10-K 1 v349320_10k.htm FORM 10-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

 

FORM 10-K

 

x   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
    for fiscal year ended April 30, 2013
    or
o   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. 001-15517

Nevada Gold & Casinos, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 88-0142032
(State or other jurisdiction of Incorporation or organization) (I.R.S. Employer Identification No.)
   
133 E. Warm Springs Road, Suite 102, Henderson, Nevada 89119
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (702) 685-1000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Name of each exchange on which registered
   
Common stock, $0.12 par value New York Stock Exchange Market

 

Securities registered pursuant to Section 12(g) of the Act: None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes x No

 

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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)

o Yes x No

 

As of October 31, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price per share of $0.80, as reported on the NYSE MKT Stock Exchange, was $12,617,608.

 

As of July 5, 2013, the registrant had 16,100,554 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the definitive Proxy Statement for the registrant’s 2013 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year end of April 30, 2013 are incorporated by reference into Part III of this report.

 

 
 

 

NEVADA GOLD & CASINOS, INC.

TABLE OF CONTENTS

 

    Page
     
PART I    
     
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 5
ITEM 1B. UNRESOLVED STAFF COMMENTS 8
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. MINE SAFETY DISCLOSURES 9
     
PART II    
     
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 9
ITEM 6. SELECTED FINANCIAL DATA 10
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 21
ITEM 9A. CONTROLS AND PROCEDURES 21
ITEM 9B. OTHER INFORMATION 22
     
PART III    
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 22
ITEM 11. EXECUTIVE COMPENSATION 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 23
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 23
     
PART IV    
     
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 23

 

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FORWARD-LOOKING STATEMENTS

Factors that May Affect Future Results

(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)

 

Certain information included in this Form 10-K and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company or its representatives) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or other words or expressions of similar meaning, may identify forward-looking statements. We have based these forward-looking statements on our current expectations about future events. Forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations, intentions with respect to our financial condition, results of operations, future performance and the business, including statements relating to our business strategy and our current and future development plans.

 

Although we believe that the assumptions underlying these forward-looking statements are reasonable, any or all of the forward-looking statements in this report and in any other public statements that are made may prove to be incorrect. This may occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this report, such as the competitive environment and government regulation, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this report or other public communications that we might make as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission should be consulted.

 

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Part I

 

Item 1. Business

 

Overview

 

Nevada Gold & Casinos, Inc., a Nevada corporation (the “Company,” “we” or “us”), was formed in 1977 and, since 1994, has been primarily a gaming company involved in financing, developing, owning and operating gaming properties and projects.

 

Commercial Gaming Properties.

 

Our gaming facility operations are located in the United States of America (the “U.S.”), specifically in the states of Washington, South Dakota and, until recently, Colorado. On April 25, 2005, we acquired the Colorado Grande Casino in Cripple Creek, Colorado, which we sold on May 25, 2012. On May 12, 2009, we acquired three mini-casinos in Washington State. On July 23, 2010, we acquired six additional mini-casinos and, on July 18, 2011, we acquired one more mini-casino in Washington State. On January 27, 2012, we acquired all of the shares of A.G. Trucano, Son and Grandsons, Inc. (“South Dakota Gold”), a slot machine route operation in Deadwood, South Dakota.

 

The following properties are wholly owned and operated by us: Crazy Moose Casinos in Pasco and Mountlake Terrace, Washington, Coyote Bob’s Casino in Kennewick, Washington, Silver Dollar Casinos in SeaTac, Bothell and Renton, Washington, Club Hollywood Casino in Shoreline, Washington, Royal Casino in Everett, Washington, Golden Nugget Casino in Tukwila, Washington, Red Dragon Casino in Mountlake Terrace, Washington, (collectively “Washington Gold”) and the South Dakota Gold slot route operation in Deadwood, South Dakota.

 

Real Estate.

 

We own approximately 268 acres of undeveloped land in Colorado which is currently held for sale. On April 8, 2013, we signed a one year option agreement with Clear Creek County Development Company, LLC (“CCC”) to sell the land for an initial sale price of $1.1 million plus $118 per day after April 8, 2013. The cost of the option is equal to one-half of the annual property taxes which equals approximately $10,000. CCC has the right to extend the option agreement for two additional one year terms under the same terms. If the land is sold, the proceeds will be used to reduce debt.

 

We report our operations in four segments: Washington Gold, South Dakota Gold, Corporate and assets held for sale. For a summary of financial information concerning these four segments, please refer to the information provided in Note 13 to our Consolidated Financial Statements.

 

Objective and Strategies

 

Our primary business objective is to increase long-term returns to shareholders through appreciation in the value of our common shares. To achieve this objective, we intend to grow our assets and our earnings by following three business strategies:

 

-enhancing the return from, and the value of, the gaming properties in which we own interest;
-acquiring or developing additional gaming properties; and
-assisting in finding financing, developing and/or managing of, or providing consulting services to gaming projects and operating properties.

 

Current Commercial Casino Projects

 

Washington Gold – Washington State

 

On May 12, 2009, through our wholly-owned subsidiary, NG Washington, LLC, we completed an acquisition of three mini-casinos in the state of Washington for $15.75 million. The mini-casinos and related real estate were owned by Crazy Moose Casino, Inc., Crazy Moose Casino II, Inc., Coyote Bob’s, Inc., and Gullwing III, LLC (collectively, the “Sellers”) and the transaction was funded by existing cash as well as a $4.0 million note issued to the Sellers. The three mini-casinos are Crazy Moose Casino in Pasco, Coyote Bob's Casino in Kennewick, and Crazy Moose Casino in Mountlake Terrace. Combined, the facilities have a total of 42 table games including Blackjack, Pai Gow poker, Baccarat, Player Banked Poker, Spanish 21, Blackjack-Double Action, Ultimate Hold’em, and Three and Four Card Poker. New games are frequently introduced to keep the customers interested and active. Additional banked table games are permitted along with poker and pull tabs. We believe that Crazy Moose Casino in Mountlake Terrace attracts customers from the Seattle area whereas Crazy Moose Casino in Pasco and Coyote Bob’s Casino, located in the southeast region of Washington State, attract customers from Walla Walla, southeastern Washington State and northeastern Oregon. The three mini-casinos operate with approximately 380 employees and have a total of approximately 306 parking spaces.

 

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On July 23, 2010, through our wholly-owned subsidiary, NG Washington II, LLC, we acquired six additional mini-casinos in the state of Washington and a related administrative center, for $11.07 million, which was comprised of $6.0 million in cash and $5.07 million financed by the prior owner’s senior debt holder. The mini-casinos were acquired through bankruptcy proceedings. The six mini-casinos are Silver Dollar Casinos in SeaTac, Renton, and Bothell, Golden Nugget Casino in Tukwila, Club Hollywood Casino in Shoreline, and Royal Casino in Everett. All of the mini-casinos are located in the Seattle area. Combined, the six facilities have a total of approximately 90 table games including Blackjack, Spanish 21, Player Banked Poker, and other popular banked table games. The six mini-casinos operate with approximately 675 employees, all are located within 25 miles of Seattle and have a total of approximately 1,065 parking spaces. We believe that the casinos attract customers from the Seattle area and western Washington State.

 

On July 18, 2011, through our wholly-owned subsidiary, NG Washington III, LLC, we completed the acquisition of the Red Dragon mini-casino in Mountlake Terrace, Washington for $1.25 million. As a result, we now own two of the three mini-casinos currently operating in Mountlake Terrace. The transaction was financed by $400,000 in cash, $500,000 in our common stock and $350,000 in two promissory notes payable to the seller, 3 Point Inc. (“3 Point”). See Note 7 of our consolidated financial statements. The Red Dragon mini-casino, has a total of 15 table games including Player Banked Poker, Baccarat, and other popular banked table games. The Red Dragon operates with approximately 90 employees, is located within 14 miles of downtown Seattle and has a total of approximately 122 parking spaces. We believe that the mini-casino attracts customers from the Seattle area and western Washington State.

 

With these three acquisitions we have become the largest owner of mini-casinos in the state of Washington with ten such facilities, which represent approximately 20% of the state's active mini-casinos. Each mini-casino includes a full service restaurant with bar. The friendly atmosphere is enhanced as good customers are treated to "comps" in the form of free non-alcoholic drinks, free meals, or other internal and external benefits. Collectively our 10 Washington house-banked mini-casinos are referred to herein as “Washington Gold” or “Washington Gold Casinos”.

 

South Dakota Gold – Deadwood, South Dakota

 

On January 27, 2012, through our wholly-owned subsidiary, NG South Dakota, LLC, we completed the acquisition of all shares of A.G. Trucano, Son & Grandsons, Inc. (“South Dakota Gold”) for $5.1 million. The transaction was financed by $3.2 million in cash, $25,000 in our common stock, and $1.9 million in three promissory notes payable to the sellers, Michael J. Trucano and Patricia Burns.

 

South Dakota Gold is a slot machine route operator that has been in business since the legalization of gaming in South Dakota in 1989. As of April 30, 2013, it operated approximately 915 slots at approximately 20 locations in Deadwood, South Dakota, which represent about 26% of the total number of slot machines in that market. Deadwood is a town of 1,300 residents located in the Black Hills, South Dakota, in the southwest corner of the state. The town attracts over a million visitors each year and is a one hour drive from Mount Rushmore and 40-minute drive from Rapid City. Initiated in 1989, Deadwood was the third jurisdiction in the United States to host legalized gambling.

 

Colorado Grande CasinoCripple Creek, Colorado

 

On May 25, 2012, we sold substantially all assets, including any rights in the Colorado Grande name and gaming-related liabilities, of the Colorado Grande Casino to G Investments, LLC (“GI”). We elected to sell the Colorado Grande Casino as a result of receiving an offer at an attractive earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiple from GI whose principals own a property in close proximity to the Colorado Grande Casino. As a result of the declining Cripple Creek, Colorado gaming market, this enables the buyer to create synergies not available to us. See Note 22 of our consolidated financial statements. Under the terms of the agreement, the buyer agreed to pay us $3.1 million, of which $800,000 was paid in cash and $2.3 million will be paid through a five year, 6% interest rate promissory note (the “GI Note”). On May 29, 2012, we filed a Form 8-K which provides details regarding the transaction.

 

Native American Casino Projects

 

Buena Vista Rancheria of Me-Wuk Indians; Ione, Amador County, California

 

At April 30, 2013 and April 30, 2012, our balance sheet reflects a net receivable of $0, net of a $4.6 million valuation allowance, related to the development of gaming/entertainment projects from B. V. Oro, LLC (BVO”). On May 4, 2005, through our wholly-owned subsidiary, Nevada Gold BVR, L.L.C., we acquired a 20% interest in BVD in exchange for an approximately $14.8 million loan and an equity investment of approximately $200,000. BVD is developing a casino for the Buena Vista Rancheria of Me-Wuk Indians, a Native American tribe in Amador County, California. Our initial 20% ownership interest in BVD increased by five percentage points at the end of every six-month period the loan remained outstanding, up to a maximum of an additional 20%, for a total of 40%. As of May 2007, we owned a 40% interest in BVD.

 

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Effective November 25, 2008, we sold our 40% interest in BVD to BVO, which is owned by our former partner and related parties, for $16 million in cash and a $4 million receivable from BVD due upon the developer receiving repayment of the loan advanced to the tribe, which loan is currently due. The developer has reached a verbal agreement with the tribe to extend the loan until receipt of permanent financing for the project. Should the proceeds of this loan repayment be insufficient to pay off the receivable, the remainder is due from BVO no later than two years after the opening of a gaming/entertainment facility to be built by BVD for the tribe. This receivable bears interest at the rate of prime plus 1% and is guaranteed by our former partner and related parties. In addition we are entitled to a 5% carried interest in the membership interest sold to BVO. See Note 5 of our Consolidated Financial Statements.

 

According to the principal of BVD, the project continues to slowly progress and he is committed and financially able to continue to fund ongoing expenses until permanent funding is arranged. He has recently informed us that the project has been redesigned to reduce the construction costs by approximately 50%. Also, the investment bank that has been engaged to assist BVD to raise the project funding, with whom we have had prior experience, has indicated to us that they believe project funding will be attained. However, given the prevailing very challenging capital market conditions and continued uncertainties as to the economy, and based upon our “Level 3” analysis, we recorded a $4.6 million valuation allowance for the total principal and interest due effective as of April 30, 2012.

 

Other Casino Projects

 

Speedway

 

Speedway is a to-be-built hotel and casino on a parcel adjacent to the Las Vegas Motor Speedway in North Las Vegas, Nevada. It is anticipated that, if completed, this project will include a hotel, casino and other amentities. The owner of the parcel, CML-NV Speedway, LLC, an affiliate of Rialto Capital Advisors, LLC (“Rialto”), foreclosed on the prior developer in August of 2011. On April 24, 2012, Rialto and Nevada Gold signed a non-binding Memorandum of Understanding, pursuant to which we where to be involved as the developer, manager, and minority equity holder. However, given the prevailing very challenging capital market conditions and continued uncertainties as to the economy, and based upon our “Level 3” analysis, as of October 31, 2013, we recorded a $0.2 million write-off of our capitalized costs invested in the project. We are no longer involved in the project or Rialto.

 

Regulation and Licensing

 

Washington

 

The gaming legislation in Washington State is codified in chapter 9.46 of the Revised Code of Washington (“RCW”) which stipulates the Washington State Gambling Commission (the “WA Gambling Commission”) to be the regulator of gambling activities in this state.  The WA Gambling Commission enforces its authority through an extensive set of rules and regulations promulgated in Title 230 of the Washington Administrative Code.  The state of Washington allows certain gambling activities, such as amusement games, bingo, raffles, punch boards, pull-tabs, card-rooms, and public card games.  In order to be considered legal, these activities must be operated by either non-profit organizations or by commercial food and drink establishments.  Some activities may be operated solely by non-profit organizations, such as raffles.  Some traditional casino games, such as craps, roulette and keno, are prohibited.  House-banked card-rooms have been authorized in Washington State since 1997 and, under current law, each establishment is allowed to have up to 15 tables offering games, such as Blackjack, Ultimate Texas Hold’em, Three Card Poker, Four Card Poker, Spanish Poker, Texas Shootout, Spanish 21, Pai Gow Poker, and others.  The law allows both player-sponsored and house-banked card-rooms.  As of January 1, 2009, the WA Gambling Commission increased the maximum bet for house-banked card-rooms’ table game wager limit to $300 and allowed card-rooms to offer Mini-Baccarat. In addition, these establishments are allowed to be open 24 hours per day, provided they close for at least four continuous hours two times per week. 

 

To operate our ten “mini-casinos” in Washington State, each of them is required to maintain a Public Card-room and Punch Board/Pull-Tab Commercial Stimulant license.  These licenses are renewable annually, subject to continued compliance with applicable gaming regulations.  In addition, the WA Gambling Commission requires, prior to the licenses being issued, each substantial interest holder in the licensees (including our officers, directors and owners of 5% percent or more of any class of our stock) to submit to the WA Gambling Commission certain disclosure forms and be subject to background investigations.  The failure or inability of our “mini-casinos” to maintain their respective licenses would have a material adverse effect on our operations.

 

Revised Code of Washington (“RCW”) 9.46.110 allows local governments (including cities, counties and towns) to prohibit any or all gambling activities for which licenses are required as well as tax such activities.  The maximum tax limitations imposed by law include 20% of gross receipts for public card-room games and either 5% of gross receipts or 10% of net receipt (as chosen by a local authority) for pull-tabs activities.  The current gaming tax rate for public card-room games in the cities of Pasco, Mountlake Terrace, Kennewick, SeaTac, Renton, Tukwila and Shoreline, as well as in Snohomish County, is 10% of table games gross receipts. The current gaming tax rate for pull-tabs in the city of Kennewick is 10% of pull-tabs net receipts, while in the cities of Pasco, Mountlake Terrace, SeaTac, Renton, Tukwila and Shoreline, as well as in Snohomish County, the tax rate is 5% of pull-tabs gross receipts.  In addition, Washington State charges a business and occupational tax in the amount of 1.63% of all gaming activities’ net receipts in order to promote responsible gaming. 

 

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South Dakota

 

Gaming in South Dakota began in November 1989 and is presently authorized within the City of Deadwood. The gaming legislation is codified in Chapter 42-7B of the South Dakota Codified Laws as well as Article 20:18 of the South Dakota Legislature Administrative Rules (collectively, the “SD Regulations”) and is regulated by the South Dakota Commission on Gaming (the “SD Gaming Commission”). The SD Regulations allow gambling activities to be conducted at bars and taverns, including slot machines and limited card games, such as Blackjack and Poker. The SD Regulations limit each licensed location to have a maximum of 30 slot machines. The current tax rate is 9% of the adjusted gross gaming revenues in addition to an annual fee of $2,000 for each licensed gaming device located in a licensed location. In order to operate our slot route business in this state, we are required to hold Operator and Route Operator licenses issued by the SD Gaming Commission.

 

The SD Regulations require that every officer and director, as well as any stockholder holding 5% or greater ownership in a company involved with the conduct of gaming in the state to be a person of good moral character and must submit to a full background investigation conducted by the SD Gaming Commission. Our gaming licenses may be suspended or revoked for any cause which may have prevented their issuance, or for violation by us, or any of our officers, directors, agents, members or employees, of the SD Regulations or for conviction of a crime of moral turpitude or a felony. In addition to the revocation or suspension or in lieu of revocation or suspension, the SD Gaming Commission may impose a reprimand or a monetary penalty.

 

Colorado

 

Upon the sale of the Colorado Grande Casino to G Investments, LLC on May 25, 2012, we surrendered our license to operate the Colorado Grande Casino and are no longer subject to the provisions of the Act and the regulations promulgated thereunder.

 

Nevada

 

Upon the recommendation of the Nevada Gaming Control Board (the “NV Gaming Board”), on January 26, 2012, the Nevada Gaming Commission (the “NV Gaming Commission” and, collectively with the NV Gaming Board, the “NV Gaming Authorities”) approved our application for registration as a publicly-traded corporation submitted in connection with an acquisition of a 1% interest in The Nugget, a non-restricted gaming licensee located in Reno, NV, by our wholly-owned subsidiary, Nevada Gold Speedway, LLC (“NG Speedway”). Our acquisition of equity in the Nugget required us to file the application. In connection therewith, we, NG Speedway, and certain of our key employees and directors were found suitable by the NV Gaming Authorities. We took this action to accelerate future Nevada acquisitions or management contracts. In May 2013, as permitted by the agreement, the Heaney Trust exercised its right to repurchase our 1% ownership of The Nugget for $1,000. As a result we were licensed in Nevada and remain registered with the Nevada Gaming Control Board as a publicly traded corporation that has been found suitable.

 

The ownership and operation of gaming establishments in the State of Nevada are subject to the Nevada Gaming Control Act and the regulations promulgated thereunder (collectively, the “NGCA”). A finding of suitability is comparable to licensing and it requires submission of detailed personal and financial information followed by a thorough investigation. A finding of unsuitability with respect to any officer, director, employee, associate, lender or beneficial owner of a licensee or applicant may jeopardize an already issued license or applicant’s license application. Licenses may be conditioned upon termination of any relationship with unsuitable persons.

