreement, the Route 66 Casinos, L.L.C. Operating Agreement, governed the
relationship of the parties relating to the Route 66 gaming operation. Pursuant
to this agreement, we are to receive 51% of the net revenue from the Route 66
gaming operation. This agreement, which was signed by both us and The Gillmann
Group, contains an arbitration clause.

In addition to the operating agreement, the parties also entered into a
promissory note and a right of first refusal agreement, whereby The Gillmann
Group agreed to offer us the right to partner on future gaming projects. The
Gillmann Group and Mr. Gillmann have breached each of these agreements.

We initiated arbitration proceedings pursuant to the Route 66 Casinos,
L.L.C. operating agreement; however, The Gillmann Group and Mr. Gillmann refused
to participate on the ground that the operating agreement is invalid. We then
filed a lawsuit in state district court in Harris County, Texas, initially
seeking to recover payment pursuant to the promissory note. We have since
amended our claims to include breach of contract, breach of fiduciary duty,
fraud and other claims related to The Gillmann Group's repudiation of the Route
66 Casinos, L.L.C. operating agreement and right of first refusal agreement.

The Gillmann Group then filed a lawsuit in state district court in
Clark County, Nevada. In its lawsuit, The Gillmann Group seeks judicial
dissolution of Route 66 Casinos, L.L.C. and seeks a declaratory judgment that
the operating agreement is void based upon fraudulent misrepresentation. We
immediately moved to compel arbitration, which was denied by the Nevada district
court. We appealed this ruling to the Nevada Supreme Court. Likewise, the Nevada
Supreme Court has ordered the parties not to participate in arbitration until it
rules on whether the dispute is subject to arbitration. A ruling is expected
within the next few months.

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Meanwhile, the related lawsuit in Texas has been stayed pending the
outcome of the Nevada appeal. However, the stay was recently lifted for the
limited purpose of allowing The Gillmann Group to move for partial summary
judgment on certain limited provisions of the right of first refusal agreement
We will vigorously defend against The Gillmann Group's motion for partial
summary judgment.

Credit Facility. The holder of our $13 million credit facility
commenced an arbitration proceeding against us in Harris County, Texas. In June
2004, we settled our dispute by amending the existing financing documents
relating to the $13 million credit facility and entered into a $40 million
revolving credit facility. We reduced the amount of debt outstanding under the
$13 million credit facility to approximately $3.3 million (by drawing down
approximately $7.9 million on the $40 million revolving credit facility), which
matures December 31, 2005, and amended the interest rate to 7.5% per annum. The
remaining $3.3 million principal amount is convertible into 1,105,833 shares of
our common stock. The reduction of the convertible debt to $3.3 million had the
effect of reducing the shares into which the debt is convertible from 1,739,166
shares to 1,105,833 shares. The $40 million revolving credit facility allows us
to draw down, on a revolving basis, up to $40 million (less any other
indebtedness owed by us to the lender) at any time prior to June 30, 2008.
Amounts drawn under the revolving credit facility bear interest at the rate of
8.5% per annum. The current availability under this revolving credit facility is
approximately $28.8 million. The convertible note and $40 million credit
facility are secured by our interest in IC-BH. Concurrently with resolution of
this matter, we resolved a dispute with a financial advisor who facilitated the
procurement of the $13 million credit facility by allowing his exercise of a
warrant, issuing him 801,917 shares of our common stock, and repurchasing
501,917 of these shares at $13.04 per share through the issuance of a $6.5
million note, bearing interest at the rate of 7.5% per annum, with $3.25 million
of principal maturing on each of April 1, 2005 and 2006. Subsequently, the
501,917 shares of common stock repurchased were retired. The repurchase of the
shares of common stock was at the fair market value on the measurement date,
which was June 10, 2004, and thus no expense was recorded.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During the three months ended June 30, 2004, we issued 52,000 shares of
common stock for an aggregate purchase price of $162,500 upon the exercise of
outstanding warrants. The transactions were completed pursuant to Section 4(2)
of the Securities Act of 1933. The transactions did not involve any public
offering. Each recipient either received adequate information about the Company
or had access to such information, and we determined that each recipient had
such knowledge and experience in financial and business matters that they were
able to evaluate the merits and risks of an investment in the Company. All sales
were made by our officers who received no commission or other remuneration for
the solicitation of any person in connection with the respective sales. The
recipients of securities represented their intention to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

(*) filed herewith

(b) Reports on Form 8-K - During the quarter ended June 30, 2004 we filed a Form
8-K on June 18, 2004 in which we announced our financial results for the
Fiscal year ended March 31, 2004, pursuant to Item 12 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: August 9, 2004

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(*) filed herewith

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