 

Although any beneficial holder of our voting securities, regardless of the number of shares owned, may be required to file an application for a finding of suitability, the general rule provides that beneficial owners of more than 10% of any class of our voting securities must apply to the NV Gaming Authorities for a finding of suitability. Under certain circumstances, an “institutional investor” (as defined in the NGCA) who acquires more than 10% but not more than 25% of any class of our voting securities, may apply to the NV Gaming Authorities for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor that has obtained a waiver may, in certain circumstances, own up to 29% of the voting securities of a registered company for a limited period of time and maintain the waiver. Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the NV Gaming Authorities, or who refuses or fails to pay the investigative costs in connection with investigation of its application, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any shareholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of our common stock beyond such period of time as may be prescribed by the NV Gaming Authorities may be guilty of a criminal offense. We and NG Speedway would be subject to disciplinary action if, after receipt of notice that a person is unsuitable, we:

 

  pay such a person any dividend or interest upon any of our voting securities;
  allow such a person to exercise, directly or indirectly, any voting right conferred through securities held by that person;

 

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  pay remuneration in any form to such a person for services rendered or otherwise; or
  fail to pursue all lawful efforts to require such unsuitable person to relinquish his or her voting securities including, if necessary, the immediate purchase of the voting securities for cash at fair market value.

 

Corporations registered with the NV Gaming Commission may not make a public offering of any securities without the prior approval of the NV Gaming Authorities if the securities or the proceeds therefrom are intended to be used to construct, acquire, or finance gaming facilities in the State of Nevada, or to retire or extend obligations incurred for those purposes or for similar purposes. An approval, if given, does not constitute a finding, recommendation, or approval by the NV Gaming Authorities as to the accuracy or adequacy of the prospectus or the investment merits of the securities, and any representation to the contrary is unlawful.

 

Because we are involved in gaming activities outside the State of Nevada, we are required to deposit with the NV Gaming Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay for the expenses of investigation by the NV Gaming Board of our participation in gaming in other jurisdictions. The revolving fund is subject to increase or decrease at the discretion of the NV Gaming Commission. Upon our registration and finding of suitability, we are also required to comply with certain other requirements imposed by the NGCA, including reporting requirements.

 

We currently do not operate any gaming establishment in the State of Nevada.

 

General Gaming Regulations in Other Jurisdictions 

 

If we become involved in gaming operations in any other jurisdictions, such gaming operations will subject us and certain of our officers, directors, key employees, stockholders and other affiliates to strict legal and regulatory requirements, including mandatory licensing and approval requirements, suitability requirements, and ongoing regulatory oversight with respect to such gaming operations. There can be no assurance that we will obtain all of the necessary licenses, approvals and findings of suitability or that our officers, directors, key employees, other affiliates and certain other stockholders will satisfy the suitability requirements in one or more jurisdictions, or that such licenses, approvals and findings of suitability, if obtained, will not be revoked, limited, suspended or not renewed in the future.

 

Failure by us to obtain, or the loss or suspension of, any necessary licenses, approval or findings of suitability would prevent us from conducting gaming operations in such jurisdiction and possibly in other jurisdictions.

 

Other Assets

 

Gold Mountain Development. Through our wholly-owned subsidiary, Gold Mountain Development, LLC, we own approximately 268 acres of undeveloped land in the vicinity of Black Hawk, Colorado. In November of 2004, the Central City Business Improvement District completed the construction of a new 8.4 mile four-lane road connecting Interstate 70 to Central City, Colorado. Our evaluation of the carrying value of our long-lived assets for sale led us to conclude that there was an impairment of our vacant land asset adjacent to the city of Blackhawk, Colorado, and accordingly, we recorded a pre-tax non-cash charge of $2.3 million to our operating results during the period ended April 30, 2012. The $2.3 million expense is in response to the receipt of an appraisal of the land, which used a market approach, and other external data related to mineral rights, which in the aggregate estimated the value of the land at $1.1 million due to the downturn in vacant Colorado land held for development. In November 2012, the land was reappraised for $1.1 million. This acreage is currently held for sale. On April 8, 2013, we signed a one year option agreement with Clear Creek County Development Company, LLC (“CCC”) to sell the land for an initial sale price of $1.1 million plus $118 per day after April 8, 2013. The cost of the option is equal to one-half of the annual property taxes which equals approximately $10,000. CCC has the right to extend the option agreement for two additional one year terms under the same terms.

 

Employees

 

As of April 30, 2013, we employed approximately 1,180 people.

 

Available Information

 

We make available on our website (www.nevadagold.com) under “Investor Relations - SEC Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission (the “SEC”). These reports are also available at the SEC’s website www.sec.gov.

 

Item 1A. Risk Factors

 

The following is a description of what we consider our key challenges and risks:

 

Financing future acquisitions may be difficult.

 

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Our principal challenge is the necessity to obtain financing in order to expand gaming operations, generate cash flow, and service debt obligations. There can be no assurance that such financing will be obtained.

 

If our key personnel leave us, our business could be adversely affected.

 

Our success is largely dependent upon the efforts and skills of our key executive officers. The loss of the services of any key executive officer could have a material adverse effect on us. There can be no assurance that we would be able to attract and hire suitable replacements in the event of any such loss of services. We currently have employment agreements with our President/Chief Executive Officer, our Executive Vice President/Chief Financial Officer, our Vice President/Chief Compliance Officer and our Vice President/Washington Operations.

 

Indebtedness could adversely affect our financial health.

 

As of April 30, 2013, we had $14.2 million of indebtedness outstanding. On October 7, 2011, we borrowed $11.0 million from Wells Fargo Gaming Capital Advisors, LLC (“Wells Fargo Loan”). The proceeds were used to repay $4.0 million of debt due May 12, 2012, $5.0 million of debt due July 23, 2012, and $2.0 million of debt originally due June 30, 2013 of which the balance has been extended to June 30, 2015. As of April 30, 2013, the principal balance of the Wells Fargo Loan is $9.5 million. As a result of the South Dakota Gold and Washington III acquisitions, we also added an additional $2.1 million of debt of which we owe $1.7 million as of April 30, 2013.

 

As a result of closing on the Wells Fargo Loan, we incurred $819,455 of deferred loan issue costs which are amortizable over the life of the loan. As a result of a $2,000,000 repayment and renegotiating terms on our $6,000,000 note payable, we recorded a loss on extinguishment of debt of $154,000 and we added approximately $91,000 of deferred loan issue costs to be amortized over the remaining life of the note.

 

The Wells Fargo Loan has a limited number of financial covenants with which we are in compliance as of April 30, 2013 and the filing date of this document. We are also not permitted to incur additional indebtedness without this lender’s prior approval.

 

In May of 2012, upon closing the sale of the Colorado Grande Casino, we repaid $800,000 of the $4 million debt due on June 30, 2015. In June of 2012, we added $1.7 million of short-term debt to pay the $2,000 per slot machine registration fee for our South Dakota Gold operation. Since the South Dakota Commission on Gaming requires the entire fee to be paid in advance, the prior owner of the South Dakota Gold has historically financed this obligation with a short-term loan. The $1.7 million loan represents a continuation of that practice. The $1.7 million loan was fully repaid by March 31, 2013.

 

As we increase our debt, our indebtedness could have important consequences and significant effects on our business and future operations. For example, it could:

 

·increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
·limit our ability to fund future working capital, capital expenditures and other general operating requirements;
·place us at a competitive disadvantage compared to our competitors that have less debt or greater resources; and
·limit our ability to borrow additional funds.

 

The occurrence of any one of these events or conditions could have a material adverse effect on our business, financial condition, results of operations, prospects, ability to service or otherwise satisfy our obligations.

 

We will require cash to service our indebtedness and fund our gaming operations. Our ability to generate cash depends on many factors beyond our control.

 

Our success in funding our gaming operations will depend on our ability to generate cash flow from our gaming operations and borrow or refinance $9.5 million by October 7, 2014, $3.1 million by June 30, 2015, and $1.6 million by January 27, 2017. Our ability to generate sufficient cash flow to satisfy our debt obligations will depend on our future operating performance that is subject to many economic, competitive, regulatory and business factors that are beyond our control. If we are unable to generate sufficient cash flow to service our debt obligations, we will need to refinance or restructure our debt, sell assets, reduce or delay capital investments or seek to raise additional capital. These measures may not be available to us or, if available, they may not be sufficient to enable us to satisfy our obligations and may restrict our ability to pay operating expenses. If our cash flow is insufficient and we are unable to implement one or more of these alternatives, we may not be able to service our debt obligations or fund our gaming operations.

 

We face significant competition from other gaming operations that could have a material adverse effect on our future operations.

 

6
 

 

There is intense competition among companies in the gaming industry, many of which have significantly greater resources than we do. We compete with numerous casinos of varying quality and size in market areas where our properties are located. The gaming business is characterized by competitors that vary considerably by their size, quality of facilities, number of operations, brand identities, marketing and growth strategies, financial strength and capabilities, level of amenities, management talent and geographic diversity. In most markets, we compete directly with other casino facilities in the immediate and surrounding market areas. If our competitors operate more successfully, if competitors’ properties are enhanced or expanded, or if additional casinos are established in and around locations in which we conduct business, we may lose market share. The expansion of casino gaming in or near any geographic area from which we attract or expect to attract a significant number of our customers could have a significant adverse effect on our business, financial condition and results of operations.

 

We are subject to extensive governmental gaming regulation that could adversely affect us. We could be prevented from pursuing future development projects due to changes in the laws, regulations and ordinances (including tribal or local laws) that apply to gaming facilities or the inability of us or our key personnel, significant shareholders or joint venture partners to obtain or retain gaming regulatory licenses.

 

The gaming industry is highly regulated and we must maintain our licenses in order to continue our operations. Each of our gaming operations is subject to extensive regulation under the laws, rules and regulations of the jurisdiction where located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Certain jurisdictions empower their regulators to investigate participation by licensees in gaming outside their jurisdiction and require access to and periodic reports concerning the gaming activities. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. Regulatory authorities have broad powers with respect to the licensing of casino operations and may revoke, suspend, condition or limit our gaming or other licenses, impose substantial fines and take other actions, any one of which could have a significant adverse effect on our business, financial condition and results of operations.

 

The rapidly changing political and regulatory environment governing the gaming industry (including gaming operations which are conducted on Indian land) makes it impossible for us to accurately predict the effects that an adoption of or changes in the gaming laws, regulations and ordinances will have on us. However, the failure of us, or any of our key personnel, significant shareholders or joint venture partners, to obtain or retain required gaming regulatory licenses could prevent us from expanding into new markets, prohibit us from generating revenues in certain jurisdictions, and subject us to sanctions and fines.

 

Our business is subject to various federal, state and local laws and regulations in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our results of operations and financial condition.

 

We cannot ensure that we will be able to comply with or conduct business in accordance with applicable regulations.

 

We could fail to monetize recorded assets.

 

We have receivables that are expected to be collected. If we are not able to collect or monetize these assets timely, the lack of such collection may have a negative impact on our projected cash flow. Failure to monetize our recorded assets could have material adverse effects on our business, financial condition, results of operations, prospects, ability to service or otherwise satisfy our obligations.

 

There are significant risks in the development and management of casinos that could adversely affect our financial results.

 

The development and management of casinos require the satisfaction of various conditions, many of which are beyond our control. The failure to satisfy any of such conditions may significantly delay the completion of a project or prevent a project's completion altogether.

 

The opening of any facility will be contingent upon, among other things, the receipt of all regulatory licenses, permits, approvals and authorizations, the completion of construction and the hiring and training of sufficient personnel. The scope of the approvals to construct and open a casino is extensive, and the failure to obtain such approvals could prevent or delay the completion of construction or opening of all or part of such casino.

 

No assurance can be given that development activities will begin or will be completed, or that the budget for such a project will not be exceeded, or that we will have the continuing support of the community.

 

In addition, the regulatory approvals necessary for the construction and operation of casinos are often challenged in litigation brought by government entities, citizens groups and other organizations and individuals. Such litigation can significantly delay the construction and opening of casinos.

 

7
 

 

Major construction projects entail significant risks, including shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference, and unanticipated cost increases. Delays or difficulties in obtaining any of the requisite licenses, permits, allocations and authorizations from regulatory authorities could increase the total cost, delay or prevent the construction or opening of any casino development. In addition, once developed, no assurances can be given that we will be able to manage the casino on a profitable basis or to attract a sufficient number of guests, gaming customers and other visitors to make the operation profitable.

 

With each project, we are subject to the risk that our investment may be lost if the project cannot obtain adequate financing to complete development and open the casino successfully. In some cases, we may be forced to provide more financing than originally planned in order to complete development thereby increasing our risk.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

Washington Gold Casinos. Real property related leases are as follows:

 

·Crazy Moose Casino in Mountlake Terrace has a building lease which expires on May 31, 2014 with an option to renew for two additional terms of two years and five years, respectively. The annual rent for this lease is $157,000.
·We own the buildings for the Crazy Moose Casino in Pasco and Coyote Bob Casino’s in Kennewick.
·Crazy Moose Casino in Pasco has a parking lot lease which expires on December 31 2013. The annual rent for this lease is $6,600.
·Silver Dollar Casino in SeaTac has a building lease which expires in May of 2022 with an option to renew for an additional term of 10 years. The annual rent is $238,000, with escalation of 4% annually.
·Silver Dollar Casino in Renton has a building lease which expires in April of 2019 with an option to renew for up to two additional terms of 10 years each. The annual rent is $517,000, with escalation of 8% every three years.
·Silver Dollar Casino in Bothell has a building lease which expires in April of 2017 with an option to renew for an additional term of 5 years. The annual rent is $286,000.
·Club Hollywood Casino in Shoreline has casino building and parking lot leases which expire in March of 2017 with options to renew for up to four additional five-year terms. The annual rentals are $700,000, with escalation of 3% annually.
·Golden Nugget Casino in Tukwila has a building lease which expires in November of 2014 with an option to renew for an additional term of 10 years. The annual rent is $166,000, with escalation of 3% annually.
·Royal Casino in Everett has a building lease which expires in January of 2016 with an option to renew for up to four additional five-year terms. The annual rent is $360,600, with escalation of 3% annually.
·Administrative offices lease in Renton expires in December of 2013. The annual rent is $53,000.
·Red Dragon Casino in Mountlake Terrace has a building lease which expires in October of 2016 with an option to renew for up to two additional five-year terms. The annual rent is $384,000, with escalation of 2% annually.

 

South Dakota Gold. As a result of acquiring the South Dakota Gold slot route operation, we have the following real property leases:

 

·An administrative center lease which expires in January of 2017 with an option to renew for an additional five-year term. The annual rent is $55,200.
·Two leases which expired on June 30, 2013 with annual rents of $36,000 and $18,000, respectively. We did not renew the leases.

 

Colorado Grande Casino. Through our wholly-owned subsidiary, CGE Assets, Inc. (formerly, Colorado Grande Enterprises, Inc.), we leased a portion of a building in Cripple Creek, Colorado, and an adjacent parking lot, for use in connection with the Colorado Grande Casino and hotel facilities. We leased this property at an annual rent of the greater of $144,000 or 5% of Colorado Grande Casino’s adjusted gross gaming revenues, as defined, with an annual cap of $400,000. Starting from April 30, 2012, the annual rent was changed to $252,548 with an option by the landlord to revert to the original rent structure upon obtaining necessary approvals from the Colorado Gaming Commission. Although this lease was assigned to G Investments, LLC as a result of the sale of the Colorado Grande Casino, which occurred on May 25, 2012, we retained contingent liability of the tenant’s obligations under this lease through May 24, 2017.

 

Gold Mountain Development. Through our wholly-owned subsidiary, Gold Mountain Development, LLC, we own approximately 268 acres of undeveloped land in the vicinity of Black Hawk, Colorado. In November of 2004, the Central City Business Improvement District completed the construction of a new 8.4 mile four-lane road connecting Interstate 70 to Central City, Colorado. Our evaluation of the carrying value of our long-lived assets for sale led us to conclude that there was an impairment of our vacant land asset adjacent to the city of Blackhawk, Colorado, and accordingly we recorded a pre-tax non-cash charge of $2.3 million to our operating results for the period ended April 30, 2012. The $2.3 million expense is in response to the receipt of an appraisal of the land, which used a market approach, and other external data related to mineral rights, which in the aggregate estimated the value of the land at $1.1 million due to the downturn in vacant Colorado land held for development. In November 2012, the land was reappraised for $1.1 million. This acreage is currently held for sale. On April 8, 2013, we signed a one year option agreement with Clear Creek County Development Company, LLC (“CCC”) to sell the land for an initial sale price of $1.1 million plus $118 per day after April 8, 2013. The cost of the option is equal to one-half of the annual property taxes which equals approximately $10,000. CCC has the right to extend the option agreement for two additional one year terms under the same terms.

 

8
 

 

Office Lease. We currently lease 3,131 square feet of office space for our corporate headquarters in Las Vegas, Nevada. The lease expires on January 15, 2015. The total annual rent, including mandatory common area maintenance (“CAM”) for this space is currently $48,844. The CAM contractually increases five percent effective each January 1.

 

Item 3. Legal Proceedings

 

We are currently not involved in any material legal proceedings.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Part II

 

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is traded on the NYSE MKT Stock Exchange (formerly, the NYSE Amex) under the symbol “UWN.” The following table sets forth the high and low sales prices per share of the common stock for the last two fiscal years.

 

   Fiscal Years Ended 
   April 30, 2013   April 30, 2012 
   High   Low   High   Low 
                 
First Quarter  $1.34   $1.03   $1.66   $1.25 
Second Quarter   1.08    0.80    2.23    1.45 
Third Quarter   0.91    0.74    2.01    1.12 
Fourth Quarter   1.23    0.85    1.73    1.30 

 

Holders of Common Stock

 

As of July 1, 2013, we had approximately 3,633 holders of our common stock, which includes the number of record holders and participants in security position listings.

 

Dividends

 

We have not paid any dividends during the last six fiscal years and our current policy is to retain earnings to provide for our growth and repayment of debt. Consequently, no cash dividends are expected to be paid on our common stock in the foreseeable future.

 

Equity Compensation Plan

 

The following table gives information about our shares of common stock that may be issued upon the exercise of options, warrants, and rights under all of our existing equity compensation plans as of April 30, 2013 including the 1999 Stock Option Plan, as amended, and the 2009 Equity Incentive Plan, as well as shares of our common stock that may be issued under individual compensation arrangements that were not approved by our stockholders.

 

9
 

 

Plan Category  Number of Securities
To be Issued Upon
Exercise of Outstanding
Options, Warrants and Rights
(A)
   Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
   Number of Securities
Remaining Available for Future Issuance Under Equity Compensation Plans Excluding Securities
Reflected in Column (A)
 
             
Equity Compensation Plans Approved
by Security Holders
   865,000   $1.08    875,000 
Equity Compensation Plans Not Approved
by Security Holders
   

--

   $--    

--

 
Total   865,000   $1.08    875,000 

 

Recent Sales of Unregistered Securities

 

On January 27, 2012, pursuant to a Stock Purchase Agreement dated October 18, 2011, as amended on January 27, 2012, among Nevada Gold & Casinos, Inc., NG South Dakota, LLC, the stockholders of A.G. Trucano, Son & Grandsons, Inc. and A.G. Trucano, Son & Grandsons, Inc., we issued 13,223 shares of our common stock to Michael J. Trucano, in capacity as the seller’s representative, as a part of the total purchase price consideration of $5.1 million for the acquisition of all shares of A.G. Trucano, Son & Grandsons, Inc., the owner of the South Dakota Gold slot route operation in Deadwood, South Dakota. The shares, valued at $24,991, were issued in reliance of the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Act”). The stock certificate issued pursuant to the Agreement contained a restrictive legend in accordance with Rule 144 of the Act.

 

Issuer Purchases of Equity Securities

 

During the years ended April 30, 2013 and April 30, 2012, we did not repurchase any shares.

 

Item 6. Selected Financial Data

 

Not required for smaller reporting companies.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis (“MD&A”) should be read in conjunction with our Consolidated Financial Statements and Notes thereto contained in Item 8 herein. Management is of the opinion that inflation and changing prices, including foreign exchange fluctuations, will have little, if any, effect on our consolidated financial position or results of our operations.

 

Critical Accounting Policies and Estimates

 

Our critical accounting policies and estimates involve the use of complicated processes, assumptions, estimates and/or judgments in the preparation of our consolidated financial statements. An accounting estimate is an approximation made by management of a financial statement element, item or account in the consolidated financial statements. Accounting estimates in our historical consolidated financial statements measure the effects of past business transactions or events, or the present status of an asset or liability. The accounting estimates described below require us to make assumptions about matters that are uncertain at the time the estimate is made. Additionally, different estimates that we could have used or changes in an accounting estimate that are reasonably likely to occur could have a material impact on the presentation of our consolidated financial condition or results of operations. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Our significant accounting policies are discussed in Note 2 to our Consolidated Financial Statements included in Item 8 of this report. We have discussed the development and selection of our critical accounting policies and related disclosures with the Audit Committee of the Board of Directors and have identified the following critical accounting policies for the current fiscal year.

 

Principles of Consolidation

 

We consolidate entities when we have the ability to control the operating and financial decisions and policies of that entity and record the portion we do not own as noncontrolling interest. The determination of our ability to control or exert significant influence over an entity involves the use of judgment. We apply the equity method of accounting where we can exert significant influence over, but do not control the policies and decisions of an entity. We use the cost method of accounting where we are unable to exert significant influence over the entity.

 

10
 

 

Capitalized Development Costs

 

We capitalize certain third party, professional, licensing, and other miscellaneous fees directly related to the procurement, evaluation and establishment of contracts for development projects. Development costs are recorded on the cost basis and are amortized over the estimated economic term of the contract. We review each project on a quarterly basis to assess whether any changes to our estimates are appropriate. If accumulated costs of a specific project exceed the net realizable value of such project or the project is abandoned, the costs are charged to earnings.

 

Goodwill, Other Intangible, and Other Long-Lived Assets

 

In connection with our acquisitions of the ten Washington mini-casinos from May 12, 2009 to July 18, 2011, and the acquisition of the South Dakota Gold slot route operation in South Dakota on January 27, 2012, we have goodwill and identifiable intangible assets of $22.7 million, net of amortization. Goodwill represents a significant portion of our total assets. We review goodwill for impairment annually or more frequently if certain impairment indicators arise under the provisions of authoritative guidance. We review goodwill at the reporting level unit, which is one level below an operating segment. We compare the carrying value of the net assets of each reporting unit to the estimated fair value of the reporting unit, based upon a multiple of estimated earnings. If the carrying value exceeds the estimated fair value of the reporting unit, an impairment indicator exists and an estimate of the impairment loss is calculated. The fair value calculation includes multiple assumptions and estimates, including the projected cash flows and discount rates applied. Changes in these assumptions and estimates could result in goodwill impairment that could materially adversely impact our financial position or results of operations. All of our goodwill is attributable to reporting units within our gaming segment.  

 

We use earnings before interest, taxes, depreciation, amortization, non-cash goodwill and other long-lived asset impairment charges, litigation charges, non-cash foreign currency transaction gains and losses, and net losses/gains from asset dispositions as the measure for future earnings in our impairment test (“EBITDA”). Management estimates future adjusted EBITDA based primarily on its projections of future revenues. We utilized comparable industry average multiples of adjusted EBITDA rates based on industry standards ranging from 5.5 to 7.5 times adjusted EBITDA when we estimated fair values of our operating facilities as of April 30, 2013.   

    

Long-lived assets, including property, plant and equipment and amortizable intangible assets, also comprise a significant portion of our total assets. We evaluate the carrying value of long-lived assets when impairment indicators are present or when circumstances indicate that impairment may exist under authoritative guidance. When management believes impairment indicators may exist, projections of the undiscounted future cash flows associated with the use of and eventual disposition of long-lived assets held for use are prepared. If the projections indicate that the carrying values of the long-lived assets are not recoverable, we reduce the carrying values to fair value. For property held for sale, we compare the carrying values to an estimate of fair value less selling costs to determine potential impairment. We test for impairment of long-lived assets at the lowest level for which cash flows are measurable. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available.

 

Allowance for Doubtful Accounts 

 

We establish provisions for losses on accounts and notes receivable if we determine that we will not collect all or part of the outstanding balance. We regularly review collectability and establish or adjust our allowance as necessary using the specific identification method. We make advances to third parties under executed promissory notes for project costs related to the development of gaming and entertainment properties. Due diligence is conducted by our management with the assistance of legal counsel prior to entering into arrangements with third parties to provide financing in connection with their efforts to secure and develop the properties. Repayment terms are largely dependent upon the operating performance of each opportunity for which the funds have been loaned. Interest income is not accrued until it is reasonably assured that the project will be completed and that there will be sufficient profits from the facility to cover the interest to be earned under the respective note. If projected cash flows are not sufficient to recover amounts due, the note is evaluated to determine the appropriate discount to be recorded on the note for it to be considered a performing note. If the note is performing, interest is recorded using the effective interest method based on the value of the discounted note balance. See Note 5 of our Consolidated Financial Statements.

 

We review on a quarterly basis each of our notes receivable to evaluate whether the collection of such note receivable is still probable. In our analysis, we review the economic feasibility and the current financial, legislative and development status of the project. If our analysis indicates that the project is no longer economically feasible, the note receivable would be written down to its estimated fair value.

 

11
 

 

Revenue Recognition

 

We record revenues from casino operations, management fees, and interest on notes receivable on the accrual basis as earned. The dates on which payments are collected may vary depending upon the term of the contracts or note receivable agreements. Interest income related to notes receivable is recorded when earned and its collectability is reasonably certain.

 

The retail value of food and beverage and other services furnished to guests without charge is included in gross revenue and deducted as promotional allowances. Net revenues do not include the retail amount of food, beverage and other items provided gratuitously to customers. We record the redemption of coupons and points for cash as a reduction of revenue. These amounts are included in promotional allowances in the accompanying consolidated statements of operations. The estimated cost of providing such complimentary services that is included in casino expense in the accompanying consolidated statements of operations was as follows:

   Fiscal Year Ended 
   April 30, 2013   April 30, 2012 
Food and beverage  $3,302,772   $4,801,738 
Other   147,185    115,968 
Total cost of complimentary services  $3,449,957   $4,917,706 

 

Accrued Jackpot Liability

 

We accrue slot jackpot liability as games are played under a matching concept of coin-in. In addition, as of April 30, 2013 and April 30, 2012, we also maintained approximately $1,306,000 and $1,787,000, respectively, in player-supported jackpot accrued liability. Player-supported jackpot is a progressive game of chance directly related to the play or outcome of an authorized non-house-banked card game separately funded by our patrons. Any jackpots hit in these card games are paid from such reserved funds.

 

Income Taxes

 

Income taxes are accounted using an asset and liability approach 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. We record current income taxes based on our current taxable income, and we provide for deferred income taxes to reflect estimated future tax payments and receipts. We account for tax credits under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available. Deferred tax assets are reduced by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances.

 

To fully recognize our net deferred tax assets, we must achieve future taxable income of approximately $2.8 million. These earnings will be achieved through our operating properties and increased revenues from future acquisitions. We believe that such earnings will be sufficient to fully utilize current NOLs.

 

We have federal net operating losses of approximately $2.8 million which expire from 2029 to 2033.

 

12
 

 

A summary of our deferred tax assets and liabilities is presented in the table below:

 

    April 30, 2013     April 30, 2012  
Deferred tax assets:            
Net operating loss carryforwards   $ 954,742     $ 1,280,810  
Fixed assets     98,151       61,720  
Stock options     278,283       662,523  
Impairment of notes receivable and goodwill     3,417,478       3,609,313  
Revenue not recognized for tax reporting and other     109,660       195,633  
Capitalized acquisition costs     59,110       -  
Prepaid expenses     194,789       -  
Other     67,123       3,129  
Total deferred tax assets     5,179,336       5,617,495  
Deferred tax liabilities:                
Amortization of intangibles     (408,654 )     (529,583 )
Total deferred tax liabilities     (408,654 )     (333,950 )
Net deferred tax assets before valuation allowance     4,770,682       5,283,545  
Valuation allowance     (32,309 )     (32,309 )
Net deferred tax assets   $ 4,738,373     $ 5,251,236  

 

Reconciliations between the statutory federal income tax expense rate of 34.0% in the fiscal years ended April 30, 2013 and April 30, 2012 and our effective income tax rate as a percentage of income before income tax benefit is as follows:

 

   Years Ended 
   April 30, 2013   April 30, 2012 
   Percent   Dollars   Percent   Dollars 
                 
Income tax benefit at statutory federal rate   34.0   $186,921    (34.0)  $(3,328,964)
                     
Permanent differences:                    
                     
Write-off of expired or forfeited stock options   78.4    431,124    0.0    - 
True-up of cumulative temporary differences and other   (19.1)   (105,183)   (0.2)   (22,812)
Effective income tax rate   93.3   $512,862    (34.2)  $(3,351,776)

 

Accrued Litigation Liability

 

We assess our exposure to loss contingencies including legal matters. If the potential loss is justified to be probable and estimative, we will provide for the exposure. If the actual loss from a contingency differs from management’s estimate, operating results could be impacted. As of April 30, 2013 and 2012, we did not record any accrued litigation liability.

 

Fair Value

 

U. S. generally accepted accounting principles defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are as follows:

 

Level 1 – Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2 – Other inputs that are observable directly or indirectly such as quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3 – Unobservable inputs for which there is little or no market data and which we make our own assumptions about how market participants would price the assets and liabilities.

 

13
 

 

The following describes the valuation methodologies used by us to measure fair value:

 

Real estate held for sale is recorded at carrying value and tested for impairment annually or more frequently, if impairment indicators arise, using third party valuations (see Note 20 of our Consolidated Financial Statements).

 

Goodwill, other intangible assets and other long lived assets are recorded at carrying value and tested for impairment annually, or more frequently, using projections of undiscounted future cash flows.

 

The recorded value of cash, accounts receivable and payable approximate fair value based on their short term nature, the recorded value of long term debt approximates fair value as interest rates approximate market rates.

 

Stock-Based Compensation

 

Under Accounting Standards Codification (“ASC”) Topic 718, “Compensation - Stock Compensation,” the fair value and compensation expense of each option award is estimated as of the date of grant using a Black-Scholes option pricing formula. Expected volatility is based on historical volatility of our stock over a preceding period commensurate with the expected term of the option. The expected term of the option is an estimate of the period of time that the option is expected to be outstanding and is based on our historical experience. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we historically have not paid dividends and have no current plans to do so in the future.

 

The compensation cost related to these share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the award.

 

Executive Overview

 

We were formed in 1977 and, since 1994, have primarily been a gaming company involved in financing, developing, owning and operating gaming facilities. Our gaming facility operations are located in the United States of America (the “U.S.”), specifically in the states of Washington, South Dakota and, until recently, Colorado. On April 25, 2005, we acquired the Colorado Grande Casino in Cripple Creek, Colorado, which we sold on May 25, 2012. On May 12, 2009, we acquired three mini-casinos in Washington State. On July 23, 2010, we acquired six additional mini-casinos and, on July 18, 2011, we acquired one more mini-casino in Washington State. On January 27, 2012, we acquired all of the shares of A.G. Trucano, Son and Grandsons, Inc. (“South Dakota Gold”), a slot machine route operation in Deadwood, South Dakota. Our business strategy will continue to focus on gaming projects with a continued emphasis on owning and operating gaming establishments. If we are successful, both our future revenues and costs and our profitability can be expected to increase. Our net revenues from continuing operations were $65.9 million and $55.6 million for the fiscal years April 30, 2013 and 2012, respectively.

 

We hold investments in various development projects that we consolidate. Our net ownership interest and capitalized development costs in development projects are as follows (see Note 4 to the Consolidated Financial Statements):

 

   Net Ownership Interest   Capitalized Development Costs 
Development Projects:  April 30,
2013
   April 30,
2012
   April 30,
2013
   April 30,
2012
 
   (Percent)         
Nevada Gold Speedway, LLC (1)   100    100   $-   $209,305 
Nugget (2)   1    1    -    26,000 
Other (3)   100    100.00    56,959    20,050 
Total investments– development projects            $56,959   $255,355 

  

(1)Deposit and acquisition costs related to management and technical services contract for a to-be-built casino and hotel in North Las Vegas, Nevada. As of April 30, 2013, we are no longer involved with this project.
(2)Costs incurred with acquisition of 1% of The Nugget Casino in Reno, Nevada to obtain a Nevada gaming license.
(3)Development costs incurred for other development projects.

 

14
 

 

The following table sets forth our consolidated results of operations for the three months and fiscal years ended April 30, 2013, and April 30, 2012:

 

Consolidated Statements of Operations

 

   Three Months Ended   Twelve Months Ended 
   April 30,   April 30,   April 30,   April 30, 
   2013   2012   2013   2012 
Revenues:                
Casino  $14,460,843   $14,269,776   $57,592,806   $47,445,348 
Food and beverage   2,510,539    3,060,696    10,103,913    11,409,426 
Other   634,239    762,920    2,608,837    2,456,028 
Gross revenues   17,605,621    18,093,392    70,305,556    61,310,802 
Less promotional allowances   (1,086,239)   (1,525,298)   (4,381,638)   (5,682,168)
Net revenues   16,519,382    16,568,094    65,923,918    55,628,634 
                     
Expenses:                    
Casino   8,100,186    8,123,667    32,767,931    25,596,310 
Food and beverage   1,270,391    1,084,429    4,838,447    4,202,546 
Marketing and administrative   4,095,165    4,692,780    16,652,746    16,750,411 
Facility   564,070    582,520    2,270,774    2,112,397 
Corporate and legal expense   795,360    756,113    4,051,972    3,661,354 
Depreciation and amortization   498,764    628,144    2,126,888    2,004,311 
Acquisition costs   -    82,966    -    173,852 
Valuation allowance of assets   -    4,574,904    -    6,848,870 
(Recovery) write-off of project development costs   -    (10,249)   257,733    (10,249)
Valuation allowance of project development costs   -    1,700,000    -    1,700,000 
Other   138,204    213,659    558,757    594,764 
Total operating expenses   15,462,140    22,428,933    63,525,248    63,634,566 
Operating income (loss) from continuing operations   1,057,242    (5,860,839)   2,398,670    (8,005,932)
Non-operating income (expenses):                    
Loss on settlements - sale of assets   (986)   (32,092)   (6,081)   (54,746)

Unrealized gains and losses on available-for-sale securities

   -    -    -    - 
Interest income   34,398    42,524    120,349    171,075 
Interest expense   (345,512)   (400,634)   (1,494,989)   (1,552,948)
Amortization of loan issue costs   (81,643)   (74,765)   (329,387)   (194,249)
Loss on extinguishment of debt   -    -    -    (154,270)
Income (loss) before income tax   663,499    (6,325,806)   688,562    (9,791,070)
Income tax (expense) benefit   (211,065)   1,994,383    (560,052)   3,351,776 
Net income (loss) from continuing operations  $452,434   $(4,331,423)   128,510    (6,439,294)
Net loss from operations held for sale, net of taxes   -    (996,649)   (91,603)   (1,489,290)
Net income (loss)  $452,434   $(5,328,072)  $36,907   $(7,928,584)
Per share information:                    
Net income (loss) per common share - basic and diluted for continuing operations  $0.03   $(0.27)  $0.01   $(0.45)
                     
Net loss per common share - basic and diluted for discontinued operations  $-   $(0.06)  $(0.01)  $(0.10)
                     
Basic weighted average number of shares outstanding   16,065,719    15,893,950    15,997,546    14,381,896 
                     
Diluted weighted average number of shares outstanding   16,110,304    15,893,950    16,020,789    14,381,896 

 

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

 

15
 

 

Comparison of the Three Months Ended April 30, 2013 and April 30, 2012

 

Net revenues. Net revenues for the three months ended April 30, 2013 were flat at $16.5 million when compared to the same period ended April 30, 2012. Casino revenues increased $0.2 million or 1.3%, mainly due to improved hold percentage at our Washington Gold properties. Food and beverage revenues decreased $0.6 million or 18.0%, mainly as a result of the Washington properties no longer recording complimentary revenue for soft drinks. As a result of this, our promotional allowances also decreased $0.4 million for the three month period ended April 30, 2013. Other revenues decreased $0.1 million or 16.9%.

 

Total operating expenses. Total operating expenses for the three months ended April 30, 2013 decreased 31.0%, or $7.0 million, to $15.5 million compared to the same period ended April 30, 2012. Operating expenses specifically related to the casinos were flat and marketing and administrative decreased $0.6 million due to reduced special events and promotions and recording of a $0.3 million non-cash deferred rent escalation last year versus $0.1 million in the current year. We also saw a decrease in depreciation and amortization expense of $0.1 million directly related to the expiration of annualized amortization of the non-compete agreement relating to our 2009 acquisition of three Washington properties. Corporate and legal expenses were flat while acquisition expenses decreased $0.1 million due to the South Dakota Gold acquisition in the fourth quarter of fiscal 2012. In the three months ended April 30, 2012, based on Level 3 analysis we also recorded several non-cash transactions including a $4.6 million valuation allowance related to our BVO/BVD receivable and a $1.7 million valuation allowance related to our Big City Capital note receivables. These valuation allowances did not relate to our on-going operations in Washington, South Dakota, or the Corporate offices.

 

Interest income, interest expense, and amortization of loan issue costs. Interest expense for the three months ended April 30, 2013 decreased 13.8%, or $55,000, to $0.3 million compared to the three months ended April 30, 2012. The decrease is due to repayment of $2.3 million of debt during the fiscal year. Interest income for three months ended April 30, 2013 remained consistent with the three months ended April 30, 2012. Amortization of loan issue costs were $82,000 and $75,000 for the three months ended April 30, 2013 and April 30, 2012, respectively.

 

Net income (loss) from continuing operations. Net income from continuing operations for the three month period ended April 30, 2013, was $0.5 million income compared to a $(4.3) million loss for the three month period ended April 30, 2012. The difference is mainly related to the prior year recording of the pre-tax $1.7 million valuation allowance on the Big City Capital note, the $4.6 million valuation allowance of the BVD/BVO Receivable and accrued interest, and the $0.3 million recording of deferred rent escalation versus $0.1 million in the current year.

 

Operations held for sale. We did not have operations held for sale during the three months ended April 30, 2013. During the three months ended April 30, 2012, we had one operation under contract to be sold. During that period we recorded net revenues for assets of operations held for sale of $1.5 million, total expenses of $2.1 million, and a pre-tax net loss of $0.7 million. The loss primarily related to a $0.6 million impairment of tax assets related to the sale of the Colorado Grande.

 

Comparison of Fiscal Years Ended April 30, 2013 and April 30, 2012

 

Net revenues. Net revenues for the fiscal year ended April 30, 2013 increased 18.5%, or $10.3 million, to $65.9 million compared to the fiscal year ended April 30, 2012. Casino revenues increased $10.1 million, or 21.4% due to recording a full year of revenues related to the South Dakota Gold slot route operation versus only three months during the fiscal year ended April 30, 2012. Food and beverage revenues decreased $1.3 million, or 11.4%, mainly as a result of the Washington properties no longer recording complimentary revenue for soft drinks. As a result of this, our promotional allowances also decreased $1.3 million for the twelve month period ended April 30, 2013. Other revenues increased $0.2 million or 6.2%.

 

Total operating expenses. Total operating expenses for the fiscal year ended April 30, 2013 were flat at $63.5 million when compared to the fiscal year ended April 30, 2012. Operating expenses specifically related to the casinos increased $7.1 million, or 29.2%, food and beverage expenses increased $0.6 million, or 15.1%, marketing and administrative decreased $0.1 million, or 1.0%, despite the increase in net revenues. We also saw an increase in depreciation and amortization expense of $0.1 million directly related to additional amortization of intangible assets and depreciation on the fixed assets from the South Dakota Gold acquisition. Corporate and legal expenses increased $0.4 million or 10.7% due the recording of $0.6 million of severance expense for the former CEO and other Houston office employees and $0.1 million for the relocation of our corporate office to Las Vegas. During fiscal year 2012, we recorded a $2.3 million non-cash impairment related to the undeveloped land in Colorado, plus several non-cash transactions including a $0.3 million recording of deferred rent escalation, a $1.7 million valuation allowance related to the Big City Capital note receivable and a $4.6 million valuation allowance on the BVD/BVO receivable and its accrued interest. These valuation allowances do not relate to our on-going operations in Washington, South Dakota, or the Corporate offices.

 

Interest income, interest expense, and amortization of loan issue costs. Interest expense for the fiscal year ended April 30, 2013 decreased 3.7%, or $0.1 million, to $1.5 million compared to the fiscal year ended April 30, 2012. The decrease is primarily the result of repayment of $2.3 million of debt during the year. Interest income for the fiscal year ended April 30, 2013 was relatively flat when compared to the same period ended April 30, 2012. In the fiscal year ended April 30, 2012, we recorded a loss on extinguishment of debt of $154,000 related to the refinancing of our long-term debt. Amortization of loan issue costs were $329,000 and $194,000 for the fiscal years ended April 30, 2013 and April 30, 2012, respectively. The increase in amortization was also due to the refinancing of our long-term debt during the fiscal year ended April 30, 2012.

 

16
 

 

Income taxes. The effective tax rate for the year ended April 30, 2013 was 93.3%. The rate for the year is high when compared to the federal statutory rate of 34% primarily due to tax expense of $0.4 million related to write-off of deferred tax assets that corresponded to stock options that expired or were forfeited. Excluding the impact of the write-off of deferred tax assets related to stock options that expired or were forfeited our effective tax rate would be 34.8%. The effective tax rate for the fiscal years ended April 30, 2013 and 2012 was a tax expense of 93.3% versus a benefit of (34.2%), respectively.

 

Net income (loss) from continuing operations. The fiscal year ended April 30, 2013 reflects net income of $0.1 million compared to a net loss of $(6.4) million for the fiscal year ended April 30, 2012. The increase is primarily related to $10.3 milllion additional net revenues for fiscal 2013, offset by $7.8 million of related operating expenses, $0.7 million of severance expenses, recording no acquisition costs in fiscal year 2013, versus $0.2 million in fiscal year 2012, $0.3 million write-off of project development costs in fiscal 2013 versus $0.0 million in fiscal 2012, net additional depreciation and amortization of $0.1 million in fiscal 2013 versus 2012, additional amortization of loan issuance costs of $0.1 million, $0 loss on sale of assets, while in fiscal 2012 we recorded non-cash expenses for a $2.3 million impairment of the undeveloped land in Colorado, a $1.7 million valuation allowance on the Big City Capital note, a $4.6 million valuation allowance on the BVO Receivable and its accrued interest, a $0.3 million of deferred rent escalation compared to $0.1 million in fiscal 2013, and a $0.2 million loss on extinguishment of debt, offset by a tax benefit of $3.4 million for fiscal year 2012 versus a tax expense of $0.5 million for fiscal year 2013.

 

Operations held for sale. For the year ended April 30, 2013, we recorded a net loss of $0.1 million primarily related to the completion of tax related matters associated with assets of operations held for sale. For the year ended April 30, 2012 we recorded net revenues for assets of operations held for sale of $5.2 million offset by total expenses of $6.3 million. After-tax net loss was $0.1 million and $1.5 million for the fiscal years ended April 30, 2013 and April 30, 2012, respectively. The loss in the fiscal year ended April 30, 2012 partly relates to a $0.6 million impairment of tax assets related to the sale of the Colorado Grande.

 

Non-GAAP Financial Measures

 

The term “adjusted EBITDA” is used by us in presentations, quarterly earnings calls, and other instances as appropriate. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization, non-cash goodwill and other long-lived asset impairment charges, litigation charges, non-cash foreign currency transaction gains and losses and net losses/gains from asset dispositions. Adjusted EBITDA also excludes write-offs of project development costs, non-cash stock option expenses, and deferred rent escalation. Adjusted EBITDA is presented because it is a required component of financial ratios reported by us to our lenders and it is also frequently used by securities analysts, investors, and other interested parties in addition to, and not in lieu of, the U.S. generally accepted accounting procedures (“GAAP”) results to compare to the performance of other companies who also publicize this information. Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as alternative to net income as an indicator of our operating performance or any other measure of performance derived in accordance with GAAP.

 

17
 

 

The following table shows adjusted EBITDA by operating unit for the three months ended April 30, 2013 and April 30, 2012:

 

   For the three months ended April 30, 2013 
   Washington Gold   South Dakota
Gold
   Corporate -
Other
   Total
Continuing Operations
 
Revenues:            
Gross revenues  $15,205,564   $2,400,057   $-   $17,605,621 
Less promotional allowances   (1,038,030)   (48,209)   -    (1,086,239)
Net revenues   14,167,534    2,351,848    -    16,519,382 
                     
Expenses:                    
Total operating expenses
(excludes depreciation, amortization, write downs, acquisition costs, and impairments)
   11,922,206    2,204,817    676,670    14,803,693 
Adjusted EBITDA  $2,245,328   $147,031   $(676,670)  $1,715,689 

 

   For the three months ended April 30, 2012 
   Washington Gold   South Dakota
Gold
   Corporate -
Other
   Total
Continuing Operations
 
Revenues:                
Gross revenues  $15,743,732   $2,349,660   $-   $18,093,392 
Less promotional allowances   (1,520,013)   (5,285)   -    (1,525,298)
Net revenues   14,223,719    2,344,375    -    16,568,094 
 Expenses:                    
Total operating expenses
(excludes depreciation, amortization, write downs, acquisition costs, and impairments)
   12,188,684    2,170,522    756,113    15,115,319 
Adjusted EBITDA  $2,035,035   $173,853   $(756,113)  $1,452,775 

 

The following table shows adjusted EBITDA by operating unit for the twelve months ended April 30, 2013 and April 30, 2012:

 

   For the twelve months ended April 30, 2013 
   Washington Gold   South Dakota
Gold
   Corporate -
Other
   Total
Continuing Operations
 
Revenues:            
Gross revenues  $59,807,753   $10,497,803   $-   $70,305,556 
Less promotional allowances   (4,313,644)   (67,994)   -    (4,381,638)
Net revenues   55,494,109    10,429,809    -    65,923,918 
                     
Expenses:                    
Total operating expenses
(excludes depreciation, amortization, write downs, acquisition costs, stock option grants, and impairments)
   47,623,120    9,357,269    3,181,347    60,161,736 
Adjusted EBITDA  $7,870,989   $1,072,540   $(3,181,347)  $5,762,182 

 

   For the twelve months ended April 30, 2012 
   Washington Gold   South Dakota
Gold
   Corporate -
Other
   Total
Continuing Operations
 
Revenues:                
Gross revenues  $58,929,603   $2,381,199   $-   $61,310,802 
Less promotional allowances   (5,676,785)   (5,383)   -    (5,682,168)
Net revenues   53,252,818    2,375,816    -    55,628,634 
Expenses:                    
Total operating expenses
(excludes depreciation, amortization, write downs, acquisition costs, stock option grants, and impairments)
   46,719,086    2,199,493    3,322,221    52,240,800 
Adjusted EBITDA  $6,533,732   $176,323   $(3,322,221)  $3,387,834 

 

18
 

  

Adjusted EBITDA reconciliation for the three months and fiscal years ended April 30, 2013 and April 30, 2012:

 

Adjusted EBITDA reconciliation to net income (loss):

 

   For the quarter ended (unaudited) 
   April 30, 2013   April 30, 2012 
         
Net Income (loss)  $452,434   $(5,328,072)
Add:          
Income tax (benefit) expense   211,065    (1,994,383)
Net interest expense   392,757    432,875 
Loss on sale of assets   986    32,902 
Stock option and ESPP grants   13,620    - 
Relocation expenses   127,029    - 
Loss on operations held for sale   -    996,649 
Acquisition expenses   -    82,966 
Depreciation and amortization   498,764    628,144 
Deferred rent escalation   19,034    337,849 
Impairments, write-offs, recoveries, net   -    6,264,655 
Adjusted  EBITDA  $1,715,689   $1,452,775 

 

Adjusted EBITDA reconciliation to net income (loss):

 

   For the fiscal year ended 
   April 30, 2013   April 30, 2012 
         
Net Income (loss)  $36,907   $(7,928,584)
Add:          
Income tax (benefit) expense   560,052    (3,351,776)
Net interest expense   1,704,027    1,576,122 
Loss on extinguishment of debt   -    154,270 
Loss on sale of assets   6,081    54,746 
Severance expenses   637,868    - 
Relocation expenses   127,029    - 
Stock option and Employee Stock Purchase Plan grants   137,858    339,133 
Loss on operations held for sale   91,603    1,489,290 
Acquisition expenses   -    173,852 
Depreciation and amortization   2,126,888    2,004,311 
Deferred rent escalation   76,136    337,849 
Impairments, write-offs, recoveries, net   257,733    8,538,621 
Adjusted  EBITDA  $5,762,182   $3,387,834 

 

Liquidity and Capital Resources

 

Historical Cash Flows

 

The following table sets forth our consolidated net cash provided by (used in) operating, investing and financing activities for the fiscal years ended April 30, 2013 and April 30, 2012:

 

   Fiscal Years Ended 
   April 30,
2013
   April 30,
2012
 
Cash provided by (used in):        
Operating activities  $3,019,206   $2,132,063 
Investing activities  $704,194   $(4,820,702)
Financing activities  $(2,199,642)  $2,232,690 

 

19
 

 

Operating activities. Net cash provided by operating activities during the fiscal year ended April 30, 2013 increased $0.9 million compared to the same period in the fiscal year ended April 30, 2012. This increase resulted mainly from the $8.0 million increase in net income, a $3.6 million decrease of net deferred income tax assets and a net decrease of $ 1.2 to operating assets and liabilities, offset by $9.1 million net decrease in valuation allowances and write-off of capitalized costs, and $0.3 million decreased amortization of deferred rent.

 

Investing activities. Net cash provided by investing activities during the fiscal year ended April 30, 2013 increased to $0.7 million compared to $4.8 million used during the fiscal year ended April 30, 2012. The increase of funds is primarily due to a net $3.3 million decrease of property and equipment purchases primarily due to the acquisition of South Dakota Gold last year, a $0.5 million reduction in restricted cash pertaining to player-supported jackpots versus a $0.8 million increase of restricted cash in the prior fiscal year, and the collection of $0.8 million from the sale of discontinued operations in the fiscal year ended April 30, 2013.

 

Financing activities. Net cash used in financing activities was $2.2 million for fiscal year ended April 30, 2013 compared to $2.2 million net cash provided by financing activities for fiscal year ended April 30, 2012. During the fiscal year ended April 30, 2012 we issued common stock for which we received a net $3.9 million, which was used to acquire South Dakota Gold, offset by $0.9 million loan issuance costs and $0.9 million of debt repayment whereas during fiscal year ended April 30, 2013 we borrowed $1.7 million to pay the State of South Dakota for annual device fees which was fully repaid during the fiscal year and reflected as part of the $4.0 million repayment of debt.

 

Future Sources and Uses of Cash

 

We expect that our future liquidity and capital requirements will be affected by:

 

-capital requirements related to future acquisitions;
-cash flow from recent and future acquisitions;
-new management contracts;
-working capital requirements;
-obtaining funds via long-term debt instruments;
-debt service requirements; and
-disposition of non-gaming related assets.

 

The 268 acres in Black Hawk, CO are currently for sale. If the acreage is sold we will use the proceeds to reduce debt.

 

As of April 30, 2013, excluding restricted cash of $1.3 million, we had cash and cash equivalents of $6.7 million. The restricted cash consists of approximately $1.3 million of player-supported jackpots.

 

Our Consolidated Financial Statements have been prepared assuming that we will have adequate availability of cash resources to satisfy our liabilities in the normal course of business. We have made, and are in the process of making, arrangements to ensure that we have sufficient working capital to fund our obligations as they come due. These potential funding transactions include divesting of non-core assets and obtaining long-term financing. We believe that some or all of these sources of funds will be funded in a timely manner and will provide sufficient working capital for us to meet our obligations as they come due; however, there can be no assurance that we will be successful in divesting of the non-core assets or achieving the desired level of working capital at terms that are favorable to us. Should cash resources not be sufficient to meet our current obligations as they come due, repay or refinance our long-term debt and, acquire operations that generate positive cash flow, we would be required to curtail our activities and grow at a pace that cash resources could support which may require a restructuring of our debt or selling core assets.

 

Liquidity

 

The current ratio is an indication of a company's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry and are generally between 1.25 and 3 for healthy businesses. If a company's current ratio is in this range, then it generally indicates good short-term financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management. The table below shows as of April 30, 2013, we have a 1.81 ratio, sufficient to service debt and maintain operations.

 

      Current Ratio as of April 30, 2013 
Current Ratio  Current Assets  $9,920,498    1.81 
   Current Liabilities  $5,465,998      

 

20
 

 

Indebtedness

 

As of April 30, 2013, outstanding indebtedness was $14.2 million, of which $1.3 million is due by April 30, 2014.

 

On October 7, 2011, we closed on the Wells Fargo Loan, the proceeds of which were used to refinance debt and pay fees associated with the loan. Proceeds from the loan were used to repay debt of $4.0 million due May 12, 2012, $5.0 million due July 23, 2012, and $2.0 million due June 30, 2013. As part of the transaction, we extended $4.0 million of debt due June 30, 2013 to June 30, 2015. The Wells Fargo Loan matures on October 7, 2014 and bears annual interest of LIBOR, with a 0.25% floor, plus 9.5%. The accrued interest is due monthly along with $250,000 principal payments that are due quarterly. We also have $3.1 million of debt that is due June 30, 2015 with an 11.5% annual interest rate. The accrued interest is due monthly.

 

The Wells Fargo Loan has a limited number of financial covenants with which we are in compliance as of April 30, 2013 and the filing date of this document. We are also not permitted to incur additional indebtedness without this lender’s prior approval.

 

Following the sale of the Colorado Grande Casino on May 25, 2012 (see Note 22 of our Consolidated Financial Statements), we repaid $0.8 million of the $4.0 million debt from the cash proceeds we received from this sale. In addition, we are required to use all payments we receive pursuant to the GI Note to further pay down the $4.0 million debt.

 

As a result of the South Dakota Gold acquisition, we issued three promissory notes. The first promissory note, in the principal amount of $1,425,000, is due on January 27, 2017 and bears an interest rate of 6% per annum. It is to be repaid in fifty nine monthly principal installments of $10,000 plus all accrued and unpaid interest, starting on February 27, 2012. The second promissory note, in the principal amount of $400,000, with a stated 0% interest rate and an imputed interest rate of 6%, matures on January 27, 2017, and is payable in sixty equal monthly installments of $6,667 on the twenty-seventh day of each month, the first installment being payable on February 27, 2012. The third promissory note, in the principal amount of $60,324, with a stated 0% interest rate and an imputed interest rate of 6%, matured and was repaid on January 27, 2013.

 

Off-Balance Sheet Arrangements

 

None.

 

New Accounting Pronouncements Adopted

 

Intangibles — Goodwill and Other

 

In July of 2012, the FASB issued ASU 2012-02, “Intangibles — Goodwill and Other (Topic 350): Testing Indefinate-Lived Assets for Impairment.” Under the amendments in this guidance, an entity is permitted to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impairmed as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, “Intangibles-Goodwill and Other-General Intangibles Other than Goodwill”. The “more-likely-than-not” threshold is defined as having a likelihood of more than 50 percent. These amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The new guidance did not have a material effect on our consolidated financial statements.

 

Comprehensive Income

 

In 2012, the Company adopted applicable guidance that requires presenting the total of comprehensive income, the components of net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company applied the guidance retrospectively and elected to present the total of comprehensive income in a single continuous statement. The adoption of the guidance did not have an impact on the Company’s financial position or results of operations.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 

 

Not required for smaller reporting companies.

 

Item 8. Financial Statements and Supplementary Data

 

The information required under Item 310(a)  of Regulation S-K is included in this report as set forth in the “Index to Consolidated Financial Statements.” See Index to Consolidated Financial Statements.

 

 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures 

 

(a)Disclosure Controls and Procedures.

 

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

 

21
 

 

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our CEO and CFO, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  As described below under Management’s Annual Report on Internal Control over Financial Reporting, our CEO and CFO have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were effective 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 SEC’s rules and forms.

 

(b)  Management’s Annual Report on Internal Control over Financial Reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:

 

  1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; 
     
  2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and 
     
  3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of April 30, 2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management, including our CEO and CFO, has concluded that the internal control over financial reporting was effective as of April 30, 2013.

 

(c) Changes in Internal Control Over Financial Reporting. 

 

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

(d)Report of Independent Registered Public Accounting Firm.

 

This annual report does not include an attestations report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only Management’s report in this annual report.

 

Item 9B. Other Information

 

None.

 

Part III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

We have adopted a Code of Ethics that applies to directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Ethics is posted on our website at http://www.nevadagold.com, under Investor Relations – Investor Info. Changes to and waivers granted with respect to this Code of Ethics related to our officers, other executive officers and directors are required to be disclosed pursuant to applicable rules and regulations of the SEC, will also be posted on our website, and a Current Report on Form 8-K will be filed within four business days of the change or waiver.

 

22
 

 

The other information required by this item is incorporated by reference to our definitive proxy statement for our next Annual Stockholders Meeting to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

 

Item 11. Executive Compensation

 

The information required by this item is incorporated by reference to our definitive proxy statement for our next Annual Stockholders Meeting to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required by this item is incorporated by reference to our definitive proxy statement for our next Annual Stockholders Meeting to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

 

Item 13. Certain Relationships and Related Party Transactions and Director Independence

 

The information required by this item is incorporated by reference to our definitive proxy statement for our next Annual Stockholders Meeting to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

 

Item 14. Principal Accountant Fees and Services 

 

The information required by this item is incorporated by reference to our definitive proxy statement for our next Annual Stockholder Meeting to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report.

 

Part IV

 

Item 15. Exhibits, Financial Statement Schedules 

 

(a)(1) Financial Statements.

 

Included in Part II, Item 8 of this Report:

 

Consolidated Financial Statements of Nevada Gold & Casinos, Inc.

 

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of April 30, 2013 and April 30, 2012

Consolidated Statements of Operations for fiscal years ended April 30, 2013 and April 30, 2012

Consolidated Statements of Stockholders’ Equity for fiscal years ended April 30, 2013 and April 30, 2012

Consolidated Statements of Cash Flows for fiscal years ended April 30, 2013 and April 30, 2012

Notes to Consolidated Financial Statements

 

(a)(2) Financial Statement Schedules.

 

We have omitted all schedules because they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes to the consolidated financial statements.

 

(a)(3) Exhibits

 

23
 

 

INDEX TO EXHIBITS

EXHIBIT

 
NUMBER   DESCRIPTION
     
3.1A   Amended and Restated Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed previously as Exhibit A to the Company's definitive proxy statement filed on Schedule 14A on July 30, 2001 and incorporated herein by reference).
     
3.1B   Certificate of Amendment to the Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 4.2 to the Company’s Form S-8 filed October 11, 2002 and incorporated herein by reference).
     
3.1C   Certificate of Amendment to the Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 3.3 to the Company’s Form 10-Q filed November 9, 2004 and incorporated herein by reference).
     
3.1D   Certificate of Amendment to the Articles of Incorporation of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 3.1 to the Company’s Form 8-K filed October 17, 2007 and incorporated herein by reference).
     
3.2   Amended and Restated Bylaws of Nevada Gold & Casinos, Inc., effective July 24, 2007 (filed previously as Exhibit 3.2 to the Company’s Form 8-K filed July 27, 2007 and incorporated herein by reference).
     
4.1   Common Stock Certificate of Nevada Gold & Casinos, Inc. (filed previously as Exhibit 4.1 to the Company’s Form S-8/A filed June 4, 1999, file no. 333-79867, and incorporated herein by reference).
     
4.2   Second Amended and Restated Nevada Gold & Casinos, Inc. 1999 Stock Option Plan (filed previously as Exhibit 4.6 to the Company’s Form S-8 filed June 22, 2005, file no. 333-126027, and incorporated herein by reference).
     
4.3   Nevada Gold & Casinos, Inc.’s 2009 Equity Incentive Plan (filed previously as Exhibit 10.1 to the Company’s Form S-8 filed on April 14, 2009, file no. 333-158576, and incorporated herein by reference).
     
4.4   Nevada Gold & Casinos, Inc.’s 2010 Employee Stock Purchase Plan (filed previously as Exhibit 10.1 to the Company’s Form S-8 filed on October 12, 2010, file no. 333-169892, and incorporated herein by reference).
     
10.1   Asset Purchase Agreement dated March 12, 2009 among Crazy Moose Casino, Inc., Crazy Moose Casino II, Inc., Coyote Bob’s, Inc. and Gullwing III, LLC, as sellers, and NG Washington, LLC, as purchaser, and the Exhibits thereto (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed March 13, 2009 and incorporated herein by reference).
     
10.2   Asset Purchase Agreement dated April 14, 2010 between NG Washington II, LLC, as buyer, and Grant Thornton, Ltd, as receiver for Big Nevada, Inc., Gameco, Inc., Gaming Consultants, Inc., Gaming Management, Inc., Golden Nugget Tukwila, Inc., Hollydrift Gaming, Inc., Little Nevada, Inc., Mill Creek Gaming, Inc., Royal Casino Holdings, Inc., and Silver Dollar Mill Creek, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K/A filed April 23, 2010 and incorporated herein by reference).
     
10.3   Amendment to the Asset Purchase Agreement dated April 14, 2010 between NG Washington II, LLC, as buyer, and Grant Thornton, Ltd, in its capacity as court-appointed receiver for Big Nevada, Inc., Gameco, Inc., Gaming Consultants, Inc., Gaming Management, Inc., Golden Nugget Tukwila, Inc., Hollydrift Gaming, Inc., Little Nevada, Inc., Mill Creek Gaming, Inc., Royal Casino Holdings, Inc. and Silver Dollar Mill Creek, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 29, 2010 and incorporated herein by reference).
     
10.4   Stock Purchase Agreement dated October 18, 2011 by and among Nevada Gold & Casinos, Inc., NG South Dakota, LLC, the stockholders of A.G. Trucano, Son & Grandsons, Inc. and A.G. Trucano, Son & Grandsons, Inc. and the Exhibits thereto (filed previously as Exhibit 10.17 to the Company’s Form 10-Q/A filed December 16, 2011 and incorporated herein by reference).
     
10.5   First Amendment to the Stock Purchase Agreement dated October 18, 2011 by and among Nevada Gold & Casinos, Inc., NG South Dakota, LLC, the stockholders of A.G. Trucano, Son & Grandsons, Inc. and A.G. Trucano, Son & Grandsons, Inc. and the form of a Third Promissory Note filed in connection therewith (filed previously as Exhibits 10.1 and 10.2, respectively, to the Company’s Form 8-K filed February 2, 2012 and incorporated herein by reference).
     
10.6   Asset Purchase Agreement dated May 20, 2011 among 3Point, Inc., as seller, Geordie Sze, as stockholder, and NG Washington III, LLC, as purchaser, and the Exhibits thereto (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed May 23, 2011 and incorporated herein by reference).

 

24
 

 

10.7   Asset Purchase Agreement dated November 23, 2011 between Colorado Grande Enterprises, Inc., as seller, and G Investments, LLC, as purchaser, and the Exhibits thereto (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed November 30, 2011 and incorporated herein by reference).
     
10.8   First Amendment to Asset Purchase Agreement between Colorado Grande Enterprises, Inc., as seller, and G Investments, LLC, as purchaser (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed May 29, 2012 and incorporated herein by reference).
     
10.9   Third Amended and Restated Promissory Note dated May 25, 2012 issued by Nevada Gold & Casinos, Inc. to Louise H. Rogers, as her separate property (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed June 1, 2012 and incorporated herein by reference).
     
10.10   May 2012 Amended and Restated Security Agreement dated May 25, 2012 between Nevada Gold & Casinos, Inc. and Louise H. Rogers, as her separate property (filed previously as Exhibit 10.2 to the Company’s Form 8-K filed June 1, 2012 and incorporated herein by reference).
     
10.11   Credit Agreement dated October 7, 2011 by and among Wells Fargo Gaming Capital, LLC, in capacity as administrative agent and lender, Nevada Gold & Casinos, Inc., as parent, and NG Washington, LLC, NG Washington II, LLC and NG Washington III, LLC, as borrowers (filed previously as Exhibit 10.1 to the Company’s Form 8-K/A filed October 28, 2011 and incorporated herein by reference).
     
10.12   Guaranty and Security Agreement dated October 7, 2011 among Nevada Gold & Casinos, Inc., certain grantors listed on the signature page and Wells Fargo Gaming Capital, LLC, in capacity as administrative agent (filed previously as Exhibit 10.2 to the Company’s Form 8-K/A filed October 28, 2011 and incorporated herein by reference).
     
10.13   Intercompany Subordination Agreement dated October 7, 2011 by and among certain obligors listed on the signature page in favor of Wells Fargo Gaming Capital, LLC, in capacity as administrative agent (filed previously as Exhibit 10.3 to the Company’s Form 8-K/A filed October 28, 2011 and incorporated herein by reference).
     
10.14   Intercreditor Agreement dated October 7, 2011 by and between Wells Fargo Gaming Capital, LLC, in capacity as administrative agent, and Louise H. Rogers (filed previously as Exhibit 10.4 to the Company’s Form 8-K/A filed October 28, 2011 and incorporated herein by reference).
     
10.15   Amendment Number One to Credit Agreement and Waiver dated March 30, 2012 by and among Wells Fargo Gaming Capital, LLC, in capacity as administrative agent and lender, Nevada Gold & Casinos, Inc., as parent, and NG Washington, LLC, NG Washington II, LLC and NG Washington III, LLC, as borrowers (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed April 3, 2012 and incorporated herein by reference).
     
10.16   Joinder No. 1 dated March 30, 2012 to Guaranty and Security Agreement dated October 7, 2011 among Nevada Gold & Casinos, Inc., certain Grantors listed on the signature page and Wells Fargo Gaming Capital, LLC, in capacity as administrative agent (filed previously as Exhibit 10.2 to the Company’s Form 8-K filed April 3, 2012 and incorporated herein by reference).
     
10.17   Joinder No. 1 dated March 30, 2012 to Intercompany Subordination Agreement dated October 7, 2011 by and among certain Obligors listed on the signature page in favor of Wells Fargo Gaming Capital, LLC, in capacity as administrative agent (filed previously as Exhibit 10.3 to the Company’s Form 8-K filed April 3, 2012 and incorporated herein by reference).
     
10.18   Intercreditor Agreement dated March 30, 2012 by and between Wells Fargo Gaming Capital, LLC, in capacity as agent, and Michael J. Trucano, in capacity as sellers’ representative (filed previously as Exhibit 10.4 to the Company’s Form 8-K filed April 3, 2012 and incorporated herein by reference).
     
10.19   Credit Agreement dated June 27, 2012 by and among Wells Fargo Gaming Capital, LLC, as administrative agent, the Lenders that are parties thereto, Nevada Gold & Casinos, Inc., as parent, and A.G. Trucano, Son & Grandsons, Inc., as borrower (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed July 3, 2012 and incorporated herein by reference).
     
10.20     Guaranty and Security Agreement dated June 27, 2012 among Nevada Gold & Casinos, Inc., certain Grantors listed on the signature page and Wells Fargo Gaming Capital, LLC, in capacity as administrative agent (filed previously as Exhibit 10.2 to the Company’s Form 8-K filed July 3, 2012 and incorporated herein by reference).
     
10.21   Intercompany Subordination Agreement dated June 27, 2012 by and among certain Obligors listed on the signature page in favor of Wells Fargo Gaming Capital, LLC, in capacity as administrative agent (filed previously as Exhibit 10.3 to the Company’s Form 8-K filed July 3, 2012 and incorporated herein by reference).

 

25
 

 

10.22   Amendment Number Two to Credit Agreement dated October 7, 2011 by and among Wells Fargo Gaming Capital, LLC, in capacity as administrative agent and lender, Nevada Gold & Casinos, Inc., as parent, and NG Washington, LLC, NG Washington II, LLC and NG Washington III, LLC, as borrowers (filed previously as Exhibit 10.4 to the Company’s Form 8-K filed July 3, 2012 and incorporated herein by reference).
     
10.23   Intercreditor Agreement and Subordination dated June 27, 2012 by and between Wells Fargo Gaming Capital, LLC, as administrative agent, and Michael J. Trucano, as sellers’ representative (filed previously as Exhibit 10.5 to the Company’s Form 8-K filed July 3, 2012 and incorporated herein by reference).
     
10.24   Purchase Agreement dated November 25, 2009 between Nevada Gold BVR, LLC and B.V. Oro, LLC (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed December 12, 2008 and incorporated herein by reference).
     
10.25(+)   Employment Agreement dated January 24, 2011 by and between Robert B. Sturges and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed January 25, 2011 and incorporated herein by reference).
     
10.26(+)   Employment Agreement dated February 4, 2011 by and between James J. Kohn and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed February 4, 2011 and incorporated herein by reference).
     
10.27(+)   Employment Agreement dated April 14, 2011 by and between Ernest E. East and Nevada Gold & Casinos, Inc. (filed previously as Exhibit 10.1 to the Company’s Form 8-K filed April 14, 2011 and incorporated herein by reference).
     
21.1(*)   Subsidiaries of Nevada Gold & Casinos, Inc.
     
23.1(*)   Consent of Independent Registered Public Accounting Firm.
     
31.1(*)   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2(*)   Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1(*)   Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2(*)   Certification Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS(†)   XBRL Instance Document
     
101.SCH(†)   XBRL Taxonomy Schema
     
101.CAL(†)   XBRL Taxonomy Calculation Linkbase
     
101.DEF(†)   XBRL Taxonomy Definition Linkbase
     
101.LAB(†)   XBRL Taxonomy Label Linkbase
     
101.PRE(†)   XBRL Taxonomy Presentation Linkbase

_________________

+ Management contract or compensatory plan, or arrangement.

* Filed herewith.

† Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

26
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Nevada Gold & Casinos, Inc.
   
  By: /s/ James J. Kohn
  James J. Kohn
 

Chief Financial Officer

  (Duly Authorized officer and Principal Financial and Accounting Officer)
   
  Date: July 29, 2013

 

27
 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

 

Signature Title Date
/s /WILLIAM J. SHERLOCK    
William J. Sherlock Chairman of the Board of Directors July 29, 2013
/s/ WILLIAM G. JAYROE    
William G. Jayroe Director July 29, 2013
/s/ FRANK CATANIA    
Frank Catania Director July 29, 2013
/s/ FRANCIS M. RICCI    
Francis M. Ricci Director July 29, 2013
/s/ WAYNE H. WHITE    
Wayne H. White Director July 29, 2013
/s/ MICHAEL P. SHAUNNESSY President and Chief Executive Officer  
Michael P. Shaunnessy (Principal Executive Officer) July 29, 2013
/s/ JAMES J. KOHN EVP and Chief Financial Officer  
James J. Kohn (Principal Financial and Accounting Officer) July 29, 2013

 

28
 

 

Index to Consolidated Financial Statements

Consolidated Financial Statements of Nevada Gold & Casinos, Inc.

 

  Page
   
Report of Independent Registered Public Accounting Firm 30
Consolidated Balance Sheets as of April 30, 2013 and April 30, 2012 31
Consolidated Statements of Operations for fiscal years ended April 30, 2013 and April 30, 2012 32

Consolidated Statements of Stockholders’ Equity for fiscal years ended April 30, 2013 and
April 30, 2012

33
Consolidated Statements of Cash Flows for fiscal years ended April 30, 2013 and April 30, 2012 34
Notes to Consolidated Financial Statements 35

 

29
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Nevada Gold & Casinos, Inc.

 

We have audited the accompanying consolidated balance sheets of Nevada Gold & Casinos, Inc. and Subsidiaries as of April 30, 2013 and April 30, 2012 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nevada Gold & Casinos, Inc. and Subsidiaries as of April 30, 2013 and April 30, 2012 and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

 

/s/ Pannell Kerr Forster of Texas, P.C.  
   
Houston, Texas  
July 28, 2013  

 

30
 

 

Nevada Gold & Casinos, Inc.

Consolidated Balance Sheets

 

   April 30,   April 30, 
   2013   2012 
ASSETS        
Current assets:        
Cash and cash equivalents  $6,723,919   $5,200,161 
Restricted cash   1,306,487    1,787,068 
Accounts receivable   445,481    653,433 
Prepaid expenses   854,092    909,834 
Notes receivable, current portion   216,596    20,600 
Other current assets   373,923    354,817 
Assets of operations held for sale   -    33,601 
Total current assets   9,920,498    8,959,514 
           
Investments in development projects   56,959    255,355 
Real estate held for sale   1,100,000    1,100,000 
Notes receivable, net of current portion   2,082,853    - 
Goodwill   16,103,583    16,090,799 
Identifiable intangible assets, net of accumulated amortization of $4,413,439 and $3,201,868 at April 30, 2013 and April 30, 2012, respectively   6,570,882    7,782,453 
Property and equipment, net of accumulated depreciation          
of $2,599,940 and $1,785,064 at April 30, 2013 and          
April 30, 2012, respectively   5,028,122    5,399,103 
Deferred tax asset, net   4,738,373    5,251,236 
Other assets   922,716    1,219,356 
Assets of operations held for sale   -    3,115,097 
Total assets  $46,523,986   $49,172,913 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $2,024,465   $2,176,545 
Accrued interest payable   34,393    61,141 
Other accrued liabilities   2,127,140    2,632,067 
Long-term debt, current portion   1,280,000    1,400,324 
Liabilities of operations held for sale   -    23,699 
Total current liabilities   5,465,998    6,293,776 
Other long term  liabilities   421,253    337,849 
Long-term debt, net of current portion   12,930,000    15,155,000 
Total liabilities   18,817,251    21,786,625 
           
Stockholders' equity:          
Common stock, $0.12 par value per share; 50,000,000          
shares authorized; 16,864,122 and 16,707,205 shares issued and 16,081,285 and 15,924,368 shares outstanding at April 30, 2013, and April 30, 2012, respectively   2,023,705    2,004,865 
Additional paid-in capital   24,419,858    24,155,158 
Retained earnings   8,200,746    8,163,839 
Treasury stock, 782,837 shares at April 30, 2013 and April 30, 2012, at cost   (6,932,035)   (6,932,035)
Accumulated other comprehensive loss   (5,539)   (5,539)
Total stockholders' equity   27,706,735    27,386,288 
Total liabilities and stockholders' equity  $46,523,986   $49,172,913 

 

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

 

31
 

 

Nevada Gold & Casinos, Inc.

Consolidated Statements of Operations

 

   Twelve Months Ended 
   April 30,   April 30, 
   2013   2012 
Revenues:        
Casino  $57,592,806   $47,445,348 
Food and beverage   10,103,913    11,409,426 
Other   2,608,837    2,456,028 
Gross revenues   70,305,556    61,310,802 
Less promotional allowances   (4,381,638)   (5,682,168)
Net revenues   65,923,918    55,628,634 
           
Expenses:          
Casino   32,767,931    25,596,310 
Food and beverage   4,838,447    4,202,546 
Marketing and administrative   16,652,746    16,750,411 
Facility   2,270,774    2,112,397 
Corporate and legal expense   4,051,972    3,661,354 
Depreciation and amortization   2,126,888    2,004,311 
Other   558,757    594,764 
(Recovery) write-off of project development costs   257,733    (10,249)
Acquisition costs   -    173,852 
Valuation allowance of project development costs   -    1,700,000 
Valuation allowance of other assets   -    6,848,870 
Total operating expenses   63,525,248    63,634,566 
Operating income (loss) from continuing operations   2,398,670    (8,005,932)
Non-operating income (expenses):          
Loss on settlements - sale of assets   (6,081)   (54,746)
Unrealized gains and losses on available-for-sale securities  -    - 
Interest income   120,349    171,075 
Interest expense   (1,494,989)   (1,552,948)
Amortization of loan issue costs   (329,387)   (194,249)
Loss on extinguishment of debt   -    (154,270)
           
Income (loss) before income tax   688,562    (9,791,070)
Income tax (expense) benefit   (560,052)   3,351,776 
Net income (loss) from continuing operations   128,510    (6,439,294)
Net loss from operations held for sale, net of taxes   (91,603)   (1,489,290)
Net income (loss)  $36,907   $(7,928,584)
Per share information:          
Net income (loss) per common share - basic and diluted for continuing operations  $0.01   $(0.45)
           
Net loss per common share - basic and diluted for discontinued operations  $(0.01)  $(0.10)
           
Basic weighted average number of shares outstanding   15,997,546    14,381,896 
           
Diluted weighted average number of share outstanding   16,020,789    14,381,896 

 

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

 

32
 

 

Nevada Gold & Casinos, Inc.

Consolidated Statements of Stockholders' Equity

 

                       Accumulated     
           Additional           Other   Total 
   Common Stock   Paid-in   Retained   Treasury   Comprehensive   Stockholders' 
   Shares   Amount   Capital   Earnings   Stock   Income   Equity 
Balance at April 30, 2011   13,968,210   $1,676,185   $20,086,236   $18,977,946   $(10,369,200)  $(5,539)  $30,365,628 
Net Loss   -    -    -    (7,928,584)   --    --    (7,928,584)
Stock options exercised   -    -    -    (194,687)   221,337    --    26,650 
Stock issuance   2,625,652    315,078    3,573,683    --    --    --    3,888,761 
Stock issued for acquisitions        --    --    (2,690,836)   3,215,828    --    524,992 
Employee stock plan purchases   113,343    13,602    156,106         --    --    169,708 
Stock based compensation   -    -    339,133    -    --    --    339,133 
Balance at April 30, 2012   16,707,205   $2,004,865   $24,155,158   $8,163,839   $(6,932,035)  $(5,539)  $27,386,288 
Net Income   -    -    -    36,907    -    -    36,907 
Stock options exercised   10,000    1,200    5,900    -    -    -    7,100 
Employee stock plan purchases   146,917    17,640    120,942    -    -    -    138,582 
Stock based compensation   -    -    137,858    -    -    -    137,858 
Balance at April 30, 2013   16,864,122   $2,023,705   $24,419,858   $8,200,746   $(6,932,035)  $(5,539)  $27,706,735 

 

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

 

33
 

 

Nevada Gold & Casinos, Inc.

Consolidated Statements of Cash Flows

 

   Twelve Months Ended 
   April 30,   April 30, 
   2013   2012 
Cash flows from operating activities:        
Net income (loss)  $36,907   $(7,928,584)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   2,126,888    2,109,369 
Write off of capitalized development costs   257,733    - 
Stock based compensation   137,858    339,133 
Valuation allowance of other assets   -    7,406,856 
Valuation allowance of project development note receivable   -    1,689,751 
Amortization of deferred loan issuance costs   329,387    194,249 
Amortization of deferred rent   76,134    337,849 
(Gain) loss on sale/settlement of assets   6,081   33,246 
Loss on extinguishment of debt   -    154,270 
(Increase) decrease to net deferred income tax assets   512,863    (3,050,593)
Changes in operating assets and liabilities:          
Receivables and other assets   279,039    (658,231)
Accounts payable and accrued liabilities   (743,684)   1,504,748 
Net cash provided by operating activities   3,019,206    2,132,063 
Cash flows from investing activities:          
Capitalized development costs   (59,337)   (65,663)
Collections on notes receivable   46,151    - 
Purchase of property and equipment   (626,362)   (3,891,730)
Proceeds from the sale of discontinued operations   800,000    - 
Advances on notes receivable   -    (20,600)
Proceeds from the sale of assets   63,161    - 
Net (additions) and reductions of restricted cash   480,581    (842,709)
Net cash provided by (used in) investing activities   704,194    (4,820,702)
Cash flows from financing activities:          
Payments on capital lease   -    (15,683)
Employee stock plan purchases   138,582    156,106 
Proceeds from credit facilities   1,700,000    - 
Repayment of credit facilities   (4,045,324)   (910,655)
Deferred loan issuance costs   -    (912,339)
Stock issuance proceeds, net   -    3,888,761 
Cash proceeds from exercise of stock options   7,100    26,500 
Net cash provided by (used in) financing activities   (2,199,642)   2,232,690 
           
Net increase (decrease) in cash and cash equivalents   1,523,758    (455,949)
Cash and cash equivalents at beginning of period   5,200,161    5,656,110 
Cash and cash equivalents at end of period  $6,723,919   $5,200,161 
Supplemental cash flow information:          
Cash paid for interest  $1,522,772   $1,609,921 
           
Non-cash investing and financing activities:          
Issuance of note receivable to purchasers of wholly-owned subsidiary  $2,325,000   $- 
Non-cash purchase of property and equipment  $-   $2,760,315 
Refinancing of long-term debt (see note 6)  $-   $11,000,000 

 

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

 

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Nevada Gold & Casinos, Inc.

Notes to Consolidated Financial Statements

 

Note 1. Background and Basis of Presentation

 

Background

 

Nevada Gold & Casinos, Inc. (“we”), a Nevada corporation, was formed in 1977 and, since 1994, has primarily been a gaming company involved in gaming projects and gaming operations. Our gaming operations are located in the United States of America (the “U.S.”), specifically in the states of Washington, South Dakota, and until recently, Colorado. Our business strategy will continue to focus on gaming projects.

 

Basis of Presentation  

 

Our consolidated financial statements include the accounts of all majority-owned and controlled subsidiaries after the elimination of all significant intercompany accounts and transactions. Additionally, our financial statements for prior periods include reclassifications that were made to conform to the current year presentation. Those reclassifications did not impact working capital, total assets, total liabilities, reported net loss or stockholders’ equity.

 

In 2012, we adopted applicable guidance that requires presenting the total of comprehensive income, the components of net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. We applied the guidance retrospectively and elected to present the total of comprehensive income in a single continuous statement. The adoption of the guidance did not have an impact on our financial position or results of operations.

 

Note 2. Summary of Significant Accounting Policies 

 

Principles of Consolidation

 

We consolidate entities when we have the ability to control or exert significant influence of the operating and financial decisions and policies of that entity and record the portion we do not own as non-controlling interest. The determination of our ability to control or exert significant influence over an entity involves the use of judgment. We apply the equity method of accounting where we can exert significant influence over, but do not control the policies and decisions of an entity. We use the cost method of accounting where we are unable to exert significant influence over the entity.

 

Use of Estimates

 

The preparation of financial statements in conformity with the U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results can, and often do, differ from those estimates.

 

Fair Value

 

The U. S. generally accepted accounting principles defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date and establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are as follows:

 

Level 1 – Observable inputs such as quoted prices in active markets at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2 – Other inputs that are observable directly or indirectly such as quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3 – Unobservable inputs for which there is little or no market data and which we make our own assumptions about how market participants would price the assets and liabilities.

 

The following describes the valuation methodologies used by us to measure fair value:

 

Real estate held for sale is recorded at carrying value and tested for impairment annually, or more frequently, using third party valuations (see Note 20).

 

Goodwill, other intangible assets and other long lived assets are recorded at carrying value and tested for impairment annually, or more frequently, using projections of undiscounted future cash flows.

 

The recorded value of cash, accounts receivable and payable approximate fair value based on their short term nature, rather than the recorded value of long term debt approximates fair value as interest rates approximate market rates.

 

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Cash and Cash Equivalents 

 

We consider short-term investments with an original maturity of less than three months to be cash equivalents.

 

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.

     

Allowance for Doubtful Accounts 

 

We establish provisions for losses on accounts and notes receivable if we determine that we will not collect all or part of the outstanding balance. We regularly review collectability and establish or adjust our allowance as necessary using the specific identification method. We make advances to third parties under executed promissory notes for project costs related to the development of gaming and entertainment properties. Due diligence is conducted by our management with the assistance of legal counsel prior to entering into arrangements with third parties to provide financing in connection with their efforts to secure and develop the properties. Repayment terms are largely dependent upon the operating performance of each opportunity for which the funds have been loaned. Interest income is not accrued until it is reasonably assured that the project will be completed and that there will be sufficient profits from the facility to cover the interest to be earned under the respective note. If projected cash flows are not sufficient to recover amounts due, the note is evaluated to determine the appropriate discount to be recorded on the note for it to be considered a performing loan. If the note is performing, interest is recorded using the effective interest method based on the value of the discounted note balance.

 

We review on a quarterly basis each of our receivables to evaluate whether the collection of such receivable is still probable. In our analysis, we review the economic feasibility and the current financial, legislative and development status of the project. If our analysis indicates that the project is no longer economically feasible then the receivable would be written down to its estimated fair value.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject us to concentrations of credit risk are primarily notes receivable, cash and cash equivalents, accounts receivable and payable, and long term debt. At April 30, 2013 and April 30, 2012, we had three notes receivable, as well as the BVD/BVO receivable, outstanding. Two of these notes were issued in connection with a potential gaming project and as of April 30, 2013, the third was to the investors who purchased the Colorado Grande Casino from us whereas, as of April 30 , 2012, the third was to an owner of a location used by the South Dakota Gold slot route operation. Management performs periodic evaluations of the collectability of these notes. Our cash deposits are held with large, well-known financial institutions, and, at times, such deposits may be in excess of the federally insured limit. The recorded value of cash, accounts receivable and payable, approximate fair value based on their short term nature; the recorded value of long term debt approximates fair value as interest rates approximate current market rates.

 

Capitalized Development Cost

 

We capitalize certain third party, professional, and other miscellaneous fees directly related to the procurement, evaluation and establishment of contracts for development projects. Development costs are recorded on the cost basis and are amortized over the estimated economic term of the contract. We review each project on a quarterly basis to assess whether any changes to our estimates are appropriate. If accumulated costs of a specific project exceed the net realizable value of such project or the project is abandoned, the costs are charged to earnings.

 

Real Estate Held for Sale

 

Real estate held for sale consists of undeveloped land located in and around Black Hawk, Colorado. Property held for sale is carried at the lower of cost or net realizable value.

 

Property and Equipment

 

Expenditures for property and equipment are capitalized at cost. We depreciate property and equipment over their respective estimated useful lives, ranging from three to thirty years, using the straight-line method. When items are retired or otherwise disposed of, a gain or loss is recorded for the difference between net book value and proceeds realized. Ordinary maintenance and repairs are charged to earnings, and replacements and betterments are capitalized.

 

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Property and equipment at April 30, 2013 and April 30, 2012 consist of the following:

 

           Estimated
   April 30,   April 30,   Service Life
   2013   2012   in Years
Leasehold improvements  $1,260,932   $1,202,154   7-25
Gaming equipment   2,229,562    1,980,034   3-5
Furniture and office equipment   2,418,408    2,295,072   3-7
Building and improvements   1,612,250    1,612,250   15-30
Land   87,750    87,750    
Construction in Progress   19,161    6,907    
    7,628,062    7,184,167    
Less accumulated depreciation   (2,599,940)   (1,785,064)   
              
Property and equipment, net  $5,028,122   $5,399,103    

 

Deferred Loan Issuance Costs

 

Debt issuance costs incurred in connection with the issuance of long-term debt are capitalized and amortized over the expected terms of the related debt agreements and are included in other assets on our consolidated balance sheets.

 

Goodwill and Other Intangible Assets

 

Goodwill and intangible assets with indefinite useful lives are tested for impairment annually or more frequently if an event occurs or circumstances change that may reduce the fair value of our goodwill below its carrying value.

 

We review goodwill at the reporting level unit, which is one level below an operating segment. We compare the carrying value of the net assets of each reporting unit to the estimated fair value of the reporting unit, based upon a multiple of estimated earnings. If the carrying value exceeds the estimated fair value of the reporting unit, an impairment indicator exists and an estimate of the impairment loss is calculated. The fair value calculation uses level 3 inputs and includes multiple assumptions and estimates, including the projected cash flows and discount rates applied. Changes in these assumptions and estimates could result in goodwill impairment that could materially adversely impact our financial position or results of operations. All of our goodwill is attributable to reporting units within our gaming segment.  

 

We use earnings before interest, taxes, depreciation, amortization, non-cash goodwill and other long-lived asset impairment charges, litigation charges, non-cash foreign currency transaction gains and losses, non-cash stock option expense, and net losses/gains from asset dispositions (“adjusted EBITDA”) as the measure for future earnings in our impairment test. Management estimates future adjusted EBITDA based primarily on its projections of future revenues. We utilized comparable industry average multiples of adjusted EBITDA rates based on industry standards ranging from 5.5 to 7.5 times adjusted EBITDA when we estimated fair values of our casinos as of April 30, 2013.   

 

We considered the impact of adverse changes in the economic and business climate as we performed our annual impairment assessment of goodwill as of April 30, 2013. 

 

Long-lived assets, including property, plant and equipment and amortizable intangible assets, also comprise a significant portion of our total assets. We evaluate the carrying value of long-lived assets when impairment indicators exist or when circumstances indicate that impairment may exist under authoritative guidance. When management believes impairment indicators may exist, projections of the undiscounted future cash flows associated with the use of and eventual disposition of long-lived assets held for use are prepared. If the projections indicate that the carrying values of the long-lived assets are not recoverable, we reduce the carrying values to fair value. For long-lived assets held for sale, we compare the carrying values to an estimate of fair value less selling costs to determine potential impairment. We test for impairment of long-lived assets at the lowest level for which cash flows are measurable. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available.

 

Slot Club Awards

 

We reward our slot customers for their loyalty based on the dollar amount of play on slot machines. We accrue for these slot club awards based on an estimate of the value of the outstanding awards utilizing the age and prior history of redemptions. Future events such as a change in our marketing strategy or new competition could result in a change in the value of the awards.

 

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Advertising Costs

 

We expense advertising costs as incurred. Advertising expense related primarily to our casino operations and for the years ended April 30, 2013 and April 30, 2012 was approximately $2,067,000 and $2,203,000, respectively.

 

Revenue Recognition

 

We record revenues from casino operations, interest on notes receivable and management fees on the accrual basis as earned. The dates on which payments are collected may vary depending upon the term of the contracts or note receivable agreements. Interest income related to notes receivable is recorded when earned and its collectability is reasonably certain.

 

The retail value of food and beverage and other services furnished to guests without charge is included in gross revenue and deducted as promotional allowances. Net revenues do not include the retail amount of food, beverage and other items provided gratuitously to customers. We record the redemption of coupons and points for cash as a reduction of revenue as they are earned. These amounts are included in promotional allowances in the accompanying consolidated statements of operations. The estimated cost of providing such complimentary services that is included in casino expense in the accompanying consolidated statements of operations was as follows:

 

   Fiscal Year Ended   Fiscal Year Ended 
   April 30, 2013   April 30, 2012 
Food and beverage  $3,302,772   $4,801,738 
Other   147,185    115,968 
           
Total cost of complimentary services  $3,449,957   $4,917,706 

 

Accrued Jackpot Liability

 

We accrue slot jackpot liability as games are played under a matching concept of coin-in. We also maintain accrued player-supported jackpot liabilities. Player-supported jackpot is a progressive game of chance, allowed in Washington State, directly related to the play or outcome of an authorized non-house-banked card game separately funded by our patrons. Any jackpots hit in these card games are paid from such reserved funds.

 

Income Taxes

     

Income taxes are accounted using an asset and liability approach 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. We record current income taxes based on our current taxable income, and we provide for deferred income taxes to reflect estimated future tax payments and receipts. We account for tax credits under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available. We reduce deferred tax assets by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period.

 

We maintain a tax accrual policy to record both regular and alternative minimum taxes for companies included in our consolidated federal and state income tax returns. The policy provides, among other things, that (i) each company in a taxable income position will accrue a current expense equivalent to its federal and state income taxes, and (ii) each company in a tax loss position will accrue a benefit to the extent its deductions, including general business credits, can be utilized in the consolidated returns. We pay all consolidated U.S. federal and state income taxes directly to the appropriate taxing jurisdictions and, under a separate tax billing agreement, we may bill or refund our subsidiaries for their portion of the these income tax payments.

 

We recognize the impact of uncertain tax positions in our financial statements only if that position is more likely than not of being sustained upon examination by the taxing authority. Should interest and penalty be incurred as a result of a review of our income tax returns, we will record the interest and penalty in accordance with applicable guidance.

 

Our federal tax returns for years after 2009 remain subject to examination.

 

Stock-Based Compensation 

 

Under ASC Topic 718, “Compensation - Stock Compensation,” the fair value and compensation expense of each option award is estimated as of the date of grant using a Black-Scholes option pricing formula. Expected volatility is based on historical volatility of our stock over a preceding period commensurate with the expected term of the option. The expected term of the option is an estimate of the time that the option is expected to be outstanding and is based on our historical experience. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we historically have not paid dividends and have no current plans to do so in the future.

 

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The compensation cost related to these share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the award. Total stock-based compensation for the years ended April 30, 2013 and April 30, 2012 was $137,858 and $339,133, respectively.

 

Earnings Per Share

 

Earnings per share, both basic and diluted, are presented on the consolidated statement of operations. Basic earnings per common share amounts are calculated using the weighted 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 11).

 

Accrued Contingent Liabilities

 

We assess our exposure to loss contingencies including legal matters. If the potential loss is justified to be probable and estimable, we will provide for the exposure. If the actual loss from a contingency differs from management’s estimate, operating results could be impacted. As of April 30, 2013 and April 30, 2012, we did not record any accrued contingent liabilities.

 

New Accounting Pronouncements

 

Intangibles — Goodwill and Other

 

In July of 2012, the FASB issued ASU 2012-02, “Intangibles — Goodwill and Other (Topic 350): Testing Indefinate-Lived Assets for Impairment.” Under the amendments in this guidance, an entity is permitted to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impairmed as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, “Intangibles-Goodwill and Other-General Intangibles Other than Goodwill”. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. These amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this new guidance did not have a material effect on our consolidated financial statements.

 

Note 3. Restricted Cash

 

As of April 30, 2013 and 2012, we maintained approximately $1,306,000 and $1,787,000, repectively, in restricted cash, which consists of player-supported jackpot funds.

 

Note 4. Investments in Development Projects

 

We also hold investments in various development projects that we consolidate. Our net ownership interest and capitalized development costs in development projects are as follows:

 

   Net Ownership Interest   Capitalized Development Costs 
Development Projects:  April 30,
2013
   April 30,
2012
   April 30,
2013
   April 30,
2012
 
   (Percent)         
Nevada Gold Speedway, LLC (1)   100    100   $-   $209,305 
Nugget (2)   1    1    -    26,000 
Other (3)   100    100.00    56,959    20,050 
Total investments– development projects            $56,959   $255,355 

 

(1)Deposit and acquisition costs related to management and technical services for a to-be-built casino and hotel in North Las Vegas, Nevada.
(2)Costs incurred with acquisition of 1% of the Nugget Casino in Reno, Nevada to obtain a Nevada gaming license.
(3)Development cost incurred for other development projects.

 

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Note 5. Notes and BVD/BVO Receivable 

 

Notes Receivable - Development Projects

 

Big City Capital, LLC

 

At April 30, 2013 and April 30, 2012, our balance sheet reflects net notes receivable of $0, net of a $3.2 million valuation allowance, related to the development of gaming/entertainment projects from Big City Capital, LLC (“Big City Capital”). These notes receivable have a maturity date of December 31, 2014. From time to time, we make advances to third parties related to the development of gaming/entertainment projects. We make these advances after undertaking extensive due diligence. On a quarterly basis, we review each of our notes receivable to evaluate whether collection is still probable. In our analysis, we review the economic feasibility and the current financial, legislative and development status of the project. If our analysis indicates that the project is no longer economically feasible, the note receivable will be written down to its estimated fair value. During the fiscal ended April 30, 2008, we determined that our ability to collect $859,000 of accrued interest and $1.5 million of the original $3.2 million notes receivable from Big City Capital had been impaired. As a result we wrote down the notes receivable to $1.7 million, by establishing a $1.5 million allowance, and we wrote off the accrued interest. At April 30, 2012, we determined our ability to collect the remaining $1.7 million was doubtful and therefore increased the valuation allowance to $3.2 million.

 

Representations from the principal of Big City Capital and an independent third party investment banker with whom we have had experience indicate the project is progressing slowly and may never be built. As of the filing date of this document, we believe the repayment of these loans will be largely dependent upon the ability to obtain financing for the development project and/or the performance of the development project.

 

BVD/BVO Receivable

 

At April 30, 2013 and April 30, 2012, our balance sheet reflects a net receivable of $0, net of a $4.6 million valuation allowance, related to the development of gaming/entertainment projects from B. V. Oro, LLC (“BVO”). As of May 2007, we owned a 40% interest in Buena Vista Development Company, LLC (“Buena Vista Development” or “BVD”) which plans to develop a casino hotel facility for the Buena Vista Rancheria of Me-Wuk Indians, a Native American tribe in Amador County, California. Effective November 25, 2008, we sold our 40% interest in BVD to BVO, which is owned by our former partner and related parties, for $16 million in cash and a $4 million receivable from BVO due upon the developer receiving repayment of the loan advanced to the tribe, which loan is currently due. To the best of our knowledge, the developer has reached a verbal agreement with the tribe to extend the loan until receipt of permanent financing for the project. Should the proceeds of this loan repayment be insufficient to pay off our receivable, the remainder is due from BVO no later than two years after the opening of a gaming/entertainment facility to be built by BVD for the tribe. This receivable accrues interest at the rate of prime plus 1% and is guaranteed by our former partner and related parties. In addition, we are entitled to a 5% carried interest in the membership interest sold to BVO.

 

According to the principal of BVD, the project continues to slowly progress and he is committed and financially able to continue to fund ongoing expenses until permanent funding is arranged. He has recently informed us that the project has been redesigned to reduce constructon costs by approximately 50 percent. Also, the investment bank that has been engaged to assist BVD to raise the project funding, with whom we have had experience, has indicated to us that they believe project funding will be attained. However, given the prevailing very challenging capital market conditions and continued uncertainties as to the economy, and based upon our “Level 3” analysis, we recorded a $4.6 million valuation allowance for the total principal and interest due effective as of April 30, 2012.

 

G Investments, LLC

 

Upon completion of the sale of the Colorado Grande Casino, we recorded a $2.3 million note receivable. This note bears interest at 6% per annum through the maturity date of June 1, 2017 and is secured with all of the assets of the Colorado Grande Casino, pledge of membership interest in GI, and a personal guaranty by GI’s principal.

 

Repayments are scheduled to be made as follows:

 

·No monthly installments of principal and accrued interest shall be due and payable for three months following the sale date of May 25, 2012;

·One monthly installment of principal and accrued interest of $5,000 on September 1, 2012;

·Beginning October 1, 2012, eight monthly installments of principal and accrued interest of $20,000;

·Beginning June 1, 2013, twelve monthly installments of principal and accrued interest of $30,000;

·Beginning June 1, 2014, thirty six monthly installments of principal and accrued interest of $40,000; and

·A final installment of $907,061 which is due on the maturity date of June 1, 2017.

  

Since the inception of this note we have collected $145,000 which consists of $25,551 of principal plus $119,499 of interest. Please see Note 22.

 

Note 6. Long-Term Debt 

 

Long-Term Financing Obligations 

 

Our long-term financing obligations for the fiscal years ended April 30, 2013 and April 30, 2012 are as follows:

 

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   April 30,   April 30, 
   2013   2012 
         
$11.0 million note payable, LIBOR, with 0.25% floor, plus 9.50% interest, principal payments of $250,000 due each quarter and remainder due at maturity of October 7, 2014  $9,500,000   $10,500,000 
$4.0 million note payable, 11.5% interest until maturity at June 30, 2015   3,055,000    4,000,000 
$250,000 note payable, 6% interest, to be paid in two annual installments of $100,000 plus accrued interest and the final payment of $50,000 plus accured interest at the maturity date of December 15, 2013,   50,000    150,000 
$100,000 note payable, 6% imputed interest, to be paid in thirty equal monthly installments, beginning August 5, 2011, maturing January 18, 2014   30,000    70,000 
$1.4 million promissory note, 6% interest, payable in fifty nine monthly installments of $10,000 plus all accrued interest, and the remaining principle at the maturity date of January 27, 2017   1,275,000    1,395,000 
$400,000 note payable, 6% imputed interest, to be paid in sixty equal monthly installments, beginning February 27, 2012, maturing January 27, 2017   300,000    380,000 
$60,324 note payable, 6% imputed interest, maturing January 27, 2013   -    60,324 
Total   14,210,000    16,555,324 
Less: current portion   (1,280,000)   (1,400,324)
Total long-term financing obligations  $12,930,000   $15,155,000 

 

On October 7, 2011, we closed on the $11.0 million note payable (“Wells Fargo Loan”), thereby refinancing existing indebtedness of which $4.0 million was due May 12, 2012 and $5.0 million was due July 23, 2012. We also retired $2.0 million of the $6.0 million debt that was previously due June 30, 2013. Assets of, and equity interests in, NG Washington, LLC, NG Washington II, LLC, and NG Washington III, including their ten respective operating mini-casinos, as well as certain of our other subsidiaries (NG Washington II Holdings, LLC, NG South Dakota LLC, and A.G. Trucano, Son and Grandsons, Inc.) are collateral for the loan. The loan matures on October 7, 2014 and is guaranteed by us.

 

The Wells Fargo Loan has a limited number of financial covenants of which we are in compliance with as of April 30, 2013 and the filing date of this document. We are also not permitted to incur additional indebtedness without this lender’s prior approval.

 

As a result of closing on the Wells Fargo Loan, we incurred $819,455 of deferred loan issue costs which are amortizable over the life of the loan. As a result of a $2,000,000 repayment and renegotiating terms on our $6,000,000 note payable, we recorded a loss on extinguishment of debt of $154,000 and we added approximately $91,000 of deferred loan issue costs to be amortized over the life of the note.

 

The Washington properties had a $150,000 line of credit, which was paid off during the period ending January 31, 2012. The line of credit had a one-year cycle and, during the fiscal year ended April 30, 2012, interest of $3,456 was paid on the principal drawn.

 

On January 27, 2012, we completed the acquisition of A.G. Trucano, Son and Grandsons, Inc., a slot machine route operation in Deadwood, South Dakota (“South Dakota Gold”) and, as part of the purchase price, issued three promissory notes. The first promissory note, in the principal amount of $1,425,000, is due on January 27, 2017 and bears an annual interest rate of 6% per annum. Starting from February 27, 2012, this note is to be repaid in fifty-nine monthly principal installments of $10,000 plus all accrued and unpaid interest while the remaining balance is due on the maturity date. The second promissory note, in the principal amount of $400,000, bears an imputed annual interest of 6% per annum, matures on January 27, 2017, and is payable in sixty equal monthly installments of $6,667 on the twenty-seventh day of each month, the first installment being payable on February 27, 2012. The third promissory note, in the principal amount of $60,324, had an imputed annual interest of 6% per annum. The third promissory note matured, and was repaid, on January 27, 2013.

 

The aggregate principal payments due on total long-term debt over the next five fiscal years and thereafter are as follows:

 

Fiscal Year Ending
 
2014  $1,280,000 
2015   8,700,000 
2016   3,255,000 
2017   975,000 
Total  $14,210,000 

 

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Note 7.   Acquisitions

 

South Dakota Gold

 

On January 27, 2012, through our wholly owned subsidiary, NG South Dakota, LLC, we completed the acquisition of 100% of the shares of South Dakota Gold for $5.1 million. The transaction was financed by $3.2 million in cash, $25,000 in our common stock, and $1.9 million in three promissory notes payable to the sellers, Michael J. Trucano and Patricia Burns. The first promissory note, in the principal amount of $1,425,000, is due on January 27, 2017 and bears an annual interest rate of 6% per annum. Starting February 27, 2012, this note is to be repaid in fifty-nine monthly principal installments of $10,000, plus all accrued and unpaid interest. The remaining balance is due on the maturity date. The second promissory note, in the principal amount of $400,000, bears an imputed annual interest of 6% per annum, matures on January 27, 2017, and is payable in sixty equal monthly installments of $6,667 on the twenty-seventh day of each month, with the first installment being paid in February of 2012. The third promissory note, in the principal amount of $60,324, bears an imputed annual interest of 6% per annum and matured, and was repaid, on January 27, 2013. We acquired this slot route in furtherance of our strategy of being an owner and operator of gaming facilities. The purchase was accounted for as a purchase business combination in accordance with ASC 805. Goodwill is defined in ASC 805 as the future economic benefits of other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is attributable to the synergies from the existing customer base, as well as other intangible assets that do not qualify for separate recognition. Closing costs and pre-opening expenses of $1,000 related to the acquisition are included in the consolidated statement of operations in marketing and administrative, legal and other expenses of $108,000 related to the acquisition are reflected separately in the consolidated statement of operations. The summary of the purchase price allocation is as follows:

 

    (000’s) 
Current assets and liabilities, net  $65 
Property and equipment   1,775 
Non-compete   251 
Customer relationships   1,100 
Goodwill   1,936 
      
Purchase price  $5,127 

 

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At April 30 2013, goodwill acquired was approximately $1,936,000, all of which is expected to be deductible for tax purposes.

 

We reviewed the South Dakota Gold operating results and concluded that pro-forma financial statements was not required due to immateriality.

 

Note 8. Goodwill and Intangible Assets

 

In connection with our acquisitions of the of the Washington mini-casinos on May 12, 2009, July 23, 2010 and July 18, 2011, as well as the South Dakota Gold slot route on January 27, 2012 (see Note 7), we have goodwill with an indefinite useful life and identifiable intangible assets of $22.7 million, net of amortization.

 

The change in the carrying amount of goodwill and other intangibles for the fiscal year ended April 30, 2013 is as follows (in thousands):

 

   Total   Goodwill   Other
Intangibles
 
Balance as of April 30, 2012  $23,873   $16,091   $7,782 
Adjustments during the year   13    13    - 
Current year amortization   (1,211)   -    (1,211)
Balance as of April 30, 2013  $22,675   $16,104   $6,571 

 

Other intangible assets are generally amortized on a straight line basis over the useful lives of the assets.  All goodwill and other intangible assets pertain to the gaming segment.

 

A summary of amortizable other intangible assets follow (in thousands):

 

   As of April 30, 2013 
   Gross
Carrying
Amount
   Accumulated Amortization 
         
Customer relationships  $7,853   $(3,293)
Non-compete agreements   1,269    (1,120)
Trade Names   1,862    - 
Total  $10,984   $(4,413)

 

The estimated future annual amortization of intangible assets, which excludes Trade Names, is as follows (in thousands):

 

For the fiscal year  Amount 
2014  $1,205 
2015   1,185 
2016   1,122 
2017   718 
2018   338 
Thereafter   140 
Total  $4,708 

 

The weighted average useful lives of acquired intangibles related to customer relationships and non-compete agreements are 7.0 years and 3.0 years, respectively.  The weighted average useful life of amortizable intangible assets in total is 5.5 years.

 

Note 9. Income Taxes 

 

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of all assets and liabilities, measured by using the enacted statutory tax rates. Deferred tax assets for net operating loss carryforwards (“NOLs”) are recorded. As of April 30, 2013 we have federal NOLs of $2.8 million which expire from 2029 to 2033.

 

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As of April 30, 2013 and April 30, 2012, we had deferred tax assets as a result of the future tax benefit attributable to timing differences, determined by applying the enacted statutory rate of 34.0%. We recorded a deferred tax asset in connection with tax credit carryforwards, compensation expense in connection with the issuance of stock options, and impairment charges for goodwill and receivables. We recorded a deferred tax liability for the excess of tax deductible amortization of intangibles over the recorded amortization for book purposes.

 

To fully recognize our net deferred tax assets, we must achieve future taxable income of approximately $2.8 million. These earnings may be achieved through our operating properties and increased revenues from future acquisitions. We believe that such earnings will be sufficient to fully utilize current NOLs.

 

Deferred tax assets and liabilities at April 30, 2013 and April 30, 2012 are comprised of the following:

 

    April 30, 2013     April 30, 2012  
Deferred tax assets:            
Net operating loss carryforwards   $ 954,742     $ 1,280,810  
Fixed assets     98,151       61,720  
Stock options     278,283       662,523  
Impairment of notes receivable and goodwill     3,417,478       3,609,313  
Revenue not recognized for tax reporting and other     109,660       195,633  
Capitalized acquisition costs     59,110       -  
Prepaid expenses     194,789       -  
Other     67,123       3,129  
Total deferred tax assets     5,179,336       5,813,128  
Deferred tax liabilities:                
Amortization of intangibles     (408,654 )     (529,583 )
Total deferred tax liabilities     (408,654 )     (529,583 )
Net deferred tax assets before valuation allowance     4,770,682       5,283,545  
Valuation allowance     (32,309 )     (32,309 )
Net deferred tax assets   $ 4,738,373     $ 5,251,236  

  

Reconciliations between the statutory federal income tax expense rate of 34.0% in the fiscal years ended April 30, 2013 and April 30, 2012 and our effective income tax rate as a percentage of income before income tax benefit is as follows:

 

    Years Ended  
    April 30, 2013     April 30, 2012  
    Percent     Dollars     Percent     Dollars  
                         
Income tax benefit at statutory federal rate     34.0     $ 186,921       (34.0 )   $ (3,328,964 )
                                 
Permanent differences:                                
                                 
Write-off of expired or forfeited stock options     78.4       431,124       0.0       -  
True-up of cumulative temporary differences and other     (19.1 )     (105,182 )     (0.2 )     (22,812 )
Effective income tax rate     93.3     $ 512,863       (34.2 )   $ (3,351,776 )

  

In addition to our federal income tax return, we file income tax returns in various state jurisdictions. We are not subject to tax examinations by federal or state tax authorities prior to the fiscal year ended April 30, 2008. The examination of our federal income tax returns for federal income tax years 2007 and 2008 were completed in April of 2010. The results of the audit did not have a material effect on our financial position or results of operations. Our federal tax returns for years after the fiscal year ended April 30, 2009 remain subject to examination.

 

Note 10. Equity Transactions, Stock Option Plan and Warrants 

 

Information about our share-based plans

 

Our 1999 Stock Option Plan, as amended (the “1999 Plan”), provided for the granting of awards to our directors, officers, employees and independent contractors. The 1999 Plan expired in January 2009 and was replaced with a new plan described below. The number of shares of common stock reserved for issuance under the 1999 Plan was 3,250,000 shares. The plan was administered by the Compensation Committee (the “Committee”) of the Board of Directors. The Committee had discretion under the plan regarding the vesting and service requirements, exercise price and other conditions. All unercised awards granted under the 1999 Plan are expired as of April 30, 2013.

 

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On April 14, 2009, our shareholders approved the 2009 Equity Incentive Plan (the “2009 Plan”). The number of shares with respect to which awards may be granted under the 2009 Plan is 1,750,000 shares. The 2009 Plan is similar to the 1999 Plan in most respects and continues to provide for awards which may be made subject to time based or performance based vesting. Under the 2009 Plan, the Committee is authorized to grant the following types of awards:

 

·Stock Options including Incentive Stock Options (“ISO”),
·Options not intended to qualify as ISO’s,
·Stock Appreciation Rights, and
·Restricted Stock Grants.

 

To date, the Committee has only awarded stock options for stock-based compensation. Our practice has been to issue new or treasury shares upon the exercise of stock options. Stock option rights granted prior to the fiscal year ended April 30, 2006 under the 1999 Plan generally had 5-year terms. Subsequent option rights granted generally have 5 or 10 year terms and vest in two or three equal annual installments, with some options grants providing for immediate vesting for a portion of the grant.

 

A summary of activity under our share-based payment plans for the years ended April 30, 2013 and April 30, 2012 is presented below:

 

           Weighted     
       Weighted   Average     
       Average   Remaining   Aggregate 
       Exercise   Contractual   Intrinsic 
   Shares   Price   Term (Year)   Value 
Outstanding at April 30, 2011   1,776,000   $1.62           
Granted   250,000    1.57           
Exercised   (25,000)   1.07           
Forfeited or expired   (136,000)   2.29           
                     
Outstanding at April 30, 2012   1,865,000   $1.57    4.56   $0 
                     
Exercisable at April 30, 2012   1,865,000   $1.57    4.56   $0 
                     
Outstanding at April 30, 2012   1,865,000   $1.57           
Granted   320,000    0.82           
Exercised   (10,000)   0.71           
Forfeited or expired   (1,310,000)   1.72           
                     
Outstanding at April 30, 2013   865,000   $1.08    7.93   $95,150 
                     
Exercisable at April 30, 2013   731,667   $1.13    7.62   $65,850 
                     
Available for grant at April 30, 2013   875,000                

 

The weighted-average grant-date fair value of options granted during the years ended April 30, 2013, and April 30, 2012 was $0.82 and $1.57, respectively. There were 10,000 and 25,000 of stock options exercised during the years ended April 30, 2013 and April 30, 2012. The intrinsic value of the options exercised in 2013 was approximately $1,200. As of April 30, 2013, there was a total of $95,077 of unamortized compensation cost related to stock options, which cost is expected to be recognized over a weighted-average of approximately 1.75 years.

 

Compensation cost for stock options was based on the fair value of each award, measured by applying the Black-Scholes model on the date of grant, using the following weighted-average assumptions:

 

   April 30, 2013   April 30, 2012 
         
Expected volatility   183.4%   190.5%
Expected term (years)   10.00    10.00 
Expected dividend yield   -    - 
Risk-free interest rate   1.63%   3.01%
Forfeiture rate   -    - 

 

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Under ASC Topic 718, “Compensation - Stock Compensation,” the fair value and compensation expense of each option award is estimated as of the date of grant using a Black-Scholes option pricing formula. Expected volatility is based on historical volatility of our stock over a preceding period commensurate with the expected term of the option. The expected term of the option is the period of time that the option is expected to be outstanding and is based on our historical experience. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we historically have not paid dividends and have no current plans to do so in the future.

 

The compensation cost related to these share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the award.

 

On October 11, 2010, the shareholders approved our 2010 Employee Stock Purchase Plan (the “2010 Plan”), which permits all our eligible employees, including employees of certain of our subsidiaries, to purchase shares of the Company's common stock through payroll deductions at a purchase price not to be less than 90% of the fair market value of the common stock on each purchase date. The total number of shares available for issuance under the 2010 Plan is 500,000 shares.  On November 30, 2010, the Board of Directors amended the 2010 Plan to allow its participants to contribute up to a maximum of twenty (20%) percent of their paid compensation. The 2010 Plan became available for employee participation on January 1, 2011, employee payroll deductions began in January of 2011, and shares are to be purchased at the end of each calendar quarter. For the years ended April 30, 2013 and April 30, 2012, 293,140 and 146,223 shares, respectively, were issued to 140 participants under the 2010 Plan.

 

Treasury Stock

 

During the fiscal year ended April 30, 2013, we did not issue any treasury stock. During the fiscal year ended April 30, 2012, we issued 363,363 shares of treasury stock in two acquisitions. On July 18, 2011, we issued 350,140 shares to 3 Point, Inc. as part of the Washington III mini-casino acquisition. On January 27, 2012, we issued 13,223 shares to Michael J. Trucano and Patricia Burns, as part of the South Dakota Gold acquisition. See Note 7. The value of these shares was based on average price over the ten trading days prior to the close of the acquisitions. In addition, on February 29, 2012, we issued 25,000 shares of treasury stock in connection with an exercise of an employee stock option.

 

Note 11. Earnings Per Share

 

The following is presented as a reconciliation of the numerators and denominators of basic and diluted earnings per share computations, in accordance with ASU 260:

 

   Fiscal Year Ended 
   April 30,
2013
   April 30,
2012
 
Numerator:        
Basic:          
Net income (loss) available to common stockholders for continuing operations  $128,510   $(6,439,294)
Diluted:          
Net income (loss) available to common stockholders for continuing operations  $128,510   $(6,439,294)
Denominator:          
Basic weighted average number of common shares outstanding   15,997,546    14,381,896 
Diluted weighted average number of common shares outstanding   16,020,789    14,381,896 
Income (loss) per share for continuing operations:          
Net income (loss) per common share – basic  $.01   $(.45)
Net income (loss) per common share - diluted  $.01   $(.45)

 

For the fiscal years ended April 30, 2013 and April 30, 2012, potential dilutive common shares issuable under options of 730,000 and 1,865,000, repectively, were not included in the calculation of diluted earnings per share as they were anti-dilutive.

 

Note 12. Other Assets 

 

Other assets consisted of the following at April 30, 2013 and April 30, 2012:

 

   April 30, 2013   April 30, 2012 
Other assets  $93,553   $70,952 
State gaming license   388,855    409,000 
Deferred loan issue cost, net   440,307    739,404 
Other assets  $922,716   $1,219,356 

 

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Note 13. Segment Reporting 

 

We have four business segments (i) Washington Gold, (ii) South Dakota Gold, (iii) Corporate, and (iv) assets of operations held for sale. For the twelve month periods ended April 30, 2013 and April 30, 2012, the Washington Gold segment consists of the Washington mini-casinos, the South Dakota Gold segment consists of our slot route operation in South Dakota, the “Corporate” column includes the vacant land in Colorado and its taxes and maintenance expenses, while the “assets of operations held for sale” consists of the Colorado Grande Casino.

 

Summarized financial information for our reportable segments is shown in the following table. The “Corporate” column includes corporate-related items, results of insignificant operations, and segment profit (loss) and income and expenses not allocated to other reportable segments.

 

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   As of the Twelve Months Ended  April 30, 2013 
   Washington Gold   South Dakota Gold   Corporate   Total
Continuing Operations
   Assets of Operations
Held for
Sale
   Totals 
                         
Net revenue  $55,494,109   $10,429,809   $-   $65,923,918   $-   $65,923,918 
Casino and food and beverage expense   28,654,831    8,951,547    -    37,606,378    4,269    37,610,647 
Marketing and administrative expense   16,359,720    293,026    -    16,652,746    1,024    16,653,770 
Facility and other expenses   2,684,703    112,696    4,341,837    7,139,236    133,500    7,272,736 
Depreciation and amortization   1,532,480    583,262    11,146    2,126,888    -    2,126,888 
Segment operating income (loss)   6,262,375    489,278    (4,352,983)   2,398,670    (138,793)   2,259,877 
Segment assets   22,234,165    4,830,439    6,690,603    33,755,207    -    33,755,207 
Additions to property and equipment   310,301    300,823    15,238    626,362    -    626,362 

 

   As of the Twelve Months Ended  April 30, 2012 
   Washington Gold   South Dakota Gold   Corporate   Total
Continuing Operations
   Assets of Operations
Held for
Sale
   Totals 
                         
Net revenue  $53,252,818   $2,375,816   $-   $55,628,634   $5,193,749   $60,822,383 
Casino and food and beverage expense   27,732,153    2,066,351    352    29,798,856    2,456,773    32,255,629 
Marketing and administrative expense   16,663,080    87,331    -    16,750,411    2,528,311    19,278,722 
Facility and other expenses   2,849,757    41,425    12,189,806    15,080,988    1,290,270    16,371,258 
Depreciation and amortization   1,812,062    173,766    18,483    2,004,311    105,058    2,109,369 
Segment operating income (loss)   4,195,766    6,943    (12,208,641)   (8,005,932)   (1,186,663)   (9,192,595)
Segment assets   25,811,577    5,213,484    2,760,689    33,785,750    3,148,698    36,934,448 
Additions to property and equipment   666,435    5,978,816    3,609    6,648,860    3,185    6,652,045 

 

Reconciliation of reportable segment assets to our consolidated totals is as follows:

 

   April 30, 
   2013 
     
Total assets for reportable segments  $33,755,207 
Cash and restricted cash not allocated to segments   8,030,406 
Deferred tax asset   4,738,373 
Total assets  $46,523,986 

 

Note 14. 401(k) Plan

 

Effective December 31, 2011, we terminated our 401(k) plan under which employees 21 years of age or older qualified for participation. The plan administration provided each plan participant with reinvestment options. Our discretionary contributions for the 401(k) for the fiscal years ended April 30, 2013 and April 30, 2012, was $0 and $37,891, respectively, exclusive of the South Dakota Gold plan described below.

 

Following our acquisition of all the shares of South Dakota Gold, we have assumed a 401(k) Profit Sharing Plan, a qualified retirement plan, covering all of the employees of South Dakota Gold who have completed one year of employment and are age 21 or older. Under the plan, South Dakota Gold makes annual discretionary contributions on behalf of each participant. Other than qualified rollover contributions, participants are not allowed to make contributions into the plan. Participants are always fully vested in their rollover contributions; however, vesting in South Dakota Gold’s profit sharing contribution is based on years of service, with a participant fully vested after six years. Since our acquisition, South Dakota Gold has made no discretionary profit sharing contributions.

 

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Following our acquisition of all the shares of South Dakota Gold, we have also assumed a 401(k) Savings Plan, a qualified retirement plan, covering all of the employees of South Dakota Gold who have completed one year of employment and are age 21 or older. Under the plan, participants may defer up to 10% of their compensation up to the maximum limit determined by law. Participants are always fully vested in their respective rollover and elective contributions while vesting in matching contributions is based on years of service, with a participant fully vested after six years. The discretionary match is a maximum of 3%. For the year ended April 30, 2013 the discretionary match was $9,846 and for the period since acquisition of January 27, 2012, through April 30, 2012, the discretionary match was $2,547. At the appropriate time, we will consider replacing this plan with another employee benefit plan (see Note 15 of our consolidated financial statements).

 

Note 15. Employee Savings Plan

 

Effective May 1, 2012, we initiated the Nevada Gold Employee Savings Plan (“ESP”) for key employees of our corporate office in Houston, Texas, and the operations in Washington State. We discontinued the ESP in December 2012. Participation in the non-qualified plan was voluntary. The ESP was a life insurance plan with an A+ rated insurance carrier, which was partially paid by us and employee voluntary post-tax payroll deductions. Employee contributions immediately vested. Our contributions were to vest after three years of employment, with credit given for past years employed. We matched employee contributions up to three percent (3%) of employee compensation, fifty percent (50%) of each dollar the employee contributes thereafter up to a maximum of four percent (4%) of employee total compensation.

 

As we did not have a 401(k) plan or ESP for the period of January 1, 2012 through April 30, 2012, we decided to allow employees participating in the terminated 401(k) plan to make catch-up contributions which we matched up to four percent (4%) of the employee’s compensation. The employees were permitted to make the catch-up contributions through payroll deductions until December 31, 2012. As of April 30, 2013 and 2012, we had accrued ESP catch-up match contributions of $0 and $16,279, respectively.

 

Note 16. Related Party Transactions 

 

During the fiscal years ended April 30, 2013 and April 30, 2012, we engaged the law firm of Catania & Ehrlich, P.C., of which one of our board members is a partner. The firm was engaged to locate assets pertaining to a settlement agreement for a judgment awarded to us, to assist us with the licensing process before the Nevada Gaming Control Board as well as legal advice regarding social gaming. We paid the firm approximately $4,200 and $11,000 during the fiscal years ended April 30, 2013 and April 30, 2012, repectively.

 

We are required to obtain approval from the Audit Committee of the Board of Directors for any related party transactions. The Audit Committee is comprised of independent directors.

 

Note 17. Commitments and Contingencies 

 

We currently lease 3,131 square feet of office space for our corporate headquarters in Las Vegas, Nevada. The lease expires on January 15, 2015. The total annual rent, including mandatory common area maintenance (“CAM”) for this space is currently $48,844. The CAM contractually increases five percent effective each January 1. We previously rented office space in Houston, Texas under a non-cancelable operating lease which expired on March 31, 2013. The annual rent for the Houston office space was $88,800.

 

As a result of acquiring facilities in Washington, the real property leases are as follows:

 

·Crazy Moose Casino in Mountlake Terrace has a building lease which expires on May 31, 2014 with an option to renew for two additional terms of two years and five years, respectively. The annual rent for this lease is $157,000.
·We own the buildings for the Crazy Moose Casino in Pasco and Coyote Bob Casino’s in Kennewick.
·Crazy Moose Casino in Pasco has a parking lot lease which expires on December 31 2013. The annual rent for this lease is $6,600.
·Silver Dollar Casino in SeaTac has a building lease which expires in May of 2022 with an option to renew for an additional term of 10 years. The annual rent is $238,000, with escalation of 4% annually.
·Silver Dollar Casino in Renton has a building lease which expires in April of 2019 with an option to renew for up to two additional terms of 10 years each. The annual rent is $517,000, with escalation of 8% every three years.
·Silver Dollar Casino in Bothell has a building lease which expires in April of 2017 with an option to renew for an additional term of 5 years. The annual rent is $286,000.
·Club Hollywood Casino in Shoreline has casino building and parking lot leases which expire in March of 2017 with options to renew for up to four additional five-year terms. The annual rentals are $700,000, with escalation of 3% annually.
·Golden Nugget Casino in Tukwila has a building lease which expires in November of 2014 with an option to renew for an additional term of 10 years. The annual rent is $166,000, with escalation of 3% annually.
·Royal Casino in Everett has a building lease which expires in January of 2016 with an option to renew for up to four additional five-year terms. The annual rent is $360,600, with escalation of 3% annually.
·Administrative offices lease in Renton expires in December of 2013. The annual rent is $53,000.
·Red Dragon Casino in Mountlake Terrace has a building lease which expires in October of 2016 with an option to renew for up to two additional five-year terms. The annual rent is $384,000, with escalation of 2% annually.

 

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South Dakota Gold. As a result of acquiring the South Dakota Gold slot route operation, we have the following real property leases:

 

·An administrative center lease which expires in January of 2017 with an option to renew for an additional five-year term. The annual rent is $55,200.
·Two leases which expired on May 31, 2013 with annual rents of $36,000 and $18,000, respectively. We extended these leases through June 30, 2013. As of June 30, 2013 we terminated the leases.

 

The expected remaining future annual minimum lease payments as of April 30, 2013 are as follows:

 

Fiscal Years  Corporate Office
Lease Payment
   Washington Gold
Payment
   South Dakota
Gold
   Total
Lease Payment
 
                 
2014  $49,031   $2,973,728   $64,200   $3,086,959 
2015   37,102    2,772,633    55,200    2,864,935 
2016   --    2,609,684    55,200    2,664,884 
2017   --    1,896,056    41,400    1,937,456 
2018   --    869,004    --    869,004 
Thereafter   --    1,980,595    --    1,980,595 
   $86,133   $13,101,700   $216,000   $13,403,833 

 

Rent expense for our corporate offices in Las Vegas, Nevada and Houston, Texas, for the fiscal years ended April 30, 2013 and April 30, 2012 was $139,268 and $115,745, respectively. Rent expense for the Washington mini-casinos for the fiscal years ended April 30, 2013 and April 30, 2012 was $3,248,275 and $2,982,283, respectively. Rent expense for the South Dakota Gold slot route for the fiscal year ended April 30, 2013 was $109,000, whereas rent expense from the date we acquired South Dakota Gold, January 27, 2012, to April 30, 2012, was $24,268. The above schedule does not include rent expense of our former Las Vegas office, which was on a month-to-month basis at a cost of approximately $1,000 per month. We terminated that arrangement as of January 31, 2013.

 

For scheduled rent escalation clauses for the lease terms for the Washington properties, we recorded approximately $76,000 and $338,000 of amortization of deferred rent escalation for the years ended April 30, 2013 and April 30, 2012, respectively. These escalations are recorded on the balance sheet in other long term liabilities.

 

We continue to pursue additional development opportunities that may require, individually and in the aggregate, significant commitments of capital, extensions of credit, up-front payments to third parties and guarantees by us of third-party debt.

 

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 18. Legal Proceedings 

 

We are not currently involved in any material legal proceedings.

 

Note 19. Quarterly Financial Information (Unaudited) 

 

The following table sets forth certain quarterly financial information for each of the fiscal quarters during the years ended April 30, 2013 and April 30, 2012.

 

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          Income   Net income    Diluted 
          (loss) before   (loss) applicable   income (loss) 
          tax (expense)   to common   per common 
      Net revenues    benefit   stockholders   share (d) 
Consolidated Statements of Operations:          (in thousands, except per share amounts)      
Continuing Operations                   
Fiscal Year ended April 30, 2013                   
Quarter ended July 31, 2012     $16,811   $257   $168    0.01 
Quarter ended October 31, 2012      16,384    (789)   (681)   (0.04)
Quarter ended January 31, 2013      16,210    557    188    0.01 
Quarter ended April 30, 2013      16,519    664    452    0.03 
Fiscal Year ended April 30, 2012                       
Quarter ended July 31, 2011     $12,750   $(271)  $(12)   (0.01)
Quarter ended October 31, 2011      12,833    (3,063)(a)   (2,023)   (0.15)
Quarter ended January 31, 2012  (b)   13,477    (131)   (73)   - 
Quarter ended April 30, 2012  (c)   16,568    (6,326)   (4,331)   (0.27)

 

(a)Includes pre-tax impairment of $2.3 million for land in Colorado.
(b)Includes only four days of operations from South Dakota Gold, which was acquired on January 27, 2012.
(c)Includes pre-tax valuation allowances $1.7 million and $4.6 million for Big City Capital note and BVO/BVD Receviable, respectively, and deferred rent amortization of $338,000.
(d)Due to the fact that income per share amounts are calculated using the weighted average number of common and dilutive common equivalent shares outstanding during each quarter, the sum of the per share amounts for the four quarters may not equal the total income per share amounts for the year.

 

Note 20. Impairment of Assets

 

Long-lived assets, including property, plant and equipment and amortizable intangible assets, comprise a significant portion of our total assets. We evaluate the carrying value of long-lived assets when impairment indicators exist or when circumstances indicate that impairment may exist under authoritative guidance. When management believes impairment indicators may exist, projections of the undiscounted future cash flows associated with the use of and eventual disposition of long-lived assets held for use are prepared. If the projections indicate that the carrying values of the long-lived assets are not recoverable, we reduce the carrying values to fair value. For long-lived assets held for sale, we compare the carrying values to an estimate of fair value less selling costs to determine potential impairment. We test for impairment of long-lived assets at the lowest level for which cash flows are measurable. These impairment tests are heavily influenced by assumptions and estimates that are subject to change as additional information becomes available. Our evaluation of the carrying value of our long-lived assets for sale led us to conclude that there was an impairment of our undeveloped land asset adjacent to the city of Blackhawk, Colorado, and accordingly we recorded a pre-tax non-cash charge of $2.3 million to our operating results during fiscal year ended April 30, 2012. The $2.3 million expense was in response to the receipt of appraisals of the land, using a market approach, and other external data related to mineral rights, which in the aggregate estimate the value of the land at $1.1 million due to the downturn in vacant Colorado land held for development. This fair value measurement uses level 3 inputs under the fair value hierarchy. The asset is included in the non-core segment of our operations.

 

On a quarterly basis, we review each of our notes receivable to evaluate whether the collection of our notes receivable and receivables are still probable. In our analysis, we review the economic feasibility and the current financial, legislative and development status of the project. If our analysis indicates that the project is no longer economically feasible, the note receivable will be written down to its estimated fair value. This fair value measurement uses level 3 inputs under the fair value hierarchy.

 

At April 30, 2013 and 2012, our balance sheet reflects notes receivable related to Big City Capital of $0, net of a $3.2 million allowance related to the development of gaming/entertainment projects from Big City Capital. During fiscal year ended April 30, 2008, we determined that our ability to collect $859,000 of accrued interest and $1.5 million of the original $3.2 million notes receivable from Big City Capital, LLC (“Big City Capital”) had been impaired. As a result we wrote down the notes receivable to $1.7 million, by establishing a $1.5 million allowance, and we wrote off the accrued interest. At April 30, 2012, we determined our ability to collect the remaining $1.7 million is doubtful and therefore increased the valuation allowance to $3.2 million. These notes receivable have a maturity date of December 31, 2014.  

 

At April 30, 2013 and 2012, our balance sheet reflects a receivable related to BVO of $0, net of a $4.6 million allowance. In the period ending April 30, 2012, we determined our ability to collect the $4.6 million BVO Receivable and its accrued interest was doubtful. Therefore we established a $4.6 million valuation allowance against its principal and interest due.

 

Note 21. Stock Offering

 

On November 7, 2011, we closed on the sale of 2,625,652 shares of our common stock at a price of $1.65 per share to certain investors through a registered direct offering for the total proceeds of approximately $4.3 million, net of offering costs of approximately $444,000. In addition, for each share of our common stock purchased by an investor, we issued to such investor a warrant to purchase 0.75 shares of our common stock. The warrants have an exercise price of $2.18 per share and are exercisable for five years from the initial exercise date, which date is six months from the date of their issuance. The warrants expire on May 7, 2017. The proceeds of the offering were used to assist us in the $5.1 million acquisition of South Dakota Gold.

 

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Note 22. Sale of Assets/Asset Held for Sale

 

On November 23, 2011, we signed an agreement to sell substantially all of the assets of the Colorado Grande Casino, located in Cripple Creek, Colorado, including any rights in the Colorado Grande name and gaming-related liabilities, to G Investments, LLC (“GI”). We elected to sell the Colorado Grande Casino as a result of receiving an offer at an attractive EBITDA multiple from GI whose principals own a property in close proximity to the Colorado Grande Casino. As a result of the declining Cripple Creek, Colorado gaming market, this enables the buyer to create synergies not available to us. We closed the sale on May 25, 2012. Under the terms of the agreement, the buyer agreed to pay us $3.1 million, of which $800,000 was paid in cash and $2.3 million will be paid through a five year, 6% interest rate promissory note. On May 29, 2012, we filed a Form 8-K which provides details regarding the transaction.

 

We leased this property at an annual rent of the greater of $144,000 or 5% of Colorado Grande Casino’s adjusted gross gaming revenues with an annual cap of $400,000. Starting from April 30, 2012, the annual rent was changed to $252,548 with an option by the landlord to revert to the original rent structure upon obtaining necessary approvals from the Colorado Gaming Commission. Although this lease was assigned to GI as a result of the sale of the Colorado Grande Casino, which occurred on May 25, 2012, we retained contingent liability of the tenant’s obligations under this lease through May 24, 2017.

 

In preparation for the sale, we also recorded an impairment of Goodwill of approximately $558,000 to lower its carrying value to the fair value. We also wrote off the remaining deferred tax assets of $706,000, as it will not be available due to the sale of the underlying assets.

 

The cash received from Colorado Grande Casino operating activities was maintained by us, and the investing and financing operations were not material therefore the cash flow is presented as consolidated for the ease of accounting.

 

A summary of the Colorado Grande Casino’s assets and liabilities which were held for sale are as follows:

 

   April 30, 2012 
Goodwill  $2,154,932 
Net PP&E   960,165 
Inventory   33,601 
Deferred tax asset   - 
Total Assets  $3,148,698 
      
Accounts payable and accrued liabilities  $23,699 
Short term debt   - 
Total Liabilities  $23,699 
Working capital adjustment   $134,589 
Consideration received  $3,125,000 
Net loss on sale  $(134,588)

 

A summary of the Colorado Grande Casino’s year-to-date operations are as follows:

 

   Twelve months
ended April 30,
2012
 
Net revenues  $5,193,749 
Total expenses   6,683,039 

 

The assets and revenues of the Colorado Grande Casino are reported in the assets of operations held for sale of our consolidated financial statements. The loss on sale was not material to our Financial Statements.

 

Note 23. Subsequent Events

 

The following event occurred subsequent to the year end April 30, 2013:

 

Revolving Credit Loan

 

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On June 26, 2013, South Dakota Gold, obtained a $1.5 million revolving loan from Wells Fargo Gaming Capital, LLC in order to pay a slot machine registration fee due to the South Dakota Commission on Gaming by June 30 of each year. The loan matures on March 31, 2014 and bears an annual interest rate of the base rate, which equals the greater of (a) 2.5%, (b) the Federal Reserve rate plus 1/2%, (c) the LIBOR plus 1% or (4) the prime rate charged by Well Fargo Bank, N.A., plus the margin rate of 3.5%. The terms of the loan requires South Dakota Gold to make amortization payments in order to reduce a large portion of the principal balance through October 31, 2013. The repayment of the loan is secured by the assets of South Dakota Gold and NG South Dakota, LLC, while we and NG South Dakota, LLC serve as the guarantors. In connection with entering into this transaction, we incurred an additional $25,000 of loan closing charges. We had a similar loan in place with Wells Fargo Gaming Capital during the year ended April 30, 2013. Historically, the prior owner of South Dakota Gold financed this obligation with a short term loan. The loan from Wells Fargo Gaming Capital, LLC represents a continuation of that practice.

 

On June 28, 2013, we filed a Form 8-K which provides details regarding this transaction.

 

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